Regulatory Restrictions

6 Months Ended

Jun. 30, 2011

Regulatory Restrictions

REGULATORY RESTRICTIONS

11. REGULATORY RESTRICTIONS

Dividends payable by the Company and the Bank are subject to various limitations imposed by statutes, regulations and policies adopted by bank regulatory agencies. Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including QNB Corp., unless such loans are collateralized by specific obligations.

Both the Company and the Bank are subject to regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate actions by regulators that could have an effect on the financial statements. Under the framework for prompt corrective action, both the Company and the Bank must meet capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items. The capital amounts and classification are also subject to qualitative judgments by the regulators. Management believes, as of June 30, 2011, that the Company and the Bank met capital adequacy requirements to which they were subject.

As of the most recent notification, the primary regulator of the Bank considered it to be "well capitalized" under the regulatory framework. There are no conditions or events since that notification that management believes have changed the classification. To be categorized as well capitalized, the Company and the Bank must maintain minimum ratios as set forth in the table below.

The Company and the Bank's actual capital amounts and ratios are presented as follows:

	Capital Levels
	Actual					Adequately Capitalized					Well Capitalized
As of June 30, 2011	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Risk-Based Capital (to Risk Weighted Assets)
Consolidated	$	70,587		12.34	%	$	45,760		8.00	%		N/A		N/A
Bank		66,296		11.67	%		45,448		8.00	%	$	56,810		10.00	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		63,082		11.03	%		22,880		4.00	%		N/A		N/A
Bank		59,173		10.42	%		22,724		4.00	%		34,086		6.00	%
Tier I Capital (to Average Assets)
Consolidated		63,082		7.63	%		33,076		4.00	%		N/A		N/A
Bank		59,173		7.19	%		32,934		4.00	%		41,168		5.00	%

	Capital Levels
	Actual					Adequately Capitalized					Well Capitalized
As of December 31, 2010	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Risk-Based Capital (to Risk Weighted Assets)
Consolidated	$	66,932		11.82	%	$	45,289		8.00	%		N/A		N/A
Bank		62,901		11.18	%		44,995		8.00	%	$	56,243		10.00	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		59,551		10.52	%		22,644		4.00	%		N/A		N/A
Bank		55,847		9.93	%		22,497		4.00	%		33,746		6.00	%
Tier I Capital (to Average Assets)
Consolidated		59,551		7.42	%		32,086		4.00	%		N/A		N/A
Bank		55,847		6.99	%		31,947		4.00	%		39,934		5.00	%