QNTO 10-Q Quarterly Report June 30, 2011

QUAINT OAK BANCORP INC

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10-Q 1 form10q.htm FORM 10-Q form10q.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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:				June 30, 2011
OR

[ ]

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)				(IRS Employer Identification No.)

607 Lakeside Drive, Southampton, Pennsylvania 18966
(Address of principal executive offices)

(215) 364-4059
(Registrant’s telephone number)

(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. Yes [X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [X]
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of August 12, 2011, 992,126 shares of common stock were issued and outstanding.

INDEX

				Page
PART I	-	FINANCIAL INFORMATION

Item 1:		Financial Statements:

			Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (Unaudited)	1

			Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)	2

			Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2011 (Unaudited)	3

			Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)	4

			Notes to Unaudited Consolidated Financial Statements	5

Item 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3:		Quantitative and Qualitative Disclosures About Market Risk		40

Item 4:		Controls and Procedures		40

PART II	-	OTHER INFORMATION

Item 1:		Legal Proceedings		41

Item 1A:		Risk Factors		41

Item 2:		Unregistered Sales of Equity Securities and Use of Proceeds		41

Item 3:		Defaults upon Senior Securities		41

Item 4:		(Removed and Reserved)		41

Item 5:		Other Information		42

Item 6:		Exhibits		42

SIGNATURES

PART I

ITEM 1. FINANCIAL STATEMENTS

Quaint Oak Bancorp, Inc.

Consolidated Balance Sheets (Unaudited)

	At June 30,			At December 31,
	2011				2010
Assets	(In thousands, except share data)
Due from banks, non-interest-bearing	$	603			$	973
Due from banks, interest-bearing		13,329				7,677
Cash and cash equivalents		13,932				8,650
Investment in interest-earning time deposits		5,475				6,001
Investment securities available for sale at fair value (cost-2011
$3,368; 2010 $3,290 )		3,368				3,271
Mortgage-backed securities held to maturity (fair value-2011 $5,013; 2010 $5,810)		4,599				5,406
Loans held for sale		1,139				-
Loans receivable, net of allowance for loan losses
$2011 759; 2010 $871		73,465				74,710
Accrued interest receivable		454				423
Investment in Federal Home Loan Bank stock, at cost		683				757
Premises and equipment, net		1,116				1,073
Other real estate owned, net		1,191				1,191
Prepaid expenses and other assets		689				619

Total Assets	$	106,111			$	102,101

Liabilities and Stockholders’ Equity
Liabilities
Deposits, interest-bearing	$	84,607			$	79,691
Federal Home Loan Bank advances		4,600				5,600
Other borrowings		412				423
Accrued interest payable		96				107
Advances from borrowers for taxes and insurance		663				746
Accrued expenses and other liabilities		228				343
Total Liabilities		90,606				86,910

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; 1,388,625 issued; 992,126 and 992,436 outstanding at June 30, 2011and December 31, 2010, respectively		14				14
Additional paid-in capital		13,459				13,478
Treasury stock, at cost: 2011 396,499 shares; 2010 396,189 shares		(3,639	)			(3,636	)
Unallocated common stock held by: Employee Stock Ownership Plan (ESOP)		(779	)			(813	)
Recognition & Retention Plan Trust (RRP)		(280	)			(360	)
Accumulated other comprehensive (loss)		-				(13	)
Retained earnings		6,730				6,521
Total Stockholders' Equity		15,505				15,191

Total Liabilities and Stockholders’ Equity	$	106,111			$	102,101

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Interest Income	(In thousands, except per share data)
Interest on loans	$	1,255	$	1,200	$	2,491	$	2,388
Interest on short-term investment and investment securities		123		126		244		245
Total Interest Income		1,378		1,326		2,735		2,633

Interest Expense
Interest on deposits		426		417		832		832
Interest on Federal Home Loan Bank advances		50		61		104		127
Interest on other borrowings		6		6		12		13
Total Interest Expense		482		484		948		972

Net Interest Income		896		842		1,787		1,661

Provision for Loan Losses		29		28		56		57

Net Interest Income after Provision for Loan Losses		867		814		1,731		1,604

Non-Interest Income
Mortgage banking fees		83		61		129		100
Other fees and services charges		7		11		17		23
Other		12		4		35		24
Total Non-Interest Income		102		76		181		147

Non-Interest Expense
Salaries and employee benefits		437		337		822		658
Directors’ fees and expenses		55		52		113		104
Occupancy and equipment		56		41		107		90
Professional fees		77		95		153		181
FDIC deposit insurance assessment		38		38		77		76
Other real estate owned expense		38		18		51		26
Advertising		12		19		23		29
Other		58		58		104		104
Total Non-Interest Expense		771		658		1,450		1,268

Income before Income Taxes		198		232		462		483

Income Taxes		81		93		188		191

Net Income	$	117	$	139	$	274	$	292

Earnings per share – basic	$	0.12	$	0.13	$	0.28	$	0.27
Average shares outstanding		974,110		1,042,956		971,029		1,083,942
Earnings per share – diluted	$	0.12	$	0.13	$	0.28	$	0.27
Average shares outstanding - diluted		979,067		1,047,902		977,375		1,089,524

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statement of Stockholders' Equity (Unaudited)

Six Months Ended June 30, 2011

												Unallocated
	Common Stock											Common			Accumulated
(In thousands, except share	Number of					Additional						Stock Held			Other						Total
data)	Shares					Paid-in			Treasury			by Benefit			Comprehensive			Retained			Stockholders’
	Outstanding			Amount		Capital			Stock			Plans			Income			Earnings			Equity
BALANCE – January 1, 2011	992,436		$	14	$	13,478		$	(3,636	)	$	(1,173	)	$	(13	)	$	6,521		$	15,191
Common stock released by ESOP						1						34									35

Treasury stock purchased	(310	)							(3	)											(3	)

Stock based compensation expense						60															60

Release of vested common stock by the Recognition and Retention Plan Trust (8,529 shares)						(80	)					80									-

Cash dividends declared ($0.065 per share)																		(65	)		(65	)

Net income																		274			274

Unrealized gain on securities, net of deferred taxes															13						13

Comprehensive Income																				$	287

BALANCE – June 30, 2011	992,126		$	14	$	13,459		$	(3,639	)	$	(1,059	)	$	-		$	6,730		$	15,505

See accompanying notes to consolidated financial statements.

Quaint Oak Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended
	June 30,
	2011	2010
Cash Flows from Operating Activities	(In Thousands)

Net income	$	274		$	292
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for loan losses		56			57
Depreciation expense		25			27
Net accretion of securities discounts		(3	)		(5	)
Amortization of deferred loan fees and costs		2			5
Stock-based compensation expense		95			93
Changes in assets and liabilities which provided (used) cash:
Loans held for sale		(1,139	)		-
Accrued interest receivable		(31	)		24
Prepaid expenses and other assets		(76	)		44
Accrued interest payable		(11	)		(12	)
Accrued expenses and other liabilities		(115	)		69
Net Cash (Used in) Provided by Operating Activities		(923	)		594

Cash Flows from Investing Activities

Net (increase) decrease in investment in interest-earning time deposits	526		(1,029	)
Purchase of investment securities available for sale	(1,628	)	(2,012	)
Proceeds from calls of investment securities available for sale	1,550		500
Principal payments received on mortgage-backed securities held to maturity	810		1,069
Net (increase) decrease in loans receivable	602		(2,644	)
Net decrease in investment in Federal Home Loan Bank stock	74		-
Proceeds from the sale of other real estate owned	585		-
Capitalized expenditures on other real estate owned	-		(25	)
Purchase of premises and equipment	(68	)	(18	)
Net Cash (Used in) Provided by Investing Activities	2,451		(4,159	)

Cash Flows from Financing Activities
Net increase in deposits	4,916		7,729
Decrease in Federal Home Loan Bank advances	(1,000	)	(500	)
Repayment of other borrowings	(11	)	(9	)
Dividends paid	(65	)	(68	)
Purchase of treasury stock	(3	)	(1,202	)
Decrease in advances from borrowers for taxes and insurance	(83	)	(57	)
Net Cash Provided by Financing Activities	3,754		5,893
Net Increase in Cash and Cash Equivalents	5,282		2,328

Cash and Cash Equivalents – Beginning of Period			8,650				5,420
Cash and Cash Equivalents – End of Period		$	13,932			$	7,748

Supplementary Disclosure of Cash Flow and Non-Cash Information:

Cash payments for interest	$	959	$	984
Cash payments for income taxes	$	405	$	180
Transfer of loans to other real estate owned	$	585	$	-

See accompanying notes to 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 the Company and its wholly owned subsidiary, Quaint Oak Bank along with its wholly owned subsidiaries. At June 30, 2011, the Bank has four wholly-owned subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, 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. The insurance agency is currently inactive. In October 2010, the mortgage company also commenced operations at the Bank’s main office. All significant intercompany balances and transactions have been eliminated.

The Bank is subject to regulation by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. Pursuant to the Bank’s election under Section 10(l) of the Home Owners’ Loan Act, the Company is a savings and loan holding company currently 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. In February 2010, the Bank opened a branch banking office in the Lehigh Valley area of Pennsylvania. The principal deposit products offered by the Bank are certificates of deposit, passbook savings accounts, statement savings accounts and eSavings accounts. Loan products offered are fixed and adjustable rate residential and commercial mortgages, construction loans, home equity loans, auto loans, and lines of credit.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (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 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, 2010 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 2010 Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant estimates are the determination of the allowance for loan losses, the assessment of other-than-temporary impairment of investment and mortgage-backed securities, 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. 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. The consumer loan segment consists of the following classes: home equity loans and consumer non-real estate loans. Included in the home equity class are home equity loans and home equity lines of credit. Included in the consumer non-real estate loans are loans secured by saving accounts and auto loans.

The accrual of interest is generally discontinued when principal or interest has become 90 days past due unless the loan is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate 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. 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)

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 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 classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis 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 classified 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 classified 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 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 subsidiary, Quaint Oak Mortgage, LLC, are intended for sale in the secondary market and are carried at the lower of cost or fair value. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Federal Home Loan Bank Stock . Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold restricted stock of its district Federal Home Loan Bank according to a predetermined formula. FHLB stock is carried at cost and evaluated for impairment. When evaluating FHLB stock for impairment, its value is determined based on the ultimate recoverability of the par value of the stock. We evaluate our holdings of FHLB stock for impairment each reporting period. No impairment charges were recognized on FHLB stock during the three or six months ended June 30, 2011 and 2010. In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and restricting the repurchase of capital stock, to preserve capital. On October 29, 2010, the FHLB of Pittsburgh resumed the repurchase of capital stock and repurchased 39,900 shares of capital stock from the Bank at $1.00 per share. During the quarters ended March 31, 2011 and June 30, 2011 the FHLB repurchased 37,900 and 36,000 shares, respectively, of capital stock at $1.00 per share. Subsequent to June 30, 2011, on July 29, 2011 the FHLB repurchased an additional 34,200 shares of capital stock at $1.00 per share.

Other Real Estate Owned. Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures. A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

costs to sell. Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses. Other real estate owned at June 30, 2011 and December 31, 2010 was $1.2 million.

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 June 30, 2011, the Company has two share-based plans; the 2008 Recognition and Retention Plan (“RRP”) and the 2008 Stock Option Plan. Awards under both plans were made in May 2008. These plans are more fully described in Note 7.

The Company also has an employee stock ownership plan (“ESOP”). This plan is more fully described in Note 7. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.

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

For the three and six months ended June 30, 2011 and June 30, 2010, the only components of comprehensive income were net income and unrealized gains and losses, net of tax, on available for sale securities. Unrealized holding gains were $14,000 and $13,000, net of tax, for the three and six months ended June 30, 2011, respectively. Unrealized holding gains were $6,000 and $9,000, net of tax, for the three and six months ended June 30, 2010, respectively.

Earnings per Share. Amounts reported in earnings per share reflect earnings available to common stockholders’ for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the “treasury stock” method. For the three and six months ended June 30, 2011 and June 30, 2010, all outstanding stock options (107,570 options) were antidilutive.

Recent Accounting Pronouncements. In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements, which updates ASC 820, Fair Value Measurements and Disclosures. The updated guidance added new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarified existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amended guidance in ASU 2010-06 was effective for the first interim or annual reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchase, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010. The Company adopted the amended guidance, except for the requirement effective for fiscal years beginning after December 15, 2010, on January 1, 2010. The Company adopted the additional requirement on January 1, 2011. The adoptions did not have any impact on our financial position or results of operations.

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses , which updated ASC 310, Receivables. The updated guidance requires more robust and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses, including a rollforward schedule of the allowance for credit losses for the period on a portfolio segment basis, as well as additional information about the aging and credit quality of receivables by class of financing receivables as of the end of the period. The new and amended disclosures that relate to information as of the end of a reporting period are effective for the Company as of December 31, 2010. The disclosures that include information for activity that occurs during a reporting period will be effective for the first interim reporting period beginning after December 31, 2010. The adoption of this guidance did not have an impact on the Company’s financial position or results of operations.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

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

In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, which temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company is continuing to evaluate the impact that the adoption of this new guidance will have on our financial statement disclosures.

In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, which updates ASC 310. This updated clarifies which loan modifications constitute troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: 1) the restructuring constitutes a concession; 2) the debtor is experiencing financial difficulty. The update clarifies the guidance on a creditor’s evaluation of whether it has granted a concession to note that if a debtor does not otherwise have access to funds at a market rate for debt with similar characteristics as the restructured debt, the restructuring would be considered to be at a below-market rate, which may indicate that the creditor has granted a concession. Additionally, a temporary or permanent increase in the contractual interest rate as a result of a restructuring does not preclude the restructuring from being considered a concession because the new contractual interest rate on the restructured debt could still be below the market interest rate for new debt with similar characteristics. Furthermore, a restructuring that results in a delay in payment that is insignificant is not a concession. The update also clarifies the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty to note that a creditor may conclude that a debtor is experiencing financial difficulties, even though the debtor is not currently in payment default. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011. The Company is continuing to evaluate this guidance, but does not expect the adoption to have a significant impact on our financial position or results of operations, as we have already implemented these principles in our evaluations of TDRs.

Reclassifications. Certain items in the 2010 consolidated financial statements have been reclassified to conform to the presentation in the 2011 consolidated financial statements. Such reclassifications did not have a material impact on the presentation of the overall financial statements.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 2 – Investment Securities

The amortized cost and fair value of investment securities available for sale at June 30, 2011 and December 31, 2010 are summarized below (in thousands):

	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities
Due after 1 year through 5 years	$	-	$	-	$	-		$	-
Due after 5 year through 10 years		1,300		3		-			1,303
Corporate bonds		500		1		-			501
Short-term bond fund		1,058		2		-			1,060
Limited-term bond fund		510		-		(6	)		504
	$	3,368	$	6	$	( 6	)	$	3,368

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale:
U.S. Government agency securities
Due after 1 year through 5 years	$	1,250	$	2	$	-		$	1,252
Due after 5 year through 10 years		500		-		(15	)		485
Short-term bond fund		1,035		2		-			1,037
Limited-term bond fund		505		-		(8	)		497
	$	3,290	$	4	$	( 23	)	$	3,271

At June 30 2011, there was one bond fund in a gross unrealized loss position that at such date had an aggregated depreciation of 1.18% 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 and time and the extent to which the fair value has been less than cost; 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 these securities until maturity and the Company does not believe it will sell or be required to sell such securities prior to the recovery of the amortized cost basis. Management does not believe any individual unrealized loss as of June 30, 2011 represents an other-than-temporary impairment. There were no impairment charges recognized during the three or six months ended June 30, 2011 and 2010.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 3 – Mortgage-backed Securities Held to Maturity

The amortized cost and fair value of mortgage-backed securities held to maturity at June 30, 2011 and December 31, 2010 are summarized below (in thousands):


	June 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to Maturity:
FNMA pass-through certificates	$	2,432	$	232	$	-	$	2,664
FHLMC pass-through certificates		2,167		182		-		2,349
	$	4,599	$	414	$	-	$	5,013


	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to Maturity:
FNMA pass-through certificates	$	2,803	$	222	$	-	$	3,025
FHLMC pass-through certificates		2,603		182		-		2,785
	$	5,406	$	404	$	-	$	5,810

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses

Loans receivable, net consist of the following (in thousands):

	June 30, 2011			December 31, 2010
Real estate loans:
One-to four-family residential:
Owner occupied	$	11,627		$	13,428
Non-owner occupied		28,241			26,263
Total one-to-four family residential		39,868			39,691

Multi-family (five or more) residential		3,264			3,226
Commercial real estate		18,280			18,773
Construction		5,632			5,773
Commercial lines of credit		1,287			1,854
Home equity loans		5,812			6,181
Total real estate loans		74,143			75,498

Auto loans		49			75
Loans secured by deposits		53			15
Total loans		74,245			75,588

Deferred loan fees and costs		(21	)		(7	)
Allowance for loan losses		(759	)		(871	)
Net loans	$	73,465		$	74,710

Following is a summary of changes in the allowance for loan losses for the six months ended June 30, 2011 and 2010 (in thousands):

	June 30, 2011			June 30, 2010
Balance, beginning of the year	$	871		$	835
Provision for loan losses		56			57
Charge-offs		(168	)		-
Recoveries		-			-
Net charge-offs		(168	)		-

Balance, end of period	$	759		$	892

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table presents 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 June 30, 2011 and December 31, 2010 are summarized below (in thousands):

	June 30, 2011
	Pass		Special Mention		Substandard		Doubtful		Total

One-to-four family residential owner occupied	$	10,753	$	57	$	254	$	564	$	11,628
One-to-four family residential non-owner occupied		27,024		57		1,070		90		28,241
Multi-family residential		3,061		203		-		-		3,264
Commercial real estate and lines of credit		19,209		358		-		-		19,567
Construction		5,632		-		-		-		5,632
Home equity		5,178		50		583		-		5,811
Consumer non-real estate		89		13		-		-		102
	$	70,946	$	738	$	1,907	$	654	$	74,245

	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total

One-to-four family residential owner occupied	$	12,139	$	742	$	79	$	468	$	13,428
One-to-four family residential non-owner occupied		24,700		109		1,079		375		26,263
Multi-family residential		3,022		204		-		-		3,226
Commercial real estate and lines of credit		20,202		318		107		-		20,627
Construction		5,773		-		-		-		5,773
Home equity		5,757		350		74		-		6,181
Consumer non-real estate		75		-		15		-		90
	$	71,668	$	1,723	$	1,354	$	843	$	75,588

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

The following table summarizes information in regards to impaired loans by loan portfolio class as of June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		-		-
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Consumer non-real estate		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	818	$	818	$	28	$	819	$	7
One-to-four family residential non-owner occupied		1,160		1,160		72		1,163		25
Multi-family residential and lines of credit		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		583		583		30		588		22
Consumer non-real estate		-		-		-		-		-

Total:
One-to-four family residential owner occupied	$	818	$	818	$	28	$	819	$	7
One-to-four family residential non-owner occupied		1,160		1,160		72		1,163		25
Multi-family residential and lines of credit		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		583		583		30		588		22
Consumer non-real estate		-		-		-		-		-

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

	December 31, 2010
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
One-to-four family residential owner occupied	$	-	$	-	$	-	$	-	$	-
One-to-four family residential non-owner occupied		-		-		-		-		-
Multi-family residential		-		-		-		-		-
Commercial real estate and lines of credit		-		-		-		-		-
Construction		-		-		-		-		-
Home equity		-		-		-		-		-
Consumer non-real estate		-		-		-		-		-

With an allowance recorded:
One-to-four family residential owner occupied	$	547	$	547	$	108	$	547	$	12
One-to-four family residential non-owner occupied		1,454		1,454		136		1,462		76
Multi-family residential and lines of credit		-		-		-		-		-
Commercial real estate		107		107		1		108		6
Construction		-		-		-		-		-
Home equity		74		74		25		75		5
Consumer non-real estate		15		15		1		18		1

Total:
One-to-four family residential owner occupied	$	547	$	547	$	108	$	547	$	12
One-to-four family residential non-owner occupied		1,454		1,454		136		1,462		76
Multi-family residential and lines of credit		-		-		-		-		-
Commercial real estate		107		107		1		108		6
Construction		-		-		-		-		-
Home equity		74		74		25		75		5
Consumer non-real estate		15		15		1		18		1

At June 30, 2011, the Company had eleven loans totaling $918,000 identified as troubled debt restructurings (TDRs) consisting of five one-to-four family residential non-owner occupied loans totaling $538,000, four home equity loans totaling $301,000, and two one-to-four family residential owner occupied loans in the amount of $79,000. All eleven loans were classified as impaired. At December 31, 2010, the Company had six loans totaling $501,000 identified as TDRs consisting of three non-owner family residential occupied loans totaling $371,000, two one-to-four family residential owner occupied loans in the amount of $79,000, and one home equity loan in the amount of $51,000. All six loans were classified as impaired. Such loans have been classified as TDRs since we modified the payment terms from the original agreements and allowed the borrowers to make interest only payments in order to relieve some of their overall cash flow burden.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - 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 six months ended June 30, 2011 and recorded investment in loans receivable as of June 30, 2011 (in thousands):

		June 30, 2011
					1-4 Family
		1-4 Family			Residential						Commercial
		Residential			Non-			Multi-			Real Estate								Consumer
		Owner			Owner			Family			and Lines of						Home		Non-Real
		Occupied			Occupied			Residential			Credit			Construction			Equity		Estate		Unallocated		Total
For the Three Months Ended June 30, 2011

Allowance for loan losses:
Beginning balance	$	192		$	284		$	24		$	149		$	40		$	92	$	1	$	41	$	823
Charge-offs		(93	)		-			-			-			-			-		-		-		(93	)
Recoveries		-			-			-			-			-			-		-		-		-
Provision		(1	)		45			(3	)		(12	)		(7	)		5		-		2		29
Ending balance	$	98		$	329		$	21		$	137		$	33		$	97	$	1	$	43	$	759

For the Six Months Ended June 30, 2011

Allowance for loan losses:
Beginning balance	$	185		$	335		$	23		$	155		$	40		$	92	$	1	$	40	$	871
Charge-offs		(93	)		(75	)		-			-			-			-		-		-		(168	)
Recoveries		-			-			-			-			-			-		-		-		-
Provision		6			69			(2	)		(18	)		(7	)		5		-		3		56
Ending balance	$	98		$	329		$	21		$	137		$	33		$	97	$	1	$	43	$	759
Ending balance: Individually evaluated for impairment	$	28		$	72		$	-		$	-		$	-		$	30	$	-	$	-	$	130
Ending balance: Collectively evaluated for impairment	$	70		$	257		$	21		$	137		$	33		$	67	$	1	$	43	$	629

As of June 30, 2011

Loans receivable:
Ending balance	$	11,628		$	28,241		$	3,264		$	19,567		$	5,632		$	5,811	$	102			$	74,245
Ending balance: Individually evaluated for impairment	$	818		$	1,160		$	-		$	-		$	-		$	583	$	-			$	2,561
Ending balance: Collectively evaluated for impairment	$	10,810		$	27,081		$	3,264		$	19,567		$	5,632		$	5,228	$	102			$	71,684

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

Following is a summary of changes in the allowance for loan losses and recorded investment in loans receivable for the year ended December 31, 2010 (in thousands):

December 31, 2010

1-4 Family

Residential

Commercial

Residential

Non-

Multi-

Real Estate

Consumer

Owner

Family

and Lines of

Home

Non-Real

Occupied

Residential

Credit

Construction

Equity

Estate

Unallocated

Total

Allowance for loan

losses:

Beginning balance	$	83	$	202		$	22	$	194		$	35	$	41	$	1	$	256		$	834
Charge-offs		-		(78	)		-		-			-		-		-		-			(78	)
Recoveries		-		-			-		-			-		-		-		-			-
Provision		102		211			1		(39	)		5		51		-		(216	)		115
Ending balance	$	185	$	335		$	23	$	155		$	40	$	92	$	1	$	40		$	871
Ending balance: individually evaluated for impairment	$	108	$	136		$	-	$	1		$	-	$	25	$	1	$	-		$	271
Ending balance: collectively evaluated for impairment	$	77	$	199		$	23	$	154		$	40	$	67	$	-	$	40		$	600

Loans receivable:

Ending balance	$	13,428	$	26,263	$	3,226	$	20,627	$	5,773	$	6,181	$	90	$	75,588
Ending balance: individually evaluated for impairment	$	547	$	1,454	$	-	$	107	$	-	$	74	$	15	$	2,197
Ending balance: collectively evaluated for impairment	$	12,881	$	24,809	$	3,226	$	20,520	$	5,773	$	6,107	$	75	$	73,391

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

For all classes of loans receivable, the accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid accrued interest is reversed and charged against income in the current year. Interest received on nonaccrual loans including impaired loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (as determined by management) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

The following table presents nonaccrual loans by classes of the loan portfolio as of June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011		December 31, 2010
One-to-four family residential owner occupied	$	636	$	539
One-to-four family residential non-owner occupied		543		422
Multi-family residential		-		-
Commercial real estate and lines of credit		-		-
Construction		-		-
Home equity		238		23
Consumer non-real estate		-		-
	$	1,417	$	984

Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $2.1 and $1.5 million at June 30, 2011 and December 31, 2010, 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 months ended June 30, 2011 and 2010, approximately $12,000 and $1,000 in interest income was recognized on non-accrual loans, respectively. Interest income foregone on non-accrual loans was approximately $13,000 and $38,000 for the three months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011 and 2010, approximately $20,000 and $1,000 in interest income was recognized on non-accrual loans, respectively. Interest income foregone on non-accrual loans was approximately $35,000 and $57,000 for the six months ended June 30, 2011 and 2010, respectively.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 4 - Loans Receivable, Net and Allowance for Loan Losses (Continued)

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 table presents the classes of the loan portfolio summarized by the past due status as of June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011
	30-90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing

One-to-four family residential owner occupied	$	67	$	232	$	299	$	11,329	$	11,628	$	232
One-to-four family residential non- owner occupied		1,479		248		1,727		26,514		28,241		248
Multi-family residential		202		-		202		3,062		3,264		-
Commercial real estate and lines of credit		1,631		132		1,763		17,804		19,567		132
Construction		382		-		382		5,250		5,632		-
Home equity		78		68		146		5,665		5,811		68
Consumer non-real estate		13		-		13		89		102		-
	$	3,852	$	680	$	4,532	$	69,713	$	74,245	$	680

	December 31, 2010
	30-90 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days and Accruing

One-to-four family residential owner occupied	$	810	$	61	$	871	$	12,557	$	13,428	$	61
One-to-four family residential non- owner occupied		1,106		353		1,459		24,804		26,263		353
Multi-family residential		204		-		204		3,022		3,226		-
Commercial real estate and lines of credit		1,061		108		1,169		19,458		20,627		108
Construction		-		-		-		5,773		5,773		-
Home equity		437		-		437		5,744		6,181		-
Consumer non-real estate		15		-		15		75		90		-
	$	3,633	$	522	$	4,155	$	71,433	$	75,588	$	522

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 5 – Deposits

Deposits consist of the following classifications (in thousands):

	June 30, 2011		December 31, 2010

Passbook savings accounts	$	2,972	$	3,079
Statement savings accounts		6,544		6,798
eSavings accounts		3,011		2,253
Certificates of deposit		72,080		67,561
Total deposits	$	84,607	$	79,691

Note 6 –Borrowings

Federal Home Loan Bank advances consist of the following at June 30, 2011 (in thousands):

Maturity Period	Amount		Weighted Interest Rate
1 to 12 months	$	1,800		3.83	%
13 to 24 months		1,800		4.09	%
37 to 48 months		1,000		4.32	%
Total	$	4,600		4.04	%

In June 2009, the Company borrowed $450,000 from a commercial bank to finance the purchase of a building in Allentown, Pennsylvania which serves as the offices for the three new active subsidiaries and a branch banking office which opened in February 2010. The loan has an interest rate of 5.75%, matures on July 1, 2014 and is amortizing over 180 months. The balance on the loan was $412,000 and $423,000 at June 30, 2011 and December 31, 2010, respectively.

Note 7 – Stock Compensation Plans

Employee Stock Ownership Plan

The Company adopted an Employee Stock Ownership Plan (ESOP) during fiscal 2007 for the benefit of employees who meet the eligibility requirements of the plan. Using proceeds from a loan from the Company, the ESOP purchased 8%, or 111,090 shares of the Company’s then outstanding common stock in the open market at an average price of $9.35 for a total of $1.0 million. The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate 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

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 – Stock Compensation Plans (Continued)

Employee Stock Ownership Plan (Continued)

and are allocated to each eligible participant based on the ratio of each such participant’s base compensation to the total base compensation of eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the shares become outstanding for earnings per share computations. During the three months and six months ended June 30, 2011, the Company recognized $18,000 and $35,000 of ESOP expense, respectively. During the three months and six months ended June 30, 2010, the Company recognized $17,000 and $34,000 of ESOP expense, respectively.

Recognition & Retention Plan

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention Plan (the “RRP”) and Trust Agreement. In order to fund the RRP, the 2008 Recognition and Retention Plan Trust (the “RRP Trust”) acquired 55,545 shares of the Company’s stock in the open market at an average price of $9.36 totaling $520,000. Pursuant to the RRP, 43,324 shares acquired by the RRP Trust were granted to certain officers, employees and directors of the Company in May 2008, with 12,221 shares remaining available for future grant. Due to forfeiture of shares by certain employees in addition to unawarded shares, as of June 30, 2011, 12,459 shares remain available for future grant. The RRP share awards have vesting periods from five to seven years. On May 14, 2009, the first awards vested totaling 8,588 shares.

A summary of the status of the shares under the RRP as of June 30, 2011 and 2010 and changes during the six months ended June 30, 2011 and 2010 is as follows:

	June 30, 2011					June 30, 2010
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Unvested at the beginning of the year		25,969		$	9.05		34,498		$	9.05
Granted		-			-		-			-
Vested		(8,529	)		9.05		(8,529	)		9.05
Forfeited		-			-		-			-
Unvested at the end of the period		17,440		$	9.05		25,969		$	9.05

The weighted average grant date fair value is the last sale price as quoted on the OTC Bulletin Board on May 14, 2008. Compensation expense on the RRP shares granted is recognized ratably over the five to seven year vesting period in an amount which is equal to the fair value of the common stock at the date of grant During the three months ended June 30, 2011 and 2010, $19,000 in compensation expense was recognized, respectively. A tax benefit of approximately $6,000 was recognized during each of these periods. During the six months ended June 30, 2011 and 2010, $39,000 and $38,000 in compensation expense was recognized, respectively. A tax benefit of approximately $13,000 was recognized during each of these periods. As of June 30, 2011, approximately $148,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.9 years.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 7 – Stock Compensation Plans (Continued)

Stock Options

In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the “Option Plan”). The Option Plan authorizes the grant of stock options to officers, employees and directors of the Company to acquire 138,863 shares of common stock with an exercise price no less than the fair market value on the date of the grant. The Compensation Committee of the Board of Directors determined to grant the stock options in May 2008 at an exercise price equal to $10.00 per share which is higher than the fair market value of the common stock on the grant date. All incentive stock options issued under the Option Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code. Options will become vested and exercisable over a five to seven year period and are generally exercisable for a period of ten years after the grant date. Pursuant to the Option Plan, 108,311 stock options were granted to certain officers, employees and directors of the Company in May 2008. Due to forfeiture of stock options by certain employees in addition to unawarded stock options, as of June 30, 2011, 31,293 stock options remain available for future grant.

A summary of option activity under the Company’s Option Plan as of June 30, 2011 and 2010 and changes during the six months ended June 30, 2011 and 2010 is as follows:

	June 30, 2011				June 30, 2010
	Number of Shares		Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at the beginning of the year		107,570	$	10.00		107,718		$	10.00		7.4
Granted		--		--		--			--		--
Exercised		--		--		--			--		--
Forfeited		--		--		(148	)		--		--
Outstanding at the end of the period		107,570	$	10.00		107,570		$	10.00		6.9
Exercisable at the end of the period		42,666	$	10.00		42,666					6.9

During the three months and six months ended June 30, 2011 and June 30, 2010, approximately $10,000 and $21,000, respectively for both years, was recognized in compensation expense for the 2008 Option Plan. A tax benefit of approximately $2,000 and $4,000, respectively, was recognized during these periods. As of June 30, 2011, approximately $79,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.9 years.

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such circumstances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

The fair value guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The table below presents the balances of assets presented at fair value on a recurring basis at June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Investment securities available for sale:
U.S. Government agency securities	$	1,303	$	-	$	1,303	$	-
Corporate bonds		501		501		-
Short-term bond fund		1,060		1,060		-		-
Limited-term bond fund		504		504		-		-
	$	3,368	$	2,065	$	1,303	$	-

	December 31, 2010
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)
Investment securities available for sale:
U.S. Government agency securities	$	1,737	$	-	$	1,737	$	-
Short-term bond fund		1,037		1,037		-		-
Limited-term bond fund		497		497		-		-
	$	3,271	$	1,534	$	1,737	$	-

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

For assets measured at fair value on a nonrecurring basis that were still held at the end of the period, the following table provides the fair value measurements by level within the fair value hierarchy used at June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)

Impaired loans	$	2,431	$	-	$	-	$	2,431

Other real estate owned	$	1,191	$	-	$	-	$	1,191

	December 31, 2010
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 3)

Impaired loans	$	1,926	$	-	$	-	$	1,926

Other real estate owned	$	1,191	$	-	$	-	$	1,191

A loan is considered to be impaired when, based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan. An insignificant delay or insignificant shortfall in the amount of payments does not necessarily result in the loan being identified as impaired. We establish an allowance on certain impaired loans for the amount by which the discounted cash flows, observable market price or fair value of collateral, if the loan is collateral dependent, is lower than the carrying value of the loan. Fair value is generally based upon independent market prices or appraised value of the collateral. During the periods presented, loan impairment was evaluated based on the fair value of the loans’ collateral. Our appraisals are typically performed by independent third party appraisers, and are obtained as soon as practicable once indicators of possible impairment are identified. Our impaired loans at June 30, 2011 and December 31, 2010 are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property, net of selling costs. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

The following methods and assumptions were used to estimate the fair value of the Company’s financial instruments at June 30, 2011 and December 31, 2010:

Cash and Cash Equivalents (Carried at Cost). The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

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

Investment and Mortgage-Backed Securities. The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), 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.

Loans Held for Sale. Fair values of loans held for sale are determined based on the negotiated service release premium at the time of funding the loan.

Loans Receivable (Carried at Cost). The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

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

Accrued Interest Receivable and Payable (Carried at Cost). The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost). The carrying amounts of short-term borrowings approximate their fair values

Long-Term Debt and Other Borrowings (Carried at Cost). Fair values of FHLB advances and other borrowings are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

Off-Balance Sheet Financial Instruments (Disclosed at Cost). Fair values for the Bank’s off-balance sheet financial instruments (lending commitments) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

The following information is an estimate of the fair value of a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The estimated fair values of the Company’s financial instruments were as follows at June 30, 2011 and December 31, 2010 (in thousands):

	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Assets:
Cash and cash equivalents	$	13,932	$	13,932	$	8,650	$	8,650
Investment in interest-earning time deposits		5,475		5,506		6,001		6,019
Investment securities available for sale		3,368		3,368		3,271		3,271

Mortgage-backed securities held to maturity		4,599		5,013		5,406		5,810
Loans held for sale		1,139		1,153		-		-
Loans receivable, net		73,465		74,643		74,710		76,212
Investment in FHLB stock		683		683		757		757
Accrued interest receivable		454		454		423		423

Liabilities:
Deposits		84,607		85,440		79,691		80,526
FHLB advances, long-term		2,800		2,642		3,800		4,020
FHLB advances, short-term		1,800		1,800		1,800		1,800
Other borrowings		412		412		423		423
Accrued interest payable		96		96		107		107

Off-balance sheet financial instruments		-		-		-		-

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance sheet

Quaint Oak Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 8 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)

financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Quaint Oak Bancorp, Inc.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Forward-Looking Statements Are Subject to Change

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

General

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

At June 30, 2011 the Bank had four subsidiaries, Quaint Oak Mortgage, LLC, Quaint Oak Real Estate, LLC, Quaint Oak Abstract, 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. The insurance agency is currently inactive. The mortgage company also began operating at our main office in October 2010. In connection with the expansion into these activities, the Company acquired an office building in Allentown, Pennsylvania from which the subsidiaries operate. The Bank also opened a new branch office at this location in February 2010.

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.

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. 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 consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers 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 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.

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.

Other-Than-Temporary Impairment of Securities. Securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline and whether or not management intends to sell or expects that it is more likely than not that it will be required to sell the security prior to an anticipated recovery of the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value for a debt security is determined to be other-than-temporary, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income, except for equity securities, where the full amount of the other-than-temporary impairment is recognized in earnings.

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 June 30, 2011 and December 31, 2010

General. The Company’s total assets at June 30, 2011 were $106.1 million, an increase of $4.0 million, or 3.9%, from $102.1 million at December 31, 2010. This increase was primarily due to growth in cash and cash equivalents of $5.3 million, loans held for sale of $1.1 million, and investment securities available for sale of $97,000. Offsetting these increases was a decrease in loans receivable, net of the allowance for loan losses, of $1.2 million, principal payments from mortgage-backed securities held to maturity of $807,000, and a decrease in investment in interest-earning time deposits of $526,000. Asset growth for the six months ended June 30, 2011 was funded by a $4.9 million increase in deposits.

Cash and Cash Equivalents. Cash and cash equivalents increased $5.3 million, or 61.1%, from $8.7 million at December 31, 2010 to $13.9 million at June 30, 2011 as deposits and principal payments on mortgage-backed securities held to maturity and loans, and matured interest-earning time deposits were invested in liquid money market accounts due to reduced loan demand.

Investment in Interest-Earning Time Deposits. Investment in interest-earning time deposits decreased $526,000, or 8.8%, from $6.0 million at December 31, 2010 to $5.5 million at June 30, 2011 due to maturities.

Investment Securities. Investment securities available for sale increased $97,000, or 3.0%, from $3.3 million at December 31, 2010 to $3.4 million at June 30, 2011 as the Company invested on a limited basis excess liquidity and reinvested called agency securities back into this investment category. During this same period, mortgage-backed securities held to maturity decreased $807,000, or 14.9%, from $5.4 million to $4.6 million at June 30, 2011, due to principal payments on these securities.

Loans Held for Sale. Loans held for sale totaled $1.1 million at June 30, 2011 compared to $-0- at December 31, 2010.

Loans Receivable, Net. Loans receivable, net, decreased $1.2 million, or 1.7%, to $73.5 million at June 30, 2011 from $74.7 million at December 31, 2010. Decreases within the portfolio occurred in the one-to-four family residential owner occupied category which decreased $1.8 million, or 13.4%, commercial lines of credit which decreased $567,000, or 30.6%, commercial real estate loan category which decreased $493,000, or 2.6%, home equity loans which decreased $369,000, or 6.0%, and construction loans which decreased $141,000, or 2.4%. Decreases in these loan categories are attributable to reduced loan demand due to the current economic environment, normal amortization and pay-offs, and in the case of one-to-four family residential owner occupied category, the transfer of a $468,000 loan to other real estate owned. These decreases were primarily offset by a $2.0 million, or 7.5%, increase in one-to-four family residential non-owner occupied loans and a $112,000, or 12.9% decline in the allowance for loan losses. The decline in the allowance for loan losses was due to charge-offs totaling $168,000 on three outstanding loans previously reserved for prior to transferring them into other real estate owned, offset by a $56,000 increase in the allowance for loan losses through the provision for loan losses.

Deposits. Total interest-bearing deposits increased $4.9 million, or 6.2%, to $84.6 million at June 30, 2011 from $79.7 million at December 31, 2010. This growth in deposits was attributable to increases in certificates of deposit and eSavings accounts of $4.5 million and $758,000, respectively. These increases were offset by a decrease of $254,000 in statement savings accounts and $107,000 in passbook savings accounts. The increase in certificates of deposit was primarily due to the competitive interest rates offered by the Bank and investors continuing to seek the safety of insured bank deposits.

Other Borrowings. In June 2009, the Company borrowed $450,000 from a commercial bank to finance the acquisition of a building in Allentown, Pennsylvania which serves as the offices for the Bank’s subsidiaries which began operation in July 2009 and branch banking office that opened in February 2010. The loan has an interest rate of 5.75%, matures on July 1, 2014 and is amortizing over 180 months. The balance on the loan at June 30, 2011 was $412,000.

Stockholders’ Equity. Total stockholders’ equity increased $314,000 to $15.5 million at June 30, 2011 from $15.2 million at December 31, 2010. Contributing to the increase was net income for the six months ended June 30, 2011 of $274,000, amortization of stock awards and options under our stock compensation plans of $60,000, common stock released from the suspense account in the employee stock ownership plan of $35,000, and a decrease in accumulated other comprehensive loss of $13,000. These increases were offset by dividends paid of $65,000 and the purchase of 310 shares of the Company’s stock as part of the Company’s stock repurchase program for an aggregate purchase price of $3,000.

Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010

General. Net income amounted to $117,000 for the three months ended June 30, 2011, a decrease of $22,000, or 15.8%, compared to net income of $139,000 for three months ended June 30, 2010. The decrease in net income on a comparative quarterly basis was primarily the result of an increase in non-interest expense of $113,000, offset by increases in net interest income of $54,000 and non-interest income of $26,000, and a decrease in the provision for income taxes of $12,000.

Net Interest Income. Net interest income increased $54,000, or 6.4% to $896,000 for the three months ended June 30, 2011 from $842,000 for the comparable period in 2010. The increase was driven by a $52,000, or 3.9% increase in interest income and a $2,000, or 0.4% decrease in interest expense.

Interest Income. Interest income increased $52,000, or 3.9%, to $1.4 million for the three months ended June 30, 2011 from $1.3 million for the three months ended June 30, 2010. The increase was primarily attributable to a 31 basis point increase in the average yield on net loans receivable which combined with a relatively small $94,000 decline in the average balance of net loans receivable had the effect of increasing interest income by $55,000. Also contributing to the increase was an $8.6 million increase in the average balance of short-term investments and investment activities which when combined with a 13 basis point decrease in the average yield on short-term investments and investment activities had the effect of increasing interest income $22,000. Offsetting these increases was a decrease in interest income related to mortgage-backed securities which declined $25,000 period over period due primarily to a $2.1 million decrease in the average balance between the two periods due to principal payments on these securities. Increases in average short-term investments and investment securities was primarily funded by the $11.4 million period over period increase in average interest-bearing deposits.

Interest Expense. Interest expense decreased $2,000, or 0.4%, to $482,000 for the three months ended June 30, 2011 compared to $484,000 for the three months ended June 30, 2010. The decrease was primarily attributable to a 27 basis point decrease in the overall cost of average interest-bearing liabilities to 2.14% for the three months ended June 30, 2011 from 2.41% for the three months ended June 30, 2010 which resulted in a decrease of $54,000 of interest expense. The decrease in rates was consistent with the decrease in market interest rates from June 2010 to June 2011. This decrease in interest expense due to rate was offset by a $9.6 million increase in average interest-bearing

liabilities, which had the effect of increasing interest expense by $52,000. The increase in the average balance of interest-bearing liabilities was primarily driven by the growth in average certificates of deposit, average statement savings accounts and average eSavings accounts due to customer interest in higher yielding and secure investments. These increases were offset by the decrease in average FHLB advances of $1.6 million as these advances were paid down.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances.

	Three Months Ended June 30,
	2011							2010
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
Interest-earning assets:	(Dollars in thousands)
Short-term investments and investment securities	$	21,524	$	66		1.23		$	12,919	$	44		1.36	%
Mortgage-backed securities		4,800		57		4.75			6,943		82		4.72
Loans receivable, net (1)		73,930		1,255		6.79			74,024		1,200		6.48
Total interest-earning assets		100,254		1,378		5.50	%		93,886		1,326		5.65	%
Non-interest-earning assets		5,940							3,841
Total assets	$	106,194						$	97,727
Interest-bearing liabilities:
Passbook accounts	$	3,073		3		0.39	%	$	3,263		5		0.61	%
Statement savings accounts		6,936		14		0.81			6,645		18		1.08
eSavings accounts		2,965		7		0.94			1,843		6		1.30
Certificate of deposit accounts		71,706		402		2.24			61,694		388		2.52
Total deposits		84,680		426		2.01			73,445		417		2.27
FHLB advances		4,885		50		4.09			6,489		61		3.76
Other borrowings		414		6		5.80			434		6		5.53
Total interest-bearing liabilities		89,979		482		2.14	%		80,368		484		2.41	%
Non-interest-bearing liabilities		749							816
Total liabilities		90,728							81,184
Stockholders’ Equity		15,466							16,543
Total liabilities and Stockholders’ Equity	$	106,194						$	97,727
Net interest-earning assets	$	10,275						$	13,518
Net interest income; average interest rate spread			$	896		3.36	%			$	842		3.24	%
Net interest margin (2)						3.57	%						3.59	%
Average interest-earning assets to average interest-bearing liabilities						111.42	%						116.82	%

_______________________

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

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

Provision for Loan Losses. The Company increased its provision for loan losses by $1,000 from $28,000 for the three months ended June 30, 2010 to $29,000 for the three months ended June 30, 2011, 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 June 30, 2011.

Non-performing loans amounted to $2.1 million, or 2.85% of net loans receivable at June 30, 2011, consisting of twenty-three loans, fourteen of which are on non-accrual status and nine of which are 90 days or more past due and accruing interest. Comparably, non-performing loans amounted to $1.5 million, or 2.02% of net loans receivable at December 31, 2010, consisting of thirteen loans, seven of which were on non-accrual status and six of which were 90 days or more past due and accruing interest. The non-performing loans at June 30, 2011 include ten one-to-four family non-owner occupied residential loans, six home equity loans, six one-to-four family owner occupied residential loans, and one

multi-family residential loan, and all are generally well-collateralized or adequately reserved for. Management does not anticipate any significant losses on these loans. During the quarter ended June 30, 2011, three loans were placed on non-accrual status resulting in the reversal of $5,000 of previously accrued interest income. Also during the quarter, one loan previously on non-accrual status was transferred to other real estate owned. Not included in non-performing loans are performing troubled debt restructurings which totaled $610,000 at June 30, 2011 compared to $430,000 at December 31, 2010. The allowance for loan losses as a percent of total loans receivable was 1.02% at June 30, 2011 and 1.15% at December 31, 2010.

Other real estate owned (OREO) amounted to $1.2 million at June 30, 2011, consisting of six properties, none of which had a carrying value greater than $375,000. This compares to five properties totaling $1.2 million at December 31, 2010 and seven properties totaling $1.4 million at March 31, 2011. Non-performing assets amounted to $3.3 million, or 3.10% of total assets at June 30, 2011 compared to $2.7 million, or 2.64% of total assets at December 31, 2010 and $3.8 million, or 3.69% at March 31, 2011. During the quarter ended June 30, 2011, one one-to-four family owner occupied residential loan with an outstanding loan balance of $468,000 previously classified as impaired and non-accrual, was transferred into other real estate owned at a fair value of approximately $375,000. In conjunction with this transfer, $93,000 of the outstanding loan balance which was previously accrued for, was charged-off through the allowance for loan losses. Also during the quarter, the Company sold two OREO properties and realized gains on each transaction which totaled $63,000. The Company financed the purchase of both properties. As of June 30, 2011, the gains were deferred and will be taken into income in accordance with FASB ASC 360-20 Property, Plant, and Equipment – Real Estate Sales. Subsequent to June 30, 2011 the Company sold another OREO property with a carrying value of $208,000 at a loss of $13,000. The Company financed the purchase of this property. The Company also anticipates a loan closing on one additional OREO property currently under agreement of sale sometime in the third quarter. A minimal loss is expected on this transaction.

Non-Interest Income. Non-interest income increased $26,000, or 34.2%, for the three months ended June 30, 2011 over the comparable period in 2010 due primarily to an increase in fee income generated by Quaint Oak Bank’s mortgage banking, title abstract and real estate sales subsidiaries.

Non-Interest Expense. Non-interest expense increased $113,000, or 17.2%, from $658,000 for the three months ended June 30, 2010 to $771,000 for the three months ended June 30, 2011. Salaries and employee benefits expense accounted for $100,000 of the change as this expense increased 29.7%, from $337,000 for the three months ended June 30, 2010 to $437,000 for the three months ended June 30, 2011 due primarily to increased staff as the Company expanded its mortgage banking and lending operations and implemented employee health care benefits. Also contributing to the period over period increase was a $20,000, or 111.1% increase in expenses related to other real estate owned, as costs were incurred in the second quarter of 2011 on the Bank’s foreclosed properties to maintain the properties and prepare them for resale, a $15,000, or 36.6% increase in occupancy and equipment expense primarily due costs associated with the installation of a new telephone system and repairs, maintenance and real estate taxes related to our Lehigh Valley office, and a $3,000 increase in directors’ fees and expenses. Offsetting these increases was an $18,000 decrease in professional fees, and a $7,000 decrease in advertising.

Provision for Income Tax. The provision for income tax decreased $12,000, or 12.9%, from $93,000 for the three months ended June 30, 2010 to $81,000 for the three months ended June 30, 2011 due primarily to the decrease in pre-tax income as our effective tax rate remained relatively consistent at 40.9% for the 2011 period compared to 40.1% for the comparable period in 2010.

Earnings per Share. Basic and diluted earnings per share decrease from $0.13 per share for the three months ended June 30, 2010 to $0.12 per share for the three months ended June 30, 2011 as a result of a $22,000 decrease in net income, offset by a reduction of 68,846 average basic shares outstanding and 68,835 average diluted shares outstanding during this same period. The reduction in average shares outstanding was attributable to the purchase of 154,310 shares of the Company’s stock in the open-market as part of the Company’s stock repurchase programs, as well as other private repurchases from June 30, 2010 through June 30, 2011.

Comparison of Operating Results for the Six Months Ended June 30, 2011 and 2010

General. Net income amounted to $274,000 for the six months ended June 30, 2011, a decrease of $18,000, or 6.2%, compared to net income of $292,000 for the same period in 2010. The decrease in net income on a period over period basis was primarily the result of a $182,000 increase in non-interest expense, offset by a $102,000 increase in interest income, a $34,000 increase in non-interest income, a $24,000 decrease in interest expense, and a $3,000 decrease in the provision for income taxes.

Net Interest Income. Net interest income increased $126,000 or 7.6%, to $1.8 million for the six months ended June 30, 2011 from $1.7 million for the comparable period in 2010. The increase was driven by a $102,000, or 3.9%, increase in interest income and a $24,000, or 2.5%, decrease in interest expense.

Interest Income. Interest income increased $102,000, or 3.9%, to $2.7 million for the six months ended June 30, 2011 from $2.6 million for the six months ended June 30, 2010. The increase was primarily attributable to a 23 basis point increase in the average yield on net loans receivable which combined with a $605,000 increase in the average balance of net loans receivable had the effect of increasing interest income by $103,000. Also contributing to the increase was a $9.0 million increase in the average balance of short-term investments and investment securities which when combined with a 9 basis point decrease in the average yield on short-term investments and investment securities had the effect of increasing interest income $50,000. Offsetting these increases was a decrease in interest income related to mortgage-backed securities which declined $51,000 period over period due primarily to a $2.2 million decrease in the average balance between the two periods due to principal payments on these securities. Increases in average short-term investments and investment securities was primarily funded by the $11.3 million period over period increase in average interest-bearing deposits.

Interest Expense. Interest expense decreased $24,000, or 2.5%, to $948,000 for the six months ended June 30, 2011 compared to $972,000 for the six months ended June 30, 2010. The decrease was primarily attributable to a 34 basis point decrease in the overall cost of average interest-bearing liabilities to 2.14% for the six months ended June 30, 2011 from 2.48% for the six months ended June 30, 2010 which resulted in a decrease of $137,000 of interest expense. The decrease in rates was consistent with the decrease in market interest rates from June 2010 to June 2011. This decrease in interest expense due to rate was offset by a $9.9 million increase in average interest-bearing liabilities, which had the effect of increasing interest expense by $113,000. The increase in the average balance of interest-bearing liabilities was primarily driven by the growth in average certificates of deposit of $10.4 million, average statement savings accounts of $808,000, and average eSavings accounts of $326,000, due to customer interest in higher yielding and secure investments. These increases were offset by the decrease in average FHLB advances of $1.4 million as these advances were paid down and a decline in passbook accounts of $197,000.

	Six Months Ended June 30,
	2011							2010
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
Interest-earning assets:	(Dollars in thousands)
Short-term investments and investment securities	$	20,143	$	124		1.23	%	$	11,170	$	74		1.32	%
Mortgage-backed securities		5,004		120		4.80			7,197		171		4.75
Loans receivable, net (1)		73,932		2,491		6.74			73,327		2,388		6.51
Total interest-earning assets		99,079		2,735		5.52	%		91,694		2,633		5.74	%
Non-interest-earning assets		5,601							4,586
Total assets	$	104,680						$	96,280
Interest-bearing liabilities:
Passbook accounts	$	3,082		6		0.39	%	$	3,279		11		0.67	%
Statement savings accounts		6,923		27		0.78			6,597		38		1.15
eSavings accounts		2,700		13		0.96			1,892		12		1.27
Certificate of deposit accounts		70,051		786		2.24			59,658		771		2.58
Total deposits		82,756		832		2.01			71,426		832		2.33
FHLB advances		5,241		104		3.97			6,667		127		3.81
Other borrowings		417		12		5.76			437		13		5.95
Total interest-bearing liabilities		88,414		948		2.14	%		78,530		972		2.48	%
Non-interest-bearing liabilities		863							855
Total liabilities		89,277							79,385
Stockholders’ Equity		15,403							16,895
Total liabilities and Stockholders’ Equity	$	104,680						$	96,280
Net interest-earning assets	$	10,665						$	13,164
Net interest income; average interest rate spread			$	1,787		3.38	%			$	1,661		3.26	%
Net interest margin (2)						3.61	%						3.62	%
Average interest-earning assets to average interest-bearing liabilities						112.06	%						116.76	%

______________________

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

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

Provision for Loan Losses. The Company decreased its provision for loan losses by $1,000 from $57,000 for the six months ended June 30, 2010 to $56,000 for the same period in 2011, 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 June 30, 2011. See additional discussion under “Comparison of Operating Results for the Three Months Ended June 30, 2011.”

Non-Interest Income. As was the case for the quarter, the $34,000, or 23.1% increase in non-interest income for the six months ended June 30, 2011 over the comparable period in 2010 was primarily attributable to an increase in fee income generated by Quaint Oak Bank’s mortgage banking, title abstract and real estate sales subsidiaries.

Non-Interest Expense. Non-interest expense increased $182,000, or 14.4%, from $1.3 million for the six months ended June 30, 2010 to $1.5 million for the six months ended June 30, 2011. Salaries and employee benefits expense accounted for $164,000 of the change as this expense increased 24.9%, from $658,000 for the six months ended June 30, 2010 to $822,000 for the six months ended June 30, 2011, due primarily to increased staff as the Company expanded its mortgage banking and lending operations and implemented employee health care benefits. The other real estate owned expense category increased $25,000, or 96.2%, from $26,000 for the six months ended June 30, 2010 to $51,000 for the six months ended June 30, 2011 as costs were incurred in the second quarter of 2011 on the Bank’s foreclosed properties to maintain the properties and prepare them for resale. Occupancy and equipment expense accounted for $17,000 of the change as this expense increased 18.9%, from $90,000 for the six months ended June 30, 2010 to $107,000 for the six months ended June 30, 2011. This period over period increase was primarily attributable to the costs associated with the installation of a new telephone system and repairs, maintenance

and real estate taxes related to our Lehigh Valley office. Directors’ fees and expenses accounted for $9,000 of the change as this expense increased 8.7%, from $104,000 for the six months ended June 30, 2010 to $113,000 for the six months ended June 30, 2011, due primarily to the increased number of committee meetings. Also contributing to the increase in non-interest expenses was a $1,000, or 1.32% increase in FDIC deposit insurance assessment. Offsetting these increases was a decrease in professional fees the amount of $28,000, or 15.5%, from $181,000 for the six months ended June 30, 2010 to $153,000 for the six months ended June 30, 2011, due primarily to reduced legal expenses. Also offsetting the increases in non-interest expense was a $6,000, or 20.7% decrease in advertising.

Provision for Income Tax. The provision for income tax decreased $3,000, or 1.6%, from $191,000 for the six months ended June 30, 2010 to $188,000 for the six months ended June 30, 2011 due primarily to the decrease in pre-tax income as our effective tax rate remained relatively consistent at 40.7% for the 2011 period compared to 39.5% for the comparable period in 2010.

Earnings per Share. Basic and diluted earnings per share increase to $0.28 per share for the six months ended June 30, 2011 from $0.27 per share for the six months ended June 30, 2010 as a result of a reduction of 112,913 average basic shares outstanding and 112,498 average diluted shares outstanding during this same period which offset the $18,000 period over period decrease in net income. The reduction in average shares outstanding was attributable to the purchase of 154,310 shares of the Company’s stock in the open-market as part of the Company’s stock repurchase programs, as well as other private repurchases from June 30, 2010 through June 30, 2011.

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 June 30, 2011, the Company's cash and cash equivalents amounted to $13.9 million. At such date, the Company also had $1.5 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 June 30, 2011, Quaint Oak Bank had outstanding commitments to originate loans of $158,000 and commitments under unused lines of credit of $3.6 million.

At June 30, 2011, certificates of deposit scheduled to mature in less than one year totaled $32.9 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.

In addition to cash flow from loan payments and prepayments and deposits, the Company has significant borrowing capacity available to fund liquidity needs. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Pittsburgh, which provide an additional source of funds. As of June 30, 2011, we had $4.6 million of advances from the Federal Home Loan Bank of Pittsburgh and had $44.7 million in borrowing capacity. We are reviewing our continued utilization of advances from the Federal Home Loan Bank as a source of funding based on the decision in December 2008 by the Federal Home Loan Bank to suspend the dividend on, and restrict the repurchase of, Federal Home Loan Bank stock. The amount of Federal Home Loan Bank stock that a member institution is required to hold is directly proportional to the volume of advances taken by that institution. Should we decide to utilize sources of funding other than advances from the Federal Home Loan Bank, we believe that additional funding is available in the form of advances or repurchase agreements through various other sources. The Bank currently has a line of credit commitment from another bank for borrowings up to $1.5 million. There were no borrowings under this line of credit at June 30, 2011.

Our stockholders’ equity amounted to $15.5 million at June 30, 2011, an increase of $314,000 from December 31, 2010. Contributing to the increase was net income for the six months ended June 30, 2011 of $274,000, amortization of stock awards and options under our stock compensation plans of $60,000, common stock released from the suspense account in the employee stock ownership plan of $35,000, and a decrease in accumulated other comprehensive loss of $13,000. These increases were offset by dividends paid of $65,000 and the purchase of 310 shares of the Company’s stock as part of the Company’s stock repurchase program for an aggregate purchase price of $3,000 . For further discussion of the stock compensation plans, see Note 7 in the Notes to Consolidated Financial Statements contained elsewhere herein.

Quaint Oak Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of at least 4.00%, 4.00% and 8.00%, respectively. At June 30, 2011, Quaint Oak Bank exceeded each of its capital requirements with ratios of 13.41%, 21.64% and 22.81%, respectively. As a savings and loan holding company, the Company is not subject to any regulatory capital requirements.

Off-Balance Sheet Arrangements

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

Commitments. At June 30, 2011, we had unfunded commitments under lines of credit of $3.6 million and $158,000 of commitments to originate loans. We had no commitments to advance additional amounts pursuant to outstanding lines of credit or undisbursed construction loans .

Impact of Inflation and Changing Prices

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2011. Based on their evaluation of the Company’s disclosure controls and procedures, the Company’s Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the first fiscal quarter of fiscal 2011 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 June 30, 2011 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)
April 1, 2011 – April 30, 2011		-	$	-		-		68,535
May 1, 2011 – May 31, 2011		310		9.65		310		68,225
June 1, 2011 – June 30, 2011		-		-		-		-
Total		-	$	9.65		-		68.225

Notes to this table:

(1)

On September 10, 2010, the Company announced by press release its third repurchase program to repurchase up to an additional 69,431 shares, or approximately 6.2% of the Company's current outstanding shares of common stock as of September 30, 2010. The Company commenced this third stock repurchase program upon the completion of its prior repurchase program on December 3, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

No.	Description
31.1	Rule 13a-14(d) and 15d-14(d) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(d) and 15d-14(d) Certification of the Chief Financial Officer.
32.0	Section 1350 Certification.

The following Exhibits are being furnished as part of this report:

No.	Description
101.INS	XBRL Instance Document.*
101.SCH	XBRL Taxonomy Extension Schema Document.*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.*
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document.*

______________________

To be filed within 30 days after the earlier of the due date or filing date of this Form 10-Q, as permitted by Section II (B) (4) of Securities and Exchange Commission Release No. 34-59324 effective April 13, 2009. These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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:	August 15, 2011	By:	/s/Robert T. Strong
			Robert T. Strong
			President and Chief Executive Officer


Date:	August 15, 2011	By:	/s/John J. Augustine
			John J. Augustine Chief Financial Officer

TABLE OF CONTENTS

Part I Item 1. Financial Statements Note 1 Financial Statement Presentation and Significant Accounting Policies Note 1 Financial Statement Presentation and Significant Accounting Policies (continued)Note 2 Investment Securities Note 3 Mortgage-backed Securities Held To Maturity Note 4 - Loans Receivable, Net and Allowance For Loan Losses Note 4 - Loans Receivable, Net and Allowance For Loan Losses (continued)Note 5 Deposits Note 6 Borrowings Note 7 Stock Compensation Plans Note 7 Stock Compensation Plans (continued)Note 8 Fair Value Measurements and Fair Values Of Financial Instruments Note 8 Fair Value Measurements and Fair Values Of Financial Instruments (continued)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. (removed and Reserved)Item 5. Other Information Item 6. Exhibits

QNTO 10-Q Quarter ended June 30, 2011