QNB Corp. Reports Earnings For Fourth Quarter 2023
January 23, 2024 at 01:15 pm EST
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QUAKERTOWN, Pa., Jan. 23, 2024 (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 fourth quarter of 2023 of $1,134,000, or $0.31 per share on a diluted basis. This compares to net income of $5,447,000, or $1.52 per share on a diluted basis, for the same period in 2022. For the twelve months ended December 31, 2023, QNB reported net income of $9,483,000, or $2.63 per share on a diluted basis. This compares to net income of $15,921,000, or $4.47 per share on a diluted basis, reported for the same period in 2022.
For the quarter ended December 31, 2023, the annualized rate of return on average assets and average shareholders’ equity was 0.26% and 2.83%, respectively, compared with 1.24% and 14.38%, respectively, for the fourth quarter 2022.
The operating performance of the Bank, a wholly-owned subsidiary of QNB Corp., declined for the quarter ended December 31, 2023, in comparison with the same period in 2022 due to interest margin compression causing a $1,150,000 decline in net interest income, additional provision for credit losses on loans and commitments of $1,143,000 and an increase in non-interest expense of $612,000. In the fourth quarter, we continued to improve the efficiency of our investment portfolio by executing a sale of $26 million in book value of low yielding fixed rate available-for-sale securities, booking a pre-tax loss of $1,801,000 in the fourth quarter of 2023 at the Bank; this compared to losses of $143,000 in 2022. The change in contribution from QNB Corp. for the quarter ended December 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,
Twelve months ended,
12/31/2023
12/31/2022
Variance
12/31/2023
12/31/2022
Variance
QNB Bank
$
827,000
$
4,408,000
$
(3,581,000
)
$
9,395,000
$
16,445,000
$
(7,050,000
)
QNB Corp
307,000
1,039,000
(732,000
)
88,000
(524,000
)
612,000
Consolidated net income
$
1,134,000
$
5,447,000
$
(4,313,000
)
$
9,483,000
$
15,921,000
$
(6,438,000
)
Total assets as of December 31, 2023 were $1,706,318,000 compared with $1,668,497,000 at December 31, 2022. Total available-for-sale debt securities decreased $15,209,000, or 3.0%, to $490,181,000, primarily due to sales. Loans receivable increased $33,083,000 to approximately $1,093,533,000, or 3.1%. Total deposits increased $5,380,000 to $1,488,713,000. Short-term borrowing declined $2,609,000, or 2.7%.
"2023 was a year filled with rising interest rates, compressing our margin and creating a decline in our net interest income. We were aggressive in our proactive moves to respond and structure our company for future profitability,” stated David W. Freeman, President and Chief Executive Officer. Freeman continued, “This quarter, our significant move was restructuring our investment portfolio, selling off underperforming securities, resulting in a pre-tax loss of $1.8 million impacting the fourth quarter earnings. We reinvested the security sale proceeds in cash, which will provide significantly higher yields, resulting in improved liquidity for our balance sheet and profitability. Coupling this with the interest-rate hedge contracts we entered earlier in 2023, we are better positioned going into 2024. Finally, I am pleased with the growth in our deposit balances and with the credit quality of our loan book, all indicators of our diligent focus on our core business.”
Net Interest Income and Net Interest Margin
Net interest income for the quarter and twelve months ended December 31, 2023 totaled $10,192,000 and $40,155,000 respectively, a decrease of $1,087,000 and $4,342,000, respectively, from the same periods in 2022. Net interest margin was 2.36% for the fourth quarter of 2023 and 2.72% for the same period in 2022. Net interest margin was 2.39% for the twelve months ended December 31, 2023, compared with 2.71% for the same period in 2022.
The yield on earning assets was 4.44% for the fourth quarter 2023, compared with 3.49% in the fourth quarter of 2022. For the twelve-month period ended December 31, 2023, yield on earning assets was 4.09%, compared with 3.18% for the same period in 2022. The cost of interest-bearing liabilities was 2.55% for the quarter and 2.11% for the twelve months ended December 31, 2023, compared with 1.03% and 0.60% for the same periods in 2022, respectively.
Proceeds from average short-term borrowings and proceeds from sales and payments received on investment securities over the past year were invested in loans and higher-yielding investments. Loan growth was primarily in commercial real estate, which comprised 42% of average earning assets in the twelve 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 95 basis-point increase in the yield on loans. The decline in the available-for-sale portfolio was primarily in mortgage-backed securities, which comprised 23% of average earnings assets in the twelve months of 2023 compared with 27% for the same period in 2022. The 144 basis-point increase in the rate paid on deposits and the 201 basis-point increase in the rate on short-term borrowing were the primary contributors to the increase in the cost of funds of 151 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 $291,000 in provision for credit losses on loans in the fourth quarter of 2023 compared to a reversal in provision of $850,000 in the fourth quarter of 2022; and reversed $828,000 in provision for credit losses on loans for the twelve months ended December 31, 2023 compared to a reversal in provision of $850,000 for the twelve months ended December 31, 2022. QNB's allowance for credit losses on loans of $8,852,000 represents 0.81% of loans receivable at December 31, 2023, compared to $9,442,000, or 0.91% of loans receivable upon the adoption of CECL on January 1, 2023. Net loan recoveries were $19,000 for the quarter and net recoveries of $238,000 for the twelve months ended December 31, 2023, compared with recoveries of $43,000 and $197,000 for the same periods in 2022, primarily due to commercial customers. Annualized net loan recoveries for the quarter ended December 31, 2023 was 0.01% and annualized net loan recoveries of 0.02% for the quarter ended December 31, 2022, of average loans receivable, respectively. Annualized net loan recoveries for the twelve months ended December 31, 2023 and December 31, 2022 were 0.02% 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 $5,668,000, or 0.52% of loans receivable at December 31, 2023, compared with $9,121,000, or 0.88% of loans receivable at December 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 December 31, 2023, $1,306,000, or approximately 67% 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 $11,747,000 at December 31, 2023, compared with $13,684,000 at December 31, 2022.
Non-Interest Income
Total non-interest income was $283,000 for the fourth quarter of 2023 compared with $2,997,000 for the same period in 2022. There was a net realized loss of $2,262,000 on the sale of investments for the quarter ended December 31, 2023 compared to a net loss of $227,000 on the sales of securities in the same period in 2022. Unrealized net gain on investment equity securities was $904,000 for the quarter ended December 31, 2023 compared to a net gain of $1,602,000 for the same period in 2022. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 4.22%.
Fees for service to customers increase $10,000 for the quarter ended December 31, 2023, primarily due to overdraft fees. ATM and debit card income decreased $17,000 to $687,000 for the quarter ended December 31, 2023, income is related to card usage. Retail brokerage and advisory income increased $23,000 to $207,000 for the same period. Net gains on sales of loans increased $11,000 for the same period due to volume. Bank-owned life insurance decreased $9,000 for the same period.
For the twelve months ended December 31, 2023, non-interest income was $4,837,000 a decrease of $894,000 compared to the same period in 2022, primarily due to realized losses on sale of securities was $2,077,000, a decline of $2,343,000 for the twelve months ended December 31, 2023, compared with the same period in 2022. Unrealized gains related to the change in fair value of the equities portfolio was $250,000 for the twelve months ended December 31, 2023, an increase of $1,276,000 over the same period in 2022. Increases in non-interest income for the twelve months ended December 31, 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 $37,000, $16,000, and $74,000, respectively. Other non-interest income increased $36,000 due primarily to a sales tax refund of $115,000, partly offset by Bank-owned life insurance of $41,000 and a decrease in title insurance income of $32,000.
Non-Interest Expense
Total non-interest expense was $8,746,000 for the fourth quarter of 2023 compared with $8,119,000 for the same period in 2022. Salaries and benefits expense increased $253,000, or 5.7%, to $4,717,000 when comparing the two quarters. Salary expense and related payroll taxes increased $42,000, to $3,912,000 during the fourth quarter of 2023 compared to the same period in 2022. Benefits expense increased $211,000, when comparing the two periods.
Net occupancy and furniture and equipment expense increased $218,000, to $1,477,000 for the fourth quarter of 2023 due to software maintenance costs. Other non-interest expense increased $156,000 when comparing fourth quarter of 2023 with the same period in 2022 due to an increase in FDIC insurance of $119,000, an increase in marketing expense of $48,000 and write-offs due to fraud on customer accounts of $252,000, partly offset by decreases in Bank shares tax of $149,000, in telephone, postage and supplies of $56,000, and in third-party services of $50,000.
For the twelve months ended December 31, 2023, non-interest expense was $34,109,000, an increase of $2,617,000, or 8.3%, compared to the same period in 2022.
Provision for income taxes decreased $1,258,000 to $302,000 in the fourth quarter of 2023 due to decreased pre-tax income, compared with the same period in 2022. The effective tax rates for the quarter and twelve months ended December 31, 2023 were 21.0% and 19.1%, respectively, compared with 22.3% and 18.7%, 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. is the holding company for QNB Bank (the Bank). The Bank is engaged in the general commercial banking business and provides a full range of banking services to its customers. These banking services consist of attracting deposits and using these funds in making commercial loans, residential mortgage loans, consumer loans, purchasing investment securities and others. These deposits are in the form of time, demand and savings accounts. Time deposits include certificates of deposit and individual retirement accounts. The Bank's demand and savings accounts include money market accounts, interest-bearing demand accounts (including a higher yielding checking account), club accounts, traditional statement savings accounts, and a higher yielding online savings account. It 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.
QNB CORP. 
