QNB Corp. Reports Earnings for Second Quarter 2023

QUAKERTOWN, Pa., July 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 second quarter of 2023 of $1,887,000, or $0.52 per share on a diluted basis. This compares to net income of $3,349,000, or $0.94 per share on a diluted basis, for the same period in 2022. For the six months ended June 30, 2023, QNB reported net income of $6,005,000, or $1.67 per share on a diluted basis. This compares to net income of $7,059,000, or $1.98 per share on a diluted basis, reported for the same period in 2022.

For the quarter ended June 30, 2023, the annualized rate of return on average assets and average shareholders’ equity was 0.44% and 4.82%, respectively, compared with 0.79% and 9.28%, respectively, for the second quarter 2022.

The operating performance of the Bank, a wholly-owned subsidiary of QNB Corp., declined for the quarter ended June 30, 2023, in comparison with the same period in 2022 due to interest margin compression causing a $1,807,000 decline in net interest income, additional provision for credit losses on loans and commitments of $209,000 and an increase in non-interest expense of $663,000. The change in contribution from QNB Corp. for the quarter ended June 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,												Six months ended,
	6/30/2023				6/30/2022				Variance				6/30/2023				6/30/2022				Variance
QNB Bank	$	1,947,000			$	4,082,000			$	(2,135,000	)		$	6,234,000			$	7,790,000			$	(1,556,000	)
QNB Corp		(60,000	)			(733,000	)			673,000				(229,000	)			(731,000	)			502,000
Consolidated net income	$	1,887,000			$	3,349,000			$	(1,462,000	)		$	6,005,000			$	7,059,000			$	(1,054,000	)

Total assets as of June 30, 2023 were $1,650,586,000 compared with $1,668,497,000 at December 31, 2022. Total available-for-sale debt securities decreased $18,784,000, or 3.4%, to $527,741,000, primarily due to sales of $9,081,000 and paydowns. Loans receivable declined $9,641,000 to approximately $1,029,744,000, or 0.9%. Total deposits increased $31,396,000 to $1,449,765,000. Short-term borrowing declined $70,482,000, or 43.7%.

“The past 15 months, the banking and financial service industries have experienced significant increases in interest rates to slow the growth of our economy across our nation. The impact of these changes continues to be evident in our financial results and shows the headwinds community banks have been facing,” stated David W. Freeman, President and Chief Executive Officer. Freeman continued, “However, QNB's ability to maintain a strong liquidity position, to retain and grow customer deposits, and reduce the bank’s short-term borrowing is a testament to the strength of our disciplined management even in these rapidly changing financial times. Furthermore, to strengthen our management of interest rate risk, we have entered into hedging contracts that will help mitigate the impact of increased interest rates moving forward. As always, we continue to focus on our customers, being diligent about loan quality, deposit growth, and investing in the communities and businesses we serve.”

Net Interest Income and Net Interest Margin

Net interest income for the quarter and six months ended June 30, 2023 totaled $9,333,000 and $19,750,000 respectively, a decrease of $1,770,000 and $2,089,000, respectively, from the same periods in 2022. Net interest margin was 2.27% for the second quarter of 2023 and 2.73% for the same period in 2022. Net interest margin was 2.41% for the six months ended June 30, 2023, compared with 2.72% for the same period in 2022.

The yield on earning assets was 3.83% for the second quarter 2023, compared with 3.02% in the second quarter of 2022. For the six-month period ended June 30, 2023, yield on earning assets was 3.80%, compared with 3.00% for the same period in 2022. The cost of interest-bearing liabilities was 1.96% for the quarter and 1.75% for the six months ended June 30, 2023, compared with 0.38% and 0.36% 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 six months of 2023 compared with 37% 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 105 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 six months of 2023 compared with 28% for the same period in 2022. The 126 basis-point increase in the rate paid on deposits and the 255 basis-point increase in the rate on short-term borrowing were the primary contributors to the increase in the cost of funds of 139 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 $212,000 in provision for credit losses on loans in the second quarter of 2023 compared to no provision in the second quarter of 2022; and reversed $1,571,000 in provision for credit losses on loans for the six months ended June 30, 2023 compared to no provision for the six months ended June 30, 2022. QNB's allowance for credit losses on loans of $8,365,000 represents 0.81% of loans receivable at June 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 $38,000 for the quarter and net recoveries of $494,000 for the six months ended June 30, 2023, compared with recoveries of $66,000 and $113,000 for the same periods in 2022, primarily due to two commercial customers. Annualized net loan charge-offs for the quarter ended June 30, 2023 was 0.01% and annualized net loan recoveries of 0.03% for the quarter ended June 30, 2022, of average loans receivable, respectively. Annualized net loan recoveries for the six months ended June 30, 2023 and June 30, 2022 were 0.10% 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 $8,827,000, or 0.86% of loans receivable at June 30, 2023, compared with $9,121,000, or 0.88% of loans receivable at December 31, 2022, and $11,394,000, or 1.18% of loans receivable at June 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 June 30, 2023, $4,147,000, or approximately 86% 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 $14,806,000 at June 30, 2023, compared with $13,684,000 at December 31, 2022, and $18,836,000 at June 30, 2022.

Non-Interest Income

Total non-interest income was $1,580,000 for the second quarter of 2023 compared with $639,000 for the same period in 2022. There was a net realized gain of $519,000 on the sale of investments for the quarter ended June 30, 2023 compared with a gain of $457,000 for the same period in 2022. Unrealized net loss on investment equity securities was $573,000 for the quarter ended June 30, 2023 compared to a net loss of $1,446,000 for the same period in 2022. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.91%.

Fees for services to customers increased $11,000 to $414,000 for the second quarter of 2023 compared with the same period in 2022, due primarily to increased overdraft occurrences. ATM and debit card income decreased $1,000 to $704,000 for the same period, income is related to card usage. Retail brokerage and advisory income decreased $3,000 to $202,000.

Net gain on sales of loans decreased $5,000 when comparing the second quarter of 2023 with the same period in 2022, as there was a lower of cost or market adjustment on loans held for sale of $5,000 in the second quarter of 2023; there were no sales in the second quarters of 2023 or 2022. Other non-interest income increased $4,000 when comparing the two periods due primarily to credit card income.

For the six months ended June 30, 2023, non-interest income was $2,799,000 an increase of $549,000 compared to the same period in 2022, primarily due to the change in fair value of the equities portfolio of $938,000. Realized gain on sale of securities was $54,000, a decline of $439,000 for the six months ended June 30, 2023, compared with the same period in 2022. Net gain on sale of loans increased $1,000 when comparing the six months ended June 30, 2023 with the same period in 2022. Increases in non-interest income for the six months ended June 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 $29,000, $17,000, and $26,000, respectively. Other non-interest income decreased $23,000 due primarily to title insurance income declining $21,000.

Non-Interest Expense

Total non-interest expense was $8,492,000 for the second quarter of 2023 compared with $7,746,000 for the same period in 2022. Salaries and benefits expense increased $570,000, or 13.6%, to $4,775,000 when comparing the two quarters. Salary expense and related payroll taxes increased $433,000, to $3,979,000 during the second quarter of 2023 compared to the same period in 2022. Benefits expense increased $127,000, when comparing the two periods.

Net occupancy and furniture and equipment expense increased $193,000, to $1,467,000 for the second quarter of 2023 due to software maintenance costs. Other non-interest expense decreased $17,000 when comparing second quarter of 2023 with the same period in 2022 due to a $128,000 decrease in Bank shares tax, partly offset by a $116,000 increase in FDIC insurance.

For the six months ended June 30, 2023, non-interest expense was $16,692,000, an increase of $1,133,000, or 7.3%, compared to the same period in 2022.

Provision for income taxes decreased $322,000 to $325,000 in the second quarter of 2023 due to decreased pre-tax income, compared with the same period in 2022. The effective tax rates for the quarter and six months ended June 30, 2023 were 14.7% and 19.4%, respectively, compared with 16.2% and 17.3%, 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)	6/30/23			3/31/23			12/31/22			9/30/22			6/30/22
Assets	$	1,650,586		$	1,626,499		$	1,668,497		$	1,645,068		$	1,646,695
Cash and cash equivalents		34,824			14,201			15,899			17,218			17,094
Investment securities
Debt securities, AFS		527,741			537,904			546,525			555,710			609,567
Equity securities		5,424			11,908			12,056			10,444			11,617
Loans held-for-sale		810			388			-			-			-
Loans receivable		1,029,744			1,011,956			1,039,385			1,008,306			963,414
Allowance for loan losses		(8,365	)		(8,191	)		(10,531	)		(11,338	)		(11,297	)
Net loans		1,021,379			1,003,765			1,028,854			996,968			952,117
Deposits		1,449,765			1,424,590			1,418,369			1,476,668			1,467,728
Demand, non-interest bearing		212,396			212,259			231,849			236,167			240,281
Interest-bearing demand, money market and savings		962,042			962,315			1,011,071			1,065,472			1,065,638
Time		275,327			250,016			175,449			175,029			161,809
Short-term borrowings		90,845			110,192			161,327			92,896			77,836
Long-term debt		20,000			-			10,000			10,000			10,000
Shareholders' equity		80,945			83,874			70,958			58,124			83,738
Asset Quality Data (Period End)
Non-accrual loans	$	4,794		$	4,561		$	4,820		$	6,337		$	7,085
Loans past due 90 days or more and still accruing		-			-			-			-			-
Restructured loans		4,033			4,244			4,301			4,357			4,309
Non-performing loans		8,827			8,805			9,121			10,694			11,394
Other real estate owned and repossessed assets		-			-			-			-			-
Non-performing assets	$	8,827		$	8,805		$	9,121		$	10,694		$	11,394
Allowance for loan losses	$	8,365		$	8,191		$	10,531		$	11,338		$	11,297
Non-performing loans / Loans excluding held-for-sale		0.86	%		0.87	%		0.88	%		1.06	%		1.18	%
Non-performing assets / Assets		0.53	%		0.54	%		0.55	%		0.65	%		0.69	%
Allowance for loan losses / Loans excluding held-for-sale		0.81	%		0.81	%		1.01	%		1.12	%		1.17	%

QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)	Three months ended,																Six months ended,
For the period:	6/30/23			3/31/23			12/31/22			9/30/22			6/30/22				6/30/23			6/30/22
Interest income	$	15,865		$	15,463		$	14,739		$	13,546		$	12,327			$	31,328		$	24,136
Interest expense		6,532			5,046			3,460			1,224			1,224				11,578			2,297
Net interest income		9,333			10,417			11,279			12,322			11,103				19,750			21,839
Provision for credit losses		209			(1,805	)		(850	)		-			-				(1,596	)		-
Net interest income after provision for credit losses		9,124			12,222			12,129			12,322			11,103				21,346			21,839
Non-interest income:
Fees for services to customers		414			402			404			423			403				816			787
ATM and debit card		704			659			704			669			705				1,363			1,346
Retail brokerage and advisory income		202			234			184			194			205				436			410
Net realized gain on investment securities		519			(465	)		(227	)		-			457				54			493
Unrealized gain (loss) on equity securities		(573	)		57			1,602			(1,174	)		(1,446	)			(516	)		(1,454	)
Net (loss) gain on sale of loans		(5	)		6			-			6			-				1			-
Other		319			326			330			366			315				645			668
Total non-interest income		1,580			1,219			2,997			484			639				2,799			2,250
Non-interest expense:
Salaries and employee benefits		4,775			4,563			4,464			4,371			4,205				9,338			8,471
Net occupancy and furniture and equipment		1,467			1,377			1,259			1,314			1,274				2,844			2,539
Other		2,250			2,260			2,396			2,129			2,267				4,510			4,549
Total non-interest expense		8,492			8,200			8,119			7,814			7,746				16,692			15,559
Income before income taxes		2,212			5,241			7,007			4,992			3,996				7,453			8,530
Provision for income taxes		325			1,123			1,560			634			647				1,448			1,471
Net income	$	1,887		$	4,118		$	5,447		$	4,358		$	3,349			$	6,005		$	7,059
Share and Per Share Data:
Net income - basic	$	0.52		$	1.15		$	1.52		$	1.22		$	0.94			$	1.67		$	1.99
Net income - diluted	$	0.52		$	1.15		$	1.53		$	1.22		$	0.94			$	1.67		$	1.98
Book value	$	22.42		$	23.32		$	19.78		$	16.25		$	23.47			$	22.42		$	23.47
Cash dividends	$	0.37		$	0.37		$	0.36		$	0.36		$	0.36			$	0.74		$	0.72
Average common shares outstanding -basic		3,598,545			3,588,363			3,577,587			3,567,987			3,559,185				3,593,482			3,556,037
Average common shares outstanding -diluted		3,598,545			3,588,363			3,567,987			3,559,185			3,554,456				3,593,482			3,556,568
Selected Ratios:
Return on average assets		0.44	%		0.97	%		1.24	%		1.00	%		0.79	%			0.70	%		0.84	%
Return on average shareholders' equity		4.82	%		10.81	%		14.38	%		11.74	%		9.28	%			7.78	%		9.93	%
Net interest margin (tax equivalent)		2.27	%		2.55	%		2.68	%		2.72	%		2.73	%			2.41	%		2.79	%
Efficiency ratio (tax equivalent)		76.78	%		69.57	%		56.20	%		64.88	%		64.98	%			73.06	%		63.63	%
Average shareholders' equity to total average assets		9.12	%		8.99	%		8.65	%		8.43	%		8.53	%			9.06	%		8.49	%
Net loan charge-offs (recoveries)	$	38		$	(532	)	$	(43	)	$	(41	)	$	(66	)		$	(494	)	$	(113	)
Net loan charge-offs (recoveries) - annualized / Average loans excluding held-for-sale		0.01	%		-0.21	%		-0.02	%		-0.02	%		-0.03	%			-0.10	%		-0.02	%
Balance Sheet (Average)
Assets	$	1,719,368		$	1,719,167		$	1,737,679		$	1,727,132		$	1,700,600			$	1,719,268		$	1,688,061
Investment securities (AFS & Equities)		636,110			649,231			673,117			691,010			710,856				642,635			710,485
Loans receivable		1,026,881			1,021,265			1,020,102			984,968			944,773				1,024,088			931,760
Deposits		1,427,238			1,414,764			1,462,654			1,475,668			1,458,921				1,421,035			1,451,526
Shareholders' equity		156,890			154,503			150,281			147,296			144,688				155,704			143,344

QNB Corp. (Consolidated)
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)
	Three Months Ended
	June 30, 2023								June 30, 2022
	Average			Average					Average			Average
	Balance			Rate		Interest			Balance			Rate		Interest
Assets
Investment securities:
U.S. Treasury	$	3,398		4.81	%	$	41		$	872		0.97	%	$	2
U.S. Government agencies		101,945		1.11			283			101,936		1.11			283
State and municipal		109,345		2.38			651			130,329		2.40			783
Mortgage-backed and CMOs		406,442		1.76			1,786			458,622		1.59			1,820
Corporate debt securities		6,625		4.42			73			6,688		4.36			73
Equities		8,355		4.65			97			12,409		3.22			100
Total investment securities		636,110		1.84			2,931			710,856		1.72			3,061
Loans:
Commercial real estate		696,223		4.72			8,201			621,225		4.07			6,307
Residential real estate		107,402		3.66			984			104,323		3.32			866
Home equity loans		57,601		6.44			925			54,421		3.73			506
Commercial and industrial		142,438		7.14			2,538			140,840		4.34			1,525
Consumer loans		3,918		7.22			70			4,621		5.14			59
Tax-exempt loans		19,742		3.50			172			19,343		3.39			163
Total loans, net of unearned income*		1,027,324		5.03			12,890			944,773		4.00			9,426
Other earning assets		11,555		6.69			192			4,045		1.93			19
Total earning assets		1,674,989		3.83			16,013			1,659,674		3.02			12,506
Cash and due from banks		13,547								13,716
Allowance for loan losses		(8,297	)							(11,266	)
Other assets		39,129								38,476
Total assets	$	1,719,368							$	1,700,600
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	305,067		0.43	%		325		$	348,518		0.20	%		174
Municipals		114,965		4.36			1,251			109,055		0.43			117
Money market		175,243		2.39			1,044			143,285		0.35			125
Savings		359,733		1.22			1,093			448,915		0.34			383
Time < $100		111,455		2.27			631			90,874		0.75			170
Time $100 through $250		109,462		3.49			953			46,204		0.67			77
Time > $250		38,005		2.82			267			25,489		0.70			45
Total interest-bearing deposits		1,213,930		1.84			5,564			1,212,340		0.36			1,091
Short-term borrowings		108,117		2.90			783			79,402		0.47			93
Long-term debt		16,813		4.35			185			10,000		1.57			40
Total interest-bearing liabilities		1,338,860		1.96			6,532			1,301,742		0.38			1,224
Non-interest-bearing deposits		213,308								246,581
Other liabilities		10,310								7,589
Shareholders' equity		156,890								144,688
Total liabilities and shareholders' equity	$	1,719,368							$	1,700,600
Net interest rate spread				1.87	%							2.64	%
Margin/net interest income				2.27	%	$	9,481					2.73	%	$	11,282
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)
	Six Months Ended
	June 30, 2023										June 30, 2022
	Average			Average							Average			Average
	Balance			Rate			Interest				Balance			Rate			Interest
Assets
Investment securities:
U.S. Treasury	$	1,842			4.57	%	$	42			$	483			0.95	%	$	2
U.S. Government agencies		101,944			1.11			566				100,963			1.10			553
State and municipal		110,243			2.31			1,272				130,061			2.40			1,564
Mortgage-backed and CMOs		411,760			1.69			3,471				459,872			1.54			3,539
Corporate debt securities		6,631			4.41			146				6,694			4.35			146
Equities		10,215			3.91			198				12,412			3.21			198
Total investment securities		642,635						5,695				710,485			1.69			6,002
Loans:
Commercial real estate		688,959			4.63			15,803				609,508			4.06			12,264
Residential real estate		106,555			1.80			1,921				102,885			1.64			1,684
Home equity loans		57,126			6.34			1,795				54,519			3.55			959
Commercial and industrial		147,568			7.70			5,634				140,715			4.46			3,110
Consumer loans		4,003			6.97			138				4,678			5.10			118
Tax-exempt loans		20,164			3.49			349				19,455			3.40			328
Total loans, net of unearned income*		1,024,375			5.05			25,640				931,760			4.00			18,463
Other earning assets		9,290			6.32			291				5,359			1.34			35
Total earning assets		1,676,300			3.80			31,626				1,647,604			3.00			24,500
Cash and due from banks		13,216										13,401
Allowance for loan losses		(9,113	)									(11,236	)
Other assets		38,865										38,292
Total assets	$	1,719,268									$	1,688,061
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	311,306			0.41	%		627			$	343,435			0.19	%		320
Municipals		113,468			4.13			2,326				112,765			0.37			208
Money market		153,058			1.83			1,386				142,296			0.33			231
Savings		382,775			1.14			2,170				443,311			0.32			704
Time < $100		106,360			1.92			1,013				91,779			0.78			354
Time $100 through $250		103,570			3.27			1,680				47,363			0.69			162
Time > $250		32,894			2.39			390				25,231			0.70			87
Total interest-bearing deposits		1,203,431			1.61			9,592				1,206,180			0.35			2,066
Short-term borrowings		121,443			2.95			1,778				75,462			0.41			152
Long-term debt		11,354			3.64			208				10,000			1.57			79
Total interest-bearing liabilities		1,336,228			1.75			11,578				1,291,642			0.36			2,297
Non-interest-bearing deposits		217,604										245,346
Other liabilities		9,732										7,729
Shareholders' equity		155,704										143,344
Total liabilities and shareholders' equity	$	1,719,268									$	1,688,061
Net interest rate spread					2.05	%									2.64	%
Margin/net interest income					2.41	%	$	20,048							2.72	%	$	22,203
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