QNB Corp. Reports Earnings for Second Quarter 2020

QUAKERTOWN, PA, (July 28, 2020) 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

%

 

 

 

 

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