QNB Corp. Reports Earnings For Third Quarter 2023


QUAKERTOWN, Pa., Oct. 24, 2023 (GLOBE NEWSWIRE) -- QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the parent company of QNB Bank (the “Bank”), reported net income for the third quarter of 2023 of $2,344,000, or $0.65 per share on a diluted basis. This compares to net income of $3,415,000, or $0.96 per share on a diluted basis, for the same period in 2022. For the nine months ended September 30, 2023, QNB reported net income of $8,349,000, or $2.32 per share on a diluted basis. This compares to net income of $10,474,000, or $2.94 per share on a diluted basis, reported for the same period in 2022.

For the quarter ended September 30, 2023, the annualized rate of return on average assets and average shareholders’ equity was 0.52% and 5.88%, respectively, compared with 0.78% and 9.20%, respectively, for the third quarter 2022.

The operating performance of the Bank, a wholly-owned subsidiary of QNB Corp., declined for the quarter ended September 30, 2023, in comparison with the same period in 2022 due to interest margin compression causing a $1,221,000 decline in net interest income, additional provision for credit losses on loans and commitments of $459,000 and an increase in non-interest expense of $832,000. The change in contribution from QNB Corp. for the quarter ended September 30, 2023, compared with the same period in 2022, is primarily due to the change in fair value of the equities portfolio held at the holding company.

The following table presents disaggregated net income:

 Three months ended,     Nine months ended,    
 9/30/2023  9/30/2022  Variance  9/30/2023  9/30/2022  Variance 
QNB Bank$2,334,000  $4,247,000  $(1,913,000) $8,568,000  $12,037,000  $(3,469,000)
QNB Corp 10,000   (832,000)  842,000   (219,000)  (1,563,000)  1,344,000 
Consolidated net income$2,344,000  $3,415,000  $(1,071,000) $8,349,000  $10,474,000  $(2,125,000)

Total assets as of September 30, 2023 were $1,684,392,000 compared with $1,668,497,000 at December 31, 2022. Total available-for-sale debt securities decreased $41,135,000, or 7.5%, to $505,390,000, primarily due to calls, maturities and paydowns. Loans receivable increased $21,065,000 to approximately $1,060,450,000, or 2.0%. Total deposits increased $64,964,000 to $1,483,333,000. Short-term borrowing declined $64,624,000, or 40.1%.

“The economy continues to be resilient even with continued rate hikes causing margin compression from our rapid repricing of deposits and slower repricing of loans. This, coupled with changes in the fair value of our holding company’s equities portfolio, directly impacted our third-quarter financial results,” stated David W. Freeman, President and Chief Executive Officer. Freeman continued, “The good news is that the hedging contracts we entered have helped mitigate the impact of increased interest rates and will continue to provide support in a rising rate environment. Additionally, we have experienced stable deposit growth and have significantly reduced our short-term borrowing positions. While our assets are flat, indicative of business and consumer pullback, our loan quality remains strong.”

Net Interest Income and Net Interest Margin

Net interest income for the quarter and nine months ended September 30, 2023 totaled $10,213,000 and $29,963,000 respectively, a decrease of $1,166,000 and $3,255,000, respectively, from the same periods in 2022. Net interest margin was 2.38% for the third quarter of 2023 and 2.72% for the same period in 2022. Net interest margin was 2.40% for the nine months ended September 30, 2023, compared with 2.72% for the same period in 2022.

The yield on earning assets was 4.28% for the third quarter 2023, compared with 3.23% in the third quarter of 2022. For the nine-month period ended September 30, 2023, yield on earning assets was 3.97%, compared with 3.08% for the same period in 2022. The cost of interest-bearing liabilities was 2.35% for the quarter and 1.96% for the nine months ended September 30, 2023, compared with 0.65% and 0.46% for the same periods in 2022, respectively.

Proceeds from average short-term borrowings and payments received on investment securities over the past year were invested in loans. Loan growth was primarily in commercial real estate, which comprised 41% of average earning assets in the nine months of 2023 compared with 38% for the same period in 2022, and the increases in rates on both the commercial real estate loans and the commercial and industrial loans majorly contributed to the 103 basis-point increase in the yield on loans. The decline in the available-for-sale portfolio was primarily in mortgage-backed securities, which comprised 24% of average earnings assets in the nine months of 2023 compared with 27% for the same period in 2022. The 140 basis-point increase in the rate paid on deposits and the 241 basis-point increase in the rate on short-term borrowing were the primary contributors to the increase in the cost of funds of 150 basis points, contributing to the decrease in net interest margin.

Asset Quality, Provision for Credit Losses on Loans and Allowance for Credit Losses

QNB adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (CECL) effective January 1, 2023. QNB recorded a decrease to its allowance for loan losses of $1,089,000 and an increase to its reserve for unused commitments of $5,000. The impact of this CECL adjustment, net of deferred taxes, of $857,000 was added to shareholders' equity.

QNB recorded $452,000 in provision for credit losses on loans in the third quarter of 2023 compared to no provision in the third quarter of 2022; and reversed $1,119,000 in provision for credit losses on loans for the nine months ended September 30, 2023 compared to no provision for the nine months ended September 30, 2022. QNB's allowance for credit losses on loans of $8,542,000 represents 0.81% of loans receivable at September 30, 2023, compared to $9,442,000, or 0.91% of loans receivable upon the adoption of CECL on January 1, 2023. Net loan charge-offs were $275,000 for the quarter and net recoveries of $219,000 for the nine months ended September 30, 2023, compared with recoveries of $41,000 and $154,000 for the same periods in 2022, primarily due to commercial customers. Annualized net loan charge-offs for the quarter ended September 30, 2023 was 0.10% and annualized net loan recoveries of 0.02% for the quarter ended September 30, 2022, of average loans receivable, respectively. Annualized net loan recoveries for the nine months ended September 30, 2023 and September 30, 2022 were 0.03% and 0.02% of average loans receivable, respectively.

Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest and restructured loans, were $5,872,000, or 0.55% of loans receivable at September 30, 2023, compared with $9,121,000, or 0.88% of loans receivable at December 31, 2022, and $10,694,000, or 1.06% of loans receivable at September 30, 2022. In cases where there is a collateral shortfall on non-accrual loans, specific impairment reserves have been established based on updated collateral values even if the borrower continues to pay in accordance with the terms of the agreement. At September 30, 2023, $1,489,000, or approximately 79% of the loans classified as non-accrual, are current or past due less than 30 days. Commercial loans classified as substandard or doubtful loans totaled $11,914,000 at September 30, 2023, compared with $13,684,000 at December 31, 2022, and $17,554,000 at September 30, 2022.

Non-Interest Income

Total non-interest income was $1,755,000 for the third quarter of 2023 compared with $484,000 for the same period in 2022. There was a net realized gain of $131,000 on the sale of investments for the quarter ended September 30, 2023; there were no sales of securities in the same period in 2022. Unrealized net loss on investment equity securities was $138,000 for the quarter ended September 30, 2023 compared to a net loss of $1,174,000 for the same period in 2022. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.26%.

ATM and debit card income increased $16,000 to $685,000 for the quarter ended September 30, 2023, income is related to card usage. Retail brokerage and advisory income increased $25,000 to $219,000 for the same period. Bank-owned life insurance decreased $40,000 for the same period. Other income included a sales tax refund of $115,000 in the third quarter of 2023.

For the nine months ended September 30, 2023, non-interest income was $4,554,000 an increase of $1,820,000 compared to the same period in 2022, primarily due to the change in fair value of the equities portfolio of $1,974,000. Realized gain on sale of securities was $185,000, a decline of $308,000 for the nine months ended September 30, 2023, compared with the same period in 2022. Increases in non-interest income for the nine months ended September 30, 2023 compared to the same period in 2022 comprise: fees for services to customers, ATM and debit card fees, and retail brokerage and advisory income, which increased $27,000, $33,000, and $51,000, respectively. Other non-interest income increased $44,000 due primarily to a sales tax refund of $115,000, partly offset by title insurance income declining $31,000.

Non-Interest Expense

Total non-interest expense was $8,671,000 for the third quarter of 2023 compared with $7,814,000 for the same period in 2022. Salaries and benefits expense increased $600,000, or 13.7%, to $4,971,000 when comparing the two quarters. Salary expense and related payroll taxes increased $405,000, to $4,132,000 during the third quarter of 2023 compared to the same period in 2022. Benefits expense increased $161,000, when comparing the two periods.

Net occupancy and furniture and equipment expense increased $190,000, to $1,504,000 for the third quarter of 2023 due to software maintenance costs. Other non-interest expense increased $67,000 when comparing third quarter of 2023 with the same period in 2022 due to an increase in FDIC insurance of $97,000, an increase in marketing expense of $75,000, write-offs due to fraud on customer accounts of $74,000, and net recoveries in 2022 on taxes and insurance paid on special assets over costs in 2023 of $46,000, partly offset be a decrease in Bank shares tax of $212,000.

For the nine months ended September 30, 2023, non-interest expense was $25,363,000, an increase of $1,990,000, or 8.5%, compared to the same period in 2022.

Provision for income taxes decreased $140,000 to $494,000 in the third quarter of 2023 due to decreased pre-tax income, compared with the same period in 2022. The effective tax rates for the quarter and nine months ended September 30, 2023 were 17.4% and 18.9%, respectively, compared with 15.7% and 16.7%, respectively, for the same periods in 2022.

About the Company

QNB Corp. is the holding company for QNB Bank, which is headquartered in Quakertown, Pennsylvania. QNB Bank currently operates twelve branches in Bucks, Montgomery and Lehigh Counties and offers commercial and retail banking services in the communities it serves. In addition, the Company provides securities and advisory services under the name of QNB Financial Services through a registered Broker/Dealer and Registered Investment Advisor, and title insurance as a member of Laurel Abstract Company LLC. More information about QNB Corp. and QNB Bank is available at QNBBank.com.

Forward Looking Statement

This press release may contain forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that increased demand or prices for the Company’s financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission, including "Item lA. Risk Factors," set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this press release.

 


QNB Corp. 
Consolidated Selected Financial Data (unaudited) 
(Dollars in thousands)          
Balance Sheet (Period End)9/30/23 6/30/23 3/31/23 12/31/22 9/30/22 
Assets$1,684,392 $1,650,586 $1,626,499 $1,668,497 $1,645,068 
Cash and cash equivalents 55,141  34,824  14,201  15,899  17,218 
Investment securities          
Debt securities, AFS 505,390  527,741  537,904  546,525  555,710 
Equity securities 4,765  5,424  11,908  12,056  10,444 
Loans held-for-sale 446  810  388  -  - 
Loans receivable 1,060,450  1,029,744  1,011,956  1,039,385  1,008,306 
Allowance for loan losses (8,542) (8,365) (8,191) (10,531) (11,338)
Net loans 1,051,908  1,021,379  1,003,765  1,028,854  996,968 
Deposits 1,483,333  1,449,765  1,424,590  1,418,369  1,476,668 
Demand, non-interest bearing 192,226  212,396  212,259  231,849  236,167 
Interest-bearing demand, money market and savings 1,000,921  962,042  962,315  1,011,071  1,065,472 
Time 290,186  275,327  250,016  175,449  175,029 
Short-term borrowings 96,703  90,845  110,192  161,327  92,896 
Long-term debt 20,000  20,000  -  10,000  10,000 
Shareholders' equity 74,081  80,945  83,874  70,958  58,124 
           
Asset Quality Data (Period End)          
Non-accrual loans$1,893 $4,794 $4,561 $4,820 $6,337 
Loans past due 90 days or more and still accruing -  -  -  -  - 
Restructured loans 3,979  4,033  4,244  4,301  4,357 
Non-performing loans 5,872  8,827  8,805  9,121  10,694 
Other real estate owned and repossessed assets -  -  -  -  - 
Non-performing assets$5,872 $8,827 $8,805 $9,121 $10,694 
           
Allowance for loan losses$8,542 $8,365 $8,191 $10,531 $11,338 
           
Non-performing loans / Loans excluding held-for-sale 0.55% 0.86% 0.87% 0.88% 1.06%
Non-performing assets / Assets 0.35% 0.53% 0.54% 0.55% 0.65%
Allowance for loan losses / Loans excluding held-for-sale 0.81% 0.81% 0.81% 1.01% 1.12%


QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)Three months ended, Nine months ended,
For the period:9/30/236/30/233/31/2312/31/229/30/22 9/30/239/30/22
Interest income$18,497 $15,865 $15,463 $14,739 $13,546  $49,825 $37,682 
Interest expense 8,284  6,532  5,046  3,460  2,167   19,862  4,464 
Net interest income 10,213  9,333  10,417  11,279  11,379   29,963  33,218 
Provision for credit losses 459  209  (1,805) (850) -   (1,137) - 
Net interest income after provision for credit losses 9,754  9,124  12,222  12,129  11,379   31,100  33,218 
Non-interest income:          
Fees for services to customers 421  414  402  404  423   1,237  1,210 
ATM and debit card 685  704  659  704  669   2,048  2,015 
Retail brokerage and advisory income 219  202  234  184  194   655  604 
Net realized gain on investment securities 131  519  (465) (227) -   185  493 
Unrealized gain (loss) on equity securities (138) (573) 57  1,602  (1,174)  (654) (2,628)
Net (loss) gain on sale of loans 4  (5) 6  -  6   5  6 
Other 433  319  326  330  366   1,078  1,034 
Total non-interest income 1,755  1,580  1,219  2,997  484   4,554  2,734 
Non-interest expense:          
Salaries and employee benefits 4,971  4,775  4,563  4,464  4,371   14,309  12,842 
Net occupancy and furniture and equipment 1,504  1,467  1,377  1,259  1,314   4,348  3,853 
Other 2,196  2,250  2,260  2,396  2,129   6,706  6,678 
Total non-interest expense 8,671  8,492  8,200  8,119  7,814   25,363  23,373 
Income before income taxes 2,838  2,212  5,241  7,007  4,049   10,291  12,579 
Provision for income taxes 494  325  1,123  1,560  634   1,942  2,105 
Net income$2,344 $1,887 $4,118 $5,447 $3,415  $8,349 $10,474 
         
Share and Per Share Data:        
Net income - basic$0.65 $0.52 $1.15 $1.52 $0.96  $2.32 $2.94 
Net income - diluted$0.65 $0.52 $1.15 $1.52 $0.96  $2.32 $2.94 
Book value$20.35 $22.42 $23.32 $19.78 $16.25  $20.35 $16.25 
Cash dividends$0.37 $0.37 $0.37 $0.36 $0.36  $1.11 $1.08 
Average common shares outstanding -basic 3,613,230  3,598,545  3,588,363  3,577,587  3,567,987   3,600,137  3,560,064 
Average common shares outstanding -diluted 3,613,230  3,598,545  3,588,363  3,577,587  3,567,987   3,600,137  3,560,064 
Selected Ratios:        
Return on average assets 0.52% 0.44% 0.97% 1.24% 0.78%  0.64% 0.82%
Return on average shareholders' equity 5.88% 4.82% 10.81% 14.38% 9.20%  7.13% 9.68%
Net interest margin (tax equivalent) 2.38% 2.27% 2.55% 2.68% 2.72%  2.40% 2.72%
Efficiency ratio (tax equivalent) 71.58% 76.78% 69.57% 56.20% 64.88%  72.55% 64.04%
Average shareholders' equity to total average assets 8.91% 9.12% 8.99% 8.65% 8.53%  9.01% 8.50%
Net loan charge-offs (recoveries)$275 $38 $(532)$(43)$(41) $(219)$(154)
Net loan charge-offs (recoveries) - annualized / Average loans excluding held-for-sale 0.10% 0.01% -0.21% -0.02% -0.02%  -0.03% -0.02%
Balance Sheet (Average)        
Assets$1,773,138 $1,719,368 $1,719,167 $1,737,679 $1,727,132  $1,737,417 $1,701,272 
Investment securities (AFS & Equities) 624,423  636,110  649,231  673,117  691,010   636,498  703,922 
Loans receivable 1,039,351  1,026,881  1,021,265  1,020,102  984,968   1,029,042  949,691 
Deposits 1,488,632  1,427,238  1,414,764  1,462,654  1,475,668   1,443,816  1,459,662 
Shareholders' equity 158,063  156,890  154,503  150,281  147,296   156,499  144,676 


QNB Corp. (Consolidated)
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)
        
 Three Months Ended
 September 30, 2023 September 30, 2022
 AverageAverage  AverageAverage 
 BalanceRateInterest BalanceRateInterest
Assets       
Investment securities:       
U.S. Treasury$7,111 5.17%$92 $831 1.32%$3
U.S. Government agencies 101,947 1.11  283  101,938 1.11  283
State and municipal 109,157 3.30  901  127,929 2.38  761
Mortgage-backed and CMOs 394,607 2.53  2,500  441,952 1.61  1,783
Corporate debt securities and mutual funds 6,648 4.40  73  6,658 4.37  72
Equities 4,953 4.70  59  11,702 3.36  99
Total investment securities 624,423 2.50  3,908  691,010 1.74  3,001
Loans:       
Commercial real estate 722,833 5.10  9,288  650,118 4.22  6,917
Residential real estate 107,332 3.81  1,022  105,723 3.33  880
Home equity loans 57,694 6.65  967  56,669 4.65  665
Commercial and industrial 128,601 7.23  2,343  148,545 5.25  1,965
Consumer loans 3,823 7.53  73  4,401 5.76  64
Tax-exempt loans 19,630 3.59  178  19,535 3.43  169
Total loans, net of unearned income* 1,039,913 5.29  13,871  984,991 4.29  10,660
Other earning assets 62,420 5.48  862  8,038 3.02  62
Total earning assets 1,726,756 4.28  18,641  1,684,039 3.23  13,723
Cash and due from banks 15,679     15,544   
Allowance for loan losses (8,396)    (11,323)  
Other assets 39,099     38,872   
Total assets$1,773,138    $1,727,132   
        
Liabilities and Shareholders' Equity       
Interest-bearing deposits:       
Interest-bearing demand$319,335 0.74% 600 $342,011 0.23% 201
Municipals 157,391 4.63  1,837  138,187 1.77  617
Money market 201,277 3.01  1,527  134,591 0.50  170
Savings 325,567 1.27  1,038  451,871 0.53  608
Time < $100 128,884 2.92  947  90,129 0.74  168
Time $100 through $250 106,920 3.69  996  54,168 0.87  118
Time > $250 43,856 3.41  377  25,616 0.86  56
Total interest-bearing deposits 1,283,230 2.26  7,322  1,236,573 0.62  1,938
Short-term borrowings 95,568 3.07  740  85,943 0.87  189
Long-term debt 20,000 4.36  222  10,000 1.57  40
Total interest-bearing liabilities 1,398,798 2.35  8,284  1,332,516 0.65  2,167
Non-interest-bearing deposits 205,402     239,095   
Other liabilities 10,875     8,225   
Shareholders' equity 158,063     147,296   
Total liabilities and       
shareholders' equity$1,773,138    $1,727,132   
Net interest rate spread 1.93%   2.58% 
Margin/net interest income 2.38%$10,357  2.72%$11,556
Tax-exempt securities and loans were adjusted to a tax-equivalent basis and are based on the Federal corporate tax rate of 21%
Non-accrual loans and investment securities are included in earning assets.
* Includes loans held-for-sale


QNB Corp. (Consolidated) 
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis) 
              
 Nine Months Ended 
 September 30, 2023  September 30, 2022 
 Average Average    Average Average   
 Balance Rate Interest  Balance Rate Interest 
Assets             
Investment securities:             
U.S. Treasury$3,618  4.97%$134  $600  1.12%$5 
U.S. Government agencies 101,945  1.11  849   101,292  1.10  836 
State and municipal 109,877  2.64  2,173   129,343  2.40  2,325 
Mortgage-backed and CMOs 405,979  1.96  5,971   453,833  1.56  5,322 
Corporate debt securities and mutual funds 6,637  4.41  219   6,682  4.36  218 
Equities 8,442  4.07  257   12,172  3.26  297 
Total investment securities 636,498  2.01  9,603   703,922  1.71  9,003 
Loans:               
Commercial real estate 700,375  4.79  25,091   623,193  4.11  19,181 
Residential real estate 106,817  2.76  2,943   103,841  2.47  2,564 
Home equity loans 57,317  6.44  2,762   55,244  3.93  1,624 
Commercial and industrial 141,176  7.55  7,977   143,354  4.73  5,075 
Consumer loans 3,942  7.15  211   4,585  5.31  182 
Tax-exempt loans 19,984  3.53  527   19,482  3.41  497 
Total loans, net of unearned income* 1,029,611  5.13  39,511   949,699  4.10  29,123 
Other earning assets 27,195  5.67  1,153   6,262  2.06  97 
Total earning assets 1,693,304  3.97  50,267   1,659,883  3.08  38,223 
Cash and due from banks 14,046       14,123     
Allowance for loan losses (8,871)      (11,266)    
Other assets 38,938       38,532     
Total assets$1,737,417      $1,701,272     
              
Liabilities and Shareholders' Equity             
Interest-bearing deposits:             
Interest-bearing demand$314,012  0.52% 1,227  $342,955  0.20% 521 
Municipals 128,270  4.34  4,163   121,332  0.91  825 
Money market 169,308  2.30  2,913   139,700  0.38  401 
Savings 363,496  1.18  3,208   446,196  0.39  1,312 
Time < $100 113,951  2.30  1,960   91,223  0.76  522 
Time $100 through $250 104,697  3.42  2,676   49,656  0.75  280 
Time > $250 36,590  2.80  767   25,361  0.75  143 
Total interest-bearing deposits 1,230,324  1.84  16,914   1,216,423  0.44  4,004 
Short-term borrowings 112,724  2.99  2,518   78,994  0.58  341 
Long-term debt 14,267  3.98  430   10,000  1.57  119 
Total interest-bearing liabilities 1,357,315  1.96  19,862   1,305,417  0.46  4,464 
Non-interest-bearing deposits 213,492       243,239     
Other liabilities 10,111       7,940     
Shareholders' equity 156,499       144,676     
Total liabilities and             
shareholders' equity$1,737,417      $1,701,272     
Net interest rate spread   2.01%      2.62%  
Margin/net interest income   2.40%$30,405     2.72%$33,759 
Tax-exempt securities and loans were adjusted to a tax-equivalent basis and are based on the Federal corporate tax rate of 21% 
Non-accrual loans and investment securities are included in earning assets. 
* Includes loans held-for-sale             

 

 

Coordonnées