QUAKERTOWN, Pa., Jan. 23 /PRNewswire-FirstCall/ -- QNB Corp. (the "Company" or "QNB") (OTC Bulletin Board: QNBC), the holding company for QNB Bank, reported net income for the fourth quarter of 2008 of $871,000, or $.28 per share on a diluted basis. This compares to $1,021,000, or $.32 per share on a diluted basis, for the same period in 2007. For the year ended December 31, 2008, net income was $5,753,000, or $1.82 per share on a diluted basis, compared to net income of $3,047,000, or $.96 per share on a diluted basis, for the comparable period in 2007.

Thomas J. Bisko, President and Chief Executive Officer, stated, "In my 40 years in this industry, this is the deepest and broadest-based recession to occur. Given the unprecedented economic environment, I am proud of QNB's results for 2008. These results reflect our continued commitment to make loans to credit worthy businesses and individuals and the reduced cost of both deposits and borrowings resulting in strong growth in net interest income, the Company's primary earnings driver. In addition, we remain well capitalized as defined by all regulatory measurements."

Mr. Bisko continued, "We are thrilled with the initial success of our ninth branch opened in November 2008 in the Wescosville community located in Lehigh County. In addition, the hiring of three experienced commercial loan officers will provide support to our continued goal of building customer relationships. We enter the year 2009 optimistic, yet cautious, given the difficult economic environment."

Net interest income increased $739,000, or 16.4%, to $5,251,000 for the fourth quarter of 2008 compared to the fourth quarter of 2007, reflecting a 22 basis point increase in the net interest margin as well as growth in earning assets. The net interest margin was 3.62% for the fourth quarter of 2008 compared to 3.40% for the fourth quarter of 2007. The increase in the net interest margin is primarily the result of lower customer deposit costs resulting from market interest rates declining. Average earning assets increased 8.6%, with average loans increasing 4.0% and average investment securities increasing 18.3%. The growth in the investment portfolio was primarily in high quality U.S. government agency and agency mortgage-backed securities.

For the twelve-month period ended December 31, 2008, net interest income was $19,966,000 a $2,399,000, or 13.7%, increase from the amount reported in 2007. Contributing to this increase in net interest income was a 24 basis point increase in the net interest margin to 3.56% for 2008. Average earning assets increased 5.2% to $602,446,000 when comparing 2008 to 2007 with average loans increasing 5.1%.

The results for the fourth quarter and full year of 2008 reflect the impact of the current economic environment and the deterioration of the financial markets. During the fourth quarter, as a result of significant declines in the equity markets, QNB recorded $610,000 of net securities losses, which reflects $615,000 related to other-than-temporary impairment (OTTI) charges on holdings in the equity investment portfolio. This compares to $346,000 of net securities losses in the fourth quarter of 2007, consisting of $146,000 realized on the sale of equity securities and a $200,000 OTTI charge.

For the twelve-month period ended December 31, 2008, net securities losses were $609,000, including $917,000 in OTTI charges on the equity portfolio. The results for 2007 were impacted by the balance sheet restructuring reported in the first half of 2007 which resulted in an OTTI charge in the fixed income securities portfolio of $2,758,000 and a $740,000 prepayment penalty on Federal Home Loan Bank advances.

The Company's adjusted net income, as shown below in the supplemental financial information, reflects the Company's performance excluding the impact of OTTI and prepayment charges in both 2008 and 2007. On this basis, adjusted net income for the three months ended December 31, 2008 was $1,277,000 or $.40 per share on a diluted basis, compared to $1,153,000, or $.36 per share on a diluted basis, for the three months ended December 31, 2007. For the twelve months ended December 31, 2008 and 2007, adjusted net income was $6,358,000, or $2.01 per share on a diluted basis, and $5,487,000, or $1.72 per share on a diluted basis, respectively.

As a result of increases in net charge-offs, loan growth and the current economic environment, QNB increased its provision for loan losses to $750,000 in the fourth quarter of 2008. This compares to provisions of $150,000 for the quarter ended September 30, 2008 and $325,000 for the quarter ended December 31, 2007. For the year ended December 31, 2008 the provision for loan losses was $1,325,000, an increase from the $700,000 recorded in 2007. Net loan charge-offs were $407,000 for the fourth quarter of 2008 compared with $130,000 for the third quarter of 2008 and $47,000 for the fourth quarter of 2007. For the twelve-month periods ended December 31, 2008 and 2007, net charge-offs were $769,000 and $150,000, respectively. Total non-performing loans, which represent loans on non-accrual status and loans past due more than 90 days, were $1,308,000, or .32% of total loans, at December 31, 2008 compared with $1,190,000, or .31%, at September 30, 2008 and $1,615,000, or .42% of total loans, at December 31, 2007. QNB's non-performing loans to total loans experience continues to compare extremely favorably with the average for Pennsylvania commercial banks with assets between $500 million and $1 billion which was 1.01% of total loans as reported by the FDIC using September 30, 2008 data. QNB's allowance for loan losses of $3,836,000 represents .95% of total loans at December 31, 2008 compared with an allowance for loan losses of $3,492,000, or .92% at September 30, 2008, and $3,279,000, or .86% of total loans, at December 31, 2007.

Total non-interest income for the fourth quarter of 2008 was $272,000, a decline from the $650,000 reported for the same period in 2007. Excluding the investment securities losses discussed previously total non-interest income was $882,000 for the fourth quarter of 2008 and $996,000 for the fourth quarter of 2007. When comparing the two periods, fees for services to customers declined $17,000, mortgage servicing fees declined $30,000 and gains on the sale of mortgages declined $23,000. The decline in mortgage servicing income is a result of a $33,000 valuation allowance recorded against the mortgage servicing asset.

For the twelve-month period ended December 31, 2008, total non-interest income, excluding securities losses, was $3,909,000. This compares to $3,722,000 for the comparable period in 2007. Positively impacting non-interest income for 2008 was the recognition of $230,000 of income as a result of the Visa initial public offering, comprised of a $175,000 gain related to the mandatory redemption of shares of restricted common stock in Visa and $55,000 of income related to the reversal of liabilities recorded in the fourth quarter of 2007 to fund settlements of, or judgments in, indemnified litigation involving Visa.

Non-interest expense was $3,834,000 for the fourth quarter of 2008 compared to $3,640,000 for the fourth quarter of 2007. Higher personnel costs contributed to the increase in non-interest expense for the quarter. Salary and benefit expense increased $142,000, or 7.4%, when comparing the periods. An accrual for incentive compensation contributed $27,000 to the increase. Net occupancy and furniture and equipment expense increased $88,000 when comparing the three-month periods, reflecting an increase in depreciation expense. In addition, Federal Deposit Insurance Corporation (FDIC) premiums increased $69,000 when comparing the fourth quarter of 2008 to the fourth quarter of 2007. During 2007, QNB had a credit from prior year payments that was used to offset the premiums. The remainder of the credit was utilized in early 2008. As mentioned above non-interest expense for the fourth quarter of 2007 included an accrual of $55,000 related to Visa litigation.

For the twelve months ended December 31, 2008 total non-interest expense was $14,628,000. This compares to $13,701,000 for the same period in 2007, excluding the prepayment penalty previously noted. Salary and benefit expense increased $513,000, or 6.9%, to $7,977,000, compared to the same period in 2007. The accrual for incentive compensation in 2008 contributed $170,000 to the increase in salary and benefit expense. Also contributing to the increase in this category was an expense of $38,000 related to the adoption of EITF 06-04 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance, which was adopted January 1, 2008. When comparing the two years, net occupancy and furniture and fixture expense increased $270,000 to $2,574,000. Higher depreciation costs, branch rent expense, building and equipment maintenance and utilities costs contributed to this increase. In addition, expense related to FDIC premiums increased $216,000 when comparing the twelve-month periods. This was partially offset by a reduction in regulatory assessment fees of $95,000 resulting from the change in bank charters from a national bank to a state bank.

The following is an overview of other key financial highlights:

- Total assets were $664,394,000 at December 31, 2008, an increase of 9.0% from $609,813,000 at December 31, 2007.

- Total loans were $403,579,000 at December 31, 2008, an increase of 5.9% from $381,016,000 at December 31, 2007. The Company continues to make credit available to its customers.

- Total investment securities were $223,195,000 at December 31, 2008, an increase of 14.1% from $195,533,000 at December 31, 2007. As of December 31, 2008, QNB owns pooled trust preferred securities with a book value of $5,093,000 and a market value of $1,963,000. 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. Based on an analysis of cash flows and stress tests it was determined that these securities are not other-than-temporarily impaired as of December 31, 2008.

- QNB is a member of the Federal Home Loan Bank of Pittsburgh (FHLB). The FHLB provides a source of liquidity for the Company as well as providing an outlet for selling residential mortgages. As a member, QNB is required to purchase capital stock of the FHLB. As of December 31, 2008, QNB held $2,279,000 of stock of the FHLB. In December 2008 the FHLB announced that it would be eliminating its dividend and not repurchasing excess stock from its members until further notice.

- Total deposits of $549,790,000 at December 31, 2008 represent an increase of 11.3% from $494,124,000 at December 31, 2007. The new Wescosville branch opened in November 2008 had deposits totaling $22,479,000 at December 31, 2008.

Explanatory note: This press release contains certain financial information, as detailed below, which has been derived by methods other than Generally Accepted Accounting Standards ("GAAP") that Management uses in its analysis of the Company's performance. The Company has presented these non-GAAP measures because it believes that they provide more useful and comparative information to assess trends in the QNB's quarterly and year end results of operations. These non-GAAP measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.


    Reconciliation of Non-GAAP Measures (unaudited)

                         Quarter ended                    Quarter ended
                       December 31, 2008                December 31, 2007

                  Pre-     After-   Diluted      Pre-     After-    Diluted
                  tax      tax       EPS         tax      tax         EPS
              (Expense)/ (Expense)/ Impact     Expense)/ (Expense)/  Impact
               Income     Income                Income    Income

    Other-than-
     temporary
     impairment
     of equity
     securities  $(615)   $(406)     $(0.12)     $(200)     $(132)   $(0.04)
    Net income
     available
     to common
     shareholders           871        0.28                 1,021      0.32
    Adjusted net
     income available
     to common
     shareholders        $1,277       $0.40                $1,153     $0.36


                          Year ended                       Year ended
                       December 31, 2008                December 31, 2007

                  Pre-     After-   Diluted      Pre-     After-    Diluted
                  tax      tax       EPS         tax      tax         EPS
              (Expense)/ (Expense)/ Impact    (Expense)/ (Expense)/  Impact
               Income     Income                Income    Income

    Other-than-
     temporary
     impairment
     of equity
     securities  $(917)  $(605)      $(0.19)      $(200)    $(132)    $(0.04)
    Balance
     sheet
     restrict-
     uring
     charges       -       -           -         (2,758)   (1,820)     (0.57)
    Loss on
     prepayment
     of
     Federal
     Home Loan
     Bank advances -       -           -           (740)     (488)     (0.15)

                 $(917)  $(605)     $(0.19)     $(3,698)  $(2,440)    $(0.76)

    Net income
     available
     to common
     shareholders        5,753        1.82                  3,047       0.96
    Adjusted
     net income
     available
     to common
     shareholders       $6,358       $2.01                 $5,487      $1.72

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, 2007. 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)
                                 December 31, 2008

    (Dollars in thousands)

    Balance Sheet
     (Period End)           12/31/08   9/30/08   6/30/08   3/31/08  12/31/07
    Assets                  $664,394  $638,327  $636,480  $617,873  $609,813
    Securities
     (AFS & HTM)             223,195   223,273   207,081   202,150   195,533
    Loans, gross             403,579   380,105   387,205   379,671   381,016
    Allowance for
     loan losses              (3,836)   (3,492)   (3,473)   (3,411)   (3,279)
     Loans, net              399,743   376,613   383,732   376,260   377,737
    Deposits                 549,790   526,919   520,616   505,292   494,124
     Demand, non-
      Interest bearing        53,280    49,125    56,464    53,439    50,043
     Interest-bearing
      demand, money
      market and savings     185,208   190,221   189,474   182,648   189,031
     Time                    311,302   287,573   274,678   269,205   255,050
    Short-term borrowings     21,663    19,557    23,083    18,736    33,990
    Long-term debt            35,000    35,000    35,000    35,000    25,000
    Shareholders' equity      53,909    52,297    52,309    54,392    53,251



    Asset Quality Data
     (Period End)           12/31/08   9/30/08   6/30/08   3/31/08  12/31/07
    Nonaccrual loans            $830    $1,120      $625    $1,418    $1,397
    Loans past due 90
     days or more and
     still accruing              478        70       198       139       218
    Other real estate
     owned and
     repossessed assets          319       142       104        37         6
      Nonperforming assets     1,627     1,332       927     1,594     1,621
    Allowance for loan
     losses                    3,836     3,492     3,473     3,411     3,279
    Nonperforming loans /
     Loans                      0.32%     0.31%     0.21%     0.41%     0.42%
    Nonperforming assets /
     Assets                     0.24%     0.21%     0.15%     0.26%     0.27%
    Allowance for loan
     losses / Loans             0.95%     0.92%     0.90%     0.90%     0.86%



                                     QNB Corp.
                 Consolidated Selected Financial Data (unaudited)
                                December 31, 2008

    (Dollars in thousands,
     except per share data)

                                    For the three months ended,
    For the
     period:            12/31/08   9/30/08    6/30/08    3/31/08    12/31/07


    Interest
     income               $8,825     $8,832     $8,838     $8,790     $8,916
    Interest
     expense               3,574      3,787      3,782      4,176      4,404
      Net interest
       income              5,251      5,045      5,056      4,614      4,512
    Provision for
     loan losses             750        150        200        225        325
      Net interest
       income after
       provision for
       loan losses         4,501      4,895      4,856      4,389      4,187
    Non-interest
     income:
      Fees for
       services to
       customers             456        474        428        445        473
      ATM and debit
       card income           231        237        242        219        225
      Net gain
       (loss) on
       investment
       securities
       available-for-
       sale                 (610)      (103)      (118)       222       (346)
      Other
       operating
       income                195        207        277        498        298
        Total non-
         interest
         income              272        815        829      1,384        650
    Non-interest
     expense:
      Salaries and
       employee
       benefits            2,052      1,999      1,955      1,971      1,910
      Net occupancy
       and furniture
       and fixture
       expense               707        619        619        629        619
      Loss on
       prepayment of
       Federal Home
       Loan Bank
       advances              -          -          -          -          -
      Other expense        1,075      1,050      1,009        943      1,111
        Total non-
         interest
         expense           3,834      3,668      3,583      3,543      3,640
      Income before
       income taxes          939      2,042      2,102      2,230      1,197
    Provision for
     income taxes             68        476        496        520        176
    Net income              $871     $1,566     $1,606     $1,710     $1,021


    Share and Per
     Share Data:
    Net income -
     basic                 $0.28      $0.50      $0.51      $0.55      $0.33
    Net income -
     diluted               $0.28      $0.50      $0.51      $0.54      $0.32
    Book value            $17.21     $16.67     $16.68     $17.35     $16.99
    Cash dividends         $0.23      $0.23      $0.23      $0.23      $0.22
    Average common
     shares
     outstanding -
     basic             3,136,078  3,136,423  3,135,214  3,134,704  3,132,614
    Average common
     shares
     outstanding -
     diluted           3,154,238  3,161,840  3,163,809  3,166,976  3,177,375

    Selected
     Ratios:
    Return on
     average assets         0.53%      0.97%      1.04%      1.13%      0.68%
    Return on
     average
     shareholders'
     equity                 6.32%     11.55%     12.15%     13.22%      7.79%
    Net interest
     margin (tax
     equivalent)            3.62%      3.52%      3.67%      3.46%      3.40%
    Efficiency
     ratio (tax
     equivalent)           64.94%     58.88%     57.30%     55.62%     65.86%
    Average
     shareholders'
     equity to total
     average assets         8.46%      8.39%      8.52%      8.56%      8.69%
    Net loan
     charge-offs             407        130        138         94         47
    Net loan
     charge-offs
     (annualized) /
     Average loans          0.42%      0.14%      0.14%      0.10%      0.05%

    Balance Sheet
     (Average)
    Assets              $648,112   $647,045   $623,393   $607,871   $598,967
    Securities
     (AFS & HTM)         226,142    222,344    199,916    194,247    191,238
    Loans, gross         389,198    380,758    384,552    377,440    374,186
    Deposits             478,105    477,861    460,192    446,662    443,406
    Shareholders'
     Equity               54,848     53,918     53,141     52,016     52,029


                            For the year ended,
    For the period:         12/31/08   12/31/07

    Interest income          $35,285    $35,305
    Interest expense          15,319     17,738
      Net interest
       income                 19,966     17,567
    Provision for
     loan losses               1,325        700
      Net interest
       income after
       provision
       for loan
       losses                 18,641     16,867
    Non-interest income:
      Fees for
       services to
       customers               1,803      1,833
      ATM and debit
       card income               929        858
      Net gain (loss)
       on investment
       securities
       available-for-
       sale                     (609)    (2,815)
      Other operating
       income                  1,177      1,031
        Total non-
         interest
         income                3,300        907
    Non-interest expense:
      Salaries and
       employee
       benefits                7,977      7,464
      Net occupancy
       and furniture
       and fixture
       expense                 2,574      2,304
      Loss on
       prepayment of
       Federal Home
       Loan Bank
       advances                  -          740
      Other expense            4,077      3,933
        Total non-
         interest
         expense              14,628     14,441
      Income before
       income taxes            7,313      3,333
    Provision for
     income taxes              1,560        286
    Net income                $5,753     $3,047

    Share and Per Share Data:
    Net income - basic         $1.83      $0.97
    Net income -
     diluted                   $1.82      $0.96
    Book value                $17.21     $16.99
    Cash dividends             $0.92      $0.88
    Average common
     shares
     outstanding -
     basic                 3,135,608  3,130,179
    Average common
     shares
     outstanding -
     diluted               3,161,326  3,174,873

    Selected Ratios:
    Return on average
     assets                     0.91%      0.51%
    Return on average
     shareholders'
     equity                    10.76%      5.94%
    Net interest
     margin (tax
     equivalent)                3.56%      3.32%
    Efficiency ratio
     (tax equivalent)          59.09%     72.59%
    Average
     shareholders'
     equity to total
     average assets             8.47%      8.51%
    Net loan charge-
     offs                        769        150
    Net loan charge-
     offs (annualized)
     / Average loans            0.20%      0.04%

    Balance Sheet (Average)
    Assets                  $631,693   $602,601
    Securities (AFS &
     HTM)                    210,737    199,224
    Loans, gross             382,998    364,348
    Deposits                 465,772    441,219
    Shareholders'
     Equity                   53,486     51,299

SOURCE QNB Corp.