QNB CORP.

Previous wording

Net income for the year ended December 31, 2023 was $9,483,000, or $2.63 per share on a diluted basis. This compares to 2022 net income of $15,921,000, or $4.47 per share on a diluted basis and 2021 net income of $16,492,000, or $4.64 per share on a diluted basis. Two important measures of profitability in the banking industry are an institution’s return on average assets and return on average shareholders’ equity. Return on average assets was 0.54%, 0.93% and 1.04% in 2023, 2022, and 2021, respectively, and return on average shareholders’ equity was 6.04%, 10.90% and 12.19%, respectively, during those same periods.

Current wording

Net income for the year ended December 31, 2024 was $11,448,000, or $3.12 per share on a diluted basis. This compares to 2023 net income of $9,483,000, or $2.63 per share on a diluted basis and 2022 net income of $15,921,000, or $4.47 per share on a diluted basis. Two important measures of profitability in the banking industry are an institution’s return on average assets and return on average shareholders’ equity. Return on average assets was 0.62%, 0.54% and 0.93% in 2024, 2023, and 2022, respectively, and return on average shareholders’ equity was 7.05%, 6.04% and 10.90%, respectively, during those same periods.

Previous wording

The Bank contributed $9,395,000 to net income for the year ended December 31, 2023 compared to $16,445,000 for the same period in 2022; whereas the holding company contributed $88,000 to consolidated net income for the year ended December 31, 2023 compared

Current wording

The Bank contributed $12,237,000 to net income for the year ended December 31, 2024 compared to $9,395,000 for the same period in 2023; whereas the holding company contributed a net loss of $789,000 to consolidated net income for the year ended December 31, 2024 compared to net income of $88,000 for the same period in 2023. The increase at the Bank was primarily due to improvement in net interest margin and gains on sales of investments securities. The decrease at the holding company resulted primarily from an increase in interest expense related to the issuance of subordinated debt in 2024.

Previous wording

The net interest margin on a tax-equivalent basis decreased eight basis points to 2.71% for 2022 from 2.79% for 2021.

Current wording

The net interest margin on a tax-equivalent basis increased four basis points to 2.43% for 2024 from 2.39% for 2023.

Previous wording

Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest, and restructured loans, were $9,121,000, or 0.88% of total loans receivable at December 31, 2022, compared with $11,672,000, or 1.26% of total loans receivable at December 31, 2021. Loans on non-accrual status were $4,820,000 at December 31, 2022 compared with $7,530,000 at December 31, 2021. Net recoveries for 2022 were $197,000, or 0.02% of average total loans, as compared with net charge-offs of $100,000, or 0.01% of average total loans for 2021.

Current wording

Total non-performing loans, which represent loans on non-accrual status and loans past due 90 days or more and still accruing interest, were $1,975,000, or 0.16% of total loans receivable at December 31, 2024, compared with $1,940,000, or 0.18% of total loans receivable at December 31, 2023. Loans on non-accrual status were $1,975,000 at December 31, 2024 compared with $1,940,000 at December 31, 2023. Net charge-offs for 2024 were $59,000, or 0.01% of average total loans, as compared with net recoveries for 2023 of $238,000, or 0.02% of average total loans for 2023.

Previous wording

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 $1,940,000, or 0.18% of total loans receivable at December 31, 2023, compared with $9,121,000, or 0.88% of total loans receivable at December 31, 2022. Loans on non-accrual status were $1,940,000 at December 31, 2023 compared with $4,820,000 at December 31, 2022. Net recoveries for 2023 were $138,000, or 0.02% of average total loans, as compared with net recoveries for 2022 were $197,000, or 0.02% of average total loans for 2022.

Current wording

Total non-performing loans, which represent loans on non-accrual status and loans past due 90 days or more and still accruing interest, were $1,940,000, or 0.18% of total loans receivable at December 31, 2023, compared with $9,121,000, or 0.88% of total loans receivable at December 31, 2022. Loans on non-accrual status were $1,940,000 at December 31, 2023 compared with $4,820,000 at December 31, 2022. Net recoveries for 2023 were $238,000, or 0.02% of average total loans, as compared with net recoveries for 2022 of $197,000, or 0.02% of average total loans for 2022.

Previous wording

On a tax-equivalent basis, net interest income for 2022 increased $2,377,000, or 5.5%, to $45,210,000. The net interest margin, which decreased eight basis points to 2.71% was unfavorably impacted by increased rates on deposits and short-term borrowings. The average rate earned on earning assets increased nine basis points from 3.09% for 2021 to 3.18% for 2022 with the yield on investments increasing 14 basis points and the yield on loans increasing 11 basis points. The yield on investment securities was favorably impacted by increased yields on all categories except state and municipal securities, causing an increase in interest income of $1,296,000; additionally, the yield was favorably impacted by an increase in average volume of $130,234,000 contributing to a $1,758,000 increase in interest income. The yield on loans was favorably impacted by increased rates in all loan categories except tax-exempt loans, contributing to a net $1,410,000 increase in interest income. This was also favorably impacted by a $35,456,000 net increase in average volume, of which $80,201,000 was related to an increase in average commercial real estate loans, contributing $3,327,000 in interest income; partially offset by a decrease of $47,912,000 in commercial and industrial loans average balances, resulting in a decrease of $2,275,000 in interest income. The yield on total average interest-bearing liabilities increased 21 basis points from 0.39% for 2021 to 0.60% for 2022. The growth in loans and investment securities was funded by a $101,316,000, or 7.5%, increase in average total deposits and by a $14,218,000, or 19.8%, increase in short-term borrowings. The average rate paid on interest-bearing deposits increased from 0.38% to 0.57% for the same time periods, respectively, contributing to an increase in interest expense of $2,489,000, and a $95,049,000 increase in average interest-bearing deposits resulting in additional interest expense of $189,000. The average rate paid on short-term borrowings increased from 0.36% to 1.00% for the same time periods, respectively, contributing to an increase in interest expense of $552,000.

Current wording

On a tax-equivalent basis, net interest income for 2024 increased $2,681,000, or 6.6%, to $43,420,000. The net interest margin, which increased four basis points to 2.43%, was favorably impacted by increased rates on and volume of loans and investments. The average rate earned on earning assets increased 64 basis points from 4.09% for 2023 to 4.73% for 2024 with the yield on investments increasing 57 basis points and the yield on loans increasing 50 basis points. The yield on investment securities was favorably impacted by increased yields on all categories except U.S. Treasuries and Equities, causing an increase in interest income of $2,721,000; the yield was unfavorably impacted by a decrease in average volume of $49,754,000 contributing to a $494,000 decrease in interest income. The yield on loans was favorably impacted by increased rates in all loan categories, contributing to a $5,890,000 increase in interest income. This was also favorably impacted by a $110,151,000 net increase in average volume, of which $97,231,000 was related to an increase in average commercial real estate loans contributing $4,757,000 in interest income, an increase of $7,570,000 in home equity loans contributing $494,000 in interest income, and an increase of $4,032,000 in commercial and industrial loans average balances contributing an increase of $303,000 in interest income. The yield on total average interest-bearing liabilities increased 69 basis points from 2.11% for 2023 to 2.80% for 2024. The growth in loans was funded by the growth in deposits of $113,977,000, or 7.8%. The average rate paid on interest-bearing deposits increased from 2.01% to 2.71% for the same time periods, respectively, contributing to an increase in interest expense of $7,967,000, and a $134,229,000 increase in average interest-bearing deposits resulting in additional interest expense of $4,508,000. The average rate paid on total borrowings increased from 3.15% to 4.16% for the same time periods, respectively, offset by an average volume decrease of $34,917,000; the net impact contributed to a decrease in interest expense of $196,000. Loan and deposit growth was partially offset by the competitive local interest rate market for quality loans and deposits. Net interest spread decreased five basis points to 1.93% for 2024 compared to 1.98% for 2023.

Previous wording

On a tax-equivalent basis, net interest income for 2023 decreased $4,471,000, or 9.9%, to $40,739,000. The net interest margin, which decreased 32 basis points to 2.39%, was unfavorably impacted by increased rates on deposits and short-term borrowings. The average rate earned on earning assets increased 91 basis points from 3.18% for 2022 to 4.09% for 2023 with the yield on investments increasing 47 basis points and the yield on loans increasing 95 basis points. The yield on investment securities was favorably impacted by increased yields on all categories, causing an increase in interest income of $3,057,000; the yield was unfavorably impacted by a decrease in average volume of $67,778,000 contributing to a $1,307,000 decrease in interest income. The yield on loans was favorably impacted by increased rates in all loan categories, contributing to a $9,999,000 increase in interest income. This was also favorably impacted by a $73,104,000 net increase in average volume, of which $76,271,000 was related to an increase in average commercial real estate loans, contributing $3,204,000 in interest income; partially offset by a decrease of $7,613,000 in commercial and industrial loans average balances, resulting in a decrease of $389,000 in interest income. The yield on total average interest-bearing liabilities increased 151 basis points from 0.60% for 2022 to 2.11% for 2023. The growth in loans was funded by sales and maturities of investment securities and by a $28,698,000, or 29.9%, increase in borrowings. The average rate paid on interest-bearing deposits increased from 0.57% to 2.01% for the same time periods, respectively, contributing to an increase in interest expense of $17,446,000, and a $29,102,000 increase in average interest-bearing deposits resulting in additional interest expense of $651,000. The average rate paid on short-term borrowings increased from 1.00% to 3.01% for the same time periods, respectively, contributing to an increase in interest expense of $2,182,000. Loan and deposit growth was partially offset by the competitive local interest rate market for quality loans and deposits. Net interest spread decreased 60 basis points to 1.98% for 2023 compared to 2.58% for 2022.

Current wording

On a tax-equivalent basis, net interest income for 2023 decreased $4,471,000, or 9.9%, to $40,739,000. The net interest margin, which decreased 32 basis points to 2.39%, was unfavorably impacted by increased rates on deposits and short-term borrowings. The average rate earned on earning assets increased 91 basis points from 3.18% for 2022 to 4.09% for 2023 with the yield on investments increasing 47 basis points and the yield on loans increasing 95 basis points. The yield on investment securities was favorably impacted by increased yields on all categories, causing an increase in interest income of $3,057,000; the yield was unfavorably impacted by a decrease in average volume of $67,778,000 contributing to a $1,307,000 decrease in interest income. The yield on loans was favorably impacted by increased rates in all loan categories, contributing to a $9,999,000 increase in interest income. This was also favorably impacted by a $73,104,000 net increase in average volume, of which $76,271,000 was related to an increase in average commercial real estate loans, contributing $3,204,000 in interest income; partially offset by a decrease of $7,613,000 in commercial and industrial loans average balances, resulting in a decrease of $389,000 in interest income. The yield on total average interest-bearing liabilities increased 151 basis points from 0.60% for 2022 to 2.11% for 2023. The average rate paid on interest-bearing deposits increased from 0.57% to 2.01% for the same time periods, respectively, contributing to an increase in interest expense of $17,446,000, and a $29,102,000 increase in average interest-bearing deposits resulting in additional interest expense of $651,000. The average rate paid on short-term borrowings increased from 1.00% to 3.01% for the same time periods, respectively, contributing to an increase in interest expense of $2,182,000. Net interest spread decreased 60 basis points to 1.98% for 2023 compared to 2.58% for 2022.

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 $16,532,000 to $69,666,000 for 2023, while total interest expense increased $21,003,000 to $28,927,000. Volume growth in earning assets contributed an additional $2,365,000 of interest income and interest rate increases contributed an additional $14,167,000 of interest income. Rate-related interest expense increased $20,031,000, while volume-related interest expense increased $972,000.

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 $14,960,000 to $84,626,000 for 2024, while total interest expense increased $12,279,000 to $41,206,000. Volume growth in earning assets contributed an additional $6,500,000 of interest income and interest rate increases contributed an additional $8,460,000 of interest income. Rate-related interest expense increased $7,817,000, while volume-related interest expense increased $4,462,000.

Previous wording

Interest income on available-for-sale and equity investment securities increased $3,054,000 when comparing the two years. The increase in average balances contributed an additional $1,758,000 to interest income and the 14 basis-point increase in rate contributed $1,296,000 to interest income. The average yield on the available-for-sale and equity investment portfolio increased to 1.71% for 2022 compared to 1.57% for 2021.

Current wording

Interest income on available-for-sale and equity investment securities increased $2,227,000 when comparing the two years. The 57 basis-point increase in rate, of which the interest rate swaps contributed 38 basis points, contributed an additional $2,721,000 to interest income and the $49,754,000 decrease in volume reduced interest income $494,000. The average yield on the available-for-sale and equity investment portfolio increased to 2.75% for 2024 compared to 2.18% for 2023.

Previous wording

Income on U.S. Government agency securities increased $277,000, due to a 5 basis-point increase in the yield from 1.05% for 2021 to 1.10% for 2022 and an increase in average balances totaling $21,115,000. Most of the bonds in the agency portfolio have call features ranging from three months to three years, none of which were exercised during 2022. QNB invested excess funds toward the end of 2021 to earn a higher rate than current available on interest-earning deposits.

Current wording

Income on U.S. Government agency securities yields were 1.17% for 2024 compared to 1.11% for 2023. Most of the bonds in the agency portfolio have call features ranging from three months to three years, none of which were exercised during 2024. Average balances, which decreased $20,077,000, reduced interest income by $224,000.

Previous wording

-21 - call dates and are being replaced with municipal bonds with less favorable tax-equivalent yields. Typically, QNB purchased municipal bonds with 10- to 15-year maturities with call dates between 2 and 5 years. Future demand for tax-exempt municipal securities is uncertain, as the tax-equivalent yield could be less favorable compared to other securities with similar risk-based capital asset-weighting characteristics.

Current wording

Many of these bonds have either reached maturity or their call dates and are being replaced with municipal bonds with less favorable tax-equivalent yields. Typically, QNB purchased municipal bonds with 10- to 15-year maturities with call dates between 2 and 5 years. Future demand for tax-exempt municipal securities is uncertain, as the tax-equivalent yield could be less favorable compared to other securities with similar risk-based capital asset-weighting characteristics.

Previous wording

All the mortgage-backed and collateralized mortgage obligations (“CMO”) securities owned by QNB are issued by U.S. Government agencies and sponsored enterprises (“GSE”) and carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. Interest income on mortgage-backed securities and CMOs increased $1,496,000 due to a 56 basis-point increase in rate from 1.58% for 2022 to 2.14% for 2023 adding $2,249,000 to interest income; this was partly offset by a $47,770,000 decrease in average balances reducing interest income by $753,000. This portfolio generally provides higher yields relative to agency bonds and provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase.

Current wording

All the mortgage-backed and collateralized mortgage obligations (“CMO”) securities owned by QNB are issued by U.S. Government agencies and sponsored enterprises (“GSE”) and carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. Interest income on mortgage-backed securities and CMOs increased $1,025,000 due to a 54 basis-point increase in rate from 2.14% for 2023 to 2.68% for 2024 adding $1,917,000 to interest income; this was partly offset by a $41,622,000 decrease in average balances reducing interest income by $892,000. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 46 basis points. This portfolio generally provides higher yields relative to agency bonds and provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase.

Previous wording

Income on corporate debt securities decreased $1,000 due to a decrease in average balances of $618,000 partially offset by an increase in yield from 4.01% for 2021 to 4.37% for 2022.

Current wording

Income on corporate debt securities increased $719,000 due to an increase average balances of $10,905,000 and in yield from 4.40% for 2023 to 5.76% for 2024.

Previous wording

Interest income on state and municipal securities increased $108,000. Average balances, which decreased $18,528,000, reduced interest income by $441,000. The increase in yield of 50 basis points from 2.39% in 2022 to 2.89% in 2023 contributing $549,000 to interest income more than offset the decrease in interest income caused by volume. Many of these bonds have either reached maturity or their

Current wording

Interest income on state and municipal securities increased $108,000. Average balances, which decreased $18,528,000, reduced interest income by $441,000. The increase in yield of 50 basis points from 2.39% in 2022 to 2.89% in 2023 contributing $549,000 to interest income more than offset the decrease in interest income caused by volume.

Previous wording

Interest income on mortgage-backed securities and CMOs increased $2,519,000 due to a $95,568,000 increase in average balances and a 29 basis-point increase in rate from 1.29% for 2021 to 1.58% for 2022.

Current wording

Interest income on mortgage-backed securities and CMOs increased $1,496,000 due to a 56 basis-point increase in rate from 1.58% for 2022 to 2.14% for 2023 adding $2,249,000 to interest income; this was partly offset by a $47,770,000 decrease in average balances reducing interest income by $753,000.

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, hotels, factories, warehouses, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner or investment properties. The category also includes construction and land development loans. Income on commercial real estate loans increased $8,141,000. The increase in average balances of $76,271,000, or 12.0%, contributed an increase in interest income of $3,204,000; the 69 basis-point increase in yield, from 4.20% in 2022 to 4.89% in 2023 contributed $4,937,000 to the increase in interest income.

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, hotels, factories, warehouses, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner or investment properties. The category also includes

Previous wording

Tax-exempt loan income decreased $159,000 to $676,000 in 2022. When comparing the same periods, average balances decreased $4,248,000 to $19,778,000, which contributed a $148,000 decrease in interest income. The average yield on the tax-exempt loan portfolio decreased from 3.47% for 2021 to 3.42% for 2022, resulting in a decrease in interest income of $11,000.

Current wording

Tax-exempt loan income increased $14,000 to $721,000 in 2024. When comparing the same periods, average balances decreased $1,369,000 to $18,507,000, which contributed a $48,000 decrease in interest income. The average yield on the tax-exempt loan portfolio increased from 3.56% for 2023 to 3.90% for 2024, resulting in an increase in interest income of $62,000.

Previous wording

QNB strives to be the “local consumer lender of choice.” QNB continues to focus on its retail lending efforts by adding new product offerings and by marketing and promotion. Overall, retail lending balances increased $4,348,000 and interest income for retail lending increased $1,885,000 in 2023 compared with 2022, driven by a 103 basis-point increase in yield.

Current wording

QNB strives to be the “local consumer lender of choice.” QNB continues to focus on its retail lending efforts by adding new product offerings and by marketing and promotion. Overall, retail lending balances increased $10,257,000 and interest income for retail lending increased $1,230,000 in 2024 compared with 2023, driven by a 41 basis-point increase in yield.

Previous wording

Given the low yields on alternative investment securities, QNB retained certain fixed rate and hybrid adjustable-rate mortgages to borrowers with high credit scores and low loan-to-value ratios. As a result, average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $2,982,000, or 2.9%, to $107,379,000 for 2023. The average yield on the residential real estate portfolio increased 39 basis points to 3.73% for 2023 compared to 3.34% for 2022. Overall, interest income for this segment grew $521,000 in 2023.

Current wording

Given the low yields on alternative investment securities, QNB retained certain fixed rate and hybrid adjustable-rate mortgages to borrowers with high credit scores and low loan-to-value ratios. As a result, average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $2,941,000, or 2.7%, to $110,320,000 for 2024. The average yield on the residential real estate portfolio increased 39 basis points to 4.12% for 2024 compared to 3.73% for 2023. Overall, interest income for this segment grew $537,000 in 2024.

Previous wording

Income on home equity loans increased by $1,335,000 when comparing 2023 and 2022. During 2023 and 2022, QNB offered attractive rates on both variable rate and fixed rate home equity loans. Average balances in home equity loans increased $1,989,000, or 3.5%, to $58,144,000 when comparing 2023 and 2022. The yield on the home equity portfolio increased 214 basis points to 6.52% when comparing the two years. Home values have continued to grow; therefore, we expect the demand for home equity loans will continue.

Current wording

Income on home equity loans increased by $681,000 when comparing 2024 and 2023. During 2024 and 2023, QNB offered attractive rates on both variable rate and fixed rate home equity loans. Average balances in home equity loans increased $7,570,000, or 13.0%, to $65,714,000 when comparing 2024 and 2023. The yield on the home equity portfolio increased 29 basis points to 6.81% when comparing the two years. Home values have continued to grow; therefore, we expect the demand for home equity loans will continue.

Previous wording

Income on commercial real estate loans increased $3,661,000. The increase in average balances of $80,201,000, or 14.4%, contributed an increase in interest income of $3,327,000; the five basis-point increase in yield, from 4.15% in 2021 to 4.20% in 2022 contributed $334,000 to the increase in interest income.

Current wording

Income on commercial real estate loans increased $8,141,000. The increase in average balances of $76,271,000, or 12.0%, contributed an increase in interest income of $3,204,000; the 69 basis-point increase in yield, from 4.20% in 2022 to 4.89% in 2023 contributed $4,937,000 to the increase in interest income.

Previous wording

Income on commercial and industrial loans, the second largest category, increased $2,912,000 with average balances decreasing $7,613,000 resulting in a decrease to interest income of $389,000, this decrease was more than offset by the positive impact from an increase in average yield of 240 basis points to 7.50% in 2023 from 5.10% in 2022, contributing to a $3,301,000 increase 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, the second largest category, increased $2,912,000 with average balances decreasing $7,613,000 resulting in a decrease to interest income of $389,000, this decrease was more than offset by the positive impact from an increase in average yield of 240 basis points to 7.50% in 2023 from 5.10% in 2022, contributing to a $3,301,000 increase in interest income.

Previous wording

Retail lending balances increased $7,415,000 and interest income for retail lending increased $813,000 in 2022 compared with 2021, driven by a 33 basis-point increase in yield. Average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $9,156,000, or 9.6%, to $104,397,000 for 2022. The average yield on the residential real estate portfolio decreased seven basis points to 3.34% for 2022 compared to 3.41% for 2021. Overall, interest income for this segment grew $240,000 in 2022.

Current wording

Retail lending balances increased $4,348,000 and interest income for retail lending increased $1,885,000 in 2023 compared with 2022, driven by a 103 basis-point increase in yield. Average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $2,982,000, or 2.9%, to $107,379,000 for 2023. The average yield on the residential real estate portfolio increased 39 basis points to 3.73% for 2023 compared to 3.34% for 2022. Overall, interest income for this segment grew $521,000 in 2023.

Previous wording

Average home equity loans balances increased by $573,000 when comparing 2022 and 2021. The yield on the home equity portfolio increased 109 basis points to 4.38% when comparing the two years.

Current wording

Income on home equity loans increased by $1,335,000 when comparing 2023 and 2022. Average balances in home equity loans increased $1,989,000, or 3.5%, to $58,144,000 when comparing 2023 and 2022. The yield on the home equity portfolio increased 214 basis points to 6.52% when comparing the two years.

Previous wording

Interest income on consumer loans increased $29,000. Consumer loans at QNB experienced a decline in average balances in 2023 of $623,000, or 13.8%, led by a decline in installment loans and student loans. Installment loan average balances declined $164,000 and interest declined $2,000. Student loan balances are no longer insured, and QNB ceased funding originations through its third-party provider during the second half of 2018; average balances decreased $448,000 and interest income increased $25,000 when comparing 2023 and 2022. Student loans are primarily variable rate loans and interest income was favorably impacted by a 281 basis-point increase in rate.

Current wording

Interest income on consumer loans increased $29,000. Consumer loans at QNB experienced a decline in average balances in 2023 of $623,000, or 13.8%, led by a decline in installment loans and student loans. Installment loan average balances declined $164,000 and interest declined $2,000. Student loan balances are no longer insured, and QNB ceased funding originations through its third-party provider during the second half of 2018; average balances decreased $448,000 and interest income increased $25,000 when comparing 2023 and 2022.

Previous wording

Total interest expense for 2022 was $7,924,000 compared with $4,643,000 for 2021, an increase of $3,281,000. Interest expense on total deposits increased $2,678,000 and interest expense on borrowed funds increased $603,000 when comparing the two years. The rate paid on interest-bearing deposits increased 19 basis points; the rate paid on borrowings increased 64 basis points, when comparing the two periods.

Current wording

Total interest expense for 2024 was $41,206,000 compared with $28,927,000 for 2023, an increase of $12,279,000. Interest expense on deposits increased $12,475,000 and interest expense on borrowed funds decreased $196,000 when comparing the two years. The rate paid on interest-bearing deposits increased 70 basis points; the rate paid on borrowings increased 101 basis points, when comparing the two periods. Deposit and borrowing costs increase due to an increase in competition for deposits when rates rise. 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.

Previous wording

The composition of the deposit accounts changed in 2023 as 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 non-interest-bearing demand accounts decreased $34,001,000, or 14.0%, to $208,777,000 for 2023. Average interest-bearing demand accounts decreased $29,064,000, or 8.4%, to $315,990,000 for 2023 compared with 2022, with interest expense on interest-bearing demand accounts increasing $967,000 to $1,900,000 for 2023. The average rate paid increased 33 basis points to 0.60% for 2023 compared to 0.27% for 2022. Interest-bearing business demand average balances decreased by $2,188,000, or 3.0%, and related interest expense increased $950,000, or 136 basis points in yield, when comparing the two years. Also included in the interest-bearing demand category is QNB-Rewards checking, a tiered-rate retail checking account product. In order to receive the high rate a customer must receive an electronic statement, have one direct deposit or other ACH transaction and have at least 12 debit card purchase transactions post and clear per statement cycle. If these qualifications are not met, the rate paid is 0.10%. For 2023, the average balance in this product was $93,336,000 and the related interest expense was $389,000 for an average cost of funds of 0.42%. In comparison, the average balance in this product for 2022 was $104,122,000 and the related interest expense was $366,000 for an average cost of funds of 0.35%. The rates paid on the QNB-Rewards product, assuming qualifications are met, is attractive relative to competitors’ offerings as well as other QNB products. This product also generates fee income through the use of the debit card. The average balance of other interest-bearing demand accounts included in this category decreased from $167,737,000 for 2022 to $151,647,000 for 2023. The average rate paid on these balances was 0.05% in 2022 and 0.05% in 2023. Many of the non-interest bearing and interest-bearing demand funds moved to time deposits and other new products offered by QNB during 2023

Current wording

Average non-interest-bearing demand accounts decreased $20,252,000, or 9.7%, to $188,525,000 for 2024. Average interest-bearing demand accounts increased $30,600,000, or 9.7%, to $346,590,000 for 2024 compared with 2023, with interest expense on interest-bearing demand accounts increasing $1,325,000 to $3,225,000 for 2024. The average rate paid increased 33 basis points to 0.93% for 2024 compared to 0.60% for 2023. Interest-bearing business demand average balances increased by $41,304,000, or 58.2%, and related interest expense increased $1,346,000, or 45 basis points in yield, when comparing the two years. Also included in the interest-bearing demand category is QNB-Rewards checking, a tiered-rate retail checking account product. In order to receive the high rate a customer must receive an electronic statement, have one direct deposit or other ACH transaction and have at least 12 debit card purchase transactions post and clear per statement cycle. If these qualifications are not met, the rate paid is 0.10%. For 2024, the average balance in this product was $91,932,000 and the related interest expense was $373,000 for an average cost of funds of 0.41%. In comparison, the average balance in this product for 2023 was $93,336,000 and the related interest expense was $389,000 for an average cost of funds of 0.42%. The rates paid on the QNB-Rewards product, assuming qualifications are met, is attractive relative to competitors’ offerings as well as other QNB products. This product also generates fee income through the use of the debit card. The average balance of other interest-bearing demand accounts included in this category decreased from $151,647,000 for 2023 to $142,347,000 for 2024. The average rate paid on these balances was 0.05% in 2023 and 2024.

Previous wording

Average money market accounts increased $15,469,000, or 12.6%, to $137,830,000 for 2022 compared with 2021. Interest expense on money market accounts increased $236,000 to $617,000 for 2022 compared with 2021. The average interest rate paid on money market accounts was 0.45% for 2022, an increase of 14 basis points compared with 2021.

Current wording

Average money market accounts increased $54,067,000, or 29.5%, to $237,071,000 for 2024 compared with 2023. Interest expense on money market accounts increased $3,358,000 to $8,181,000 for 2024 compared with 2023. The average interest rate paid on money market accounts was 3.45% for 2024, an increase of 81 basis points compared with 2023.

Previous wording

Interest expense on municipal interest-bearing demand accounts increased $4,109,000 to $5,867,000 for 2023. The average balance of municipal interest-bearing demand accounts increased $8,786,000, or 7.2%, to $131,610,000 and the average interest rate paid on these accounts increased 303 basis points to 4.46% for 2023 from 1.43% for 2022. Most of these accounts are indexed to the Federal funds rate with negotiated rate floors between 0.15% and 0.35%. Many of these deposits are seasonal in nature and are received during the third quarter as tax receipts are collected and are withdrawn over the course of the next year.

Current wording

Interest expense on municipal interest-bearing demand accounts increased $927,000 to $6,794,000 for 2024. The average balance of municipal interest-bearing demand accounts increased $14,836,000, or 11.3%, to $146,446,000 and the average interest rate paid on these accounts increased 18 basis points to 4.64% for 2024 from 4.46% for 2023. Most of these accounts are indexed to the Federal funds rate with negotiated rate floors between 0.15% and 0.35%. Many of these deposits are seasonal in nature and are received during the third quarter as tax receipts are collected and are withdrawn over the course of the next year.

Previous wording

QNB’s online e-Savings product is the largest category of savings deposits and was created to compete with other online savings accounts. Average e-Savings balances decreased $79,238,000, or 23.6%, to $256,252,000 in 2023 compared with $335,490,000 in 2022. The average cost of funds on these accounts was 1.57% for 2023 and 0.59% for 2022. The yield on this account may rise along with market rates and as competition for savings balances increases. Traditional statement savings accounts and club accounts are also included in the savings category and decreased on average by $14,988,000, or 13.9%, to $92,626,000. The average rate paid on total savings accounts was 1.20% for 2023, a 71 basis-point increase from 0.49% for 2022 and interest expense increased $2,012,000, to $4,187,000 from $2,175,000 over the same period.

Current wording

QNB’s online e-Savings product is the largest category of savings deposits and was created to compete with other online savings accounts. Average e-Savings balances decreased $48,383,000, or 18.9%, to $207,869,000 in 2024 compared with $256,252,000 in 2023. The average cost of funds on these accounts was 1.71% for 2024 and 1.57% for 2023. The yield on this account may rise along with market rates and as competition for savings balances increases. Traditional statement savings accounts and club accounts are also included in the savings category and decreased on average by $15,484,000, or 16.7%, to $77,142,000. The average rate paid on total savings accounts was 0.12% for 2024, a six basis-point decrease from 0.18% for 2023 and interest expense decreased $79,000, to $91,000 from $170,000 over the same period.

Previous wording

Interest expense on time deposits increased $6,803,000, to $8,224,000 in 2023, due to an increase in average balances of $98,432,000 in 2023, to $267,258,000 and a 224 basis-point increase in yield, from 0.84% in 2022 to 3.08% in 2023. Similar to fixed-rate loans and investment securities, time 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.

Current wording

Interest expense on time deposits increased $7,401,000, to $15,625,000 in 2024, due to an increase in average balances of $98,593,000 in 2024, to $365,851,000 and a 119 basis-point increase in yield, from 3.08% in 2023 to 4.27% in 2024. Similar to fixed-rate loans and investment securities, time 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.

Previous wording

Approximately $258,245,000, or 82.0%, in time deposits will reprice or mature over the next 12 months compared with 48.6% of the portfolio at December 31, 2022. The average rate paid on these time deposits is approximately 4.12%.

Current wording

Approximately $350,837,000, or 92.0%, in time deposits will reprice or mature over the next 12 months compared with 82.0% of the portfolio at December 31, 2023. The average rate paid on these time deposits is approximately 4.37%.

Previous wording

Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers and overnight borrowings from correspondent banks with average balances in 2022 of $68,650,000 and $17,226,000, respectively. Interest expense on short-term borrowings increased by $603,000 to $861,000 when comparing the two years. During this period average balances of repurchase agreements decreased $2,817,000 with a 14 basis-point increase in average rate paid, resulting in an increase of cost of funds of $85,000. The average balances of borrowings from correspondent banks increased $17,035,000 and the average rate paid increased 249 basis points, resulting in an increase in cost of funds of $518,000.

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 with average balances in 2024 of $38,455,000, $98,000 and $9,973,000, respectively. Interest expense on short-term borrowings decreased $2,125,000 to $1,148,000 when comparing the two years. During this period average balances of repurchase agreements decreased $14,699,000 with a 44 basis-point increase in average rate paid, resulting in a decrease of cost of funds of $36,000. The average balances of borrowings from the FHLB decreased $15,747,000 with a 20 basis-point increase in average rate paid, resulting in a decrease in cost of funds of $772,000. 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%; this borrowing was paid off in the first quarter of 2024.

Previous wording

Average non-interest-bearing demand accounts increased $6,267,000, or 2.6%, to $242,778,000 for 2022; QNB was successful in increasing business checking accounts. Average interest-bearing demand accounts increased $37,796,000, or 12.3%, to $345,054,000 for 2022 compared with 2021, with interest expense on interest-bearing demand accounts increasing $309,000 to $933,000 for 2022. The average rate paid increased seven basis points to 0.27% for 2022 compared to 0.20% for 2021. Interest-bearing business checking account average balances increased by $7,918,000, or 12.8%, and related interest expense increased $141,000, or 17 basis points in yield, when comparing the two years. For 2022, the average balance in QNB-Rewards Checking was $104,122,000 and the related interest expense was $366,000 for an average cost of funds of 0.35%. In comparison, the average balance in this product for 2021 was $96,522,000 and the related interest expense was $350,000 for an average cost of funds of 0.36%. The average balance of other interest-bearing demand accounts included in this category increased from $148,969,000 for 2021 to $171,247,000 for 2022. The average rate paid on these balances was 0.05% in 2021 and 0.13% in 2022.

Current wording

The composition of the deposit accounts changed in 2023 as 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 decreased $29,064,000, or 8.4%, to $315,990,000 for 2023 compared with 2022, with interest expense on interest-bearing demand accounts increasing $967,000 to $1,900,000 for 2023. The average rate paid increased 33 basis points to 0.60% for 2023 compared to 0.27% for 2022. Interest-bearing business demand average balances decreased by $2,188,000, or 3.0%, and related interest expense increased $950,000, or 136 basis points in yield, when comparing the two years. For 2023, the average balance in QNB-Rewards checking was $93,336,000 and the related interest expense was $389,000 for an average cost of funds of 0.42%. In comparison, the average balance in this product for 2022 was $104,122,000 and the related interest expense was $366,000 for an average cost of funds of 0.35%. The average balance of other interest-bearing demand accounts included in this category decreased from $167,737,000 for 2022 to $151,647,000 for 2023. The average rate paid on these balances was 0.05% in 2022 and 0.05% in 2023.

Previous wording

Average money market accounts increased $45,174,000, or 32.8%, to $183,004,000 for 2023 compared with 2022. Interest expense on money market accounts increased $4,206,000 to $4,823,000 for 2023 compared with 2022. The average interest rate paid on money market accounts was 2.64% for 2023, an increase of 219 basis points compared with 2022. The balances in this category were historically and primarily comprised of Select money market accounts, a product that pays a tiered rate based on account balances. However, a new High Yield money market account was introduced in 2023. Many balances moved from the Select money market accounts to the High Yield accounts and additionally, balance moved into the High Yield accounts from other demand accounts.

Current wording

Average money market accounts increased $45,174,000, or 32.8%, to $183,004,000 for 2023 compared with 2022. Interest expense on money market accounts increased $4,206,000 to $4,823,000 for 2023 compared with 2022. The average interest rate paid on money market accounts was 2.64% for 2023, an increase of 219 basis points compared with 2022. A new High Yield money market account was introduced in 2023.

Previous wording

Average e-Savings balances increased $45,577,000, or 15.7%, to $335,490,000 in 2022 compared with $289,913,000 in 2021. The average cost of funds on these accounts was 0.59% for 2022 and 0.36% for 2021. Traditional statement savings accounts and club accounts are also included in the savings category and increased on average by $10,897,000, or 11.3%, to $107,614,000. The average rate paid on total savings accounts was 0.49% for 2022, a 19 basis-point increase from 0.30% for 2021 and interest expense increased $997,000, to $2,175,000 from $1,178,000 over the same period.

Current wording

Average e-Savings balances decreased $79,238,000, or 23.6%, to $256,252,000 in 2023 compared with $335,490,000 in 2022. The average cost of funds on these accounts was 1.57% for 2023 and 0.59% for 2022. The yield on this account may rise along with market rates and as competition for savings balances increases. Traditional statement savings accounts and club accounts are also included in the savings category and decreased on average by $14,988,000, or 13.9%, to $92,626,000. The average rate paid on total savings accounts was 0.18% for 2023, a one basis-point increase from 0.17% for 2022 and interest expense decreased $9,000, to $170,000 from $179,000 over the same period.

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 with average balances in 2023 of $53,154,000, $15,845,000 and $39,863,000, respectively. Interest expense on short-term borrowings increased $2,412,000 to $3,273,000 when comparing the two years. During this period average balances of repurchase agreements decreased $15,496,000 with an 89 basis-point increase in average rate paid, resulting in an increase of cost of funds of $398,000. The average balances of borrowings from the FHLB decreased $1,381,000 with a 189 basis-point increase in average rate paid, resulting in an increase in cost of funds of $258,000. During the first quarter of 2023, QNB borrowed $50,000,000, resulting in a $39,863,000 average balance, from the FRB under its Bank Term Funding Program and locked in a rate of 4.39%; there are no pre-payment penalties.

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 with average balances in 2023 of $53,154,000, $15,845,000 and $39,863,000, respectively. Interest expense on short-term borrowings increased $2,412,000 to $3,273,000 when comparing the two years. During this period average balances of repurchase agreements decreased $15,496,000 with an 89 basis-point increase in average rate paid, resulting in an increase of cost of funds of $398,000. The average balances of borrowings from the FHLB decreased $1,381,000 with a 189 basis-point increase in average rate paid, resulting in an increase in cost of funds of $258,000.

Previous wording

The provision for credit losses represents management's determination of the amount necessary to be charged to operations to bring the allowance for credit losses on loans and the allowance for credit losses on unused commitments to amounts that are intended to absorb historical loss experience, current conditions and reasonable and supportable forecasts, in the outstanding loan portfolio and the unused commitments. Management believes that it uses the best information available to make determinations about the adequacy of these allowances and that it has established its existing allowances for credit losses on loan and on unused commitments in accordance with U.S. GAAP. The determination of an appropriate level for the allowance for credit losses on loans and the allowance for credit losses on unused commitments are based upon an analysis of the risks inherent in QNB’s loan portfolio. QNB recorded a reversal of the provision for credit losses on loans $828,000 for the twelve months ended December 31, 2023 compared to a reversal of the provision for loan losses of $850,000 for the twelve-month period ended December 31, 2022 and a provision for loan losses of $458,000 for the twelve-month period ended December 31, 2021. QNB recorded a reversal of the provision for credit losses on unused commitments of $16,000 during 2023. Prior period adjustments for the reserve for unused commitments were included in non-interest expense. Net loan recoveries were $138,000, or 0.02% of total average loans for 2023 compared with net loan recoveries were $197,000, or 0.02% of total average loans for 2022 and net charge-offs of $100,000, or 0.01% of total average loans for 2021. The majority of the commercial loans charged off during 2021 had specific reserves established during the allowance for loan loss calculation process prior to the decision to charge-off the loans. The majority of the recoveries during 2023 and 2022, were on these previously charged off commercial loans. Deterioration in credit quality resulting in charge-offs or significant growth in the loan portfolio may result in a higher provision for credit losses on loans in 2024.

Current wording

The provision for credit losses represents management's determination of the amount necessary to be charged to operations to bring the allowance for credit losses on loans and the allowance for credit losses on unused commitments to amounts that are intended to absorb historical loss experience, current conditions and reasonable and supportable forecasts, in the outstanding loan portfolio and the unused commitments. Management believes that it uses the best information available to make determinations about the adequacy of these allowances and that it has established its existing allowances for credit losses on loan and on unused commitments in accordance with U.S. GAAP. The determination of an appropriate level for the allowance for credit losses on loans and the allowance for credit losses on unused commitments are based upon an analysis of the risks inherent in QNB’s loan portfolio. QNB recorded a reversal of the provision for credit losses on loans of $49,000 for the twelve months ended December 31, 2024 compared to a reversal of the provision for loan losses of $828,000 for the twelve-month period ended December 31, 2023 and a reversal of the provision for loan losses of $850,000 for the twelve-month period ended December 31, 2022. QNB recorded a reversal of the provision for credit losses on unused commitments of $19,000 during 2024 compared to a reversal of the provision for credit losses on unused commitments of $16,000 during 2023. The 2022 period adjustments for the reserve for unused commitments were included in non-interest expense. Net loan charge-offs were $59,000, or 0.01% of total average loans for 2024 compared with net loan recoveries were $238,000, or 0.02% of total average loans for 2023 and net loan recoveries were $197,000, or 0.02% of total average loans for 2022. The majority of the recoveries during 2024, 2023 and 2022, were on these previously charged off commercial loans. 2024 was offset by net charge-offs in overdrafts and student loans. Deterioration in credit quality resulting in charge-offs or significant growth in the loan portfolio may result in a higher provision for credit losses on loans in 2025.

Previous wording

QNB, through its core banking business, generates various fees and service charges. Total non-interest income includes service charges on deposit accounts, ATM and debit card income, retail brokerage and advisory income, income on bank-owned life insurance, merchant income and gains and losses on investment securities and residential mortgage loans. Total non-interest income was $4,837,000 in 2023 compared with $5,731,000 in 2022, a decrease of $894,000. Excluding the unrealized (losses)gains on equity securities, gains(losses) on sales of investment securities and gains on sales of loans, noninterest income was $6,648,000 in 2023 compared to $6,485,000 in 2022, an increase of $163,000.

Current wording

QNB, through its core banking business, generates various fees and service charges. Total non-interest income includes service charges on deposit accounts, ATM and debit card income, retail brokerage and advisory income, income on bank-owned life insurance, merchant income and gains and losses on investment securities and residential mortgage loans. Total non-interest income was $6,913,000 in 2024 compared with $4,837,000 in 2023, an increase of $2,076,000. Excluding the unrealized (losses) gains on equity securities and gains (losses) on sales of investment securities, noninterest income was $6,209,000 in 2024 compared to $6,664,000 in 2023, a decrease of $455,000.

Previous wording

ATM and debit card income is primarily comprised of transaction income on debit cards and ATM cards and ATM surcharge income for the use of QNB’s ATM machines by non-QNB customers. ATM and debit card income was $2,735,000 in 2023, an increase of $16,000, or 0.6% from the amount recorded in 2022. Debit card interchange income increased $22,000, or 0.8%, to $2,686,000 in 2023, while ATM surcharge income and monthly card fees income decreased $6,000 to $49,000. The growth in checking accounts and card usage contributed to the increase in debit card income, including the QNB Rewards checking product, a tiered-rate checking account which requires, among other terms, the posting of a minimum of twelve debit card purchase transactions per statement cycle to receive the high interest rate.

Current wording

ATM and debit card income is primarily comprised of transaction income on debit cards and ATM cards and ATM surcharge income for the use of QNB’s ATM machines by non-QNB customers. ATM and debit card income was $2,740,000 in 2024, an increase of $5,000 from the amount recorded in 2023. Debit card interchange income increased $10,000 to $2,695,000 in 2024, while ATM surcharge income and monthly card fees income decreased $5,000 to $45,000. The growth in checking accounts and card usage contributed to the increase in debit card income, including the QNB Rewards checking product, a tiered-rate checking account which requires, among other terms, the posting of a minimum of twelve debit card purchase transactions per statement cycle to receive the high interest rate.