QNB Corp. Reports Record Earnings


QUAKERTOWN, Pa., July 27, 2021 (GLOBE NEWSWIRE) -- QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the parent company of QNB Bank, reported net income for the second quarter of 2021 of $3,869,000, or $1.09 per share on a diluted basis, compared to net income of $3,934,000, or $1.11 per share on a diluted basis, for the same period in 2020. For the six months ended June 30, 2021, QNB reported net income of $8,919,000, or $2.51 per share on a diluted basis. This compares to net income of $4,154,000, or $1.18 per share on a diluted basis, reported for the same period in 2020.

The operating performance of QNB Bank, a wholly-owned subsidiary of QNB Corp., improved for the quarter and six months ended June 30, 2021 in comparison with the same periods in 2020. The change in contribution from QNB Corp. for the quarter and six months ended June 30, 2021 compared to the same periods in 2020 is due to the change in fair value of the equities portfolio held at the holding company.

The following table presents disaggregated net income:

 3 months ended    6 months ended    
 6/30/2021 6/30/2020 variance 6/30/2021 6/30/2020 variance 
QNB Bank$3,303,000 $3,020,000 $283,000 $7,341,000 $5,336,000 $2,005,000 
QNB Corp 566,000  914,000  (348,000) 1,578,000  (1,182,000)$2,760,000 
Consolidated net income$3,869,000 $3,934,000 $(65,000)$8,919,000 $4,154,000 $4,765,000 

Total assets as of June 30, 2021 were $1,575,353,000 compared with $1,440,229,000 at December 31, 2020. Loans receivable at June 30, 2021 were $920,923,000 compared with $920,042,000 at December 31, 2020. Total available for sale debt securities increased $113,739,000, or 26.1%, to $549,385,000, as excess funds from deposit growth were deployed into higher-yielding securities instead of cash. Total deposits increased $115,666,000 or 9.4% to $1,343,733,000. QNB Bank participated in both rounds of the Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”), originating 315 loans totaling $35,021,000 during round two in 2021. The SBA discontinued the program for non-Community Development Financial Institutions after May 12, 2021. Loans receivable, excluding PPP, grew $19.0 million, or 2.2%, to approximately $868,000,000 since December 31, 2020.

“We are pleased to report record six-month earnings during the first half of 2021. In addition to record earnings, our QNB Financial Services reached a milestone of $170 million in assets under management. The Bank continues to experience household and deposit growth as well as asset quality improvement,” stated David W. Freeman, President and Chief Executive Officer. “We are very proud to have been here for our customers and the community during the height of the pandemic. Moving forward, QNB stands ready to serve our customers’ banking needs in-person, via drive-in or online 24/7.”

Net Interest Income and Net Interest Margin

Net interest income for the quarter and six months ended June 30, 2021 totaled $10,218,000 and $20,735,000 respectively, an increase of $984,000 and $2,338,000, respectively from the same periods in 2020. Net interest margin was 2.74% for the second quarter of 2021 and 2.95% for the same period in 2020. Net interest margin was 2.89% for the six months ended June 30, 2021, compared with 3.06% for the same period in 2020.

The yield on earning assets was 3.04% for the second quarter 2021, a decrease of 38 basis points from 3.42% in the second quarter of 2020. For the six-month period ended June 30, 2021, yield on earning assets was 3.22%, compared with 3.66% for the same period in 2020. The cost of interest-bearing liabilities decreased 21 basis points to 0.39% for the quarter and 34 basis points to 0.42% for the six months ended June 30, 2021, compared with the same period in 2020.   

Asset Quality, Provision for Loan Loss and Allowance for Loan Loss

QNB recorded a $183,000 provision for loan losses in the second quarter of 2021 compared with $250,000 in the second quarter 2020. QNB's allowance for loan losses of $11,202,000 represents 1.22% of loans receivable at June 30, 2021 compared to $10,826,000, or 1.18% of loans receivable at December 31, 2020, and $10,464,000, or 1.19% of loans receivable at June 30, 2020. Excluding the PPP loans, which are expected to be fully forgiven within the next six to twelve months, and are 100% guaranteed by the SBA, the allowance represents 1.29% of loans receivable. Net loan charge offs were $96,000 and $82,000 for the quarter and six months ended June 30, 2021, respectively, compared with $120,000 and $173,000 for the same periods in 2020, respectively. Annualized net loan charge-offs for the quarter and six months ended June 30, 2021 were 0.04% 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 $12,515,000, or 1.36% of loans receivable at June 30, 2021, compared with $14,109,000, or 1.53% of loans receivable at December 31, 2020, and $15,060,000, or 1.71% of loans receivable at June 30, 2020. In cases where there is a collateral shortfall on impaired 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 June 30, 2021, $4,841,000, or approximately 59% 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 $22,533,000 at June 30, 2021, an increase of $340,000 from the $22,193,000 reported at December 31, 2020, and an increase of $8,265,000, or 57.9%, from the $14,268,000 reported at June 30, 2020.

Non-Interest Income

Total non-interest income was $2,534,000 for the second quarter of 2021, a decrease of $283,000, or 10.0%, compared with the same period in 2020, due primarily to a combined $462,000 less improvement in realized and unrealized gain of the equity securities portfolio for the quarter ended June 30, 2021, compared with the same period in 2020. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.05%. The performance of the portfolio during the quarter and six months ended June 30, 2021 is commensurate with the overall performance of the U.S. stock market. Net gain on sale of loans also decreased $245,000 when comparing the second quarter of 2021 with the same period in 2020, as there was a decrease in mortgage origination when comparing the periods.  

Increases in non-interest income for the quarter ended June 30, 2021 comprise; ATM and debit card income, fees for services to customers and retail brokerage and advisory income, which increased $193,000, $54,000 and $24,000, respectively, when compared to the same period in 2020.   

Other non-interest income increased $153,000 when comparing the two periods due to a recovery of the fair value of mortgage servicing rights totaling $63,000 and increased letter of credit, title insurance, merchant, credit card, sale of checks and bank-owned life insurance of $26,000, $23,000, $22,000, $8,000, $8,000 and $4,000, respectively.

For the six months ended June 30, 2021, non-interest income was $5,938,000, an increase of $4,692,000 compared to the same period in 2020, primarily due improved fair value of the equities portfolio totaling $3,449,000. In addition to the improvement in fair value, the company realized an additional gain on sale of equities of $631,000 for the six months ended June 30, 2021, compared with $168,000 in gains on sale of equities for the same period in 2020.

Excluding the realized gain and change in fair value of equities, net interest income increased $780,000, when comparing the two periods, primarily for the same reasons those described in the quarterly results, as well as a life insurance benefit claim of $193,000 received during the first quarter 2021.

Non-Interest Expense

Total non-interest expense was $7,749,000 for the second quarter of 2021, increasing $880,000, or 12.8% from $6,869,000 for the same period in 2020. Salaries and benefits expense increased $357,000, or 9.0%, to $4,342,000 when comparing the two quarters. Salary expense and related payroll taxes increased $470,000, to $3,665,000 during the second quarter 2021 compared to the same period in 2020 with increases in salary expense and incentive bonus of $89,000 and $246,000, respectively, as well as a reduction in deferred compensation related to loan originations of $127,000. Medical premiums expense decreased $167,000 due to decreased medical claims when comparing the two periods. Net occupancy and furniture and equipment expense increased $25,000, or 2.1%, to $1,205,000 for the second quarter 2021.

Other non-interest expense increased $498,000, or 29.2%, when comparing second quarter 2021 with the same period in 2020. Other non-operating expense increases comprise: marketing, legal and accounting and other third party processing costs, FDIC insurance, state tax, travel and entertainment and director compensation of $106,000, $91,000, $69,000, $68,000, $50,000, and $18,000, respectively. Marketing and travel and entertainment expense increases are due to the resumption of events, seminars and travel due the COVID-19 pandemic. Increased state taxes are due to the increase in the Bank’s equity in the second quarter of 2021 compared to 2020 and a greater amount of tax credits received in 2020.

For the six months ended June 30, 2021, non-interest expense was $15,072,000, an increase of $925,000, or 6.5%, compared to the same period in 2020.

Provision for income taxes decreased $47,000 to $951,000 in the second quarter 2021 due to decreased pre-tax income and a lower effective tax rate, compared with the same period in 2020. The effective tax rates for the quarter and six months ended June 30, 2021 were 19.7% and 20.0%, respectively, compared with 20.2% and 12.5%, respectively, for the same periods in 2020. The low effective tax rate of 12.5% for six months ended June 30, 2020 is due to the decrease in fair value of the equities investments during that period.

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. More information about QNB Corp. and QNB Bank is available at www.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, 2020. 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.

Contacts:David W. FreemanJanice S. McCracken Erkes
 President & Chief Executive OfficerChief Financial Officer
 215-538-5600 x-5619215-538-5600 x-5716
 dfreeman@qnbbank.comjmccracken@qnbbank.com


QNB Corp. 
Consolidated Selected Financial Data (unaudited) 
                
(Dollars in thousands)               
                
Balance Sheet (Period End)6/30/21 3/31/21 12/31/20 9/30/20 6/30/20 
Assets$1,575,353 $1,570,519 $1,440,229 $1,417,073 $1,390,479 
Cash and cash equivalents 56,621  108,733  39,331  37,520  66,773 
Investment securities               
Debt securities, AFS 549,385  469,103  435,646  444,616  403,620 
Equity securities 15,445  14,522  12,849  11,691  10,744 
Loans held-for-sale 5,018  3,210  6,570  9,077  3,679 
Loans receivable 920,923  945,645  920,042  887,792  878,620 
Allowance for loan losses (11,202) (11,115) (10,826) (10,765) (10,464)
Net loans 909,721  934,530  909,216  877,027  868,156 
Deposits 1,343,733  1,341,616  1,228,067  1,214,463  1,183,188 
Demand, non-interest bearing 235,548  253,857  204,584  205,492  209,581 
Interest-bearing demand, money market and savings 931,724  905,766  826,398  805,217  765,855 
Time 176,461  181,993  197,085  203,754  207,752 
Short-term borrowings 75,021  64,947  58,838  52,406  57,412 
Long-term borrowings 10,000  10,000  10,000  10,000  10,000 
Shareholders' equity 137,340  131,996  134,445  130,995  128,563 
Asset Quality Data (Period End)               
Non-accrual loans$8,185 $8,887 $9,640 $10,001 $10,355 
Loans past due 90 days or more and still accruing -             
Restructured loans 4,330  4,379  4,469  4,665  4,705 
Non-performing loans 12,515  13,266  14,109  14,666  15,060 
Other real estate owned and repossessed assets -  -  -  -  - 
Non-performing assets$12,515 $13,266 $14,109 $14,666 $15,060 
     -  -  -  - 
Allowance for loan losses$11,202 $11,115 $10,826 $10,765 $10,464 
                
Non-performing loans / Loans excluding held-for-sale 1.36% 1.40% 1.53% 1.65% 1.71%
Non-performing assets / Assets 0.79% 0.84% 0.98% 1.03% 1.08%
Allowance for loan losses / Loans excluding held-for-sale 1.22% 1.18% 1.18% 1.21% 1.19%


QNB Corp. 
Consolidated Selected Financial Data (unaudited) 
                       
(Dollars in thousands, except per share data)Three months ended,  Six months ended, 
For the period:6/30/21 3/31/21 12/31/20 9/30/20 6/30/20  6/30/21 6/30/20 
                       
Interest income$11,380 $11,731 $10,859 $10,763 $10,740  $23,111 $22,071 
Interest expense 1,162  1,214  1,338  1,433  1,506   2,376  3,674 
Net interest income 10,218  10,517  9,521  9,330  9,234   20,735  18,397 
Provision for loan losses 183  275  250  250  250   458  750 
Net interest income after provision
for loan losses
 10,035  10,242  9,271  9,080  8,984   20,277  17,647 
Non-interest income:                      
Fees for services to customers 296  299  363  299  242   595  653 
ATM and debit card 709  593  593  598  516   1,302  1,004 
Retail brokerage and advisory income 193  167  158  141  169   360  282 
Net realized gain (loss) on investment securities 294  342  242  198  169   636  169 
Unrealized gain (loss) on equity securities 579  1,096  1,100  627  1,166   1,675  (1,774)
Net gain on sale of loans 120  352  689  589  365   472  446 
Other 343  555  402  357  190   898  466 
Total non-interest income 2,534  3,404  3,547  2,809  2,817   5,938  1,246 
Non-interest expense:                      
Salaries and employee benefits 4,342  4,017  4,302  4,182  3,985   8,359  8,057 
Net occupancy and furniture and
equipment
 1,205  1,288  1,297  1,239  1,180   2,493  2,378 
Other 2,202  2,018  2,012  1,776  1,704   4,220  3,712 
Total non-interest expense 7,749  7,323  7,611  7,197  6,869   15,072  14,147 
Income before income taxes 4,820  6,323  5,207  4,692  4,932   11,143  4,746 
Provision for income taxes 951  1,273  1,056  914  998   2,224  592 
Net income$3,869 $5,050 $4,151 $3,778 $3,934  $8,919 $4,154 
                       
Share and Per Share Data:                      
Net income - basic$1.09 $1.42 $1.17 $1.07 $1.11  $2.51 $1.18 
Net income - diluted$1.09 $1.42 $1.17 $1.07 $1.11  $2.51 $1.18 
Book value$38.58 $37.10 $37.79 $36.89 $36.29  $38.58 $36.29 
Cash dividends$0.35 $0.35 $0.34 $0.34 $0.34  $0.70 $0.68 
Average common shares outstanding
- basic
 3,556,550  3,555,028  3,551,524  3,542,805  3,532,079   3,555,804  3,527,373 
Average common shares outstanding
- diluted
 3,557,243  3,555,028  3,551,524  3,542,805  3,532,079   3,555,804  3,528,391 
                       
Selected Ratios:                      
Return on average assets 0.98% 1.40% 1.16% 1.06% 1.19%  1.18% 0.66%
Return on average shareholders' equity 11.53% 15.70% 12.95% 11.94% 12.78%  13.57% 6.81%
Net interest margin (tax equivalent) 2.74% 3.07% 2.82% 2.78% 2.95%  2.89% 3.06%
Efficiency ratio (tax equivalent) 59.95% 52.00% 57.52% 58.47% 56.17%  55.80% 70.75%
Average shareholders' equity to total
average assets
 8.53% 8.90% 8.98% 8.92% 9.34%  8.71% 9.64%
Net loan charge-offs (recoveries)$96 $(14)$189 $(51)$120  $82 $173 
Net loan charge-offs (recoveries) -
annualized / Average loans excluding
held-for-sale
 0.04% -0.01% 0.08% -0.02% 0.06%  0.02% 0.04%
                       
Balance Sheet (Average)                      
Assets$1,577,417 $1,466,520 $1,419,412 $1,411,477 $1,325,979  $1,522,251 $1,273,727 
Investment securities (AFS & Equities) 522,204  447,290  438,202  424,075  357,177   484,954  352,124 
Loans receivable 938,849  932,617  904,474  880,582  866,567   935,750  844,132 
Deposits 1,345,498  1,258,815  1,218,170  1,211,726  1,132,735   1,302,395  1,085,165 
Shareholders' equity 134,594  130,473  127,496  125,889  123,815   132,545  122,749