Quaint Oak Bancorp (QNTO) 10-Q 2018 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 _______________________________

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-52694

QUAINT OAK BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	35-2293957
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

501 Knowles Avenue, Southampton, Pennsylvania  18966

(Address of Principal Executive Offices)

(215) 364-4059

(Registrant's Telephone Number, Including Area Code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                                                                                                                                                                                  [X]  Yes     [   ]  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                                                                                                                                                                                                                 [X]  Yes      [   ]   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[   ]	Accelerated filer	[   ]
Non-accelerated filer	[   ]	(Do not check if a smaller reporting company)
Smaller reporting company	[X]	Emerging growth company	[   ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[  ] Yes     [X]  No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  As of May 4, 2018, 1,951,301 shares of the Registrant's common stock were issued and outstanding.

INDEX

PART I - FINANCIAL INFORMATION	Page
Item 1 -                Financial Statements
Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (Unaudited)	1
Consolidated Statements of Income for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	2
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	3
Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2018 (Unaudited)	4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (Unaudited)	5
Notes to Unaudited Consolidated Financial Statements	6
Item 2 -                Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3 -                Quantitative and Qualitative Disclosures About Market Risk	41
Item 4 -                Controls and Procedures	41
PART II - OTHER INFORMATION
Item 1 -                Legal Proceedings	42
Item 1A -             Risk Factors	42
Item 2 -                Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3 -                Defaults Upon Senior Securities	42
Item 4 -                Mine Safety Disclosures	42
Item 5 -                Other Information	43
Item 6 -                Exhibits	43
SIGNATURES

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

	At March 31,			At December 31,
	2018			2017
	(In thousands, except share data)
Assets
Due from banks, non-interest-bearing	$	350		$	64
Due from banks, interest-bearing		16,581			7,846
Cash and cash equivalents		16,931			7,910
Investment in interest-earning time deposits		4,920			4,879
Investment securities available for sale		7,674			7,912
Loans held for sale		4,941			7,006
Loans receivable, net of allowance for loan losses (2018 $1,836; 2017 $1,812)		207,054			201,667
Accrued interest receivable		981			1,021
Investment in Federal Home Loan Bank stock, at cost		1,234			1,234
Bank-owned life insurance		3,834			3,814
Premises and equipment, net		2,010			1,988
Goodwill		515			515
Other intangible, net of accumulated amortization		404			416
Prepaid expenses and other assets		1,064			1,234
Total Assets	$	251,562		$	239,596
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	11,013		$	7,956
Interest-bearing		187,923			178,265
Total deposits		198,936			186,221
Federal Home Loan Bank short-term borrowings		10,000			10,000
Federal Home Loan Bank long-term borrowings		18,000			18,000
Accrued interest payable		174			167
Advances from borrowers for taxes and insurance		1,651			2,423
Accrued expenses and other liabilities		316			600
Total Liabilities		229,077			217,411
Stockholders' Equity
Preferred stock – $0.01 par value, 1,000,000 shares authorized;          none issued or outstanding		-			-
Common stock – $0.01 par value; 9,000,000 shares
authorized; 2,777,250 issued; 1,954,571 and 1,920,024 outstanding at March 31, 2018 and December 31, 2017, respectively		28			28
Additional paid-in capital		14,534			14,481
Treasury stock, at cost: 2018 822,679 shares; 2017 857,226 shares		(4,649	)		(4,675	)
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(236	)		(253	)
Recognition & Retention Plan Trust (RRP)		(24	)		(24	)
Accumulated other comprehensive loss		(3	)		(15	)
Retained earnings		12,835			12,643
Total Stockholders' Equity		22,485			22,185
Total Liabilities and Stockholders' Equity	$	251,562		$	239,596

See accompanying notes to the unaudited consolidated financial statements.

1

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended March 31,
	2018		2017
	(In thousands, except share
	and per share data)
Interest Income
Interest on loans	$	2,709	$	2,430
Interest and dividends on time deposits and investment securities		126		85
Total Interest Income		2,835		2,515
Interest Expense
Interest on deposits		729		648
Interest on Federal Home Loan Bank short-term borrowings		36		13
Interest on Federal Home Loan Bank long-term borrowings		91		33
Total Interest Expense		856		694
Net Interest Income		1,979		1,821
Provision for Loan Losses		71		42
Net Interest Income after Provision for Loan Losses		1,908		1,779
Non-Interest Income
Mortgage banking and title abstract fees		110		111
Other fees and services charges		74		26
Insurance commissions		79		77
Income from bank-owned life insurance		20		22
Net gain on loans held for sale		321		108
Gain on the sale of SBA loans		23		-
Gain on sales of other real estate owned		63		4
Other		52		9
Total Non-Interest Income		742		357
Non-Interest Expense
Salaries and employee benefits		1,668		1,317
Directors' fees and expenses		54		52
Occupancy and equipment		150		145
Data processing		86		47
Professional fees		60		90
FDIC deposit insurance assessment		47		44
Other real estate owned expenses		-		7
Advertising		54		39
Amortization of other intangible		12		12
Other		176		138
Total Non-Interest Expense		2,307		1,891
Income before Income Taxes		343		245
Income Taxes		55		74
Net Income	$	288	$	171
Earnings per share – basic	$	0.15	$	0.09
Average shares outstanding - basic		1,881,865		1,838,125
Earnings per share - diluted	$	0.14	$	0.09
Average shares outstanding - diluted		1,990,290		1,980,217

See accompanying notes to the unaudited consolidated financial statements.

2

Quaint Oak Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended March 31,
	2018			2017
	(In Thousands)
Net Income	$	288		$	171
Other Comprehensive Income:
Unrealized gains on investment securities available for sale		15			20
Income tax effect		(3	)		(7	)
Net other comprehensive  income		12			13
Total Comprehensive Income	$	300		$	184

See accompanying notes to the unaudited consolidated financial statements.

3

Quaint Oak Bancorp, Inc.

Consolidated Statements of Stockholders' Equity (Unaudited)

For the Three Months Ended March 31, 2018
												Unallocated
	Common Stock											Common			Accumulated
	Number of					Additional						Stock Held			Other						Total
	Shares					Paid-in			Treasury			by Benefit			Comprehensive			Retained			Stockholders'
	Outstanding			Amount		Capital			Stock			Plans			Loss			Earnings			Equity
	(In thousands, except share data)
BALANCE –DECEMBER 31, 2017		1,920,024		$	28	$	14,481		$	(4,675	)	$	(277	)	$	(15	)	$	12,643		$	22,185
Common stock allocated by    ESOP							31						17									48
Treasury stock  purchase		(20,101	)							(272	)											(272	)
Reissuance of treasury stock     under 401(k) Plan		1,786					14			10												24
Reissuance of treasury stock    for exercised stock options		52,862					(24	)		288												264
Stock based compensation     expense							32															32
Cash dividends declared     ($0.05 per share)																			(96	)		(96	)
Net income																			288			288
Other comprehensive income,     net																12						12
BALANCE – March 31, 2018		1,954,571		$	28	$	14,534		$	(4,649	)	$	(260	)	$	(3	)	$	12,835		$	22,485

See accompanying notes to the unaudited consolidated financial statements.

4

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Three Months Ended March 31,
	2018			2017
	(In Thousands)
Cash Flows from Operating Activities
Net income	$	288		$	171
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		71			42
Depreciation expense		51			45
Amortization of intangibles		12			12
Net amortization of securities premiums		5			5
Accretion of deferred loan fees and costs, net		(83	)		(84	)
Stock-based compensation expense		80			77
Net gain on loans held for sale		(321	)		(108	)
Loans held for sale-originations		(17,320	)		(8,030	)
Loans held for sale-proceeds		19,706			10,776
Gain on the sale of SBA loans		(23	)		-
Net gain on sale and write-downs of other real estate owned		(63	)		(4	)
Increase in the cash surrender value of bank-owned life insurance		(20	)		(22	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		40			(16	)
Prepaid expenses and other assets		167			99
Accrued interest payable		7			(1	)
Accrued expenses and other liabilities		(284	)		(111	)
Net Cash Provided by Operating Activities		2,313			2,851
Cash Flows from Investing Activities
Purchase of interest-earning time deposits		(541	)		(290	)
Redemption of interest-earning time deposits		500			1,029
Principal repayments of investment securities available for sale		248			354
Net increase in loans receivable		(5,352	)		(7,255	)
Proceeds from the sale of other real estate owned		63			81
Capitalized expenditures on other real estate owned		-			(6	)
Purchase of premises and equipment		(73	)		(172	)
Net Cash Used in Investing Activities		(5,155	)		(6,259	)
Cash Flows from Financing Activities
Net increase in demand deposits and savings accounts		4,303			3,010
Net increase in certificate accounts		8,412			615
Dividends paid		(96	)		(75	)
Purchase of treasury stock		(272	)		-
Proceeds from the reissuance of treasury stock		24			22
Proceeds from the exercise of stock options		264			172
Decrease in advances from borrowers for taxes and insurance		(772	)		(703	)
Net Cash Provided by Financing Activities		11,863			3,041
Net Increase (Decrease)  in Cash and Cash Equivalents		9,021			(367	)
Cash and Cash Equivalents – Beginning of Year		7,910			9,300
Cash and Cash Equivalents – End of Year	$	16,931		$	8,933
Cash payments for interest	$	849		$	695
Cash payments for income taxes	$	30		$	25

See accompanying notes to the unaudited consolidated financial statements.

5

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies

Basis of Financial Presentation.  The consolidated financial statements include the accounts of Quaint Oak Bancorp, Inc., a Pennsylvania chartered corporation (the "Company" or "Quaint Oak Bancorp") and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank, along with its wholly owned subsidiaries.  At March 31, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Lehigh Valley region of Pennsylvania, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities 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 Board of Governors of the Federal Reserve System.  The market area served by the Bank is principally Bucks County, Pennsylvania and to a lesser extent, Montgomery and Philadelphia Counties in Pennsylvania.  The Bank has two locations: the main office location in Southampton, Pennsylvania and a regional banking office in the Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, money market accounts, non-interest bearing checking accounts for businesses and consumers, and savings accounts.  The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity loans, and lines of credit.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) for interim information and with the instructions to Form 10-Q, as applicable to a smaller reporting company.  Accordingly, they do not include all the information and footnotes required by US GAAP for complete financial statements.

The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.  The balances as of December 31, 2017 have been derived from the audited financial statements.  These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp's 2017 Annual Report on Form 10-K.  The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Use of Estimates in the Preparation of Financial Statements. 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.  The Company's most significant estimates are the determination of the allowance for loan losses and the valuation of deferred tax assets.

6

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

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 and costs.  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 loans receivable portfolio is segmented into residential loans, commercial real estate loans, construction loans, commercial business loans, and consumer loans.  The residential loan segment has two classes: one-to-four family residential owner occupied loans and one-to-four residential family non-owner occupied loans.  The commercial real estate loan segment consists of the following classes: multi-family (five or more) residential, commercial real estate and commercial lines of credit.  Construction loans are generally granted for the purpose of building a single residential home.  Commercial business loans are loans to businesses for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment.  Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business.   The consumer loan segment consists of the following classes: home equity loans and other consumer loans.  Included in the home equity class are home equity loans and home equity lines of credit.  Included in the other consumer are loans secured by saving accounts.

The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan 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 collectability of principal.  Generally, a loan is restored to accrual status when the obligation is brought current, it has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company'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 material estimates that may be susceptible to significant revision as more information becomes available.

7

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are designated as impaired. For loans that are designated 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 pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.  Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. 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 Company 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 considered 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 by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

A loan is identified as a troubled debt restructuring ("TDR") if the Company, for economic or legal reasons related to a debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Concessions granted under a TDR typically involve a temporary or permanent reduction in payments or interest rate or an extension of a loan's stated maturity date at less than a current market rate of interest. Loans identified as TDRs are designated as impaired.

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

8

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $500,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Loans Held for Sale.  Loans originated by the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, are intended for sale in the secondary market and are carried at the lower of cost or fair value (LOCOM). Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs, commissions and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.  To a lesser extent, the Bank originates equipment loans for sale primarily to other financial institutions.

Federal Home Loan Bank Stock.  Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula.  FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three months ended March 31, 2018 and 2017.

Bank Owned Life Insurance (BOLl).  The Company purchases bank owned life insurance as a mechanism for funding various employee benefit costs.  The Company is the beneficiary of these policies that insure the lives of certain officers of its subsidiaries. The Company has recognized the cash surrender value under the insurance policies as an asset in the consolidated balance sheets. Changes in the cash surrender value are recorded in non-interest income in the consolidated statements of income.

Intangible Assets.   Intangible assets on the consolidated balance sheets represent the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other intangible asset.  The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.

9

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The Company will complete a goodwill and other intangible asset analysis at least on an annual basis or more often if events and circumstances indicate that there may be impairment.

Other Real Estate Owned, Net. Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures.  A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place.  Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell.  Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.  The Company has no other real estate owned as of March 31, 2018 or December 31, 2017.

Share-Based Compensation.  Compensation expense for share-based compensation awards is based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

At March 31, 2018, the Company has outstanding equity awards under three share-based plans: the 2008 Recognition and Retention Plan ("RRP"), the 2008 Stock Option Plan, and the 2013 Stock Incentive Plan.  Awards under these plans were made in May 2008 and 2013.  These plans are more fully described in Note 10.

The Company also has an employee stock ownership plan ("ESOP").  This plan is more fully described in Note 10.  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.

Comprehensive Income.  Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, and  along with net income, are components of comprehensive income.

Earnings per Share.  Amounts reported in earnings per share reflect earnings available to common stockholders' for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares.  Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the "treasury stock" method.

Revenue from Contracts with Customers.   The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("Topic 606"). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

10

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The Company's primary sources of revenue are derived from interest and dividends earned on loans and investment securities, gains on the sale of loans, income from bank-owned life insurance, and other financial instruments that are not within the scope of Topic 606.  The main types of non-interest income within the scope of the standard are as follows:

Service Charges on Deposits: The Bank has contracts with its commercial checking deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Bank or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Bank has an unconditional right to the fee consideration. The Bank also has transaction fees related to specific transactions or activities resulting from customer request or activity that include overdraft fees, wire fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Bank where the revenue is recognized at a defined point in time, completion of the requested service/transaction.

Insurance Commissions:  Insurance income generally consist of commissions from the sale of insurance policies and performance-based commissions from insurance companies.  The Bank recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance carrier and policyholder, arranging for the insurance carrier to provide policies to policyholders, and acts on behalf of the insurance carrier by providing customer service to the policyholder during the policy period. Commission income is recognized over time, using the output method of time elapsed, which corresponds with the underlying insurance policy period, for which the Bank is obligated to perform under contract with the insurance carrier. Commission income is variable, as it is comprised of a certain percentage of the underlying policy premium. The Bank estimates the variable consideration based upon the "most likely amount" method, and does not expect or anticipate a significant reversal of revenue in future periods, based upon historical experience.  Payment is due from the insurance carrier for commission income once the insurance policy has been sold. The Bank has elected to apply a practical expedient related to capitalizable costs, which are the commissions paid to insurance producers, and will expense these commissions paid to insurance producers as incurred, as these costs are related to the commission income and would have been amortized within one year or less if they had been capitalized, the same period over which the commission income was earned. Performance-based commissions from insurance companies are recognized at a point in time, when received, and no contingencies remain.

Recent Accounting Pronouncements.  In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

11

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

The Bank has adopted this standard effective January 1, 2018.  On a prospective basis, the Bank implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 11 to the financial statements.  The Bank estimated the fair value based on guidance from ASC 820-10, Fair Value Measurements, which defines fair value as the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is no active observable market for sale information on community bank loans and, thus, Level III fair value procedures were utilized, primarily in the use of present value techniques incorporating assumptions that market participants would use in estimating fair values. In the absence of reliable market information, the Bank used its own assumptions in an effort to determine a reasonable estimate of fair value.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.   The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

12

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Financial Statement Presentation and Significant Accounting Policies (Continued)

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company's financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20).The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning ofthe period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about

a change in accounting principle.This Update is not expected to have a significant impact on the Company's financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  This Update is not expected to have a significant impact on the Company's financial statements

Reclassifications.  Certain items in the 2017 consolidated financial statements have been reclassified to conform to the presentation in the 2018 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.  The reclassifications had no effect on net income or stockholders' equity.

13

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2 – Earnings Per Share

Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS.  Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented.  Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs").  CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three months ended March 31, 2018 and 2017, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computations.

	For the Three Months Ended  March 31,
	2018		2017
Net Income	$	288,000	$	171,000
Weighted average shares outstanding – basic		1,881,865		1,838,125
Effect of dilutive common stock equivalents		108,425		142,092
Adjusted weighted average shares outstanding – diluted		1,990,290		1,980,217
Basic earnings per share	$	0.15	$	0.09
Diluted earnings per share	$	0.14	$	0.09

Note 3 – Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2018 and 2017 (in thousands):

	Unrealized Gains (Losses) on Investment Securities Available for Sale (1)
	For the Three Months Ended March 31,
	2018			2017
Balance at the beginning of the period	$	(15	)	$	(38	)
Other comprehensive income before classifications		12			13
Amount reclassified from accumulated other comprehensive income		-			-
Total other comprehensive income		12			13
Balance at the end of the period	$	(3	)	$	(25	)

(1) All amounts are net of tax.  Amounts in parentheses indicate debits.

14

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 – Investment in Interest-Earning Time Deposits

The investment in interest-earning time deposits as of March 31, 2018 and December 31, 2017, by contractual maturity, are shown below (in thousands):

	March 31, 2018		December 31, 2017
Due in one year or less	$	1,332	$	761
Due after one year through five years		3,588		4,118
Total	$	4,920	$	4,879

Note 5 – Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at March 31, 2018 and December 31, 2017 are summarized below (in thousands): 

	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Governmental National Mortgage Association securities	$	5,462	$	28	$	-		$	5,490
Federal Home Loan Mortgage Corporation securities		1,309		-		(28	)		1,281
Federal National Mortgage Association securities		547		1					548
Total mortgage-backed securities		7,318		29		(28	)		7,319
Debt securities:
U.S. government agency		360		-		(5	)		355
Total available-for-sale-securities	$	7,678	$	29	$	(33	)	$	7,674

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Governmental National Mortgage Association securities	$	5,624	$	19	$	--		$	5,643
Federal Home Loan Mortgage Corporation securities		1,377		--		(35	)		1,342
Federal National Mortgage Association securities		570		--		--			570
Total mortgage-backed securities		7,571		19		(35	)		7,555
Debt securities:
U.S. government agency		360		--		(3	)		357
Total available-for-sale-securities	$	7,931	$	19	$	(38	)	$	7,912

15

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 – Investment Securities Available for Sale (Continued)

The amortized cost and fair value of debt securities at March 31, 2018, 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 (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Due after one year through five years	$	360	$	355
Due after ten years		7,318		7,319
Total	$	7,678	$	7,674

The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2018  and December 31, 2017 (in thousands):

	March 31, 2018
			Less than Twelve Months				Twelve Months or Greater					Total
	Number ofSecurities		Fair Value		GrossUnrealizedLosses		Fair Value		GrossUnrealizedLosses			Fair Value		GrossUnrealizedLosses
Federal Home Loan    Mortgage Corporation    mortgage-backed    securities		2	$	--	$	--	$	1,281	$	(28	)	$	1,281	$	(28	)
Debt securities, U.S.    government agency		1		--		--		355		(5	)		355		(5	)
Total		3	$	--	$	--	$	1,636	$	(33	)	$	1,699	$	(33	)

	December 31, 2017
			Less than Twelve Months				Twelve Months or Greater					Total
	Number ofSecurities		Fair Value		GrossUnrealizedLosses		Fair Value		GrossUnrealizedLosses			Fair Value		GrossUnrealizedLosses
Federal Home Loan    Mortgage Corporation     mortgage-backed     securities		2	$	--	$	--	$	1,342	$	(35	)	$	1,342	$	(35	)
Debt securities, U.S.    government agency		1		--		--		357		(3	)		357		(3	)
Total		3	$	--	$	--	$	1,699	$	(38	)	$	1,699	$	(38	)

At March 31, 2018, there were three securities in an unrealized loss position that at such date had an aggregate depreciation of 1.97% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates.  Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer.  The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of March 31, 2018 represents an other-than-temporary impairment. There were no impairment charges recognized during the three months ended March 31, 2018 or 2017.

16

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses

The composition of net loans receivable is as follows:

	March 31, 2018			December 31, 2017
Real estate loans:
One-to-four family residential:
Owner occupied	$	6,316		$	5,681
Non-owner occupied		48,902			51,833
Total one-to-four family residential		55,218			57,514
Multi-family (five or more) residential		23,447			21,715
Commercial real estate		96,396			92,234
Construction		16,209			15,632
Home equity		4,772			5,129
Total real estate loans		196,042			192,224
Commercial business		13,559			11,954
Other consumer		132			138
Total Loans		209,733			204,316
Deferred loan fees and costs		(843	)		(837	)
Allowance for loan losses		(1,836	)		(1,812	)
Net Loans	$	207,054		$	201,667

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of March 31, 2018 and December 31, 2017(in thousands):

	March 31, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	5,894	$	180	$	242	$	-	$	6,316
One-to-four family residential non-owner occupied		48,562		28		312		-		48,902
Multi-family residential		23,447		-		-		-		23,447
Commercial real estate		94,193		2,101		102		-		96,396
Construction		14,150		-		2,059		-		16,209
Home equity		4,772		-		-		-		4,772
Commercial business		13,029		530		-		-		13,559
Other consumer		132		-		-		-		132
Total	$	204,179	$	2,839	$	2,715	$	-	$	209,733

	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	5,258	$	423	$	-	$	-	$	5,681
One-to-four family residential non-owner occupied		51,372		29		432		-		51,833
Multi-family residential		21,715		-		-		-		21,715
Commercial real estate		91,549		399		286		-		92,234
Construction		13,562		-		2,070		-		15,632
Home equity		5,129		-		-		-		5,129
Commercial business		11,419		535		-		-		11,954
Other consumer		138		-		-		-		138
Total	$	200,142	$	1,386	$	2,788	$	--	$	204,316

17

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of March 31, 2018 as well as the average recorded investment and related interest income for the period then ended (in thousands):

	March 31, 2018
	Recorded  Investment		Unpaid  Principal Balance		Related Allowance		Average  Recorded  Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	242	$	242	$	-	$	242	$	-
One-to-four family residential non-owner occupied		325		325		-		326		3
Multi-family residential		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Construction		2,059		2,059		-		2,067		-
Home equity		44		44		-		44		1
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		93		93		25		94		2
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		5		133		2
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total:
One-to-four family residential owner occupied	$	242	$	242	$	-	$	242	$	-
One-to-four family residential non-owner occupied		418		418		25		420		5
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		5		133		2
Construction		2,059		2,059		-		2,067		-
Home equity		44		44		-		44		1
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	2,896	$	2,896	$	30	$	2,906	$	8

18

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2017 as well as the average recorded investment and related interest income for the year then ended (in thousands):

	December 31, 2017
	Recorded  Investment		Unpaid Principal Balance		Related Allowance		Average  Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		442		442		-		937		24
Multi-family residential		-		-		-		-		-
Commercial real estate		-		-		-		398		38
Construction		2,069		2,069		-		2,064		58
Home equity		45		45		-		47		5
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		214		214		70		214		5
Multi-family residential		--		--		-		-		-
Commercial real estate		133		133		1		395		9
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		656		656		70		1,151		29
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		1		793		47
Construction		2,069		2,069		-		2,064		58
Home equity		45		45		-		47		5
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	2,903	$	2,903	$	71	$	4,055	$	139

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions.  At March 31, 2018, the Company had six loans totaling $595,000 that were identified as troubled debt restructurings.  All six of these loans were performing in accordance with their modified terms.  At December 31, 2017, the Company had eight loans totaling $714,000 that were identified as troubled debt restructurings.  If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.  During the three months ended March 31, 2018, no new loans were identified as TDRs and two loans previously identified as TDRs were paid off.

19

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following tables present the Company's TDR loans as of March 31, 2018 and December 31, 2017 (dollar amounts in thousands):

	March 31, 2018
	Number of Contracts		Recorded Investment		Non- Accrual		Accruing		Related  Allowance
One-to-four family residential owner occupied		-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		3		418		-		418		25
Multi-family residential		-		-		-		-		-
Commercial real estate		1		133		-		133		5
Construction		-		-		-		-		-
Home equity		2		44		-		44		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total		6	$	595	$	-	$	595	$	30

	December 31, 2017
	Number of Contracts		Recorded Investment		Non- Accrual		Accruing		Related  Allowance
One-to-four family residential owner occupied		-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		5		536		-		536		25
Multi-family residential		-		-		-		-		-
Commercial real estate		1		133		-		133		1
Construction		-		-		-		-		-
Home equity		2		45		-		45		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total		8	$	714	$	-	$	714	$	26

The contractual aging of the TDRs in the table above as of March 31, 2018 and December 31, 2017 is as follows (in thousands):

	March 31, 2018
	Accruing  Past Due  Less than 30  Days		Past Due 30-89 Days		90 Days or More Past  Due		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		418		-		-		-		418
Multi-family residential		-		-		-		-		-
Commercial real estate		133		-		-		-		133
Construction		-		-		-		-		-
Home equity		44		-		-		-		44
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	595	$	-	$	-	$	-	$	595

20

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2017
	Accruing Past Due Less than 30 Days		Past Due 30-89 Days		90 Days or More Past Due		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		536		-		-		-		536
Multi-family residential		-		-		-		-		-
Commercial real estate		133		-		-		-		133
Construction		-		-		-		-		-
Home equity		45		-		-		-		45
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	714	$	-	$	-	$	-	$	714

Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan's original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At March 31, 2018 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR modification and the loan is determined to be uncollectible, the loan will be charged off.

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three months ended March 31, 2018 and recorded investment in loans receivable as of March 31, 2018 (in thousands):

	March 31, 2018
	1-4 Family Residential Owner Occupied		1-4 Family Residential  Non- Owner Occupied			Multi- Family Residential		Commercial Real Estate		Construction		Home Equity			Commercial Business  and Other Consumer		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	48	$	540		$	152	$	687	$	136	$	27		$	140	$	82		$	1,812
Charge-offs		-		(47	)		-		-		-		-			-		-			(47	)
Recoveries		-		-			-		-		-		-			-		-			-
Provision		6		2			12		33		6		(1	)		30		(17	)		71
Ending balance	$	54	$	495		$	164	$	720	$	142	$	26		$	170	$	65		$	1,836
Ending balance evaluated
for impairment
Individually	$	-	$	25		$	-	$	5	$	-	$	-		$	-	$	-		$	30
Collectively	$	54	$	470		$	164	$	715	$	142	$	26		$	170	$	65		$	1,806
Loans receivable:
Ending balance	$	6,316	$	48,902		$	23,447	$	96,396	$	16,209	$	4,772		$	13,691	$	-		$	209,733
Ending balance evaluated    for impairment
Individually	$	242	$	418		$	-	$	133	$	2,059	$	44		$	-	$	-		$	2,896
Collectively	$	6,074	$	48,484		$	23,447	$	96,263	$	14,150	$	4,728		$	13,691	$	-		$	206,837

21

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The Bank allocated increased allowance for loan loss provisions to the commercial real estate, commercial business and multi-family residential portfolio classes for the three months ended March 31, 2018, due primarily to increased balances and delinquencies in these portfolio classes.

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three months ended March 31, 2017 (in thousands):

	March 31, 2017
	1-4 Family Residential Owner Occupied		1-4 Family Residential Non- Owner Occupied		Multi- Family Residential		Commercial Real Estate			Construction			Home  Equity		Commercial Business and Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	41	$	503	$	103	$	616		$	138		$	37	$	87	$	80	$	1,605
Charge-offs		-		-		-		-			-			-		-		-		-
Recoveries		-		-		-		3			-			-		-		-		3
Provision		3		21		5		(7	)		(11	)		14		7		10		42
Ending balance	$	44	$	524	$	108	$	612		$	127		$	51	$	94	$	90	$	1,650
Ending balance evaluated
for impairment
Individually	$	-	$	16	$	-	$	24		$	-		$	-	$	-	$	-	$	40
Collectively	$	44	$	508	$	108	$	588		$	127		$	51	$	94	$	90	$	1,610

The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied and home equity portfolio classes  for the three months ended March 31, 2017, due primarily to increased delinquencies in these portfolio classes.  The Bank allocated decreased allowance for loan loss provisions to the construction portfolio class for the three months ended March 31, 2017, due primarily to decreased delinquencies in this portfolio class.  The Bank allocated decreased allowance for loan loss provisions to the commercial real estate portfolio class for the three months ended March 31, 2017, due to changes to qualitative factors in this portfolio class.

22

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2017 and recorded investment in loans receivable based on impairment evaluation as of December 31, 2017 (in thousands):

	December 31, 2017
	1-4 Family Residential  Owner Occupied		1-4 Family Residential Non- Owner Occupied			Multi- Family Residential		Commercial Real Estate			Construction			Home Equity			Commercial Business  and Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	41	$	503		$	103	$	616		$	138		$	37		$	87	$	80	$	1,605
Charge-offs		-		(56	)		-		(24	)		-			-			-		-		(80	)
Recoveries		-		-			-		3			-			-			-		-		3
Provision		7		93			49		92			(2	)		(10	)		53		2		284
Ending balance	$	48	$	540		$	152	$	687		$	136		$	27		$	140	$	82	$	1,812
Ending balance evaluated
for impairment
Individually	$	-	$	70		$	-	$	1		$	-		$	-		$	-	$	-	$	71
Collectively	$	48	$	470		$	152	$	686		$	136		$	27		$	140	$	82	$	1,741
Loans receivable:
Ending balance	$	5,681	$	51,833		$	21,715	$	92,234		$	15,632		$	5,129		$	12,092	$	-	$	204,316
Ending balance evaluated
for impairment
Individually	$	-	$	656		$	-	$	133		$	2,069		$	45		$	-	$	-	$	2,903
Collectively	$	5,681	$	51,177		$	21,715	$	92,101		$	13,563		$	5,084		$	12,092	$	-	$	201,413

The Bank allocated increased allowance for loan loss provisions to the commercial real estate, commercial business, and multi-family portfolio classes for the year ended December 31, 2017, due primarily to increased balances in these portfolio classes.  The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the year ended December 31, 2017, due primarily to increased specific reserves in this portfolio class.

The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018		December 31, 2017
One-to-four family residential owner occupied	$	242	$	-
One-to-four family residential non-owner occupied		-		120
Multi-family residential		-		-
Commercial real estate		-		-
Construction		2,059		2,069
Home equity		-		-
Commercial business		-		-
Other consumer		-		-
Total	$	2,301	$	2,189

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $2.7 million and $3.1 million at March 31, 2018 and December 31, 2017, respectively.  For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.

23

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

For the three months ended March 31, 2018 and 2017 there was no interest income recognized on non-accrual loans on a cash basis.  Interest income foregone on non-accrual loans was approximately $44,000 and $43,000 for the three months ended March 31, 2018 and 2017, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018
	30-89 Days Past Due		90 Days  or More Past Due		Total  Past Due		Current		Total Loans Receivable			Loans Receivable 90 Days or More Past Due and Accruing
One-to-four family residential owner occupied	$	497	$	422	$	919	$	5,97	$	6,316	��	$	180
One-to-four family residential non-owner occupied		1,022		181		1,203		47,699		48,902			181
Multi-family residential		73		-		73		23,374		23,447			-
Commercial real estate		2,378		42		2,420		93,976		96,396			42
Construction		850		2,059		2,909		13,300		16,209			-
Home equity		33		-		33		4,739		4,772			-
Commercial business		468		-		468		13,091		13,559			-
Other consumer		-		-		-		132		132			-
Total	$	5,321	$	2,704	$	8,025	$	201,708	$	209,733		$	403

	December 31, 2017
	30-89 Days Past Due		90 Days  or More  Past Due		Total Past Due		Current		Total Loans Receivable		Loans  Receivable  90 Days or More Past  Due and Accruing
One-to-four family residential owner occupied	$	670	$	423	$	1,093	$	4,588	$	5,681	$	423
One-to-four family residential non-owner occupied		969		337		1,306		50,527		51,833		217
Multi-family residential		313		-		313		21,402		21,715		-
Commercial real estate		505		241		746		91,488		92,234		241
Construction		407		2,069		2,476		13,156		15,632		-
Home equity		51		-		51		5,078		5,129		-
Commercial business		-		-		-		11,954		11,954		-
Other consumer		-		-		-		138		138		-
Total	$	2,915	$	3,070	$	5,985	$	198,331	$	204,316	$	881

24

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 – Goodwill and Other Intangible, Net

On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions.  The Company paid $1.0 million for these rights.  Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset.  This other intangible asset is being amortized over a ten year period based upon the annual retention rate of the book of business.  The balance of other intangible asset at March 31, 2018 was $404,000 net of accumulated amortization of $81,000.  Amortization expense for the three months ended March 31, 2018 amounted to $12,000.

Note 8 – Deposits

Deposits consist of the following classifications (in thousands):

	March 31, 2018		December 31,  2017
Non-interest bearing checking accounts	$	11,013	$	7,956
Passbook accounts		354		463
Savings accounts		1,974		2,353
Money market accounts		32,145		30,411
Certificates of deposit		153,450		145,038
Total deposits	$	198,936	$	186,221

Note 9 – Borrowings

Federal Home Loan Bank advances consist of the following at March 31, 2018 and December 31, 2017 (in thousands):

		March 31, 2018				March 31, 2017
			Weighted				Weigthted
			Interest				Interest
		Amount	Rate			Amount	Rate
Short-term borrowings	$	10,000	1.87	%	$	10,000	1.54	%
Fixed rate borrowings maturing:
2018		3,000	1.46			3,000	1.46
2019		3,000	1.86			3,000	1.86
2020		2,000	2.00			2,000	2.00
2021		3,000	2.05			3,000	2.05
2022		3,000	2.18			3,000	2.18
2023		3,000	2.33			3,000	2.33
2024		1,000	2.54			1,000	2.54
Total  FHLB long-term debt	$	18,000	2.01	%	$	18,000	2.01	%

25

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans

Employee Stock Ownership Plan

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan.  Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company's then outstanding common stock in the open market during 2007.  The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company.  The loan bears an interest rate of 7.75% per annum, with principal and interest to be paid quarterly in equal installments over 15 years. The loan is secured by the unallocated shares of common stock held by the ESOP.

Shares of the Company's common stock purchased by the ESOP are held in a suspense account and reported as unallocated common stock held by the ESOP in stockholders' equity until released for allocation to participants.  As the debt is repaid, shares are released from collateral and are allocated to each eligible participant based on the ratio of each such participant's base compensation to the total base compensation of eligible plan participants.  As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the shares become outstanding for earnings per share computations.  During the three months ended March 31, 2018 and 2017, the Company recognized $48,000 and $45,000 of ESOP expense, respectively.

Recognition & Retention and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention Plan (the "RRP") and Trust Agreement.  In order to fund the RRP, the 2008 Recognition and Retention Plan Trust acquired 111,090 shares of the Company's stock in the open market at an average price of $4.68 totaling $520,000.  In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "Stock Incentive Plan").  The Stock Incentive Plan provides that no more than 48,750, or 25%, of the shares may be granted as restricted stock awards.

As of March 31, 2018, a total of 10,061 share awards were unvested under the RRP and Stock Incentive Plan and up to 21,608 share awards were available for future grant under the Stock Incentive Plan and none under the RRP.  The RRP and Stock Incentive Plan share awards have vesting periods of five years.

A summary of the status of the share awards under the RRP and Stock Incentive Plan as of March 31, 2018 and 2017 and changes during the three months ended March 31, 2018 and 2017 is as follows:

	March 31, 2018				March 31, 2017
	Number of Shares		Weighted Average Grant  Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Unvested at the beginning of the period		10,061	$	8.10		20,524	$	8.10
Granted		-		-		-		-
Vested		-		-		-		-
Forfeited		-		-		-		-
Unvested at the end of the period		10,061	$	8.10		20,524	$	8.10

26

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Recognition & Retention and Stock Incentive Plans (Continued)

Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value of the common stock at the date of grant.  During both the three months ended March 31, 2018 and 2017, the Company recognized approximately $21,000 of compensation expense.  A tax benefit of approximately $4,000 and $7,000 was recognized during the three months ended March 31, 2018 and 2017, respectively.  As of March 31, 2018, approximately $10,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.1 years.

Stock Option and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the "Option Plan").  The Option Plan authorizes the grant of stock options to officers, employees and directors of the Company to acquire 277,726 shares of common stock with an exercise price no less than the fair market value on the date of the grant.  The Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750 may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded.

For grants in May 2008, the Compensation Committee of the Board of Directors determined to grant the stock options at an exercise price equal to $5.00 per share (split-adjusted) which is higher than the fair market value of the common stock on the grant date.  All incentive stock options issued under the Option Plan and the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.

As of March 31, 2018, a total of 212,440 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 57,636 stock options were available for future grant under the Stock Incentive Plan and none under the Option Plan.  Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.

 

A summary of option activity under the Company's Option Plan and Stock Incentive Plan of March 31, 2018 and 2017 and changes during the three months ended March 31, 2018 and 2017 is as follows:

	2018							2017
	Number  of Shares			Weighted Average Exercise  Price		Weighted Average Remaining Contractual Life (in  years)		Number of Shares			Weighted Average Exercise  Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at the beginning of the year		265,302		$	6.74		3.2		316,348		$	6.49		3.8
Granted		-			-		-		-			-		-
Exercised		(52,862	)		5.00		-		(34,550	)		5.00		-
Forfeited		-			-		-		-			-		-
Outstanding at end of period		212,440		$	7.17		3.7		281,798		$	6.67		3.8
Exercisable at end of  period		182,600		$	7.03		3.4		221,158		$	6.29		3.2

27

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans (Continued)

During both the three months ended March 31, 2018 and 2017, approximately $11,000 in compensation expense was recognized.  A tax benefit of approximately $1,000, was recognized during each of these periods.  As of March 31, 2018, approximately $6,000 in additional compensation expense will be recognized over the remaining service period of approximately 0.1 years.

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair value estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.  The three broad levels of pricing are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the use of observable market data when available.

The following is a discussion of assets and liabilities measured at fair value on a recurring basis and valuation techniques applied:

Investment Securities Available-For-Sale: The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices.

28

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

Impaired Loans: Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within level 3 of the fair value hierarchy.

Other Real Estate Owned: Other real estate owned is carried at the lower of the investment in the real estate or the fair value of the real estate less estimated selling costs. The use of independent appraisals and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and therefore other real estate owned is classified within level 3 of the fair value hierarchy.

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of March 31, 2018 (in thousands):

	March 31, 2018
	Fair Value Measurements Using:
	Total Fair Value		Quoted  Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities available for sale
Governmental National Mortgage Association  mortgage-backed securities	$	5,490	$	-	$	5,490	$	-
Federal Home Loan Mortgage Corporation mortgage-backed securities		1,281		-		1,281		-
Federal National Mortgage Association mortgage-backed securities		548		-		548		-
Debt securities, U.S. government agency		355		-		355		-
Total investment securities available for sale	$	7,674	$	-	$	7,674	$	-
Total recurring fair value measurements	$	7,674	$	-	$	7,674	$	-
Nonrecurring fair value measurements
Impaired loans	$	2,866	$	--	$	-	$	2,866
Total nonrecurring fair value measurements	$	2,866	$	--	$	-	$	2,866

29

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of December 31, 2017 (in thousands):

	December 31, 2017
	Fair Value Measurements Using:
	Total Fair Value		Quoted Prices in Active Markets for Identical  Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities available for sale
Governmental National Mortgage Association mortgage-backed securities	$	5,643	$	-	$	5,643	$	-
Federal Home Loan Mortgage Corporation mortgage-backed securities		1,342		-		1,342		-
Federal National Mortgage Association mortgage-backed securities		570		-		570		-
Debt securities, U.S. government agency		357		-		357		-
Total investment securities available for sale	$	7,912	$	-	$	7,912	$	-
Total recurring fair value measurements	$	7,912	$	-	$	7,912	$	-
Nonrecurring fair value measurements
Impaired loans	$	2,832	$	--	$	-	$	2,832
Total nonrecurring fair value measurements	$	2,832	$	--	$	-	$	2,832

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of March 31, 2018 and December 31, 2017 (in thousands):

	March 31, 2018
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair  Value		Valuation Techniques	Unobservable  Input	Range (Weighted Average)
Impaired loans	$	2,866	Appraisal of collateral (1)	Appraisal adjustments (2)		8%-27% (1	%)

	December 31, 2017
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair  Value		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	2,832	Appraisal of collateral (1)	Appraisal adjustments (2)		0%-27% (1	%)

________________

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.

30

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The estimated fair values of the Company's financial instruments that are not required to be measured or reported at fair value were as follows at March 31, 2018 and December 31, 2017 (in thousands):

							Fair Value Measurements at
							March 31, 2018
							Quoted Prices in			Significant
							Active Markets			Other
							for Identical			Observable			Unobservable
	Carrying			Fair Value			Assets			Inputs			Inputs
	Amount			Estimate			(Level 1)			(Level 2)			(Level 3)
Financial Assets
Cash and cash equivalents		$	16,931		$	16,931		$	16,931		$	-		$	-
Investment in interest-earning time deposits			4,920			4,944			-			-			4,944
Loans held for sale			4,941			5,060			5,060			-			-
Loans receivable, net			207,054			207,783			-			-			207,783
Accrued interest receivable			981			981			981			-			-
Investment in FHLB stock			1,234			1,234			1,234			-			-
Bank-owned life insurance			3,834			3,834			3,834			-			-
Financial Liabilities
Deposits			198,936			199,791			45,487			-			154,304
FHLB short-term borrowings			10,000			10,000			10,000			-			-
FHLB long-term borrowings			18,000			16,963			-			-			16,963
Accrued interest payable			174			174			174			-			-
Advances from borrowers for taxes and insurance			1,651			1,651			1,651

					Fair Value Measurements at
					December 31, 2017
					Quoted Prices in		Significant
					Active Markets		Other
					for Identical		Observable		Unobservable
	Carrying		Fair Value		Assets		Inputs		Inputs
	Amount		Estimate		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Cash and cash equivalents	$	7,910	$	7,910	$	7,910	$	-	$	-
Investment in interest-earning time deposits		4,879		4,912		-		-		4,912
Loans held for sale		7,006		7,232		7,232		-		-
Loans receivable, net		201,667		202,803		-		-		202,803
Accrued interest receivable		1,021		1,021		1,021		-		-
Investment in FHLB stock		1,234		1,234		1,234		-		-
Bank-owned life insurance		3,814		3,814		3,814		-		-
Financial Liabilities
Deposits		186,221		187,309		41,183		-		146,126
FHLB short-term borrowings		10,000		10,000		10,000		-		-
FHLB long-term borrowings		18,000		16,982		-		-		16,982
Accrued interest payable		167		167		167		-		-
Advances from borrowers for taxes and insurance		2,423		2,423		2,423

31

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 11 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on the Company's consolidated balance sheets:

Cash and Cash Equivalents.  The carrying amounts reported in the consolidated balance sheets for cash and short-term instruments approximate those assets' fair values.

Interest-Earning Time Deposits. Fair values for interest-earning time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.

Loans Held for Sale.  Fair values of loans held for sale are based on commitments on hand from investors at prevailing market rates.

Loans Receivable, Net.  The fair values of loans are estimated using discounted cash flow methodology.  The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and market factors, including liquidity.  The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the market place for both performing and distressed loan types.  The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts.  Due to the significant judgment involved in evaluating credit quality, loans are classified with Level 3 of the fair value hierarchy.

Accrued Interest Receivable.  The carrying amount of accrued interest receivable approximates its fair value.

Investment in Federal Home Loan Bank Stock.  The carrying amount of restricted investment in Federal Home Loan Bank stock approximates fair value, and considers the limited marketability of such securities.

Bank-Owned Life Insurance.  The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.

Deposits.  The carrying amount is considered a reasonable estimate of fair value for demand savings deposit accounts.  The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar maturities.

Federal Home Loan Bank Borrowings.  Fair values of FHLB borrowings are estimated based on rates currently available to the Company for similar terms and remaining maturities.

Accrued Interest Payable.  The carrying amount of accrued interest payable approximates its fair value.

Advances from Borrowers for Taxes and Insurance.  The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.

Off-Balance Sheet Financial Instruments. Off-balance sheet financial instruments consist of commitments to extend credit.  Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present credit standing of the counterparties.  The estimated fair value of the commitments to extend credit are insignificant and therefore are not presented in the above table.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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.

General

The Company was formed in connection with the Bank's conversion to a stock savings bank completed on July 3, 2007.  The Company's results of operations are dependent primarily on the results of the Bank, which is a wholly owned subsidiary of the Company.  The Bank's results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on its loan and investment portfolios and the cost of funds, consisting of the interest paid on deposits and borrowings.  Results of operations are also affected by provisions for loan losses, fee income and other non-interest income and non-interest expense.  Non-interest expense principally consists of compensation, directors' fees and expenses, office occupancy and equipment expense, data processing expense, professional fees, advertising expense, FDIC deposit insurance assessment, and other expenses.  Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.  Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.

At March 31, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, each a Pennsylvania limited liability company.  The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Lehigh Valley region of Pennsylvania, and began operation in July 2009.  QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions.

Critical Accounting Policies

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.

33

Allowance for Loan Losses.  The allowance for loan losses represents management's estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans receivable. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company'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 material estimates that may be 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 designated as impaired. For loans that are designated 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 pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment.  Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. 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 Company 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 considered 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 by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.  An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

34

A loan is identified as a troubled debt restructuring ("TDR") if the Company, for economic or legal reasons related to a debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider. Concessions granted under a TDR typically involve a temporary or permanent reduction in payments or interest rate or an extension of a loan's stated maturity date at less than a current market rate of interest. Loans identified as TDRs are designated as impaired.

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower's overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for all loans (except one-to-four family residential owner-occupied loans) where the total amount outstanding to any borrower or group of borrowers exceeds $500,000, or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans criticized special mention have potential weaknesses that deserve management's close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management's comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

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 net operating loss carryforwards and gives current recognition to changes in tax rates and laws.  The realization of 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.

35

Comparison of Financial Condition at March 31, 2018 and December 31, 2017

General.  The Company's total assets at March 31, 2018 were $251.6 million, an increase of $12.0 million, or 5.0%, from $239.6 million at December 31, 2017.  This growth in total assets was primarily due to a $9.0 million, or 114.0%, increase in cash and cash equivalents, and a $5.4 million, or 2.7%, increase in loans receivable, net, partially offset by a $2.1 million, or 29.5%, decrease in loans held for sale.

Cash and Cash Equivalents. Cash and cash equivalents increased $9.0 million, or 114.0%, from $7.9 million at December 31, 2017 to $16.9 million at March 31, 2018 with the expectation that excess liquidity will be used to fund loans.

Investment Securities Available for Sale.  Investment securities available for sale decreased $238,000, or 3.0%, from $7.9 million at December 31, 2017 to $7.7 million at March 31, 2018, due primarily to the principal repayments on these securities during the three months ended March 31, 2018.

Loans Held for Sale.  Loans held for sale decreased $2.1 million, or 29.5%, from $7.0 million at December 31, 2017 to $4.9 million at March 31, 2018 as the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $16.7 million of one-to-four family residential loans during the three months ended March 31, 2018 and sold $18.7 million of loans in the secondary market during this same period. In addition, the Bank originated $608,000 of equipment loans held for sale during the three months ended March 31, 2018 and sold $715,000 of equipment loans during this same period.

Loans Receivable, Net.  Loans receivable, net, increased $5.4 million, or 2.7%, to $207.1 million at March 31, 2018 from $201.7 million December 31, 2017.  This increase was funded primarily from deposits and proceeds from the sale of loans held for sale.  Increases within the portfolio occurred in commercial real estate loans which increased $4.2 million, or 4.5%, multi-family residential loans which increased $1.7 million, or 8.0%, commercial business loans which increased $1.6 million, or 13.4%, one-to-four family residential owner occupied loans which increased $635,000, or 11.2%, and construction loans which increased $577,000, or 3.7%.  These increases were partially offset by decreases of $2.9 million, or 5.7%, in one-to-four family residential non-owner occupied loans, $357,000, or 7.0%, in home equity loans, and $6,000, or 4.3%, in other consumer loans.  The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all of its newly originated one-to-four family owner-occupied loans into the secondary market.

Deposits.  Total deposits increased $12.7 million, or 6.8%, to $198.9 million at March 31, 2018 from $186.2 million at December 31, 2017. This increase in deposits was primarily attributable to increases of $8.4 million, or 5.8%, in certificates of deposit, $3.1 million, or 38.4% in non-interest bearing checking accounts, and $1.7 million, or 5.7%, in money market accounts, partially offset by a $379,000, or 16.1%, decrease in savings accounts and a $109,000, or 23.5%, decrease in passbook accounts.

Stockholders' Equity.  Total stockholders' equity increased $300,000, or 1.4%, to $22.5 million at March 31, 2018 from $22.2 million at December 31, 2017.  Contributing to the increase was net income for the three months ended March 31, 2018 of $288,000, the reissuance of treasury stock for exercised stock options of $264,000, common stock earned by participants in the employee stock ownership plan of $48,000, amortization of stock awards and options under our stock compensation plans of $32,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $24,000, and other comprehensive income, net of $12,000.  These increases were partially offset by the purchase of treasury stock of $272,000 and by dividends paid of $96,000.

36

Comparison of Operating Results for the Three Months Ended March 31, 2018

General.  Net income amounted to $288,000 for the three months ended March 31, 2018, an increase of $117,000, or 68.4%, compared to net income of $171,000 for the three months ended March 31, 2017.  The increase in net income on a comparative quarterly basis was primarily the result of an increase in non-interest income of $385,000, an increase in net interest income of $158,000, and a decrease in the provision for income taxes of $19,000, partially offset by an increase in non-interest expense of $416,000 and an increase in the provision for loan losses of $29,000.

Net Interest Income.  Net interest income increased $158,000, or 8.7%, to $2.0 million for the three months ended March 31, 2018 from $1.8 million for the three months ended March 31, 2017.  The increase was driven by a $320,000, or 12.7%, increase in interest income, partially offset by a $162,000, or 23.3%, increase in interest expense.

Interest Income.  Interest income increased $320,000, or 12.7%, to $2.8 million for the three months ended March 31, 2018 from $2.5 million for the three months ended March 31, 2017. The increase in interest income was primarily due to a $26.1 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $181.7 million for the three months ended March 31, 2017 to an average balance of $207.8 million for the three months ended March 31, 2018, and had the effect of increasing interest income $349,000.  Partially offsetting this increase was a 14 basis point decline in the yield on loans receivable, net, including loans held for sale, from 5.35% for the three months ended March 31, 2017 to 5.21% for the three months ended March 31, 2018, which had the effect of decreasing interest income by $70,000.

Interest Expense.  Interest expense increased $162,000, or 23.3%, to $856,000 for the three months ended March 31, 2018 from $694,000 for the three months ended March 31, 2017.  The increase in interest expense was primarily attributable to a $21.8 million increase in average interest-bearing liabilities, which increased from an average balance of $188.2 million for the three months ended March 31, 2017 to an average balance of $210.1 million for the three months ended March 31, 2018, and had the effect of increasing interest expense $86,000.  This increase in average interest-bearing liabilities was primarily attributable to a $10.8 million increase in average certificate of deposit accounts which increased from an average balance of $137.8 million for the three months ended March 31, 2017 to an average balance of $148.6 million for the three months ended March 31, 2018, and had the effect of increasing interest expense $46,000, and a $12.5 million increase in average Federal Home Loan Bank borrowings which increased from an average balance of $15.5 million for the three months ended March 31, 2017 to an average balance of $28.0 million for the three months ended March 31, 2018, and had the effect of increasing interest expense $43,000.  Also contributing to this increase was a 16 basis point increase in the average rate on interest-bearing liabilities, from 1.47% for the three months ended March 31, 2017 to 1.63% for the three months ended March 31, 2018, which had the effect of increasing interest expense by $76,000.  This increase in average rate was primarily attributable to an eleven basis point increase in rate on average certificate of deposit accounts, which increased from 1.69% for the three months ended March 31, 2017 to 1.80% for the three months ended March 31, 2018, and had the effect of increasing interest expense by $38,000, and a 62 basis point  increase in rate on average Federal Home Loan Bank short-term and long-term borrowings, which increased from 1.19% for the three months ended March 31, 2017 to 1.81% for the three months ended March 31, 2018, which had the effect of increasing interest expense by $37,000.

��

37

Average Balances, Net Interest Income, 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.

	Three Months Ended March 31,
	2018							2017
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	12,413	$	50		1.61	%	$	10,363	$	23		0.89	%
Investment in interest-earning time deposits		4,884		22		1.80			6,067		25		1.65
Investment securities available for sale		7,810		35		1.79			9,407		30		1.28
Loans receivable, net (1) (2)  (3)		207,829		2,709		5.21			181,750		2,430		5.35
Investment in FHLB stock		1,235		19		6.15			713		7		3.93
Total interest-earning assets		234,171		2,835		4.84	%		208,300		2,515		4.83	%
Non-interest-earning assets		8,670							9,238
Total assets	$	242,841						$	217,538
Interest-bearing liabilities:
Passbook accounts	$	394	$	-		-	%	$	913	$	-		-	%
Savings accounts		2,004		1		0.20			1,781		1		0.22
Money market accounts		31,067		61		0.79			32,275		64		0.79
Certificate of deposit accounts		148,611		667		1.80			137,761		583		1.69
Total deposits		182,076		729		1.60			172,730		648		1.50
FHLB short-term borrowings		10,000		36		1.44			7,000		13		0.74
FHLB long-term borrowings		18,000		91		2.02			8,500		33		1.55
Total interest-bearing liabilities		210,076		856		1.63	%		188,230		694		1.47	%
Non-interest-bearing liabilities		10,401							8,248
Total liabilities		220,477							196,478
Stockholders' Equity		22,364							21,060
Total liabilities and Stockholders' Equity	$	242,841						$	217,538
Net interest-earning assets	$	24,095						$	20,070
Net interest income; average interest rate spread			$	1,979		3.21	%			$	1,821		3.36	%
Net interest margin (4)						3.38	%						3.50	%
Average interest-earning assets to average interest-      bearing liabilities						111.47	%						110.66	%

__________________

(1) Includes loans held for sale.

(2) Includes non-accrual loans during the respective periods.  Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(3) Includes tax free municipal leases with an aggregate average balance of $34,000 and an average yield of 4.57% for the three months ended March 31, 2018 and an aggregate average balance of $86,000 and an average yield of 4.01% for the three months ended March 31, 2017.  The tax-exempt income from such loans has not been calculated on a tax equivalent basis.

 (4) Equals net interest income divided by average interest-earning assets.

Provision for Loan Losses.  The Company's provision for loan losses increased $29,000, or 69.0%, from $42,000 for the three months ended March 31, 2017 to $71,000 for the three months ended March 31, 2018, based on an evaluation of the allowance relative to such factors as volume of the loan portfolio, concentrations of credit risk, prevailing economic conditions, prior loan loss experience and amount of non-performing loans at March 31, 2018.

Non-performing loans amounted to $2.7 million, or 1.31% of net loans receivable at March 31, 2018, consisting of eight loans, four of which are on non-accrual status and four of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $3.1 million, or 1.52% of net loans receivable at December 31, 2017, consisting of eleven loans, three of which were on non-accrual status and eight of which were 90 days or more past due and accruing interest.  The non-performing loans at March 31, 2018 include three one-to-four family owner occupied residential loans, two one-to-four family non-owner occupied residential loans, two construction loans, and one commercial real estate loan, and all are generally well-collateralized or adequately reserved for.  During the quarter ended March 31, 2018, two loans were placed on non-accrual status resulting in the reversal of approximately $16,000 of previously accrued interest income, and one loan was paid-off.  The allowance for loan losses as a percent of total loans receivable was 0.88% at March 31, 2018 and 0.89% at December 31, 2017.

38

Non-Interest Income.  Non-interest income increased $385,000, or 107.8%, for the three months ended March 31, 2018 over the comparable period in 2017 primarily due to a $213,000, or 197.2%, increase in net gain on loans held for sale, a $59,000 increase in the gain on the sales of other real estate owned, a $48,000, or 184.6%, increase on other fees and service charges, a $43,000, or 477.8%, increase in other non-interest income, and a $23,000 increase in the gain on sale of SBA loans.  The $59,000 gain on the sales of other real estate owned represents the recognition in the current quarter of gains on the sale of two properties that were deferred in prior years.

Non-Interest Expense.  Non-interest expense increased $416,000, or 22.0%, from $1.9 million for the three months ended March 31, 2017 to $2.3 million for the three months ended March 31, 2018.  Salaries and employee benefits expense accounted for $351,000 of the change as this expense increased 26.7%, from $1.3 million for the three months ended March 31, 2017 to $1.7 million for the three months ended March 31, 2018 due primarily to increased staff related to the continued expansion of the Company's mortgage banking and lending operations, and the expansion of our real estate subsidiary, a $39,000, or 83.0%, increase in data processing expense, a $38,000, or 27.5%, increase in other non-interest expense, a $15,000, or 38.5%, increase in advertising expense, a $5,000, or 3.4%, increase in occupancy and equipment expense, a $3,000, or 6.8%, increase in FDIC insurance assessment, and a $2,000, or 3.8%, increase in directors' fees and expenses.  These increases were partially offset by a $30,000, or 33.3%, decrease in professional fees and a $7,000 decrease in other real estate owned expense.

Provision for Income Tax.  The provision for income tax decreased $19,000, or 25.7%, from $74,000 for the three months ended March 31, 2017 to $55,000 for the three months ended March 31, 2018 as our effective tax rate decreased from 30.2% for the three months ended March 31, 2017 to 16.0% for the three months ended  March 31, 2018 primarily due to the decrease in the Company's income tax rate from 34% in 2017 to 21% in 2018 as a result of the Tax Cuts and Jobs Act which was signed into law on December 22, 2017, and a tax deduction taken in the first quarter of 2018 related to the exercise of non-qualified stock options during the three months ended March 31, 2018.

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 and interest payments 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 March 31, 2018, the Company's cash and cash equivalents amounted to $16.9 million.  At such date, the Company also had $1.3 million invested in interest-earning time deposits maturing in one year or less.

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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 March 31, 2018, Quaint Oak Bank had outstanding commitments to originate loans of $11.2 million and commitments under unused lines of credit of $15.8 million.

At March 31, 2018, certificates of deposit scheduled to mature in less than one year totaled $44.4 million.  Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs.  If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh (FHLB), which provide an additional source of funds.  As of March 31, 2018, we had $28.0 million of borrowings from the FHLB and had $119.2 million in borrowing capacity. Under terms of the collateral agreement with the FHLB of Pittsburgh, we pledge residential mortgage loans as well as Quaint Oak Bank's FHLB stock as collateral for such advances.  In addition, as of March 31, 2018 Quaint Oak Bank had $863,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia.  There were no borrowings under this facility at March 31, 2018.

Our stockholders' equity amounted to $22.5 million at March 31, 2018, an increase of $300,000, or 1.4%, from $22.2 million at December 31, 2017.  Contributing to the increase was net income for the three months ended March 31, 2018 of $288,000, the reissuance of treasury stock for exercised stock options of $264,000, common stock earned by participants in the employee stock ownership plan of $48,000, amortization of stock awards and options under our stock compensation plans of $32,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $24,000, and other comprehensive income, net of $12,000.  These increases were partially offset by the purchase of treasury stock of $272,000 and by dividends paid of $96,000.  For further discussion of the stock compensation plans, see Note 10 in the Notes to Unaudited Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, common equity tier 1 capital, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.50%, 6.00%, and 8.00%, respectively.  At March 31, 2018, Quaint Oak Bank exceeded each of its capital requirements with ratios of 8.41%, 11.24%, 11.24% and 12.28%, respectively. As a small savings and loan holding company eligible for exemption, the Company is not currently 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 March 31, 2018, we had unfunded commitments under lines of credit of $15.8 million and $11.2 million of commitments to originate loans.  We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

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Impact of Inflation and Changing Prices

The consolidated financial statements and related financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature.  As a result, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of March 31, 2018.  Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the first fiscal quarter of fiscal 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition and operating results of the Company.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)          Not applicable.

(b)          Not applicable.

(c)          Purchases of Equity Securities

The Company's repurchases of its common stock made during the quarter ended March 31, 2018, including stock-for-stock option exercises of outstanding stock options, are set forth in the table below:

Period	Total Number  of Shares Purchased		Average  Price Paid per Share		Total Number of Shares Purchased  as Part of Publicly Announced Plans  or Programs		Maximum Number of Shares that May Yet Be  Purchased Under  the Plans or Programs (1)
January 1, 2018 – January 31, 2018		758	$	13.05		-		23,344
February 1, 2018 – February 28, 2018		10,083		13.85		-		23,344
March 1, 2018 – March 31, 2018		9,260		13.20		4,000		19,344
Total		20,101	$	13.52		4,000		19,344

Notes to this table:

(1) On February 21, 2014, the Board of Directors of Quaint Oak Bancorp approved its fourth share repurchase program which provides for the repurchase of up to 69,432 shares (adjusted to reflect the two-for-one stock split), or approximately 2.5% of the Company's then issued and outstanding shares of common stock, and announced the fourth repurchase program on Form 8-K filed on February 26, 2014.  The repurchase program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

No.	Description
10.1	Employment Agreement by and between Quaint Oak Bank and William R. Gonzalez *
31.1	Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.
32.0	Section 1350 Certification.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document.

_____________________

* Denotes management compensation plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:  May 14, 2018	By:	/s/Robert T. Strong
		Robert T. Strong President and Chief Executive Officer
Date:  May 14, 2018		/s/John J. Augustine
	By:	John J. Augustine Executive Vice President and Chief Financial Officer