RISK FACTORS

        You should consider carefully the following risk factors before deciding whether to invest in our common stock. Our business could be harmed by any of these risks. In assessing these risks you should also refer to the other information contained in this prospectus, including our financial statements and the related notes thereto.

Risks Related to Our Business

         Changes in interest rates could have a material adverse effect on our operations. Our profitability is dependent to a large extent on net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and investment securities and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. We monitor our interest rate risk by analyzing the extent to which our assets and liabilities are interest rate sensitive by calculating our interest rate sensitivity “gap.”The interest rate sensitivity gap is the difference between the amount of our interest-earning assets and interest-bearing liabilities maturing or repricing during the same time periods. Historically, we have had a policy that our one-year gap should not exceed 20% unless we determine to make an exception to this policy. In the past two years, due to prevailing interest rates, consumer preferences and significant competition for loans, we have permitted our one year gap position to exceed 20%. At December 31, 2006, our one-year cumulative gap was a negative 28.9% compared to a negative 22.0% at December 31, 2005. We continue to monitor our interest rate sensitivity and believe that the estimated maturities of our interest-earning assets currently are adequately balanced in relation to the estimated maturities of our interest-bearing liabilities. There can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

          Our net interest income and profitability may decline with the flattening of the yield curve. Over the past year, as the Federal Reserve Board has increased interest rates, the yield curve has flattened, in that long-term interest rates (which we use as a guide to price our longer-term loans) have not moved in tandem with short-term rates (which we use as a guide to price our deposits). Under ordinary conditions, the yield curve has a positive slope, indicating that long-term instruments pay higher yields than do short-term instruments, and that borrowers are willing to pay a premium for long-term funds. A flat yield curve, on the other hand, generally indicates uncertainty about the direction in which interest rates are moving. As a result of the flattening of the yield curve, our net interest income and profitability may decline.

          If our allowance for losses on loans is not adequate to cover probable losses our earnings could decrease. We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans. Material additions to our allowance also would materially decrease our net income, and the charge-off of loans may cause us to increase the allowance. We make various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. We rely on our loan quality reviews, our experience and our evaluation of economic conditions, among other factors, in determining the amount of the allowance for loan losses. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. There can be no assurance that any future declines in real estate market conditions, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan losses, which would adversely affect our results of operations.

         Our loan portfolio includes a significant amount of commercial real estate loans and loans for investment properties which have a higher risk of loss. Our lending activities include loans secured by commercial real estate and non-owner occupied investment properties. Such lending activity generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. Our lending activities also include consumer loans, including home equity loans and, we expect in the future, lines of credit. Although commercial business loans and consumer loans generally have shorter terms and higher interests rates than mortgage loans, they generally involve more risk

than mortgage loans because of the nature of, or in certain cases the absence of, the collateral which secures such loans.

         Our results of operations are significantly dependent on economic conditions and related uncertainties and the geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy. The operations of savings institutions are affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number of other adverse effects on our operations, as discussed in the risk factor above. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in the metropolitan Philadelphia area because we derive the vast majority of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in our local economy.

         We are subject to extensive regulation, and changes in laws and regulations to which we are subject may adversely affect our business and operations. We are subject to extensive federal and state governmental supervision and regulation, which are intended primarily for the protection of depositors. In addition, we are subject to changes in federal and state laws, as well as changes in regulations, governmental policies and accounting principles. Quaint Oak Bank will be subject to extensive regulation, supervision and examination by the Pennsylvania Department of Banking, as its chartering authority, and by the Federal Deposit Insurance Corporation as the insurer of its deposits up to certain limits. In addition, the Office of Thrift Supervision will regulate and oversee Quaint Oak Bancorp. Quaint Oak also belongs to the Federal Home Loan Bank System and, as a member of such system, is subject to certain limited regulations promulgated by the Federal Home Loan Bank of Pittsburgh. This regulation and supervision limits the activities in which we may engage. The purpose of this regulation and supervision is primarily to protect our depositors and borrowers and, in the case of Federal Deposit Insurance Corporation regulation, the Federal Deposit Insurance Corporation’s insurance fund, but not our investors. Regulatory authorities have extensive discretion in the exercise of their supervisory and enforcement powers. They may, among other things, impose restrictions on the operation of a banking institution, the classification of assets by such institution and such institution’s allowance for loan losses. Regulatory and law enforcement authorities also have wide discretion and extensive enforcement powers under various consumer protection and civil rights laws, including the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, and the Real Estate Settlement Procedures Act. Any change in the laws or regulations applicable to us, or in banking regulators’ supervisory policies or examination procedures, whether by the Pennsylvania Department of Banking, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, other state or federal regulators, or the United States Congress could have a material adverse effect on our business, financial condition, results of operations and cash flows.

         If we lose our key officer, it could adversely affect our operations. The loss of our President and Chief Executive Officer could have an adverse affect on us. Mr. Strong maintains significant business relationships in our market area and has in the past produced a significant number of loans through these relationships. A decline in our lending activity could have an adverse affect on net income.

         We face strong competition in our primary market area which may adversely affect our profitability. We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain of our competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services. Competition from both bank and non-bank organizations will continue.

         Our ability to successfully compete may be reduced if we are unable to make technological advances. The banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. As a result, our future success will depend in part on our ability to address our customers’ needs by using technology. We cannot assure you that we will be able to effectively develop new technology-driven products and services or be successful in marketing these products to our customers. Many of our competitors have far greater resources than we have to invest in technology.

         We may not succeed in our plan to grow. We intend to expand our deposit taking and loan operations. We face significant competition in our market area and may not succeed in expanding our operations. Our ability to expand depends on whether we can generate new deposits and loans that will create an acceptable level of net income. We cannot assure you that we will be successful in our plan to grow.

Risks Related to this Offering

         The implementation of stock-based benefit plans will increase our future compensation and may adversely affect our net income. Following the offering, we will recognize additional annual employee compensation and benefit expenses stemming from options and shares granted to employees, directors and executives under new benefit plans. These additional expenses will adversely affect our net income. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices generally require that they be based on the fair market value of the options or shares of common stock at the date of the grant; however, we expect them to be significant. We will recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. These benefit expenses in the first year following the offering have been estimated to be approximately $182,000 at the maximum of the offering range as set forth in the pro forma financial information under “Unaudited Pro Forma Data” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock at that time. For further discussion of these plans, see “Management - New Stock Benefit Plans.”

         A limited market for our common stock may depress our market price and make it difficult to buy or sell our stock. We expect our stock to be listed on the OTC Bulletin Board. However, it is unlikely that an active and liquid trading market for our stock will develop, due to the small size of the offering and the small number of stockholders we expect to have. As a result, you may not be able to buy or sell our common stock quickly. There may be a wide spread between the bid and asked price for our common stock after the conversion and there can be no assurance that you will be able to sell your shares at or above the purchase price. You should consider the potentially long-term nature of an investment in our common stock.

         Our stock price may decline when trading commences. We cannot guarantee that if you purchase shares in the offering that you will be able to sell them at or above the $10.00 purchase price. The trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stock, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

         We intend to remain independent, which may mean you will not receive a premium for your common stock. We intend to remain independent for the foreseeable future. Because we do not plan on seeking possible acquirors, it is unlikely that we will be acquired in the foreseeable future. Accordingly, you should not purchase our common stock with any expectation that a takeover premium will be paid to you in the near term.

         We Have Broad Discretion in Allocating the Proceeds of the Offering. We intend to contribute approximately 50% of the net proceeds of the offering to Quaint Oak Bank. Quaint Oak Bancorp may use the portion of the proceeds that it retains to, among other things, invest in securities, pay cash dividends or repurchase shares of common stock, subject to regulatory restriction. Quaint Oak Bank initially intends to use the net proceeds it retains to originate new loans, finance the possible expansion of our business activities and for general corporate

purposes. In the future, Quaint Oak Bank may use the portion of the proceeds that it receives to invest in securities and expand its business activities. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. There is a risk that we may fail to effectively use the net proceeds which could have a negative effect on our future profitability ratios.

         Our employee stock-based benefit plans may be dilutive. If the offering is completed and stockholders subsequently approve a recognition and retention plan and a stock option plan, we will allocate stock to our officers, employees and directors through these plans. If the shares for the recognition and retention plan are issued from our authorized but unissued stock, the ownership percentage of outstanding shares of Quaint Oak Bancorp would be diluted by approximately 3.9%. However, it is our intention to purchase shares of our common stock in the open market to fund the recognition and retention plan. Assuming the shares of our common stock to be awarded under the recognition and retention plan are purchased at a price equal to the offering price in the offering, the reduction to stockholders’ equity from the recognition and retention plan would be between $357,000 and $555,000 at the minimum and the maximum, as adjusted, of the offering range. The ownership percentage of Quaint Oak Bancorp stockholders would also decrease by approximately 9.1% if all potential stock options under our proposed stock option plan are exercised and are filled using shares issued from authorized but unissued stock, assuming the offering closes at the maximum of the offering range. See “Unaudited Pro Forma Data” for data on the dilutive effect of the recognition and retention plan and the stock option plan and “Management - New Stock Benefit Plans” for a description of the plans.

         Our stock value may suffer from anti-takeover provisions in our charter and bylaws that may impede potential takeovers that management opposes. Provisions in our corporate documents, as well as certain federal regulations, may make it difficult and expensive to pursue a tender offer, change in control or takeover attempt that our board of directors opposes. As a result, our stockholders may not have an opportunity to participate in such a transaction, and the trading price of our stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. Anti-takeover provisions contained in our corporate documents include:

        See “Restrictions on Acquisition of Quaint Oak Bancorp and Quaint Oak Bank and Related Anti-Takeover Provisions” for a description of anti-takeover provisions in our corporate documents and federal regulations.

         We will be required to implement additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements, which may increase our operating expenses. After the completion of this offering, we will become a public reporting company. The federal securities laws and the regulations of the Securities and Exchange Commission will require that we file annual, quarterly and current reports and that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We expect that the obligations of being a public company, including substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. These obligations will increase our operating expense and could divert our management’s attention from our operations.