QUAINT OAK BANCORP INC - Quarter Report: 2018 September (Form 10-Q)

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, 2018

[ ]	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 every Interactive Data File required to be submitted 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 such files). [X] Yes [ ] No

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

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Emerging growth company	[ ]
Smaller reporting company	[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of November 8, 2018, 1,986,410 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, 2018 and December 31, 2018 (Unaudited)	1

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2018 and 2018 (Unaudited)	2

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)	3

Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2018 (Unaudited)	4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017 (Unaudited)	5

Notes to Unaudited Consolidated Financial Statements	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	48

Item 4 - Controls and Procedures	48

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	49

Item 1A - Risk Factors	49

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	49

Item 3 - Defaults Upon Senior Securities	49

Item 4 - Mine Safety Disclosures	49

Item 5 - Other Information	50

Item 6 - Exhibits	50

SIGNATURES

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

	At September 30,			At December 31,
	2018			2017
	(In thousands, except share data)
Assets
Due from banks, non-interest-bearing	$	468		$	64
Due from banks, interest-bearing		13,092			7,846
Cash and cash equivalents		13,560			7,910
Investment in interest-earning time deposits		4,927			4,879
Investment securities available for sale		6,950			7,912
Loans held for sale		7,433			7,006
Loans receivable, net of allowance for loan losses (2018 $1,898; 2017 $1,812)
Accrued interest receivable		1,117			1,021
Investment in Federal Home Loan Bank stock, at cost		1,086			1,234
Bank-owned life insurance		3,874			3,814
Premises and equipment, net		2,097			1,988
Goodwill		515			515
Other intangible, net of accumulated amortization		380			416
Other real estate owned, net		1,600			-
Prepaid expenses and other assets		1,436			1,234
Total Assets	$	258,955		$	239,596

Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest bearing	$	15,624		$	7,956
Interest-bearing		193,375			178,265
Total deposits		208,999			186,221
Federal Home Loan Bank short-term borrowings		9,000			10,000
Federal Home Loan Bank long-term borrowings		15,000			18,000
Accrued interest payable		183			167
Advances from borrowers for taxes and insurance		1,811			2,423
Accrued expenses and other liabilities		412			600
Total Liabilities		235,405			217,411

Stockholders' Equity
Preferred stock – $0.01 par value, 1,000,000 shares authorized; none issued or outstanding		-			-
Common stock – $0.01 par value; 9,000,000 shares
authorized; 2,777,250 issued; 1,991,623 and 1,920,024 outstanding at September 30, 2018 and December 31, 2017, respectively		28			28
Additional paid-in capital		14,604			14,481
Treasury stock, at cost: 2018 785,627 shares; 2017 857,226 shares		(4,621	)		(4,675	)
Unallocated common stock held by:
Employee Stock Ownership Plan (ESOP)		(202	)		(253	)
Recognition & Retention Plan Trust (RRP)		-			(24	)
Accumulated other comprehensive loss		(11	)		(15	)
Retained earnings		13,752			12,643
Total Stockholders' Equity		23,550			22,185
Total Liabilities and Stockholders' Equity	$	258,955		$	239,596

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,
	2018		2017		2018		2017
	(In thousands, except share data)
Interest Income
Interest and fees on loans	$	2,932	$	2,577	$	8,490	$	7,530
Interest and dividends on investment securities and interest-bearing deposits with others		181		96		457		262
Total Interest Income		3,113		2,673		8,947		7,792

Interest Expense
Interest on deposits		856		685		2,384		1,987
Interest on Federal Home Loan Bank short-term borrowings		57		32		142		68
Interest on Federal Home Loan Bank long-term borrowings		88		68		270		139
Total Interest Expense		1,001		785		2,796		2,194

Net Interest Income		2,112		1,888		6,151		5,598

Provision for Loan Losses		183		83		348		189

Net Interest Income after Provision for Loan Losses		1,929		1,805		5,803		5,409

Non-Interest Income
Mortgage banking and title abstract fees		273		229		600		487
Other fees and services charges		32		5		150		49
Insurance commissions		101		90		283		256
Income from bank-owned life insurance		19		21		60		65
Net gain on loans held for sale		673		687		1,579		1,511
Gain on sale of SBA loans		82		32		105		48
Gain (loss) on sales and write-downs of other real estate owned		-		-		63		(63	)
Other		41		32		143		61
Total Non-Interest Income		1,221		1,096		2,983		2,414

Non-Interest Expense
Salaries and employee benefits		1,569		1,324		4,858		3,994
Directors' fees and expenses		54		52		148		154
Occupancy and equipment		150		137		446		427
Data processing		108		86		287		219
Professional fees		108		105		291		289
FDIC deposit insurance assessment		47		44		140		131
Other real estate owned expense		8		4		10		12
Advertising		53		39		161		117
Amortization of other intangible		12		13		36		37
Other		166		144		486		447
Total Non-Interest Expense		2,275		1,948		6,863		5,827

Income before Income Taxes		875		953		1,923		1,996
Income Taxes		217		358		442		706
Net Income	$	658	$	595	$	1,481	$	1,290

Earnings per share - basic	$	0.34	$	0.32	$	0.77	$	0.69
Average shares outstanding - basic		1,945,553		1,868,969		1,916,817		1,857,682
Earnings per share - diluted	$	0.33	$	0.30	$	0.75	$	0.65
Average shares outstanding - diluted		2,016,537		2,007,819		1,978,517		1,998,138

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,
	2018			2017			2018			2017
	(In thousands)
Net Income	$	658		$	595		$	1,481		$	1,290

Other Comprehensive Income (Loss):
Unrealized gains (losses) on investment securities available-for-sale		(9	)		11			5			56
Income tax effect		2			(4	)		(1	)		(19	)

Other comprehensive income (loss)		(7	)		7			4			37

Total Comprehensive Income	$	651		$	602		$	1,485		$	1,327

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, 2018
												Unallocated
	Common Stock											Common			Accumulated
	Number of					Additional						Stock Held			Other						Total
	Shares					Paid-in			Treasury			by Benefit			Comprehensive			Retained			Stockholders'
	Outstanding			Amount		Capital			Stock			Plans			Loss			Earnings			Equity
	(In thousands, except share data)
BALANCE –DECEMBER 31, 2017		1,920,024		$	28	$	14,481		$	(4,675	)	$	(277	)	$	(15	)	$	12,643		$	22,185

Common stock allocated by ESOP (10,821 shares)							94						51									145

Treasury stock purchase		(44,311	)							(588	)		2									(586	)

Reissuance of treasury stock under 401(k) Plan		4,069					31			23												54

Reissuance of treasury stock under stock incentive plan		4,997					(28	)		28												-

Reissuance of treasury stock for exercised stock options		106,844					(57	)		591												534

Stock based compensation expense							105															105

Release of 4,664 vested RRP shares							(22	)					22									-

Cash dividends declared ($0.19 per share)																			(372	)		(372	)

Net income																			1,481			1,481

Other comprehensive income, net																4						4

BALANCE –SEPTEMBER 30, 2018		1,991,623		$	28	$	14,604		$	(4,621	)	$	(202	)	$	(11	)	$	13,752		$	23,550

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,
	2018			2017
	(In Thousands)
Cash Flows from Operating Activities
Net income	$	1,481		$	1,290
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		348			189
Depreciation expense		153			121
Amortization of intangibles		36			37
Net amortization of securities premiums		15			15
Accretion of deferred loan fees and costs, net		(269	)		(253	)
Stock-based compensation expense		250			235
Net gain on loans held for sale		(1,579	)		(1,511	)
Loans held for sale-originations		(80,537	)		(62,106	)
Loans held for sale-proceeds		81,689			61,856
Gain on the sale of SBA loans		(105	)		(48	)
Net (gain) loss on sale and write-downs of other real estate owned		(63	)		63
Increase in the cash surrender value of bank-owned life insurance		(60	)		(65	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(96	)		(63	)
Prepaid expenses and other assets		(203	)		(243	)
Accrued interest payable		16			5
Accrued expenses and other liabilities		(188	)		(152	)
Net Cash Provided by (Used in) Operating Activities		888			(630	)
Cash Flows from Investing Activities
Purchase of interest-earning time deposits		(809	)		(1,630	)
Redemption of interest-earning time deposits		761			2,849
Principal repayments of investment securities available for sale		952			1,162
Net increase in loans receivable		(13,828	)		(16,852	)
Redemption (purchase) of Federal Home Loan Bank stock		148			(421	)
Proceeds from the sale of other real estate owned		63			210
Capitalized expenditures on other real estate owned		(59	)		(23	)
Purchase of premises and equipment		(262	)		(364	)
Net Cash Used in Investing Activities		(13,034	)		(15,069	)
Cash Flows from Financing Activities
Net increase in demand deposits, money markets, and savings accounts		5,878			43
Net increase in certificate accounts		16,900			5,348
Decrease in advances from borrowers for taxes and insurance		(612	)		(429	)
Net (repayments) proceeds from Federal Home Loan Bank short-term borrowings		(1,000	)		4,500
Proceeds from Federal Home Loan Bank long-term borrowings		-			8,000
Repayment of Federal Home Loan Bank long-term borrowings		(3,000	)		(2,500	)
Dividends paid		(372	)		(269	)
Purchase of treasury stock		(586	)		(341	)
Proceeds from the reissuance of treasury stock		54			83
Proceeds from the exercise of stock options		534			193
Net Cash Provided by Financing Activities		17,796			14,628
Net Increase (Decrease) in Cash and Cash Equivalents		5,650			(1,071	)
Cash and Cash Equivalents – Beginning of Year		7,910			9,300
Cash and Cash Equivalents – End of Year	$	13,560		$	8,229

Cash payments for interest	$	2,780		$	2,189
Cash payments for income taxes	$	321		$	789
Transfer of loans to other real estate owned	$	1,541		$	-

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., a Pennsylvania chartered corporation (the "Company" or "Quaint Oak Bancorp") and its wholly owned subsidiary, Quaint Oak Bank, a Pennsylvania chartered stock savings bank, along with its wholly owned subsidiaries. At September 30, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, each a Pennsylvania limited liability company. The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Lehigh Valley region of Pennsylvania, and began operation in July 2009. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation. Pursuant to the Bank's election under Section 10(l) of the Home Owners' Loan Act, the Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. The market area served by the Bank is principally Bucks County, Pennsylvania and to a lesser extent, Montgomery and Philadelphia Counties in Pennsylvania. The Bank has two locations: the main office location in Southampton, Pennsylvania and a regional banking office in the Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, money market accounts, non-interest bearing checking accounts for businesses and consumers, and savings accounts. The principal loan products offered by the Bank are fixed and adjustable rate residential and commercial mortgages, construction loans, commercial business loans, home equity loans, and lines of credit.

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

The foregoing consolidated financial statements are unaudited; but in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof. The balances as of December 31, 2017 have been derived from the audited financial statements. These financial statements should be read in conjunction with the financial statements and notes thereto included in Quaint Oak Bancorp's 2017 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Company's most significant estimates are the determination of the allowance for loan losses and the valuation of deferred tax assets.

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 for working capital, purchase of a business, tenant improvements, receivables, purchase of inventory, and for the purchase of business essential equipment. Business essential equipment is equipment necessary for a business to support or assist with the day-to-day operation or profitability of the business. The consumer loan segment consists of the following classes: home equity loans and other consumer loans. Included in the home equity class are home equity loans and home equity lines of credit. Included in the other consumer are loans secured by saving accounts.

The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectability of principal. Generally, a loan is restored to accrual status when the obligation is brought current, it has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

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

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are designated as impaired. For loans that are designated as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are reevaluated quarterly to ensure their relevance in the current economic environment. Residential owner occupied mortgage lending generally entails a lower risk of default than other types of lending. Consumer loans and commercial real estate loans generally involve more risk of collectability because of the type and nature of the collateral and, in certain cases, the absence of collateral. It is the Company's policy to establish a specific reserve for loss on any delinquent loan when it determines that a loss is probable. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company's impaired loans are measured based on the estimated fair value of the loan's collateral.

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

Federal Home Loan Bank Stock. Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula. FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three or nine months ended September 30, 2018 and 2017.

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

Other Real Estate Owned, Net. Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures. A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell. Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses. The Company had two one-to-four family residential properties for which foreclosure proceedings are in process at September 30, 2018. The total investment in these two properties is $182,000.

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, 2018, the Company has outstanding equity awards under two share-based plans: the 2013 Stock Incentive Plan and the 2018 Stock Incentive Plan. Awards under these plans were made in May 2013 and 2018. These plans are more fully described in Note 10.

The Company also has an employee stock ownership plan ("ESOP"). This plan is more fully described in Note 10. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

In July 2018, the FASB issued ASU 2018-09, Codification Improvements, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. 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 July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company's financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. This Update provides another transition method which allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Entities that elect this approach should report comparative periods in accordance with ASC 840, Leases. In addition, this Update provides a practical expedient under which lessors may elect, by class of underlying assets, to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. However, the lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both (a) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (b) the lease component, if accounted for separately, would be classified as an operating lease. If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with ASC 606, Revenue from Contracts with Customers. Otherwise, the entity should account for the combined component as an operating lease in accordance with ASC 842. If a lessor elects the practical expedient, certain disclosures are required. This Update is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company's financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Company's financial statements.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2 – Earnings Per Share

Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs"). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the three and nine months ended September 30, 2018 and 2017, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
Net Income	$	658,000	$	595,000	$	1,481,000	$	1,290,000

Weighted average shares outstanding – basic		1,945,553		1,868,969		1,916,817		1,857,682
Effect of dilutive common stock equivalents		70,984		138,850		61,700		140,456
Adjusted weighted average shares outstanding – diluted		2,016,537		2,007,819		1,978,517		1,998,138

Basic earnings per share	$	0.34	$	0.32	$	0.77	$	0.69
Diluted earnings per share	$	0.33	$	0.30	$	0.75	$	0.65

Note 3 – Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and nine months ended September 30, 2018 and 2017 (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,
	2018			2017			2018			2017
Balance at the beginning of the period	$	(4	)	$	(8	)	$	(15	)	$	(38	)
Other comprehensive income (loss) before classifications		(7	)		7			4			37
Amount reclassified from accumulated other comprehensive income (loss)		-			-			-			-
Total other comprehensive income (loss)		(7	)		7			4			37
Balance at the end of the period	$	(11	)	$	(1	)	$	(11	)	$	(1	)

_______________

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 – Investment in Interest-Earning Time Deposits

The investment in interest-earning time deposits as of September 30, 2018 and December 31, 2017, by contractual maturity, are shown below (in thousands):

	September 30, 2018		December 31, 2017
Due in one year or less	$	1,604	$	761
Due after one year through five years		3,323		4,118
Total	$	4,927	$	4,879

Note 5 – Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at September 30, 2018 and December 31, 2017 are summarized below (in thousands):

	September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Available for Sale:
Mortgage-backed securities:
Governmental National Mortgage Association securities	$	5,002	$	29	$	(1	)	$	5,030
Federal Home Loan Mortgage Corporation securities		1,208		-		(36	)		1,172
Federal National Mortgage Association securities		394		-		(1	)		393
Total mortgage-backed securities		6,604		29		(38	)		6,595
Debt securities:
U.S. government agency		360		-		(5	)		355
Total available-for-sale-securities	$	6,964	$	29	$	(43	)	$	6,950

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

The amortized cost and fair value of debt securities at September 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

	Available for Sale
	Amortized Cost		Fair Value
Debt securities
Due after one year through five years	$	360	$	355
Due after ten years		6,604		6,595
Total	$	6,964	$	6,950

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 – Investment Securities Available for Sale (Continued)

The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018
			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
Governmental National Mortgage Association mortgage-backed securities		2	$	646	$	(1	)	$	-	$	-		$	646	$	(1	)
Federal Home Loan Mortgage Corporation mortgage-backed securities		2		-		-			1,172		(36	)		1,172		(36	)
Federal National Mortgage Association securities		1		393		(1	)		-		-			393		(1	)
Debt securities, U.S. government agency		1		-		-			355		(5	)		355		(5	)
Total		6	$	1,039	$	(2	)	$	1,527	$	(41	)	$	2,566	$	(43	)

	December 31, 2017
			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
Federal Home Loan Mortgage Corporation mortgage-backed securities		2	$	-	$	-	$	1,342	$	(35	)	$	1,342	$	(35	)
Debt securities, U.S. government agency		1		-		-		357		(3	)		357		(3	)
Total		3	$	-	$	-	$	1,699	$	(38	)	$	1,699	$	(38	)

At September 30, 2018, there were six securities in an unrealized loss position that at such date had an aggregate depreciation of 1.67% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates. Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of September 30, 2018 represents an other-than-temporary impairment. There were no impairment charges recognized during the three and nine months ended September 30, 2018 or 2017.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

The composition of net loans receivable is as follows (in thousands):

	September 30, 2018			December 31, 2017
Real estate loans:
One-to-four family residential:
Owner occupied	$	6,773		$	5,681
Non-owner occupied		46,907			51,833
Total one-to-four family residential		53,680			57,514
Multi-family (five or more) residential		24,774			21,715
Commercial real estate		102,352			92,234
Construction		10,798			15,632
Home equity		4,485			5,129
Total real estate loans		196,089			192,224

Commercial business		20,527			11,954
Other consumer		119			138
Total Loans		216,735			204,316

Deferred loan fees and costs		(857	)		(837	)
Allowance for loan losses		(1,898	)		(1,812	)
Net Loans	$	213,980		$	201,667

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	6,356	$	-	$	417	$	-	$	6,773
One-to-four family residential non-owner occupied		46,598		309		-		-		46,907
Multi-family residential		24,774		-		-		-		24,774
Commercial real estate		100,789		1,563		-		-		102,352
Construction		10,798		-		-		-		10,798
Home equity		4,485		-		-		-		4,485
Commercial business		20,022		80		425		-		20,527
Other consumer		119		-		-		-		119
Total	$	213,941	$	1,952	$	842	$	-	$	216,735

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

	December 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential owner occupied	$	5,258	$	423	$	-	$	-	$	5,681
One-to-four family residential non-owner occupied		51,372		29		432		-		51,833
Multi-family residential		21,715		-		-		-		21,715
Commercial real estate		91,549		399		286		-		92,234
Construction		13,563		-		2,069		-		15,632
Home equity		5,129		-		-		-		5,129
Commercial business		11,419		535		-		-		11,954
Other consumer		138		-		-		-		138
Total	$	200,143	$	1,386	$	2,787	$	-	$	204,316

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2018 as well as the average recorded investment and related interest income for the period then ended (in thousands):

	September 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied		417		421	$	-	$	417	$	-
One-to-four family residential non-owner occupied		267		267		-		324		13
Multi-family residential		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Construction		-		-		-		2,050		37
Home equity		-		-		-		44		2
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		94		4
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		5		133		7
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	417	$	421	$	-	$	417	$	-
One-to-four family residential non-owner occupied		267		267		-		418		17
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		5		133		7
Construction		-		-		-		2,050		37
Home equity		-		-		-		44		2
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	817	$	821	$	5	$	3,062	$	63

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

	December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		442		442		-		937		24
Multi-family residential		-		-		-		-		-
Commercial real estate		-		-		-		398		38
Construction		2,069		2,069		-		2,064		58
Home equity		45		45		-		47		5
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		214		214		70		214		5
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		1		395		9
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		656		656		70		1,151		29
Multi-family residential		-		-		-		-		-
Commercial real estate		133		133		1		793		47
Construction		2,069		2,069		-		2,064		58
Home equity		45		45		-		47		5
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	2,903	$	2,903	$	71	$	4,055	$	139

The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions. At September 30, 2018, the Company had two loans totaling $400,000 that were identified as troubled debt restructurings. These two loans were performing in accordance with their modified terms. At December 31, 2017, the Company had eight loans totaling $714,000 that were identified as troubled debt restructurings. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least nine months and future collection under the revised terms is probable. During the nine months ended September 30, 2018, no new loans were identified as TDRs and six loans previously identified as TDRs were paid off.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

The following tables present the Company's TDR loans as of September 30, 2018 and December 31, 2017 (dollar amounts in thousands):

	September 30, 2018
	Number of Contracts		Recorded Investment		Non- Accrual		Accruing		Related Allowance
One-to-four family residential owner occupied		-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		1		267		-		267		-
Multi-family residential		-		-		-		-		-
Commercial real estate		1		133		-		133		5
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total		2	$	400	$	-	$	400	$	5

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

The contractual aging of the TDRs in the table above as of September 30, 2018 and December 31, 2017 is as follows (in thousands):

	September 30, 2018
	Accruing Past Due Less than 30 Days		Past Due 30-89 Days		90 Days or More Past Due		Non- Accrual		Total
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		267		-		-		-		267
Multi-family residential		-		-		-		-		-
Commercial real estate		133		-		-		-		133
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Commercial business		-		-		-		-		-
Other consumer		-		-		-		-		-
Total	$	400	$	-	$	-	$	-	$	400

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan's original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At September 30, 2018 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and nine months ended September 30, 2018 and recorded investment in loans receivable as of September 30, 2018 (in thousands):

	September 30, 2018
	1-4 Family Residential Owner Occupied			1-4 Family Residential Non-Owner Occupied			Multi-Family Residential		Commercial Real Estate		Construction			Home Equity			Commercial Business and Other Consumer			Unallocated			Total
For the Three Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	60		$	439		$	166	$	728	$	179		$	24		$	201		$	33		$	1,830
Charge-offs		-			-			-		-		(115	)		-			-			-			(115	)
Recoveries		-			-			-		-		-			-			-			-			-
Provision		(9	)		(14	)		7		203		98			(17	)		(72	)		(13	)		183
Ending balance	$	51		$	425		$	173	$	931	$	162		$	7		$	129		$	20		$	1,898

For the Nine Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	48		$	540		$	152	$	687	$	136		$	27		$	140		$	82		$	1,812
Charge-offs		-			(47	)		-		-		(215	)		-			-			-			(262	)
Recoveries		-			-			-		-		-			-			-			-			-
Provision		3			(68	)		21		244		241			(20	)		(11	)		(62	)		348
Ending balance	$	51		$	425		$	173	$	931	$	162		$	7		$	129		$	20		$	1,898

Ending balance evaluated
for impairment:
Individually	$	-		$	-		$	-	$	5	$	-		$	-		$	-		$	-		$	5
Collectively	$	51		$	425		$	173	$	926	$	162		$	7		$	129		$	20		$	1,893

Loans receivable:
Ending balance:	$	6,773		$	46,907		$	24,774	$	102,352	$	10,798		$	4,485		$	20,646					$	216,735

Ending balance evaluated
for impairment:
Individually	$	417		$	267		$	-	$	133	$	-		$	-		$	-					$	817
Collectively	$	6,356		$	46,640		$	24,774	$	102,219	$	10,798		$	4,485		$	20,646					$	215,918

The Bank allocated increased allowance for loan loss provisions to the commercial real estate portfolio classes for the three and nine months ended September 30, 2018, due primarily to increased balances and delinquencies in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the construction loan portfolio classes for the three and nine months ended September 30, 2018, due primarily to charge-offs in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the commercial business portfolio classes for the three and nine months ended September 30, 2018, due primarily to changes in qualitative factors in this portfolio class.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the three and nine months ended September 30, 2017 (in thousands):

	September 30, 2017
	1-4 Family Residential Owner Occupied			1-4 Family Residential Non-Owner Occupied			Multi-Family Residential			Commercial Real Estate			Construction			Home Equity			Commercial Business and Other Consumer		Unallocated		Total
For the Three Months Ended September 30, 2017
Allowance for loan losses:
Beginning balance	$	45		$	465		$	156		$	645		$	137		$	41		$	111	$	90	$	1,690
Charge-offs		-			(38	)		-			-			-			-			-		-		(38	)
Recoveries		-			-			-			-			-			-			-		-		-
Provision		(2	)		93			(14	)		10			(4	)		(18	)		18		-		83
Ending balance	$	43		$	520		$	142		$	655		$	133		$	23		$	129	$	90	$	1,735

For the Nine Months Ended September 30, 2017
Allowance for loan losses:
Beginning balance	$	41		$	503		$	103		$	616		$	138		$	37		$	87	$	80	$	1,605
Charge-offs		-			(38	)		-			(24	)		-			-			-		-		(62	)
Recoveries		-			-			-			3			-			-			-		-		3
Provision		2			55			39			60			(5	)		(14	)		42		10		189
Ending balance	$	43		$	520		$	142		$	655		$	133		$	23		$	129	$	90	$	1,735

Ending balance evaluated for impairment:
Individually	$	-		$	38		$	-		$	1		$	-		$	-		$	-	$	-	$	39
Collectively	$	43		$	482		$	142		$	654		$	133		$	23		$	129	$	90	$	1,696

The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the three and nine months ended September 30, 2017, due primarily to charge-offs in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial real estate portfolio class for the three and nine months ended September 30, 2017, due primarily to increased balances and delinquencies in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the commercial business portfolio class for the three and nine months ended September 30, 2017, due primarily to increased balances and changes to qualitative factors in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the multi-family residential portfolio class for the nine months ended September 30, 2017, due primarily to increased balances in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the home equity portfolio class for the three and nine months ended September 30, 2017, due primarily to decreased balances and delinquencies in this portfolio class.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

	December 31, 2017
	1-4 Family Residential Owner Occupied		1-4 Family Residential Non-Owner Occupied			Multi-Family Residential		Commercial Real Estate			Construction			Home Equity			Commercial Business and Other Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	41	$	503		$	103	$	616		$	138		$	37		$	87	$	80	$	1,605
Charge-offs		-		(56	)		-		(24	)		-			-			-		-		(80	)
Recoveries		-		-			-		3			-			-			-		-		3
Provision		7		93			49		92			(2	)		(10	)		53		2		284
Ending balance	$	48	$	540		$	152	$	687		$	136		$	27		$	140	$	82	$	1,812

Ending balance evaluated for impairment:
Individually	$	-	$	70		$	-	$	1		$	-		$	-		$	-	$	-	$	71
Collectively	$	48	$	470		$	152	$	686		$	136		$	27		$	140	$	82	$	1,741
Loans receivable:
Ending balance	$	5,681	$	51,833		$	21,715	$	92,234		$	15,632		$	5,129		$	12,092			$	204,316

Ending balance evaluated for impairment:
Individually	$	-	$	656		$	-	$	133		$	2,069		$	45		$	-			$	2,903
Collectively	$	5,681	$	51,177		$	21,715	$	92,101		$	13,563		$	5,084		$	12,092			$	201,413

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018		December 31, 2017
One-to-four family residential owner occupied	$	417	$	-
One-to-four family residential non-owner occupied		-		120
Multi-family residential		-		-
Commercial real estate		-		-
Construction		-		2,069
Home equity		-		-
Commercial business		-		-
Other consumer		-		-
Total	$	417	$	2,189

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.6 million and $3.1 million at September 30, 2018 and December 31, 2017, respectively. For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.

For the three and nine months ended September 30, 2018 and 2017 there was no interest income recognized on non-accrual loans on a cash basis. Interest income foregone on non-accrual loans was approximately $6,000 and $18,000 for the three and nine months ended September 30, 2018, respectively. Interest income foregone on non-accrual loans was approximately $63,000 and $103,000 for the three and nine months ended September 30, 2017, respectively. In October 2018, a one-to-four family owner occupied loan on non-accrual as of September 30, 2018 in the amount of $236,000 was paid-off and approximately $23,000 of previously written-off and foregone interest was paid.

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, 2018 and December 31, 2017 (in thousands):

	September 30, 2018
	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable 90 Days or More Past Due and Accruing
One-to-four family residential owner occupied	$	564	$	417	$	981	$	5,792	$	6,773	$	-
One-to-four family residential non-owner occupied		1,867		533		2,400		44,507		46,907		533
Multi-family residential		-		-		-		24,774		24,774		-
Commercial real estate		2,085		190		2,275		100,077		102,352		190
Construction		295		-		295		10,503		10,798		-
Home equity		173		-		173		4,312		4,485		-
Commercial business		37		425		462		20,065		20,527		425
Other consumer		-		-		-		119		119		-
Total	$	5,021	$	1,565	$	6,586	$	210,149	$	216,735	$	1,148

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

Note 7 – Goodwill and Other Intangible, Net

On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over a ten year period based upon the annual retention rate of the book of business. The balance of other intangible asset at September 30, 2018 was $380,000 net of accumulated amortization of $105,000. Amortization expense for the three and nine months ended September 30, 2018 amounted to $12,000 and $36,000, respectively. Amortization expense for the three and nine months ended September 30, 2017 amounted to $13,000 and $37,000, respectively.

Note 8 – Deposits

Deposits consist of the following classifications (in thousands):

	September 30, 2018		December 31, 2017
Non-interest bearing checking accounts	$	15,624	$	7,956
Passbook accounts		262		463
Savings accounts		1,881		2,353
Money market accounts		29,294		30,411
Certificates of deposit		161,938		145,038
Total deposits	$	208,999	$	186,221

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 9 – Borrowings

Federal Home Loan Bank advances consist of the following at September 30, 2018 and December 31, 2017 (in thousands):

		September 30, 2018				December 31, 2017
			Weighted				Weighted
			Interest				Interest
		Amount	Rate			Amount	Rate
Short-term borrowings	$	9,000	2.38	%	$	10,000	1.54	%

Fixed rate borrowings maturing:
2018		-	-			3,000	1.46
2019		3,000	1.86			3,000	1.86
2020		2,000	2.00			2,000	2.00
2021		3,000	2.05			3,000	2.05
2022		3,000	2.18			3,000	2.18
2023		3,000	2.33			3,000	2.33
2024		1,000	2.54			1,000	2.54
Total FHLB long-term debt	$	15,000	2.22	%	$	18,000	2.01	%

Note 10 – Stock Compensation Plans

Employee Stock Ownership Plan

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

Shares of the Company's common stock purchased by the ESOP are held in a suspense account and reported as unallocated common stock held by the ESOP in stockholders' equity until released for allocation to participants. As the debt is repaid, shares are released from collateral and are allocated to each eligible participant based on the ratio of each such participant's base compensation to the total base compensation of eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the shares become outstanding for earnings per share computations. During the three and nine months ended September 30, 2018, the Company recognized $49,000 and $145,000 of ESOP expense, respectively. During the three and nine months ended September 30, 2017, the Company recognized $46,000 and $138,000 of ESOP expense, respectively.

Recognition & Retention and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention Plan (the "RRP") and Trust Agreement. In order to fund the RRP, the 2008 Recognition and Retention Plan Trust acquired 111,090 shares of the Company's stock in the open market at an average price of $4.68 totaling $520,000. In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "2013 Stock Incentive Plan"). The 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750, or 25%, may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded. In May 2018, the shareholders of Quaint Oak Bancorp approved the adoption of the 2018 Stock Incentive Plan (the "2018 Stock Incentive Plan"). The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 38,750, or 25%, may be restricted stock awards, for a balance of 116,250 stock options assuming all the restricted shares are awarded.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Recognition & Retention and Stock Incentive Plans (Continued)

As of September 30, 2018, a total of 48,608 share awards were unvested under the 2013 and 2018 Stock Incentive Plan and up to 11,750 share awards were available for future grant under the 2018 Stock Incentive Plan and none under the 2013 Stock Incentive Plan. The 2013 and 2018 Stock Incentive Plan share awards have vesting periods of five years.

A summary of the status of the share awards under the RRP and the 2013 and 2018 Stock Incentive Plans as of September 30, 2018 and 2017 and changes during the nine months ended September 30, 2018 and 2017 is as follows:

	September 30, 2018					September 30, 2017
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Unvested at the beginning of the period		10,061		$	8.10		20,524		$	8.10
Granted		48,608			13.30		-			-
Vested		(9,661	)		8.10		(10,263	)		8.10
Forfeited		(400	)		8.10		-			-
Unvested at the end of the period		48,608		$	13.30		10,261		$	8.10

Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During the nine months ended September 30, 2018 and 2017, the Company recognized compensation expense of approximately $75,000 and $63,000, respectively. A tax benefit of approximately $16,000 and $21,000 was recognized during the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, approximately $598,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.6 years.

Stock Option and Stock Incentive Plans

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the "Option Plan"). In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "2013 Stock Incentive Plan"). The Option Plan authorized 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 2013 Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750, or 25%, may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded. In May 2018, the shareholders of Quaint Oak Bancorp approved the adoption of the 2018 Stock Incentive Plan (the "2018 Stock Incentive Plan"). The 2018 Stock Incentive Plan approved by shareholders in May 2018 covered a total of 155,000 shares, of which 38,750, or 25%, may be restricted stock awards, for a balance of 116,250 stock options assuming all the restricted shares are awarded.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans (Continued)

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 of the options granted in May 2008 were either exercised or expired in May 2018. 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, 2018, a total of 279,836 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 38,250 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 2013 and 2018 Stock Incentive Plans of September 30, 2018 and 2017 and changes during the nine months ended September 30, 2018 and 2017 is as follows:

	2018							2017
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at the beginning of the year		265,302		$	6.74		3.2		316,348		$	6.49		3.8
Granted		136,636			13.30		9.6		-			-		-
Exercised		(106,844	)		5.00		-		(38,800	)		5.00		-
Forfeited		(15,258	)		6.22		-		-			-		-
Outstanding at end of period		279,836		$	10.64		7.7		277,548		$	6.70		3.4
Exercisable at end of period		143,200		$	8.10		4.6		247,228		$	6.53		3.1

The estimated fair value of the options granted in May 2018 was $1.75 per share. The fair value was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Expected dividend yield	2.11%
	Risk-free interest rate	2.96%
	Expected life of options	6.5 years
	Expected stock-price volatility	12.42%

The dividend yield was calculated on the dividend amount and stock price existing at the grant date. The risk free interest rate used was based on the rates of United States Treasury securities with maturities equal to the expected lives of the options. Although the contractual term of the options granted is ten years, the expected term of the options is less. Management estimated the expected term of the stock options to be the average of the vesting period and the contractual term. The expected stock-price volatility was estimated by considering the Company's own stock volatility. The actual future volatility may differ from our historical volatility.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 10 – Stock Compensation Plans (Continued)

Stock Option and Stock Incentive Plans (Continued)

During both the nine month periods ended September 30, 2018 and 2017, compensation expense was recognized in the amount of approximately $30,000 and $34,000, respectively. There was no tax benefit recognized during the nine months ended September 30, 2018. A tax benefit of approximately $2,000 was recognized during the nine months ended September 30, 2017. As of September 30, 2018, approximately $204,000 in additional compensation expense will be recognized over the remaining service period of approximately 4.6 years.

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

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

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

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

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

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

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

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

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of September 30, 2018 (in thousands):

	September 30, 2018
	Fair Value Measurements Using:
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Recurring fair value measurements
Investment securities available for sale
Governmental National Mortgage Association mortgage-backed securities	$	5,030	$	-	$	5,030	$	-
Federal Home Loan Mortgage Corporation mortgage-backed securities		1,172		-		1,172		-
Federal National Mortgage Association mortgage-backed securities		393		-		393		-
Debt securities, U.S. government agency		355		-		355		-
Total investment securities available for sale	$	6,950	$	-	$	6,950	$	-
Total recurring fair value measurements	$	6,950	$	-	$	6,950	$	-

Nonrecurring fair value measurements
Impaired loans	$	812	$	-	$	-	$	812
Other real estate owned		1,600		-		-		1,600
Total nonrecurring fair value measurements	$	2,412	$	-	$	-	$	2,412

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

Nonrecurring fair value measurements
Impaired loans	$	2,832	$	-	$	-	$	2,832
Total nonrecurring fair value measurements	$	2,832	$	-	$	-	$	2,832

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of September 30, 2018 and December 31, 2017 (in thousands):

	September 30, 2018
	Quantitative Information About Level 3 Fair Value Measurements
	Total Fair Value		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	812	Appraisal of collateral (1)	Appraisal adjustments (2)		0%-4% (1	%)

Other real estate owned	$	1,600	Appraisal of collateral (1)	Appraisal adjustments (2)		0%-12% (12	%)

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

________________

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

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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

The estimated fair values of the Company's financial instruments that are not required to be measured or reported at fair value were as follows at September 30, 2018 and December 31, 2017 (in thousands):

					Fair Value Measurements at
					September 30, 2018
	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	$	13,560	$	13,560	$	13,560	$	-	$	-
Investment in interest-earning time deposits		4,927		4,934		-		-		4,934
Loans held for sale		7,433		7,690		7,690		-		-
Loans receivable, net		213,980		214,363		-		-		214,363
Accrued interest receivable		1,117		1,117		1,117		-		-
Investment in FHLB stock		1,086		1,086		1,086		-		-
Bank-owned life insurance		3,874		3,874		3,874		-		-

Financial Liabilities
Deposits		208,999		209,182		47,061		-		162,121
FHLB short-term borrowings		9,000		9,000		9,000		-		-
FHLB long-term borrowings		15,000		14,954		-		-		14,954
Accrued interest payable		183		183		183		-		-
Advances from borrowers for taxes and insurance		1,811		1,811		1,811		-		-

					Fair Value Measurements at
					December 31, 2017
	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	$	7,910	$	7,910	$	7,910	$	-	$	-
Investment in interest-earning time deposits		4,879		4,912		-		-		4,912
Loans held for sale		7,006		7,232		7,232		-		-
Loans receivable, net		201,667		202,803		-		-		202,803
Accrued interest receivable		1,021		1,021		1,021		-		-
Investment in FHLB stock		1,234		1,234		1,234		-		-
Bank-owned life insurance		3,814		3,814		3,814		-		-

Financial Liabilities
Deposits		186,221		187,309		41,183		-		146,126
FHLB short-term borrowings		10,000		10,000		10,000		-		-
FHLB long-term borrowings		18,000		16,982		-		-		16,982
Accrued interest payable		167		167		167		-		-
Advances from borrowers for taxes and insurance		2,423		2,423		2,423		-		-

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements Are Subject to Change

We make certain statements in this document as to what we expect may happen in the future. These statements usually contain the words "believe," "estimate," "project," "expect," "anticipate," "intend" or similar expressions. Because these statements look to the future, they are based on our current expectations and beliefs. Actual results or events may differ materially from those reflected in the forward-looking statements. You should be aware that our current expectations and beliefs as to future events are subject to change at any time, and we can give you no assurances that the future events will actually occur.

General

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

At September 30, 2018, the Bank has five wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, LLC, QOB Properties, LLC, and Quaint Oak Insurance Agency, LLC, each a Pennsylvania limited liability company. The mortgage, real estate and abstract companies offer mortgage banking, real estate sales and title abstract services, respectively, in the Delaware Valley and Lehigh Valley regions of Pennsylvania, and began operation in July 2009. QOB Properties, LLC began operations in July 2012 and holds Bank properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. Quaint Oak Insurance Agency, LLC began operations in August 2016 and provides a broad range of personal and commercial insurance coverage solutions.

Critical Accounting Policies

The accounting and financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the consolidated financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

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, 2018 and December 31, 2017

General. The Company's total assets at September 30, 2018 were $259.0 million, an increase of $19.4 million, or 8.1%, from $239.6 million at December 31, 2017. This growth in total assets was primarily due to a $12.3 million, or 6.1% increase in loans receivable, net, a $5.7 million, or 71.4%, increase cash and cash equivalents, a $1.6 million increase in other real estate owned, and a $427,000, or 6.1%, increase in loans held for sale, partially offset by a $962,000, or 12.2%, decrease in investment securities available for sale. Asset growth was funded primarily by deposits which increased $22.8 million, or 12.2%, to $209.0 million at September 30, 2018 from $186.2 million at December 31, 2017.

Cash and Cash Equivalents. Cash and cash equivalents increased $5.7 million, or 71.4%, from $7.9 million at December 31, 2017 to $13.6 million at September 30, 2018 with the expectation that excess liquidity will be used to fund loans.

Investment Securities Available for Sale. Investment securities available for sale decreased $962,000, or 12.2%, from $7.9 million at December 31, 2017 to $7.0 million at September 30, 2018, due primarily to the principal repayments on these securities during the nine months ended September 30, 2018.

Loans Held for Sale. Loans held for sale increased $427,000, or 6.1%, from $7.0 million at December 31, 2017 to $7.4 million at September 30, 2018 as the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, originated $77.9 million of one-to-four family residential loans during the nine months ended September 30, 2018 and sold $76.8 million of loans in the secondary market during this same period. In addition, the Bank originated $2.6 million of equipment loans held for sale during the nine months ended September 30, 2018 and sold $3.3 million of equipment loans during this same period.

Loans Receivable, Net. Loans receivable, net, increased $12.3 million, or 6.1%, to $214.0 million at September 30, 2018 from $201.7 million December 31, 2017. This increase was funded primarily from deposits. Increases within the loan portfolio occurred in commercial real estate loans which increased $10.1 million, or 11.0%, commercial business loans which increased $8.6 million, or 71.7%, multi-family residential loans which increased $3.1 million, or 14.1%, and one-to-four family residential owner occupied loans which increased $1.1 million, or 19.2%. These increases were partially offset by a $4.9 million, or 9.5%, decrease in one-to-four family residential non-owner occupied loans, a $4.8 million, or 30.9%, decrease in construction loans, a $644,000, or 12.6%, decrease in home equity loans, and a $19,000, or 13.8%, decrease in other consumer loans. The Company continues its strategy of diversifying its loan portfolio with higher yielding and shorter-term loan products and selling substantially all of its newly originated one-to-four family owner-occupied loans into the secondary market.

Other Real Estate Owned. Other real estate owned (OREO) amounted to $1.6 million at September 30, 2018, consisting of one property. There were no properties in other real estate owned at December 31, 2017. During the second quarter of 2018, collateral for a non-performing construction loan with an aggregate outstanding balance of $1.8 million at the time of foreclosure, was transferred into OREO. In conjunction with this transfer, $100,000 of the outstanding loan balance was charged-off through the allowance for loan losses in the second quarter of 2018, and following a further assessment of the value of the collateral by the Bank, an additional $115,000 was charged-off through the allowance for loan losses in the third quarter. Non-performing assets amounted to $3.2 million, or 1.22% of total assets at September 30, 2018 compared to $3.1 million, or 1.28% of total assets at December 31, 2017.

Deposits. Total deposits increased $22.8 million, or 12.2%, to $209.0 million at September 30, 2018 from $186.2 million at December 31, 2017. This increase in deposits was primarily attributable to increases of $16.9 million, or 11.7%, in certificates of deposit, $7.7 million, or 96.4% in non-interest bearing checking accounts, partially offset by a $1.1 million, 3.7%, decrease in money market accounts, a $472,000, or 20.1%, decrease in savings accounts, and a $201,000, or 43.4% decrease in passbook accounts.

Federal Home Loan Bank Borrowings. Total Federal Home Loan Bank borrowings decreased $4.0 million, or 14.3%, from $28.0 million at December 31, 2017 to $24.0 million at September 30, 2018. During the nine months ended September 30, 2018, the Company used excess liquidity to repay $1.0 million of short-term and $3.0 million of long-term fixed rate borrowings.

Stockholders' Equity. Total stockholders' equity increased $1.4 million, or 6.2%, to $23.6 million at September 30, 2018 from $22.2 million at December 31, 2018. Contributing to the increase was net income for the nine months ended September 30, 2018 of $1.5 million, the reissuance of treasury stock for exercised stock options of $534,000, common stock earned by participants in the employee stock ownership plan of $145,000, amortization of stock awards and options under our stock compensation plans of $105,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $54,000, and other comprehensive income, net of $4,000. These increases were partially offset by the purchase of treasury stock of $586,000 and by dividends paid of $372,000.

Comparison of Operating Results for the Three Months Ended September 30, 2018 and 2017

General. Net income amounted to $658,000 for the three months ended September 30, 2018, an increase of $63,000, or 10.6%, compared to net income of $595,000 for three months ended September 30, 2017. The increase in net income on a comparative quarterly basis was primarily the result of an increase in net interest income of $224,000, a decrease in the provision for income taxes of $141,000, and an increase in non-interest income of $125,000, partially offset by an increase in non-interest expense of $327,000 and an increase in the provision for loan losses of $100,000.

Net Interest Income. Net interest income increased $224,000, or 11.9%, to $2.1 million for the three months ended September 30, 2018 from $1.9 million for the three months ended September 30, 2017. The increase was driven by a $440,000, or 16.5%, increase in interest income, partially offset by a $216,000, or 27.5%, increase in interest expense.

Interest Income. Interest income increased $440,000, or 16.5%, to $3.1 million for the three months ended September 30, 2018 from $2.7 million for the three months ended September 30, 2017. The increase in interest income was primarily due to a $17.1 million increase in average loans receivable, net, including loans held for sale, which increased from an average balance of $198.8 million for the three months ended September 30, 2017 to an average balance of $215.9 million for the three months ended September 30, 2018, and had the effect of increasing interest income $222,000. Also contributing to this increase was a 24 basis point increase in the yield on average loans receivable, net, including loans held for sale, which increased from 5.19% for the three months ended September 30, 2017 to 5.43% for the three months ended September 30, 2018, which had the effect of increasing interest income $133,000. The increase in interest income was also due to an $11.3 million increase in average cash and cash equivalents due from banks, interest bearing, which increased from an average balance of $8.2 million for the three months ended September 30, 2017 to an average balance of $19.6 million for the three months ended September 30, 2018, and had the effect of increasing interest income $41,000. Also contributing to this increase was a 56 basis point increase in the yield on average cash and cash equivalents due from banks, interest bearing, which increased from 1.46% for the three months ended September 30, 2017 to 2.02% for the three months ended September 30, 2018, which had the effect of increasing interest income $28,000.

Interest Expense. The increase in interest expense was primarily attributable to a $20.8 million increase in average interest-bearing liabilities, which increased from an average balance of $199.7 million for the three months ended September 30, 2017 to an average balance of $220.5 million for the three months ended September 30, 2018, and had the effect of increasing interest expense $98,000. This increase in average interest-bearing liabilities was primarily attributable to an $20.8 million increase in average certificate of deposit accounts which increased from an average balance of $139.9 million for the three months ended September 30, 2017 to an average balance of $160.7 million for the three months ended September 30, 2018, and had the effect of increasing interest expense $92,000. Also contributing to this increase was a 25 basis point increase in the average rate on interest-bearing liabilities, from 1.57% for the three months ended September 30, 2017 to 1.82% for the three months ended September 30, 2018, which had the effect of increasing interest expense by $118,000. This increase in rate was primarily attributable to a 21 basis point increase in rate on average certificate of deposit accounts, which increased from 1.77% for the three months ended September 30, 2017 to 1.98% for the three months ended September 30, 2018, and had the effect of increasing interest expense by $83,000, and a 50 basis point increase in rate on average Federal Home Loan Bank borrowings, which increased from 1.57% for the three months ended September 30, 2017 to 2.07% for the three months ended September 30, 2018, which had the effect of increasing interest expense by $35,000.

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,
	2018							2017
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	19,587	$	99		2.02	%	$	8,247	$	30		1.46	%
Investment in interest-earning time deposits		4,925		23		1.87			5,370		21		1.56
Investment securities available for sale		7,211		39		2.16			8,774		36		1.64
Loans receivable, net (1) (2) (3)		215,922		2,932		5.43			198,780		2,577		5.19
Investment in FHLB stock		1,245		20		6.43			1,134		9		3.17
Total interest-earning assets		248,890		3,113		5.00	%		222,305		2,673		4.81	%
Non-interest-earning assets		10,837							9,159
Total assets	$	259,727						$	231,464
Interest-bearing liabilities:
Passbook accounts	$	276	$	*		*	%	$	671	$	*		*	%
Savings accounts		1,887		1		0.21			1,550		1		0.26
Money market accounts		29,634		60		0.81			32,070		65		0.81
Certificate of deposit accounts		160,717		795		1.98			139,918		619		1.77
Total deposits		192,514		856		1.78			174,209		685		1.57
FHLB short-term borrowings		9,989		57		2.28			9,875		32		1.30
FHLB long-term borrowings		17,967		88		1.96			15,625		68		1.74
Total interest-bearing liabilities		220,470		1,001		1.82	%		199,709		785		1.57	%
Non-interest-bearing liabilities		16,052							9,787
Total liabilities		236,522							209,496
Stockholders' Equity		23,205							21,968
Total liabilities and Stockholders' Equity	$	259,727						$	231,464
Net interest-earning assets	$	28,420						$	22,596
Net interest income; average interest rate spread			$	2,112		3.18	%			$	1,888		3.24	%
Net interest margin (4)						3.39	%						3.40	%
Average interest-earning assets to average interest-bearing liabilities						112.89	%						111.31	%

________________________

*	Not meaningful.

(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 $10,000 and an average yield of 4.06% for the three months ended September 30, 2018 and an aggregate average balance of $64,000 and an average yield of 3.98% for the three months ended September 30, 2017. The tax-exempt income from such loans has not been calculated on a tax equivalent basis.

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

Provision for Loan Losses. The provision for loan losses increased $100,000, or 120.5%, from $83,000 for the three months ended September 30, 2017 to $183,000 for the three months ended September 30, 2018. The increase 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 at September 30, 2018.

Non-performing loans amounted to $1.6 million, or 0.73% of net loans receivable at September 30, 2018, consisting of seven loans, three of which are on non-accrual status and four of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $3.1 million, or 1.52% of net loans receivable at December 31, 2017, consisting of eleven loans, three of which were on non-accrual status and eight of which were 90 days or more past due and accruing interest. The non-performing loans at September 30, 2018 include three one-to-four family owner occupied residential loans, two one-to-four family non-owner occupied residential loans, one commercial real estate loan, and one commercial business loan, and all are generally well-collateralized or adequately reserved for. During the quarter ended September 30, 2018, one new loan was placed on non-accrual status resulting in the reversal of approximately $5,000 of previously accrued interest income, and one loan was paid-off. The allowance for loan losses as a percent of total loans receivable was 0.88% at September 30, 2018 and 0.89% at December 31, 2017.

Other real estate owned (OREO) amounted to $1.6 million at September 30, 2018, consisting of one property. There were no properties in other real estate owned at December 31, 2017. During the second quarter of 2018, collateral for a non-performing construction loan with an aggregate outstanding balance of $1.8 million at the time of foreclosure, was transferred into OREO. In conjunction with this transfer, $100,000 of the outstanding loan balance was charged-off through the allowance for loan losses in the second quarter of 2018, and following a further assessment of the value of the collateral by the Bank, an additional $115,000 was charged-off through the allowance for loan losses in the third quarter. Non-performing assets amounted to $3.2 million, or 1.22% of total assets at September 30, 2018 compared to $3.1 million, or 1.28% of total assets at December 31, 2017.

Non-Interest Income. Non-interest income increased $125,000, or 11.4%, from $1.1 million for the three months ended September 30, 2017 to $1.2 million for the three months ended September 30, 2018 due primarily to a $50,000, or 156.3%, increase in gain on the sale of SBA loans, a $44,000, or 19.2%, increase in mortgage banking and title abstract fees, a $27,000, or 540.0%, increase in other fees and service charges, an $11,000, or 12.2%, increase in insurance commissions earned by Quaint Oak Insurance Agency, a wholly owned insurance subsidiary of Quaint Oak Bank, and a $9,000, or 28.1%, increase in other non-interest income. These increases were partially offset by a $14,000, or 2.0%, decrease in net gain on loans held for sale and a $2,000, or 9.5% decrease income from bank-owned life insurance.

Non-Interest Expense. Non-interest expense increased $327,000, or 16.8%, from $1.9 million for the three months ended September 30, 2017 to $2.3 million for the three months ended September 30, 2018. Salaries and employee benefits expense accounted for $245,000 of the change as this expense increased 18.5%, from $1.3 million for the three months ended September 30, 2017 to $1.6 million for the three months ended September 30, 2018 due primarily to increased staff related to the continued expansion of the Company's mortgage banking and lending operations, and the expansion of our real estate agency subsidiary through the acquisition of a local real estate agency in August 2017. Also contributing to the increase was a $22,000, or 25.6%, increase in data processing expense, a $22,000, or 15.3%, increase in other non-interest expense, a $14,000, or 35.9%, increase in advertising expense, a $13,000, or 9.5%, increase in occupancy and equipment expense, a $4,000, or 100.0%, increase in other real estate owned expense, a $3,000, or 2.9%, increase in professional fees, a $3,000, or 6.8%, increase in FDIC insurance assessment, and a $2,000, or 3.8%, increase in directors' fees and expenses. These increases were partially offset by a $1,000, or 7.7%, decrease in amortization of other intangible.

Provision for Income Tax. The provision for income tax decreased $141,000, or 39.4%, from $358,000 for the three months ended September 30, 2017 to $217,000 for the three months ended September 30, 2018 as our effective tax rate decreased from 37.6% for the three months ended September 30, 2017 to 24.8% for the three months ended September 30, 2018 primarily due to the decrease in the Company's federal income tax rate from 34% in 2017 to 21% in 2018 as a result of the Tax Cuts and Jobs Act which was signed into law on December 22, 2017.

Comparison of Operating Results for the Nine Months Ended September 30, 2018 and 2017

General. Net income amounted to $1.5 million for the nine months ended September 30, 2018, an increase of $191,000, or 14.8%, compared to net income of $1.3 million for nine months ended September 30, 2017. The increase in net income was primarily the result of increases in non-interest income of $569,000 and net interest income of $553,000, and a decrease in the provision for income taxes of $264,000, partially offset by an increase in non-interest expense of $1.0 million and an increase in the provision for loan losses of $159,000.

Net Interest Income. Net interest income increased $553,000, or 9.9%, to $6.2 million for the nine months ended September 30, 2018 from $5.6 million for the nine months ended September 30, 2017 due primarily to a $1.2 million, or 14.8% increase in interest income, partially offset by a $602,000, or 27.4%, increase in interest expense.

Interest Income. Interest income increased $1.2 million, or 14.8%, to $8.9 million for the nine months ended September 30, 2018 from $7.8 million for the nine months ended September 30, 2017. 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 $189.5 million for the nine months ended September 30, 2017 to an average balance of $212.5 million for the nine months ended September 30, 2018, and had the effect of increasing interest income $911,000. Also contributing to this increase was a three basis point increase in the yield on loans receivable, net, including loans held for sale, which increased from 5.30% for the nine months ended September 30, 2017 to 5.33% for the nine months ended September 30, 2018, which had the effect of increasing interest income by $49,000. The increase in interest income was also due to an $8.0 million increase in average cash and cash equivalents due from banks, interest bearing, which increased from an average balance of $8.4 million for the nine months ended September 30, 2017 to an average balance of $16.4 million for the nine months ended September 30, 2018, and had the effect of increasing interest income $66,000. Also contributing to this increase was a 69 basis point increase in the yield on average cash and cash equivalents due from banks, interest bearing, which increased from 1.11% for the nine months ended September 30, 2017 to 1.80% for the nine months ended September 30, 2018, which had the effect of increasing interest income by $85,000.

Interest Expense. Interest expense increased $602,000, or 27.4%, to $2.8 million for the nine months ended September 30, 2018 from $2.2 million for the nine months ended September 30, 2017. The increase in interest expense was primarily attributable to a $23.6 million increase in average interest-bearing liabilities, which increased from an average balance of $192.3 million for the nine months ended September 30, 2017 to an average balance of $216.0 million for the nine months ended September 30, 2018, and had the effect of increasing interest expense $309,000. This increase in average interest-bearing liabilities was primarily attributable to a $16.8 million increase in average certificate of deposit accounts which increased from an average balance of $138.0 million for the nine months ended September 30, 2017 to an average balance of $154.8 million for the nine months ended September 30, 2018, and had the effect of increasing interest expense $218,000, and a $8.6 million increase in average Federal Home Loan Bank borrowings which increased from an average balance of $19.3 million for the nine months ended September 30, 2017 to an average balance of $28.0 million for the nine months ended September 30, 2018, and had the effect of increasing interest expense $102,000. Also contributing to this increase was a 21 basis point increase in the average rate on interest-bearing liabilities, from 1.52% for the nine months ended September 30, 2017 to 1.73% for the nine months ended September 30, 2018, which had the effect of increasing interest expense by $292,000. This increase in rate was primarily attributable to a 16 basis point increase in rate on average certificate of deposit accounts, which increased from 1.73% for the nine months ended September 30, 2018 to 1.89% for the nine months ended September 30, 2018, and had the effect of increasing interest expense by $190,000, and a 53 basis point increase in rate on average Federal Home Loan Bank borrowings, which increased from 1.43% for the nine months ended September 30, 2017 to 1.96% for the nine months ended September 30, 2018, which had the effect of increasing interest expense by $103,000.

	Nine Months Ended September 30,
	2018							2017
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Due from banks, interest-bearing	$	16,383	$	221		1.80	%	$	8,428	$	70		1.11	%
Investment in interest-earning time deposits		4,910		68		1.85			5,597		67		1.60
Investment securities available for sale		7,523		110		1.95			9,092		101		1.48
Loans receivable, net (1) (2) (3)		212,465		8,490		5.33			189,527		7,530		5.30
Investment in FHLB stock		1,242		58		6.23			883		24		3.62
Total interest-earning assets		242,523		8,947		4.92	%		213,527		7,792		4.87	%
Non-interest-earning assets		9,447							9,143
Total assets	$	251,970						$	222,670
Interest-bearing liabilities:
Passbook accounts	$	333	$	*		*	%	$	768	$	1		0.17	%
Savings accounts		1,953		3		0.20			1,588		2		0.17
Money market accounts		30,925		185		0.80			32,687		196		0.80
Certificate of deposit accounts		154,795		2,196		1.89			137,957		1,788		1.73
Total deposits		188,005		2,384		1.69			173,000		1,987		1.53
FHLB short-term borrowings		9,996		142		1.89			8,350		68		1.09
FHLB long-term borrowings		17,989		270		2.00			10,996		139		1.69
Total interest-bearing liabilities		215,991		2,796		1.73	%		192,346		2,194		1.52	%
Non-interest-bearing liabilities		13,224							8,820
Total liabilities		229,215							201,166
Stockholders' Equity		22,755							21,504
Total liabilities and Stockholders' Equity	$	251,970						$	222,670
Net interest-earning assets	$	26,532						$	21,181
Net interest income; average interest rate spread			$	6,151		3.19	%			$	5,598		3.35	%
Net interest margin (4)						3.38	%						3.50	%
Average interest-earning assets to average interest- bearing liabilities						112.28	%						111.01	%

_____________________

(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 $21,000 and an average yield of 4.21% for the nine months ended September 30, 2018 and an aggregate average balance of $74,000 and an average yield of 4.02% for the nine months ended September 30, 2017. The tax-exempt income from such loans has not been calculated on a tax equivalent basis.

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

Provision for Loan Losses. The Company increased its provision for loan losses by $159,000, or 84.1%, from $189,000 for the nine months ended September 30, 2017 to $348,000 for the nine months ended September 30, 2018. As was the case for the quarter, the increase 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, 2018 and 2017-Provision for Loan Losses."

Non-Interest Income. Non-interest income increased $569,000, or 23.6%, for the nine months ended September 30, 2018 over the comparable period in 2017 primarily due to a $126,000 net increase in gain on sales and write-downs on other real estate owned, a $113,000, or 23.2%, increase in mortgage banking and title abstract fees, a $101,000, or 206.1%, increase in other fees and services charges, an $82,000, or 134.4%, increase in other non-interest income, a $68,000, or 4.5%, increase in net gain on loans held for sale, a $57,000, or 118.8%, increase in gain on sale of SBA loans, and a $27,000, or 10.5%, increase in insurance commissions earned by Quaint Oak Insurance Agency, a wholly owned insurance subsidiary of Quaint Oak Bank. These increases were partially offset by a $5,000, or 7.7%, decrease in income from bank-owned life insurance.

Non-Interest Expense. Non-interest expense increased $1.0 million, or 17.8%, from $5.8 million for the nine months ended September 30, 2017 to $6.9 million for the nine months ended September 30, 2018. Salaries and employee benefits expense accounted for $864,000 of the change as this expense increased 21.6%, from $4.0 million for the nine months ended September 30, 2017 to $4.9 million for the nine months ended September 30, 2018 due primarily to increased staff related to the continued expansion of the Company's mortgage banking and lending operations, and the expansion of our real estate agency subsidiary through the acquisition of a local real estate agency in August 2017. Also contributing to the increase was a $68,000, or 31.1%, increase in data processing expense, a $44,000 or 37.6%, increase in advertising expense, a $39,000, or 8.7%, increase in other non-interest expense, a $19,000, or 4.4%, increase in occupancy and equipment expense, a $9,000, or 6.9%, increase in FDIC deposit insurance assessment, and a $2,000, or 0.7%, increase in professional fees. These increases were partially offset by a $6,000, or 3.9%, decrease in directors' fees and expenses, a $2,000, or 16.7%, decrease in other real estate owned expense, and a $1,000, or 2.7%, decrease in amortization of other intangible.

Provision for Income Tax. The provision for income tax decreased $264,000, or 37.4%, from $706,000 for the nine months ended September 30, 2017 to $442,000 for the nine months ended September 30, 2018 as our effective tax rate decreased from 35.4% for the nine months ended September 30, 2017 to 23.0% for the nine months ended September 30, 2018 primarily due to the decrease in the Company's federal income tax rate from 34% in 2017 to 21% in 2018 as a result of the Tax Cuts and Jobs Act, and an increase in a tax deduction taken related to the exercise of non-qualified stock options during this same period.

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, 2018, the Company's cash and cash equivalents amounted to $13.6 million. At such date, the Company also had $1.6 million invested in interest-earning time deposits maturing in one year or less.

The Company uses its liquidity to fund existing and future loan commitments, to fund deposit outflows, to invest in other interest-earning assets and to meet operating expenses. At September 30, 2018, Quaint Oak Bank had outstanding commitments to originate loans of $10.3 million, commitments under unused lines of credit of $13.7 million and $1.4 million under standby letters of credit.

At September 30, 2018, certificates of deposit scheduled to mature in less than one year totaled $51.2 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh (FHLB), which provide an additional source of funds. As of September 30, 2018, we had $24.0 million of borrowings from the FHLB and had $127.4 million in borrowing capacity. Under the terms of its collateral agreement with the FHLB, the Company provides a blanket lien covering all of its residential mortgage loans, commercial real estate loans, and commercial business loans. In addition, the Company pledges as collateral its capital stock in the FHLB and deposits with the FHLB. In addition, as of September 30, 2018 Quaint Oak Bank had $854,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at September 30, 2018.

Our stockholders' equity amounted to $23.6 million at September 30, 2018, an increase of $1.4 million, or 6.2%, from $22.2 million at December 31, 2017. Contributing to the increase was net income for the nine months ended September 30, 2018 of $1.5 million, the reissuance of treasury stock for exercised stock options of $534,000, common stock earned by participants in the employee stock ownership plan of $145,000, amortization of stock awards and options under our stock compensation plans of $105,000, the reissuance of treasury stock under the Bank's 401(k) Plan of $54,000, and other comprehensive income, net of $4,000. These increases were partially offset by the purchase of treasury stock of $586,000 and by dividends paid of $372,000. For further discussion of the stock compensation plans, see Note 10 in the Notes to Unaudited Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, common equity tier 1 capital, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.50%, 6.00%, and 8.00%, respectively. At September 30, 2018, Quaint Oak Bank exceeded each of its capital requirements with ratios of 8.14%, 11.11%, 11.11% and 12.13%, respectively. As a small savings and loan holding company eligible for exemption, the Company is not currently subject to any regulatory capital requirements.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. Our exposure to credit loss from non-performance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. In general, we do not require collateral or other security to support financial instruments with off–balance sheet credit risk.

Commitments. At September 30, 2018, we had unfunded commitments under lines of credit of $13.7 million, $10.3 million of commitments to originate loans and $1.4 million under standby letters of credit. 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 the Company's assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of September 30, 2018. Based on their evaluation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the third fiscal quarter of fiscal 2018 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, 2018 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, 2018 – July 31, 2018		-	$	-		-		14,344
August 1, 2018 – August 31, 2018		-		-		-		14,344
September 1, 2018 – September 30, 2018		-		-		-		14,344
Total		-	$	-		-		14,344

Notes to this table:

(1)

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

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

No.		Description
31.1		Rule 13a-14(d) and 15d-14(a) Certification of the Chief Executive Officer.
31.2		Rule 13a-14(d) and 15d-14(a) 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.

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 13, 2018	By:	/s/Robert T. Strong
		Robert T. Strong
		President and Chief Executive Officer


Date: November 13, 2018	By:	/s/John J. Augustine
		John J. Augustine
		Executive Vice President and Chief Financial Officer