QNB Corp. Reports Earnings for Fourth Quarter 2022

QUAKERTOWN, Pa., Jan. 24, 2023 (GLOBE NEWSWIRE) -- QNB Corp. (the Company or QNB) (OTC Bulletin Board: QNBC), the parent company of QNB Bank (the Bank), reported net income for the fourth quarter of 2022 of $5,447,000, or $1.52 per share on a diluted basis. This compares to net income of $4,149,000, or $1.17 per share on a diluted basis, for the same period in 2021. For the twelve months ended December 31, 2022, QNB reported net income of $15,921,000, or $4.47 per share on a diluted basis. This compares to net income of $16,492,000 or $4.64 per share on a diluted basis, reported for the same period in 2021.

For the quarter ended December 31, 2022, the annualized rate of return on average assets and average shareholders equity was 1.24% and 14.38%, respectively, compared with 0.98% and 11.82%, respectively, for the fourth quarter 2021.

The operating performance of the Bank, a wholly-owned subsidiary of QNB Corp., improved for the quarter ended December 31, 2022, in comparison with the same period in 2021 due to growth in net interest income and the reversal of $850,000 in provision loan losses. The change in contribution from QNB Corp. for the quarter ended December 31, 2022, compared with the same period in 2021, 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,																			Twelve months ended,
			12/31/2022						12/31/2021								Variance						12/31/2022						12/31/2021								Variance
QNB Bank	$	4,408,000					$	3,537,000							$	871,000					$	16,445,000					$	14,607,000							$	1,838,000
QNB Corp		1,039,000						612,000								427,000						(524,000			)			1,885,000								(2,409,000			)
Consolidated net income	$	5,447,000					$	4,149,000							$	1,298,000					$	15,921,000					$	16,492,000							$	(571,000			)

Total assets as of December 31, 2022 were $1,668,497,000 compared with $1,673,340,000 at December 31, 2021. Total available-for-sale debt securities decreased $145,835,000, or 21.1%, to $546,525,000, due primarily to the reduction in fair value of the portfolio, in response to the rise in interest rates during the period. The Bank participated in both rounds of the Small Business Administrations Paycheck Protection Program (PPP). Loans receivable, excluding PPP, grew $124,470,000 to approximately $1,037,095,000 since December 31, 2021. Total deposits decreased $31,376,000 to $1,418,369,000. Short-term borrowing grew $92,851,000 to support loan growth.

2022 ended well with continued solid performance results and growth at the Bank. Our earnings were the direct result of our core banking operations and were not supported by gains on the sale of investments, as in 2021, stated David W. Freeman, President, and Chief Executive Officer, continuing, the quarter also showed improvement in net interest income and improved margins. Plus, loan outstandings, fueled by commercial growth, exceeded one billion for the first time in the banks history.

Net Interest Income and Net Interest Margin

Net interest income for the quarter and twelve months ended December 31, 2022 totaled $11,279,000 and $44,497,000, respectively, an increase of $471,000 and $2,370,000, respectively, from the same periods in 2021. Net interest margin was 2.68% for the fourth quarter of 2022 and for the same period in 2021. Net interest margin was 2.71% for the twelve months ended December 31, 2022 compared with 2.79% for the same period in 2021.

The yield on earning assets was 3.49% for the fourth quarter 2022 compared with 2.95% in the fourth quarter of 2021. For the twelve-month period ended December 31, 2022, the yield on earning assets was 3.18%, compared with 3.09% for the same period in 2021. The cost of interest-bearing liabilities was 1.03% for the quarter and 0.60% for the twelve months ended December 31, 2022 compared with 0.35% and 0.39% for the same periods in 2021.

Proceeds from average deposit growth, PPP loan forgiveness and short-term borrowings over the past year were invested in loans. Loan growth was primarily in commercial real estate, which comprised 38% of average earning assets in the twelve months of 2022 compared with 36% for the same period in 2021 and was the major contributor to the 11 basis-point increase in the yield on loans. Growth in the available-for-sale portfolio was primarily in mortgage-backed securities, which comprised 27% of average earnings assets in the twelve months of 2022 compared with 23% for the same period in 2021. This increase in marketable securities as a percent of earnings assets also contributed to the increase in net interest margin.

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

QNB reversed $850,000 in provision for loan losses in the fourth quarter of 2022 compared to no provision in the fourth of quarter 2021. QNB received over $1,000,000 in payments on a non-performing loan during the fourth quarter of 2022. QNB's allowance for loan losses of $10,531,000 represents 1.01% of loans receivable at December 31, 2022, compared to $11,184,000, or 1.21% of loans receivable at December 31, 2021, and $10,826,000, or 1.18% of loans receivable at December 31, 2020. Excluding the PPP loans, which are expected to be fully forgiven within the next several months and are 100% guaranteed by the SBA, the allowance represents 1.02% of loans receivable. Net loan recoveries were $43,000 and $197,000 for the quarter and twelve months ended December 31, 2022, respectively, compared with charge-offs of $30,000 and $100,000 for the same periods in 2021, respectively. Annualized net loan recoveries for the quarter and twelve months ended December 31, 2022 were both 0.02% of average loans receivable.

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 $9,121,000, or 0.88% of loans receivable at December 31, 2022, compared with $11,672,000, or 1.26% of loans receivable at December 31, 2021, and $14,109,000, or 1.53% of loans receivable at December 31, 2020. 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 December 31, 2022, $3,435,000, or approximately 71% 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 $13,684,000 at December 31, 2022, compared with $18,531,000 reported at December 31, 2021, and $22,193,000 at December 31, 2020.

Non-Interest Income

Total non-interest income was $2,997,000 for the fourth quarter of 2022 compared with $2,528,000 for the same period in 2021. There was a net realized loss of $227,000 on the sale of investments for the quarter ended December 31, 2022 compared with a gain of $766,000 for the same period in 2021. Unrealized gain on the investment equity securities was $1,602,000 for the quarter ended December 31, 2022 compared to a gain of $87,000 for the same period in 2021. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.32%.

Fees for services to customers increased $36,000 to $404,000 for the fourth quarter 2022 compared with the same period in 2021, due primarily to increased overdraft occurrences. ATM and debit card income increased $11,000 to $704,000 for the same period, due to card usage when comparing the two periods. Retail brokerage and advisory income decreased $24,000 to $184,000 attributable to decreased advisory income.

Net gain on sales of loans decreased $58,000 when comparing the fourth quarter of 2022 with the same period in 2021, as there was a decrease in mortgage originations when comparing the periods. Other non-interest income decreased $18,000 when comparing the two periods due primarily to reduced merchant fee income of $14,000.

For the twelve months ended December 31, 2022, non-interest income was $5,731,000, a decrease of $4,050,000 compared to the same period in 2021, primarily due to a negative change in fair value of the equity portfolio of $1,952,000. Realized gains on sales of securities was $266,000, a decline of $993,000 for the twelve months ended December 31, 2022 compared with the same period in 2021. Net gain on sale of loans decreased $589,000 when comparing the twelve months ended December 31, 2022 with the same period in 2021, as there was a decrease in mortgage originations. Increases in non-interest income for the twelve months ended December 31, 2022 compared to the same period in 2021 comprise: fees for services to customers, ATM and debit card fees, and retail brokerage and advisory income, which increased $288,000, $37,000, and $2,000, respectively. Other non-interest income decreased $296,000 due primarily to a life insurance benefit of $193,000 realized during the first quarter of 2021 compared to $46,000 realized in the third quarter of 2022, and a $57,000 decrease in merchant income.

Non-Interest Expense

Total non-interest expense was $8,119,000 for the fourth quarter of 2022 compared with $8,135,000 for the same period in 2021. Salaries and benefits expense decreased $76,000, or 1.7%, to $4,464,000 when comparing the two quarters. Salary expense and related payroll taxes increased $158,000, to $3,870,000 during the fourth quarter 2022 compared to the same period in 2021 with increases in salaries of $268,000 partly offset by decreases om incentive bonus and related taxes of $150,000. Benefits expense decreased $234,000, when comparing the two periods.

Net occupancy and furniture and equipment expense decreased $14,000, to $1,259,000 for the fourth quarter 2022 due to security expense and equipment maintenance partially offset by increased software maintenance.

Other non-interest expense decreased $18,000, or 5.2%, when comparing fourth quarter 2022 with the same period in 2021 due to decreased FDIC insurance and marketing expense, partly offset by increased in third-party services.

For the twelve months ended December 31, 2022, non-interest expense was $31,492,000, an increase of $495,000, or 1.6%, compared to the same period in 2021.

Provision for income taxes increased $508,000 to $1,560,000 in the fourth quarter 2022 due to increased pre-tax income and a higher effective tax rate, compared with the same period in 2021. The effective tax rates for the quarter and twelve months ended December 31, 2022 were 22.3% and 18.7%, respectively, compared with 20.2% and 19.4%, respectively, for the same periods in 2021.

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 Companys financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Companys 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, 2021. 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)	12/31/22			9/30/22						6/30/22					3/31/22				12/31/21
Assets	$	1,668,497		$	1,645,068			$	1,646,695				$	1,647,986			$	1,673,340
Cash and cash equivalents		15,899			17,218				17,094					13,260				13,390
Investment securities
Debt securities, AFS		546,525			555,710				609,567					656,846				692,360
Equity securities		12,056			10,444				11,617					12,652				12,410
Loans held-for-sale		-			-				-					-				-
Loans receivable		1,039,385			1,008,306				963,414					926,369				926,470
Allowance for loan losses		(10,531	)		(11,338	)			(11,297			)		(11,231		)		(11,184		)
Net loans		1,028,854			996,968				952,117					915,138				915,286
Deposits		1,418,369			1,476,668				1,467,728					1,451,753				1,449,745
Demand, non-interest bearing		231,849			236,167				240,281					242,024				243,006
Interest-bearing demand, money market and savings		1,011,071			1,065,472				1,065,638					1,046,074				1,038,366
Time		175,449			175,029				161,809					163,655				168,373
Short-term borrowings		161,327			92,896				77,836					76,738				68,476
Long-term debt		10,000			10,000				10,000					10,000				10,000
Shareholders' equity		70,958			58,124				83,738					102,498				136,494
Asset Quality Data (Period End)
Non-accrual loans	$	4,820		$	6,337			$	7,085				$	7,272			$	7,530
Loans past due 90 days or more and still accruing		-			-				-					-				-
Restructured loans		4,301			4,357				4,309					4,375				4,142
Non-performing loans		9,121			10,694				11,394					11,647				11,672
Other real estate owned and repossessed assets		-			-				-					-				-
Non-performing assets	$	9,121		$	10,694			$	11,394				$	11,647			$	11,672
Allowance for loan losses	$	10,531		$	11,338			$	11,297				$	11,231			$	11,184
Non-performing loans / Loans excluding held-for-sale		0.88	%		1.06	%			1.18			%		1.26		%		1.26		%
Non-performing assets / Assets		0.55	%		0.65	%			0.69			%		0.71		%		0.70		%
Allowance for loan losses / Loans excluding held-for-sale		1.01	%		1.12	%			1.17			%		1.21		%		1.21		%

QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)	Three months ended,																Twelve months ended
For the period:	12/31/22			9/30/22			6/30/22			3/31/22			12/31/21				12/31/22			12/31/21
Interest income	$	14,739		$	13,546		$	12,327		$	11,809		$	11,938			$	52,421		$	46,770
Interest expense		3,460			2,167			1,224			1,073			1,130				7,924			4,643
Net interest income		11,279			11,379			11,103			10,736			10,808				44,497			42,127
Provision for loan losses		(850	)		-			-			-			-				(850	)		458
Net interest income after provision for loan losses		12,129			11,379			11,103			10,736			10,808				45,347			41,669
Non-interest income:
Fees for services to customers		404			423			403			384			368				1,614			1,326
ATM and debit card		704			669			705			641			693				2,719			2,682
Retail brokerage and advisory income		184			194			205			205			208				788			786
Net realized gain on investment securities		(227	)		-			457			36			766				266			1,806
Unrealized gain (loss) on equity securities		1,602			(1,174	)		(1,446	)		(8	)		87				(1,026	)		926
Net gain on sale of loans		-			6			-			-			58				6			595
Other		330			366			315			353			348				1,364			1,660
Total non-interest income		2,997			484			639			1,611			2,528				5,731			9,781
Non-interest expense:
Salaries and employee benefits		4,464			4,371			4,205			4,266			4,540				17,306			17,453
Net occupancy and furniture and equipment		1,259			1,314			1,274			1,265			1,273				5,112			5,015
Other		2,396			2,129			2,267			2,282			2,322				9,074			8,529
Total non-interest expense		8,119			7,814			7,746			7,813			8,135				31,492			30,997
Income before income taxes		7,007			4,049			3,996			4,534			5,201				19,586			20,453
Provision for income taxes		1,560			634			647			824			1,052				3,665			3,961
Net income	$	5,447		$	3,415		$	3,349		$	3,710		$	4,149			$	15,921		$	16,492
Share and Per Share Data:
Net income - basic	$	1.52		$	0.96		$	0.94		$	1.04		$	1.17			$	4.47		$	4.64
Net income - diluted	$	1.52		$	0.96		$	0.94		$	1.04		$	1.17			$	4.47		$	4.64
Book value	$	19.84		$	16.25		$	23.47		$	28.81		$	38.41			$	19.84		$	38.41
Cash dividends	$	0.36		$	0.36		$	0.36		$	0.36		$	0.35			$	1.44		$	1.40
Average common shares outstanding - basic		3,577,587			3,567,987			3,559,185			3,552,854			3,549,584				3,564,481			3,553,949
Average common shares outstanding - diluted		3,577,587			3,567,987			3,559,185			3,554,456			3,550,542				3,564,481			3,554,138
QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)	Three months ended,																Twelve months ended
For the period:	12/31/22			9/30/22			6/30/22			3/31/22			12/31/21				12/31/22			12/31/21
Selected Ratios:
Return on average assets		1.24	%		0.78	%		0.79	%		0.90	%		0.98	%			0.93	%		1.04	%
Return on average shareholders' equity		14.38	%		9.20	%		9.28	%		10.60	%		11.82	%			10.90	%		12.19	%
Net interest margin (tax equivalent)		2.68	%		2.72	%		2.73	%		2.71	%		2.68	%			2.71	%		2.79	%
Efficiency ratio (tax equivalent)		56.20	%		64.88	%		64.98	%		62.35	%		59.29	%			61.82	%		58.69	%
Average shareholders' equity to total average assets		8.65	%		8.53	%		8.51	%		8.43	%		8.53	%			8.54	%		8.53	%
Net loan charge-offs (recoveries)	$	(43	)	$	(41	)	$	(66	)	$	(47	)	$	30			$	(197	)	$	100
Net loan charge-offs (recoveries) - annualized / Average loans excluding held-for-sale		-0.02	%		-0.02	%		-0.03	%		-0.02	%		0.01	%			-0.02	%		0.01	%
Balance Sheet (Average)
Assets	$	1,737,679		$	1,727,132		$	1,700,600		$	1,675,385		$	1,672,267			$	1,710,449		$	1,585,627
Investment securities (AFS & Equities)		673,117			691,010			710,856			710,109			690,792				696,158			565,924
Loans receivable		1,020,102			984,968			944,773			918,602			918,631				967,438			928,017
Deposits		1,462,654			1,475,668			1,458,921			1,444,049			1,440,611				1,460,416			1,359,100
Shareholders' equity		150,281			147,296			144,688			141,986			139,227				146,088			135,324

QNB Corp. (Consolidated)
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)
	Three Months Ended
	December 31, 2022								December 31, 2021
	Average			Average					Average			Average
	Balance			Rate		Interest			Balance			Rate		Interest
Assets
Investment securities:
U.S. Treasury	$	298		1.50	%	$	1		$	-		0.00	%	$	-
U.S. Government agencies		101,941		1.11			283			97,975		1.07			262
State and municipal		124,514		2.35			731			127,969		2.39			766
Mortgage-backed and CMOs		428,186		1.62			1,737			444,048		1.33			1,472
Corporate debt securities		6,647		4.38			73			6,710		4.33			72
Equities		11,531		3.50			102			14,090		3.14			111
Total investment securities		673,117		1.74			2,927			690,792		1.55			2,683
Loans:
Commercial real estate		678,061		4.43			7,578			585,184		4.06			5,988
Residential real estate		106,045		3.47			920			98,233		3.35			823
Home equity loans		58,860		5.63			835			56,232		3.27			462
Commercial and industrial		152,183		6.14			2,357			154,080		4.90			1,903
Consumer loans		4,298		6.65			72			4,873		5.11			63
Tax-exempt loans		20,655		3.44			179			22,093		3.29			183
Total loans, net of unearned income*		1,020,102		4.64			11,941			920,695		4.06			9,422
Other earning assets		4,360		3.93			43			18,740		0.39			18
Total earning assets		1,697,579		3.49			14,911			1,630,227		2.95			12,123
Cash and due from banks		12,854								14,364
Allowance for loan losses		(11,351	)							(11,220	)
Other assets		38,597								38,896
Total assets	$	1,737,679							$	1,672,267
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	351,283		0.46			412		$	329,406		0.19			154
Municipals		127,252		2.91			933			140,378		0.32			113
Money market		132,282		0.65			216			138,309		0.32			110
Savings		433,930		0.79			863			413,047		0.30			309
Time < $100		91,196		0.88			201			94,801		0.83			198
Time $100 through $250		60,200		1.38			209			51,425		0.74			96
Time > $250		25,103		1.05			66			24,673		0.77			48
Total interest-bearing deposits		1,221,246		0.94			2,900			1,192,039		0.34			1,028
Short-term borrowings		106,295		1.94			520			72,820		0.34			62
Long-term debt		10,000		1.57			40			10,000		1.57			40
Total interest-bearing liabilities		1,337,541		1.03			3,460			1,274,859		0.35			1,130
Non-interest-bearing deposits		241,408								248,572
Other liabilities		8,449								9,609
Shareholders' equity		150,281								139,227
Total liabilities and
shareholders' equity	$	1,737,679							$	1,672,267
Net interest rate spread				2.46	%							2.60	%
Margin/net interest income				2.68	%	$	11,451					2.68	%	$	10,993
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)
	Year Ended
	December 31, 2022								December 31, 2021
	Average			Average					Average			Average
	Balance			Rate		Interest			Balance			Rate		Interest
Assets
Investment securities:
U.S. Treasury	$	524		1.18	%	$	6		$	-		0.00	%	$	-
U.S. Government agencies		101,455		1.10			1,119			80,340		1.05			842
State and municipal		128,126		2.39			3,056			112,011		2.47			2,765
Mortgage-backed and CMOs		447,369		1.58			7,059			351,801		1.29			4,540
Corporate debt securities		6,673		4.37			291			7,291		4.01			292
Equities		12,011		3.32			399			14,481		3.02			437
Total investment securities		696,158		1.71			11,930			565,924		1.57			8,876
Loans:
Commercial real estate		637,023		4.20			26,759			556,822		4.15			23,098
Residential real estate		104,397		3.34			3,484			95,241		3.41			3,244
Home equity loans		56,155		4.38			2,459			57,311		3.29			1,886
Commercial and industrial		145,579		5.10			7,432			193,491		4.75			9,189
Consumer loans		4,512		5.63			254			5,097		4.98			254
Tax-exempt loans		19,778		3.42			676			24,026		3.47			835
Total loans, net of unearned income*		967,444		4.24			41,064			931,988		4.13			38,506
Other earning assets		5,782		2.42			140			36,715		0.26			94
Total earning assets		1,669,384		3.18			53,134			1,534,627		3.09			47,476
Cash and due from banks		13,803								23,408
Allowance for loan losses		(11,287	)							(11,157	)
Other assets		38,549								38,749
Total assets	$	1,710,449							$	1,585,627
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	345,054		0.27			933		$	307,258		0.20			624
Municipals		122,824		1.43			1,758			127,828		0.32			411
Money market		137,830		0.45			617			122,361		0.31			381
Savings		443,104		0.49			2,175			386,630		0.30			1,178
Time < $100		91,216		0.79			723			98,986		0.93			921
Time $100 through $250		52,314		0.93			489			52,693		0.86			454
Time > $250		25,296		0.83			209			26,833		0.96			257
Total interest-bearing deposits		1,217,638		0.57			6,904			1,122,589		0.38			4,226
Short-term borrowings		106,295		1.00			861			72,820		0.36			258
Long-term debt		10,000		1.57			159			10,000		1.57			159
Total interest-bearing liabilities		1,333,933		0.60			7,924			1,205,409		0.39			4,643
Non-interest-bearing deposits		242,778								236,511
Other liabilities		8,069								9,545
Shareholders' equity		146,088								135,324
Total liabilities and
shareholders' equity	$	1,730,868							$	1,586,789
Net interest rate spread				2.58	%							2.70	%
Margin/net interest income				2.71	%	$	45,210					2.79	%	$	42,833
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

CONTACT: Contacts: David W. Freeman President & Chief Executive Officer 215-538-5600 x-5619 dfreeman@qnbbank.com Jeffrey Lehocky Chief Financial Officer 215-538-5600 x-5716 jlehocky@qnbbank.com