UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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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, 2002
[ ] 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.
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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 Identification No.)
incorporation or organization)
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)
(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
[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 20, 2003, 1,545,321 shares of Common Stock of the registrant
were outstanding. As of June 28, 2002, the aggregate market value of the Common
Stock of the registrant, held by nonaffiliates was approximately $44,703,097.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for 2002 - Part I, Item 3
Part II, Items 6, 7 and 8
Proxy Statement dated April 21, 2003 - Part III, Items 10, 11, 12 and 13
FORM 10-K INDEX
PART I PAGE
Item 1 Business........................................................4
Item 2 Properties.....................................................14
Item 3 Legal Proceedings..............................................15
Item 4 Submission of Matters to a Vote of Security Holders............15
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters......................................16
Item 6 Selected Financial Data........................................16
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation.......................16
Item 7A Quantitative and Qualitative Disclosures about
Market Risk..............................................16
Item 8 Financial Statements and Supplementary Data....................16
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................16
PART III
Item 10 Directors and Executive Officers of the Registrant.............17
Item 11 Executive Compensation.........................................17
Item 12 Security Ownership of Certain Beneficial Owners
and Management...........................................17
Item 13 Certain Relationships and Related Transactions.................17
Item 14 Controls and Procedures .......................................17
PART IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................19
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 Bank Holding Company Act of 1956 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.
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 six 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 130
full-time employees and 37 part-time employees, at March 7, 2003. There are
employees of The Quakertown National Bank who are also employees of QNB Corp.
As of December 31, 2002, QNB Corp., on a consolidated basis, had total
assets of $503,430,000, total deposits of $388,913,000, and total shareholders'
equity of $40,914,000.
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.
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;
o rapidly changing technology;
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.
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See also, page 9 of QNB Corp.'s 2002 Annual Report to Shareholders,
"Management's Discussion and Analysis-Consolidated Financial Review"
incorporated herein by reference, which page is included at Exhibit 13.
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 $216,850,000 and $202,211,000 at December
31, 2002 and 2001, respectively. The portfolio represented approximately 43.1%
and 44.8% of The Quakertown National Bank's total assets at December 31, 2002
and 2001, 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. The Quakertown National Bank has generally
sold, without recourse, its mortgage loans in the secondary mortgage market.
During 2002 and 2001, substantially all originations of loans to individuals for
residential mortgages with maturities of 15 years or greater were sold in the
secondary market.
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. The borrower pays for private mortgage insurance.
All mortgages sold in the secondary market conform to the loan-to-value
ratios and underwriting standards dictated by the secondary market. The
Quakertown National Bank sells a majority of the mortgages to the Federal Home
Loan Mortgage Corporation. The Quakertown National Bank retains servicing
rights.
The Quakertown National Bank also offers home equity loans and lines of
credit which are included in real estate residential loans. Also, included in
this category are commercial purpose loans that are secured by residential real
estate. Real estate residential loans in the aggregate amount of $88,831,000 and
$78,419,000 represented 40.9% and 38.7% of gross loans at December 31, 2002 and
2001.
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
was $39,546,000 and $39,694,000 at December 31, 2002 and 2001, respectively.
Commercial and industrial loans represented approximately 18.2% and 19.6% of The
Quakertown National Bank's total gross loans at December 31, 2002 and 2001,
respectively. Although a certain amount of these loans are considered
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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 $74,125,000
and $71,112,000, represented 34.1% and 35.1% of The Quakertown National Bank's
gross loan portfolio at December 31, 2002 and 2001, respectively, while
construction loans, including commercial and residential, were $7,687,000 and
$3,989,000 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 $6,748,000 and $6,645,000 at December 31, 2002 and 2001, respectively.
Consumer loans represented 3.1% and 3.3% of The Quakertown National Bank's total
gross loans at December 31, 2002 and 2001, respectively. Consumer loans include
automobile loans, student loans and other consumer type credit not secured by
real estate.
INVESTMENT ACTIVITIES
At December 31, 2002 and 2001, QNB Corp.'s investment portfolio, on a
consolidated aggregate basis, was $244,477,000 and $210,900,000. The portfolio
consisted primarily of United States government and federal agency obligations,
mortgage-backed securities, collateralized mortgage obligations (CMO) 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." The
Quakertown National Bank records investment securities available-for-sale at
market value with the unrealized holding gains and losses, net of tax, excluded
from earnings and reported as accumulated comprensive gain, a separate component
of shareholders' equity. The Quakertown National Bank records investment
securities held-to-maturity at amortized cost. At December 31, 2002 and 2001,
the balance of the available-for-sale portfolio was $214,741,000 and
$168,102,000 and the balance of the held-to-maturity portfolio was $29,736,000
and $42,798,000, respectively.
The Quakertown National Bank views its investment portfolio as a
secondary source of liquidity and stable earnings. The Chief Operating Officer,
the Chief Financial Officer, or either of them, together with one other member
of the investment committee, make decisions concerning the selection of
investments for The Quakertown National Bank's portfolio. The investment
committee meets at least quarterly to review the investment portfolio and future
investment strategies. The Quakertown National Bank's investment policy, as
approved by the Board of Directors, dictates the maturity and types of
investments for The Quakertown National Bank. The Quakertown National Bank's
strategy had been to invest in:
o Short and medium term United States government and federal agency
obligations and callable bonds;
o Medium to longer term collateralized mortgage obligations (CMOs) and
mortgage-backed securities;
o State and municipal securities; and
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o AAA and AA Corporate bonds.
With the sharp decline in interest rates during 2002, the strategy has changed
slightly to invest in shorter average life and duration mortgage-backed
securities and CMOs. These types of structures will provide cash flow to
reinvest when rates go higher.
SOURCES OF FUNDS
DEPOSITS. The Quakertown National Bank offers a variety of deposit
products, including:
o Checking accounts;
o Passbook and statement savings;
o Money market accounts;
o Interest-bearing demand accounts;
o Certificates of deposit; and
o Jumbo certificates of deposit.
The Federal Deposit Insurance Corporation insures deposits of The Quakertown
National Bank up to $100,000.
BORROWINGS. The Quakertown National Bank is a member of the Federal
Home Loan Bank of Pittsburgh. As a member, The Quakertown National Bank may
obtain advances from the Federal Home Loan Bank secured by otherwise
unencumbered qualifying assets including 1-4 family residential mortgage loans
and United States government agency notes, bonds and mortgage-backed securities.
The Quakertown National Bank pledges its Federal Home Loan Bank stock to secure
these advances. Advances are made under several different credit programs, each
of which has its own interest rate and range of maturities. Federal Home Loan
Bank advances are generally available to meet seasonal and other withdrawals of
deposit accounts and to expand lending and investment activities. At December
31, 2002, The Quakertown National Bank had $55,000,000 in outstanding advances.
In addition, The Quakertown National Bank has a $5,000,000 unsecured federal
funds line granted by its correspondent bank.
COMPETITION
The Quakertown National Bank competes actively with other commercial
banks in its market area. Competition exists for:
o New deposits;
o Type and scope of services offered;
o Interest rates on interest-bearing deposits and loans; and
o Other aspects of banking, such as convenience and fee schedules.
In addition, The Quakertown National Bank, like other commercial banks,
encounters competition from other non-bank financial institutions including:
o Savings banks;
o Savings and loan associations;
o Insurance companies;
o Credit unions;
o Finance companies;
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o Mutual funds;
o Securities brokerage firms;
o Money market funds; and
o Government agencies.
In addition, 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 of this Annual Report on Form 10-K.
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
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. See page 34 of QNB Corp.'s 2002 Annual Report to
Shareholders, incorporated herein by reference, which page is attached at
Exhibit 13.
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. We cannot
predict 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 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.
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 page 31 of QNB Corp.'s 2002
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Annual Report to Shareholders for information concerning QNB Corp.'s capital
ratios, incorporated here by reference, which page is included at Exhibit 13.
HOLDING COMPANY REGULATION
As a registered holding company under the Bank Holding Company Act, QNB
Corp. is regulated by the Federal Reserve Board. 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
Federal Reserve Board an annual report and such additional information regarding
the holding company and its subsidiary bank as required under the Bank Holding
Company Act.
The Bank Holding Company Act prohibits QNB Corp. from acquiring:
o direct or indirect control of more than 5% of the voting stock of
any bank; or
o substantially all of the assets of any bank; or
o merging with another bank holding company;
without the prior approval of the Federal Reserve. The Pennsylvania Department
of Banking also must approve any similar consolidation. Pennsylvania law permits
Pennsylvania bank holding companies to control an unlimited number of banks.
The Bank Holding Company Act restricts QNB Corp. from engaging in
activities to those that the Federal Reserve has found:
o to be closely related to banking; and
o which are expected to produce benefits for the public that will
outweigh any potential adverse effects.
To this end, the Bank Holding Company Act prohibits QNB Corp. from:
o engaging in most non-banking businesses; or
o acquiring ownership or control of more than 5% of the outstanding
voting stock of any company engaged in a non-banking business;
unless
o the Federal Reserve has determined that the non-banking business is
closely related to banking.
Under the Bank Holding Company Act, the Federal Reserve may require a
bank holding company to end a non-banking business if it constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the bank
holding company.
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 Office of the Comptroller of the Currency regulates all areas of a
national bank's commercial banking operations including loans, mergers,
establishment of branches and other aspects of operations. The Office of the
Comptroller of the Currency also regulates the level of dividends which can be
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declared. For more information, see page 53 of QNB Corp.'s 2002 Annual Report to
Shareholders, "Notes to Consolidated Financial Statements-Note 21-Regulatory
Restrictions," incorporated herein by reference, which page is included at
Exhibit 13.
The Quakertown National Bank is also regulated by the Federal Reserve
System and the Federal Deposit Insurance Corporation. The major function of the
Federal Deposit Insurance Corporation 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.
Federal Deposit Insurance Corporation insured banks are subject to
certain Federal Deposit Insurance Corporation requirements designed to maintain
the safety and soundness of individual banks and the banking system. In
addition, the Federal Deposit Insurance Corporation along with the Comptroller
of the Currency and the Federal Reserve Board has adopted regulations which
define and set the minimum requirements for capital adequacy based on risk. See
pages 31 and 32 of QNB Corp's 2002 Annual Report to Shareholders, "Management's
Discussion and Analysis-Capital Adequacy," incorporated by reference herein,
which pages are included at Exhibit 13. The Federal Reserve Board, the Federal
Deposit Insurance Corporation and Federal and State law extensively regulate
other various aspects of the 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
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
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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 Federal Reserve Board 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 $41.3 million
of net transaction accounts and 10.0% of the remainder. The reserve requirement
on non-personal savings and time deposits is 0.0%. Demand balances due from
depository institutions in the United States are used as a deduction against the
reserve. At December 31, 2002, The Quakertown National Bank met applicable
Federal Reserve Board reserve requirements.
RECENT LEGISLATION
FINANCIAL SERVICES MODERNIZATION LEGISLATION. In November 1999, the
Gramm-Leach-Bliley Act of 1999, or the GLB, was enacted. The GLB repeals
provisions of the Glass-Steagall Act which restricted the affiliation of Federal
Reserve member banks with firms "engaged principally" in specified securities
activities, and which restricted officer, director or employee interlocks
between a member bank and any company or person "primarily engaged" in specified
securities activities.
In addition, the GLB also contains provisions that expressly preempt
any state law restricting the establishment of financial affiliations, primarily
related to insurance. The general effect of the law is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers by revising
and expanding the Bank Holding Company Act framework to permit a holding company
to engage in a full range of financial activities through a new entity known as
a "financial holding company." "Financial activities" is broadly defined to
include not only banking, insurance and securities activities, but also merchant
banking and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities or complementary activities that
do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
The GLB also permits national banks to engage in expanded activities
through the formation of financial subsidiaries. A national bank may have a
subsidiary engaged in any activity authorized for national banks directly or any
financial activity, except for insurance underwriting, insurance investments,
real estate investment or development, or merchant banking, which may only be
conducted through a subsidiary of a financial holding company. Financial
activities include all activities permitted under new sections of the Bank
Holding Company Act or permitted by regulation.
To the extent that the GLB permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The GLB is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis and which unitary savings and loan holding companies already possess.
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Nevertheless, the GLB may have the result of increasing the amount of
competition that QNB Corp. faces from larger institutions and other types of
companies offering financial products, many of which may have substantially more
financial resources than QNB Corp. has.
USA PATRIOT ACT OF 2001. In October 2001, the USA Patriot Act of 2001
was enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington D.C. which occurred on September 11, 2001. The Patriot Act is
intended to strengthen U.S. law enforcement's and the intelligence communities'
abilities to work cohesively to combat terrorism on a variety of fronts. The
potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money
laundering and financial transparency laws and imposes various regulations,
including standards for verifying client identification at account opening, and
rules to promote cooperation among financial institutions, regulators and law
enforcement entities in identifying parties that may be involved in terrorism or
money laundering.
IMLAFATA. As part of the USA Patriot Act, Congress adopted the
International Money Laundering Abatement and Financial Anti-Terrorism Act of
2001 (IMLAFATA). IMLAFATA amended the Bank Secrecy Act and adopted certain
additional measures that increase the obligation of financial institutions,
including The Quakertown National Bank, to identify their customers, watch for
and report upon suspicious transactions, respond to requests for information by
federal banking regulatory authorities and law enforcement agencies, and share
information with other financial institutions. The Secretary of the Treasury has
adopted several regulations to implement these provisions. The Quakertown
National Bank is also barred from dealing with foreign "shell" banks. In
addition, IMLAFATA expands the circumstances under which funds in a bank account
may be forfeited. IMLAFATA also amended the BHC Act and the Bank Merger Act to
require the federal banking regulatory authorities to consider the effectiveness
of a financial institution's anti-money laundering activities when reviewing an
application to expand operations. The Quakertown National Bank has in place a
Bank Secrecy Act compliance program.
SARBANES-OXLEY ACT OF 2002. On July 30, 2002, President Bush signed
into law the Sarbanes-Oxley Act of 2002 (the "Act"). The stated goals of the Act
are to increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws.
The Act is the most far-reaching U.S. securities legislation enacted in
decades. The Act generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. Due
to the SEC's extensive role in implementing rules relating to many of the Act's
new requirements, the final scope of these requirements remains to be
determined.
The Act includes very specific additional disclosure requirements and
new corporate governance rules, requires the SEC and securities exchanges to
adopt extensive additional disclosure, corporate governance and other related
rules and mandates further studies of certain issues by the SEC. The Act
represents significant federal involvement in matters traditionally left to
state regulatory systems, such as the regulation of the accounting profession,
and to state corporate law, such as the relationship between a board of
directors and management and between a board of directors and its committees.
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The Act addresses, among other matters:
o audit committees for all reporting companies;
o certification of financial statements by the chief executive officer
and the chief financial officer;
o the forfeiture of bonuses or other incentive-based compensation and
profits from the sale of an issuer's securities by directors and
senior officers in the twelve month period following initial
publication of any financial statements that later require
restatement;
o a prohibition on insider trading during pension plan black out
periods;
o disclosure of off-balance sheet transactions;
o a prohibition on personal loans to directors and officers; expedited
filing requirements for Forms 4's;
o disclosure of a code of ethics and filing a Form 8-K for a change or
waiver of such code;
o "real time" filing of periodic reports;
o the formation of a public accounting oversight board;
o auditor independence; and
o various increased criminal penalties for violations of securities
laws.
The Act contains provisions that were effective upon enactment on July
30, 2002 and provisions that will be phased in for up to one year after
enactment. The SEC was delegated the task of enacting rules to implement various
provisions with respect to, among other matters, disclosure in periodic filings
pursuant to the Exchange Act.
REGULATION W. Transactions between a bank and its "affiliates" are
quantitatively and qualitatively restricted under the Federal Reserve Act. The
Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember
banks in the same manner and to the same extent as if they were members of the
Federal Reserve System. The Federal Reserve Board has also recently issued
Regulation W, which codifies prior regulations under Sections 23A and 23B of the
Federal Reserve Act and interpretative guidance with respect to affiliate
transactions. Regulation W incorporates the exemption from the affiliate
transaction rules but expands the exemption to cover the purchase of any type of
loan or extension of credit from an affiliate. Affiliates of a bank include,
among other entities, the bank's holding company and companies that are under
common control with the bank. QNB Corp. is considered to be an affiliate of The
Quakertown National Bank. In general, subject to certain specified exemptions, a
bank or its subsidiaries are limited in their ability to engage in "covered
transactions" with affiliates:
o to an amount equal to 10% of the bank's capital and surplus, in the
case of covered transactions with any one affiliate; and
o to an amount equal to 20% of the bank's capital and surplus, in the
case of covered transactions with all affiliates.
In addition, a bank and its subsidiaries may engage in covered
transactions and other specified transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
bank or its subsidiary, as those prevailing at the time for comparable
transactions with nonaffiliated companies. A "covered transaction" includes:
o a loan or extension of credit to an affiliate;
o a purchase of, or an investment in, securities issued by an
affiliate;
13
o a purchase of assets from an affiliate, with some exceptions;
o the acceptance of securities issued by an affiliate as collateral
for a loan or extension of credit to any party; and
o the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate.
In addition, under Regulation W:
o a bank and its subsidiaries may not purchase a low-quality asset
from an affiliate;
o covered transactions and other specified transactions between a bank
or its subsidiaries and an affiliate must be on terms and conditions
that are consistent with safe and sound banking practices; and
o with some exceptions, each loan or extension of credit by a bank to
an affiliate must be secured by collateral with a market value
ranging from 100% to 130%, depending on the type of collateral, of
the amount of the loan or extension of credit.
Regulation W generally excludes all non-bank and non-savings association
subsidiaries of banks from treatment as affiliates, except to the extent that
the Federal Reserve Board decides to treat these subsidiaries as affiliates.
Concurrently with the adoption of Regulation W, the Federal Reserve
Board has proposed a regulation which would further limit the amount of loans
that could be purchased by a bank from an affiliate to not more than 100% of the
bank's capital and surplus.
ITEM 2. PROPERTIES
The Quakertown National Bank and QNB Corp.'s main office is located at
10 North Third Street, Quakertown, Pennsylvania. The Quakertown National Bank
conducts business from its main office and six 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. - Downtown Office Owned
10 North Third Street
Quakertown, Pa. - Towne Bank Center Owned
320 West Broad Street
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
14
Coopersburg, Pa. - Coopersburg Branch Owned
51 South Third Street
Perkasie, Pa. - Perkasie Branch Owned
607 Chestnut Street
Hilltown Township, Pa. - Souderton Branch Leased
750 Route 113
In management's opinion, these properties are in good condition and are
adequate for QNB Corp.'s purposes.
ITEM 3. LEGAL PROCEEDINGS
Management, after consulting with 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 no 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.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
QNB Corp. had 697 shareholders of record as of March 20, 2003; 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 980. See Page 55 of the 2002 Annual Report to
Shareholders, "Corporate Information-Stock Information" and page 53 of the 2002
Annual Report to Shareholders, "Notes to Consolidated Financial Statements-Note
21-Regulatory Restrictions," incorporated herein by reference, which pages are
attached at Exhibit 13.
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 35 of the 2002 Annual Report to Shareholders, incorporated herein by
reference, which page is attached at Exhibit 13.
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 8 to 35 of the 2002 Annual Report to Shareholders, incorporated herein
by reference, which pages are attached at Exhibit 13.
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 33
and 34 of the 2002 Annual Report to Shareholders, which pages are attached at
Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 and the auditor's report are
incorporated by reference to pages 36 to 55 of the 2002 Annual Report to
Shareholders, which pages are attached at Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
16
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 QNB Corp.'s definitive
proxy statement to be used in connection with the 2003 Annual Meeting of
Shareholders, on pages 6 and 17, which pages are incorporated herein by
reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934 requires QNB Corp's officers and directors, and
persons who own more than 10 percent of a registered class of QNB Corp's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10
percent shareholders are required by Commission regulation to furnish QNB Corp.
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 Form 5s were
required for those persons. QNB Corp. believes that during the period January 1,
2002 through December 31, 2002, its officers and directors were in compliance
with all filing requirements applicable to them, except for Norman L. Baringer,
who filed one form late reporting one transaction and Henry L. Rosenberger, who
filed one form late reporting one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
information appearing under the caption "Executive Compensation" in QNB Corp.'s
definitive proxy statement to be used in connection with the 2003 Annual Meeting
of Shareholders, on pages 10-14, which pages are incorporated herein by
reference.
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
QNB Corp.'s definitive proxy statement to be used in connection with the 2003
Annual Meeting of Shareholders, on pages 3-5, which pages are incorporated
herein 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 QNB Corp.'s
definitive proxy statement to be used in connection with the 2003 Annual Meeting
of Shareholders, on page 17, which page is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this Form 10-K, QNB Corp. carried
out an evaluation, under the supervision and with the participation of its
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
17
procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that, QNB Corp.'s
disclosure controls and procedures are effective in timely alerting them to
material information relating to QNB Corp. (including its consolidated
subsidiaries) required to be included in our periodic SEC filings. There have
been no significant changes in QNB Corp.'s internal controls or, to its
knowledge, in other factors that could significantly affect internal controls
subsequent to the date QNB Corp. carried out its evaluation.
18
PART IV
ITEM 15. 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 Shareholders' 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 Form 10-K:
3(i)- Articles of Incorporation of Registrant, as amended.
(Incorporated by reference to Exhibit 3(i) of Registrant's
Form 10-Q filed with the Commission on August 13, 1998.)
3(ii)- Bylaws of Registrant, as amended. (Incorporated by reference
to Exhibit 3(ii) of Registrant's Form 10-Q filed with the
Commission on August 13, 1998.)
10.1- Employment Agreement between the Registrant and Thomas J.
Bisko. (Incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K filed with the Commission on March 31,
1999 and amended on April 3, 2002 on Form 8-K filed with the
Commission on April 11, 2002).
10.2- Salary Continuation Agreement between the Registrant and
Thomas J. Bisko. (Incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K filed with the Commission on March 31,
1999).
10.3- QNB Corp. 1998 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.3 to Registration Statement No.
333-91201 on Form S-8, filed with the Commission on November
18, 1999.)
10.4- 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.)
10.5- Change of Control Agreement between Registrant and Robert C.
Werner. (Incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q filed with the Commission on November
13, 2000.)
19
10.6- Change of Control Agreement between Registrant and Bret H.
Krevolin. (Incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q filed with the Commission on November
13, 2000.)
10.7- QNB Corp. 2001 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 99.1 to Registration Statement No.
333-67588 on Form S-8, filed with the Commission on August 15,
2001).
11- Statement re: Computation of Earnings per Share. (Incorporated
by Reference to page 44 of the 2002 Annual Report to
Shareholders, "Notes to Consolidated Financial Statements-
Note 2-Earnings Per Share," which is included herein at
Exhibit 13.)
12- Statement re: Computation of Ratios. (Incorporated by
Reference to page 7 of the 2002 Annual Report to Shareholders,
which is included herein at Exhibit 13.)
13- Excerpts from the 2002 Annual Report to Shareholders.
21- Subsidiaries of the Registrant.
23- Consent of KPMG LLP.
99.1 Certification of Principal Executive Officer.
99.2 Certification of Principal Financial Officer.
(b) Reports on Form 8-K
None.
(c) The exhibits required to be filed by this Item are listed under Item
15(a)3 above.
(d) Not applicable.
20
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 28, 2003
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.
/s/ Thomas J. Bisko
_____________________ President, Chief Executive March 28, 2003
Thomas J. Bisko Officer and Director
/s/ Robert C. Werner
_____________________ Vice President March 28, 2003
Robert C. Werner
/s/ Bret H. Krevolin
_____________________ Chief Financial Officer March 28, 2003
Bret H. Krevolin and Principal Accounting
Officer
/s/ Norman L. Baringer
_____________________ Director March 28, 2003
Norman L. Baringer
/s/ Kenneth F. Brown Jr.
_____________________ Director March 28, 2003
Kenneth F. Brown Jr.
/s/ Dennis Helf
_____________________ Director March 28, 2003
Dennis Helf
21
SIGNATURES (Continued)
/s/ G. Arden Link
____________________________ Director March 28, 2003
G. Arden Link
/s/ Charles M. Meredith, III
____________________________ Director March 28, 2003
Charles M. Meredith, III
/s/ Gary S. Parzych
____________________________ Director March 28, 2003
Gary S. Parzych
/s/ Henry L. Rosenberger
____________________________ Director March 28, 2003
Henry L. Rosenberger
/s/ Edgar L. Stauffer
____________________________ Director March 28, 2003
Edgar L. Stauffer
22
CERTIFICATION
I, Thomas J. Bisko, President and CEO, certify, that:
1. I have reviewed this annual report on Form 10-K of QNB Corp.
2. Based on my knowledge, the annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003 By: /s/ Thomas J. Bisko
-------------- ----------------------------------
Thomas J. Bisko
President and CEO
CERTIFICATION
I, Bret H. Krevolin, Chief Financial Officer, certify, that:
1. I have reviewed this annual report on Form 10-K of QNB Corp.
2. Based on my knowledge, the annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annaul report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
the internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003 By: /s/ Bret H. Krevolin
-------------- ----------------------------
Bret H. Krevolin
Chief Financial Officer
QNB CORP.
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 2002
EXHIBIT INDEX
Exhibit
3(i)- Articles of Incorporation of Registrant, as amended.
(Incorporated by reference to Exhibit 3(i) of Registrant's
Form 10-Q filed with the Commission on April 13, 1998.)
3(ii)- Bylaws of Registrant, as amended. (Incorporated by reference
to Exhibit 3(ii) of Registrant's Form 10-Q filed with the
Commission on April 13, 1998.)
10.1- Employment Agreement between the Registrant and Thomas J.
Bisko. (Incorporated by reference to Exhibit 10.1 of
Registrant's Form 10-K filed with the Commission on March 31,
1999 and amended on April 3, 2002 on Form 8-K filed with the
Commission on April 11, 2002).
10.2- Salary Continuation Agreement between the Registrant and
Thomas J. Bisko. (Incorporated by reference to Exhibit 10.2 of
Registrant's Form 10-K filed with the Commission on March 31,
1999).
10.3- QNB Corp. 1998 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.3 to Registration Statement No.
333-91201 on Form S-8, filed with the Commission on November
18, 1999.)
10.4- 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.)
10.5- Change of Control Agreement between Registrant and Robert C.
Werner. (Incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q filed with the Commission on November
13, 2000.)
10.6- Change of Control Agreement between Registrant and Bret H.
Krevolin. (Incorporated by reference to Exhibit 10.7 of
Registrant's Form 10-Q filed with the Commission on November
13, 2000.)
10.7- QNB Corp. 2001 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 99.1 to Registration Statement No.
333-67588 on Form S-8, filed with the Commission on August 15,
2001).
11- Statement re: Computation of Earnings per Share. (Incorporated
by Reference to page 44 of the 2002 Annual Report, "Notes to
Consolidated Financial Statements- Note 2-Earnings Per Share,"
which is included herein at Exhibit 13.)
12- Statement re: Computation of Ratios. (Incorporated by
Reference to page 7 of the 2002 Annual Report to Shareholders,
which is included herein at Exhibit 13.)
13- Excerpts from the 2001 Annual Report to Shareholders.
21- Subsidiaries of the Registrant.
23- Consent of KPMG LLP.
99.1 Certification of Principal Executive Officer.
99.2 Certification of Principal Financial Officer.