QNB CORP
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
QNBC$47.46+1.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0000950170-24-056531
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0000950170-24-093462
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 118 previous paragraphs and 136 current paragraphs.
49 unchanged; 59 reworded; 26 added; 8 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 10 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (26)
Current report
For the six months ended June 30, 2024, the annualized rate of return on average assets and average shareholders' equity was 0.57% and 6.34%, respectively, compared with 0.70% and 7.78%, for the same period in 2023.
Current report
Net interest income increased $1,259,000, or 13.49%, to $10,592,000 and $1,010,000, or 5.11%, to $20,760,000 for the three and six months ended June 30, 2024, respectively.
Current report
Net interest margin on a tax-equivalent basis increased 19 basis points for the quarter and two basis points for the six months ended June 30, 2024, at 2.46% and 2.43% to compared to 2.27% and 2.41% for the same periods in June 30, 2023, respectively.
Current report
Non-interest expense increased $442,000 to $8,934,000 for the quarter and increased $1,075,000 to $17,767,000 for the six months ended June 30, 2024 compared to the same periods in 2023.
Current report
For the six-month period ending June 30, 2024 average earning assets increased $67,048,000, or 4.0%, to $1,743,348,000, with average loans increasing 9.8% and average investment securities decreasing 10.7%. Average total deposits increased $99,141,000, or 7.0%, to $1,520,176,000 for the six-month period ended June 30, 2024 compared to the same period in 2023. The net interest margin on a tax-equivalent basis was 2.43% for the six-month period ended June 30, 2024, a two-basis point increase from the same period in 2023.
Current report
Total interest income on a tax-equivalent basis increased $8,567,000, or 27.1%, to $40,193,000 from $31,626,000, when comparing the six-month periods ended June 30, 2024 and June 30, 2023 due to an increase in volume and rate on loans. Interest income on loans increased $2,431,000 as a result of volume and increased $3,244,000 as a result of yields. The analysis of the six-month comparison periods is similar to what was described in the quarterly analysis.
Current report
The yield on earning assets increased from 3.80% to 4.64% for the six-month periods with the yield on loans up 55 basis points to 5.20%. QNB continues to experience pressure on yields due to competitive pressures on loan pricing.
Current report
Total interest expense increased $7,576,000 for the six-month period ended June 30, 2024 compared with the same period in 2023 attributable to an increase in rates. The average rate paid on interest bearing deposits increased 107 basis points to 2.68% for the six-month period ended June 30, 2024 versus the same period in 2023. The average balance of total short-term borrowings decreased $51,531,000 primarily due to overnight FHLB borrowing. The yield on interest-bearing liabilities increased 95 basis points to 2.70% for the six months ended June 30, 2024. QNB invested proceeds from maturities and sales of investment securities and growth deposits into loans and to payoff short-term borrowing.
Current report
Net charge-offs were $33,000 for the six months ended June 30, 2024 compared to net recoveries of $494,000 for the six months ended June 30, 2023. Charge-offs of approximately $90,000 during the six months ended June 30, 2024 consisted primarily of a commercial loan of $23,000, student loans of $6,000, consumer loans of $8,000 and overdrafts of $53,000. These were offset by $57,000 in recoveries comprising $43,000 in repayments from borrowers of previously charged-off credits, and $14,000 related to overdraft recoveries. Annualized net charge-offs as a percentage of average loans receivable were 0.01% for the six months ended June 30, 2024, compared to annualized net recoveries of 0.10% for the six months ended June 30, 2023.
Current report
There was a net realized loss of $1,096,000 on the sale of investments for the quarter ended June 30, 2024 compared to a net gain of $519,000 on the sales of securities in the same period in 2023. QNB took the strategic opportunity to better position future earnings by selling lower-yielding securities in the second quarter of 2024 at a loss and reinvesting the proceeds in higher-yielding assets.
Current report
During the second quarter of 2024, unrealized gains on investment equity securities of $1,016,000 were recorded compared to unrealized losses of $573,000 in the same period of 2023. The unrealized gains and losses for the three months ended June 30, 2024 and 2023 resulted from the change in the fair value of the equities included in the investment portfolio. The Bank completed the exchange offer to convert its Visa B-1 shares to B-2 and C shares; the Bank recorded a $1,354,000 unrealized gain on the Visa C shares.
Current report
Fees for service to customers increased $13,000 for the quarter ended June 30, 2024, as overdraft fees decreased $5,000 and other deposit-related fees increased $18,000.
Current report
Merchant fees decreased $23,000 for the same period due to volume.
Current report
Six-Month Comparison
Current report
Total non-interest income for the six-month periods ended June 30, 2024 and 2023 was $3,301,000 and $2,799,000, respectively, an increase of $502,000. Excluding realized and unrealized gain and losses on securities, total non-interest income was $3,034,000 and $3,261,000, respectively, a decrease of $227,000, or 7.0%.
Current report
Net investment securities gains decreased $773,000 to a net loss of $719,000 for the six months ended June 30, 2024 compared to a net gain of $54,000 for the comparable six months in 2023. Market conditions in the equities market for the six months ended June 30, 2024 versus the same period in 2023 resulted in greater opportunities for profitable sales in 2024. QNB recorded realized gains of $377,000 compared to gains of $311,000 on equity securities for the six months ended June 30, 2024 and 2023, respectively. Losses on sales of debt securities were $1,096,000 and $257,000 for the six months ended June 30, 024 and 2023, respectively, as QNB sold securities to lower its market risk in a rising rate environment.
Current report
Net gains on sales of loans increased to $13,000 from $1,000, when comparing the six months ended June 30, 2024 to the same period in 2023. Proceeds from the sale of residential mortgages were $801,000 and $388,000 for the six-month period ended June 30, 2024 and 2023, respectively.
Current report
Merchant income decreased $17,000. Other non-interest income decreased $22,000. Mortgage servicing income decreased $8,000 when comparing the two six-month periods primarily due to payoffs on the serviced portfolio. The six months ended June 30, 2023 included broker-dealer conversion fees of $12,000.
Current report
Other non-interest expense decreased $21,000, or 2.4%, due to areduction in write-offs due to fraud on customer accounts of $146,000 as the Bank was able to recover some losses from prior periods, partly offset by an increase in debit card expense of $67,000 and the recording of a potential expense of $85,000 related to the Visa stock exchange make-whole agreement.
Current report
Six-Month Comparison
Current report
Total non-interest expense was $17,767,000 for the six-month period ended June 30, 2024, an increase of $1,075,000, or 6.4%, compared to the six months ended June 30, 2023.
Current report
Salaries and benefits expense increased $674,000 to $10,012,000 for the six months ended June 30, 2024 compared to the same period in 2023. Salary and related payroll tax expense increased $297,000 during the period, to $8,243,000 and medical and dental costs increased $340,000.
Current report
Net occupancy and furniture and equipment expense increased $152,000, or 5.3%, to $2,996,000, due to the reasons described in the quarter to quarter comparison. Marketing expenses increased $32,000 due to advertising and promotions. Third-party services increased $40,000, or 3.2%, to $1,285,000 for the six months ended June 30, 2024. Telephone, postage and supplies expense decreased $51,000 due to the reasons described above in the quarter to quarter comparison.
Current report
FDIC insurance premiums increased $216,000 and state taxes increased $132,000, due to the reasons described in the quarter to quarter comparison.
Current report
Other non-interest expense decreased $120,000 due to the reasons described above in the quarter to quarter comparison.
Current report
Applicable income tax expense was $544,000 for the quarter and $1,207,000 for the six months ended June 30, 2024, compared to $325,000 for the quarter and $1,448,000 for the six months ended June 30, 2023, respectively. The effective tax rate for the second quarter and six-month period ended June 30, 2024 was 18.1% and 19.3%, respectively, compared with 14.7% and 19.4%, respectively, for the same period in 2023. The effective tax rate for the six months ended June 30, 2024 remain relatively flat in comparison to the same period in 2023.
Removed paragraphs (8)
Previous report
Net interest income decreased $249,000, or 2.39%, to $10,168,000 for the three months ended March 31, 2024.
Previous report
Net interest margin on a tax-equivalent basis decreased 16 basis points to 2.39% for the quarter compared to 2.55% for the same period 2023.
Previous report
Non-interest expense increased $633,000 to $8,833,000 for the quarter compared to the same period in 2023.
Previous report
During the first quarter of 2024, unrealized losses on investment equity securities of $30,000 were recorded compared to unrealized gains of $57,000 in the same period of 2023. The unrealized losses and gains for the three months ended March 31, 2024 and 2023 resulted from the change in the fair value of the equities included in the investment portfolio. The equities portfolio comprises blue-chip large-capitalized stocks, providing a year-to-date taxable equivalent dividend yield of 3.71%. The estimated cumulative contribution (realized and unrealized net gains (losses), plus dividends) of the equity portfolio to earnings per share from January 1, 2011 through March 31, 2024 is $2.57 per diluted share. Details of the equity portfolio’s contribution to net income since January 1, 2017 is detailed in the following table.
Previous report
Other non-interest income decreased $15,000 primarily due to a reduction in mortgage services fees of $10,000.
Previous report
Other non-interest expense decreased $99,000, or 10.1%, due to a $161,000 decrease in write-offs primarily due to fraud on customer accounts, partly offset by an increase in debit card expense of $53,000 and business development costs of $24,000.
Previous report
Applicable income tax expense was $663,000 for the quarter ended March 31, 2024, compared to $1,123,000 for the quarter and March 31, 2023. The effective tax rate for the first quarter ended March 31, 2024 was 20.4% compared with 21.4% for the same period in 2023.
Previous report
The decrease in the effective tax rate for the three months ended March 31, 2024 is due to the state income tax at the parent company and a lower proportion of tax-exempt net interest income to income before taxes for 2024 over 2023.
Reworded paragraphs (59)
Previous wording
QNB reported net income for the first quarter of 2024 of $2,594,000, or $0.71 per share on a diluted basis, compared to net income of $4,118,000, or $1.15 per share on a diluted basis, for the same period in 2023. The Bank contributed $2,331,000 to net income for the three months ended March 31, 2024 compared to $4,287,000 for the same period 2023; and the holding company contributed $263,000 to net income for the three months ended March 31, 2024 compared to a negative $169,000 for the same period 2023. The results at the Bank were primarily due to net interest margin compression, a decrease in the amount of reversal in the provision for credit losses on loans and commitments and an increase in non-interest expense. The results at the holding company are due primarily to gains on sales of equity securities included in the investment portfolio.
Current wording
QNB reported net income for the second quarter of 2024 of $2,465,000, or $0.67 per share on a diluted basis, compared to net income of $1,887,000, or $0.52 per share on a diluted basis, for the same period in 2023. For the six-month period ended June 30, 2024, QNB reported net income of $5,059,000, or $1.38 per share on a diluted basis, compared to net income of $6,005,000, or $1.67 per share on a diluted basis, for the same period in 2023. The Bank contributed $5,072,000 to net income for the six months ended June 30, 2024 compared to $6,234,000 for the same period 2023; and the holding company had a negative contribution $13,000 to net income for the six months ended June 30, 2024 compared to a negative $229,000 for the same period 2023. The results at the Bank were primarily due to an increase in the provision for credit losses on loans and unused commitments and an increase in non-interest expense. The results at the holding company are due primarily to less unrealized losses on equity securities included in the investment portfolio.
Previous wording
Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.59% and 6.53%, respectively, for the quarter ended March 31, 2024 compared with 0.97% and 10.81%, respectively, for the quarter ended March 31, 2023.
Current wording
Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.55% and 6.14%, respectively, for the quarter ended June 30, 2024 compared with 0.44% and 4.82%, respectively, for the quarter ended June 30, 2023.
Previous wording
Total assets as of March 31, 2024 were $1,716,081,000, compared with $1,706,318,000 at December 31, 2023. Loans receivable at March 31, 2024 were $1,122,616,000, a $29,083,000 increase from $1,093,533,000 at December 31, 2023. Total deposits of $1,536,188,000 at March 31, 2024 increased $47,475,000 compared with total deposits of $1,488,713,000 at December 31, 2023.
Current wording
Total assets as of June 30, 2024 were $1,761,487,000, compared with $1,706,318,000 at December 31, 2023. Loans receivable at June 30, 2024 were $1,162,310,000, a $68,777,000 increase from $1,093,533,000 at December 31, 2023. Total deposits of $1,572,839,000 at June 30, 2024 increased $84,126,000 compared with total deposits of $1,488,713,000 at December 31, 2023.
Previous wording
Results for the three months ended March 31, 2024 include the following significant components:
Current wording
Results for the three and six months ended June 30, 2024 include the following significant components:
Previous wording
QNB reversed $93,000 in its provision for credit losses on loans for the quarter ended March 31, 2024 compared with a reversal of $1,783,000 for the same period in 2023.
Current wording
QNB recorded $132,000 in its provision for credit losses on loans for the quarter ended June 30, 2024, compared with $212,000 for the same period in 2023. QNB recorded a provision for credit losses on loans of $39,000 for the six months ended June 30, 2024, compared with a reversal of $1,571,000 in its provision for credit losses on loans for the same period in 2023.
Previous wording
Non-interest income increased $617,000, to $1,836,000 for the first quarter compared with the same period in 2023. Excluding realized and unrealized gains (losses) on securities and gains on sales of loans, non-interest income decreased $147,000, or 9.1%, to $1,474,000 for the quarter compared with the same period in 2023.
Current wording
Non-interest income decreased $115,000, to $1,465,000 for the second quarter and increased $502,000, to $3,301,000 for the six months ended June 30, 2024 compared with the same periods in 2023. Excluding realized and unrealized gains (losses) on securities, non-interest income decreased $89,000, or 5.4%, to $1,545,000 for the quarter and decreased $227,000, or 7.0%, to $3,034,000 for the six months ended June 30, 2024, compared with the same periods in 2023.
Previous wording
Total non-performing loans, comprised of loans on non-accrual status, were $2,001,000, or 0.18% of loans receivable at March 31, 2024, compared to $1,940,000, or 0.18% of loans receivable at December 31, 2023. Net loan charge-offs for the three months ended March 31, 2024 were $21,000, compared with recoveries of $532,000 for the same period in 2023.
Current wording
Total non-performing loans, comprised of loans on non-accrual status, were $2,078,000, or 0.18% of loans receivable at June 30, 2024, compared to $1,940,000, or 0.18% of loans receivable at December 31, 2023. Net loan charge-offs for the six months ended June 30, 2024 were $33.000, compared with net recoveries of $494,000 for the same period in 2023.
Previous wording
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable-equivalent basis for the three-month periods ended March 31, 2024 and 2023.
Current wording
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable-equivalent basis for the three- and six month periods ended June 30, 2024 and 2023.
Previous wording
Tax-exempt securities and loans were adjusted to a tax-equivalent basis and are based on the marginal Federal corporate tax rate of 21 percent for three months ended March 31, 2024 and 2023.
Current wording
Tax-exempt securities and loans were adjusted to a tax-equivalent basis and are based on the marginal Federal corporate tax rate of 21 percent for three and six months ended June 30, 2024 and 2023.
Previous wording
Average earning assets for the first quarter of 2024 were $1,734,164,000, an increase of $56,538,000, or 3.4%, from the first quarter of 2023, with average loans increasing $87,510,000, or 8.6%, average other interest earning assets increasing $39,644,000, primarily interest-earnings cash at the Federal Reserve Bank, and average investment securities decreasing $70,616,000, or 10.9%, over the same period in 2023. Cash generated from repayments on the investment portfolio supported loan growth. Average loans as a percent of average earning assets was 63.9% for the first quarter of 2024, compared with 60.9% for the first quarter of 2023. On the funding side, average deposits increased $82,928,000, or 5.9%, to $1,497,692,000 for the first quarter of 2024 primarily due to an increase in time deposits and money market products. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements, short-term Federal Reserve Bank ("FRB") borrowing and over-night FHLB borrowings, decreased $47,477,000 to $87,441,000 during the first quarter of 2024 compared to $134,918,000 for the same period in 2023.
Current wording
Average earning assets for the second quarter of 2024 were $1,752,533,000, an increase of $77,544,000, or 4.6%, from the second quarter of 2023, with average loans increasing $112,874,000, or 11.0%, average other interest earning assets increasing $31,645,000, primarily interest-earnings cash at the Federal Reserve Bank, and average investment securities decreasing $66,975,000, or 10.5%, over the same period in 2023. Cash generated from repayments on the investment portfolio supported loan growth. Average loans as a percent of average earning assets was 65.1% for the second quarter of 2024, compared with 61.3% for the second quarter of 2023. On the funding side, average deposits increased $115,423,000, or 8.1%, to $1,542,661,000 for the second quarter of 2024 primarily due to an increase in time deposits and money market products. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements, short-term Federal Reserve Bank ("FRB") borrowing and over-night FHLB borrowings, decreased $55,734,000 to $52,383,000 during the second quarter of 2024 compared to $108,117,000 for the same period in 2023.
Previous wording
The net interest margin for the first quarter of 2024 decreased 16 basis points to 2.39% from 2.55% for the same period in 2023. Competition for quality loans and deposits in our local market continues to exert pressure on the net interest margin. The increases in interest rates starting in March 2022 have compressed the net interest margin as QNB had been liability sensitive; QNB entered into interest rate hedging derivatives during the second quarter of 2023 moving QNB to be asset sensitive. The swap added 28 basis points to the net interest margin for the first quarter of 2024. The net interest margin is expected to improve as loans and deposits reprice.
Current wording
The net interest margin for the second quarter of 2024 increased 19 basis points to 2.46% from 2.27% for the same period in 2023. Competition for quality loans and deposits in our local market continues to exert pressure on the net interest margin. The increases in interest rates starting in March 2022 have compressed the net interest margin as QNB had been liability sensitive; QNB entered into interest rate hedging derivatives during the second quarter of 2023 moving QNB to be asset sensitive. This along with repricing strategies on loans and deposits and the sale of lower-yielding investments have moved QNB to have a neutral interest-rate sensitivity. The swaps added 27 basis points to the net interest margin for the second quarter of 2024. The net interest margin is expected to improve as loans and deposits reprice.
Previous wording
The Rate-Volume Analysis tables, as presented on a tax-equivalent basis, highlight the impact of changing rates and volumes on interest income and interest expense. Total interest income on a tax-equivalent basis increased $4,097,000, or 26.2%, to $19,710,000 for the first quarter of 2024; total interest expense increased $4,355,000 to $9,401,000.
Current wording
The Rate-Volume Analysis tables, as presented on a tax-equivalent basis, highlight the impact of changing rates and volumes on interest income and interest expense. Total interest income on a tax-equivalent basis increased $4,470,000, or 27.9%, to $20,483,000 for the second quarter of 2024; total interest expense increased $3,221,000 to $9,753,000.
Previous wording
The yield on earning assets on a tax-equivalent basis increased 80 basis points to 4.57% for the first quarter of 2024, from 3.77% for the first quarter of 2023. The cost of interest-bearing liabilities was 2.66% for the first quarter of 2024, compared with 1.53% for the same period in 2023.
Current wording
The yield on earning assets on a tax-equivalent basis increased 87 basis points to 4.70% for the second quarter of 2024, from 3.83% for the second quarter of 2023. The cost of interest-bearing liabilities was 2.73% for the second quarter of 2024, compared with 1.96% for the same period in 2023.
Previous wording
Interest income on investment securities (available-for-sale and equity) increased $1,021,000 when comparing the quarters ended March 31, 2024 and 2023. The average yield on the investment portfolio was 2.62% for the first quarter of 2024 compared with 1.70% for the same period in 2023, an increase of 92 basis points of which the interest rate swaps contributed 85 basis points.
Current wording
Interest income on investment securities (available-for-sale and equity) increased $939,000 when comparing the quarters ended June 30, 2024 and 2023. The average yield on the investment portfolio was 2.72% for the second quarter of 2024 compared with 1.84% for the same period in 2023, an increase of 88 basis points of which the interest rate swaps contributed 84 basis points.
Previous wording
The yield on U.S. Treasury securities was 5.33% for the first quarter of 2024 compared to 1.49% for the same period in 2023. The yield on U.S. Government agency securities increased six basis points offset by a decrease in average balances of $16,992,000, for a net reduction in interest income of $35,000.
Current wording
The yield on U.S. Treasury securities was 5.19% for the second quarter of 2024 compared to 4.81% for the same period in 2023. The yield on U.S. Government agency securities increased six basis points offset by a decrease in average balances of $17,387,000, for a net reduction in interest income of $37,000.
Previous wording
Interest income on municipal securities, which are primarily tax-exempt, increased $303,000 due to a 119 basis-point increase in rate, partly offset by a $2,977,000 decrease in average balances. The rate and interest income increases on municipal securities was positively impacted by the interest rate swap, contributing to 120 basis points of the increase in rate. Typically, QNB purchases municipal bonds with 10- to 20-year maturities and may have call dates between 2-10 years.
Current wording
Interest income on municipal securities, which are primarily tax-exempt, increased $296,000 due to a 113 basis-point increase in rate, partly offset by a $1,464,000 decrease in average balances. The rate and interest income increases on municipal securities was positively impacted by the interest rate swap, contributing 113 basis points of the increase in rate. Typically, QNB purchases municipal bonds with 10- to 20-year maturities and may have call dates between 2-10 years.
Previous wording
Interest income on mortgage-backed securities and CMOs increased $688,000 while average balances decreased $51,154,000 and yield increased 97 basis points. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 99 basis points. This portfolio generally provides higher yields relative to agency bonds and also provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase. Since most of these securities were purchased at a premium, any prepayments result in a shorter amortization period of this premium and therefore a reduction in income.
Current wording
Interest income on mortgage-backed securities and CMOs increased $650,000 while average balances decreased $49,792,000 and yield increased 97 basis points. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 99 basis points. This portfolio generally provides higher yields relative to agency bonds and also provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase. Since most of these securities were purchased at a premium, any prepayments result in a shorter amortization period of this premium and therefore a reduction in income.
Previous wording
The dividend yield on equities increased 32 basis points as average balances decreased $6,077,000. Proceeds from sales of equities were reinvested in higher yielding treasury securities.
Current wording
The dividend yield on equities decreased 110 basis points as average balances decreased $1,854,000. Proceeds from sales of equities were reinvested in higher yielding treasury securities.
Previous wording
Income on loans increased $2,536,000 to $15,286,000 when comparing the first quarters of 2024 and 2023, with an $87,510,000 increase in average balances contributing to an increase in interest income of $988,000 and a 48-basis point increase in yield contributing to a $1,548,000 increase in interest income. Higher interest rates during the repricing period were partially offset by competitive pressures that compressed the yields on new loans.
Current wording
Income on loans increased $3,139,000 to $16,029,000 when comparing the second quarters of 2024 and 2023, with an $112,874,000 increase in average balances contributing to an increase in interest income of $1,325,000 and a 62-basis point increase in yield contributing to a $1,814,000 increase in interest income. Higher interest rates during the repricing period were partially offset by competitive pressures that compressed the yields on new loans.
Previous wording
The largest category of the loan portfolio is commercial real estate loans. This category of loans includes commercial purpose loans secured by either commercial properties such as office buildings, factories, warehouses, hotels and restaurants, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner. The category also includes construction and land development loans. Income on commercial real estate loans increased $2,698,000 when comparing the first quarters of 2024 and 2023, primarily due to an 82-basis point increase in rate from 4.52% in 2023 to 5.34% and increased average balances of $93,520,000, or 13.7%.
Current wording
The largest category of the loan portfolio is commercial real estate loans. This category of loans includes commercial purpose loans secured by either commercial properties such as office buildings, factories, warehouses, hotels and restaurants, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner. The category also includes construction and land development loans. Income on commercial real estate loans increased $2,675,000 when comparing the second quarters of 2024 and 2023, primarily due to a 74-basis point increase in rate from 4.72% in 2023 to 5.46% and increased average balances of $105,468,000, or 15.1%.
Previous wording
Income on commercial and industrial loans decreased $481,000 when comparing the first quarters of 2024 and 2023. The average yield on these loans decreased 72 basis points to 7.50% resulting in a decrease in income of $252,000; average balances decreased $12,463,000, to $140,293,000 for the first quarter of 2024 resulting in a $229,000 decrease in interest income. The first quarter of 2023 included interest recovered on a nonaccrual loan that paid off; without this interest, the rate was 7.42% for the 2023 period. Many of the loans in this category are indexed to the prime interest rate.
Current wording
Income on commercial and industrial loans increased $148,000 when comparing the second quarters of 2024 and 2023. The average yield on these loans increased 46 basis points to 7.60% resulting in an increase in income of $160,000; average balances decreased $264,000, to $142,174,000 for the second quarter of 2024 resulting in a $12,000 decrease in interest income. Many of the loans in this category are indexed to the prime interest rate.
Previous wording
Tax-exempt loan income remained level at $177,000 for the first quarter of 2024 compared to the same period in 2023. Average balances decreased $1,950,000, or 9.5%, to $18,641,000 for the first quarter of 2024. The yield on municipal loans increased 33 basis points, to 3.82% for the first quarter of 2024, compared with the same period in 2023.
Current wording
Tax-exempt loan income increased $4,000 for the second quarter of 2024 compared to the same period in 2023. Average balances decreased $1,458,000, or 7.4%, to $18,284,000 for the second quarter of 2024. The yield on municipal loans increased 37 basis points, to 3.87% for the second quarter of 2024, compared with the same period in 2023.
Previous wording
The average yield on the portfolio increased 37 basis points and contributed an increase of $100,000 to interest income. QNB chose to retain certain mortgage loans instead of selling them in the secondary market, as the yield on our originated mortgages was higher than comparable mortgage-backed securities. Average home equity loans increased during the 2024 period by $5,624,000 to $62,269,000; interest income increased $185,000 as the average yield increased 58 basis points to 6.81%. The yield on the consumer portfolio increased 137 basis points to 8.10% for the first quarter of 2024 and there was a $445,000 decrease in average balances resulting in a net $5,000 increase in interest income. The decrease in student loan balances of $470,000 was partially offset by an increase in consumer installment loans.
Current wording
QNB desires to be the “local consumer lender of choice”, focusing its retail lending efforts on product offerings and marketing and promotion. Interest income on residential mortgage loans secured by first lien 1-4 family increased $122,000 when comparing the second quarter of 2024 to the same period in 2023. Average residential mortgage loan balances increased by $1,291,000, or 1.2%, to $108,693,000 for the second quarter of 2024 compared to the same period in 2023, which contributed a $11,000 increase in interest income. The average yield on the portfolio increased 41 basis points and contributed an increase of $111,000 to interest income. QNB chose to retain certain mortgage loans instead of selling them in the secondary market, as the yield on our originated mortgages was higher than comparable mortgage-backed securities. Average home equity loans increased during the 2024 period by $7,974,000 to $65,575,000; interest income increased $189,000 as the average yield increased 39 basis points to 6.83%. The yield on the consumer portfolio increased 28 basis points to 7.50% for the second quarter of 2024 and there was a $137,000 decrease in average balances resulting in a net $1,000 increase in interest income. The decrease in consumer loans was primarily due to the repayment of student loan balances.
Previous wording
Earning assets are funded by deposits and borrowed funds. Interest expense increased $4,355,000, when comparing the first quarter of 2024 to the same period in 2023. QNB experienced an increase in all deposit categories except non-interest-bearing checking and savings accounts. Average non-interest-bearing demand accounts decreased $39,353,000 to $182,595,000 for the first quarter of 2024. Average savings balances decreased $107,719,000 to $298,353,000. QNB offered several new interest-bearing demand and money market products offering higher yields to retain large depositors and reduce the reliance on higher-cost short-term borrowings. Average interest-bearing demand accounts increased $4,289,000, or 1.4%, to $321,904,000 for the first quarter of 2024 and the average rate paid on these deposits increased 41 basis points; interest expense on interest-bearing demand accounts increased $341,000 to $643,000 for the same period. Average money market accounts increased $97,245,000, or 74.4%, to $227,872,000 for the first quarter of 2024 compared with the same period in 2023. Interest expense on money market accounts increased $1,673,000 to $2,015,000, and the average interest rate paid on money market accounts increased 250 basis points to 3.56% for the first quarter of 2024. Most of the balances in this category are in products that pay tiered rates based on account balances.
Current wording
Earning assets are funded by deposits and borrowed funds. Interest expense increased $3,221,000, when comparing the second quarter of 2024 to the same period in 2023. QNB experienced average balance increases in all deposit categories except non-interest-bearing checking and savings accounts. Average non-interest-bearing demand accounts decreased $24,853,000 to $188,455,000 for the second quarter of 2024. Average savings balances decreased $69,561,000 to $290,172,000. QNB offered several new interest-bearing demand and money market products offering higher yields to retain large depositors and reduce the reliance on higher-cost short-term borrowings. Average interest-bearing demand accounts increased $28,950,000, or 9.5%, to $334,017,000 for the second quarter of 2024 and the average rate paid on these deposits increased 41 basis points; interest expense on interest-bearing demand accounts increased $377,000 to $702,000 for the same period. Average money market accounts increased $54,741,000, or 31.2%, to $229,894,000 for the second quarter of 2024 compared with the same period in 2023. Interest expense on money market accounts increased $1,005,000 to $2,049,000, and the average interest rate paid on money market accounts increased 119 basis points to 3.58% for the second quarter of 2024. Most of the balances in this category are in products that pay tiered rates based on account balances.
Previous wording
Interest expense on municipal interest-bearing demand accounts increased $502,000 to $1,577,000 for the first quarter of 2024. The average interest rate paid on municipal interest-bearing demand accounts increased 92 basis points to 4.81% for the first quarter of 2024 over the same quarter of 2023, and average balances increased $19,933,000, or 17.8%, to $131,887,000. Many of these accounts are indexed to the Federal funds rate with rate floors. Municipal deposits are seasonal in nature and are received during the second and third quarters as tax receipts are collected and are withdrawn over the course of the year.
Current wording
Interest expense on municipal interest-bearing demand accounts increased $336,000 to $1,587,000 for the second quarter of 2024. The average interest rate paid on municipal interest-bearing demand accounts increased 45 basis points to 4.81% for the second quarter of 2024 over the same quarter of 2023, and average balances increased $17,797,000, or 15.5%, to $132,762,000. Many of these accounts are indexed to the Federal funds rate with rate floors. Municipal deposits are seasonal in nature and are received during the second and third quarters as tax receipts are collected and are withdrawn over the course of the year.
Previous wording
Interest expense on savings accounts decreased $128,000 when comparing the first quarter of 2024 to the same quarter of 2023. The average interest rate paid on savings accounts increased 20 basis points to 1.28% for the first quarter of 2024. When comparing these same periods, average savings accounts decreased $107,719,000, or 26.5%, to $298,353,000 for the first quarter of 2024 primarily due to decreases in the e-Savings product. QNB’s online e-Savings product is the largest category of savings deposits, with average balances for the first quarter of 2024 of $217,409,000 compared to $304,409,000 in the same period of 2023. The average yield paid on these accounts was 1.71% for the first quarter of 2024 and 1.35% for the same period in 2023. Traditional statement savings accounts, passbook savings and club accounts are also included in the savings category and average balances in these types of savings accounts decreased $20,719,000 when comparing the first quarter of 2024 to the same period in 2023.
Current wording
Interest expense on savings accounts decreased $169,000 when comparing the second quarter of 2024 to the same quarter of 2023. The average interest rate paid on savings accounts increased six basis points to 1.28% for the second quarter of 2024. When comparing these same periods, average savings accounts decreased $69,561,000, or 19.3%, to $290,172,000 for the second quarter of 2024 primarily due to decreases in the e-Savings product. QNB’s online e-Savings product is the largest category of savings deposits, with average balances for the second quarter of 2024 of $211,598,000 compared to $263,717,000 in the same period of 2023. The average yield paid on these accounts was 1.71% for the second quarter of 2024 and 1.59% for the same period in 2023. Traditional statement savings accounts, passbook savings and club accounts are also included in the savings category and average balances in these types of savings accounts decreased $17,442,000 when comparing the second quarter of 2024 to the same period in 2023.
Previous wording
Interest expense on time deposits totaled $3,372,000 for the first quarter of 2024 compared to $1,232,000 in 2023. Average total time deposits increased $108,533,000 to $335,081,000 for the first quarter of 2024. As with fixed-rate loans and investment securities, these deposits reprice over time and, therefore, have less of an immediate impact on costs in either a rising or falling rate environment; however, the maturity and repricing characteristics of time deposits tend to be shorter. The average rate paid on total time deposits increased 186 basis points from 2.19% to 4.05% when comparing the first quarter of 2024 to the same period in 2023.
Current wording
Interest expense on time deposits totaled $3,958,000 for the second quarter of 2024 compared to $1,851,000 in 2023. Average total time deposits increased $108,349,000 to $367,271,000 for the second quarter of 2024. As with fixed-rate loans and investment securities, these deposits reprice over time and, therefore, have less of an immediate impact on costs in either a rising or falling rate environment; however, the maturity and repricing characteristics of time deposits tend to be shorter. The average rate paid on total time deposits increased 145 basis points from 2.88% to 4.33% when comparing the second quarter of 2024 to the same period in 2023.
Previous wording
Approximately $303,251,000, or 85%, of time deposits at March 31, 2024 will mature over the next 12 months. The average rate paid on these time deposits is approximately 4.49%. The yield on the time deposit portfolio may change in the next quarter as short-term time deposits reprice; however, given the short-term nature of these deposits, interest expense may increase if short-term time deposit rates were to increase suddenly or if customers select higher paying time deposits.
Current wording
Approximately $338,265,000, or 89%, of time deposits at June 30, 2024 will mature over the next 12 months. The average rate paid on these time deposits is approximately 4.53%. The yield on the time deposit portfolio may change in the next quarter as short-term time deposits reprice; however, given the short-term nature of these deposits, interest expense may increase if short-term time deposit rates were to increase suddenly or if customers select higher paying time deposits.
Previous wording
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers, overnight FHLB borrowing and short-term FRB borrowing. Interest expense on short-term borrowings decreased $370,000 for the first quarter of 2024 to $625,000 when compared to the same period in 2023. When comparing these same periods, average balances decreased $47,477,000 to $87,441,000. The yield on customer repos increased 52 basis points for the first quarter of 2024 to 1.58%. There were no FHLB borrowings during 2024. The yield on the short-term FHLB borrowing was 4.84% for the first quarter of 2023 and average balances were $59,742,000. During the first quarter of 2023, QNB borrowed $50,000,000 from the FRB under its Bank Term Funding Program and locked in a rate of 4.39%; there are no pre-payment penalties. The FRB borrowings were paid off during the first quarter of 2024 but carried an average balance of $40,110,000 for the first quarter of 2024 compared to an average balance of $8,889,000 for the same period in 2023. During the second quarter of 2023, QNB borrowed long-term debt of $20,000,000 to lock in borrowing at a lower yield than short-term borrowings.
Current wording
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers, overnight FHLB borrowing and short-term FRB borrowing. Interest expense on short-term borrowings decreased $584,000 for the second quarter of 2024 to $199,000 when compared to the same period in 2023. When comparing these same periods, average balances decreased $55,734,000 to $52,383,000. The yield on customer repos increased 19 basis points for the second quarter of 2024 to 1.52%. There were no FHLB borrowings during 2024. The yield on the short-term FHLB borrowing was 5.19% for the second quarter of 2023 and average balances were $4,466,000. During the first quarter of 2023, QNB borrowed $50,000,000 from the FRB under its Bank Term Funding Program and locked in a rate of 4.39%; there are no pre-payment penalties. The FRB borrowings were paid off during the first quarter of 2024; there was an average balance of $50,000,000 for the second quarter of 2023 compared to no average balance in the second quarter of 2024. During the second quarter of 2024, QNB borrowed an additional $10,000,000 in long-term debt to lock in borrowing at a lower yield than short-term borrowings. Average long-term borrowings increased $11,319,000 and the interest rate increased 35 basis points when comparing the second quarter of 2024 to the same period in 2023.
Previous wording
Based on this analysis, QNB reversed $93,000 in the provision for credit losses for the three months ended March 31, 2024, through the allowance for credit losses on loans, compared to a reversal of $1,783,000 through the provision for credit losses for the same period in 2023. QNB recorded a provision of $7,000 for the allowance for credit losses for unused commitments in the three months ended March 31, 2024 compared to a reversal of $22,000 for the same period in 2023.
Current wording
Based on this analysis, QNB recorded $39,000 in the provision for credit losses for the six months ended June 30, 2024, through the allowance for credit losses on loans, compared to a reversal of $1,571,000 through the provision for credit losses for the same period in 2023. QNB recorded a reversal of provision of $11,000 for the allowance for credit losses for unused commitments in the six months ended June 30, 2024 compared to a reversal of $25,000 for the same period in 2023.
Previous wording
QNB's allowance for credit losses on loans of $8,738,000 represents 0.78% of loans receivable at March 31, 2024 compared with an allowance for credit losses on loans of $8,852,000 or 0.81% of loans receivable, at December 31, 2023, and $8,191,000, or 0.81%, at March 31, 2023. Management believes the allowance for credit losses on loans at March 31, 2024 is adequate as of that date based on its analysis of historical loss experience, current conditions and reasonable and supportable forecasts in the portfolio.
Current wording
QNB's allowance for credit losses on loans of $8,858,000 represents 0.76% of loans receivable at June 30, 2024 compared with an allowance for credit losses on loans of $8,852,000 or 0.81% of loans receivable, at December 31, 2023, and $8,365,000, or 0.81%, at June 30, 2023. Management believes the allowance for credit losses on loans at June 30, 2024 is adequate as of that date based on its analysis of historical loss experience, current conditions and reasonable and supportable forecasts in the portfolio.
Previous wording
Net charge-offs were $21,000 for the three months ended March 31, 2024 compared to net recoveries of $532,000 for the three months ended March 31, 2023. Charge-offs consisted of overdrafts of $33,000 and student and other consumer loans of $14,000. Recoveries of approximately $26,000 during the three months ended March 31, 2024 consisted of $18,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $8,000. Annualized net charge-offs as a percentage of average loans receivable were 0.01% for the three months ended March 31, 2024, compared to annualized net recoveries of 0.21% for the three months ended March 31, 2023.
Current wording
Net charge-offs were $12,000 for the three months ended June 30, 2024 compared to net charge-offs of $38,000 for the three months ended June 30, 2023. Charge-offs consisted of overdrafts of $20,000 and a commercial and industrial loans of $23,000. Recoveries of approximately $31,000 during the three months ended June 30, 2024 consisted of $25,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $6,000. Annualized net charge-offs as a percentage of average loans receivable were 0.00% for the three months ended June 30, 2024, compared to annualized net charge-offs of 0.01% for the three months ended June 30, 2023.
Previous wording
Non-performing assets were $2,001,000 at March 31, 2024 compared to $1,940,000 as of December 31, 2023 and $4,561,000 at March 31, 2023. 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 0.18% of loans receivable at March 31, 2024, 0.18% at December 31, 2023, and 0.45% of loans receivable at March 31, 2023. In cases where there is a collateral shortfall on non-accrual 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, 2024, $1,192,000, or approximately 60%, of the loans classified as non-accrual are current or past due less than 30 days. Commercial loans classified as substandard or doubtful totaled $11,852,000, an increase of $242,000 from the $11,610,000 reported at December 31, 2023 and a decrease of $1,727,000, or 12.7%, from the $13,579,000 reported at March 31, 2023. The increase in classified loans since December 31, 2023 was due to two relationships downgraded, partially offset by repayments; and the decrease since March 31, 2023 is primarily due to repayments and pay-offs on existing substandard loans.
Current wording
Non-performing assets were $2,078,000 at June 30, 2024 compared to $1,940,000 as of December 31, 2023 and $4,794,000 at June 30, 2023. 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 0.18% of loans receivable at June 30, 2024, 0.18% at December 31, 2023, and 0.47% of loans receivable at June 30, 2023. In cases where there is a collateral shortfall on non-accrual 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, 2024, $1,188,000, or approximately 57% of the loans classified as non-accrual are current or past due less than 30 days. Commercial loans classified as substandard or doubtful totaled $32,710,000, an increase of $21,100,000 from the $11,610,000 reported at December 31, 2023 and an increase of $17,904,000 from the $14,806,000 reported at June 30, 2023. The increase in classified loans since December 31, 2023 and June 30, 2023 was due to two commercial relationships downgraded to "Special Mention."
Previous wording
QNB had no loans past due 90 days or more and still accruing interest at March 31, 2024, December 31, 2023, or March 31, 2023. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.37% of loans receivable at March 31, 2024 compared with 1.15% at December 31, 2023, and 0.60% at March 31, 2023. The December 31, 2023 past-dues included one large relationship past maturity and in the process of refinancing.
Current wording
QNB had no loans past due 90 days or more and still accruing interest at June 30, 2024, December 31, 2023, or June 30, 2023. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.44% of loans receivable at June 30, 2024 compared with 1.09% at December 31, 2023, and 0.94% at June 30, 2023. The December 31, 2023 past-dues included one large relationship past maturity and in the process of refinancing.
Previous wording
There were no troubled debt modifications identified during the three months ended March 31, 2024 or 2023. QNB had no other real estate owned or repossessed assets at March 31, 2024, December 31, 2023 or March 31, 2023.
Current wording
There were no modifications to borrowers experiencing financial difficulty identified during the six months ended June 30, 2024 or 2023. QNB had no other real estate owned or repossessed assets at June 30, 2024, December 31, 2023 or June 30, 2023.
Previous wording
An analysis of net loan charge-offs (recoveries) for the three months ended March 31, 2024 compared to 2023 is as follows:
Current wording
An analysis of net loan charge-offs (recoveries) for the three and six months ended June 30, 2024 compared to 2023 is as follows:
Previous wording
At March 31, 2024 and December 31, 2023, the recorded investment in loans for which impairment has been identified totaled $1,990,000 and $1,923,000 of which $1,688,000 and $1,451,000, respectively, required no specific allowance for loan loss. The recorded investment in impaired loans requiring an allowance for loan losses was $302,000 and $472,000 at March 31, 2024 and December 31, 2023, respectively, and the related allowance for loan losses associated with these loans was $137,000 and $308,000, respectively. Most of the loans that have been identified as impaired are collateral-dependent. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of impaired loans.
Current wording
At June 30, 2024 and December 31, 2023, the recorded investment in loans for which impairment has been identified totaled $2,067,000 and $1,923,000 of which $1,899,000 and $1,451,000, respectively, required no specific allowance for loan loss. The recorded investment in impaired loans requiring an allowance for loan losses was $168,000 and $472,000 at June 30, 2024 and December 31, 2023, respectively, and the related allowance for loan losses associated with these loans was $125,000 and $308,000, respectively. Most of the loans that have been identified as impaired are collateral-dependent. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of impaired loans.
Previous wording
Total non-interest income for the first quarter of 2024 was $1,836,000, an increase of $617,000, compared to $1,219,000 for the first quarter of 2023. Excluding realized and unrealized gains (losses) on securities and loans, non-interest income decreased $147,000, or 9.1%, to $1,474,000 for the quarter ended March 31, 2024 compared with the same period in 2023.
Current wording
Total non-interest income for the second quarter of 2024 was $1,465,000, a decrease of $115,000, compared to $1,580,000 for the second quarter of 2023. Excluding realized and unrealized gains (losses) on securities and loans, non-interest income decreased $89,000, or 5.4%, to $1,545,000 for the quarter ended June 30, 2024 compared with the same period in 2023.
Previous wording
QNB originates residential mortgage loans for sale in the secondary market. Net gains on sale of loans was $15,000 for first quarter of 2024; compared to $6,000 in the first quarter of 2023. The net gain on residential mortgage sales is directly related to the volume of mortgages sold and the timing of the sales relative to the interest rate environment. Residential mortgage loans to be sold are identified at origination.
Current wording
QNB originates residential mortgage loans for sale in the secondary market. Net loss on sale of loans was $2,000 for second quarter of 2024; compared to a net loss of $5,000 in the second quarter of 2023. The net gain on residential mortgage sales is directly related to the volume of mortgages sold and the timing of the sales relative to the interest rate environment and includes any lower-of-cost-market on the loans held-for-sale. Residential mortgage loans to be sold are identified at origination.
Previous wording
QNB provides securities and advisory services under the name QNB Financial Services. Retail brokerage and advisory fees decreased for the first quarter of 2024 compared to the same period in 2023. Advisory fees decreased $98,000 for the first quarter of 2024 compared with the same period in 2023 and transactional fees decreased $43,000 due to a decrease in client balances following employee turnover.
Current wording
QNB provides securities and advisory services under the name QNB Financial Services. Retail brokerage and advisory fees decreased for the second quarter of 2024 compared to the same period in 2023. Advisory fees decreased $112,000 for the second quarter of 2024 compared with the same period in 2023 and transactional fees increased $36,000; a net decrease of $76,000 due to a decrease in client balances following employee turnover.
Showing the first 40 of 59 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Net Interest Income and Net Interest Margin – Six-Month Comparison
Current report — wording carried from elsewhere
Retail brokerage and advisory fees decreased $217,000, or 49.8%, to $219,000 for the six months ended June 30, 2024 compared to the same period in 2023; advisory fees decreased $276,000 and transaction-based fees increased $59,000 due to a decrease in client balances following employee turnover.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
QNB desires to be the “local consumer lender of choice”, focusing its retail lending efforts on product offerings and marketing and promotion. Interest income on residential mortgage loans secured by first lien 1-4 family increased $129,000 when comparing the first quarter of 2024 to the same period in 2023. Average residential mortgage loan balances increased by $3,224,000, or 3.1%, to $108,922,000 for the first quarter of 2024 compared to the same period in 2023, which contributed a $29,000 increase in interest income.
Previous report — wording carried elsewhere
Tier 1 leverage ratio is 4.0%. A capital conservation buffer of 2.5% of risk-weighted assets also applies to avoid limitations on certain capital distributions.