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QNB Corp. Reports Increased Earnings For Third Quarter 2017

QUAKERTOWN, Pa., Oct. 24, 2017 /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 2017 of $2,554,000, or $0.74 per share on a diluted basis. This compares to net income of $2,292,000, or $0.67 per share on a diluted basis, for the same period in 2016. For the nine months ended September 30, 2017, QNB reported net income of $7,800,000, or $2.27 per share on a diluted basis. This compares to net income of $6,655,000, or $1.96 per share on a diluted basis, reported for the same period in 2016.

For the quarter ended September 30, 2017, the annualized rate of return on average assets and average shareholders' equity was 0.89% and 9.90%, respectively, compared with 0.86% and 9.57%, respectively, for the third quarter 2016. For the nine months ended September 30, 2017, the annualized rate of return on average assets and average shareholders' equity was 0.94% and 10.37%, respectively, compared with 0.87% and 9.48%, respectively, for the same period in 2016.

"QNB is pleased to report our seventh consecutive quarter of year-over-year increases in net income and earnings per share," said David W. Freeman, President and Chief Executive Officer. "Household growth continues at a strong pace and QNB Financial Services, our wealth management and retail brokerage business expanded assets under management to $121 million at September 30, 2017, an increase of approximately $21 million from December 31, 2016."

Net Interest Income and Net Interest Margin

Net interest income for the quarter and nine months ended September 30, 2017 totaled $8,215,000 and $23,353,000, respectively, an increase of $1,130,000 and $2,253,000, respectively, from the same periods in 2016. The net interest margin for the third quarter of 2017 was 3.15% compared with 2.93% for the third quarter of 2016. Net interest margin for the nine months ended September 30, 2017 was 3.15%, an increase of ten basis points compared to the same period in 2016. The yield on average earning assets increased 29 basis points to 3.69% for the third quarter of 2017, compared with the third quarter of 2016. For the nine months ended September 30, 2017, the yield on average earning assets was 3.67%, compared with 3.52% for the same period in 2016. The cost of interest-bearing liabilities increased to 0.66% and 0.62% for the quarter and nine months ended September 30, 2017, respectively, compared with 0.57% and 0.58% for the same periods in 2016.

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

QNB recorded a $100,000 provision for loan losses in the third quarter of 2017; no provision was required for the third quarter 2016. For the nine months ended September 30, 2017 and 2016, QNB recorded $700,000 and $125,000, respectively, in provision for loan losses. QNB's allowance for loan losses of $8,125,000 represents 1.15% of loans receivable at September 30, 2017 compared to $7,394,000, or 1.17% of loans receivable at December 31, 2016, and $7,593,000, or 1.25% of loans receivable at September 30, 2016. Net loan recoveries were $31,000 for the first nine months of 2017, or -0.01% annualized of total average loans, compared with net charge-offs of $86,000, or 0.02% annualized of total average loans for the same period in 2016.

Non-performing assets were $10,437,000 as of September 30, 2017 compared with $14,219,000 as of December 31, 2016, and $11,811,000 as of September 30, 2016. For periods prior to June 30, 2017, this category comprised non-performing loans and trust preferred securities. In June 2017, QNB Bank sold five non-performing pooled trust preferred securities, with a $2,234,000 carrying value. The remaining pooled trust preferred security, which had a carrying balance of $212,000 at September 30, 2017, was returned to accruing status in June 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 $10,437,000, or 1.48% of loans receivable at September 30, 2017, compared with $11,938,000, or 1.89% of loans receivable at December 31, 2016, and $9,536,000, or 1.57% of loans receivable at September 30, 2016. 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, 2017, $7,507,000, or approximately 82% of the loans classified as non-accrual are current or past due less than 30 days. Commercial loans classified as substandard or doubtful, which include non-performing loans, also improved. At September 30, 2017 substandard or doubtful loans totaled $18,064,000, a reduction of $4,140,000, or 18.6%, from the $22,204,000 reported at December 31, 2016 and a decrease of $4,101,000, or 18.5%, from the $22,165,000 reported at September 30, 2016.

Non-Interest Income

Total non-interest income was $1,470,000 for the third quarter of 2017, a decrease of $174,000, or 10.6%, compared with the same period in 2016. Non-interest income for the nine months ended September 30, 2017 was $5,075,000, an increase of $481,000, or 10.5%, compared to the same period in 2016. Gain on sale of investment securities decreased $218,000, and gain on sale of loans decreased $78,000, due to decreased mortgage activity for the third quarter 2017, compared with the same period in 2016. These were offset in part by the following increases in non-interest income; retail brokerage and advisory income, which increased $39,000 to $168,000, attributable to the growth in assets under management; other non-interest income, which increased $24,000, or 9.6%, due primarily to increased letter of credit income; ATM and debit card income, up $16,000, or 3.9%, to $435,000; and a net loss on trading securities of $39,000 during 2016. QNB redeemed the trading portfolio during the second quarter of 2017.

Non-Interest Expense

Total non-interest expense was $6,191,000 for the third quarter of 2017, increasing $575,000, or 10.2%, from $5,616,000 for the same period in 2016. For the nine months ended September 30, 2017, non-interest expense increased $993,000, or 5.9%, from the same period in 2016. Salaries and benefits expense increased $442,000, or 14.4%, to $3,514,000 when comparing the two quarters. Salary expense and related payroll taxes increased $366,000 to $2,979,000, or 14.0%, during the third quarter of 2017 compared to the same period in 2016, attributable to a $171,000 increase in employee salaries and $139,000 increase in bonus accrual. Benefits expense increased $76,000, or 16.6%, due primarily to increased medical insurance claims and retirement plan expense, offset in part by decreased post-retirement life insurance benefit cost, when comparing the two periods. Net occupancy and furniture and equipment expense increased $69,000, or 7.9%, to $944,000 for the third quarter 2017, due primarily to increased maintenance expense. Other non-interest expense increased $64,000, or 3.8%, when comparing the third quarter of 2017 with the third quarter of 2016, with increased check card and third- party processing, telephone and collection expense offset in part by decreases in professional services and marketing expenses.

Provision for income taxes increased $119,000, or 14.5%, to $940,000 in the third quarter 2017 due to a higher effective tax rate and increased pre-tax income. The effective tax rate for the third quarters of 2017 and 2016 was 26.9% and 26.4%, respectively. The increase in the effective rate for 2017 reflects a lower proportion of tax-free income for the third quarter of 2017 compared to the same period in 2016.

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, 2016. 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)

9/30/17


6/30/17


3/31/17


12/31/16


9/30/16


Assets

$

1,150,363


$

1,120,523


$

1,089,007


$

1,063,141


$

1,071,931


Cash and cash equivalents


26,028



15,248



20,542



10,721



69,428


Investment securities
















Trading


-



-



2,358



3,596



4,312


Available-for-sale


396,413



382,564



382,296



390,475



368,834


Held-to-maturity


-



-



-



-



147


Loans held-for-sale


115



530



903



789



456


Loans receivable


704,214



695,213



659,039



633,079



608,231


Allowance for loan losses


(8,125)



(8,035)



(7,719)



(7,394)



(7,593)


Net loans


696,089



687,178



651,320



625,684



600,638


Deposits


1,005,445



951,314



942,891



913,355



926,712


Demand, non-interest bearing


122,696



120,369



121,778



119,010



105,029


Interest-bearing demand, money market and savings


652,310



609,096



594,646



568,763



593,307


Time


230,439



221,849



226,467



225,582



228,376


Short-term borrowings


40,176



66,907



45,265



52,660



41,179


Shareholders' equity


100,512



98,750



96,043



93,567



97,996


















Asset Quality Data (Period End)
















Non-accrual loans

$

9,078


$

9,453


$

9,598


$

10,119


$

8,237


Loans past due 90 days or more and still accruing


5



-



-



-



150


Restructured loans


1,354



1,393



1,425



1,819



1,149


Non-performing loans


10,437



10,846



11,023



11,938



9,536


Non-accrual pooled trust preferred securities


-



-



2,423



2,281



2,275


Non-performing assets

$

10,437


$

10,846


$

13,446


$

14,219


$

11,811


















Allowance for loan losses

$

8,125


$

8,035


$

7,719


$

7,394


$

7,593


















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


1.48

%


1.56

%


1.67

%


1.89

%


1.57

%

Non-performing assets / Assets


0.91

%


0.97

%


1.23

%


1.34

%


1.10

%

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


1.15

%


1.16

%


1.17

%


1.17

%


1.25

%

QNB Corp.


Consolidated Selected Financial Data (unaudited)






























(Dollars in thousands, except per share
data)


Three months ended,



Nine months ended,


For the period:


9/30/17



6/30/17



3/31/17



12/31/16



9/30/16



9/30/17


9/30/16






























Interest income


$

9,830



$

9,192



$

9,136



$

8,486



$

8,287



$

28,158


$

24,751


Interest expense



1,515




1,334




1,256




1,207




1,202




4,105



3,526


Net interest income



8,315




7,858




7,880




7,279




7,085




24,053



21,225


Provision for (credit to) loan losses



100




300




300




(95)




-




700



125


Net interest income after provision
for loan losses



8,215




7,558




7,580




7,374




7,085




23,353



21,100


Non-interest income:




























Fees for services to customers



429




421




392




416




425




1,242



1,205


ATM and debit card



435




449




417




422




419




1,301



1,229


Retail brokerage and advisory income



168




104




103




178




129




375



425


Net gain on investment securities
available-for-sale



98




115




749




24




316




962



650


Net gain (loss) from trading activity



-




10




17




(87)




(39)




27



47


Net gain (loss) on sale of loans



65




201




50




(166)




143




316



263


Other



275




315




262




286




251




852



775


Total non-interest income



1,470




1,615




1,990




1,073




1,644




5,075



4,594


Non-interest expense:




























Salaries and employee benefits



3,514




3,237




3,086




2,897




3,072




9,837



9,114


Net occupancy and furniture and equipment



944




881




880




896




875




2,705



2,607


Other



1,733




1,824




1,622




1,642




1,669




5,179



5,007


Total non-interest expense



6,191




5,942




5,588




5,435




5,616




17,721



16,728


Income before income taxes



3,494




3,231




3,982




3,012




3,113




10,707



8,966


Provision for income taxes



940




845




1,122




743




821




2,907



2,311


Net income


$

2,554



$

2,386



$

2,860



$

2,269



$

2,292



$

7,800


$

6,655






























Share and Per Share Data:




























Net income - basic


$

0.74



$

0.70



$

0.84



$

0.67



$

0.68



$

2.28


$

1.97


Net income - diluted


$

0.74



$

0.69



$

0.83



$

0.66



$

0.67



$

2.27


$

1.96


Book value


$

29.22



$

28.76



$

28.04



$

27.43



$

28.82



$

29.22


$

28.82


Cash dividends


$

0.31



$

0.31



$

0.31



$

0.30



$

0.30



$

0.93


$

0.90


Average common shares outstanding - basic



3,433,811




3,425,356




3,415,065




3,402,479




3,391,471




3,424,813



3,381,491


Average common shares outstanding - diluted



3,452,582




3,443,208




3,429,230




3,416,117




3,404,039




3,441,206



3,390,729






























Selected Ratios:




























Return on average assets



0.89

%



0.87

%



1.08

%



0.85

%



0.86

%



0.94

%


0.87

%

Return on average shareholders' equity



9.90

%



9.52

%



11.76

%



9.34

%



9.57

%



10.37

%


9.48

%

Net interest margin (tax equivalent)



3.15

%



3.10

%



3.22

%



2.97

%



2.93

%



3.15

%


3.05

%

Efficiency ratio (tax equivalent)



60.78

%



60.24

%



54.48

%



62.17

%



61.49

%



58.47

%


61.79

%

Average shareholders' equity to total average assets



9.01

%



9.12

%



9.17

%



9.10

%



9.04

%



9.10

%


9.18

%

Net loan charge-offs (recoveries)


$

10



$

(16)



$

(25)



$

104



$

(43)



$

(31)


$

86


Net loan charge-offs (recoveries) -
annualized /

Average loans excluding held-for-sale



0.01

%



-0.01

%



-0.02

%



0.07

%



-0.03

%



-0.01

%


0.02

%





























Balance Sheet (Average)




























Assets


$

1,136,306



$

1,101,944



$

1,075,904



$

1,061,980



$

1,054,001



$

1,104,841


$

1,020,863


Investment securities (Trading, AFS & HTM)



390,438




389,490




392,681




386,374




351,102




390,862



350,223


Loans receivable



694,848




668,761




643,690




615,853




602,645




669,287



601,410


Deposits



986,012




952,192




912,354




919,623




916,366




950,456



883,448


Shareholders' equity



102,385




100,541




98,629




96,660




95,255




100,532



93,737


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SOURCE QNB Corp.