QNB CORP

Previous 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.

Current wording

QNB reported net income for the third quarter of 2024 of $3,338,000, or $0.91 per share on a diluted basis, compared to net income of $2,344,000, or $0.65 per share on a diluted basis, for the same period in 2023. For the nine-month period ended September 30, 2024, QNB reported net income of $8,397,000, or $2.29 per share on a diluted basis, compared to net income of $8,349,000, or $2.32 per share on a diluted basis, for the same period in 2023. The Bank contributed $8,466,000 to net income for the nine months ended September 30, 2024 compared to $8,568,000 for the same period 2023; and the holding company had a negative contribution of $69,000 to net income for the nine months ended September 30, 2024 compared to a negative $219,000 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, partly offset by an increase in net interest income. 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 0.55% 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.

Current wording

Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.72% and 8.13%, respectively, for the quarter ended September 30, 2024 compared with 0.52% and 5.88%, respectively, for the quarter ended September 30, 2023. For the nine months ended September 30, 2024, the annualized rate of return on average assets and average shareholders' equity was 0.62% and 6.95%, respectively, compared with 0.64% and 7.13%, for the same period in 2023.

Previous 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.

Current wording

Total assets as of September 30, 2024 were $1,841,563,000, compared with $1,706,318,000 at December 31, 2023. Loans receivable at September 30, 2024 were $1,171,361,000, a $77,828,000 increase from $1,093,533,000 at December 31, 2023. Total deposits of $1,626,284,000 at September 30, 2024 increased $137,571,000 compared with total deposits of $1,488,713,000 at December 31, 2023.

Previous wording

Results for the three and six months ended June 30, 2024 include the following significant components:

Current wording

Results for the three and nine months ended September 30, 2024 include the following significant components:

Previous wording

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 wording

Net interest margin on a tax-equivalent basis increased ten basis points for the quarter and five basis points for the nine months ended September 30, 2024, at 2.48% and 2.45% to compared to 2.38% and 2.40% for the same periods in September 30, 2023, respectively.

Previous 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.

Current wording

QNB recorded $154,000 in its provision for credit losses on loans for the quarter ended September 30, 2024, compared with $452,000 for the same period in 2023. QNB recorded a provision for credit losses on loans of $193,000 for the nine months ended September 30, 2024, compared with a reversal of $1,119,000 in its provision for credit losses on loans for the same period in 2023.

Previous 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.

Current wording

Non-interest income increased $212,000, to $1,967,000 for the third quarter and increased $714,000, to $5,268,000 for the nine months ended September 30, 2024 compared with the same periods in 2023. Excluding realized and unrealized gains (losses) on securities, non-interest income decreased $162,000, or 9.2%, to $1,600,000 for the quarter and decreased $389,000, or 7.7%, to $4,634,000 for the nine months September 30, 2024, compared with the same periods in 2023.

Previous 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.

Current wording

Total non-performing loans, comprised of loans on non-accrual status, were $1,696,000, or 0.14% of loans receivable at September 30, 2024, compared to $1,940,000, or 0.18% of loans receivable at December 31, 2023. Net loan charge-offs for the nine months ended September 30, 2024 were $58,000, compared with net recoveries of $219,000 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- and six month periods ended June 30, 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 nine-month periods ended September 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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023.

Previous 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.

Current wording

Average earning assets for the third quarter of 2024 were $1,807,091,000, an increase of $80,335,000, or 4.7%, from the third quarter of 2023, with average loans increasing $119,075,000, or 11.5%, average other interest earning assets increasing $33,360,000, primarily interest-earning cash at the Federal Reserve Bank, and average investment securities decreasing $72,100,000, or 11.5%, over the same period in 2023. Cash generated from repayments and sales on the investment portfolio supported loan growth. Average loans as a percent of average earning assets was 64.1% for the third quarter of 2024, compared with 60.2% for the third quarter of 2023. On the funding side, average deposits increased $112,293,000, or 7.5%, to $1,600,925,000 for the third 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 $61,490,000 to $34,078,000 during the third quarter of 2024 compared to $95,568,000 for the same period in 2023. During the third quarter of 2024, the QNB Corp. issued $40,000,000 of subordinated debt; the carrying value net of deferred costs was $39,030,000 at September 30, 2024. Proceeds from deposit growth and the issuance of subordinated debt were were used to support loan growth.

Previous 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.

Current wording

The net interest margin for the third quarter of 2024 increased ten basis points to 2.48% from 2.38% 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. Repricing strategies on loans and deposits and the sale of lower-yielding investments have had a positive impact on the net interest margin. Two interest rate swaps entered into in 2023 added five basis points to the increase in net interest margin for the third 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 $4,470,000, or 27.9%, to $20,483,000 for the second quarter of 2024; total interest expense increased $3,221,000 to $9,753,000.

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 $3,441,000, or 18.5%, to $22,082,000 for the third quarter of 2024; total interest expense increased $2,534,000 to $10,818,000.

Previous 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.

Current wording

The yield on earning assets on a tax-equivalent basis increased 58 basis points to 4.86% for the third quarter of 2024, from 4.28% for the third quarter of 2023. The cost of interest-bearing liabilities was 2.90% for the third quarter of 2024, compared with 2.35% for the same period in 2023.

Previous 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.

Current wording

Interest income on investment securities (available-for-sale and equity) increased $94,000 when comparing the quarters ended September 30, 2024 and 2023. The average yield on the investment portfolio was 2.90% for the third quarter of 2024 compared with 2.50% for the same period in 2023, an increase of 40 basis points of which the interest rate swaps contributed 30 basis points.

Previous 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.

Current wording

The yield on U.S. Treasury securities was 4.94% for the third quarter of 2024 compared to 5.17% for the same period in 2023. The yield on U.S. Government agency securities increased seven basis points offset by a decrease in average balances of $25,991,000, for a net reduction in interest income of $59,000.

Previous 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.

Current wording

Interest income on municipal securities, which are primarily tax-exempt, increased $88,000 due to a 44 basis-point increase in rate, partly offset by a $3,483,000 decrease in average balances. The rate and interest income increases on municipal securities was positively impacted by the interest rate swap, contributing 45 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 $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.

Current wording

Interest income on mortgage-backed securities and CMOs decreased $47,000 and average balances decreased $49,488,000 while the yield increased 31 basis points. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 32 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 decreased 110 basis points as average balances decreased $1,854,000. Proceeds from sales of equities were reinvested in higher yielding treasury securities.

Current wording

The dividend yield on equities decreased nine basis points as average balances decreased $994,000. Proceeds from sales of equities were reinvested in higher yielding treasury securities.

Previous 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.

Current wording

Income on loans increased $2,902,000 to $16,773,000 when comparing the third quarters of 2024 and 2023, with an $119,075,000 increase in average balances contributing to an increase in interest income of $1,583,000 and a 47-basis point increase in yield contributing to a $1,319,000 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 $2,675,000 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%.

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 $2,237,000 when comparing the third quarters of 2024 and 2023, primarily due to a 50-basis point increase in rate from 5.10% in 2023 to 5.60% and increased average balances of $96,258,000, or 13.3%.

Previous 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.

Current wording

Income on commercial and industrial loans increased $353,000 when comparing the third quarters of 2024 and 2023. The average yield on these loans increased 38 basis points to 7.61% resulting in an increase in income of $134,000; average balances increased $12,379,000, to $140,980,000 for the third quarter of 2024 resulting in a $219,000 increase in interest income. Many of the loans in this category are indexed to the prime interest rate.

Previous 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.

Current wording

Tax-exempt loan income increased $1,000 for the third quarter of 2024 compared to the same period in 2023. Average balances decreased $1,325,000, or 6.7%, to $18,305,000 for the third quarter of 2024. The yield on municipal loans increased 29 basis points, to 3.88% for the third quarter of 2024, compared with the same period in 2023.

Previous 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.

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 $143,000 when comparing the third quarter of 2024 to the same period in 2023. Average residential mortgage loan balances increased by $3,428,000, or 3.2%, to $110,760,000 for the third quarter of 2024 compared to the same period in 2023, which contributed a $33,000 increase in interest income. The average yield on the portfolio increased 40 basis points and contributed an increase of $110,000 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 $8,545,000 to $66,239,000 and the average yield increased 19 basis points to 6.84% resulting in a $171,000 increase in interest income. The yield on the consumer portfolio increased 22 basis points to 7.75% for the third quarter of 2024 and there was a $210,000 decrease in average balances resulting in a net $3,000 decrease 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 $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.

Current wording

Earning assets are funded by deposits and borrowed funds. Interest expense increased $2,534,000, when comparing the third quarter of 2024 to the same period in 2023. QNB experienced average balance increases in all deposit categories except non-interest-bearing checking, municipal deposits and savings accounts. Average non-interest-bearing demand accounts decreased $12,750,000 to $192,652,000 for the third quarter of 2024. Average savings balances decreased $47,320,000 to $278,247,000. 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 $37,428,000, or 11.7%, to $356,763,000 for the third quarter of 2024 and the average rate paid on these deposits increased 26 basis points; interest expense on interest-bearing demand accounts increased $298,000 to $898,000 for the same period. Average money market accounts increased $37,217,000, or 18.5%, to $238,494,000 for the third quarter of 2024 compared with the same period in 2023. Interest expense on money market accounts increased $605,000 to $2,132,000, and the average interest rate paid on money market accounts increased 55 basis points to 3.56% for the third 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 $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.

Current wording

Interest expense on municipal interest-bearing demand accounts decreased $14,000 to $1,823,000 for the third quarter of 2024. The average interest rate paid on municipal interest-bearing demand accounts increased six basis points to 4.69% for the third quarter of 2024 over the same quarter of 2023, and average balances decreased $2,772,000 to $154,619,000. 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 $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.

Current wording

Interest expense on savings accounts decreased $142,000 when comparing the third quarter of 2024 to the same quarter of 2023. The average interest rate paid on savings accounts increased one basis point to 1.28% for the third quarter of 2024. When comparing these same periods, average savings accounts decreased $47,320,000, or 14.5%, to $278,247,000 for the third 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 third quarter of 2024 of $202,810,000 compared to $236,589,000 in the same period of 2023. The average yield paid on these accounts was 1.72% for the third quarter of 2024 and 1.68% 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 $13,541,000 when comparing the third quarter of 2024 to the same period in 2023.

Previous 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.

Current wording

Interest expense on time deposits totaled $4,196,000 for the third quarter of 2024 compared to $2,320,000 in 2023. Average total time deposits increased $100,490,000 to $380,150,000 for the third 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 110 basis points from 3.29% to 4.39% when comparing the third quarter of 2024 to the same period in 2023.

Previous 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.

Current wording

Approximately $342,787,000, or 90%, of time deposits at September 30, 2024 will mature over the next 12 months. The average rate paid on these time deposits is approximately 4.50%. 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 $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.

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 $554,000 for the third quarter of 2024 to $186,000 when compared to the same period in 2023. When comparing these same periods, average balances decreased $61,490,000 to $34,078,000. The yield on customer repos increased 54 basis points for the third quarter of 2024 to 2.18%. There were no FHLB borrowings during 2024. 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 third quarter of 2023 compared to no average balance in the third 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 $10,000,000 and the interest rate increased 39 basis points when comparing the third quarter of 2024 to the same period in 2023.

Previous wording

Net Interest Income and Net Interest Margin – Six-Month Comparison

Current wording

Net Interest Income and Net Interest Margin – Nine-Month Comparison

Previous wording

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 wording

For the nine-month period ending September 30, 2024 average earning assets increased $71,447,000, or 4.2%, to $1,764,751,000, with average loans increasing 10.3% and average investment securities decreasing 11.0%. Average total deposits increased $103,474,000, or 7.2%, to $1,547,290,000 for the nine-month period ended September 30, 2024 compared to the same period in 2023. The net interest margin on a tax-equivalent basis was 2.45% for the nine-month period ended September 30, 2024, a five-basis point increase from the same period in 2023.

Previous wording

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 wording

Total interest income on a tax-equivalent basis increased $12,008,000, or 23.9%, to $62,275,000 from $50,267,000, when comparing the nine-month periods ended September 30, 2024 and September 30, 2023 due to an increase in volume and rate on loans. Interest income on loans increased $3,931,000 as a result of volume and increased $4,646,000 as a result of yields. Interest income on investments increased $2,882,000 due to rate, partly offset by a decrease of $828,000 due to volume. The analysis of the nine-month comparison periods is similar to what was described in the quarterly analysis.

Previous wording

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 wording

The yield on earning assets increased from 3.97% to 4.71% for the nine-month periods with the yield on loans up 52 basis points to 5.65%. QNB continues to experience pressure on yields due to competitive pressures on loan pricing.

Previous wording

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 wording

Total interest expense increased $10,110,000 for the nine-month period ended September 30, 2024 compared with the same period in 2023 attributable to an increase in rates. The average rate paid on interest bearing deposits increased 88 basis points to 2.72% for the nine-month period ended September 30, 2024 versus the same period in 2023. The average balance of total short-term borrowings decreased $54,844,000 primarily due to short-term FRB and overnight FHLB borrowings. The yield on interest-bearing liabilities increased 81 basis points to 2.77% for the nine months ended September 30, 2024. QNB invested proceeds from maturities and sales of investment securities and growth in deposits into loans and to payoff short-term borrowing.

Previous 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.

Current wording

Based on this analysis, QNB recorded $193,000 in the provision for credit losses on loans for the nine months ended September 30, 2024, through the allowance for credit losses on loans, compared to a reversal of $1,119,000 through the provision for credit losses for the same period in 2023. QNB recorded a reversal of provision of $6,000 for the allowance for credit losses for unused commitments in the nine months ended September 30, 2024 compared to a reversal of $18,000 for the same period in 2023.

Previous 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.

Current wording

QNB's allowance for credit losses on loans of $8,987,000 represents 0.77% of loans receivable at September 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 $8,542,000, or 0.81%, at September 30, 2023. Management believes the allowance for credit losses on loans at September 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 $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.

Current wording

Net charge-offs were $25,000 for the three months ended September 30, 2024 compared to net charge-offs of $275,000 for the three months ended September 30, 2023. Charge-offs consisted of overdrafts of $22,000, student loans of $17,000 and other consumer loans of $14,000. Recoveries of approximately $28,000 during the three months ended September 30, 2024 consisted of $20,000 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 September 30, 2024, compared to annualized net charge-offs of 0.10% for the three months ended September 30, 2023.

Previous wording

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 wording

Net charge-offs were $58,000 for the nine months ended September 30, 2024 compared to net recoveries of $219,000 for the nine months ended September 30, 2023. Charge-offs of approximately $143,000 during the nine months ended September 30, 2024 consisted primarily of a commercial loan of $23,000, student loans of $23,000, consumer loans of $22,000 and overdrafts of $75,000. These were offset by $85,000 in recoveries comprising $63,000 in repayments from borrowers of previously charged-off credits, and $22,000 related to overdraft recoveries. Annualized net charge-offs as a percentage of average loans receivable were 0.01% for the nine months ended September 30, 2024, compared to annualized net recoveries of 0.03% for the nine months ended September 30, 2023.

Previous 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."

Current wording

Non-performing assets were $1,696,000 at September 30, 2024 compared to $1,940,000 as of December 31, 2023 and $1,893,000 at September 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 0.14% of loans receivable at September 30, 2024, 0.18% at December 31, 2023, and 0.18% of loans receivable at September 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 September 30, 2024, $1,021,000, 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 $26,833,000, an increase of $15,223,000 from the $11,610,000 reported at December 31, 2023 and an increase of $14,919,000 from the $11,914,000 reported at September 30, 2023. The increase in classified loans since December 31, 2023 and September 30, 2023 was due to two commercial relationships downgraded.