Note 3 - Stock-based Compensation and Shareholders' Equity

6 Months Ended

Jun. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

3. STOCK-BASED COMPENSATION AND SHAREHOLDERS’ EQUITY

QNB sponsors stock-based compensation plans, administered by a Board Committee, under which both qualified and non-qualified stock options may be granted periodically to certain employees. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.

Stock-based compensation expense was $25,000 and $24,000 for the three months ended June 30, 2015 and 2014, respectively. Stock-based compensation expense was $46,000 and $43,000 for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, there was approximately $108,000 of unrecognized compensation cost related to unvested share-based compensation award grants that is expected to be recognized over the next 31 months.

Options are granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The 1998 Plan authorized the issuance of 220,500 shares. The time period during which any option is exercisable under the Plan is determined by the Committee but shall not commence before the expiration of six months after the date of grant or continue beyond the expiration of ten years after the date the option is awarded. The granted options vest ratably over a three-year period. As of June 30, 2015, there were 225,058 options granted, 60,244 options forfeited, 164,814 options exercised and no remaining options outstanding under this Plan. The 1998 Plan expired on March 10, 2008.

The 2005 Plan authorized the issuance of 200,000 shares. The terms of the 2005 Plan are identical to the 1998 Plan, except options expire five years after the grant date. As of June 30, 2015, there were 184,200 options granted, 55,225 options forfeited, 43,900 options exercised, and 85,075 options outstanding under this Plan. The 2005 Plan expired March 15, 2015.

The QNB Corp. 2015 Stock Incentive Plan authorizing the issuance of 300,000 shares was approved at the Company’s 2015 Annual Meeting of Shareholders. The terms of the 2015 Plan are identical to the 2005 plan. There were no options granted, forfeited, exercised or outstanding under this Plan as of June 30, 2015.

The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. QNB estimated the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature.

The following assumptions were used in the option pricing model in determining the fair value of options granted during the period:

Six months ended June 30,	2015			2014
Risk free interest rate		1.06	%		0.69	%
Dividend yield		3.86			4.28
Volatility		26.74			28.12
Expected life (years)		5.00			5.00

The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term approximating the expected life of the option being valued. Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and expected lives of the options.

The fair market value of options granted in the first six months of 2015 and 2014 was $4.38 and $3.81, respectively.

Stock option activity during the six months ended June 30, 2015 and 2014 is as follows:

	Number of options		Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2014		88,375	$	23.27
Granted		21,000		29.25
Exercised		11,650		17.73
Forfeited		12,650		31.87
Outstanding at June 30, 2015		85,075	$	24.22		2.74	$	440
Exercisable at June 30, 2015		30,875	$	20.85		1.12	$	264

	Number of options		Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2013		115,800	$	23.51
Granted		20,000		25.16
Exercised		12,950		17.28
Forfeited		15,000		33.25
Outstanding at June 30, 2014		107,850	$	23.21		2.43	$	442
Exercisable at June 30, 2014		46,050	$	23.20		0.97	$	239