QNB CORP. REPORTS

EARNINGS FOR THIRD QUARTER 2023

QUAKERTOWN, PA (October 24, 2023) 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.

Contacts:

David W. Freeman

Jeffrey Lehocky

President & Chief Executive Officer

Chief Financial Officer

215-538-5600 x-5619

215-538-5600 x-5716

dfreeman@qnbbank.com

jlehocky@qnbbank.com

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:

9/30/23

6/30/23

3/31/23

12/31/22

9/30/22

9/30/23

9/30/22

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

Average

Average

Average

Average

Balance

Rate

Interest

Balance

Rate

Interest

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

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Disclaimer

QNB Corp. published this content on 24 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 October 2023 20:08:31 UTC.