3. STOCK-BASED COMPENSATION AND SHAREHOLDERS’ EQUITY

All Stock-based compensation plans are administered by a Board committee (the “Committee”).

2015 Stock Incentive Plan (the "2015 Plan"), under which both qualified and non-qualified stock options were granted periodically to certain employees, was authorized to issue 300,000 shares. 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. The 2015 Plan expired February 24, 2025.

The 2025 Stock Incentive Plan (the "2025 Plan"), authorizing the issuance of 500,000 shares, was approved at the Company's 2025 Meeting of Shareholders. Under the 2025 Plan, qualified stock options may be granted to certain employees and non-qualified stock options, restricted stock and awards may be granted to certain employees and non-employee directors. There were no grants under the 2025 Plan. Compensation cost will be measured using the fair value of an award on the grant date and recognized over the service period, which is usually the vesting period. The 2025 Plan will expire on May 19, 2035.

Stock-based compensation expense related to the 2015 Plan was $35,000 and $19,000 for the three months ended June 30, 2025 and 2024, respectively. Stock-based compensation expense related to the 2015 Plan was $65,000 and $38,000 for the six months ended June 30, 2025 and 2024, respectively. At June 30, 2025, there was approximately $575,000 of unrecognized compensation cost related to unvested share-based compensation award grants that is expected to be recognized over the next 56 months.

Options were granted to certain employees at prices equal to the market value of the stock on the date the options are granted. The time period during which any option is exercisable under the 2015 Plan was determined by the Committee but shall not commence before the expiration of six months after the date of grant. The 2015 Plan was amended, effective January 1, 2023, to increase the maximum term of any options granted under the plan from five years to ten years, and to also require that awards granted under the Plan will vest 20% each consecutive year commencing on the first anniversary date of the award unless otherwise specified in an award agreement. As of June 30, 2025 there were 321,525 options granted (including canceled awards returned to the Plan and reissued), 115,500 options forfeited, 26,150 options exercised, and 179,875 options outstanding under this Plan.

The risk-free interest rate was selected based upon yields of U.S. Treasury securities with a term approximating the expected life of the option being valued. Historical information was the 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 six months ended June 30, 2025 and 2024 was $6.64 and $3.08, respectively.

QNB maintains a 2021 Employee Stock Purchase Plan (the "2021 ESPP") offering eligible employees an opportunity to purchase shares of QNB Corp. common stock at a 10% discount from the lesser of fair market value on the first or last day of each offering period (as defined by the Plan). There was $13,000 and $13,000 stock-based compensation expense related to the 2021 ESPP for the six months ended June 30, 2025 and 2024, respectively. The 2021 ESPP authorized the issuance of 30,000 shares. As of June 30, 2025, there were 5,817 shares remaining for issuance under the 2021 ESPP Plan. The 2021 ESPP Plan expires May 31, 2026.

The QNB Corp. 2023 Non-Employee Director Compensation Plan was approved by shareholders on May 23, 2023 (The "Director Compensation Plan"). The Director Compensation Plan authorized the issuance of 50,000 shares, is effective January 1, 2023 and expires on January 1, 2033. The Plan initially required each non-employee director of QNB, or any subsidiary of QNB designated by the Board (including QNB Bank), to receive $8,000 of their total annual compensation for service as a director in the form of the QNB’s common stock; this amount was increased to $19,230 for 2025 to align director compensation with our peers. Under the Director Compensation Plan, commencing with the six-month period ended June 30, 2023, each non-employee director will receive, in addition to any cash compensation otherwise payable, a semi-annual grant of such number of shares of the QNB’s common stock determined by dividing (i) the Semi-Annual Stock Payment Amount (which is one-half of the annual compensation paid in stock) by (ii) the market value of a share of common stock determined as of June 30 or December 31 of any year, as applicable. Payments will be made under the Director Compensation Plan only to non-employee directors in office on the applicable payment date. As of June 30, 2025, 5,853 shares were issued to non-employee directors and there were 44,147 shares remaining under the Plan. Stock-based compensation expense related to the Director Compensation Plan was $86,000 for the six months ended June 30, 2025 and $36,000 for the six months ended June 30, 2024.