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QNB Corp. Reports Earnings For Second Quarter 2020

Company Release - 7/28/2020 4:43 PM ET

QUAKERTOWN, Pa., July 28, 2020 /PRNewswire/ -- QNB Corp. (the "Company" or "QNB") (OTC Bulletin Board: QNBC), the parent company of QNB Bank, reported net income for the second quarter of 2020 of $3,934,000, or $1.11 per share on a diluted basis, compared to net income of $3,143,000, or $0.90 per share on a diluted basis, for the same period in 2019.  For the six months ended June 30, 2020, QNB reported net income of $4,154,000, or $1.18 per share on a diluted basis. This compares to net income of $6,522,000, or $1.86 per share on a diluted basis, reported for the same period in 2019.

The increase in quarterly net income and earnings per share, when comparing the three months ended June 30, 2020 with the same period in 2019 is due primarily to an increase in the fair value of the equity securities held by QNB Corp, our bank holding company.  The decrease in net income and earnings per share when comparing the six-month periods is due primarily to the decrease in the fair value of the equity securities held by QNB Corp. 

The following table presents disaggregated net income: 


3 months ended


6 months ended



6/30/2020

6/30/2019

variance

6/30/2020

6/30/2019

variance

QNB Bank

$    3,020,000

$    3,060,000

$       (40,000)

$    5,336,000

$    5,736,000

$         (400,000)

QNB Corp

914,000

83,000

831,000

(1,182,000)

786,000

$      (1,968,000)

Consolidated net income

$    3,934,000

$    3,143,000

$       791,000

$    4,154,000

$    6,522,000

$      (2,368,000)

Total assets as of June 30, 2020 were $1,390,479,000 compared with $1,225,023,000 at December 31, 2019. Loans receivable at June 30, 2020 were $878,620,000 compared with $820,616,000 at December 31, 2019, an increase of $58,004,000, or 7.1%.  To date, QNB Bank originated $81,098,478 in the Small Business Administration's Paycheck Protection Program ("PPP") loans, enabling 643 businesses to maintain their payrolls and stay in operation.  Excluding the PPP loans net of deferred fees, loans receivable would have decreased $19,880,000, or 2.4% since year-end 2019.  Total deposits at June 30, 2020 were $1,183,188,000, increasing $145,328,000, or 14.0%, compared with $1,037,860,000 at December 31, 2019, with households and businesses keeping their deposits in short-term, liquid accounts.  Most of the PPP loans proceeds were deposited to QNB Bank deposit accounts.

"QNB Bank maintained operations, serving customers at our branch drive-ups and by appointment to ensure there was no interruption in service during Pennsylvania's mandated shutdown of non-essential businesses during the quarter.  We reopened all branches to lobby traffic on June 5," stated David W. Freeman, President and Chief Executive Officer.  "In addition to our PPP loan volume, we granted 384 requests from business and personal customers for temporary, COVID-related loan payment relief, and experienced record mortgage loan originations, helping our customers take advantage of historic low rates to reduce their borrowing costs for their homes."

Net Interest Income and Net Interest Margin

Net interest income for the quarter and six months ended June 30, 2020 totaled $9,234,000 and $18,397,000 respectively, an increase of $123,000 and $450,000, respectively from the same periods in 2019. Net interest margin was 2.95% for the second quarter of 2020 and 3.20% for the same period in 2019.  Net interest margin was 3.06% for the six months ended June 30, 2020, compared with 3.19% for the same period in 2019.

The yield on earning assets was 3.42% for the second quarter 2020, a decrease of 68 basis points from 4.10% in the second quarter of 2019. For the six-month period ended June 30, 2020, yield on earning assets was 3.66%, compared with 4.07% for the same period in 2019.  The cost of interest-bearing liabilities decreased 51 basis points to 0.60% for the quarter and 33 basis points to 0.76% for the six months ended June 30, 2020, compared with the same period in 2019.

Asset Quality, Provision for Loan Loss and Allowance for Loan Loss

QNB recorded a $250,000 provision for loan losses in the second quarter of 2020 compared with $150,000 in the second quarter 2019.  QNB's allowance for loan losses of $10,464,000 represents 1.19% of loans receivable at June 30, 2020 compared to $9,887,000, or 1.20% of loans receivable at December 31, 2019, and $9,164,000, or 1.12% of loans receivable at June 30, 2019.  Excluding the PPP loans, which are expected to be fully forgiven within the next six to twelve months, and are 100% guaranteed by the US Treasury, the allowance represents 1.31% of loans receivable.  Net loan charge offs were $120,000 and $173,000 for the quarter and six months ended June 30, 2020, respectively, compared with $1,000 and $45,000 for the same periods in 2019, respectively.   Annualized net loan charge-offs for the quarter and six months ended June 30, 2020 were .06% and 0.04% 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 $15,060,000, or 1.71% of loans receivable at June 30, 2020, compared with $16,464,000, or 2.01% of loans receivable at December 31, 2019, and $9,677,000, or 1.18% of loans receivable at June 30, 2019.  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 June 30, 2020, $7,821,000, or approximately 76% 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 $14,268,000 at June 30, 2020, a decrease of $1,654,000, or 10.4%, from the $15,922,000 reported at December 31, 2019, and an increase of $1,696,000, or 13.5%, from the $12,572,000 reported at June 30, 2019. 

Non-Interest Income

Total non-interest income was $2,817,000 for the second quarter of 2020, an increase of $1,163,000, or 70.3%, compared with the same period in 2019, due primarily to a combined $1,156,000 realized and unrealized gain of the equity securities portfolio, when comparing the two periods. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.25%.   The performance of the portfolio during the quarter and six months ended June 30, 2020 is commensurate with the overall performance of the U.S. stock market.

Increases in non-interest income for the quarter ended June 30, 2020 comprise; net gain on the sale of loans and retail brokerage and advisory income, which increased $337,000 and $36,000, respectively, when compared to the same period in 2019.  Fees for services to customers and other income decreased $180,000 and $132,000, respectively, when comparing the two periods.  The reduction in fees for services to customers is due primarily to a decrease in overdraft items when comparing the periods.  Other income decreases for the period are due to a $58,000 gain on sale of OREO realized in 2019, reduced fair value of mortgage servicing rights, and reduced letter of credit fees.

For the six months ended June 30, 2020, non-interest income was $1,246,000, a decrease of $2,717,000, or 68.6%, compared to the same period in 2019, primarily due to combined net realized gains and unrealized change in fair value of the equities securities totaling  $2,766,000.  The estimated cumulative contribution (realized and unrealized net gains, plus dividends) of the equities portfolio to diluted earnings per share from January 1, 2008 through June 30, 2020 is $1.32.

Excluding the realized gain and change in fair value of equities, net interest income increased $88,000, when comparing the two periods, for the same reasons those described in the quarterly results. 

Non-Interest Expense

Total non-interest expense was $6,869,000 for the second quarter of 2020, increasing $76,000, or 1.1% from $6,793,000  for the same period in 2019.  Salaries and benefits expense increased $195,000, or 5.1%, to $3,985,000 when comparing the two quarters.  Salary expense and related payroll taxes decreased $82,000, to $3,195,000 during the second quarter 2020 compared to the same period in 2019 due to a reduction in bonus accrual and increased loan origination deferred costs resulting from the PPP loan originations of $108,000 and $217,000, respectively.  Employee salaries increased $239,000, or 8.2%, when comparing the periods.     Medical premiums increased $296,000, or 88.3%, due to increased medical claims when comparing the two periods.  Net occupancy and furniture and equipment expense increased $83,000, or 7.6%, to $1,180,000 for the second quarter 2020, due primarily to increased depreciation expense and combined amortization of software, software maintenance and computer backup expense of $55,000 and $58,000, respectively, offset in part by decreased equipment and building maintenance of $20,000 and $15,000, respectively, when comparing the two periods.  QNB's new Allentown branch was not opened until third quarter and the Upper Perkiomen branch had not yet relocated until fourth quarter 2019. 

Other non-interest expense decreased $202,000, or 10.6%, when comparing second quarter 2020 with decreased marketing, state tax and travel and entertainment expenses of $108,000, $48,000, and $91,000, respectively, offset in part by increased supplies expense and  third-party services of $33,000 and $57,000, respectively.  Marketing and travel and entertainment expense reductions are due to cancellation of events, seminars and travel due the COVID-19 pandemic.  Decreased state taxes are due to the receipt of shares tax credits in the second quarter of 2020 compared to 2019.  Supplies expense increased due to required cleaning supplies, signage, personal protective equipment and plexiglass shields needed for customers and staff in response to the pandemic.

For the six months ended June 30, 2020, non-interest expense was $14,147,000, an increase of $630,000, or 4.7%, compared to the same period in 2019.

Provision for income taxes increased 47.0%, to $998,000 in the second quarter 2020 due to increased pre-tax income and a higher effective tax rate,  compared with the same period in 2019.  The effective tax rates for the quarter and six months ended June 30, 2020  were 20.2% and 12.5%, respectively, compared with 17.8% and 18.7%, respectively, for the same periods in 2019.  The variance in effective tax rates is due to the decrease in proportional share of taxable versus non-taxable income and the change in fair value of the equities investments during the quarter and six months ended June 30, 2020, compared with the same period in 2019.

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.  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, 2019. 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)

6/30/20


3/31/20


12/31/19


9/30/19


6/30/19


Assets

$

1,390,479


$

1,232,010


$

1,225,023


$

1,245,863


$

1,212,005


Cash and cash equivalents


66,773



46,489



17,608



20,787



14,068


Investment securities
















Debt securities, AFS


403,620



327,325



349,710



361,157



347,728


Equity securities


10,744



9,417



9,164



5,850



6,898


Loans held-for-sale


3,679



216



977



240



-


Loans receivable


878,620



821,283



820,616



830,556



817,593


Allowance for loan losses


(10,464)



(10,334)



(9,887)



(9,494)



(9,164)


Net loans


868,156



810,949



810,729



821,062



808,429


Deposits


1,183,188



1,043,521



1,037,860



1,048,189



1,030,661


Demand, non-interest bearing


209,581



146,143



146,270



150,944



149,591


Interest-bearing demand, money
market and savings


765,855



682,303



656,014



661,414



646,759


Time


207,752



215,075



235,576



235,831



234,311


Short-term borrowings


57,412



43,265



55,931



69,945



59,048


Long-term borrowings


10,000



10,000



-



-



-


Shareholders' equity


128,563



124,613



120,717



118,985



115,878


Asset Quality Data (Period End)
















Non-accrual loans

$

10,355


$

11,134


$

11,704


$

12,445


$

7,668


Loans past due 90 days or more and
still accruing


-














Restructured loans


4,705



4,727



4,760



1,643



2,009


Non-performing loans


15,060



15,861



16,464



14,088



9,677


Other real estate owned and
repossessed assets


-



-



-



-



-


Non-performing assets

$

15,060


$

15,861


$

16,464


$

14,088


$

9,677


















Allowance for loan losses

$

10,464


$

10,334


$

9,887


$

9,494


$

9,164


















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


1.71

%


1.93

%


2.01

%


1.70

%


1.18

%

Non-performing assets / Assets


1.08

%


1.29

%


1.34

%


1.13

%


0.80

%

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


1.19

%


1.26

%


1.20

%


1.14

%


1.12

%

 

 

f


Consolidated Selected Financial Data (unaudited)

























(Dollars in thousands,
except per share data)

Three months ended,



Six months ended,


For the period:

6/30/20


3/31/20


12/31/19


9/30/19


6/30/19



6/30/20


6/30/19

























Interest income

$

10,740


$

11,331


$

11,600


$

11,817


$

11,712



$

22,071


$

23,001


Interest expense


1,506



2,168



2,435



2,635



2,601




3,674



5,054


Net interest income


9,234



9,163



9,165



9,182



9,111




18,397



17,947


Provision for loan losses


250



500



375



550



150




750



375


Net interest income after
provision
    for loan losses


8,984



8,663



8,790



8,632



8,961




17,647



17,572


Non-interest income:























Fees for services to
customers


242



411



444



432



422




653



815


ATM and debit card


516



488



548



533



519




1,004



989


Retail brokerage and advisory
income


169



113



141



145



133




282



274


Net realized gain (loss) on
investment securities


169



-



192



973



584




169



590


Unrealized gain (loss) on 
equity securities


1,166



(2,940)



504



(305)



(405)




(1,774)



571


Net gain on sale of loans


365



81



83



63



28




446



49


Other


190



276



298



303



373




466



675


Total non-interest
income


2,817



(1,571)



2,210



2,144



1,654




1,246



3,963


Non-interest expense:























Salaries and employee
benefits


3,985



4,072



4,452



4,063



3,790




8,057



7,571


Net occupancy and furniture
and
   equipment


1,180



1,198



1,254



1,123



1,097




2,378



2,159


Other


1,704



2,008



1,926



1,769



1,906




3,712



3,787


Total non-interest
expense


6,869



7,278



7,632



6,955



6,793




14,147



13,517


Income before income
taxes


4,932



(186)



3,368



3,821



3,822




4,746



8,018


Provision for income taxes


998



(406)



623



731



679




592



1,496


Net income

$

3,934


$

220


$

2,745


$

3,090


$

3,143



$

4,154


$

6,522

























Share and Per Share Data:























Net income - basic

$

1.11


$

0.06


$

0.78


$

0.88


$

0.90



$

1.18


$

1.87


Net income - diluted

$

1.11


$

0.06


$

0.78


$

0.88


$

0.90



$

1.18


$

1.86


Book value

$

36.29


$

35.29


$

34.30


$

33.92


$

33.09



$

36.29


$

33.09


Cash dividends

$

0.34


$

0.34


$

0.33


$

0.33


$

0.33



$

0.68


$

0.66


Average common shares
outstanding

   - basic


3,532,079



3,522,667



3,509,766



3,501,771



3,494,620




3,527,373



3,490,724


Average common shares
outstanding

  - diluted


3,532,079



3,525,455



3,515,830



3,507,317



3,502,111




3,528,391



3,498,057

























Selected Ratios:























Return on average assets


1.19

%


0.07

%


0.88

%


1.00

%


1.05

%



0.66

%


1.10

%

Return on average shareholders' equity


12.78

%


0.73

%


9.06

%


10.39

%


10.91

%



6.81

%


11.49

%

Net interest margin (tax equivalent)


2.95

%


3.18

%


3.11

%


3.14

%


3.20

%



3.06

%


3.19

%

Efficiency ratio (tax equivalent)


56.17

%


93.70

%


66.01

%


60.34

%


61.97

%



70.75

%


60.61

%

Average shareholders' equity to
total

   average assets


9.34

%


9.96

%


9.75

%


9.63

%


9.61

%



9.64

%


9.58

%

Net loan charge-offs
(recoveries)

$

120


$

53


$

(18)


$

220


$

1



$

173


$

45


Net loan charge-offs
(recoveries) -  annualized /
Average loans excluding  held-
for-sale


0.06

%


0.03

%


-0.01

%


0.11

%


0.00

%



0.04

%


0.01

%
























Balance Sheet (Average)























Assets

$

1,325,979


$

1,221,487


$

1,232,071


$

1,225,776


$

1,202,406



$

1,273,727


$

1,194,932


Investment securities (AFS &
  Equities)


357,177



347,072



360,403



359,549



357,836




352,124



359,231


Loans receivable


866,567



821,695



827,103



822,738



805,538




844,131



797,681


Deposits


1,132,735



1,037,594



1,046,835



1,044,094



1,021,925




1,085,165



1,015,032


Shareholders' equity


123,815



121,684



120,158



117,984



115,551




122,749



114,434


 

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SOURCE QNB Corp.