QNB Corp. Reports Earnings for First Quarter 2023

Rhea-AI Summary

QNB Corp. (OTC Bulletin Board: QNBC) reported a net income of $4,118,000 or $1.15 per share for Q1 2023, up from $3,710,000 or $1.04 per share in Q1 2022. The annualized return on assets and equity improved to 0.97% and 10.81%, respectively. The quarter benefited from a $1,783,000 reversal in the provision for credit losses, enhancing asset quality. Total assets decreased to $1,626,499,000, with loans receivable down by $27,429,000 (2.6%). Total deposits rose by $6,221,000 to $1,424,590,000. Net interest income fell to $10,417,000, with a net interest margin of 2.55%. Total non-interest income declined to $1,219,000, while non-interest expenses rose to $8,178,000.

Positive

• Net income increased by 11% year-over-year.
• Reversal of $1,783,000 in provision for credit losses improved asset quality.
• Total deposits grew by $6,221,000.

Negative

• Net interest income decreased by $319,000 compared to Q1 2022.
• Net interest margin fell to 2.55% from 2.71% year-over-year.
• Total non-interest income declined by 24% compared to the same period in 2022.

QUAKERTOWN, Pa., April 25, 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 first quarter of 2023 of $4,118,000, or $1.15 per share on a diluted basis. This compares to net income of $3,710,000, or $1.04 per share on a diluted basis, for the same period in 2022.

For the quarter ended March 31, 2023, the annualized rate of return on average assets and average shareholders’ equity was 0.97% and 10.81%, respectively, compared with 0.90% and 10.60%, respectively, for the first quarter 2022.

The operating performance of the Bank, a wholly-owned subsidiary of QNB Corp., improved for the quarter ended March 31, 2023, in comparison with the same period in 2022 due to a reversal of $1,783,000 in the provision for credit losses on loans. The change in contribution from QNB Corp. for the quarter ended March 31, 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,
		3/31/2023				3/31/2022				Variance
QNB Bank		$	4,287,000			$	3,708,000			$	579,000
QNB Corp			(169,000	)			2,000				(171,000	)
Consolidated net income		$	4,118,000			$	3,710,000			$	408,000

Total assets as of March 31, 2023 were $1,626,499,000 compared with $1,668,497,000 at December 31, 2022. Total available-for-sale debt securities decreased $8,621,000, or 1.6%, to $537,904,000, due primarily to sales of $9,081,000. Loans receivable declined $27,429,000 to approximately $1,011,956,000, or 2.6%. Total deposits increased $6,221,000 to $1,424,590,000. Short-term borrowing declined $51,135,000, or 31.7%.

“Our quarterly earnings were boosted by continued improvement in asset quality and a reversal in our provision for loan losses,” stated David W. Freeman, President, and Chief Executive Officer. Freeman continued, “Changes in the economic environment are evident in our first-quarter results, with a slight decline in loan demand and a rapidly increased rate environment leading to market demand for higher rates on deposits. We are navigating the changing economic and rate environment with discipline, ensuring we remain competitive and an attractive banking option for our customers and prospects.”

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended March 31, 2023 totaled $10,417,000, a decrease of $319,000 from the same period in 2022. Net interest margin was 2.55% for the first quarter of 2023 and 2.71% for the same period in 2022.

The yield on earning assets was 3.77% for the first quarter 2023 compared with 2.97% in the first quarter of 2022. The cost of interest-bearing liabilities was 1.53% for the quarter compared with 0.34% for the same period in 2022.

Proceeds from average short-term borrowings 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 three months of 2023 compared with 37% for the same period in 2022 and was the major contributor to the 48 basis-point increase in the yield on loans. The decline in the available-for-sale portfolio was primarily in mortgage-backed securities, which comprised 25% of average earnings assets in the three months of 2023 compared with 28% for the same period in 2022. The 104 basis-point increase in the rate paid on deposits and the 266 basis-point increase in the rate on short-term borrowing increased the cost of funds by 119 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 increased 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 reversed $1,783,000 in provision for credit losses on loans in the first quarter of 2023 compared to no provision in the first of quarter 2022. QNB's allowance for credit losses on loans of $8,191,000 represents 0.81% of loans receivable at March 31, 2023, compared to $9,442,000, or 0.91% of loans receivable upon the adoption of CECL on January 1, 2023. QNB received $259,000 in payments on non-performing loans during the first quarter of 2023. Net loan recoveries were $532,000 for the quarter, compared with recoveries of $47,000 for the same period in 2022, primarily due to one large commercial customer. Annualized net loan recoveries for the quarters ended March 31, 2023 and March 31, 2022 were 0.21% 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 $8,805,000, or 0.87% of loans receivable at March 31, 2023, compared with $9,121,000, or 0.88% of loans receivable at December 31, 2022, and $11,647,000, or 1.26% of loans receivable at March 31, 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 March 31, 2023, $4,335,000, or approximately 95% 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 $13,621,000 at March 31, 2023, compared with $13,684,000 at December 31, 2022, and $19,072,000 at March 31, 2022.

Non-Interest Income

Total non-interest income was $1,219,000 for the first quarter of 2023 compared with $1,611,000 for the same period in 2022. There was a net realized loss of $465,000 on the sale of investments for the quarter ended March 31, 2023 compared with a gain of $36,000 for the same period in 2022. Unrealized net gain on the investment equity securities was $57,000 for the quarter ended March 31, 2023 compared to a net loss of $8,000 for the same period in 2022. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.39%.

Fees for services to customers increased $18,000 to $402,000 for the first quarter 2023 compared with the same period in 2022, due primarily to increased overdraft occurrences. ATM and debit card income increased $18,000 to $659,000 for the same period, due to card usage when comparing the two periods. Retail brokerage and advisory income increased $29,000 to $234,000 attributable to increased fees from annuity sales.

Net gain on sales of loans increased $6,000 when comparing the first quarter of 2023 with the same period in 2022, as there was an increase in mortgage originations when comparing the periods. Other non-interest income decreased $27,000 when comparing the two periods due primarily to reduced title company income of $19,000 and mortgage servicing fees of $11,000.

Non-Interest Expense

Total non-interest expense was $8,178,000 for the first quarter of 2023 compared with $7,813,000 for the same period in 2022. Salaries and benefits expense increased $297,000, or 7.0%, to $4,563,000 when comparing the two quarters. Salary expense and related payroll taxes increased $361,000, to $3,967,000 during the first quarter 2023 compared to the same period in 2022. Benefits expense decreased $64,000, when comparing the two periods.

Net occupancy and furniture and equipment expense increased $112,000, to $1,377,000 for the first quarter 2023 due to software maintenance costs.

Other non-interest expense decreased $44,000 when comparing first quarter 2023 with the same period in 2022 due to a $148,000 decrease in Bank shares tax and a $58,000 decrease in third-party services, partly offset by a $144,000 increase in deposit-related charge-offs primarily related to fraud.

Provision for income taxes increased $299,000 to $1,123,000 in the first quarter 2023 due to increased pre-tax income and a higher effective tax rate, compared with the same period in 2022. The effective tax rates for the quarter ended March 31, 2023 were 21.4% compared with 18.2% and for the same period 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)		3/31/23			12/31/22			9/30/22			6/30/22			3/31/22
Assets		$	1,626,499		$	1,668,497		$	1,645,068		$	1,646,695		$	1,647,986
Cash and cash equivalents			14,201			15,899			17,218			17,094			13,260
Investment securities
Debt securities, AFS			537,904			546,525			555,710			609,567			656,846
Equity securities			11,908			12,056			10,444			11,617			12,652
Loans held-for-sale			388			-			-			-			-
Loans receivable			1,011,956			1,039,385			1,008,306			963,414			926,369
Allowance for loan losses			(8,191	)		(10,531	)		(11,338	)		(11,297	)		(11,231	)
Net loans			1,003,765			1,028,854			996,968			952,117			915,138
Deposits			1,424,590			1,418,369			1,476,668			1,467,728			1,451,753
Demand, non-interest bearing			212,259			231,849			236,167			240,281			242,024
Interest-bearing demand, money market and savings			962,315			1,011,071			1,065,472			1,065,638			1,046,074
Time			250,016			175,449			175,029			161,809			163,655
Short-term borrowings			110,192			161,327			92,896			77,836			76,738
Long-term debt			-			10,000			10,000			10,000			10,000
Shareholders' equity			83,874			70,958			58,124			83,738			102,498
Asset Quality Data (Period End)
Non-accrual loans		$	4,561		$	4,820		$	6,337		$	7,085		$	7,272
Loans past due 90 days or more and still accruing			-			-			-			-			-
Restructured loans			4,244			4,301			4,357			4,309			4,375
Non-performing loans			8,805			9,121			10,694			11,394			11,647
Other real estate owned and repossessed assets			-			-			-			-			-
Non-performing assets		$	8,805		$	9,121		$	10,694		$	11,394		$	11,647
Allowance for loan losses		$	8,191		$	10,531		$	11,338		$	11,297		$	11,231
Non-performing loans / Loans excluding held-for-sale			0.87	%		0.88	%		1.06	%		1.18	%		1.26	%
Non-performing assets / Assets			0.54	%		0.55	%		0.65	%		0.69	%		0.71	%
Allowance for loan losses / Loans excluding held-for-sale			0.81	%		1.01	%		1.12	%		1.17	%		1.21	%

QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)		Three months ended,
For the period:		3/31/23	12/31/22	9/30/22	6/30/22	3/31/22
Interest income		$15,463	$14,739	$13,546	$12,327	$11,809
Interest expense		5,046	3,460	2,167	1,224	1,073
Net interest income		10,417	11,279	11,379	11,103	10,736
Provision for credit losses		(1,805)	(850)	-	-	-
Net interest income after provision for credit losses		12,222	12,129	11,379	11,103	10,736
Non-interest income:
Fees for services to customers		402	404	423	403	384
ATM and debit card		659	704	669	705	641
Retail brokerage and advisory income		234	184	194	205	205
Net realized gain on investment securities		(465)	(227)	-	457	36
Unrealized gain (loss) on equity securities		57	1,602	(1,174)	(1,446)	(8)
Net gain on sale of loans		6	-	6	-	-
Other		326	330	366	315	353
Total non-interest income		1,219	2,997	484	639	1,611
Non-interest expense:
Salaries and employee benefits		4,563	4,464	4,371	4,205	4,266
Net occupancy and furniture and equipment		1,377	1,259	1,314	1,274	1,265
Other		2,260	2,396	2,129	2,267	2,282
Total non-interest expense		8,200	8,119	7,814	7,746	7,813
Income before income taxes		5,241	7,007	4,049	3,996	4,534
Provision for income taxes		1,123	1,560	634	647	824
Net income		$4,118	$5,447	$3,415	$3,349	$3,710
Share and Per Share Data:
Net income - basic		$1.15	$1.52	$0.96	$0.94	$1.04
Net income - diluted		$1.15	$1.53	$0.96	$0.94	$1.04
Book value		$23.32	$19.78	$16.25	$23.47	$28.81
Cash dividends		$0.37	$0.36	$0.36	$0.36	$0.36
Average common shares outstanding -basic		3,588,363	3,577,587	3,567,987	3,559,185	3,552,854
Average common shares outstanding -diluted		3,588,363	3,567,987	3,559,185	3,554,456	3,550,542
QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)		Three months ended,
For the period:		3/31/23	12/31/22	9/30/22	6/30/22	3/31/22
Selected Ratios:
Return on average assets		0.97%	1.24%	0.78%	0.79%	0.90%
Return on average shareholders' equity		10.81%	14.38%	9.20%	9.28%	10.60%
Net interest margin (tax equivalent)		2.55%	2.68%	2.72%	2.73%	2.71%
Efficiency ratio (tax equivalent)		69.39%	56.20%	64.88%	64.98%	62.35%
Average shareholders' equity to total average assets		8.99%	8.65%	8.53%	8.43%	8.53%
Net loan charge-offs (recoveries)		$(532)	$(43)	$(41)	$(66)	$(47)
Net loan charge-offs (recoveries) - annualized / Average loans excluding held-for-sale		-0.21%	-0.02%	-0.02%	-0.03%	-0.02%
Balance Sheet (Average)
Assets		$1,719,167	$1,737,679	$1,727,132	$1,700,600	$1,675,385
Investment securities (AFS & Equities)		649,231	673,117	691,010	710,856	710,109
Loans receivable		1,021,265	1,020,102	984,968	944,773	918,602
Deposits		1,414,764	1,462,654	1,475,668	1,458,921	1,444,049
Shareholders' equity		154,503	150,281	147,296	144,688	141,986

QNB Corp. (Consolidated)
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)
		Three Months Ended
		March 31, 2023			March 31, 2022
		Average	Average		Average	Average
		Balance	Rate	Interest	Balance	Rate	Interest
Assets
Investment securities:
U.S. Treasury		$269	1.49%	$1	$89	0.74%	$-
U.S. Government agencies		101,943	1.11	283	99,979	1.08	270
State and municipal		111,150	2.23	621	129,790	2.41	781
Mortgage-backed and CMOs		417,137	1.62	1,685	461,137	1.49	1,718
Corporate debt securities		6,636	4.40	73	6,700	4.34	73
Equities		12,096	3.39	101	12,414	3.20	98
Total investment securities		649,231	1.70	2,764	710,109	1.66	2,940
Loans:
Commercial real estate		681,615	4.52	7,602	579,661	4.04	5,957
Residential real estate		105,698	3.55	937	101,431	3.23	818
Home equity loans		56,645	6.23	870	54,618	3.36	453
Commercial and industrial		152,756	8.22	3,096	140,588	4.57	1,585
Consumer loans		4,089	6.73	68	4,735	5.05	59
Tax-exempt loans		20,591	3.49	177	19,569	3.41	165
Total loans, net of unearned income*		1,021,394	5.06	12,750	900,602	3.99	9,037
Other earning assets		7,001	5.71	99	6,689	0.97	16
Total earning assets		1,677,626	3.77	15,613	1,617,400	2.97	11,993
Cash and due from banks		12,881			13,082
Allowance for loan losses		(9,937)			(11,204)
Other assets		38,597			38,107
Total assets		$1,719,167			$1,657,385
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand		$317,615	0.39	302	$338,296	0.18	146
Municipals		111,954	3.89	1,075	116,516	0.32	91
Money market		130,627	1.06	342	141,296	0.30	106
Savings		406,072	1.08	1,077	437,645	0.30	321
Time < $100		101,208	1.53	382	92,692	0.80	184
Time $100 through $250		97,617	3.02	727	48,537	0.71	85
Time > $250		27,723	1.80	123	24,970	0.69	42
Total interest-bearing deposits		1,192,816	1.37	4,028	1,199,952	0.33	975
Short-term borrowings		134,918	2.99	995	71,480	0.33	59
Long-term debt		5,833	1.57	23	10,000	1.57	39
Total interest-bearing liabilities		1,333,567	1.53	5,046	1,281,432	0.34	1,073
Non-interest-bearing deposits		221,948			244,097
Other liabilities		9,149			7,870
Shareholders' equity		154,503			141,986
Total liabilities and
shareholders' equity		$1,719,167			$1,675,385
Net interest rate spread			2.24%			2.63%
Margin/net interest income			2.55%	$10,567		2.71%	$10,920
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

FAQ

What were QNB Corp's Q1 2023 earnings?

QNB Corp reported net income of $4,118,000 or $1.15 per share for Q1 2023.

How did QNB Corp's total assets change in Q1 2023?

As of March 31, 2023, total assets were $1,626,499,000, a decrease from $1,668,497,000 at the end of 2022.

What is the current net interest margin for QNB Corp?

The net interest margin for Q1 2023 was 2.55%, down from 2.71% in Q1 2022.

What impacted QNB Corp's provision for credit losses in Q1 2023?

QNB Corp had a reversal of $1,783,000 in provision for credit losses on loans in Q1 2023.

How much did QNB Corp's total non-interest income decline in Q1 2023?

Total non-interest income fell to $1,219,000, a 24% decrease compared to Q1 2022.