QUAINT OAK BANCORP INC - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 - QUAINT OAK BANCORP INC	exh311.htm
EX-31.2 - EXHIBIT 31.2 - QUAINT OAK BANCORP INC	exh312.htm
EX-32.0 - EXHIBIT 32.0 - QUAINT OAK BANCORP INC	exh320.htm

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 September 30, 2015

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

For the transition period from

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" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 November 10, 2015, 1,832,321 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 September 30, 2015 and December 31, 2014 (Unaudited)	1

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)	2

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)	3

Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2015 (Unaudited)	4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited)	5

Notes to the 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	44

Item 4 - Controls and Procedures	44

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	45

Item 1A - Risk Factors	45

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3 - Defaults Upon Senior Securities	45

Item 4 - Mine Safety Disclosures	45

Item 5 - Other Information	46

Item 6 - Exhibits	46

SIGNATURES

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.
Consolidated Balance Sheets (Unaudited)

		At September 30,			At December 31,
		2015			2014
Assets		(In thousands, except share data)
Due from banks, non-interest-bearing		$	105		$	696
Due from banks, interest-bearing			15,442			13,241
Cash and cash equivalents			15,547			13,937
Investment in interest-earning time deposits			6,136			6,660
Investment securities available for sale			-			1,706
Loans held for sale			2,287			2,556
	Loans receivable, net of allowance for loan losses (2015 $1,290; 2014 $1,148)		141,986			123,331
Accrued interest receivable			929			788
Investment in Federal Home Loan Bank stock, at cost			618			527
Bank-owned life insurance			3,615			3,549
Premises and equipment, net			1,822			1,639
Other real estate owned, net			726			111
Prepaid expenses and other assets			994			839
Total Assets		$	174,660		$	155,643

Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing		$	1,518		$	640
Interest-bearing			139,288			123,765
Total deposits			140,806			124,405
Federal Home Loan Bank short-term borrowings			6,000			7,000
Federal Home Loan Bank long-term borrowings			7,500			4,500
Accrued interest payable			112			108
Advances from borrowers for taxes and insurance			1,172			1,592
Accrued expenses and other liabilities			481			463
Total Liabilities			156,071			138,068

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; 1,831,949 and 1,818,570 outstanding at September 30, 2015 and December 31, 2014, respectively			28			28
Additional paid-in capital			13,942			13,814
Treasury stock, at cost: 2015 945,301 shares; 2014 958,680 shares			(4,908	)		(4,973	)
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)			(405	)		(455	)
Recognition & Retention Plan Trust (RRP)			(70	)		(94	)
Accumulated other comprehensive loss			-			(36	)
Retained earnings			10,002			9,291
Total Stockholders' Equity			18,589			17,575
Total Liabilities and Stockholders' Equity		$	174,660		$	155,643

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.
Consolidated Statements of Income (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Interest Income	(In thousands, except for share data)
Interest on loans	$	2,095		$	1,835		$	6,106		$	5,285
Interest and dividends on short-term investments and investment securities		47			46			156			133
Total Interest Income		2,142			1,881			6,262			5,418

Interest Expense
Interest on deposits		511			434			1,448			1,225
Interest on Federal Home Loan Bank borrowings		27			11			70			19
Total Interest Expense		538			445			1,518			1,244

Net Interest Income		1,604			1,436			4,744			4,174

Provision for Loan Losses		71			111			280			337

Net Interest Income after Provision for Loan Losses		1,533			1,325			4,464			3,837

Non-Interest Income
Mortgage banking and title abstract fees		114			52			334			212
Other fees and services charges		22			24			93			57
Income from bank-owned life insurance		23			23			66			27
Net gain on sales of loans		357			420			993			1,098
Gain on sale of SBA loan		-			48			7			64
Loss on sale of investment securities available for sale		(75	)		-			(75	)		-
Loss on sale of other real estate owned		(2	)		(3	)		(4	)		(41	)
Other		11			9			27			24
Total Non-Interest Income		450			573			1,441			1,441

Non-Interest Expense
Salaries and employee benefits		942			879			2,980			2,520
Directors' fees and expenses		49			51			153			157
Occupancy and equipment		167			131			453			400
Professional fees		129			98			301			283
FDIC deposit insurance assessment		32			26			90			75
Other real estate owned expense		14			(1	)		17			16
Advertising		21			26			83			78
Other		130			131			383			333
Total Non-Interest Expense		1,484			1,341			4,460			3,862

Income before Income Taxes		499			557			1,445			1,416

Income Taxes		189			201			552			535

Net Income	$	310		$	356		$	893		$	881

Earnings per share - basic	$	0.18		$	0.21		$	0.52		$	0.52
Average shares outstanding - basic		1,706,946			1,683,716			1,714,689			1,704,050
Earnings per share - diluted	$	0.16		$	0.20		$	0.48		$	0.49
Average shares outstanding - diluted		1,888,113			1,788,418			1,876,708			1,805,906

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
	(In thousands)
Net Income	$	310		$	356		$	893		$	881

Other Comprehensive Income (Loss):
Unrealized losses on investment securities available-for-sale		(14	)		(17	)		(21	)		(12	)
Income tax effect		4			6			7			4
Reclassification adjustment for losses on sale of investment securities included in net income		75			-			75			-
Income tax effect		(25	)		-			(25	)		-

Other comprehensive income (loss)		40			(11	)		36			(8	)

Total Comprehensive Income	$	350		$	345		$	929		$	873

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.
Consolidated Statements of Stockholders' Equity (Unaudited)

For the Nine Months Ended September 30, 2015

												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, 2014		1,818,570		$	28	$	13,814		$	(4,973	)	$	(549	)	$	(36	)	$	9,291		$	17,575

Common stock allocated by ESOP							65						50									115

Treasury stock purchased		(956	)							(9	)											(9	)

Reissuance of treasury stock under 401(k) Plan		3,899					20			20												40

Reissuance of treasury stock under stock incentive plan		5,476					(28	)		28												-

Reissuance of treasury stock for exercised stock options		4,960					(1	)		26												25

Stock based compensation expense							96															96

Release of 5,108 vested RRP shares							(24	)					24									-

Cash dividends declared ($0.10 per share)																			(182	)		(182	)

Net income																			893			893

Other comprehensive loss, net																36						36

BALANCE – September 30, 2015		1,831,949		$	28	$	13,942		$	(4,908	)	$	(475	)	$	-		$	10,002		$	18,589

See accompanying notes to the unaudited consolidated financial statements.

Quaint Oak Bancorp, Inc.
Consolidated Statements of Cash Flows (Unaudited)

	For the Nine Months Ended September 30,
	2015			2014
Cash Flows from Operating Activities	(In Thousands)
Net income	$	893		$	881
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		280			337
Depreciation expense		132			124
Accretion of deferred loan fees and costs, net		(247	)		(196	)
Stock-based compensation expense		211			206
Realized loss on sale of investment securities available for sale		75			-
Net gain on the sale of loans		(993	)		(1,098	)
Gain on the sale of SBA loans		(7	)		(64	)
Net loss on sale of other real estate owned		4			41
Increase in the cash surrender value of bank-owned life insurance		(66	)		(27	)
Changes in assets and liabilities which provided (used) cash:
Loans held for sale-originations		(38,029	)		(39,865	)
Loans held for sale-proceeds		39,291			38,419
Accrued interest receivable		(141	)		(40	)
Prepaid expenses and other assets		(173	)		(304	)
Accrued interest payable		4			24
Accrued expenses and other liabilities		18			91
Net Cash Provided by (Used in) Operating Activities		1,252			(1,471	)
Cash Flows from Investing Activities
Net decrease in investment in interest-earning time deposits		524			973
Purchase of investment securities available for sale		(35	)		(39	)
Proceeds from sale of investment securities available for sale		1,720			-
Net increase in loans receivable		(19,351	)		(13,766	)
Increase in investment in Federal Home Loan Bank stock		(91	)		(273	)
Purchase of bank-owned life insurance		-			(3,500	)
Proceeds from the sale of other real estate owned		160			463
Capitalized expenditures on other real estate owned		(109	)		(28	)
Purchase of premises and equipment		(315	)		(63	)
Net Cash Used in Investing Activities		(17,497	)		(16,233	)
Cash Flows from Financing Activities
Net increase in demand deposits and savings accounts		2,875			1,759
Net increase in certificate accounts		13,526			13,044
Proceeds from Federal Home Loan Bank short-term borrowings		1,000			6,000
Repayment of Federal Home Loan Bank short-term borrowings		(2,000	)		(4,500	)
Proceeds from Federal Home Loan Bank long-term borrowings		3,000			4,500
Dividends paid		(182	)		(156	)
Purchase of treasury stock		(9	)		(708	)
Proceeds from the reissuance of treasury stock		40			53
Proceeds from the exercise of stock options		25			-
Decrease in advances from borrowers for taxes and insurance		(420	)		(242	)
Net Cash Provided by Financing Activities		17,855			19,750
Net Increase in Cash and Cash Equivalents		1,610			2,046
Cash and Cash Equivalents – Beginning of Year		13,937			6,184
Cash and Cash Equivalents – End of Year	$	15,547		$	8,230
Cash payments for interest	$	1,514		$	1,220
Cash payments for income taxes	$	665		$	668
Transfer of loans to other real estate owned	$	670		$	111

See accompanying notes to the unaudited consolidated financial statements.

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. (the "Company") and its wholly-owned subsidiary, Quaint Oak Bank (the "Bank") along with its wholly-owned subsidiaries. At September 30, 2015, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and QOB Properties, 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, 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 is currently inactive. 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's two branch offices includes Bucks, Montgomery, Lehigh and Northampton Counties, Pennsylvania, and northeast Philadelphia and the surrounding area. The principal deposit products offered by the Bank are certificates of deposit, passbook savings accounts, savings accounts and money market accounts. Loan products offered are fixed and adjustable rate residential and commercial mortgages, construction loans, home equity loans, auto 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, 2014 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 2014 Annual Report on Form 10-K. The results of operations for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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, the assessment of other-than-temporary impairment of investment and mortgage-backed securities, valuation of other real estate owned, and the valuation of deferred tax assets.

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 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 primarily for 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 and auto loans.

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.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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 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 and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

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 or nine months ended September 30, 2015 and 2014.

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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

Other Real Estate Owned. 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. As of September 30, 2015, the Company has initiated formal foreclosure proceedings on a $588,000 consumer residential mortgage, which has not yet been transferred into foreclosed assets.

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 September 30, 2015, the Company has 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 (Loss). 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.

Recent Accounting Pronouncements. In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Company's financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the effect of adopting this new accounting Update.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Company's financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company's financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments in this Update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company's financial statements.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

Reclassifications. Certain items in the 2014 consolidated financial statements have been reclassified to conform to the presentation in the 2015 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.

Note 2 – Stock Split

On August 13, 2015, the Company's Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend effective for shareholders of record on August 24, 2015 that was distributed on September 8, 2015. All per share amounts in this report have been restated to reflect this stock split. An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from additional paid-in capital to common stock on the consolidated financial statements as of and for the nine months ended September 30, 2015 and year ended December 31, 2014.

Note 3 – 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 and nine months ended September 30, 2015 and 2014, 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 September 30,				For the Nine Months Ended September 30,
	2015		2014		2015		2014
Net Income	$	310,000	$	356,000	$	893,000	$	881,000

Weighted average shares outstanding – basic		1,706,946		1,683,716		1,714,689		1,704,050
Effect of dilutive common stock equivalents		181,167		104,702		162,019		101,856
Adjusted weighted average shares outstanding – diluted		1,888,113		1,788,418		1,876,708		1,805,906

Basic earnings per share	$	0.18	$	0.21	$	0.52	$	0.52
Diluted earnings per share	$	0.16	$	0.20	$	0.48	$	0.49

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 – Accumulated Other Comprehensive Loss

The following table presents the changes in accumulated other comprehensive loss by component, net of tax, for the three months and the nine months ended September 30, 2015 and 2014 (in thousands):

	Unrealized Gains (Losses) on Investment Securities Available for Sale (1)
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Balance at the beginning of the period	$	(40	)	$	(15	)	$	(36	)	$	(18	)
Other comprehensive loss before classifications		(10	)		(11	)		(14	)		(8	)
Amount reclassified from accumulated other comprehensive loss		50			-			50			-
Total other comprehensive income (loss)		40			(11	)		36			(8	)
Balance at the end of the period	$	-		$	(26	)	$	-		$	(26	)

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

The following table presents significant amounts reclassified out of each component of accumulated other comprehensive loss for the three months and the nine months ended September 30, 2015 and 2014 (in thousands):

Details About Other Comprehensive Loss		Amount Reclassified from Accumulated Other Comprehensive Loss (1)							Affected Line Item in the Statement of Income
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2015		2014		2015		2014
Unrealized losses on investment securities available for sale	$	(75)	$	-	$	(75)	$	-	Loss on sales of investment securities
		25		-		25		-	Income taxes
	$	(50)	$	-	$	(50)	$	-	Net of tax

(1)	Amounts in parentheses indicate debits.

Note 5 – Investment in Interest-Earning Time Deposits

The investment in interest-earning time deposits as of September 30, 2015 and December 31, 2014, by contractual maturity, are shown below:

	September 30, 2015		December 31, 2014
	(In Thousands)
Due in one year or less	$	3,327	$	2,337
Due after one year through five years		2,809		4,323
	$	6,136	$	6,660

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 6 – Investment Securities Available for Sale

In September 2015 the Company sold its investment securities available for sale portfolio consisting of two bond funds totaling $1.7 million and realized gross losses of $75,000 on the transaction. There were no realized gross gains on the transaction.

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at December 31, 2014 are summarized below (in thousands):

	December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
Short-term bond fund	$	1,214	$	-	$	(34	)	$	1,180
Limited-term bond fund		546		-		(20	)		526
	$	1,760	$	-	$	(54	)	$	1,706

The following table shows 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 December 31, 2014 (in thousands):

	December 31, 2014
			Less than Twelve Months				Twelve Months or Greater					Total
	Number of Securities		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses

Short-term bond fund		1	$	-	$	-	$	1,180	$	(34	)	$	1,180	$	(34	)
Limited-term bond fund		1		-		-		526		(20	)		526		(20	)
Total		2	$	-	$	-	$	1,706	$	(54	)	$	1,706	$	(54	)

There were no impairment charges recognized during the three and nine months ended September 30, 2015 or 2014.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses

The composition of net loans receivable is as follows:

	September 30, 2015			December 31, 2014
	(In Thousands)
Real estate loans:
One-to-four family residential:
Owner occupied	$	6,745		$	7,085
Non-owner occupied		51,436			48,554
Total one-to-four family residential		58,181			55,639

Multi-family (five or more) residential		11,040			10,132
Commercial real estate		44,392			35,523
Commercial lines of credit		2,224			1,623
Construction		18,644			14,303
Home equity loans		6,712			6,961
Total real estate loans		141,193			124,181

Commercial business		2,561			749
Other consumer		44			41
Total Loans		143,798			124,971

Deferred loan fees and costs		(522	)		(492	)
Allowance for loan losses		(1,290	)		(1,148	)

Net Loans	$	141,986		$	123,331

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 September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015
	Pass		Special Mention		Substandard		Doubtful		Total

One-to-four family residential owner occupied	$	5,913	$	-	$	832	$	-	$	6,745
One-to-four family residential non-owner occupied		49,803		633		796		204		51,436
Multi-family residential		11,040		-		-		-		11,040
Commercial real estate and lines of credit		45,573		500		410		133		46,616
Construction		18,644		-		-		-		18,644
Home equity		6,626		-		86		-		6,712
Commercial business and other consumer		2,605		-		-		-		2,605
	$	140,204	$	1,133	$	2,124	$	337	$	143,798

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2014
	Pass		Special Mention		Substandard		Doubtful		Total

One-to-four family residential owner occupied	$	6,132	$	116	$	837	$	-	$	7,085
One-to-four family residential non-owner occupied		46,971		38		1,317		228		48,554
Multi-family residential		10,065		-		67		-		10,132
Commercial real estate and lines of credit		35,984		293		537		332		37,146
Construction		14,303		-		-		-		14,303
Home equity		6,654		172		90		45		6,961
Commercial business and other consumer		790		-		-		-		790
	$	120,899	$	619	$	2,848	$	605	$	124,971

The following tables summarize information in regards to impaired loans by loan portfolio class as of September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015
	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	$	832	$	832	$	-	$	834	$	11
One-to-four family residential non-owner occupied		796		802		-		796		30
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		410		427		-		433		8
Construction		-		-		-		-		-
Home equity		86		86		-		88		5
Commercial business and other consumer		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		204		204		21		203		5
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		133		133		7		133		7
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business and other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	832	$	832	$	-	$	834	$	11
One-to-four family residential non-owner occupied		1,000		1,006		21		999		35
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		543		560		7		566		15
Construction		-		-		-		-		-
Home equity		86		86		-		88		5
Commercial business and other consumer		-		-		-		-		-
Total	$	2,461	$	2,484	$	28	$	2,487	$	66

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2014
	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	$	837	$	837	$	-	$	839	$	15
One-to-four family residential non-owner occupied		1,317		1,333		-		1,341		39
Multi-family residential		67		72		-		74		-
Commercial real estate and lines of credit		537		537		-		542		17
Construction		-		-		-		-		-
Home equity		90		90		-		93		7
Commercial business and other consumer		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		228		231		29		231		-
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		332		332		29		331		10
Construction		-		-		-		-		-
Home equity		45		45		8		46		-
Commercial business and other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	837	$	837	$	-	$	839	$	15
One-to-four family residential non-owner occupied		1,545		1,564		29		1,572		39
Multi-family residential		67		72		-		74		-
Commercial real estate and lines of credit		869		869		29		873		27
Construction		-		-		-		-		-
Home equity		135		135		8		139		7
Commercial business and other consumer		-		-		-		-		-
Total	$	3,453	$	3,477	$	66	$	3,497	$	88

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 September 30, 2015, the Company had nine loans totaling $785,000 that were identified as troubled debt restructurings. All nine of these loans were performing in accordance with their modified terms. At December 31, 2014, the Company had eleven loans totaling $951,000 that were identified as troubled debt restructurings. Two of these loans totaling $155,000 were on non-accrual, three loans totaling $215,000 were 30-89 days delinquent, and six loans totaling $581,000 were performing in accordance with their modified terms. 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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following tables present the Company's TDR loans as of September 30, 2015 and December 31, 2014 (dollar amounts in thousands):

	September 30, 2015
	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		566		-		566		-
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		1		133		-		133		7
Construction		-		-		-		-		-
Home equity		3		86		-		86		-
Commercial business and other consumer		-		-		-		-		-
Total		9	$	785	$	-	$	785	$	7

	December 31, 2014
	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		7		728		155		573		10
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		1		133		-		133		7
Construction		-		-		-		-		-
Home equity		3		90		-		90		-
Commercial business and other consumer		-		-		-		-		-
Total		11	$	951	$	155	$	796	$	17

The contractual aging of the TDRs in the table above as of September 30, 2015 and December 31, 2014 is as follows (in thousands):

	September 30, 2015
	Current & Past Due Less than 30 Days		Past Due 30-89 Days		Greater than 90 Days		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		566		-		-		-		566
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		133		-		-		-		133
Construction		-		-		-		-		-
Home equity		86		-		-		-		86
Commercial business and other consumer		-		-		-		-		-
Total	$	785	$	-	$	-	$	-	$	785

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2014
	Current & Past Due Less than 30 Days		Past Due 30-89 Days		Greater than 90 Days		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		358		215		-		155		728
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		133		-		-		-		133
Construction		-		-		-		-		-
Home equity		90		-		-		-		90
Commercial business and other consumer		-		-		-		-		-
Total	$	581	$	215	$	-	$	155	$	951

During the three months ended September 30, 2015 there were no new TDRs identified and a property securing one loan previously identified as a TDR in the amount of $39,000 was transferred to OREO. During the nine months ended September 30, 2015, no new loans were identified as TDRs and two properties securing two loans previously identified as TDRs totaling $139,000 were transferred to OREO.

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 September 30, 2015 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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - 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 three and nine months ended September 30, 2015 and recorded investment in loans receivable as of September 30, 2015 (in thousands):

	September 30, 2015
	1-4 Family Residential Owner Occupied			1-4 Family Residential Non-Owner Occupied			Multi- Family Residential		Commercial Real Estate and Lines of Credit			Construction			Home Equity			Commercial Business and Other Consumer			Unallocated			Total
For the Three Months Ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	60		$	369		$	65	$	412		$	203		$	73		$	23		$	71		$	1,276
Charge-offs		-			(12	)		-		(21	)		-			(45	)		-			-			(78	)
Recoveries		-			-			-		21			-			-			-			-			21
Provision		(1	)		140			1		(53	)		(35	)		15			(5	)		9			71
Ending balance	$	59		$	497		$	66	$	359		$	168		$	43		$	18		$	80		$	1,290

For the Nine Months Ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	75		$	418		$	60	$	324		$	122		$	46		$	7		$	96		$	1,148
Charge-offs		-			(93	)		-		(21	)		-			(45	)		-			-			(159	)
Recoveries		-			-			-		21			-			-			-			-			21
Provision		(16	)		172			6		35			46			42			11			(16	)		280
Ending balance	$	59		$	497		$	66	$	359		$	168		$	43		$	18		$	80		$	1,290

Ending balance evaluated
for impairment:
Individually	$	-		$	21		$	-	$	7		$	-		$	-		$	-		$	-		$	28
Collectively	$	59		$	476		$	66	$	352		$	168		$	43		$	18		$	80		$	1,262

Loans receivable:
Ending balance	$	6,745		$	51,436		$	11,040	$	46,616		$	18,644		$	6,712		$	2,605		$	-		$	143,798
Ending balance evaluated
for impairment:
Individually	$	832		$	1,000		$	-	$	543		$	-		$	86		$	-		$	-		$	2,461
Collectively	$	5,913		$	50,436		$	11,040	$	46,073		$	18,644		$	6,626		$	2,605		$	-		$	141,337

The Bank allocated increased allowance for loan loss provisions to the one-to-four family residential non-owner occupied portfolio class for the three months and nine months ended September 30, 2015 due to increased balances and specific reserves needed on impaired loans. The Bank allocated increased allowance for loan loss provisions to the commercial real estate and lines of credit and construction portfolio classes for the nine months ended September 30, 2015, due to increased balances in these portfolio classes.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - 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 three and nine months ended September 30, 2014 (in thousands):

	September 30, 2014
	1-4 Family Residential Owner Occupied		1-4 Family Residential Non-Owner Occupied			Multi- Family Residential		Commercial Real Estate and Lines of Credit			Construction			Home Equity		Non-Real Estate		Unallocated			Total
For the Three Months Ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	56	$	491		$	49	$	340		$	97		$	55	$	3	$	75		$	1,166
Charge-offs		-		-			-		(131	)		-			-		-		-			(131	)
Recoveries		-		-			-		2			-			-		-		-			2
Provision		62		(10	)		7		70			(11	)		-		1		(8	)		111
Ending balance	$	118	$	481		$	56	$	281		$	86		$	55	$	4	$	67		$	1,148

For the Nine Months Ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	59	$	424		$	36	$	199		$	96		$	50	$	2	$	75		$	941
Charge-offs		-		-			-		(132	)		-			-		-		-			(132	)
Recoveries		-		-			-		2			-			-		-		-			2
Provision		59		57			20		212			(10	)		5		2		(8	)		337
Ending balance	$	118	$	481		$	56	$	281		$	86		$	55	$	4	$	67		$	1,148

Ending balance evaluated
for impairment:
Individually	$	59	$	30		$	-	$	28		$	-		$	-	$	-	$	-		$	117
Collectively	$	59	$	451		$	56	$	253		$	86		$	55	$	4	$	67		$	1,031

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - 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, 2014 and recorded investment in loans receivable as of December 31, 2014 (in thousands):

	December 31, 2014
	1-4 Family Residential Owner Occupied			1-4 Family Residential Non-Owner Occupied			Multi- Family Residential		Commercial Real Estate and Lines of Credit			Construction		Home Equity			Commercial Business and Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	59		$	424		$	36	$	199		$	96	$	50		$	2	$	75	$	941
Charge-offs		(57	)		-			-		(133	)		-		-			-		-		(190	)
Recoveries		-			-			-		3			-		-			-		-		3
Provision		73			(6	)		24		255			26		(4	)		5		21		394
Ending balance	$	75		$	418		$	60	$	324		$	122	$	46		$	7	$	96	$	1,148

Ending balance evaluated
for impairment
Individually	$	-		$	29		$	-	$	29		$	-	$	8		$	-	$	-	$	66
Collectively	$	75		$	389		$	60	$	295		$	122	$	38		$	7	$	96	$	1,082

Loans receivable:
Ending balance	$	7,085		$	48,554		$	10,132	$	37,146		$	14,303	$	6,961		$	790	$	-	$	124,971

Ending balance evaluated
for impairment
Individually	$	837		$	1,545		$	67	$	869		$	-	$	135		$	-	$	-	$	3,453
Collectively	$	6,248		$	47,009		$	10,065	$	36,277		$	14,303	$	6,826		$	790	$	-	$	121,518

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015		December 31, 2014
One-to-four family residential owner occupied	$	588	$	588
One-to-four family residential non-owner occupied		165		836
Multi-family residential		-		67
Commercial real estate and lines of credit		174		489
Construction		-		-
Home equity		-		45
Commercial business and other consumer		-		-
	$	927	$	2,025

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.4 million and $2.8 million at September 30, 2015 and December 31, 2014, 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.

For the three and nine months ended September 30, 2015 and 2014 there was no interest income recognized on non-accrual loans on a cash basis. Interest income that would have been recorded on non-accrual loans had they been current in accordance with their original terms, was approximately $16,000 and $60,000 for the three months ended September 30, 2015 and 2014, respectively. Interest income foregone on non-accrual loans was approximately $48,000 and $88,000 for the nine months ended September 30, 2015 and 2014, 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 September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015
	30-90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing

One-to-four family residential owner occupied	$	256	$	720	$	976	$	5,769	$	6,745	$	132
One-to-four family residential non-owner occupied		1,708		551		2,259		49,177		51,436		386
Multi-family residential		-		-		-		11,040		11,040		-
Commercial real estate and lines of credit		410		174		584		46,032		46,616		-
Construction		617		-		617		18,027		18,644		-
Home equity		276		-		276		6,436		6,712		-
Commercial business and other consumer		-		-		-		2,605		2,605		-
	$	3,267	$	1,445	$	4,712	$	139,086	$	143,798	$	518

	December 31, 2014
	30-90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing

One-to-four family residential owner occupied	$	589	$	837	$	1,426	$	5,659	$	7,085	$	249
One-to-four family residential non-owner occupied		735		972		1,707		46,847		48,554		136
Multi-family residential		-		67		67		10,065		10,132		-
Commercial real estate and lines of credit		1,051		910		1,961		35,185		37,146		421
Construction		107		-		107		14,196		14,303		-
Home equity		99		45		144		6,817		6,961		-
Commercial business and other consumer		-		-		-		790		790		-
	$	2,581	$	2,831	$	5,412	$	119,559	$	124,971	$	806

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Deposits

Deposits consist of the following classifications (in thousands):

	September 30, 2015		December 31, 2014
Non-interest bearing checking accounts	$	1,518	$	640
Passbook accounts		1,267		2,573
Savings accounts		3,464		5,655
Money market accounts		24,697		19,203
Certificates of deposit		109,860		96,334
Total deposits	$	140,806	$	124,405

Note 9 – Borrowings

Federal Home Loan Bank advances consist of the following at September 30, 2015 and December 31, 2014 (in thousands):

		September 30, 2015				December 31, 2014
		Amount	Weighted Interest Rate			Amount	Weighted Interest Rate
Short-term borrowings	$	6,000	0.37	%	$	7,000	0.27	%

Fixed rate borrowings maturing:
2016	$	1,000	0.88	%	$	1,000	0.88	%
2017		2,500	1.15			1,500	1.30
2018		3,000	1.46			1,000	1.71
2019		1,000	2.02			1,000	2.02
Total FHLB long-term debt	$	7,500	1.35	%	$	4,500	1.46	%

Note 10 – Stock Compensation Plans

Employee Stock Ownership Plan

The Company adopted an Employee Stock Ownership Plan (ESOP) during fiscal 2007 for the benefit of employees who meet the eligibility requirements of the plan. Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company's outstanding common stock in the open market for a total purchase price of $1.0 million. The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate 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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Employee Stock Ownership Plan (Continued)

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 and nine months ended September 30, 2015, the Company recognized $42,000 and $115,000 of ESOP expense, respectively. During the three and nine months ended September 30, 2014, the Company recognized $37,000 and $103,000 of ESOP expense, respectively.

Recognition & Retention Plan

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 a price 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 September 30, 2015, a total of 30,584 awards of restricted stock were unvested under the RRP and Stock Incentive Plan and 22,168 restricted stock 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 a vesting period of five years.

A summary of the status of the shares under the RRP and Stock Incentive Plan as of September 30, 2015 and 2014 and changes during the nine months ended September 30, 2015 and 2014 is as follows:

	September 30, 2015					September 30, 2014
	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		41,966		$	8.09		53,000		$	8.06
Granted		-			-		-			-
Vested		(10,582	)		7.73		(11,034	)		7.92
Forfeited		(800	)		8.10		-			-
Unvested at the end of the period		30,584		$	8.21		41,966		$	8.09

Compensation expense on the restricted stock awards is recognized ratably over the five to seven year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During the three and nine months ended September 30, 2015 and 2014, approximately $19,000 and $62,000 in compensation expense was recognized, respectively. A tax benefit of approximately $6,000 and $21,000, respectively, was recognized during each of these periods. During the three and nine months ended September 30, 2014, approximately $22,000 and $65,000 in compensation expense was recognized, respectively. A tax benefit of approximately $7,000 and $22,000, respectively, was recognized during each of these periods. As of September 30, 2015, approximately $218,000 in

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Recognition & Retention Plan (Continued)

additional compensation expense will be recognized over the remaining service period of approximately 2.6 years.

Stock Option Plan

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 September 30, 2015, a total of 362,260 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 56,756 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 September 30, 2015 and 2014 and changes during the nine months ended September 30, 2015 and 2014 is as follows:

	2015							2014
	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		369,140		$	6.30		5.7		369,140	$	6.30		6.5
Granted		-			-		-		-		-		-
Exercised		(4,960	)		5.00		-		-		-		-
Forfeited		(1,920	)		8.10		-		-		-		-
Outstanding at the end of the period		362,260		$	6.30		4.8		369,140	$	6.30		5.7
Exercisable at the end of the period		271,780		$	5.70		2.6		245,940	$	5.39		3.6

During the three and nine months ended September 30, 2015, approximately $12,000 and $34,000 in compensation expense was recognized, respectively. A tax benefit of approximately $1,000 and $3,000, respectively, was recognized during each of these periods. During the three and nine months ended September 30, 2014, approximately $11,000 and $34,000 in compensation expense was recognized, respectively. A tax benefit of approximately $1,000 and $3,000, respectively, was recognized during each of these periods. As of September 30, 2015, approximately $118,000 in additional compensation expense will be recognized over the remaining service period of approximately 2.6 years.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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 (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1).

We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with US 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.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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 September 30, 2015 (in thousands):

	September 30, 2015
	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)

Nonrecurring fair value measurements
Impaired loans	$	2,433	$	-	$	-	$	2,433
Other real estate owned		726		-		-		726
Total nonrecurring fair value measurements	$	3,159	$	-	$	-	$	3,159

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, 2014 (in thousands):

	December 31, 2014
	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
Short-term bond fund	$	1,180	$	1,180	$	-	$	-
Limited-term bond fund		526		526		-		-
Total investment securities available for sale	$	1,706	$	1,706	$	-	$	-
Total recurring fair value measurements	$	1,706	$	1,706	$	-	$	-

Nonrecurring fair value measurements
Impaired loans	$	3,387	$	-	$	-	$	3,387
Other real estate owned		111		-		-		111
Total nonrecurring fair value measurements	$	3,498	$	-	$	-	$	3,498

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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 September 30, 2015 and December 31, 2014 (in thousands):

	September 30, 2015
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	2,433	Appraisal of collateral (1)	Appraisal adjustments (2)		0%-17% (1	%)

Other real estate owned	$	726	Appraisal of collateral (1)	Appraisal adjustments (2)		1%-29% (9	%)

	December 31, 2014
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	3,387	Appraisal of collateral (1)	Appraisal adjustments (2)		0%-33% (2	%)

Other real estate owned	$	111	Appraisal of collateral (1)	Appraisal adjustments (2)		1% (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.

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 were as follows at September 30, 2015 and December 31, 2014 (in thousands):

					Fair Value Measurements at
					September 30, 2015
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Financial Assets
Cash and cash equivalents	$	15,547	$	15,547	$	15,547	$	-	$	-
Investment in interest-earning time deposits		6,136		6,208		-		-		6,208
Loans held for sale		2,287		2,395		-		2,395		-
Loans receivable, net		141,986		144,048		-		-		144,048
Accrued interest receivable		929		929		929		-		-
Investment in FHLB stock		618		618		618		-		-
Bank-owned life insurance		3,615		3,615		3,615		-		-

Financial Liabilities
Deposits		140,806		142,169		30,946		-		111,223
FHLB short-term borrowings		6,000		6,000		6,000		-		-
FHLB long-term borrowings		7,500		7,547		-		-		7,547
Accrued interest payable		112		112		112		-		-

					Fair Value Measurements at
					December 31, 2014
	Carrying Amount		Fair Value Estimate		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Financial Assets
Cash and cash equivalents	$	13,937	$	13,937	$	13,937	$	-	$	-
Investment in interest-earning time deposits		6,660		6,723		-		-		6,723
Investment securities available for sale		1,706		1,706		1,706		-		-
Loans held for sale		2,556		2,664		-		2,664		-
Loans receivable, net		123,331		123,419		-		-		123,419
Accrued interest receivable		788		788		788		-		-
Investment in FHLB stock		527		527		527		-		-
Bank-owned life insurance		3,549		3,549		3,549		-		-

Financial Liabilities
Deposits		124,405		125,724		28,071		-		97,653
FHLB short-term borrowings		7,000		7,000		7,000		-		-
FHLB long-term borrowings		4,500		4,492		-		-		4,492
Accrued interest payable		108		108		108		-		-

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.

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.

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, professional fees, 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 September 30, 2015 the Bank had five subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, Quaint Oak Insurance Agency, LLC, and QOB Properties, 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, 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 is currently inactive.

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.

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.

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

General. The Company's total assets at September 30, 2015 were $174.7 million, an increase of $19.0 million, or 12.2%, from $155.6 million at December 31, 2014. This growth in total assets was primarily due to an $18.7 million, or 15.1%, increase in loans receivable, net, and a $1.6 million, or 11.6% increase in cash and cash equivalents, partially offset by a $1.7 million, or 100.0% decrease in investment securities available for sale as the Company sold the two bond funds which constituted this portfolio and incurred an after-tax loss of $50,000.

Cash and Cash Equivalents. Cash and cash equivalents increased $1.6 million, or 11.6%, from $13.9 million at December 31, 2014 to $15.5 million at September 30, 2015 as excess deposits, proceeds from the sale of investment securities available for sale, and proceeds from the maturity of investments in interest-earning time deposits, not used to fund loans, were invested in overnight funds with the Federal Reserve Bank.

Investment Securities Available for Sale. Investment securities available for sale decreased from $1.7 million at December 31, 2014 to none at September 30, 2015 as the Company sold its portfolio of investment securities consisting of two bond funds totaling $1.8 million and realized a loss of $75,000 on the transaction. The securities were sold in anticipation of rising interest rates.

Investment in Interest-Earning Time Deposits. Investment in interest-earning time deposits decreased $524,000, or 7.9%, from $6.7 million at December 31, 2014 to $6.1 million at September 30, 2015 primarily due to the maturity and redemption of time deposits. The Company used these funds to fund loans.

Loans Held for Sale. Loans held for sale decreased $269,000 to $2.3 million at September 30, 2015 from $2.6 million at December 31, 2014 as the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $38.0 million of one-to-four family residential loans during the nine months ended September 30, 2015 and sold $38.3 million of loans in the secondary market during this same period.

Loans Receivable, Net. Loans receivable, net, increased $18.7 million, or 15.1%, to $142.0 million at September 30, 2015 from $123.3 million December 31, 2014. This increase was funded primarily from deposits, excess liquidity in cash and cash equivalents, and FHLB borrowings. Increases within the portfolio occurred in the commercial real estate loan category which increased $8.9 million, or 25.0%, construction loans which increased $4.3 million, or 30.4%, one-to-four family residential non-owner occupied loans which increased $2.9 million, or 5.9%, commercial business loans which increased $1.8 million, or 241.9%, multi-family residential loans which increased $908,000, or 9.0%, commercial lines of credit which increased $601,000, or 37.0%, and other consumer loans which increased $3,000, or 7.3%. Partially offsetting these increases was a decrease of $340,000, or 4.8%, in one-to-four family residential owner occupied loans, and a decrease of $249,000, or 3.6%, in home equity 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.

Other Real Estate Owned, Net. Other real estate owned (OREO) amounted to $726,000 at September 30, 2015, consisting of six properties. This compares to one property with a carrying value of $111,000 at December 31, 2014. For the nine months ended September 30, 2015, the Company transferred seven properties into OREO totaling $670,000, made $109,000 of capital improvements to the properties, sold two properties with a carrying value of $164,000, and is in the process of marketing the other properties for sale.

Deposits. Total interest-bearing deposits increased $15.5 million, or 12.5%, to $139.3 million at September 30, 2015 from $123.8 million at December 31, 2014. This increase in interest-bearing deposits at September 30, 2015 compared to December 31, 2014 was primarily attributable to a $13.5 million, or 14.0% increase in certificates of deposit and a $5.5 million, or 28.6% increase in money market accounts, partially offset by a $2.2 million, or 38.7% decrease in savings accounts and a $1.3 million, or 50.8% decrease in passbook accounts. Total non-interest bearing checking accounts, a new product introduced during December 2014, increased $878,000, or 137.2%, to $1.5 million at September 30, 2015 from $640,000 at December 31, 2014.

Federal Home Loan Bank Advances. Total Federal Home Loan Bank advances increased $2.0 million, or 17.4%, to $13.5 million at September 30, 2015 from $11.5 million at December 31, 2014. During the nine months ended September 30, 2015, the Company termed-out and repaid $2.0 million of overnight borrowings and borrowed an additional $2.0 million to fund loan demand.

Stockholders' Equity. Total stockholders' equity increased $1.0 million, or 5.8%, to $18.6 million at September 30, 2015 from $17.6 million at December 31, 2014. Contributing to the increase was net income for the nine months ended September 30, 2015 of $893,000, common stock earned by participants in the employee stock ownership plan of $115,000, amortization of stock awards and options under our stock compensation plans of $96,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $40,000, a decrease in other comprehensive loss of $36,000, and the reissuance of treasury stock for exercised stock options of $25,000. These increases were partially offset by dividends paid of $182,000 and the purchase of 956 shares of the Company's stock as part of the Company's stock repurchase program for an aggregate purchase price of $9,000.

Comparison of Operating Results for the Three Months Ended September 30, 2015 and 2014

General. Net income amounted to $310,000 for the three months ended September 30, 2015, a decrease of $46,000, or 12.9%, compared to net income of $356,000 for three months ended September 30, 2014. The decrease in net income on a comparative quarterly basis was primarily the result of an increase in non-interest expense of $143,000 and a decrease in non-interest income of $123,000, partially offset by an increase in net interest income of $168,000 and decreases in the provision for loan losses of $40,000 and the provision for income taxes of $12,000.

Net Interest Income. Net interest income increased $168,000, or 11.7%, to $1.6 million for the three months ended September 30, 2015 from $1.4 million for the three months ended September 30, 2014 due primarily to a $261,000, or 13.9% increase in interest income partially offset by a $93,000, or 20.9% increase in interest expense.

Interest Income. Interest income increased $261,000, or 13.9%, to $2.1 million for the three months ended September 30, 2015 from $1.9 million for the three months ended September 30, 2014. The increase in interest income was primarily due to a $22.9 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $123.3 million for the three months ended September 30, 2014 to an average balance of $146.2 million for the three months ended September 30, 2015, and had the effect of increasing interest income $342,000. Partially offsetting this increase was a 23 basis point decline in the average yield on loans receivable, net, including loans held for sale, from 5.96% for the three months ended September 30, 2014 to 5.73% for the three months ended September 30, 2015, which had the effect of decreasing interest income by $81,000.

Interest Expense. Interest expense increased $93,000, or 20.9%, to $538,000 for the three months ended September 30, 2015 from $445,000 for the three months ended September 30, 2014. The increase in interest expense was primarily attributable to a $20.7 million increase in average interest-bearing deposits, which increased from an average balance of $115.8 million for the three months ended September 30, 2014 to an average balance of $136.5 million for the three months ended September 30, 2015, and had the effect of increasing interest expense $88,000. Also contributing to this increase was a 37 basis point increase in the average rate on FHLB borrowings, from 0.43% for the three months ended September 30, 2014 to 0.80% for the three months ended September 30, 2015, which had the effect of increasing interest expense by $12,000, and a $3.2 million increase in average FHLB borrowings which increased from an average balance of $10.3 million for the three months ended September 30, 2014 to an average balance of $13.5 million for the three months ended September 30, 2015, and had the effect of increasing interest expense $3,000. The increase in average interest-bearing deposit accounts on a comparative three month basis was due to the competitive interest rates offered by the Bank on certificates of deposit and money market accounts, while the increase in the average FHLB borrowings was attributable to funding loan demand.

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 September 30,
	2015							2014
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
Interest-earning assets:	(Dollars in thousands)
Short-term investments and investment securities available for sale	$	17,532	$	47		1.07	%	$	12,236	$	46		1.50	%
Loans receivable, net (1)(2)(3)		146,228		2,095		5.73			123,255		1,835		5.96
Total interest-earning assets		163,760		2,142		5.23	%		135,491		1,881		5.55	%
Non-interest-earning assets		7,625							8,930
Total assets	$	171,385						$	144,421
Interest-bearing liabilities:
Passbook accounts	$	1,360		1		0.29	%	$	2,718		1		0.15	%
Savings accounts		3,498		2		0.23			5,774		5		0.35
Money market accounts		23,644		47		0.80			15,900		31		0.78
Certificate of deposit accounts		107,981		461		1.71			91,421		397		1.74
Total deposits		136,483		511		1.50			115,813		434		1.50
FHLB borrowings		13,500		27		0.80			10,283		11		0.43
Total interest-bearing liabilities		149,983		538		1.43	%		126,096		445		1.41	%
Non-interest-bearing liabilities		3,054							1,286
Total liabilities		153,037							127,381
Stockholders' Equity		18,348							17,040
Total liabilities and Stockholders' Equity	$	171,385						$	144,421
Net interest-earning assets	$	13,777						$	9,396
Net interest income; average interest rate spread			$	1,604		3.80	%			$	1,436		4.14	%
Net interest margin (4)						3.92	%						4.25	%
Average interest-earning assets to average interest-bearing liabilities						109.19	%						107.45	%

_______________________

(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 $154,000 and an average yield of 4.01%. 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 decreased by $40,000, or 36.0%, from $111,000 for the three months ended September 30, 2014 to $71,000 for the three months ended September 30, 2015, 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 September 30, 2015.

Non-performing loans amounted to $1.4 million, or 1.02% of net loans receivable at September 30, 2015, consisting of eight loans, five of which were on non-accrual status and three of which were 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $2.8 million, or 2.30% of net loans receivable at December 31, 2014, consisting of twenty-two loans, sixteen of which were on non-accrual status and six of which were 90 days or more past due and accruing interest. The non-performing loans at September 30, 2015 include five one-to-four family residential non-owner occupied loans, two one-to-four family residential owner-occupied loans, and one commercial real estate loan, and all are generally well-collateralized or adequately reserved for. During the quarter ended September 30, 2015, one loan that was on non-accrual status was returned to accrual status, two loans that were on non-accrual were transferred to other real estate owned, and one loan in the amount of $45,000 was written-off through the allowance for loan losses. At September 30, 2015, the Company had nine loans totaling $785,000 that were identified as troubled debt restructurings. All nine of these loans were performing in accordance with their modified terms. During the three months ended September 30, 2015 there were no new TDRs identified and a property securing one loan previously identified as a TDR in the amount of $39,000 was transferred to OREO. The allowance for loan losses as a percent of total loans receivable was 0.90% at September 30, 2015 and 0.92% at December 31, 2014.

Other real estate owned (OREO) amounted to $726,000 at September 30, 2015, consisting of six properties. This compares to one property with a carrying value of $111,000 at December 31, 2014. During the quarter ended September 30, 2015, one property that had been collateral for a loan previously classified as non-accrual and one property that had been collateral for a loan that was previously classified both as a non-accrual and a TDR were transferred to OREO. In conjunction with these transfers, $33,000 of the outstanding loan balance was charged-off through the allowance for loan losses. Also during the quarter, the Company sold one OREO property with a carrying value of $55,000 and realized a loss of approximately $2,000 on the transaction. For the nine months ended September 30, 2015, the Company transferred seven properties into OREO totaling $670,000, made $109,000 of capital improvements to the properties, sold two properties with a carrying value of $164,000, and is in the process of marketing the other properties for sale. Non-performing assets amounted to $2.2 million, or 1.24% of total assets at September 30, 2015 compared to $2.9 million, or 1.89% of total assets at December 31, 2014.

Non-Interest Income. Non-interest income decreased $123,000, or 21.5%, from $573,000 for the three months ended September 30, 2014 to $450,000 for the three months ended September 30, 2015. The decrease was primarily attributable to a $75,000 loss on the sale of investment securities available for sale, a $63,000 decrease in net gain on the sales of residential mortgage loans, a $48,000 decrease in the gain on the sale of SBA loans, and a $2,000 decrease in other fees and service charges, partially offset by a $62,000 increase in fee income generated by the Bank's mortgage banking and title abstract subsidiaries, a $2,000 increase in other non-interest income, and a $1,000 decrease in the loss on sale of other real estate owned.

Non-Interest Expense. Non-interest expense increased $143,000, or 10.7%, from $1.3 million for the three months ended September 30, 2014 to $1.5 million for the three months ended September 30, 2015. Salaries and employee benefits expense accounted for $63,000 of the change as this expense increased 7.2%, from $879,000 for the three months ended September 30, 2014 to $942,000 for the three months ended September 30, 2015 due primarily to increased staff as the Company continues to expand its mortgage banking and lending operations. Also contributing to the period over period increase was a $36,000, or 27.5% increase in occupancy and equipment expense, a $31,000, or 31.6% increase in professional fees, a $15,000 increase in other real estate owned expense, and a $6,000, or 23.1% increase in FDIC insurance assessment. The increase in occupancy and equipment expense was primarily attributable to charges related to new mortgage banking software and upgrades to furniture and fixtures in our Lehigh Valley office. The increase in professional fees was primarily attributable to legal fees related to collections. These increases were partially offset by a $5,000, or 19.2% decrease in advertising expense, a $2,000, or 3.9% decrease in directors' fees and expenses, and a $1,000, or 0.8% decrease in other expense.

Provision for Income Tax. The provision for income tax decreased $12,000, or 6.0%, from $201,000 for the three months ended September 30, 2014 to $189,000 for the three months ended September 30, 2015 due primarily to the decrease in pre-tax income as our effective tax rate remained relatively consistent at 37.9% for the 2015 period compared to 36.1% for the comparable period in 2014.

Comparison of Operating Results for the Nine Months Ended September 30, 2015 and 2014

General. Net income amounted to $893,000 for the nine months ended September 30, 2015, an increase of $12,000, or 1.4%, compared to net income of $881,000 for nine months ended September 30, 2014. The increase in net income was primarily the result of an increase in net interest income of $570,000 and a decrease in the provision for loan losses of $57,000, partially offset by increases in non-interest expense of $598,000 and the provision for income taxes of $17,000.

Net Interest Income. Net interest income increased $570,000, or 13.7%, to $4.7 million for the nine months ended September 30, 2015 from $4.2 million for the nine months ended September 30, 2014 due primarily to an$844,000, or 15.6% increase in interest income partially offset by a $274,000, or 22.0% increase in interest expense.

Interest Income.The increase in interest income was primarily due to a $22.6 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $117.0 million for the nine months ended September 30, 2014 to an average balance of $139.6 million for the nine months ended September 30, 2015, and had the effect of increasing interest income $1.0 million. Partially offsetting this increase was a 19 basis point decline in the average yield on loans receivable, net, including loans held for sale, from 6.02% for the nine months ended September 30, 2014 to 5.83% for the nine months ended September 30, 2015, which had the effect of decreasing interest income by $197,000. Also contributing to the increase in interest income for the nine months ended September 30, 2015 was a $4.4 million increase in average short-term investments and investment securities available for sale, which increased from an average balance of $12.3 million for the nine months ended September 30, 2014 to an average balance of $16.7 million for the nine months ended September 30, 2015, and had the effect of increasing interest income $46,000. Partially offsetting this increase was a 19 basis point decline in the average yield on short-term investments and investment securities available for sale, from 1.44% for the nine months ended September 30, 2014 to 1.25% for the nine months ended September 30, 2015, which had the effect of decreasing interest income by $24,000.

Interest Expense. The increase in interest expense was primarily attributable to a $20.0 million increase in average interest-bearing deposits, which increased from an average balance of $110.3 million for the nine months ended September 30, 2014 to an average balance of $130.3 million for the nine months ended September 30, 2015, and had the effect of increasing interest expense $243,000. Also contributing to this increase was a 43 basis point increase in the average rate on FHLB borrowings, from 0.31% for the nine months ended September 30, 2014 to 0.74% for the nine months ended September 30, 2015, which had the effect of increasing interest expense by $40,000, and a $4.4 million increase in average FHLB borrowings which increased from an average balance of $8.3 million for the nine months ended September 30, 2014 to an average balance of $12.6 million for the nine months ended September 30, 2015, and had the effect of increasing interest expense $10,000. The increase in average interest-bearing deposit accounts on a comparative three month basis was due to the competitive interest rates offered by the Bank on certificates of deposit and money market accounts, while the increase in the average FHLB borrowings was attributable to funding loan demand.

	Nine Months Ended September 30,
	2015							2014
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
Interest-earning assets:	(Dollars in thousands)
Short-term investments and investment securities available for sale	$	16,706	$	156		1.25	%	$	12,301	$	133		1.44	%
Loans receivable, net (1)(2)(3)		139,587		6,106		5.83			117,039		5,285		6.02
Total interest-earning assets		156,293		6,262		5.34	%		129,340		5,418		5.59	%
Non-interest-earning assets		7,246							7,352
Total assets	$	163,539						$	136,692
Interest-bearing liabilities:
Passbook accounts	$	1,711		2		0.16	%	$	2,745		3		0.15	%
Savings accounts		3,911		8		0.27			5,807		16		0.37
Money market accounts		21,998		126		0.76			15,423		86		0.74
Certificate of deposit accounts		102,726		1,312		1.70			86,340		1,120		1.73
Total deposits		130,346		1,448		1.48			110,315		1,225		1.48
FHLB borrowings		12,643		70		0.74			8,255		19		0.31
Total interest-bearing liabilities		142,989		1,518		1.42	%		118,570		1,244		1.40	%
Non-interest-bearing liabilities		2,558							1,268
Total liabilities		145,547							119,838
Stockholders' Equity		17,992							16,854
Total liabilities and Stockholders' Equity	$	163,539						$	136,692
Net interest-earning assets	$	13,304						$	10,770
Net interest income; average interest rate spread			$	4,744		3.92.	%			$	4,174		4.19	%
Net interest margin (4)						4.05	%						4.30	%
Average interest-earning assets to average interest-bearing liabilities						109.30	%						109.08	%

_______________________

(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 $163,000 and an average yield of 4.06%. 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 decreased its provision for loan losses by $57,000, or 16.9% from $337,000 for the nine months ended September 30, 2014 to $280,000 for the nine months ended September 30, 2015. As was the case for the quarter, the decrease was 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. See additional discussion under "Comparison of Operating Results for the Three Months Ended September 30, 2015 and 2014-Provision for Loan Losses."

Non-Interest Income. Although there was no net change in total non-interest income for the nine months ended September 30, 2015 compared to the same period in 2014 there were changes in the individual components. Fee income generated by the Bank's mortgage banking and title abstract subsidiaries increased $122,000, income from bank-owned life insurance increased $39,000, loss on the sale of other real estate owned decreased $37,000, other fees and service charges increased $36,000, and other non-interest income increased $3,000. These increases in non-interest income were offset by a $105,000 decrease in net gains on sales of residential mortgage loans, a $75,000 loss on the sale of investment securities available for sale, and a $57,000 decrease in the gain on the sale of SBA loans.

Non-Interest Expense. Non-interest expense increased $598,000, or 15.5%, from $3.9 million for the nine months ended September 30, 2014 to $4.5 million for the nine months ended September 30, 2015. Salaries and employee benefits expense accounted for $460,000 of the change as this expense increased 18.3%, from $2.5 million for the nine months ended September 30, 2014 to $3.0 million for the nine months ended September 30, 2015 due primarily to increased staff as the Company continues to expand its mortgage banking and lending operations. Also contributing to the period over period increase was a $53,000, or 13.3% increase in occupancy and equipment expense, a $50,000, or 15.0% increase in other expense, an $18,000, or 6.4% increase in professional fees, a $15,000, or 20.0% increase in FDIC insurance assessment, a $5,000, or 6.4% increase in advertising expense, and a $1,000, or 6.3% increase in other real estate owned expense. The increase in occupancy and equipment expense was primarily attributable to charges related to new mortgage banking software and maintenance costs primarily related to our Lehigh Valley office. The increase in other expense was primarily attributable to costs associated with the Bank's checking account products which were launched in December 2014.These increases were partially offset by a $4,000, or 2.5% decrease in directors' fees and expenses.

Provision for Income Tax. The provision for income tax increased $17,000, or 3.2%, from $535,000 for the nine months ended September 30, 2014 to $552,000 for the nine months ended September 30, 2015 due primarily to the increase in pre-tax income as our effective tax rate remained relatively consistent at 38.2% for the 2015 period compared to 37.8% for the comparable period in 2014.

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 September 30, 2015, the Company's cash and cash equivalents amounted to $15.5 million. At such date, the Company also had $3.3 million invested in interest-earning time deposits maturing in one year or less.

The Company uses its liquidity to fund existing and future loan commitments, to fund deposit outflows, to invest in other interest-earning assets and to meet operating expenses. At September 30, 2015, Quaint Oak Bank had outstanding commitments to originate loans of $10.8 million and commitments under unused lines of credit of $14.8 million.

At September 30, 2015, certificates of deposit scheduled to mature in less than one year totaled $35.5 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh, which provide an additional source of funds. As of September 30, 2015, we had $13.5 million of borrowings from the Federal Home Loan Bank of Pittsburgh and had $70.2 million in borrowing capacity. In addition, as of September 30, 2015 Quaint Oak Bank had $969,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at September 30, 2015.

Our stockholders' equity amounted to $18.6 million at September 30, 2015, an increase of $1.0 million, or 5.8% from $17.6 million at December 31, 2014. Contributing to the increase was net income for the nine months ended September 30, 2015 of $893,000, common stock earned by participants in the employee stock ownership plan of $115,000, amortization of stock awards and options under our stock compensation plans of $96,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $40,000, a decrease in other comprehensive loss of $36,000, and the reissuance of treasury stock for exercised stock options of $25,000. These increases were partially offset by dividends paid of $182,000 and the purchase of 956 shares of the Company's stock as part of the Company's stock repurchase program for an aggregate purchase price of $9,000. For further discussion of the stock compensation plans, see Note 10 in the Notes to Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, 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 September 30, 2015, Quaint Oak Bank exceeded each of its capital requirements with ratios of 10.03%, 14.18%, 14.18% and 15.26%, respectively. As a small savings and loan holding company, 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 September 30, 2015, we had unfunded commitments under lines of credit of $14.8 million and $10.8 million of commitments to originate loans. We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans.

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 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 September 30, 2015. Based on their evaluation of the Company's disclosure controls and procedures, the Company's 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 third fiscal quarter of fiscal 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

The Company's repurchases of its common stock made during the quarter ended September 30, 2015 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)
July 1, 2015 – July 31, 2015		-	$	-		-		19,913
August 1, 2015 – August 31, 2015		-		-		-		19,913
September 1, 2015 – September 30, 2015		-		-		-		19,913
Total		-	$	-		-		19,913

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 34,716 shares, or approximately 2.5% of the Company's 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.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

No.		Description
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.

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: November 12, 2015	By:	/s/Robert T. Strong
		Robert T. Strong President and Chief Executive Officer


Date: November 12, 2015	By:	/s/John J. Augustine
		John J. Augustine Chief Financial Officer

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QUAINT OAK BANCORP INC Reports