QNB Corp. Reports Third Quarter Results

QUAKERTOWN, Pa., Oct. 29 /PRNewswire-FirstCall/ -- QNB Corp. (the "Company" or
"QNB") (OTC Bulletin Board: QNBC), the holding company for QNB Bank (the
"Bank"), reported net income for the third quarter of 2009 of $671,000, or
$0.22 per share on a diluted basis. This compares to $1,566,000, or $0.50 per
share on a diluted basis, for the same period in 2008. For the nine month
period ended September 30, 2009, QNB reported net income of $2,992,000, or
$0.96 per share on a diluted basis. This compares to net income of $4,882,000,
or $1.54 per shared on a diluted basis, for the nine month period ended
September 30, 2008.

"Like many of our peers, our earnings were negatively influenced by the
economic downturn and its impact on asset quality. As a result, we had to
increase the provision for loan losses and recognize other than temporary
impairment charges on certain securities held in the Company's investment
portfolio," said Thomas J. Bisko, President and Chief Executive Officer.

Mr. Bisko continued, "Despite these difficult times, our core operating
results continue to improve as exhibited by our strong growth in both loans
and deposits which has resulted in significantly higher net interest income.
In addition, we remain well-capitalized by all regulatory standards."

The factors contributing to the results for the three and nine month periods
ended September 30, 2009 consisted of:
-- an increase in net interest income resulting from strong growth in
loans
and deposits,
-- an increase in gains on the sale of residential mortgages as
origination
and sales activity picked up as a result of low interest rates,
-- a higher provision for loan losses resulting from an increase in loan
charge-offs and delinquent loans combined with loan growth and current
economic conditions,
-- other-than-temporary impairment charges on investment securities and

-- higher industry-wide FDIC insurance premiums

The primary component of QNB's earnings is its net interest income which
increased $482,000, or 9.6%, to $5,527,000 for the third quarter of 2009
compared to the third quarter of 2008 and $207,000, or 3.9% compared to the
second quarter of 2009. The improvement in net interest income, when comparing
the three month periods ended September 30, 2009 and 2008, is a result of a
13.4% growth in average earning assets. Comparing the third quarter of 2009 to
the same period in 2008, average loans increased $56,168,000, or 14.8%, and
average investment securities increased $30,088,000, or 13.5%. The growth in
the loan portfolio was primarily in commercial loans secured by commercial and
residential real estate, while the growth in the investment portfolio was
primarily in high-quality U.S. Government agency debt securities and agency
mortgage-backed securities.

Funding the growth in earnings assets was an increase in average total
deposits of $76,769,000, or 14.4%, to $608,660,000 when comparing the third
quarter of 2009 to the same period in 2008. The growth reflects increases in
both lower-cost core deposits, including checking, savings and money market
accounts, as well as higher-cost time deposits. Comparing the two quarters,
average transaction account balances increased 10.4%, while average time
deposit balances increased 18.1%. The growth in transaction accounts reflects
the positive response to the introduction of QNB's two newest high rate
deposit products, eRewards Checking and Online eSavings.

The net interest margin was 3.38% for the third quarter of 2009 compared to
3.49% for the third quarter of 2008 and 3.40% for the second quarter of 2009.
Impacting net interest income and the net interest margin in the third quarter
of 2009 was the reversal of $100,000 of interest income on pooled trust
preferred securities placed on non-accrual status partially offset by the
recognition of a $29,000 prepayment penalty on a commercial loan. Excluding
these two items in the third quarter of 2009 the net interest margin would
have been 3.42%, an improvement over the second quarter of 2009. The decline
in the net interest margin from the third quarter of 2008 is mainly the result
of the yield earned on investment securities declining to a greater degree
than the cost of deposits.

Net interest income increased $1,213,000, or 8.2%, to $15,928,000 comparing
the first nine months of 2009 and 2008. Comparing these time periods, average
loans and investment securities increased 11.3% and 16.7%, respectively, and
average total deposits increased 14.0%. The net interest margin for the first
nine months of 2009 was 3.42% compared to 3.54% for the first nine months of
2008.

As a result of the significant growth in loans, current economic conditions,
an increase in net charge-offs and higher levels of non-performing and
delinquent loans, QNB recorded a provision for loan losses of $1,500,000 in
the third quarter of 2009 and $2,600,000 for the first nine months of 2009.
This compares to a provision of $150,000 for the third quarter of 2008 and
$575,000 for the first nine months of 2008. Net loan charge-offs were $511,000
and $130,000 for the three months ended September 30, 2009 and 2008,
respectively. For the nine month periods ended September 30, 2009 and 2008,
net charge-offs were $863,000 or 0.27% of average total loans and $362,000 or
0.13% of average total loans, respectively.

Total non-performing loans, which represent loans on non-accrual status, loans
past due more than 90 days and still accruing and restructured loans, were
$5,235,000, or 1.20% of total loans, at September 30, 2009, compared to
$1,190,000, or 0.31% of total loans, at September 30, 2008 and $4,203,000, or
0.97%, at June 30, 2009. Total delinquent loans, which includes loans past
due more than 30 days, increased to 1.93% of total loans at September 30, 2009
compared with 0.90% and 1.45% of total loans at September 30, 2008 and June
30, 2009. QNB's non-performing loan and total delinquent loan ratios continue
to compare favorably with the average of 1.78% and 2.61% of total loans,
respectively, for Pennsylvania commercial banks with assets between $500
million and $1 billion, as reported by the FDIC using the most recent
available data, which is June 30, 2009.

QNB's allowance for loan losses of $5,573,000 represents 1.27% of total loans
at September 30, 2009 compared to an allowance for loan losses of $3,492,000,
or 0.92% of total loans, at September 30, 2008 and $4,584,000, or 1.05% of
total loans, at June 30, 2009. Other real estate owned and other repossessed
assets were $127,000 at September 30, 2009 compared with $142,000 at September
30, 2008 and $379,000 at June 30, 2009.

Total non-interest income was $514,000 for the third quarter of 2009, a
decrease of $301,000 compared with the same period in 2008. During the third
quarter of 2009 QNB recorded credit related other-than-temporary impairment
(OTTI) charges of $753,000 on two of its holdings of pooled trust preferred
securities. This compares to OTTI charges of $103,000 in the third quarter of
2008 related to holdings in the equity investment portfolio. Partially
offsetting these charges were gains on the sale of securities of $103,000 in
the third quarter of 2009. There were no such gains recorded in the third
quarter of 2008. Also contributing to non-interest income were gains on the
sale of residential mortgages which increased $119,000 when comparing these
same periods, as the low interest rate environment has resulted in an increase
in mortgage refinancing activity. An increase in merchant income, letter of
credit fees, ATM and debit card income and title insurance income contributed
$110,000 in additional non-interest income when comparing the three month
periods.

Total non-interest income for the nine month periods ended September 30, 2009
and 2008 was $2,314,000 and $3,028,000, respectively. Credit related OTTI
charges were $1,276,000 and $302,000 for the nine month periods ended
September 30, 2009 and 2008, respectively. Included in the 2009 amount were
$761,000 of OTTI charges related to three trust preferred issues and $515,000
in OTTI losses in the equity securities portfolio. Net losses on other real
estate owned and repossessed assets increased $136,000 when comparing the nine
month periods. Partially offsetting these losses were gains on the sale of
residential mortgages which increased from $85,000 in 2008 to $534,000 in
2009. Positively impacting non-interest income for the 2008 period was the
recognition of $230,000 of income as a result of the Visa initial public
offering and $48,000 from the proceeds of life insurance. When comparing the
nine month periods, merchant income increased $69,000, letter of credit fees
increased $54,000, ATM and debit card income increased $49,000 and title
insurance income increased $32,000.

Total non-interest expense was $3,926,000 for the third quarter of 2009, an
increase of $258,000 from the third quarter of 2008. The largest contributing
factor to the increase in non-interest expense was FDIC insurance premium
expense which increased $154,000 to $235,000, comparing the third quarter of
2009 to 2008. The higher expense is a result of deposit growth and an
increased assessment rate which was levied on all insured institutions by the
FDIC in order to replenish the Deposit Insurance Fund. Salary and benefit
expense increased $116,000, or 5.8%, to $2,115,000 for the third quarter of
2009. Additional commercial lending personnel and the staffing of the
Wescosville branch, opened in November 2008, account for the majority of the
increase.

Total non-interest expense was $12,239,000 for the nine month period ended
September 30, 2009. This represents an increase of $1,445,000 from the same
period in 2008. Higher industry-wide FDIC insurance premiums plus a special
FDIC assessment in the second quarter of 2009 contributed $777,000 of the
increase. This special assessment reduced the results for the nine month
period by $219,000 ($332,000 pretax), or $0.07 per diluted share. These FDIC
actions were a result of bank failures which have significantly impacted the
level of the Deposit Insurance Fund. Higher salary and benefit expense also
contributed to the increase in total non-interest expense increasing $346,000
when comparing the nine month periods.

QNB Corp. offers commercial and retail banking services through the nine
banking offices of its subsidiary, QNB Bank. In addition, QNB provides retail
brokerage services through Raymond James Financial Services, Inc. and title
insurance as a member of Laurel Abstract Company LLC.

This press release may contain forward-looking statements as defined in the
Private Securities Litigation Act of 1995. Actual results and trends could
differ materially from those set forth in such statements due to various
factors. Such factors include the possibility that increased demand or prices
for the Company's financial services and products may not occur, changing
economic and competitive conditions, technological developments, and other
risks and uncertainties, including those detailed in the Company's filings
with the Securities and Exchange Commission, including "Item lA. Risk
Factors," set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2008. You should not place undue reliance on any
forward-looking statements. These statements speak only as of the date of this
press release, even if subsequently made available by the Company on its
website or otherwise. The Company undertakes no obligation to update or revise
these statements to reflect events or circumstances occurring after the date
of this press release.

QNB Corp.
Consolidated Selected Financial Data (unaudited)

(Dollars in thousands)

Balance Sheet (Period
End) 9/30/09 6/30/09 3/31/09 12/31/08 9/30/08
--------------------- ------- ------- ------- -------- -------
Assets $728,225 $717,735 $683,944 $664,394 $638,327
Investment securities
(AFS & HTM) 253,779 241,277 227,124 223,195 223,273
Loans receivable 437,460 435,521 417,062 403,579 380,105
Allowance for loan
losses (5,573) (4,584) (4,220) (3,836) (3,492)
Net loans 431,887 430,937 412,842 399,743 376,613
Deposits 604,159 600,954 573,749 549,790 526,919
Demand, non-interest
bearing 50,113 57,140 55,428 53,280 49,125
Interest-bearing
demand, money market
and savings 227,797 212,893 189,185 185,208 190,221
Time 326,249 330,921 329,136 311,302 287,573
Short-term borrowings 26,819 22,843 16,822 21,663 19,557
Long-term debt 35,000 35,000 35,000 35,000 35,000
Shareholders' equity 57,434 53,808 53,766 53,909 52,297

Asset Quality Data
(Period End)
---------------------
Non-accrual loans $2,592 $1,991 $523 $830 $1,120
Loans past due 90 days
or more and still
accruing 654 280 220 478 70
Restructured loans 1,989 1,932 - - -
------- ------- ------- -------- -------
Non-performing loans 5,235 4,203 743 1,308 1,190
Other real estate owned
and repossessed assets 127 379 437 319 142
Non-accrual pooled
trust preferred
securities 959 - - - -
------- ------- ------- -------- -------
Non-performing assets 6,321 4,582 1,180 1,627 1,332
Allowance for loan
losses 5,573 4,584 4,220 3,836 3,492
Non-performing loans /
Loans 1.20% 0.97% 0.18% 0.32% 0.31%
Non-performing assets /
Assets 0.87% 0.64% 0.17% 0.24% 0.21%
Allowance for loan
losses / Loans 1.27% 1.05% 1.01% 0.95% 0.92%

QNB Corp.
Consolidated Selected Financial Data (unaudited)

(Dollars in thousands, except per share data)

For the three months ended,
---------------------------
For the period: 9/30/09 6/30/09 3/31/09 12/31/08 9/30/08
--------------- ------- ------- ------- -------- -------

Interest income $8,946 $8,859 $8,626 $8,825 $8,832
Interest expense 3,419 3,539 3,545 3,574 3,787
------- ------- ------- -------- -------
Net interest
income 5,527 5,320 5,081 5,251 5,045
Provision for
loan losses 1,500 500 600 750 150
------- ------- ------- -------- -------
Net interest
income after
provision
for loan
losses 4,027 4,820 4,481 4,501 4,895
Non-interest income:
Fees for
services to
customers 470 423 395 456 474
ATM and debit
card 263 256 228 231 237
Net gain
(loss) on
investment
securities
available-for-
sale (650) (26) (254) (610) (103)
Other 431 414 364 195 207
------- ------- ------- -------- -------
Total non-
interest
income 514 1,067 733 272 815
Non-interest expense:
Salaries and
employee
benefits 2,115 2,078 2,078 2,052 1,999
Net occupancy
and furniture
and fixture 614 644 649 707 619
FDIC
insurance
premiums 235 539 193 83 81
Other 962 1,123 1,009 992 969
------- ------- ------- -------- -------
Total non-
interest
expense 3,926 4,384 3,929 3,834 3,668
------- ------- ------- -------- -------
Income before
income taxes 615 1,503 1,285 939 2,042
Provision
(benefit) for
income taxes (56) 276 191 68 476
------- ------- ------- -------- -------
Net income $671 $1,227 $1,094 $871 $1,566
======= ======= ======= ======== =======

Share and Per Share Data:
-------------------------
Net income -
basic $0.22 $0.40 $0.35 $0.28 $0.50
Net income -
diluted $0.22 $0.40 $0.35 $0.28 $0.50
Book value $18.59 $17.42 $17.44 $17.21 $16.67
Cash dividends $0.24 $0.24 $0.24 $0.23 $0.23
Average common
shares
outstanding -
basic 3,089,382 3,084,824 3,113,730 3,136,078 3,136,423
Average common
shares
outstanding -
diluted 3,097,422 3,095,836 3,126,683 3,154,238 3,161,840

Selected Ratios:
----------------
Return on
average assets 0.37% 0.70% 0.67% 0.53% 0.97%
Return on
average
shareholders'
equity 4.84% 9.04% 8.16% 6.32% 11.55%
Net interest
margin (tax
equivalent) 3.38% 3.40% 3.48% 3.62% 3.49%
Efficiency
ratio (tax
equivalent) 60.71% 64.55% 63.25% 64.94% 58.88%
Average
shareholders'
equity to total
average
assets 7.57% 7.75% 8.17% 8.46% 8.39%
Net loan charge-
offs $511 $136 $216 $407 $130
Net loan charge-
offs
(annualized) /
Average loans 0.47% 0.13% 0.21% 0.42% 0.14%

Balance Sheet (Average)
-----------------------
Assets $727,152 $702,665 $666,040 $648,112 $647,045
Investment
securities (AFS
& HTM) 252,432 243,487 223,327 226,142 222,344
Loans receivable 436,926 424,694 410,119 389,198 380,758
Deposits 608,660 591,111 553,856 528,990 531,891
Shareholders'
equity 55,030 54,441 54,403 54,848 53,918

For the nine months ended,
For the period: 9/30/09 9/30/08
--------------- ------- -------

Interest income $26,431 $26,460
Interest expense 10,503 11,745
------- -------
Net interest income 15,928 14,715
Provision for loan losses 2,600 575
------- -------
Net interest income after provision
for loan losses 13,328 14,140
Non-interest income:
Fees for services to customers 1,288 1,347
ATM and debit card 747 698
Net gain (loss) on investment securities
available-for-sale (930) 1
Other 1,209 982
------- -------
Total non-interest income 2,314 3,028
Non-interest expense:
Salaries and employee benefits 6,271 5,925
Net occupancy and furniture and fixture 1,907 1,867
FDIC insurance premiums 967 190
Other 3,094 2,812
------- -------
Total non-interest expense 12,239 10,794
------- -------
Income before income taxes 3,403 6,374
Provision (benefit) for income taxes 411 1,492
------- -------
Net income $2,992 $4,882
======= =======

Share and Per Share Data:
-------------------------
Net income - basic $0.97 $1.56
Net income - diluted $0.96 $1.54
Book value $18.59 $16.67
Cash dividends $0.72 $0.69
Average common shares outstanding - basic 3,095,889 3,135,451
Average common shares outstanding - diluted 3,105,525 3,164,153

Selected Ratios:
----------------
Return on average assets 0.57% 1.04%
Return on average shareholders' equity 7.32% 12.30%
Net interest margin (tax equivalent) 3.42% 3.54%
Efficiency ratio (tax equivalent) 62.86% 57.25%
Average shareholders' equity to total average
assets 7.82% 8.47%
Net loan charge-offs $863 $362
Net loan charge-offs (annualized) / Average loans 0.27% 0.13%

Balance Sheet (Average)
-----------------------
Assets $671,205 $626,180
Investment securities (AFS & HTM) 239,855 205,564
Loans receivable 424,011 380,916
Deposits 584,743 512,897
Shareholders' equity 54,627 53,028

SOURCE QNB Corp.

Thomas J. Bisko. President/CEO, +1-215-538-5600 ext. 5612, tbisko@qnb.com, or
Bret H. Krevolin, CFO, +1-215-538-5600 ext. 5716, bkrevolin@qnb.com, both of
QNB Corp.