QNB Corp. Reports Record Earnings for First Quarter 2018

Quakertown, PA (April 24, 2018) QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the parent company of QNB Bank, reported net income for the first quarter of 2018 of $2,935,000, or $0.85 per share on a diluted basis, compared to net income of $2,860,000, or $0.83 per share on a diluted basis, for the same period in 2017. 

Total assets as of March 31, 2018 were $1,172,168,000 compared with $1,152,337,000 at December 31, 2017. Loans receivable at March 31, 2018 were $750,187,000 compared with $733,283,000 at December 31, 2017, an increase of $16,904,000, or 2.3%.  Total deposits at March 31, 2018 were $1,006,369,000, increasing $12,421,000, or 1.2%, compared with $993,948,000 at December 31, 2017.

“The first quarter of 2018 marked record-setting earnings and several milestones for the Bank,” said David W. Freeman, President and Chief Executive Officer. “Net income and earnings per share grew 2.6% and 2.4%, respectively compared to the first quarter of 2017. The loan, deposit, and household growth we saw in 2017 was sustained during first quarter 2018 and asset quality remains strong.  Construction was completed on our relocated and expanded Warminster Office in 56 days  ̶  our 11th full-service branch opened for business on April 16.  Also, our securities and advisory service, QNB Financial Services, saw assets under management exceed $130 million”.

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended March 31, 2018 totaled $8,791,000, an increase of $911,000, or 11.6%, from the same period in 2017. The net interest margin was 3.22% for both the first quarter of 2018 and 2017.  The yield on earning assets was 3.83% for the first quarter 2018, an increase of twelve basis points from 3.71% in the first quarter of 2017.  The cost of interest-bearing liabilities was 0.75% for the first quarter ended March 31, 2018, compared with 0.60% for the same period in 2017.

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

QNB recorded a $188,000 provision for loan losses in the first quarter of 2018 compared with $300,000 in the first quarter 2017.  QNB's allowance for loan losses of $8,037,000 represents 1.07% of loans receivable at March 31, 2018 compared to $7,841,000, or 1.07% of loans receivable at December 31, 2017, and $7,719,000, or 1.17% of loans receivable at March 31, 2017. Net loan recoveries were $8,000 for the first quarter of 2018, compared with net recoveries of $25,000 for the first quarter of 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 $8,327,000, or 1.11% of loans receivable at March 31, 2018, compared with $9,242,000, or 1.26% of loans receivable at December 31, 2017, and $11,023,000, or 1.67% of loans receivable at March 31, 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 March 31, 2018, $4,964,000, or approximately 70% of the loans classified as non-accrual are current or past due less than 30 days.  Commercial loans classified as substandard or doubtful, which includes non-performing loans, totaled $17,416,000 at March 31, 2018.  This was an increase of $769,000, or 4.6%, from the $16,647,000 reported at December 31, 2017 and a decrease of $851,000, or 4.7%, from the $18,267,000 reported at March 31, 2017.

Non-Interest Income

Total non-interest income was $1,067,000 for the first quarter of 2018, a decrease of $923,000, or 46.4%, compared with the same period in 2017.  Decreases in non-interest income comprise; net gains on investment securities, net gain from trading activity and net gain on sale of loans, which decreased $910,000, $17,000, and $43,000, respectively, in first quarter 2018 compared with the same period in 2017.  The net gain on investment securities was $85,000 in the first quarter of 2018 compared with $765,000 for the same period in 2018.  The adoption of Accounting Standard Update 2016-01 effective January 1, 2018 requires the Company to record unrealized gains or losses on available for sale securities classified as equity securities through earnings, rather than in other comprehensive income (loss), a component of shareholders’ equity.  At March 31, 2018, these unrealized losses totaled $246,000.  Fees for services to customers and ATM and debit card income increased $29,000, or 7.4% and $13,000, or 3.1%, respectively, to $421,000 and $430,000, respectively.  The increase in fees for services to customers is due primarily to an increase in overdraft income, while the increase in ATM and debit card income is due to increased credit card activity for the first quarter of 2018 compared. to the same period in 2017.

Non-Interest Expense

Total non-interest expense was $6,178,000 for the first quarter of 2018, increasing $590,000, or 10.6% from $5,588,000 for the same period in 2017.  Salaries and benefits expense increased $259,000, or 8.4%, to $3,345,000 when comparing the two quarters.  Salary expense and related payroll taxes increased $149,000, or 5.5%, to $2,851,000 during the first quarter 2018 compared to the same period in 2017.  Medical premiums, retirement plan expense and post-retirement life insurance benefit expense increased $63,000, $21,000, and $24,000, respectively during the same period.   Net occupancy and furniture and equipment expense increased $78,000, or 8.9%, to $958,000 for the first quarter 2018, due to increased equipment, building and software maintenance totaling $70,000 and utilities expense, increasing $7,000, comparing the first quarter of 2018 with the same period in 2017.  Other non-interest expense increased $253,000, or 15.6%, when comparing first quarter 2018 with first quarter 2017, due to increased expenses for marketing of $81,000, third-party services of $28,000, employee training of $26,000, FDIC insurance of $34,000, and ATM/check cards of $75,000.

Provision for income taxes decreased $565,000, or 50.4%, to $557,000 in the first quarter 2018 due to decreased pre-tax income and 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 first quarters of 2018 and 2017 were 16.0% and 28.2%, 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 Investment Professionals, Inc., 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.