QNB CORP - Quarter Report: 2008 September (Form 10-Q)

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 September 30, 2008

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

For the transition period from to

Commission file number 0-17706

QNB Corp.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	23-2318082
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

15 North Third Street, Quakertown, PA	18951-9005
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code (215)538-5600

Not Applicable

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer þ
Non-accelerated filer ¨	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 ¨ No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at October 31, 2008
Common Stock, par value $.625	3,136,423

QNB CORP. AND SUBSIDIARY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2008

INDEX

PART I - FINANCIAL INFORMATION

		PAGE
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

	Consolidated Balance Sheets at September 30, 2008
	and December 31, 2007	1

	Consolidated Statements of Income for the Three and Nine
	Months Ended September 30, 2008 and 2007	2

	Consolidated Statement of Shareholders’ Equity for the Nine
	Months Ended September 30, 2008	3

	Consolidated Statements of Cash Flows for the Nine
	Months Ended September 30, 2008 and 2007	4

	Notes to Consolidated Financial Statements	5

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS	16

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	48

ITEM 4.	CONTROLS AND PROCEDURES	48


PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	49

ITEM 1A.	RISK FACTORS	49

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	49

ITEM 4.	SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS	49

ITEM 5.	OTHER INFORMATION	49

ITEM 6.	EXHIBITS	49

SIGNATURES

CERTIFICATIONS

QNB Corp. and Subsidiary

CONSOLIDATED BALANCE SHEETS

	(in thousands, except share data) (unaudited)
	September 30, 2008			December 31, 2007

Assets
Cash and due from banks	$	14,287		$	14,322
Federal funds sold		–			–
Total cash and cash equivalents		14,287			14,322

Investment securities
Available-for-sale (amortized cost $222,345 and $189,273)		219,675			191,552
Held-to-maturity (fair value $3,659 and $4,122)		3,598			3,981
Non-marketable equity securities		1,342			954
Loans held-for-sale		–			688
Total loans, net of unearned costs		380,105			381,016
Allowance for loan losses		(3,492	)		(3,279	)
Net loans		376,613			377,737
Bank-owned life insurance		8,676			8,651
Premises and equipment, net		6,635			6,728
Accrued interest receivable		2,980			2,742
Other assets		4,521			2,458
Total assets	$	638,327		$	609,813

Liabilities
Deposits
Demand, non-interest bearing	$	49,125		$	50,043
Interest-bearing demand		99,816			97,290
Money market		46,646			49,666
Savings		43,759			42,075
Time		199,207			190,461
Time of $100,000 or more		88,366			64,589
Total deposits		526,919			494,124
Short-term borrowings		19,557			33,990
Long-term debt		35,000			25,000
Accrued interest payable		2,711			2,344
Other liabilities		1,843			1,104
Total liabilities		586,030			556,562

Shareholders' Equity
Common stock, par value $.625 per share; authorized 10,000,000 shares; 3,243,109 and 3,241,390 shares issued; 3,136,423 and 3,134,704 shares outstanding		2,027			2,026
Surplus		10,008			9,933
Retained earnings		43,518			41,282
Accumulated other comprehensive (loss) income, net		(1,762	)		1,504
Treasury stock, at cost; 106,686 shares		(1,494	)		(1,494	)
Total shareholders' equity		52,297			53,251
Total liabilities and shareholders' equity	$	638,327		$	609,813

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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QNB Corp. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME

	(in thousands, except share data)
	(unaudited)
	Three Months					Nine Months
	Ended September 30,					Ended September 30,
	2008			2007		2008		2007

Interest Income
Interest and fees on loans	$	6,005		$	6,272	$	18,399	$	18,255
Interest and dividends on investment securities:
Taxable		2,291			2,130		6,491		6,395
Tax-exempt		466			426		1,385		1,291
Interest on Federal funds sold		56			173		138		290
Interest on interest-bearing balances and other interest income		14			39		47		159
Total interest income		8,832			9,040		26,460		26,390

Interest Expense
Interest on deposits
Interest-bearing demand		276			682		784		1,777
Money market		198			409		693		1,200
Savings		44			44		129		134
Time		2,007			2,171		6,298		6,146
Time of $100,000 or more		768			723		2,340		2,089
Interest on short-term borrowings		113			200		379		590
Interest on long-term debt		381			306		1,122		1,398
Total interest expense		3,787			4,535		11,745		13,334
Net interest income		5,045			4,505		14,715		13,056
Provision for loan losses		150			150		575		375
Net interest income after provision for loan losses		4,895			4,355		14,140		12,681

Non-Interest Income
Fees for services to customers		474			469		1,347		1,360
ATM and debit card income		237			226		698		633
Income on bank-owned life insurance		63			64		233		195
Mortgage servicing fees		31			28		72		78
Net gain on sale of loans		13			50		85		78
Net (loss) gain on investment securities available-for-sale		(103	)		–		1		(2,469	)
Other operating income		100			152		592		382
Total non-interest income		815			989		3,028		257

Non-Interest Expense
Salaries and employee benefits		1,999			1,826		5,925		5,554
Net occupancy expense		324			311		997		911
Furniture and equipment expense		295			257		870		774
Marketing expense		171			156		496		480
Third party services		196			181		589		547
Telephone, postage and supplies expense		158			134		462		399
State taxes		121			122		381		366
Loss on prepayment of Federal Home Loan Bank advances		–			–		–		740
Other expense		404			340		1,074		1,030
Total non-interest expense		3,668			3,327		10,794		10,801
Income before income taxes		2,042			2,017		6,374		2,137
Provision for income taxes		476			463		1,492		111
Net Income	$	1,566		$	1,554	$	4,882	$	2,026
Earnings Per Share - Basic	$	.50		$	.50	$	1.56	$	.65
Earnings Per Share - Diluted	$	.50		$	.49	$	1.54	$	.64
Cash Dividends Per Share	$	.23		$	.22	$	.69	$	.66

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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QNB Corp. and Subsidiary

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

						Accumulated
						Other
	Number					Comprehensive
(in thousands, except share data)	of Shares		Comprehensive			Income			Common				Retained			Treasury
(unaudited)	Outstanding		Income			(Loss)			Stock		Surplus		Earnings			Stock			Total
Balance, December 31, 2007		3,134,704				$	1,504		$	2,026	$	9,933	$	41,282		$	(1,494	)	$	53,251

Net income		–	$	4,882			–			–		–		4,882			–			4,882
Other comprehensive loss, net of taxes
Unrealized holding losses on investment securities available-for-sale		–		(3,265	)
Reclassification adjustment for gains included in net income		–		(1	)
Other comprehensive loss		–		(3,266	)		(3,266	)		–		–		–			–			(3,266	)
Comprehensive income		–	$	1,616			–			–		–		–			–			–
Cash dividends declared ($.69 per share)		–					–			–		–		(2,165	)		–			(2,165	)
Stock issue - Employee stock purchase plan		1,719					–			1		31		–			–			32
Stock-based compensation expense		–					–			–		44		–			–			44
Cumulative effect of adoption of new accounting principle - accounting for deferred compensation aspects of split dollar life insurance arrangements (EITF 06-4)		–					–			–		–		(481	)		–			(481	)
Balance, September 30, 2008		3,136,423				$	(1,762	)	$	2,027	$	10,008	$	43,518		$	(1,494	)	$	52,297

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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QNB Corp. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

	(in thousands)
	(unaudited)
Nine Months Ended September 30,	2008			2007
Operating Activities
Net income	$	4,882		$	2,026
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		625			547
Provision for loan losses		575			375
Net securities (gains) losses		(1	)		2,469
Gain on sale of equity investment		(175	)		–
Net gain on sale of loans		(85	)		(78	)
Net loss on disposal of premises and equipment		3			1
Net gain on sale of repossessed assets		(19	)		(2	)
Proceeds from sales of residential mortgages		7,661			4,895
Originations of residential mortgages held-for-sale		(6,946	)		(4,716	)
Income on bank-owned life insurance		(233	)		(195	)
Life insurance premiums		(16	)		(21	)
Stock-based compensation expense		44			77
Deferred income tax benefit		(57	)		(106	)
Net increase (decrease) in income taxes payable		153			(209	)
Net increase in accrued interest receivable		(238	)		(214	)
Amortization of mortgage servicing rights and identifiable intangible assets		60			89
Net amortization of premiums and discounts on investment securities		(157	)		(27	)
Net increase (decrease) in accrued interest payable		367			(200	)
Increase in other assets		(274	)		(382	)
Increase in other liabilities		190			194
Net cash provided by operating activities		6,359			4,523
Investing Activities
Proceeds from maturities and calls of investment securities available-for-sale		30,133			23,769
held-to-maturity		380			920
Proceeds from sales of investment securities available-for-sale		3,964			102,007
Purchase of investment securities available-for-sale		(67,008	)		(94,168	)
Proceeds from sale of equity investment		175			–
Proceeds from sales of non-marketable equity securities		332			2,846
Purchase of non-marketable equity securities		(720	)		(649	)
Net decrease (increase) in loans		59			(23,732	)
Net purchases of premises and equipment		(535	)		(614	)
Redemption of bank owned life insurance investment		224			86
Proceeds from sale of repossessed assets		373			92
Net cash (used) provided by investing activities		(32,623	)		10,557
Financing Activities
Net (decrease) increase in non-interest bearing deposits		(918	)		3,692
Net increase (decrease) in interest-bearing non-maturity deposits		1,190			(3,977	)
Net increase in time deposits		32,523			15,902
Net decrease in short-term borrowings		(14,433	)		(9,124	)
Repayment of long-term debt		–			(52,000	)
Proceeds from issuance of long-term debt		10,000			25,000
Cash dividends paid		(2,165	)		(2,066	)
Proceeds from issuance of common stock		32			36
Net cash (used) provided by financing activities		26,229			(22,537	)
Decrease in cash and cash equivalents		(35	)		(7,457	)
Cash and cash equivalents at beginning of year		14,322			24,103
Cash and cash equivalents at end of period	$	14,287		$	16,646
Supplemental Cash Flow Disclosures
Interest paid	$	11,378		$	13,534
Income taxes paid		1,380			410
Non-Cash Transactions
Change in net unrealized holding (losses) gains, net of taxes, on available-for-sale securities		(3,266	)		1,390
Transfer of loans to repossessed assets		490			103

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of QNB Corp. and its wholly-owned subsidiary, QNB Bank (the Bank). The consolidated entity is referred to herein as “QNB” or the “Company”. All significant intercompany accounts and transactions are eliminated in the consolidated financial statements.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in QNB's 2007 Annual Report incorporated in the Form 10-K. Operating results for the three- and nine-month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim periods and are of a normal and recurring nature. Certain items in the 2007 consolidated financial statements have been reclassified to conform to the 2008 financial statement presentation format.

Tabular information, other than share and per share data, is presented in thousands of dollars.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from such estimates.

2. STOCK-BASED COMPENSATION

QNB sponsors stock-based compensation plans, administered by a committee, under which both qualified and non-qualified stock options may be granted periodically to certain employees. QNB accounts for all awards granted under stock-based compensation plans in accordance with Financial Accounting Standards Board (FASB) Statement No. 123R, Share-Based Payment (FASB No. 123R). Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Stock-based compensation expense was approximately $14,000 and $20,000 for the three months ended September 30, 2008 and 2007, respectively, and $44,000 and $77,000 for the nine months ended September 30, 2008 and 2007, respectively. As of September 30, 2008, there was approximately $65,000 of unrecognized compensation cost related to unvested share-based compensation awards granted that is expected to be recognized over the next 2.25 years.

Options are granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The 1998 Plan authorizes the issuance of 220,500 shares. The time period during which any option is exercisable under the Plan is determined by the committee but shall not commence before the expiration of six months after the date of grant or continue beyond the expiration of ten years after the date the option is awarded. The granted options vest ratably over a three-year period. As of September 30, 2008, there were 225,058 options granted, 9,994 options forfeited, 37,441 options exercised and 177,623 options outstanding under this Plan. The 1998 Plan expired on March 10, 2008, therefore no further options can be granted under this Plan.

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

2. STOCK-BASED COMPENSATION (Continued):

The 2005 Plan authorizes the issuance of 200,000 shares. The terms of the 2005 Plan are identical to the 1998 Plan, except options expire five years after the grant date. As of September 30, 2008, there were 43,700 options granted and outstanding under this Plan. The 2005 Plan expires March 15, 2015.

The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. QNB estimated the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature. The following assumptions were used in the option pricing model in determining the fair value of options granted during the nine months ended September 30:

Options granted	2008			2007
Risk-free interest rate		3.00	%		4.74	%
Dividend yield		3.64			3.50
Volatility		18.46			15.99
Expected life		5	yrs.		5	yrs.

The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and expected lives of the options.

The fair market value of options granted in the first nine months of 2008 and 2007 was $2.63 and $3.57, respectively.

Stock option activity during the nine months ended September 30, 2008 is as follows:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Options		Price		Term (in yrs.)		Value

Outstanding at January 1, 2008		203,923	$	20.56		3.9
Exercised		-		-
Granted		17,400	$	21.00

Outstanding at September 30, 2008		221,323	$	20.60		3.3	$	505

Exercisable at September 30, 2008		169,123	$	19.53		3.2	$	505

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

3. SHARE REPURCHASE PLAN

On January 24, 2008, QNB announced that the Board of Directors authorized the repurchase of up to 50,000 shares of its common stock in open market or privately negotiated transactions. The repurchase authorization does not bear a termination date. QNB has not repurchased any shares to date under this authorization.

4. EARNINGS PER SHARE

The following sets forth the computation of basic and diluted earnings per share:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2008		2007		2008		2007

Numerator for basic and diluted earnings per share: net income	$	1,566	$	1,554	$	4,882	$	2,026

Denominator for basic earnings per share: weighted average shares outstanding		3,136,423		3,130,300		3,135,451		3,129,359

Effect of dilutive securities: employee stock options		25,417		45,871		28,702		45,152

Denominator for diluted earnings per share: adjusted weighted average shares outstanding		3,161,840		3,176,171		3,164,153		3,174,511


Earnings per share-basic	$	0.50	$	0.50	$	1.56	$	0.65
Earnings per share-diluted	$	0.50	$	0.49	$	1.54	$	0.64

There were 121,600 and 87,100 stock options that were anti-dilutive for the three- and nine-month periods ended September 30, 2008, respectively. There were 69,700 stock options that were anti-dilutive for each of the three- and nine-month periods ended September 30, 2007. These stock options were not included in the above calculation.

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

5. COMPREHENSIVE INCOME

For QNB, the sole component of other comprehensive income (loss) is the unrealized holding gains and losses on available-for-sale investment securities.

The following shows the components and activity of comprehensive income during the periods ended

September 30, 2008 and 2007:

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2008			2007			2008			2007

Unrealized holding (losses) gains arising during the period on securities available-for-sale [net of tax benefit (tax expense) of $483, $(609), $1,682 and $124, respectively]	$	(938	)	$	1,183		$	(3,265	)	$	(240	)

Reclassification adjustment for losses (gains) included in net income [net of tax benefit of $(35), $0, $0 and $(839), respectively]		68			-			(1	)		1,630

Net change in unrealized gains and losses during the period		(870	)		1,183			(3,266	)		1,390

Accumulated other comprehensive (loss) income, beginning of period		(892	)		(608	)		1,504			(815	)

Accumulated other comprehensive (loss) income, end of period	$	(1,762	)	$	575		$	(1,762	)	$	575

Net income	$	1,566		$	1,554		$	4,882		$	2,026

Other comprehensive income, net of tax:

Unrealized holding (losses) gains arising during the period [net of tax benefit (tax expense) of $448, $(609), $1,682 and $(715), respectively]		(870	)		1,183			(3,266	)		1,390

Comprehensive income	$	696		$	2,737		$	1,616		$	3,416

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

6. FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued FASB No. 157, Fair Value Measurements, to provide consistency and comparability in determining fair value measurements and to provide for expanded disclosures about fair value measurements. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities.

As required by FASB No. 157, each financial asset and liability must be identified as having been valued according to specified level of input, 1, 2 or 3.

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that QNB has the ability to access at the measurement date.

Level 2 – Significant other observable inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3 – Significant unobservable inputs for the asset, and include situations where there is little, if any, market activity for the asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, within which the fair value measurement in its entirety falls, has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. QNB’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.

The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the security’s relationship to other benchmark quoted securities.

QNB used the following methods and significant assumptions to estimate the fair value of each type of financial instrument.

Securities available-for-sale: The fair value for securities available-for-sale are determined by quoted market prices (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

6. FAIR VALUE MEASUREMENTS (Continued)

Impaired Loans: QNB considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement, including principal and interest. Management has determined that commercial purpose loan relationships that are on nonaccrual status meet this impaired loan definition, with the amount of impairment based upon the estimated fair value of the collateral for collateral-dependent loans, or alternatively, the present value of the expected future cash flows discounted at the loan’s effective interest rate. Appraised values are generally used on real estate collateral-dependent impaired loans, which the Company classifies as a Level 3 nonrecurring fair value measurement. The present value of the expected future cash flows of an impaired loan is also classified as a Level 3 measurement.

The following table presents information about QNB’s assets measured at fair value on a recurring and nonrecurring basis as of September 30, 2008 and indicates the fair value hierarchy of the valuation techniques utilized by QNB to determine such fair value:

	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Balance as of
	Assets		Input		Inputs		September 30,
	(Level 1)		(Level 2)		(Level 3)		2008
*Recurring basis:*
Securities available-for-sale	$	3,945	$	212,569	$	3,161	$	219,675

*Nonrecurring basis:*
Impaired loans	$	-	$	-	$	384	$	384

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended September 30, 2008:

	Fair Value
	Measurements Using
	Significant
	Unobservable Inputs
	(Level 3)
	Securities available-
	for-sale
Beginning balance, July 1, 2008	$	3,581
Purchases, issuances and settlements		(69	)
Total gains or losses (realized/unrealized)
Included in earnings		-
Included in other comprehensive income		(351	)
Transfers in and/or out of Level 3		-
Ending balance, September 30, 2008	$	3,161

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QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

There were no gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to the available-for-sale securities above with fair value measurements utilizing significant unobservable inputs.

Securities available-for-sale with fair value Level 3 measurements consist of pools of trust preferred securities. The market for trust preferred securities issued by Banks and Insurance companies has become inactive in response to the global credit crisis. Bid-ask spreads on these types of securities have widened significantly and the volume of trades has been virtually non-existent during 2008. QNB holds some of these investment securities in our available-for-sale portfolio and chose to value them using Level 3 inputs at September 30, 2008. We determined that significant adjustments using unobservable inputs were required to determine the fair value of these securities at the measurement date which resulted in a Level 3 price. The pricing for these securities utilized a discount rate from the Bloomberg Fair Value Index yield curve for single issuer trust preferred securities with similar ratings, interest rates and maturity dates (an observable input). In addition, a 150 basis point liquidity premium was utilized to take into account nonperformance and liquidity risk (a management estimate and thus an unobservable input). Both the yield to maturity as well as the yield to auction call were considered, with the ultimate pricing using an average of these two.

7. LOANS

The following table presents loans by category as of September 30, 2008 and December 31, 2007:

	September 30, 2008		December 31, 2007
Commercial and industrial	$	83,456	$	88,445
Construction		26,270		23,959
Agricultural		-		25
Real estate-commercial		132,041		131,392
Real estate-residential		120,338		119,172
Consumer		4,799		4,442
Indirect lease financing		13,042		13,431
Total loans		379,946		380,866
Net unearned costs (fees)		159		150
Total loans, net	$	380,105	$	381,016

- 11 -

QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

8. INTANGIBLE ASSETS:

The following table reflects the components of mortgage servicing rights as of the periods indicated:

	Nine Months Ended			Year Ended
	September 30,			December 31,
	2008			2007

Mortgage servicing rights beginning balance	$	451		$	472
Mortgage servicing rights capitalized		58			49
Mortgage servicing rights amortized		(60	)		(70	)
Fair market value adjustments		-			-

Mortgage servicing rights ending balance	$	449		$	451

Mortgage loans serviced for others	$	69,206		$	69,194

Amortization expense of intangibles	$	60		$	113

The annual estimated amortization expense of intangible assets for each of the five succeeding fiscal years is as follows:

Estimated Amortization Expense

For the Year Ended 12/31/08	$	81
For the Year Ended 12/31/09		80
For the Year Ended 12/31/10		69
For the Year Ended 12/31/11		57
For the Year Ended 12/31/12		47

9. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND GUARANTEES

QNB is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same lending standards and policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The activity is controlled through credit approvals, control limits, and monitoring procedures.

- 12 -

QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

9. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS AND GUARANTEES (Continued)

A summary of the Bank's financial instrument commitments is as follows:

	September 30,		December 31,
	2008		2007
Commitments to extend credit and unused lines of credit	$	91,960	$	77,264
Standby letters of credit		2,689		3,760
	$	94,649	$	81,024

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. QNB evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by QNB upon extension of credit, is based on management's credit evaluation of the customer and generally consists of real estate.

QNB does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank, generally, holds collateral and/or personal guarantees supporting these commitments. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of September 30, 2008 and December 31, 2007 for guarantees under standby letters of credit issued is not material.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The guidance is applicable to endorsement split dollar life insurance arrangements, whereby the employer owns and controls the insurance policy, that are associated with a postretirement benefit. EITF 06-4 requires that for a split-dollar life insurance arrangement within the scope of the Issue, an employer should recognize a liability for future benefits in accordance with FASB No. 106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. As a result of adopting this standard, QNB recorded a cumulative effect adjustment of $481,000 to retained earnings effective January 1, 2008. In addition, the expense recorded in the first nine months of 2008 was approximately $33,000.

- 13 -

QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

10. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 was effective for QNB on January 1, 2008. QNB did not elect to measure any items at fair value, therefore the adoption of SFAS No. 159 did not have an impact on our consolidated financial statements.

FASB Statement No. 141(R) Business Combinations was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact QNB’s accounting for business combinations completed beginning January 1, 2009.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (Statement 161). Statement 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. Statement 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 have been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The implementation of this standard will not have any impact on QNB’s consolidated financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The implementation of this standard will not have a material impact on QNB’s consolidated financial position and results of operations.

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP 133-1 and FIN 45-4). FSP 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. It also clarifies that the disclosure requirements of SFAS No. 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The implementation of this standard will not have any impact on QNB’s consolidated financial position and results of operations.

- 14 -

QNB CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 AND 2007, AND DECEMBER 31, 2007

(Unaudited)

10. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our September 30, 2008 financial statements. QNB has applied the provisions of FSP 157-3 to its financial statements as of and for the period ended September 30, 2008. At September 30, 2008, the Company determined that no active market existed for available-for-sale securities with an amortized cost of $5,111,000. The Company has estimated fair values of such investment securities through the use of unobservable inputs. As a result, the Company reports these securities in the Level 3 category and estimated that the fair values of such securities was $3,161,000 at September 30, 2008.

- 15 -

QNB CORP. AND SUBSIDIARY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

QNB Corp. is a bank holding company headquartered in Quakertown, Pennsylvania. QNB Corp., through its wholly-owned subsidiary, QNB Bank (the Bank), has been serving the residents and businesses of upper Bucks, northern Montgomery and southern Lehigh counties in Pennsylvania since 1877. The Bank is a locally managed community bank that provides a full range of commercial and retail banking and retail brokerage services. The consolidated entity is referred to herein as “QNB” or the “Company”.

Prior to December 28, 2007, the Bank was a national banking association organized in 1877 as The Quakertown National Bank. As The Quakertown National Bank, it was chartered under the National Banking Act and was subject to Federal and state laws applicable to commercial banks. Effective December 28, 2007, the Bank became a Pennsylvania chartered commercial bank and changed its name to QNB Bank.

Tabular information presented throughout management’s discussion and analysis, other than share and per share data, is presented in thousands of dollars.

Forward-Looking Statements

In addition to historical information, this document contains forward-looking statements. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions. The U.S. Private Securities Litigation Reform Act of 1995 provides safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.

Shareholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could affect the future financial results of the Company and its subsidiary and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document. These factors include, but are not limited, to the following:

Volatility in interest rates and shape of the yield curve;

Credit risk;

Liquidity risk;

Operating, legal and regulatory risks;

Economic, political and competitive forces affecting QNB’s line of business, and

The risk that the analysis of these risks and forces could be incorrect, and/or that the strategies developed to address them could be unsuccessful.

QNB cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and QNB assumes no duty to update forward-looking statements. Management cautions readers not to place undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by QNB on its website or otherwise, and they advise readers that various factors, including those described above, could affect QNB’s financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected. Except as required by law, QNB does not undertake, and specifically disclaims any obligation, to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of this Quarterly Report on Form 10-Q.

	Three Months Ended
	September 30, 2008								September 30, 2007
	Average			Average					Average			Average
	Balance			Rate			Interest		Balance			Rate			Interest
Assets
Federal funds sold	$	11,136			1.99	%	$	56	$	13,435			5.12	%	$	173
Investment securities:
U.S. Treasury		5,167			3.46	%		45		5,084			4.76	%		61
U.S. Government agencies		42,786			4.93	%		527		34,636			5.56	%		481
State and municipal		43,641			6.48	%		707		39,074			6.60	%		645
Mortgage-backed and CMOs		111,769			5.39	%		1,507		94,130			5.57	%		1,312
Domestic debt (fixed and variable)		11,612			5.86	%		170		14,708			6.99	%		257
Mutual fund		3,201			2.60	%		21		-			0.00	%		-
Equities		4,168			2.61	%		27		4,384			2.38	%		27
Total investment securities		222,344			5.40	%		3,004		192,016			5.80	%		2,783
Loans:
Commercial real estate		182,712			6.57	%		3,015		167,335			6.85	%		2,889
Residential real estate		21,426			6.07	%		325		23,883			6.00	%		358
Home equity loans		68,223			5.81	%		996		69,770			6.54	%		1,150
Commercial and industrial		67,073			5.84	%		984		63,159			7.35	%		1,170
Indirect lease financing		12,952			9.49	%		308		13,757			9.48	%		326
Consumer loans		4,687			11.91	%		140		4,675			10.54	%		124
Tax-exempt loans		23,685			6.03	%		359		24,819			6.17	%		386
Total loans, net of unearned income*		380,758			6.40	%		6,127		367,398			6.91	%		6,403
Other earning assets		2,359			2.38	%		14		1,898			8.19	%		39
Total earning assets		616,597			5.94	%		9,201		574,747			6.49	%		9,398
Cash and due from banks		11,825								12,231
Allowance for loan losses		(3,493	)							(2,929	)
Other assets		22,116								21,936
Total assets	$	647,045							$	605,985
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	58,772			0.32	%		47	$	54,339			0.18	%		25
Municipals		50,019			1.82	%		229		52,581			4.96	%		657
Money market		47,254			1.67	%		198		52,624			3.09	%		409
Savings		44,456			0.39	%		44		44,712			0.39	%		44
Time		200,341			3.99	%		2,007		187,873			4.59	%		2,171
Time over $100,000		77,019			3.97	%		768		60,093			4.77	%		723
Total interest-bearing deposits		477,861			2.74	%		3,293		452,222			3.54	%		4,029
Short-term borrowings		21,487			2.09	%		113		22,164			3.57	%		200
Long-term debt		35,000			4.27	%		381		25,000			4.78	%		306
Total interest-bearing liabilities		534,348			2.82	%		3,787		499,386			3.60	%		4,535
Non-interest-bearing deposits		54,030								52,103
Other liabilities		4,749								3,387
Shareholders' equity		53,918								51,109
Total liabilities and shareholders' equity	$	647,045							$	605,985
Net interest rate spread					3.12	%							2.89	%
Margin/net interest income					3.49	%	$	5,414					3.36	%	$	4,863

	Nine Months Ended
	September 30, 2008								September 30, 2007
	Average			Average					Average			Average
	Balance			Rate			Interest		Balance			Rate			Interest
Assets
Federal funds sold	$	8,244			2.23	%	$	138	$	7 ,491			5.17	%	$	290
Investment securities:
U.S. Treasury		5,106			3.72	%		142		5,093			4.73	%		180
U.S. Government agencies		34,158			5.21	%		1,335		32,971			5.54	%		1,370
State and municipal		42,887			6.53	%		2,099		39,474			6.61	%		1,956
Mortgage-backed and CMOs		105,062			5.49	%		4 ,325		105,699			5.07	%		4,023
Domestic debt (fixed and variable)		13,063			6.19	%		607		14,360			7.10	%		764
Mutual fund		1,075			2.60	%		21		-			0.00	%		-
Equities		4,213			2.63	%		83		4,317			2.46	%		80
Total investment securities		205,564			5.59	%		8,612		201,914			5.53	%		8,373
Loans:
Commercial real estate		180,844			6.77	%		9,162		163,642			6.82	%		8,346
Residential real estate		21,726			6.14	%		1,000		25,185			5.94	%		1,121
Home equity loans		68,224			5.92	%		3,024		69,495			6.51	%		3,386
Commercial and industrial		68,567			6.15	%		3,156		60,910			7.36	%		3,352
Indirect lease financing		12,919			9.77	%		946		13,560			9.51	%		967
Consumer loans		4,492			11.51	%		387		4,755			10.40	%		370
Tax-exempt loans		24,144			6.07	%		1,097		23,486			6.15	%		1,080
Total loans, net of unearned income*		380,916			6.58	%		18,772		361,033			6.90	%		18,622
Other earning assets		2,295			2.76	%		47		3,007			7.06	%		159
Total earning assets		597,019			6.17	%		27,569		573,445			6.40	%		27,444
Cash and due from banks		10,693								11,495
Allowance for loan losses		(3,405	)							(2,813	)
Other assets		21,873								21,699
Total assets	$	626,180							$	603,826
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	56,812			0.21	%		92	$	55,023			0.19	%		76
Municipals		41,477			2.23	%		692		45,603			4.99	%		1,701
Money market		48,511			1.91	%		693		52,139			3.08	%		1,200
Savings		43,957			0.39	%		129		45,767			0.39	%		134
Time		198,123			4.25	%		6,298		183,111			4.49	%		6,146
Time over $100,000		72,751			4.30	%		2,340		58,839			4.75	%		2,089
Total interest-bearing deposits		461,631			2.96	%		10,244		440,482			3.44	%		11,346
Short-term borrowings		21,347			2.37	%		379		22,085			3.57	%		590
Long-term debt		34,380			4.29	%		1,122		35,337			5.22	%		1,398
Total interest-bearing liabilities		517,358			3.03	%		11,745		497,904			3.58	%		13,334
Non-interest-bearing deposits		51,266								51,358
Other liabilities		4,528								3,510
Shareholders' equity		53,028								51,054
Total liabilities and shareholders' equity	$	626,180							$	603,826
Net interest rate spread					3.14	%							2.82	%
Margin/net interest income					3.54	%	$	15,824					3.29	%	$	14,110

	Three Months Ended									Nine Months Ended
	September 30, 2008 compared									September 30, 2008 compared
	to September 30, 2007									to September 30, 2007
	Total			Due to change in:						Total			Due to change in:
	Change			Volume			Rate			Change			Volume			Rate
Interest income:
Federal funds sold	$	(117	)	$	(29	)	$	(88	)	$	(152	)	$	30		$	(182	)
Investment securities:
U.S. Treasury		(16	)		1			(17	)		(38	)		-			(38	)
U.S. Government agencies		46			113			(67	)		(35	)		49			(84	)
State and municipal		62			76			(14	)		143			169			(26	)
Mortgage-backed and CMOs		195			245			(50	)		302			(24	)		326
Domestic debt (fixed and variable)		(87	)		(54	)		(33	)		(157	)		(69	)		(88	)
Mutual fund		21			21			-			21			21			-
Equities		-			(2	)		2			3			(2	)		5
Loans:
Commercial real estate		126			257			(131	)		816			886			(70	)
Residential real estate		(33	)		(37	)		4			(121	)		(154	)		33
Home equity loans		(154	)		(29	)		(125	)		(362	)		(59	)		(303	)
Commercial and industrial		(186	)		69			(255	)		(196	)		424			(620	)
Indirect lease financing		(18	)		(19	)		1			(21	)		(46	)		25
Consumer loans		16			-			16			17			(20	)		37
Tax-exempt loans		(27	)		(19	)		( 8	)		17			32			(15	)
Other earning assets		(25	)		9			( 34	)		(112	)		(38	)		(74	)
Total interest income		(197	)		602			( 799	)		125			1,199			(1,074	)
Interest expense:
Interest-bearing demand		22			1			21			16			3			13
Municipals		(428	)		(33	)		( 395	)		(1,009	)		(153	)		(856	)
Money market		(211	)		(42	)		( 169	)		(507	)		(83	)		(424	)
Savings		-			-			-			(5	)		(5	)		-
Time		(164	)		138			(302	)		152			510			(358	)
Time over $100,000		45			200			( 155	)		251			496			(245	)
Short-term borrowings		(87	)		( 7	)		(80	)		(211	)		(19	)		(192	)
Long-term debt		75			121			( 46	)		(276	)		(33	)		(243	)
Total interest expense		(748	)		378			( 1,126	)		(1,589	)		716			(2,305	)
Net interest income	$	551		$	224		$	327		$	1,714		$	483		$	1,231

Change in Interest Rates	Net Interest Income		Dollar Change			% Change
+300 Basis Points	$	18,961	$	(1,127	)		(5.6	)%
+200 Basis Points		19,425		(663	)		(3.3	)
+100 Basis Points		19,880		(208	)		(1.0	)
FLAT RATE		20,088		-			-
-100 Basis Points		19,687		(401	)		(2.0	)
-200 Basis Points		18,390		(1,698	)		(8.5	)

Item 1.	Legal Proceedings

	None.

Item 1A.	Risk Factors

	There were no material changes to the Risk Factors described in Item 1A in QNB’s Annual Report on Form 10-K for the period ended December 31, 2007.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

	None.

Item 3.	Default Upon Senior Securities

	None.

Item 4.	Submission of Matters to Vote of Security Holders

	None

Item 5.	Other Information

	None.

Item 6.	Exhibits

	Exhibit 3(i)	Articles of Incorporation of Registrant, as amended. (Incorporated by reference to Exhibit 3(i) of Registrants Form DEF 14-A filed with the Commission on April 15, 2005).

	Exhibit 3(ii)	Bylaws of Registrant, as amended. (Incorporated by reference to Exhibit 3(ii) of Registrants Form 8-K filed with the Commission on January 23, 2006).

	Exhibit 11	Statement Re: Computation of Earnings Per Share. (Included in Part I, Item I, hereof.)

	Exhibit 31.1	Section 302 Certification of President and CEO

	Exhibit 31.2	Section 302 Certification of Chief Financial Officer

	Exhibit 32.1	Section 906 Certification of President and CEO

	Exhibit 32.2	Section 906 Certification of Chief Financial Officer

		QNB Corp.

Date:	November 10, 2008	By:

		/s/ Thomas J. Bisko
		Thomas J. Bisko
		President/CEO

Date:	November 10, 2008	By:

		/s/ Bret H. Krevolin
		Bret H. Krevolin
		Chief Financial Officer