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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17706
QNB CORP.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2318082
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 North Third Street, Quakertown, PA 18951-9005
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215)538-5600
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Securities registered pursuant to Section 12(b) of the Act: None.
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.25 par value
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(Title of class)
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(Title of class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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[Cover page 1 of 2 pages]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
As of March 19, 1999, 1,435,678 shares of Common Stock of the registrant
were outstanding and the aggregate market value of the Common Stock of the
registrant, held by nonaffiliates was approximately $43,467,912.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for 1998 -- Part I, Item 3
Part II, Items 6, 7 and 8
Proxy Statement dated April 2, 1999 -- Part III, Items 10, 11, 12 and 13
FORM 10-K INDEX
PAGE
PART I
Item 1 Business..........................................................................4
Item 2 Properties.......................................................................10
Item 3 Legal Proceedings................................................................11
Item 4 Submission of Matters to a Vote of Security Holders..............................11
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.............11
Item 6 Selected Financial Data..........................................................11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................................12
Item 7A Quantitative and Qualitative Disclosures about Market Risk.......................12
Item 8 Financial Statements and Supplementary Data......................................12
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................................12
PART III
Item 10 Directors and Executive Officers of the Registrant...............................12
Item 11 Executive Compensation...........................................................12
Item 12 Security Ownership of Certain Beneficial Owners and Management...................13
Item 13 Certain Relationships and Related Transactions...................................13
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K..................13
PART I
ITEM 1. BUSINESS
QNB CORP.
QNB Corp. was incorporated under the laws of the Commonwealth of
Pennsylvania on June 4, 1984. QNB Corp. is registered with the Federal Reserve
Board as a bank holding company under The Quakertown National Bank Holding
Company Act of 1956, as amended, and conducts its business through its
wholly-owned subsidiary, The Quakertown National Bank. The principal business of
QNB Corp., through The Quakertown National Bank, is commercial banking and
consists of, among other things, attracting deposits from the general public and
using these funds in making commercial loans, residential mortgage loans,
consumer loans, and purchasing investment securities.
QNB Corp. was organized for the purpose of becoming the holding company of
The Quakertown National Bank. Pursuant to a Plan of Reorganization approved by
The Quakertown National Bank's stockholders, QNB Corp.'s application to the
Federal Reserve Board of Governors requesting approval to become a bank holding
company was approved on September 11, 1984. In accordance with the terms of the
Plan of Reorganization, each share of The Quakertown National Bank's common
stock previously outstanding was automatically converted into one share of QNB's
common stock and The Quakertown National Bank became a wholly owned subsidiary
of QNB Corp. QNB Corp's primary asset is its investment in The Quakertown
National Bank. QNB Corp.s primary assets also include an investment portfolio
consisting of stock in various financial institutions. The investment portfolio
accounts for less than 1.00% of QNB Corp.'s total consolidated assets.
THE QUAKERTOWN NATIONAL BANK
The Quakertown National Bank is a national banking association organized in
1877. The Quakertown National Bank is chartered under the National Banking Act
to engage in the various activities of a commercial bank and is subject to
federal and state laws applicable to commercial banks.
The Quakertown National Bank is a full-service commercial bank that
provides most major financial services. The Quakertown National Bank's principal
office is located in Bucks County, Pennsylvania. The Quakertown National Bank
also operates five other full-service branches, an operations facility and an
administrative office. For more information relating to The Quakertown National
Bank's properties, see Item 2. Properties. The Quakertown National Bank had 117
full-time employees and 43 part-time employees, at February 1, 1998. There are
employees of The Quakertown National Bank who are also employees of QNB Corp.
As of December 31, 1998 QNB Corp., on a consolidated basis, had total
assets of $324,672,000, total deposits of $279,223,000, and total shareholders'
equity of $28,338,000.
We have made forward-looking statements in this document, and in documents
that we incorporate by reference, that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of QNB Corp. The Quakertown National Bank
or the combined company. When we use words such as "believes," or "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
4
Readers should note that many factors, some of which are discussed
elsewhere in this document and in the documents that we incorporate by
reference, could affect the future financial results of QNB Corp., The
Quakertown National Bank or the combined company and could cause those results
to differ materially from those expressed in our forward-looking statements
contained or incorporated by reference in this document. These factors include
the following:
o operating, legal and regulatory risks;
o economic, political, and competitive forces affecting our banking,
securities, asset management and credit services businesses; and
o rapidly changing technology; and
o the risk that our analysis of these risks and forces could be
incorrect and/or that the strategies developed to address them
could be unsuccessful.
See also, page 8 of QNB Corp.'s 1998 Annual Report to Shareholders on Form 10-K,
"Management's Discussion and Analysis-Consolidated Financial Review"
incorporated by reference herein, which page is included at Exhibit 13.1
MARKET AREA
The Quakertown National Bank's primary market area is Quakertown,
Pennsylvania and its surrounding communities and includes parts of Upper Bucks
County, Southern Lehigh County, and Northern Montgomery County. The Quakertown
National Bank is not dependent upon a single customer, or a few customers, the
loss of which would have a material adverse effect on The Quakertown National
Bank.
LENDING ACTIVITIES
General. The Quakertown National Bank offers a variety of loan products to
its customers; including residential real estate mortgages, commercial,
construction, home equity, business, consumer, and student loans. The Quakertown
National Bank's loan portfolio totaled $176,443,000 and $167,720,000 at December
31, 1998 and 1997, respectively. The portfolio represented approximately 54.3%
and 54.9% of The Quakertown National Bank's total assets at December 31, 1998
and 1997, respectively.
Residential Mortgage Loans. The Quakertown National Bank offers primarily 1
and 3 year adjustable rate mortgages, 7 year balloon mortgages, and 15, 20 and
30 year fixed rate loans. Since 1984 The Quakertown National Bank has generally
sold, without recourse, its mortgage loans in the secondary mortgage market.
During 1998 substantially all originations of loans to individuals for
residential mortgages with maturities of 20 years or greater were sold in the
secondary market. In 1997, The Quakertown National Bank also sold a small group
of 15 year fixed rate mortgages.
The Quakertown National Bank originates mortgage loans up to a 95% maximum
loan-to-value ratio provided the amount above 80% is covered by private mortgage
insurance. Premiums for private mortgage insurance are paid by the borrower.
5
All mortgages sold in the secondary market conform to the loan-to-value
ratios and underwriting standards dictated by the secondary market. A majority
of the mortgages are sold to the Federal Home Loan Mortgage Corporation (Freddie
Mac), with servicing retained by The Quakertown National Bank.
The Quakertown National Bank also offers home equity loans and lines of
credit which are included in real estate residential loans. Real estate
residential loans in the aggregate amount of $71,052,000 and $67,621,000
represented 40.2% of gross loans at both December 31, 1998 and 1997.
Commercial Loans. The Quakertown National Bank offers commercial loans,
including lines of credit or commitment, term loans, commercial mortgages,
letters of credit, and tax-free loans.
The Quakertown National Bank's commercial and industrial loan portfolio
totaled $35,003,000 and $32,794,000 at December 31, 1998 and 1997, respectively.
Commercial and industrial loans represented approx-imately 19.8% and 19.5% of
The Quakertown National Bank's total gross loans at December 31, 1998 and 1997
respectively. Although a certain amount of these loans are considered unsecured,
the majority are secured by non-real estate collateral, such as equipment,
vehicles, accounts receivable and inventory.
Commercial real estate loans in the aggregate amount of $60,708,000 and
$58,783,000 represented 34.3% and 34.9% of The Quakertown National Bank's gross
loan portfolio at December 31, 1998 and 1997, respectively, while construction
loans, including commercial and residential, totaled $782,000 and $813,000 for
the same periods. Commercial real estate loans include all loans collateralized
at least in part by commercial real estate, but may not be for the expressed
purpose of conducting commercial real estate transactions.
Construction, commercial and industrial, and commercial real estate lending
generally entails significant additional risk as compared with residential
mortgage lending. These loans typically involve larger loan balances to single
borrowers or groups of related borrowers.
Consumer Loans. The Quakertown National Bank's consumer loan portfolio
totaled $5,864,000 and $5,312,000 at December 31, 1998 and 1997, respectively.
Consumer loans represented 3.3% and 3.2% of The Quakertown National Bank's total
gross loans at December 31, 1998 and 1997, respectively. Consumer loans include
automobile loans, student loans and other consumer type credit not secured by
real estate.
INVESTMENT ACTIVITIES
At December 31, 1998 and 1997, QNB Corp.'s investment portfolio, on a
consolidated basis, in the aggregate amount of $120,153,000 and $116,320,000
consisted primarily of U.S. Government and Federal agency obligations,
mortgage-backed securities, and state and municipal securities. Subject to
applicable limits The Quakertown National Bank is also permitted to invest in
corporate bonds and QNB Corp. is permitted to invest in equity securities. The
Quakertown National Bank accounts for its investments based on Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Investment securities available-for-sale are
recorded at market value with the unrealized holding gain or loss, net of taxes,
included in shareholders' equity, while investment securities held-to-maturity
are recorded at amortized cost. At December 31, 1998 and 1997, the balance of
the available-for-sale portfolio was $70,088,000 and $75,920,000 and the balance
of the held-to-maturity portfolio was $50,065,000 and $40,400,000, respectively.
6
The Quakertown National Bank views its investment portfolio as a secondary
source of liquidity and stable earnings. Decisions regarding the selection of
investments for The Quakertown National Bank's portfolio are made by the Chief
Operating Officer and the Chief Financial Officer, or either of them, together
with one other member of the asset/liability committee. Decisions on maturity
and type of investment are dictated by The Quakertown National Bank's investment
policy as approved by the Board of Directors. To enhance the liquidity and
interest rate sensitivity of the portfolio, The Quakertown National Bank's
strategy has been to invest in short and medium term U.S. Government and Federal
Agency obligations and callable bonds and in longer term mortgage-backed
securities and state and municipal securities. The available-for-sale and
held-to-maturity investment portfolios had weighted average maturities of 4
years, 10 months and 3 years, 10 months respectively, at December 31, 1998. The
expected weighted average life of the available-for-sale portfolio was 1 year, 2
months at December 31, 1998. The callable nature of the securities within this
portfolio in conjunction with the decline in interest rates during 1998, which
makes these call features more likely to be exercised, account for the shorter
average life. Prepayments on mortgage-backed securities also shortens the
average life.
SOURCES OF FUNDS
Deposits. The Quakertown National Bank offers a variety of deposit products
including checking accounts, passbook and statement savings, money market
accounts, interest-bearing demand accounts, certificates of deposit, and jumbo
certificates of deposit. Deposits of The Quakertown National Bank are insured up
to $100,000 by the Federal Deposit Insurance Corporation (the "FDIC").
COMPETITION
The Quakertown National Bank competes actively with other commercial banks
in its market area. Competition exists for new deposits, in the scope and type
of services offered, in interest rates on interest-bearing deposits and loans,
and in other aspects of banking. In addition, The Quakertown National Bank, like
other commercial banks, encounters competition from other non-bank financial
institutions including savings banks, savings and loans, insurance companies,
credit unions, finance companies, mutual funds and certain governmental
agencies. Furthermore, large regional and national banks located in Philadelphia
and Allentown are active in servicing companies based in The Quakertown National
Bank's market area.
For additional information with respect to QNB Corp.'s business activities,
see Part II, Item 7 hereof.
SUPERVISION AND REGULATION
QNB Corp. and its subsidiary, The Quakertown National Bank, operate in a
heavily regulated environment. The general cost of compliance with numerous and
multiple federal and state laws and regulations currently has, and in the future
may have, a negative impact on the results of operations of QNB Corp. and The
Quakertown National Bank.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of QNB Corp. and The Quakertown National Bank. It cannot be predicted
whether such legislation will be adopted or, if adopted, how such legislation
would affect the business of QNB Corp. and The Quakertown National Bank. As a
consequence of the extensive regulation of commercial banking activities in the
United States, QNB
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Corp.'s and The Quakertown National Bank's business is particularly susceptible
to being affected by federal legislation and regulations that may increase the
cost of doing business. Except as specifically described above, Management
believes that the effect of the provisions of the aforementioned legislation on
the liquidity, capital resources, and results of operations of QNB Corp. will be
immaterial. Management is not aware of any other current specific
recommendations by regulatory authorities or proposed legislation, which if they
were implemented, would have a material adverse effect upon the liquidity,
capital resources, or results of operations, although the general cost of
compliance with numerous and multiple federal and state laws and regulations
does have, and in the future may have, a negative impact on QNB Corp.'s results
of operations.
Further, the business of QNB Corp. is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, Management predicts that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management believes that
such consolidations and mergers may enhance its competitive positions as a
community bank.
As the Year 2000 approaches, regulation of QNB Corp. and The Quakertown
National Bank with respect to completing Year 2000 modifications has increased.
See page 27 of QNB Corp.'s 1998 Annual Report, "Management's Discussion and
Analysis-Impact of Year 2000" incorporated by reference herein, which page is
included at Exhibit 13.1.
Pending Legislation. Management cannot anticipate what changes Congress may
enact, or, if enacted, their impact on QNB Corp.'s financial position and
reported results of operation. As a consequence of the extensive regulation of
commercial banking activities in the United States, QNB Corp.'s and The
Quakertown National Bank's business is particularly susceptible to being
affected by federal and state legislation and regulations that may increase the
costs of doing business. See also, page 27 of QNB Corp.'s 1998 Annual Report,
incorporated by reference herein, which page is included at Exhibit 13.1.
Effects of Inflation. Inflation has some impact on QNB Corp.'s and The
Quakertown National Bank's operating costs. Unlike many industrial companies,
however, substantially all of QNB Corp.'s assets and liabilities are monetary in
nature. As a result, interest rates have a more significant impact on QNB
Corp.'s and The Quakertown National Bank's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily move
in the same direction or in the same magnitude as prices of goods and services.
Risk Based Capital. The Federal Reserve Board, the FDIC and the Comptroller
of the Currency have issued certain risk-based capital guidelines, which
supplement existing capital requirements. See pages 24 and 25 of QNB Corp.'s
1998 Annual Report for information concerning QNB Corp.'s capital ratios,
incorporated by reference herein, which pages are included at Exhibit 13.1.
Holding Company Regulation
As a registered holding company under The Quakertown National Bank Holding
Company Act, (the "BHCA"), QNB Corp. is regulated by the Federal Reserve Board
(the "FRB"). QNB Corp. is also subject to the provisions of section 115 of the
Pennsylvania Banking Code of 1965.
As a bank holding company, QNB Corp. is required to file with the FRB
an annual report and such additional information regarding the holding company
and its subsidiary bank as required pursuant to the BHCA.
8
In addition to the restrictions imposed by the BHCA relating to a bank
holding company's ability to acquire control of additional banks, the BHCA
generally prohibits a bank holding company from (i) acquiring a direct or
indirect interest in, or control of 5% or more of the outstanding voting shares
of any company, and (ii) engaging directly or indirectly in activities other
than that of banking, managing or controlling banks or furnishing services to
subsidiaries. However, a bank holding company may engage in, and may own shares
of companies engaged in, certain activities deemed by the FRB to be closely
related to banking or managing or controlling banks.
Bank Regulation
The Quakertown National Bank operates as a national bank subject to
regulation and examination by the Office of the Comptroller of the Currency (the
"OCC").
The OCC regulates all areas of a national bank's commercial banking
operations including loans, mergers, establishment of branches and other aspects
of operations. The OCC also regulates the level of dividends which can be
declared by QNB Corp. See QNB Corp.'s 1998 Annual Report.
The Quakertown National Bank is also regulated by the Federal Reserve
System and the FDIC. The major function of the FDIC with respect to insured
member banks is to pay depositors to the extent provided by law in the event an
insured bank is closed without adequately providing for payment of the claims of
depositors.
FDIC insured banks are subject to certain FDIC requirements designed to
maintain the safety and soundness of individual banks and The Quakertown
National Banking system. In addition, the FDIC along with the Comptroller of the
Currency and the FRB have adopted regulations which define and set the minimum
requirements for capital adequacy based on risk. See pages 24 and 25 of QNB
Corp's 1998 Annual Report, "Management's Discussion and Analysis-Capital
Adequacy," incorporated by reference herein, which pages are included at Exhibit
13.1. The FRB, the FDIC and Federal and State law extensively regulate other
various aspects of The Quakertown National Banking business, including, but not
limited to, permissible types and amounts of loans, investments and other
activities, branching, interest rates on loans and the safety and soundness of
banking practices.
Environmental Laws. Neither QNB Corp. nor The Quakertown National Bank
anticipates that compliance with environmental laws and regulations will have
any material effect on capital, expenditures, earnings, or on its competitive
position. However, environmentally related hazards have become a source of high
risk and potentially unlimited liability for financial institutions.
Environmentally contaminated properties owned by an institution's borrowers may
result in a drastic reduction in the value of the collateral securing the
institution's loans to such borrowers, high environmental clean up costs to the
borrower affecting its ability to repay the loans, the subordination of any lien
in favor of the institution to a state or federal lien securing clean up costs,
and liability to the institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of the borrower. To
minimize this risk, The Quakertown National Bank may require an environmental
examination of and report with respect to the property of any borrower or
prospective borrower if circumstances affecting the property indicate a
potential for contamination, taking into consideration a potential loss to the
institution in relation to the borrower. Such examination must be performed by
an engineering firm experienced in environmental risk studies and acceptable to
the institution, and the cost of such examinations and reports are the
responsibility of the borrower. These costs may be substantial and may deter
prospective borrowers from entering into a loan transaction with The Quakertown
National Bank. QNB Corp. is not aware of any borrower who is currently subject
to any environmental investigation or clean up proceeding that is likely to have
9
a material adverse effect on the financial condition or results of operations of
The Quakertown National Bank.
In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substance on
or from the property, or knowingly and willfully compelled the borrower to
commit an action which caused such release or violate an environmental act. The
Economic Development Agency, Fiduciary and Lender Environmental Liability
Protection Act, however, does not limit federal liability which still exists
under certain circumstances.
Federal Reserve Board Requirements
Regulation D of the FRB imposes reserve requirements on all depository
institutions, including The Quakertown National Bank, that maintain transaction
accounts or non-personal time and savings accounts. These reserves may be in the
form of cash or non-interest bearing deposits with the Philadelphia Federal
Reserve Bank. Under current Regulation D, The Quakertown National Bank must
establish reserves equal to 3.0% of the first $41.6 million of net transaction
accounts and 10.0% of the remainder. The reserve requirement on non-personal
savings and time deposits is 0.0%. Cash and demand balances due from depository
institutions in the United States are used as a deduction against the reserve.
At December 31, 1998, The Quakertown National Bank met applicable FRB reserve
requirements.
ITEM 2. PROPERTIES
The Quakertown National Bank and Corporation's main office is located at 10
North Third Street, Quakertown, Pennsylvania. The Quakertown National Bank
conducts business from its main office and five other retail offices located in
Upper Bucks, Southern Lehigh, and Northern Montgomery Counties. The Quakertown
National Bank owns its main office, two retail locations, its operations
facility, and the computer facility. The Quakertown National Bank leases its
remaining retail properties. The leases on the properties generally contain
renewal options. Management considers that its facilities are adequate for its
business.
The following table details The Quakertown National Bank's properties:
Location
Quakertown, Pa. - Main Office Owned
10 North Third Street
Quakertown, Pa. - Towne Bank Center Owned
320 West Broad Street
10
Quakertown, Pa. - Computer Center Owned
- 121 West Broad Street
Quakertown, Pa. Country Square Office Leased
240 South West End Boulevard
Dublin, Pa. - Dublin Branch Leased
161 North Main Street
Pennsburg, Pa. - Pennsburg Square Branch Leased
410-420 Pottstown Ave
Coopersburg, Pa. - Coopersburg Branch Owned
51 South Third Street
Perkasie, Pa. - Perkasie Branch Owned
607 Chestnut Street
In management's opinion, the above properties are in good condition and are
adequate for QNB Corp.'s purposes.
ITEM 3. LEGAL PROCEEDINGS
Management, after consulting with QNB Corp.'s legal counsel, is not aware
of any litigation that would have a material adverse effect on the consolidated
financial position of QNB Corp. There are not proceedings pending other than
ordinary routine litigation incident to the business of QNB Corp. and its
subsidiary, The Quakertown National Bank. In addition, no material proceedings
are known to be contemplated by governmental authorities against QNB Corp. or
The Quakertown National Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
QNB Corp. had 696 shareholders of record as of March 19, 1999; however, QNB
Corp. believes, based on the number of annual reports and proxy statements
requested by nominee holders of QNB Corp.'s Common Stock, that the number of
beneficial holders exceeds 900. See Page 44 of the 1998 Annual Report,
"Corporate Information-Stock Information" and page 43 of the 1998 Annual Report,
"Notes to Consolidated Financial Statements-Note 20-Regulatory Restrictions,"
incorporated by reference herein which pages are included in Exhibit 13.1.
ITEM 6. SELECTED FINANCIAL AND OTHER DATA
The information required by Item 6 is incorporated by reference to the
information appearing under the caption "Selected Financial and Other Data" on
page 28 of QNB Corp.'s Annual Report which is attached as Exhibit 13.1.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated by reference to the
information appearing under the caption "Management's Discussion and Analysis"
on pages 7 to 28 of QNB Corp.'s Annual Report which is attached as Exhibit 13.1.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is incorporated by reference to the
information appearing under the caption "Interest Rate Sensitivity" on pages 25
and 26 of QNB Corp.'s Annual Report which is attached as Exhibit 13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 and the auditor's report are
incorporated by reference to pages 29 to 44 of QNB Corp.'s Annual Report which
is attached as Exhibit 13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, relating to directors, executive
officers, control persons is set forth in the sections captioned "Election of
Directors" and "Executive Officers of Registrant" of the QNB Corp's definitive
Proxy Statement to be used in connection with the 1999 Annual Meeting of
Shareholders, on pages 8 and 16 which pages are incorporated herein by
reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Registrant's officers
and directors, and persons who own more than 10 percent of a registered class of
the Registrant's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the Registrant with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Registrant believes that during the period
January 1, 1998 through December 31, 1998, its officers and directors were in
compliance with all filing requirements applicable to them.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
information appearing under the caption "Executive Compensation" in the Proxy
Statement to be used in connection with the 1999 Annual Meeting of Shareholders,
on pages 11-14 which pages are incorporated by reference.
12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
information appearing under the caption "Securities Ownership of Management" in
the Proxy Statement to be used in connection with the 1999 Annual Meeting of
Shareholders, on pages 5 through 7, which pages are incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
information appearing under the caption "Related Transactions" in the Proxy
Statement to be used in connection with the 1999 Annual Meeting of Shareholders,
on page 16, which page is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are included by reference in part II,
Item 8 hereof.
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The financial statement schedules required by this Item are omitted
because the information is either inapplicable, not required or is in
the consolidated financial statements as a part of this Report.
3. The following exhibits are incorporated by reference herein or annexed
to this 10-K:
3.1- Articles of Incorporation of Registrant, as amended.
(Incorporated by reference to Exhibit 3.1 of Registrants Form
10-Q filed with the Commission on April 13, 1998.)
3.2- Bylaws of Registrant, as amended. (Incorporated by reference
to Exhibit 3.1 of Registrants Form 10-Q filed with the
Commission on April 13, 1998.)
10.1- Employment Agreement between the Registrant and Thomas J. Bisko.
10.2- Salary Continuation Agreement between the Registrant and Thomas
J. Bisko.
13
10.4- QNB Corp. Stock Incentive Plan. (Incorporated by reference to
Exhibit 4A to Registration Statement No. 333-16627 on Form S-8,
filed with the Commission on November 22, 1996.)
10.5- QNB Corp. Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 4B to Registration Statement No. 333-16627
on Form S-8, filed with the Commission on November 22, 1996.)
10.6- The Quakertown National Bank Profit Sharing and Section 401(k)
Salary Deferral Plan. (Incorporated by reference to Exhibit 4C
to Registration Statement No. 333-16627 on Form S-8, filed with
the Commission on November 22, 1996.)
11.1- Statement re: Computation of Earnings per Share. (Incorporated
by Reference to page 35 of QNB Corp.'s 1998 Annual Report,
"Notes to Consolidated Financial Statements-Note 2-Earnings
Per Share," which is included herein at Exhibit 13.1.)
12.1- Statement re: Computation of Ratios. (Incorporated by Reference
to page 1 of QNB Corp.'s 1998 Annual Report, which is included
herein as Exhibit 13.1.)
13.1- Excerpts from the 1998 Annual Report to Shareholders.
21.1- Subsidiaries of the Registrant.
23.1- Consent of KPMG LLP, filed herewith.
(b) Reports on Form 8-K
None
(c) The exhibits required to be filed by this Item are listed under Item 14(a)3
above.
(d) Not applicable
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QNB Corp.
March 23, 1999 By: /s/ Thomas J. Bisko
-----------------------------------
Thomas J. Bisko
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
President, Chief Executive March 23, 1999
/s/ Thomas J. Bisko Officer and Director
- -----------------------------
Thomas J. Bisko
Vice President March 23, 1999
/s/ Robert C. Werner
- -----------------------------
Robert C. Werner
/s/ Bret H. Krevolin Chief Accounting Officer March 23, 1999
- -----------------------------
Bret H. Krevolin
/s/ Norman L. Baringer Director March 23, 1999
- -----------------------------
Norman L. Baringer
/s/ Kenneth F. Brown Jr. Director March 23, 1999
- -----------------------------
Kenneth F. Brown Jr.
/s/ Dennis Helf Director March 23, 1999
- -----------------------------
Dennis Helf
15
SIGNATURES (Continued)
/s/ Gary S. Parzych Director March 23, 1999
- -----------------------------
Gary S. Parzych
/s/ Donald T. Knauss Director March 23, 1999
- -----------------------------
Donald T. Knauss
/s/ Charles M. Meredith, III Director March 23, 1999
- -----------------------------
Charles M. Meredith, III
/s/ Henry L. Rosenberger Director March 23, 1999
- -----------------------------
Henry L. Rosenberger
/s/ Edgar L. Stauffer Director March 23, 1999
- -----------------------------
Edgar L. Stauffer
16
QNB CORP.
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1998
EXHIBIT INDEX
Exhibit
3.1- Articles of Incorporation of Registrant, as amended
3.3- Bylaws of Registrant, as amended
10.1- Employment Agreement between the Registrant and Thomas J. Bisko
10.2- Salary Continuation Agreement between the Registrant and
Thomas J. Bisko
10.4- QNB Corp. Stock Incentive Plan
10.5- QNB Corp. Employee Stock Purchase Plan
10.6- The Quakertown National Bank Profit Sharing and Section 401(k)
Salary Deferral Plan
11.1- Statement re: Computation of Earnings per Share
12.1- Statement re: Computation of Ratios
13.1- Excerpts from the 1998 Annual Report to Shareholders.
21.1- Subsidiaries of the Registrant.
23.1- Consent of KPMG LLP, filed herewith.