Exhibit 13.0











2007
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 andResults
      of Operations
            3Report
      of Independent Registered Public Accounting Firm
            12Consolidated
      Balance Sheets
            13Consolidated
      Statements of Income
            14Consolidated
      Statements of Stockholders' Equity
            15Consolidated
      Statements of Cash Flows
            16Notes
      to Consolidated Financial Statements
            17Market
      Price of Quaint Oak Bancorp, Inc. Common Shares and RelatedShareholder
      Matters
            34Directors
      and Executive Officers
            35Banking
      Locations
            35









Quaint
Oak Bancorp, Inc.


PRESIDENT’S
LETTER TO SHAREHOLDERS





On behalf
of your Board of Directors, senior management and the employees of Quaint Oak
Bank, we wish to welcome you as a shareholder of Quaint Oak Bancorp and to
deliver our first Annual Report.





Founded
in 1926, Quaint Oak Bank completed another significant year in its history by
converting from a mutual to a stock form organization and offering shares of
Quaint Oak Bancorp in our initial public offering.  We believe that
the organization is well-positioned for future growth and continued service to
our communities in the southwestern Bucks County, southeastern Montgomery County
and northeast Philadelphia, Pennsylvania region.





We are
pleased to report that Quaint Oak Bank achieved its targeted net income for the
2007 fiscal year.  Additionally, we effectively deployed the net
proceeds from our initial public offering into loans and investments which
fueled an improvement in our net interest margin.





2007
proved to be a challenging year overall for the banking industry.  The
condition of the housing market, exacerbated by the sub prime mortgage crisis
along with a slowing economy among other things poses continuing
challenges.  However, our balance sheet remains strong as we have not
participated in investments in the sub prime mortgage market.  We
enter 2008 well positioned to continue the expansion of our lending
operations.  In addition to expanded commercial real estate lending we
expanded our home equity lending program.  We expect this will permit
us to sell long term mortgage loan originations and to offer a new portfolio
product, a checkless home equity line of credit in 2008.





Quaint
Oak Bancorp previously announced during 2007, its filing with regulatory
authorities of a waiver request in order to initiate a stock repurchase
program.  Although the request has not yet been approved, which is
typical in the first year following a conversion, we remain committed to
establishing a repurchase program.  The Board of Directors and
management believe that the request for approval of the proposed stock
repurchase program reflects our strong commitment to enhance shareholder value
and represents a beneficial use of cash given current market conditions,
interest rates and the current market price of our common stock.





In these
historically challenging economic times our overall goal is a “Keep to Basics”
approach.




Ø
            Net
      income will drive Quaint Oak Bank.Ø
            Net
      income is driven by lending.Ø
            Lending
      volume will drive the overall growth rate of the
  Bank.





We are
committed to securing quality loan assets and seeking other rewarding investment
opportunities.  We anticipate profitable growth will return our
capital ratios, return on assets and efficiency ratio to competitive
pre-conversion levels.





Having
successfully completed the conversion and offering during 2007, our management
team and staff look forward to the opportunities of 2008.  We are
committed to serving and expanding our customer base and look forward to
establishing long-term 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 31,2007
            
            
            2006(Dollars
      in Thousands)Selected
      Financial and Other Data:Total
      assets
            
            $
            73,545
            
            
            $
            61,206Cash
      and cash equivalents
            
            
            4,987
            
            
            
            4,197Investment
      in interest-earning time deposits
            
            
            1,835
            
            
            
            1,711Investment
      securities available for sale (cost of $2,001)
            
            
            2,001
            
            
            
            --Investment
      securities held to maturity (estimated fair value of
    $2,265)
            
            
            2,253
            
            
            
            --Loans
      receivable, net
            
            
            61,656
            
            
            
            54,553Federal
      Home Loan Bank stock, at cost
            
            
            237
            
            
            
            263Bank
      premises and equipment, net
            
            
            59
            
            
            
            46Deposits
            
            
            55,261
            
            
            
            55,750Stockholders’
      Equity
            
            
            17,557
            
            
            
            4,737Selected
      Operating Data:Total
      interest
      income
            
            $
            4,420
            
            
            $
            3,933Total
      interest
      expense
            
            
            2,360
            
            
            
            2,098Net
      interest income
            
            
            2,060
            
            
            
            1,835Provision
      for loan losses
            
            
            93
            
            
            
            144Net
      interest income after provision for loan losses
            
            
            1,967
            
            
            
            1,691Total
      non-interest income
            
            
            55
            
            
            
            25Total
      non-interest expense
            
            
            1,219
            
            
            
            787Income
      before income taxes
            
            
            803
            
            
            
            929Income
      taxes
            
            
            313
            
            
            
            359Net
      income
            
            $
            490
            
            
            $
            570Selected Operating
      Ratios(1):Average
      yield on interest-earning assets
            
            
            6.80
            %
            
            
            6.70
            %Average
      rate on interest-bearing liabilities
            
            
            4.32
            
            
            
            3.87Average
      interest rate spread(2)
            
            
            2.48
            
            
            
            2.83Net
      interest margin(2)
            
            
            3.17
            
            
            
            3.12Average
      interest-earning assets to average interest-bearing
      liabilities
            
            
            118.93
            
            
            
            108.25Net
      interest income after provision for loan losses to non-interest
      expense
            
            
            161.00
            
            
            
            215.00Total
      non-interest expense to average assets
            
            
            1.84
            
            
            
            1.32Efficiency
      ratio(3)
            
            
            57.64
            
            
            
            42.31Return
      on average assets
            
            
            0.74
            
            
            
            0.96Return
      on average equity
            
            
            4.75
            
            
            
            12.70Average
      equity to average assets
            
            
            15.54
            
            
            
            7.54Asset Quality
      Ratios(4):Non-performing
      loans as a percent of total loans receivable, net(5)
            
            
            2.50
            %
            
            
            0.40
            %Non-performing
      assets as a percent of total assets(5)
            
            
            2.10
            
            
            
            0.30Allowance
      for loan losses as a percent of non-performing loans
            
            
            43.03
            
            
            
            294.87Allowance
      for loan losses as a percent of total loans receivable
            
            
            1.07
            
            
            
            1.04Net
      charge-offs to average loans receivable
            
            
            --
            
            
            
            0.11Capital
      Ratios(4):Tier
      1 leverage ratio
            
            
            18.31
            %
            
            
            7.79
            %Tier
      1 risk-based capital ratio
            
            
            25.27
            
            
            
            12.40Total
      risk-based capital ratio
            
            
            26.54
            
            
            
            13.66




___________________


(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 at December 31, 2007 and
      2006.  Non-performing loans consist of non-accruing loans plus
      accruing loans 90 days or more past due.  Quaint Oak Bank did
      not have any real estate owned or troubled debt restructurings at December
      31, 2007 or 2006.




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 the Quaint Oak Bank’s conversion to a
stock savings bank completed on July 3, 2007.  The Company’s results
of operations initially are dependent primarily on the results of Quaint Oak
Bank, which is now 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 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 has
consisted 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
28.1% at December 31, 2007.  Quaint Oak Bank’s loans are primarily
funded by certificates of deposit, which typically have a higher interest rate
than passbook accounts.  At December 31, 2007, certificates of deposit
amounted to 62.5% of total assets compared to 72.4% of total assets at December
31, 2006.  Quaint Oak Bank does not offer transactional deposit
products such as NOW, money market demand accounts or checking
accounts.  Although management anticipates that certificates of
deposit will continue to be a primary source of funding for its assets, Quaint
Oak Bank rolled-out an e-savings deposit product late in the fourth quarter of
2007, in order to diversify into other deposit products.





Our results of operations and
profitability are subject to changes in interest rates, applicable statutes and
regulations and general economic conditions, as well as other factors beyond our
control.





Our results of operations are also
significantly affected by general economic and competitive conditions,
particularly with respect to changes in interest rates, government policies and
actions of regulatory authorities. 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 impacted
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.





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, 2007 and December 31, 2006





Total Assets. The Company’s
total assets increased $12.3 million, or 20.2%, to $73.5 million at December 31,
2007 compared to $61.2 million at December 31, 2006.  This increase
was due primarily to $12.3 million in net proceeds received from the Company’s
initial stock offering completed on July 3, 2007 less common stock acquired by
the Employee Stock Ownership Plan.  Cash and cash equivalents
increased $790,000, investment securities increased $4.3 million and loans
receivable, net of allowance for loan losses increased $7.1 million for the year
2007.





Cash and Cash Equivalents.Cash and cash equivalents increased $790,000, or 18.8%, from $4.2 million
at December 31, 2006 to $5.0 million at December 31, 2007, as part of the net
proceeds from the stock offering were invested into highly liquid money market
accounts.





Investment Securities.In
order to diversify its balance sheet and grow its interest earning assets, the
Company invested $4.3 million of the net proceeds received from the stock
offering into investment securities.  At December 31, 2007, $2.0
million was invested in mutual funds and auction market securities designated by
the Company as available for sale and $2.3 million was invested in United States
government agency bonds designated as held to maturity.




4


Quaint
Oak Bancorp, Inc.
 Management's
Discussion and Analysis of Financial Condition and Results of
Operations


Loans Receivable, Net. Loans
receivable, net, increased $7.1 million, or 13.0%, to $61.7 million at December
31, 2007 from $54.6 million at December 31, 2006.  This increase was
funded primarily by the net proceeds received from the stock
offering.  Increases within the portfolio occurred in the residential
mortgage one-to-four family non-owner occupied category, which grew $4.0 million
or 33.5%, commercial real estate loans which increased $3.1 million or 21.4%,
construction loans which increased $1.4 million or 482.3% and home equity loans
which grew $896,000 or 25.3%.  These increases were partially offset
by a decrease of $1.9 million or 10.0% in one-to-four family owner occupied
loans, which is consistent with management’s strategy of diversifying our loan
portfolio into higher yielding commercial loans products.


Deposits. Total
interest-bearing deposits decreased $489,000, or 0.9%, to $55.3 million at
December 31, 2007 compared to $55.8 million at December 31, 2006.  The
decrease in interest-bearing deposits was primarily attributed to a $2.2 million
decrease in passbook and statement savings accounts, offset by a $1.7 million
increase in certificates of deposit, as the Company set interest rates at levels
management believed were appropriate to control deposit growth due to moderate
loan demand.





Stockholders’
Equity.  Total stockholders’ equity increased $12.8 million, or
270.6%, to $17.6 million at December 31, 2007 compared to $4.7 million at
December 31, 2006.  The increase was attributable to the $13.3 million
of net proceeds received in the stock offering and net income of $490,000 for
the year-ended December 31, 2007, offset by the increase in unallocated common
stock held by the Employee Stock Ownership Plan (ESOP) of $1.0 million acquired
in the third and fourth quarter of 2007 following completion of the stock
offering.








Comparison of Operating Results for
the Years Ended December 31, 2007 and 2006





Net Income.Net
income amounted to $490,000 for the year ended December 31, 2007, a decrease of
$80,000 or 14.0% compared to net income of $570,000 for the year ended December
31, 2006.  The year over year decline was due primarily to an increase
in net interest income and non-interest income and decrease in the provision for
loan losses and income taxes, being offset by an increase in non-interest
expense.





Net Interest
Income.  Net interest income amounted to $2.1 million for the
year ended December 31, 2007 compared to $1.8 million for the year ended
December 31, 2006.  The $225,000, or 12.3% increase in net interest
income for 2007 over 2006 was primarily attributable to an increase in net
interest-earning assets of $6.3 million, offset, in part, by a decrease of 35
basis points in the average interest rate spread to 2.48% for 2007 from 2.83%
for 2006.





Interest
Income.  Interest income increased $487,000, or 12.4% for the
year ended December 31, 2007 from $3.9 million for the year ended December 31,
2006.  The increase resulted primarily from a $6.3 million increase in
average interest earning assets which had the effect of increasing interest
income by $300,000.  In addition, there was a 10 basis point increase
in the overall yield on interest earning assets to 6.80% for 2007 from 6.70% for
2006, which increased interest income by $134,000.  Average short-term
investments and investment securities increased $5.6 million between the two
periods along with a $749,000 increase in net loans receivable. The increase in
short-term investments and investment securities was driven by the investment of
the net proceeds received in the stock offering into these interest earning
assets.  The average yields on short-term investments and investment
securities increased 96 basis points to 5.47% for 2007, from 4.51% for
2006.  The average yield on loans increased to 7.01%, from 6.83% for
the 2007 and 2006 periods, respectively. The year over year increase in the
yield on loans reflects the addition of higher yielding non-owner occupied
residential and commercial real estate loans to our loan portfolio in
2007.





Interest
Expense.  Interest expense increased by $262,000, or 12.5%, to
$2.4 million for the year ended December 31, 2007 compared to the year ended
December 31, 2006.  The increase resulted primarily from a 45 basis
point increase in overall cost of interest bearing liabilities to 4.32% for 2007
from 3.87% for 2006, which increased interest expense by $161,000.  In
addition, there was a $400,000 increase in average interest-bearing liabilities,
which had the effect of increasing interest expense by $84,000. The increase in
average rate was due to consumer preferences for certificates of deposit in the
rising interest rate environment and management's strategy to increase
certificates of deposit as a means of funding loan growth and managing interest
rate risk.




5




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,Yield/
                Rate
      at
                December
      31, 2007
            
            
            2007
            
            
            2006Average
              Balance
            
            
            Interest
            
            
            Average
              Yield/
              Rate
            
            
            Average
              Balance
            
            
            Interest
            
            
            Average
              Yield/
              RateInterest-earning
      assets:
            
            
            (Dollars
      in Thousands)Short-term
      investments and investment securities
            
            
            4.64
            %
            
            $
            8,761
            
            
            $
            479
            
            
            
            5.47
            %
            
            $
            3,193
            
            
            $
            144
            
            
            
            4.51
            %Loans
      receivable, net (1)
            
            
            7.08
            
            
            
            56,001
            
            
            
            3,926
            
            
            
            7.01
            
            
            
            55,252
            
            
            
            3,775
            
            
            
            6.83Other
      interest-earning assets
            
            
            5.95
            
            
            
            244
            
            
            
            15
            
            
            
            6.15
            
            
            
            290
            
            
            
            14
            
            
            
            4.83Total
      interest-earning assets
            
            
            6.71
            
            
            
            65,006
            
            
            
            4,420
            
            
            
            6.80
            %
            
            
            58,735
            
            
            
            3,933
            
            
            
            6.70
            %Non-interest-earning
      assets
            
            
            
            
            
            
            1,333
            
            
            
            
            
            
            
            
            
            
            
            779Total
      assets
            
            
            
            
            
            $
            66,339
            
            
            
            
            
            
            
            
            
            
            $
            59,514Interest-bearing
      liabilities:Passbook
      accounts
            
            
            1.39
            
            
            $
            4,267
            
            
            
            59
            
            
            
            1.38
            
            
            $
            6,068
            
            
            
            84
            
            
            
            1.38Statement
      and e-savings accounts
            
            
            2.76
            
            
            
            6,235
            
            
            
            173
            
            
            
            2.77
            
            
            
            7,368
            
            
            
            207
            
            
            
            2.81Certificate
      of deposit accounts
            
            
            4.76
            
            
            
            44,158
            
            
            
            2,128
            
            
            
            4.82
            
            
            
            39,885
            
            
            
            1,759
            
            
            
            4.41Total
      deposits
            
            
            
            
            
            
            54,660
            
            
            
            2,360
            
            
            
            4.32
            
            
            
            53,321
            
            
            
            2,050
            
            
            
            3.84FHLB
      advances
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            939
            
            
            
            48
            
            
            
            5.11Total
      interest-bearing liabilities
            
            
            4.33
            %
            
            
            54,660
            
            
            $
            2,360
            
            
            
            4.32
            %
            
            
            54,260
            
            
            $
            2,098
            
            
            
            3.87
            %Non-interest-bearing
      liabilities
            
            
            
            
            
            
            1,367
            
            
            
            
            
            
            
            
            
            
            
            767Total
      liabilities
            
            
            
            
            
            
            56,027
            
            
            
            
            
            
            
            
            
            
            
            55,027Stockholders’
      equity
            
            
            
            
            
            
            10,312
            
            
            
            
            
            
            
            
            
            
            
            4,487Total
      liabilities and stockholders’ equity
            
            
            
            
            
            $
            66,339
            
            
            
            
            
            
            
            
            
            
            $
            59,514Net
      interest-earning assets
            
            
            
            
            
            $
            10,346
            
            
            
            
            
            
            
            
            
            
            $
            4,475Net
      interest income; average interest rate spread
            
            
            
            
            
            
            
            
            
            $
            2,060
            
            
            
            2.48
            %
            
            
            
            
            
            $
            1,835
            
            
            
            2.83
            %Net
      interest margin (2)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3.17
            %
            
            
            
            
            
            
            
            
            
            
            3.12
            %Average
      interest-earning assets to average interest-bearing
      liabilities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            118.93
            %
            
            
            
            
            
            
            
            
            
            
            108.25
            %


_______________________





(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.





6


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.




2007
      vs. 2006
            
            
            2006
      vs. 2005Increase
      (Decrease) Due to
            
            
            Total
              Increase
              (Decrease)
            
            
            Increase
      (Decrease) Due to
            
            
            Total
              Increase
              (Decrease)Rate
            
            
            Volume
            
            
            Rate/
              Volume
            
            
            
            
            Rate
            
            
            Volume
            
            
            Rate/
              Volume(In
      Thousands)Interest
      income:Short-term
      investments and  investment securities
            
            $
            31
            
            
            $
            251
            
            
            $
            53
            
            
            $
            335
            
            
            $
            44
            
            
            $
            (34
            )
            
            $
            (11
            )
            
            $
            (1
            )Loans
      receivable  (1)
            
            
            99
            
            
            
            51
            
            
            
            1
            
            
            
            151
            
            
            
            254
            
            
            
            442
            
            
            
            37
            
            
            
            733Other
      interest-earning assets
            
            
            4
            
            
            
            (2
            )
            
            
            (1
            )
            
            
            1
            
            
            
            4
            
            
            
            2
            
            
            
            2
            
            
            
            8Total
      interest-earning assets
            
            
            134
            
            
            
            300
            
            
            
            53
            
            
            
            487
            
            
            
            302
            
            
            
            410
            
            
            
            28
            
            
            
            740Interest
      expense:Passbook
      accounts
            
            
            --
            
            
            
            (25
            )
            
            
            --
            
            
            
            (25
            )
            
            
            (1
            )
            
            
            (34
            )
            
            
            --
            
            
            
            (35
            )Statement
      and e-savings accounts
            
            
            (3
            )
            
            
            (31
            )
            
            
            --
            
            
            
            (34
            )
            
            
            63
            
            
            
            (43
            )
            
            
            (13
            )
            
            
            7Certificate
      accounts
            
            
            164
            
            
            
            188
            
            
            
            17
            
            
            
            369
            
            
            
            230
            
            
            
            333
            
            
            
            68
            
            
            
            631Total
      deposits
            
            
            161
            
            
            
            132
            
            
            
            17
            
            
            
            310
            
            
            
            292
            
            
            
            256
            
            
            
            55
            
            
            
            603FHLB
      advances
            
            
            --
            
            
            
            (48
            )
            
            
            --
            
            
            
            (48
            )
            
            
            7
            
            
            
            15
            
            
            
            4
            
            
            
            26Total
      interest-bearing liabilities
            
            
            161
            
            
            
            84
            
            
            
            17
            
            
            
            262
            
            
            
            299
            
            
            
            271
            
            
            
            59
            
            
            
            629Increase
      (decrease) in net interestincome
            
            $
            (27
            )
            
            $
            216
            
            
            $
            36
            
            
            $
            225
            
            
            $
            3
            
            
            $
            139
            
            
            $
            (31
            )
            
            $
            111


_______________________


(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 allowance for loan losses is established through a
provision for loan losses charged to earnings as losses are estimated to have
occurred in our loan portfolio.  Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is
confirmed.  Subsequent recoveries, if any, are credited to the
allowance.





The allowance for loan losses is
evaluated on a regular basis by management, no less than quarterly, and is
initially based upon an application of fixed percentages to the total
outstanding loans by category.  Management also reviews the
collectibility of the loans in light of historical experience, the nature and
volume of the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of the underlying collateral and prevailing
economic conditions to further adjust the provision for loan
losses.  The evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.  Management's evaluation and analysis is reported
to the board of directors on a  quarterly basis at a regularly
scheduled meeting.





A loan is considered impaired when,
based on current information or events, it is probable that Quaint Oak
Bank will be unable to collect the scheduled payments of principal and
interest when due according to the contractual terms of the loan
agreement.  When a loan is impaired, the measurement of such
impairment is based upon the fair value of the collateral of the
loan.  If the fair value of the collateral is less than the recorded
investment in the loan, Quaint Oak Bank will recognize the impairment by
creating a valuation allowance with a corresponding charge against
earnings.





An allowance is also established for
uncollectible interest on loans classified as substandard. Substandard loans are
those loans which are in excess of ninety days delinquent.  The
allowance is established by a charge to interest income equal to all interest
previously accrued and income is subsequently recognized only to the extent that
cash payments are received.  When, in management's judgment, the
borrower's ability to make interest and principal payments is back to normal,
the loan is returned to accrual status.




7




Quaint
Oak Bancorp, Inc. Management's
Discussion and Analysis of Financial Condition and Results of
Operations






Although
we believe that we use the best information available to establish the allowance
for loan losses, future additions to the allowance may be necessary, based on
estimates that may be susceptible to change as a result of changes in economic
conditions and other factors.  In addition, the Federal Deposit
Insurance Corporation, as an integral part of their examination process, will
periodically review our allowance for loan losses.  This agency may
require us to recognize an adjustment to the allowance, based on its judgments
about information available to it at the time of its examination.





Quaint
Oak Bank reduced the provision for loan losses from $144,000 for the year ended
December 31, 2006 to $93,000 for the same period in 2007 based on an evaluation
of the allowance relative to such factors as volume of the loan portfolio,
concentrations of credit risk, prevailing economic conditions and prior loan
loss experience.  Loans charged off during the year ended December 31,
2007 totaled $1,000.  Six loans were placed on non-accrual status
during 2007, resulting in the reversal of $21,000 of previously accrued interest
income. Non-performing loans amounted to $1.5 million or 2.50% of net loans
receivable at December 31, 2007, consisting of eight loans, two of which are 90
days or more past due and still accruing interest and six of which are on
non-accrual status.  The non-performing loans are primarily
one-to-four family owner occupied residential loans.  We do not
anticipate any significant losses on these loans.  The allowance for
loan losses as a percent of total loans receivable was 1.07% at December 31,
2007 and 1.04% at December 31, 2006.





Non-Interest
Income.  Non-interest income, which consists of fees and
service charges, amounted to $55,000 for the year ended December 31, 2007, an
increase of $30,000 or 120.0% compared to non-interest income of $25,000 for the
year ended December 31, 2006.   The increase was primarily
attributable to a $14,000 increase in loan documentation fees, a $9,000 increase
in loan late charge fees and a $5,000 increase in loan inspection
fees.





Non-Interest
Expense.  Non-interest expense increased $432,000, or 54.9%,
from $787,000 for the year ended December 31, 2006 to $1.2 million for the year
ended December 31, 2007.  The primary reason for this increase was the
$284,000 increase in salaries and employee benefits.  In addition,
increases in directors’ fees and expenses of $35,000, occupancy and equipment of
$19,000, professional fees of $60,000, regulatory fees of $24,000, and
advertising of $14,000 contributed to the increase.  The increase in
salaries was due primarily to increases in salary for the President and Chief
Executive Officer and the hiring of a chief lending officer at the beginning of
the first quarter of 2007.  In connection with the Company’s initial
public stock offering, the Company implemented an employee stock ownership plan
(ESOP).  Expenses related to this plan for 2007 were $17,000 and were
included in the salaries and employee benefits increase noted
above.  The increase in professional fees was attributable to the
added costs associated with being a public company for the second half of
2007.





Provision For Income Tax
Expense.  The provision for income taxes amounted to $313,000
and $359,000 for the years ended December 31, 2007 and 2006,
respectively.  The Company’s effective tax rate was 39.0% and 38.6%
for fiscal 2007 and 2006, 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 residential mortgage loans which
have fixed rates of interest and terms up to 30 years.  The Company’s
interest-bearing liabilities primarily consist of higher rate certificates of
deposit.  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, 2007 and 2006, certificates of deposit amounted
to $46.0 million and $44.3 million, respectively, or 62.5% and 72.4%,
respectively, of total assets at such dates.




8




Quaint
Oak Bancorp, Inc.


Management's
Discussion and Analysis of Financial Condition and Results of
Operations





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 7.9% at December 31, 2007, compared to a negative
28.9% at December 31, 2006.  We have become less liability sensitive
in 2007 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. Both these increases were
driven by the net proceeds from the stock offering.





The following table sets forth the
amounts of our interest-earning assets and interest-bearing liabilities
outstanding at December 31, 2007, 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, 2007, 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.  Annual prepayment rates for loans are assumed to range from
10% to 40%.  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)
            
            $
            10,840
            
            
            $
            14,525
            
            
            $
            10,732
            
            
            $
            9,066
            
            
            $
            17,058
            
            
            $
            62,221Short-term
      investments and investment securities
            
            
            6,039
            
            
            
            801
            
            
            
            2,014
            
            
            
            501
            
            
            
            501
            
            
            
            9,856Investment
      in Federal Home Loan Bank stock
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            237
            
            
            
            237Total
      interest-earning assets
            
            $
            16,879
            
            
            $
            15,326
            
            
            $
            12,746
            
            
            $
            9,567
            
            
            $
            17,796
            
            
            $
            72,314Interest-bearing
      liabilities:Passbook
      accounts
            
            $
            366
            
            
            $
            366
            
            
            $
            2,195
            
            
            $
            366
            
            
            $
            366
            
            
            $
            3,659Statement
      savings accounts
            
            
            1,408
            
            
            
            1,408
            
            
            
            1,408
            
            
            
            703
            
            
            
            703
            
            
            
            5,630Escrow
      accounts
            
            
            200
            
            
            
            400
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            600Certificate
      accounts
            
            
            7,322
            
            
            
            26,511
            
            
            
            10,854
            
            
            
            1,285
            
            
            
            --
            
            
            
            45,972Total
      interest-bearing liabilities
            
            $
            9,296
            
            
            $
            28,685
            
            
            $
            14,457
            
            
            $
            2,354
            
            
            $
            1,069
            
            
            $
            55,861Interest-earning
      assets less interest-bearing liabilities
            
            $
            7,583
            
            
            $
            (13,359
            )
            
            $
            (1,711
            )
            
            $
            7,213
            
            
            $
            16,727Cumulative
      interest-rate sensitivity gap (3)
            
            $
            7,583
            
            
            $
            (5,776
            )
            
            $
            (7,487
            )
            
            $
            (274
            )
            
            $
            16,453Cumulative
      interest-rate gap as a percentage of total assetsat
      December 31, 2007
            
            
            10.3
            %
            
            
            (7.9
            )%
            
            
            (10.2
            )%
            
            
            (0.4
            )%
            
            
            22.4
            %Cumulative
      interest-earning assets as a percentage ofcumulative
      interest-bearing liabilitiesat
      December 31, 2007
            
            
            181.6
            %
            
            
            84.8
            %
            
            
            85.7
            %
            
            
            99.5
            %
            
            
            129.5
            %


(Footnotes
      on next page)


_____________________






9


Quaint
Oak Bancorp, Inc.
 Management's
Discussion and Analysis of Financial Condition and Results of
Operations






(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.





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, 2007, the Company's cash and cash equivalents amounted to $5.0
million.  At such date, the Company also had $1.6 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, 2007, Quaint Oak Bank had outstanding commitments to originate
loans of $229,000 and commitments under unused lines of credit of
$920,000.





At
December 31, 2007, certificates of deposit scheduled to mature in less than one
year totaled $33.8 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, 2007, Quaint Oak Bank had no
advances from the Federal Home Loan Bank of Pittsburgh and had $37.1 million in
borrowing capacity.





Our stockholders’ equity amounted to
$17.6 million at December 31, 2007, an increase of $12.8 million from December
31, 2006.  The increase was due primarily to the $13.4 million in net
proceeds received from the Company’s initial public stock offering which was
completed on July 3, 2007.  Approximately 53.0%, or $7.1 million of
these net proceeds were invested in Quaint Oak Bank.  Quaint Oak Bank
invested these proceeds in short-term, liquid investments and
loans.  The net proceeds received by Quaint Oak Bank have further
strengthened its capital position, which already exceeded all regulatory
requirements.  Quaint Oak Bank’s long-term plan continues to be to
leverage our capital through deposit and loan growth.





A portion of the net proceeds from the
stock offering retained by the Company have been used to fund a loan to Quaint
Oak Bank’s Employee Stock Ownership Plan Trust (“ESOP”) to purchase 111,090
shares of common stock issued in the public offering completed July 3, 2007, in
the open market, at an average price of $9.35 per share totaling $1.0
million.  The remaining net proceeds held by the Company have been
invested in short-term, liquid investments, mutual funds, auction market
securities and U.S. government agency securities.




10


Quaint
Oak Bancorp, Inc.


Management's
Discussion and Analysis of Financial Condition and Results of
Operations






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, 2007, Quaint
Oak Bank exceeded each of its capital requirements with ratios of 18.31%, 25.27%
and 26.54%, respectively. As a savings and loan holding company, the Company is
not subject to any regulatory capital requirements.





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,
2007, we had unfunded commitments under lines of credit of $920,000 and $229,000
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, 2007





Payments
      Due By PeriodTotal
            
            
            To
              1
      Year
            
            
            1-3
              Years
            
            
            4-5
              Years
            
            
            After
      5
              Years(In
      Thousands)Certificates
      of deposit
            
            $
            45,972
            
            
            $
            33,833
            
            
            $
            10,854
            
            
            $
            1,285
            
            
            $
            --Operating
      lease obligations
            
            
            29
            
            
            
            29
            
            
            
            --
            
            
            
            --
            
            
            
            --Total
      contractual obligations
            
            $
            46,001
            
            
            $
            33,862
            
            
            $
            10,854
            
            
            $
            1,285
            
            
            $
            --





Impact
of Inflation and Changing Prices





The consolidated financial statements
and related financial data presented herein regarding the Company 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.





11


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, 2007 and 2006, 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, 2007 and 2006, 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 LLP








Beard
Miller Company LLP


Reading,
Pennsylvania


March  24,
2008




12




Quaint
Oak Bancorp, Inc.


Consolidated
Balance Sheets







December
      31,2007
            
            
            2006ASSETS
            
            
            (In
      thousands, except share data)Due
      from banks, non-interest-bearing
            
            
            $
            1,220
            
            
            $
            381Due
      from banks, interest-bearing
            
            
            
            3,767
            
            
            
            3,816Cash
      and cash equivalents
            
            
            
            4,987
            
            
            
            4,197Investment
      in interest-earning time deposits
            
            
            
            1,835
            
            
            
            1,711Investment
      securities available for sale (cost of $2,001)
            
            
            
            2,001
            
            
            
            -Investment
      securities held to maturity (estimated fair value of
    $2,265)
            
            
            
            2,253
            
            
            
            -Investment
      in Federal Home Loan Bank stock, at cost
            
            
            
            237
            
            
            
            263Loans
      receivable, net of allowance for loan losses2007,
      $667; 2006, $575
            
            
            
            61,656
            
            
            
            54,553Premises
      and equipment, net
            
            
            
            59
            
            
            
            46Accrued
      interest receivable and other assets
            
            
            
            517
            
            
            
            436Total
      Assets
            
            
            $
            73,545
            
            
            $
            61,206LIABILITIES
      AND STOCKHOLDERS' EQUITYLIABILITIESDeposits,
      interest-bearing
            
            
            $
            55,261
            
            
            $
            55,750Advances
      from borrowers for taxes and insurance
            
            
            
            600
            
            
            
            587Accrued
      interest payable and other liabilities
            
            
            
            127
            
            
            
            132Total
      Liabilities
            
            
            
            55,988
            
            
            
            56,469STOCKHOLDERS'
      EQUITYPreferred
      stock – $0.01 par value, 1,000,000 shares authorized; none issued or
      outstanding
            
            
            
            -
            
            
            
            -Common
      stock – $0.01 par value; 9,000,000 sharesauthorized;
      1,388,625 issued and outstanding at December 31, 2007, and none issued or
      outstanding at December 31, 2006
            
            
            
            14
            
            
            
            -Additional
      paid-in capital
            
            
            
            13,337
            
            
            
            -Retained
      earnings
            
            
            
            5,227
            
            
            
            4,737Unallocated
      common stock held by Employee Stock Ownership Plan (ESOP)
            
            
            
            (1,021
            )
            
            
            -Total
      Stockholders' Equity
            
            
            
            17,557
            
            
            
            4,737Total
      Liabilities and Stockholders’ Equity
            
            
            $
            73,545
            
            
            $
            61,206






See accompanying
notes to consolidated financial statements.


13


Quaint
Oak Bancorp, Inc.


Consolidated
Statements of Income







Years
      Ended December 31,2007
            
            
            2006(In
      thousands, except share data)Interest
      IncomeLoans
      receivable, including fees
            
            $
            3,926
            
            
            $
            3,775Short-term
      investments and investment securities
            
            
            479
            
            
            
            144Dividends
            
            
            15
            
            
            
            14Total
      Interest Income
            
            
            4,420
            
            
            
            3,933Interest
      ExpenseDeposits
            
            
            2,360
            
            
            
            2,050Short-term
      borrowings
            
            
            --
            
            
            
            48Total
      Interest Expense
            
            
            2,360
            
            
            
            2,098Net
      Interest Income
            
            
            2,060
            
            
            
            1,835Provision
      for Loan Losses
            
            
            93
            
            
            
            144Net
      Interest Income after Provision for Loan Losses
            
            
            1,967
            
            
            
            1,691Non-Interest
      Income - Fees and service charges
            
            
            55
            
            
            
            25Non-Interest
      ExpenseSalaries
      and employee benefits
            
            
            716
            
            
            
            432Directors’
      fees and expenses
            
            
            173
            
            
            
            138Occupancy
      and equipment
            
            
            77
            
            
            
            58Professional
      fees
            
            
            103
            
            
            
            43Regulatory
            
            
            43
            
            
            
            19Advertising
            
            
            32
            
            
            
            18Other
            
            
            75
            
            
            
            79Total
      Other Expenses
            
            
            1,219
            
            
            
            787Income
      before Income Taxes
            
            
            803
            
            
            
            929Income
      Taxes
            
            
            313
            
            
            
            359Net
      Income
            
            $
            490
            
            
            $
            570Basic
      earnings per share (1)
            
            $
            0.24
            
            
            NA





(1)
Reflects earnings since becoming a public company on July 3, 2007.


See accompanying notes to
consolidated financial statements.


14





Quaint
Oak Bancorp, Inc.


Consolidated
Statements of Stockholders' Equity







Common
      Stock(In
      thousands, except share data)
            
            Number
      of
                Shares
            
            
            Amount
            
            
            Additional
              Paid-in
              Capital
            
            
            Unallocated
              Common
              Stock
      Held
              by
      ESOP
            
            
            Retained
              Earnings
            
            
            Total
              Stockholders’
              EquityBALANCE
      – DECEMBER 31, 2005
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,167
            
            
            $
            4,167Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            570
            
            
            
            570BALANCE
      – 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 released by ESOP
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            17
            
            
            
            
            
            
            
            17Net
      income
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            490
            
            
            
            490BALANCE
      – December 31, 2007
            
            
            1,388,625
            
            
            $
            14
            
            
            $
            13,337
            
            
            $
            (1,021
            )
            
            $
            5,227
            
            
            $
            17,557







See accompanying notes to
consolidated financial statements.


15





Quaint
Oak Bancorp, Inc.
 Consolidated
Statements of Cash Flows





Years
      Ended December 31,2007
            
            
            2006Cash
      Flows from Operating Activities
            
            (In
      Thousands)Net
      income
            
            $
            490
            
            
            $
            570Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Provision
      for loan losses
            
            
            93
            
            
            
            144Depreciation
      expense
            
            
            13
            
            
            
            11Amortization
      of securities premiums
            
            
            1
            
            
            
            -Amortization
      of deferred loan fees and costs
            
            
            3
            
            
            
            (29
            )Deferred
      income taxes
            
            
            (54
            )
            
            
            (35
            )Compensation
      expense for ESOP
            
            
            17
            
            
            
            -Increase
      in accrued interest receivable and other assets
            
            
            (27
            )
            
            
            (78
            )Decrease
      in accrued interest payable and other liabilities
            
            
            (5
            )
            
            
            (83
            )Net Cash Provided by Operating Activities
            
            
            531
            
            
            
            500Cash
      Flows from Investing ActivitiesNet
      (increase) decrease in investment in interest-earning time
      deposits
            
            
            (124
            )
            
            
            269Purchase
      of investment securities available for sale
            
            
            (501
            )
            
            
            -Purchase
      of investment securities held to maturity
            
            
            (3,754
            )
            
            
            -Purchase
      of property and equipment
            
            
            (26
            )
            
            
            (24
            )Net
      decrease (increase) in Federal Home Loan Bank stock
            
            
            26
            
            
            
            (15
            )Net
      increase in loans receivable
            
            
            (7,199
            )
            
            
            (2,787
            )Proceeds
      from the sale of portfolio loans
            
            
            -
            
            
            
            809Net Cash Used in Investing Activities
            
            
            (11,578
            )
            
            
            (1,748
            )Cash
      Flows from Financing ActivitiesNet
      (decrease) increase in deposits
            
            
            (489
            )
            
            
            4,138Decrease
      in short-term borrowings
            
            
            -
            
            
            
            (500
            )Proceeds
      from the issuance of common stock, net
            
            
            13,351
            
            
            
            -Purchase
      of common shares for ESOP
            
            
            (1,038
            )
            
            
            -Increase
      in advances from borrowers for taxes and insurance
            
            
            13
            
            
            
            16Net Cash Provided by Financing
    Activities
            
            
            11,837
            
            
            
            3,654Net
      Increase in Cash and Cash Equivalents
            
            
            790
            
            
            
            2,406Cash and Cash Equivalents – Beginning of
      Period
            
            
            4,197
            
            
            
            1,791Cash
      and Cash Equivalents – End of Period
            
            $
            4,987
            
            
            $
            4,197Supplementary
      Cash Flows InformationIncome
      taxes paid
            
            $
            394
            
            
            $
            430Interest
      paid
            
            $
            2,353
            
            
            $
            2,066




See accompanying
notes to consolidated financial statements.


16




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 stock is owned by Quaint Oak Bancorp,
and all of Quaint Oak Bancorp's 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 area served by the
Bank is principally Bucks County, Pennsylvania.  The principal deposit
products offered by the Bank are certificates of deposits, passbook savings
accounts, statement savings accounts and e-savings accounts.  Loan
products offered are fixed and adjustable rate residential and commercial
mortgages, home equity loans, and lines of credit.




Note
2 - Summary of Significant Accounting Policies




Estimates




The
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 and the valuation of deferred tax assets.




Significant
Group Concentrations of Credit Risk




The Bank
operates primarily in Bucks County, Pennsylvania.  The concentration
of credit by type of loan is set forth in Note 5.  Although the
Bank has a diversified loan portfolio, its debtors’ ability to honor their
contracts is influenced by the region’s economy.  These customers are
also the primary depositors of the Bank.




Cash
and Cash Equivalents




For
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.




Securities




Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet
date.




17


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.




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.




Restricted
Stock




Federal
law requires a member institution of the Federal Home Loan Bank system to hold
restricted stock of its district Federal Home Loan Bank according to a
predetermined formula.  The restricted stock is carried at
cost.




Loans
Receivable




Loans
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.




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 Losses




The
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.




18




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
2 - Summary of Significant Accounting Policies (Continued)




Allowance
for Loan Losses (Continued)




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 nonresidential mortgage 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.




Premises
and Equipment




Premises
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
Costs




In
accordance with Statement of Position No. 94-7, Reporting on Advertising
Costs, the Company expenses all advertising costs as incurred.
Advertising costs totaled $32,000 and $19,000 for the years ended
December 31, 2007 and 2006, respectively.




19


Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
2 - Summary of Significant Accounting Policies (Continued)




Transfers
of Financial Assets




Transfers
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 Bank, (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 Bank does not
maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.




Income
Taxes




Deferred
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.




Share-Based
Compensation




The
Company has an employee stock ownership plan (ESOP).  This plan is
more fully described in Note 10.  Shares awarded 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.  For purposes of computing basic and diluted earnings
per share, ESOP shares that have been committed to be released are considered
outstanding.  ESOP shares that have not been committed to be released
are not considered outstanding.




Earnings
Per Share




Basic
earnings per share for the year ended December 31, 2007, is computed by dividing
net income available to common stockholder from July 3, 2007 through December
31, 2007, of $318,000 (the period during which the common stock was outstanding)
by the weighted 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.  Because the initial public offering
was completed on July 3, 2007, per share results for the year ended December 31,
2006 would not be meaningful.  The Company currently maintains a
simple capital structure with no potential dilutive common shares
outstanding.




Off-Balance
Sheet Financial Instruments




In 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.




Reclassifications




Certain
items in the 2006 financial statements have been reclassified to conform to the
2007 financial statement presentation format.  These reclassifications
had no effect on net income or stockholders’ equity.




20


Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
2 - Summary of Significant Accounting Policies (Continued)




New
Accounting Standards




In
February 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 155, “Accounting for Certain Hybrid Financial
Instruments”.  Statement No. 155 amends FASB Statement No. 133 and
FASB Statement No. 140, and improves the financial reporting of certain hybrid
financial instruments by requiring more consistent accounting that eliminates
exemptions and provides a means to simplify the accounting for these
instruments.  Specifically, Statement No. 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder
elects to account for the whole instrument on a fair value
basis.  Statement No. 155 is effective for all financial instruments
acquired or issued after the beginning of an entity’s first fiscal year that
begins after September 15, 2006.  The Company was required to adopt
the provisions of Statement No. 155, as applicable, beginning in fiscal year
2007.  The adoption of Statement No. 155 did not have any impact on
the Company’s consolidated financial position and results of
operations.




In March
2006, the FASB issued Statement No. 156, “Accounting for Servicing of Financial
Assets – An Amendment of FASB Statement No. 140.”  Statement No. 156
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable.  The
statement permits, but does not require, the subsequent measurement of servicing
assets and servicing liabilities at fair value.  Statement No. 156 is
effective as of the beginning of an entity’s first fiscal year that begins after
September 15, 2006, which for the Company was January 1, 2007.  The
adoption of Statement No. 156 did not have any effect on the Company’s
consolidated financial statements.




Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, “Accounting for Uncertainty in Income Taxes”. The Interpretation provides
clarification on the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes”.  The
Interpretation prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.  As a result of the Company’s
evaluation of the implementation of FIN 48, no significant income tax
uncertainties were identified.  Therefore, the Company recognized no
adjustment for unrecognized tax benefits during the year ended December 31,
2007.  Corporate tax returns for the years 2003 through 2006 remain
open to examination by the taxing authorities.




In May
2007, the FASB issued FAS Staff Position (“FSB”) FIN 48-1 “Definition of
Settlement in FASB Interpretation No. 48 (FSP FIN 48-1).  FSP FIN 48-1
provides guidance on how to determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax
benefits.  FSP FIN 48-1 is effective retroactively to January 1,
2007.  The implementation of this standard did not have any impact on
the Company’s consolidated financial position or results of
operations.




In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements,”
which defines fair value, establishes a framework for measuring fair value under
GAAP, and expands disclosures about fair value measurements.  The new
guidance is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and for interim periods within those fiscal
years.  Management is currently evaluating the potential impact, if
any, of the adoption of FASB Statement No. 157 on the Company’s consolidated
financial position, results of operations and cash flows.




In
December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b,
“Effective Date of FASB Statement No. 157,” that would permit a one-year
deferral in applying the measurement provisions of Statement No. 157 to
non-financial assets and non-financial liabilities (non-financial items) that
are not recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). Therefore, if the change in
fair value of a non-financial item is not required to be recognized or disclosed
in the financial




21




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
2 - Summary of Significant Accounting Policies (Continued)




New
Accounting Standards (Continued)




statements
on an annual basis or more frequently, the effective date of application of
Statement 157 to that item is deferred until fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years. This
deferral does not apply, however, to an entity that applied Statement 157 in
interim or annual financial statements before proposed FSP 157-b was finalized.
The Company is currently evaluating the impact, if any, that the adoption of FSP
157-b will have on the Company’s operating income or net earnings.




In
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.  Management is evaluating the impact that the
adoption of Statement No. 159 will have on the Company’s consolidated financial
statements.




Staff
Accounting Bulletin No. 109 (SAB 109), "Written Loan Commitments Recorded at
Fair Value Through Earnings" expresses the views of the staff regarding written
loan commitments that are accounted for at fair value through earnings under
generally accepted accounting principles. To make the staff's views consistent
with current authoritative accounting guidance, the SAB revises and rescinds
portions of SAB No. 105, "Application of Accounting Principles to Loan
Commitments."  Specifically, the SAB revises the SEC staff's views on
incorporating expected net future cash flows related to loan servicing
activities in the fair value measurement of a written loan commitment. The SAB
retains the staff's views on incorporating expected net future cash flows
related to internally-developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views
in Question 1 of SAB 109 on a prospective basis to derivative loan commitments
issued or modified in fiscal quarters beginning after December 15, 2007. The
Company does not expect SAB 109 to have a material impact on its financial
statements.




In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should
recognize a realized tax benefit associated with dividends on nonvested equity
shares, nonvested equity share units and outstanding equity share options
charged to retained earnings as an increase in additional paid in
capital. The amount recognized in additional paid in capital should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payment awards. EITF 06-11 should be
applied prospectively to income tax benefits of dividends on equity-classified
share-based payment awards that are declared in fiscal years beginning after
December 15, 2007. The Company expects that EITF 06-11 will not have
an impact on its consolidated financial statements.




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 is accounting
for business combinations beginning January 1, 2009.




22





Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
2 - Summary of Accounting Policies (Continued)




New
Accounting Standards (Continued)




In
December 2007, the FASB issued Statement No. 160 “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51”.  This
Statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  The guidance will become effective as of the beginning of
a company’s fiscal year beginning after December 15, 2008.  The
Company is currently evaluating the potential impact the new pronouncement will
have on its consolidated financial statements.






Note
3 – Investment in Interest-Earning Time Deposits




The
interest-earning time deposits as of December 31, 2007 and 2006, by
contractual maturity, are shown below:




2007
            
            
            2006(In
      Thousands)Due
      in one year or less
            
            $
            1,573
            
            
            $
            1,711Due
      after one year through five years
            
            
            262
            
            
            
            -$
            1,835
            
            
            $
            1,711








Note
4 -– Investment Securities




The
amortized cost and fair value of investments securities available for sale and
held to maturity at December 31, 2007 are summarized below (in
thousands):




Amortized
                Cost
            
            
            Gross
                Unrealized
                Gains
            
            
            Gross
                Unrealized
                Losses
            
            
            Estimated
                Fair
      ValueAvailable
      for Sale:Mortgage
      securities portfolio mutual fund
            
            $
            501
            
            
            $
            -
            
            
            $
            -
            
            
            $
            501Auction
      market securities
            
            
            1,500
            
            
            
            -
            
            
            
            -
            
            
            
            1,500$
            2,001
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,001Held
      to Maturity:U.S.
      Government agency securities
            
            $
            2,253
            
            
            $
            12
            
            
            $
            -
            
            
            $
            2,265







The
amortized cost and fair value of held to maturity debt securities at December
31, 2007, 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)After
      one year through five years
            
            $
            2,253
            
            
            $
            2,265





In early
January of 2008, the Company increased its total holdings in auction market
securities to $2.0 million. In February and March of 2008, the $2.0 million
of auction market securities failed to settle at auction and are currently
illiquid.  Liquidity of these investments is subject to either a
successful auction process, redemption of the investment, or sale of the
security in a secondary market.  As of December 31, 2007,
the amortized cost of these




23




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
4 -– Investment Securities (Continued)




investments
was equal to the fair value based on successful auctions preceding and
subsequent to year-end.  All of these securities carry an AAA rating
and continue to earn interest at the contractual maximum rate.  The
outstanding auction market securities at December 31, 2007 had a weighted
average rate of 6.08%. We cannot predict whether future auctions related to
these securities will be successful.  In connection with preparing our
interim financial statements during 2008, we will consider whether any future
lack of liquidity in these securities has resulted in an other than temporary
impairment of our auction market securities subsequent to December 31,
2007.





Note
5 - Loans Receivable




The
composition of net loans receivable at December 31, 2007 and 2006 is as
follows:




2007
            
            
            2006(In
      Thousands)Real
      estate loans:One-to-four
      family residential:Owner
      occupied
            
            $
            17,248
            
            
            $
            19,163Non-owner
      occupied
            
            
            15,757
            
            
            
            11,800Total
      one-to-four family residential
            
            
            33,005
            
            
            
            30,963Multi-family
      (five or more) residential
            
            
            4,385
            
            
            
            4,522Commercial
      real estate
            
            
            17,481
            
            
            
            14,404Construction
            
            
            1,677
            
            
            
            288Commercial
      lines of credit
            
            
            1,206
            
            
            
            1,242Home
      equity loans
            
            
            4,431
            
            
            
            3,535Total
      real estate loans
            
            
            62,185
            
            
            
            54,954Loans
      on savings accounts
            
            
            36
            
            
            
            11Total
      Loans
            
            
            62,221
            
            
            
            54,965


Deferred
      loan fees and costs
            
            
            102
            
            
            
            163Allowance
      for loan losses
            
            
            (667
            )
            
            
            (575
            )


Net
      Loans
            
            $
            61,656
            
            
            $
            54,553





During
2006, the Bank sold $809,000 of portfolio loans at par with servicing
retained.  No servicing asset or liability has been recorded due to
immateriality.  At December 31, 2007, such loans serviced for others
totaled $250,000.




The
following is a summary of changes in the allowance for loan losses for the years
ended December 31, 2007 and 2006:




2007
            
            
            2006(In
      Thousands)Balance,
      beginning
            
            $
            575
            
            
            $
            491Charge-offs
            
            
            (1
            )
            
            
            (60
            )Recoveries
            
            
            -
            
            
            
            -Net
      charge-offs
            
            
            (1
            )
            
            
            (60
            )Provision
      charged to operations
            
            
            93
            
            
            
            144Balance,
      ending
            
            $
            667
            
            
            $
            575






24




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
5 - Loans Receivable (Continued)




The
recorded investment in impaired loans, not requiring an allowance for loan
losses was $332,000 at December 31, 2007 and $-0- at December 31,
2006.  The recorded investment in impaired loans requiring an
allowance for loan losses was $602,000 and $83,000 at December 31, 2007 and
2006, respectively.  At December 31, 2007 and 2006, the related
allowance for loan losses associated with these loans was $16,000 and $4,000,
respectively.  For the years ended December 31, 2007 and 2006,
the average recorded investment in impaired loans was $263,000 and $148,000,
respectively, and the interest income recognized on impaired loans was $19,000
for 2007 and $5,000 for 2006.




At
December 31, 2007 and 2006, the Bank had nonaccrual loans of $1.4 million
and $-0-.  Additional interest income that would have been recorded
under the original terms of the loan agreements amounted to approximately
$75,000 and $-0- for the years ended December 31, 2007 and 2006,
respectively.  There were $149,000 and $195,000 of loans that were
past due 90 days or more and still accruing interest at December 31, 2007
and 2006, respectively.






Note
6 - Bank Premises and Equipment




The
components of bank premises and equipment at December 31, 2007 and 2006 are
as follows:




2007
            
            
            2006(In
      Thousands)Leasehold
      improvements
            
            $
            9
            
            
            $
            9Furniture,
      fixtures and equipment
            
            
            154
            
            
            
            128163
            
            
            
            137Accumulated
      depreciation
            
            
            (104
            )
            
            
            (91
            )$
            59
            
            
            $
            46





The Bank
has two operating leases for its banking office.  One lease is month
to month, with 120 days' notice required for termination. The other lease
expires November 2008 and is renewable for one year, with 90 days' written note.
Rent expense under the lease for the years ended December 31, 2007 and 2006
was $33,000 and $21,000, respectively.  Future minimum lease payments
under this operating agreement are $29,000.




25





Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
7 - Deposits




Deposits
at December 31, 2007 and 2006 consist of the following:




2007
            
            
            2006Amount
            
            
            Weighted
                Average
                Interest
                Rate
            
            
            Amount
            
            
            Weighted
                Average
                Interest
                Rate(Dollars
      in Thousands)Passbook
      savings accounts
            
            $
            3,659
            
            
            
            1.39
            %
            
            $
            4,702
            
            
            
            1.39
            %Statement
      and e-savings accounts
            
            
            5,630
            
            
            
            2.76
            
            
            
            6,752
            
            
            
            2.72Certificate
      of deposit accounts
            
            
            45,972
            
            
            
            4.76
            
            
            
            44,296
            
            
            
            4.71$
            55,261
            
            
            
            4.33
            %
            
            $
            55,750
            
            
            
            4.19
            %







A summary
of certificates of deposits by maturity at December 31, 2007 is as follows:
(In Thousands)




Year
      ending December 31:2008
            
            $
            33,8332009
            
            
            6,9202010
            
            
            3,9342011
            
            
            6672012
            
            
            618$
            45,972





The
aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $11,011,000 and $11,188,000 at December 31, 2007 and 2006,
respectively.




A summary
of interest expense for the years ended December 31, 2007 and 2006 is as
follows:




2007
            
            
            2006(In
      Thousands)Passbook
      savings accounts
            
            $
            59
            
            
            $
            84Statement
      and e-savings accounts
            
            
            173
            
            
            
            207Certificate
      of deposit accounts
            
            
            2,128
            
            
            
            1,759$
            2,360
            
            
            $
            2,050










Note
8 - 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, 2007 and
2006.




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 $37,091,000.  Federal Home
Loan Bank




26


Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
8 – Borrowings (Continued)




advances
are secured by qualifying assets of the Bank. There were no borrowings
outstanding from the Federal Home Loan Bank at December 31, 2007 and
2006.







Note
9 - Income Taxes




The
components of income tax expense for the years ended December 31, 2007 and
2006 are as follows:




2007
            
            
            2006(In
      Thousands)Federal:Current
            
            $
            309
            
            
            $
            331Deferred
            
            
            (54
            )
            
            
            (35
            )255
            
            
            
            296State,
      current
            
            
            58
            
            
            
            63$
            313
            
            
            $
            359





A
reconciliation of the statutory income tax at a rate of 34% to the income tax
expense included in the statements of income for the years ended
December 31, 2007 and 2006 is as follows:




2007
            
            
            2006Federal
      income tax at statutory rate
            
            
            34.0
            %
            
            
            34.0
            %State
      tax, net of federal benefit
            
            
            4.7
            
            
            
            4.5Other
            
            
            0.3
            
            
            
            0.139.0
            %
            
            
            38.6
            %





The
components of the net deferred tax asset at December 31, 2007 and 2006 are
as follows:




2007
            
            
            2006(In
      Thousands)Deferred
      tax assets:Allowance
      for loan losses
            
            $
            227
            
            
            $
            195Deferred
      tax liabilities:Bank
      premises and equipment
            
            
            (6
            )
            
            
            (8
            )Deferred
      loan costs
            
            
            (35
            )
            
            
            (55
            )(41
            )
            
            
            (63
            )Net
      Deferred Tax Asset
            
            $
            186
            
            
            $
            132





The net
deferred tax asset at December 31, 2007 and 2006 of $186,000 and $132,000 is
included in other assets, respectively.




27




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
10 – 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.Using proceeds from a
loan from the Company,the ESOP purchased 8%,
or 111,090 shares of the Company’s common stock issued in the public offering
completed July 3, 2007 in the open market at an average price of $9.35 totaling
$1.0 million.  The Bank will make 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 the Consolidated
Balance Sheet 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 market price of the shares, and the shares become outstanding for
earnings per share computations.  The Company recognized $17,000 of
ESOP expense for the year ended December 31, 2007.





The
following table represents the components of the ESOP shares at December 31,
2007:





2007Allocated
      shares
            
            
            1,852Unreleased  shares
            
            
            109,238Total
      ESOP shares
            
            
            111,090Fair
      value of unreleased shares (in thousands)
            
            $
            994







Note
11 - Transactions with Executive Officers and Directors




Certain
directors and executive officers of the Company, their families and their
affiliates are customers of the Company.  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 $15,000 and $20,000 at December 31, 2007 and 2006,
respectively.  During the year ended December 31, 2007, $-0- of
new loans and $5,000 repayments were made.




Certain
directors of the Company are involved in the origination of loans for the
Bank.  Fees paid to these related parties for the years ended
December 31, 2007 and 2006 were approximately $-0- and $94,000,
respectively.  Certain directors of the Company provided outside
services to the Bank for $44,000 and $19,000 for the years ended
December 31, 2007 and 2006, respectively. These outside services included
accounting, consulting, property inspection and business
development.







28





Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
12 - 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, 2007 and
2006 is as follows:




2007
            
            
            2006(In
      Thousands)Commitments
      to grant loans
            
            $
            229
            
            
            $
            977Unfunded
      commitments under lines of credit
            
            
            920
            
            
            
            410





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
13 - 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, 2007, that the Bank meets all capital adequacy requirements to
which it is subject.




As of
December 31, 2007, the Bank was well capitalized under the regulatory
framework for prompt corrective action.  There are no conditions or
events since December 31, 2007 that management believes have changed the
Bank’s category.




29




Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note
13 - Regulatory Matters (Continued)




The
Bank’s actual capital amounts and ratios at December 31, 2007 and 2006 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, 2007:Total
      capital (to risk-weighted assets)
            
            $
            12,825
            
            
            
            26.54
            %
            
            $
            33,866
            
            
            
            38.00
            %
            
            $
            34,833
            
            
            
            310.00
            %Tier
      1 capital (to risk-weighted assets)
            
            
            12,211
            
            
            
            25.27
            
            
            
            31,933
            
            
            
            34.00
            
            
            
            32,900
            
            
            
            3 6.00Tier
      1 capital (to average assets)
            
            
            12,211
            
            
            
            18.31
            
            
            
            32,667
            
            
            
            34.00
            
            
            
            33,334
            
            
            
            3 5.00As
      of December 31, 2006:Total
      capital (to risk-weighted assets)
            
            $
            5,216
            
            
            
            13.66
            %
            
            $
            33,055
            
            
            
            38.00
            %
            
            $
            33,819
            
            
            
            310.00
            %Tier
      1 capital (to risk-weighted assets)
            
            
            4,737
            
            
            
            12.40
            
            
            
            31,528
            
            
            
            34.00
            
            
            
            32,291
            
            
            
            3 6.00Tier
      1 capital (to average assets)
            
            
            4,737
            
            
            
            7.79
            
            
            
            32,431
            
            
            
            34.00
            
            
            
            33,039
            
            
            
            3 5.00








Note
14 – Fair Value of Financial Instruments





The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation.





The
following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No.107 “Disclosures About Fair
Value of Financial Instruments.” The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.  However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value.  Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange.  The use of different market assumptions and / or
estimation methodologies may have a material effect on the estimated fair value
amounts.  SFAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure
requirements.  Accordingly, the aggregate fair value amounts presented
do not represent the underlying fair value of the Company.





The fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 2007 and 2006.  Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 2007 and 2006 and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.





The
following assumptions were used to estimate the fair value of the Company’s
financial instruments;





Cash
and cash equivalents


For cash
and cash equivalents, the carrying amount is a reasonable estimate of fair
value.





Interest-earning
time deposits


The fair
value of interest-earning time deposits is based on a present value estimate
using rates currently offered for time deposits with similar remaining
maturities.




30




Quaint
Oak Bancorp, Inc.
 Notes
to Consolidated Financial Statements (Continued)




Note 14 –
Fair Value of Financial Instruments (Continued)




Investment
securities


Fair
value for securities is equal to the quoted market price, if
available.  If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities





Loans
receivable, net


The fair
value of loans is estimated based on the present value of cash flows using
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality.





Federal
Home Loan Bank stock


The
carrying amount of Federal Home Loan Bank stock approximates fair
value.





Accrued
interest receivable and payable


The
carrying amount of accrued interest receivable and payable approximates fair
value.





Deposits


The fair
value of passbook and statement savings accounts, which are payable on demand,
is the carrying amount.  The fair value of certificates of deposit is
based on a present value estimate using rates currently offered for deposits
with similar remaining maturities.





Off-balance
sheet financial instruments


Fair
values for the Company’s off-balance sheet financial instruments (lending
commitments) are based on fees currently charged 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 at December 31,
2007 and 2006 are as follows:





2007
            
            
            2006Carrying
                Amount
            
            
            Fair
      Value
            
            
            Carrying
              Amount
            
            
            Fair
      Value(In
      Thousands)Assets:Cash
      and cash equivalents
            
            $
            4,987
            
            
            $
            4,987
            
            
            $
            4,197
            
            
            $
            4,197Investment
      in interest-earning time deposits
            
            
            1,835
            
            
            
            1,840
            
            
            
            1,711
            
            
            
            1,713Investment
      securities available for sale
            
            
            2,001
            
            
            
            2,001
            
            
            
            --
            
            
            
            --Investment
      securities held to maturity
            
            
            2,253
            
            
            
            2,265
            
            
            
            --
            
            
            
            --Investment
      in FHLB stock
            
            
            237
            
            
            
            237
            
            
            
            263
            
            
            
            263Loans
      receivable, net
            
            
            61,656
            
            
            
            61,834
            
            
            
            54,553
            
            
            
            52,901Accrued
      interest receivable
            
            
            294
            
            
            
            294
            
            
            
            274
            
            
            
            274Liabilities:Deposits
            
            
            55,261
            
            
            
            55,229
            
            
            
            55,750
            
            
            
            55,453Accrued
      interest payable
            
            
            101
            
            
            
            101
            
            
            
            94
            
            
            
            94Off-balance
      sheet financial instruments
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --





31




Quaint
Oak Bancorp, Inc.
 Notes
to Consolidated Financial Statements (Continued)




Note 15 –
Quaint Oak Bancorp, Inc. (Parent Company Only)





Condensed
financial statements of Quaint Oak Bancorp, Inc. are as follows (in
thousands):








Balance
Sheet




December
      31,
              2007AssetsCash
      and cash equivalents
            
            $
            922Investments
            
            
            4,448Investment
      in Quaint Oak Bank
            
            
            12,211Other
      assets
            
            
            38Total
      Assets
            
            $
            17,619Liabilities
      and Stockholders’ EquityOther
      liabilities
            
            $
            62Stockholders’
      equity
            
            
            17,557Total
      Liabilities and Stockholders’ Equity
            
            $
            17,619




Statement
of Income




For
      the period of July 3, 2007
              to
      December 31, 2007Interest
      and dividend income
            
            $
            147Expenses
            
            
            32Net
      Income Before Income Taxes
            
            
            115Equity
      in Undistributed Net Income of Subsidiary
            
            
            250Income
      Taxes
            
            
            (47
            )Net
      Income
            
            $
            318








32





Quaint
Oak Bancorp, Inc.


Notes
to Consolidated Financial Statements (Continued)




Note 15 –
Quaint Oak Bancorp, Inc. (Parent Company Only)








Statement
of Cash Flows





For
      the period of July 3, 2007
              to
      December 31, 2007Operating
      ActivitiesNet
      income
            
            $
            318Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Undistributed
      income in subsidiary
            
            
            (250
            )Compensation
      expense for ESOP
            
            
            17Increase
      in other assets
            
            
            (38
            )Increase
      in other liabilities
            
            
            62Net
      cash provided by operating activities
            
            
            109Investing
      ActivitiesPurchase
      of investments
            
            
            (4,448
            )Capital
      contribution to subsidiary bank
            
            
            (7,052
            )Net
      cash used in investing activities
            
            
            (11,500
            )Financing
      ActivitiesProceeds
      from issuance of common stock, net
            
            
            13,351Purchase
      of common stock for ESOP
            
            
            (1,038
            )Net
      cash provided by financing activities
            
            
            12,313Net
      Increase in Cash and Cash Equivalents
            
            
            922Cash
      and Cash Equivalents-Beginning of Period
            
            
            -Cash
      and Cash Equivalents-End of Period
            
            $
            922





Since
Quaint Oak Bancorp, Inc. was formed on July 3, 2007, there are no condensed
financial statements other than for 2007.





33





Quaint
Oak Bancorp, Inc.


Market
Price of Quaint Oak Bancorp, Inc. Common Stock and Related Shareholder
Matters




Quaint Oak Bancorp's common shares have
been quoted on the OTC Bulletin Board ("OTCBB") since July 2007, under the
symbol "QNTO."  Presented below are the high and low sales prices for
Quaint Oak Bancorp's common shares for the quarters ended September 30, 2007 and
December 31, 2007.  Such prices do not include retail financial
markups, markdowns or commissions.  Information relating to prices has
been obtained from the OTCBB.






Cash
      dividendsQuarter
      ended:
            
            High
            
            
            Low
            
            
            per
      shareDecember 31,
      2007
            
            $
            9.85
            
            
            $
            8.58
            
            
            $
            --September 30,
      2007
            
            $
            9.90
            
            
            $
            8.70
            
            
            
            --





As of December 31,2007, Quaint Oak Bancorp
had 1,388,625 common shares outstanding held of record by 233
shareholders.  The number of shareholders does not reflect the number
of persons or entities who may hold stock in nominee or "street" name through
brokerage firms or others.





Shareholders needing assistance with
stock records, transfers or lost certificates, please contact Quaint Oak
Bancorp, Inc.'s transfer agent, Registrar and Transfer Company.





Transfer
Agent/Registrar





Registrar
and Transfer Company


10
Commerce Drive


Cranford,
New Jersey 07016


(800)
368-5948


www.rtco.com






34




Quaint
Oak Bancorp, Inc.


DirectorsRobert
      T. Strong
              President
      and Chief Executive Officer
            James
      J. Clarke, Ph.D.
              Principal
      of Clarke Consulting, Villanova, PennsylvaniaRobert
      J. Phillips
              Chairman
      of the Board. Partner, Phillips and Phillips Enterprises, Doylestown,
      Pennsylvania
            Andrew
      E. DiPiero, Jr., Esq.
              Partner
      with Stampone D'Angelo Renzi DiPiero, Attorney at Law, P.C., Cheltenham,
      PennsylvaniaGeorge
      M. Ager, Jr.
              Currently
      retired
            Kenneth
      R. Gant, MBA
              Owner,
      Gant Insurance Agency, Doylestown, PennsylvaniaJohn
      J. Augustine, CPA
              Senior
      Manager of Teleflex, Inc., Limerick, Pennsylvania
            Marsh
      B. Spink
              Managing
      Partner of Lawn-Crest Realty, Philadelphia,
PennsylvaniaExecutive
      OfficersDiane
      J. Colyer
              Corporate
      Secretary and Operations Officer
            Robert
      Farrer
              Compliance
      Officer, Security Officer, Bank Secrecy Act Officer and Community
      Reinvestment Act OfficerCurt
      T. Schulmeister
              Chief
      Lending Officer





BANKING
LOCATIONS





Main
Office





607
Lakeside Drive


Southampton,
Pennsylvania


(215)
364-4059


www.quaintoak.com