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QNB Corp. Reports Record Earnings For Third Quarter 2018

Company Release - 10/23/2018 3:52 PM ET

QUAKERTOWN, Pa., Oct. 23, 2018 /PRNewswire/ -- 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 2018 of $3,211,000, or $0.92 per share on a diluted basis. This compares to net income of $2,554,000, or $0.74 per share on a diluted basis, for the same period in 2017.  For the nine months ended September 30, 2018, QNB reported net income of $9,008,000, or $2.59 per share on a diluted basis. This compares to net income of $7,800,000, or $2.27 per share on a diluted basis, reported for the same period in 2017.

For the quarter ended September 30, 2018, the annualized rate of return on average assets and average shareholders' equity was 1.07% and 11.64%, respectively, compared with 0.89% and 9.90%, respectively, for the third quarter 2017.  For the nine months ended September 30, 2018, the annualized rate of return on average assets and average shareholders' equity was 1.03% and 11.23%, respectively, compared with 0.94% and 10.37%, respectively, for the same period in 2017.

"QNB is pleased to report record net income and earnings per share for both quarterly and nine-month periods.  During this time, the Bank has experienced exceptional loan growth and strong deposit growth.  The number of personal and business households that we serve continues to increase."

Net Interest Income and Net Interest Margin
Net interest income for the quarter and nine months ended September 30, 2018 totaled $8,704,000 and $26,195,000, respectively, an increase of $389,000 and $2,142,000, respectively, from the same periods in 2017. The net interest margin for the third quarter of 2018 was 3.06% compared with 3.15% for the third quarter of 2017.  Net interest margin for the nine months ended September 30, 2018 was 3.14%, a decrease of one basis point compared to the same period in 2017.  The yield on average earning assets increased 14 basis points to 3.83% for the third quarter of 2018, compared with the third quarter of 2017.  For the nine months ended September 30, 2018, the yield on average earning assets was 3.82%, compared with 3.67% for the same period in 2017.   The cost of interest-bearing liabilities increased to 0.93% and 0.83% for the quarter and nine months ended September 30, 2018, respectively, compared with 0.66% and 0.62% for the same periods in 2017.

Asset Quality, Provision for Loan Loss and Allowance for Loan Loss
QNB recorded a $568,000 provision for loan losses in the third quarter of 2018, compared with $100,000 for the same period in 2017.   For the nine months ended September 30, 2018 and 2017, QNB recorded $943,000 and $700,000, respectively, in provision for loan losses.  QNB's allowance for loan losses of $8,645,000 represents 1.10% of loans receivable at September 30, 2018 compared to $7,841,000, or 1.07% of loans receivable at December 31, 2017, and $8,125,000, or 1.15% of loans receivable at September 30, 2017.  Net loan charge-offs were $139,000 for the first nine months of 2018, or 0.02% annualized of total average loans, compared with net recoveries of $31,000, for the same period in 2017.

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 $10,890,000, or 1.39% of loans receivable at September 30, 2018, compared with $9,242,000, or 1.26% of loans receivable at December 31, 2017, and $10,437,000, or 1.48% of loans receivable at September 30, 2017.  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 September 30, 2018, $5,156,000, or approximately 54% of the loans classified as non-accrual are current or past due less than 30 days.  At September 30, 2018 commercial substandard or doubtful loans totaled $20,103,000, compared with $16,647,000 reported at December 31, 2017 and $18,064,000 reported at September 30, 2017.  The increase is due primarily to the classification of a single commercial relationship as non-accrual during the quarter.

Non-Interest Income
Total non-interest income was $2,227,000 for the third quarter of 2018, an increase of $757,000, or 51.4%, compared with the same period in 2017, due to combined realized and unrealized net gains on investment securities totaling $912,000 in 2018 compared to realized net gains on investment securities of $98,000 in 2017.  Non-interest income for the nine months ended September 30, 2018 was $4,748,000, a decrease of $327,000, or 6.4%, compared to the same period in 2017.  Decreases in non-interest income for the third quarter 2018, compared with the same period in 2017, comprise: net gain on sale of loans, decreased $27,000, attributable to reduced gains on residential mortgage sales; and a decrease of $10,000 in fees for services to customers from $429,000 in third quarter 2017 to $419,000 for the same period in 2018 attributable primarily to decreased overdraft charges, net of fee waivers; retail brokerage and advisory income decreased $72,000 for the third quarter of 2018 compared to the same period in 2017.  QNB terminated its contract with its third-party broker-dealer effective August 1, 2018 and entered into a similar arrangement with another third-party provider.  QNB Financial Services staff are in the process transferring accounts to the new provider's platform and expect the transfer to be completed by year-end 2018.

These decreases in non-interest income were offset in part by a $41,000, or 9.4%, increase in ATM and debit card income to $476,000.  Other non-interest income increased $11,000, or 4.0%, to $286,000.

Non-Interest Expense
Total non-interest expense was $6,385,000 for the third quarter of 2018, increasing $194,000, or 3.1%, from $6,191,000 for the same period in 2017.  For the nine months ended September 30, 2018, non-interest expense increased $1,375,000, or 7.8%, from the same period in 2017.  Salaries and benefits expense increased $98,000, or 2.8%, to $3,612,000 when comparing the two quarters.  Salary expense and related payroll taxes increased $190,000 to $3,169,000, or 6.4%, during the third quarter of 2018 compared to the same period in 2017.  Benefits expense decreased $92,000, or 17.2%, due primarily to medical insurance claims reimbursements, when comparing the two periods.  

Net occupancy and furniture and equipment expense increased $56,000, or 5.9%, to $1,000,000 for the third quarter 2018, due primarily to increased building and furniture depreciation expense and computer software amortization and maintenance expense.  Other non-interest expense increased $40,000, or 2.3%, when comparing the third quarter of 2018 with the third quarter of 2017, with increased professional services, third- party processing, and state shares tax expense offset in part by decreases in marketing, telephone and check-card charge-off expense. 

Provision for income taxes decreased $173,000, or 18.4%, to $767,000 in the third quarter 2018 due to a reduced corporate tax rate from 34% to 21%, resulting from the Tax Cuts and Jobs Act, effective January 1, 2018.  The effective tax rates for the quarter and nine months ended September 30, 2018 were 19.3% and 17.4%, respectively.  This compares with effective tax rates for the same periods in 2017 of 26.9% and 27.2%, respectively.

About the Company
QNB Corp. is the holding company for QNB Bank, which is headquartered in Quakertown, Pennsylvania. QNB Bank currently operates eleven 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 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, 2017. 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)

9/30/18


6/30/18


3/31/18


12/31/17


9/30/17


Assets

$

1,184,389


$

1,172,874


$

1,172,168


$

1,152,337


$

1,150,363


Cash and cash equivalents


13,982



11,726



29,870



16,331



26,028


Investment securities
















Debt securities


347,392



344,194



357,519



374,570



389,050


Equity securities


10,436



9,600



9,527



4,975



7,363


Loans held-for-sale


154



404



272



-



115


Loans receivable


785,962



779,886



750,187



733,283



704,214


Allowance for loan losses


(8,645)



(8,192)



(8,037)



(7,841)



(8,125)


Net loans


777,317



771,694



742,150



725,442



696,089


Deposits


1,024,565



985,726



1,006,369



993,948



1,005,445


Demand, non-interest bearing


128,089



135,482



135,040



129,212



122,696


Interest-bearing demand, money market
and savings


672,467



627,525



639,078



639,554



652,310


Time


224,009



222,719



232,251



225,182



230,439


Short-term borrowings


55,923



85,646



64,879



55,756



40,176


Shareholders' equity


98,834



97,818



96,504



98,570



100,512


















Asset Quality Data (Period End)
















Non-accrual loans

$

9,631


$

6,731


$

7,053


$

7,921


$

9,078


Loans past due 90 days or more and still
accruing


-



23



-



-



5


Restructured loans


1,259



1,233



1,274



1,321



1,354


Non-performing loans


10,890



7,987



8,327



9,242



10,437


Other real estate owned and repossessed
assets


-



-



-



-



-


Non-performing assets

$

10,890


$

7,987


$

8,327


$

9,242


$

10,437


















Allowance for loan losses

$

8,645


$

8,192


$

8,037


$

7,841


$

8,125


















Non-performing loans / Loans excluding
held-for-sale


1.39

%


1.02

%


1.11

%


1.26

%


1.48

%

Non-performing assets / Assets


0.92

%


0.68

%


0.71

%


0.80

%


0.91

%

Allowance for loan losses / Loans excluding
held-for-sale


1.10

%


1.05

%


1.07

%


1.07

%


1.15

%

 

 

QNB Corp.


Consolidated Selected Financial Data (unaudited)

























(Dollars in thousands, except
per share data)

Three months ended,



Nine months ended,


For the period:

9/30/18


6/30/18


3/31/18


12/31/17


9/30/17



9/30/18


9/30/17

























Interest income

$

10,926


$

10,562


$

10,509


$

9,944


$

9,830



$

31,997


$

28,158


Interest expense


2,222



1,862



1,718



1,575



1,515




5,802



4,105


Net interest income


8,704



8,700



8,791



8,369



8,315




26,195



24,053


Provision for loan losses


568



187



188



700



100




943



700


Net interest income after
provision

    for loan losses


8,136



8,513



8,603



7,669



8,215




25,252



23,353


Non-interest income:























Fees for services to customers


419



408



421



426



429




1,248



1,242


ATM and debit card


476



487



430



448



435




1,393



1,301


Retail brokerage and advisory
income


96



105



103



61



168




304



375


Net gain (loss) on investment
securities
     
available-for-sale


181



48



85



538



98




314



962


Unrealized gain (loss) on equity
securities


731



41



(246)



-



-




526



-


Net gain (loss) from trading
activity


-



-



-



-



-




-



27


Net gain on sale of loans


38



37



7



59



65




82



316


Other


286



328



267



280



275




881



851


  Total non-interest income


2,227



1,454



1,067



1,812



1,470




4,748



5,075


Non-interest expense:























Salaries and employee benefits


3,612



3,627



3,345



3,284



3,514




10,584



9,837


Net occupancy and furniture
and
   equipment


1,000



1,011



958



943



944




2,969



2,705


Other


1,773



1,895



1,875



1,772



1,733




5,543



5,179


  Total non-interest expense


6,385



6,533



6,178



5,999



6,191




19,096



17,721


Income before income taxes


3,978



3,434



3,492



3,482



3,494




10,904



10,707


Provision for income taxes


767



572



557



2,993



940




1,896



2,907


Net income

$

3,211


$

2,862


$

2,935


$

489


$

2,554



$

9,008


$

7,800







































































(Dollars in thousands, except
per share data)

Three months ended,



Nine months ended,


For the period:

9/30/18


6/30/18


3/31/18


12/31/17


9/30/17



9/30/18


9/30/17

























Share and Per Share Data:























Net income - basic

$

0.93


$

0.83


$

0.85


$

0.14


$

0.74



$

2.60


$

2.28


Net income - diluted

$

0.92


$

0.82


$

0.85


$

0.14


$

0.74



$

2.59


$

2.27


Book value

$

28.47


$

28.23


$

27.94


$

28.59


$

29.22



$

28.47


$

29.22


Cash dividends

$

0.32


$

0.32


$

0.32


$

0.31


$

0.31



$

0.96


$

0.93


Average common shares
outstanding

   - basic


3,466,672



3,460,360



3,452,531



3,441,308



3,433,811




3,459,906



3,424,813


Average common shares
outstanding

  - diluted


3,489,061



3,481,312



3,472,905



3,462,684



3,452,582




3,480,989



3,441,206

























Selected Ratios:























Return on average assets


1.07

%


0.98

%


1.02

%


0.17

%


0.89

%



1.03

%


0.94

%

Return on average shareholders'
equity


11.64

%


10.70

%


11.35

%


1.86

%


9.90

%



11.23

%


10.37

%

Net interest margin (tax
equivalent)


3.06

%


3.15

%


3.22

%


3.11

%


3.15

%



3.14

%


3.15

%

Efficiency ratio (tax equivalent)


57.31

%


63.08

%


61.42

%


56.68

%


60.78

%



60.52

%


58.47

%

Average shareholders' equity to
total

   average assets


9.20

%


9.20

%


9.00

%


9.04

%


9.01

%



9.13

%


9.10

%

Net loan charge-offs (recoveries)

$

115


$

32


$

(8)


$

984


$

10



$

139


$

(31)


Net loan charge-offs (recoveries) -

   annualized / Average loans
excluding

   held-for-sale


0.06

%


0.02

%


0.00

%


0.54

%


0.01

%



0.02

%


-0.01

%















































Balance Sheet (Average)





-


















Assets

$

1,190,132


$

1,166,383


$

1,164,390


$

1,153,827


$

1,136,306



$

1,173,695


$

1,104,841


Investment securities (AFS &
Equities)


368,807



372,850



383,317



394,144



390,438




374,938



390,862


Loans receivable


780,221



757,451



744,132



721,519



694,740




760,733



669,073


Deposits


1,023,227



987,000



983,647



998,235



986,012




998,104



950,456


Shareholders' equity


109,433



107,301



104,832



104,354



102,385




107,206



100,532


 

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SOURCE QNB Corp.