QNB Corp. Reports Earnings For Second Quarter 2020
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 | 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 | - | ||||||||||||||
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 | - | - | - | - | - | ||||||||||
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 | 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 | 1.19 | % | 1.26 | % | 1.20 | % | 1.14 | % | 1.12 | % | |||||
f | ||||||||||||||||||||||
Consolidated Selected Financial Data (unaudited) | ||||||||||||||||||||||
(Dollars in thousands, | 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 | 8,984 | 8,663 | 8,790 | 8,632 | 8,961 | 17,647 | 17,572 | |||||||||||||||
Non-interest income: | ||||||||||||||||||||||
Fees for services to | 242 | 411 | 444 | 432 | 422 | 653 | 815 | |||||||||||||||
ATM and debit card | 516 | 488 | 548 | 533 | 519 | 1,004 | 989 | |||||||||||||||
Retail brokerage and advisory | 169 | 113 | 141 | 145 | 133 | 282 | 274 | |||||||||||||||
Net realized gain (loss) on | 169 | - | 192 | 973 | 584 | 169 | 590 | |||||||||||||||
Unrealized gain (loss) on | 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 | 2,817 | (1,571) | 2,210 | 2,144 | 1,654 | 1,246 | 3,963 | |||||||||||||||
Non-interest expense: | ||||||||||||||||||||||
Salaries and employee | 3,985 | 4,072 | 4,452 | 4,063 | 3,790 | 8,057 | 7,571 | |||||||||||||||
Net occupancy and furniture | 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 | 6,869 | 7,278 | 7,632 | 6,955 | 6,793 | 14,147 | 13,517 | |||||||||||||||
Income before income | 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 - 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 - 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 average assets | 9.34 | % | 9.96 | % | 9.75 | % | 9.63 | % | 9.61 | % | 9.64 | % | 9.58 | % | ||||||||
Net loan charge-offs | $ | 120 | $ | 53 | $ | (18) | $ | 220 | $ | 1 | $ | 173 | $ | 45 | ||||||||
Net loan charge-offs | 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 & | 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.
