QNB CORP.

Previous 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.

Current wording

QNB reported net income for the first quarter of 2025 of $2,578,000, or $0.69 per share on a diluted basis, compared to net income of $2,594,000, or $0.71 per share on a diluted basis, for the same period in 2024. The Bank contributed $3,292,000 to net income for the three months ended March 31, 2025 compared to $2,331,000 for the same period 2024; and the holding company had a negative contribution of $714,000 to net income for the three months ended March 31, 2025 compared to a positive contribution of $263,000 for the same period 2024. The results at the Bank were primarily due to an increase in the net interest income and an increase in non-interest income, partly offset by an increase in non-interest expense and the provision for credit losses. The results at the holding company are due primarily to interest expense on the subordinated debt issued in the third quarter of 2024.

Previous 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.

Current wording

Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.54% and 6.24%, respectively, for the quarter ended March 31, 2025 compared with 0.59% and 6.53%, respectively, for the quarter ended March 31, 2024.

Previous 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.

Current wording

Total assets as of March 31, 2025 were $1,896,189,000, compared with $1,870,894,000 at December 31, 2024. Loans receivable at March 31, 2025 were $1,212,162,000, a $3,886,000 decrease from $1,216,048,000 at December 31, 2024. Total deposits of $1,664,555,000 at March 31, 2025 increased $36,014,000 compared with total deposits of $1,628,541,000 at December 31, 2024.

Previous wording

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

Current wording

Results for the three months ended March 31, 2025 include the following significant components:

Previous 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.

Current wording

Net interest margin on a tax-equivalent basis increased 12 basis points for the quarter to 2.51% compared to 2.39% for the same period in 2024.

Previous 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.

Current wording

QNB recorded $550,000 in its provision for credit losses on loans for the quarter of 2025, compared with a reversal in provision of $86,000 for the same period in 2024.

Previous 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.

Current wording

Non-interest income decreased $252,000, to $1,584,000 for the first quarter of 2025 compared with the same period in 2024. Excluding realized and unrealized gains (losses) on securities, non-interest income increased $95,000, or 6.4%, to $1,584,000 for the first quarter of 2025 compared to $1,489,000 for the same period in 2024.

Previous 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.

Current wording

Total non-performing loans, comprised of loans on non-accrual status, were $8,651,000, or 0.71% of loans receivable at March 31, 2025, compared to $1,975,000, or 0.16% of loans receivable at December 31, 2024. Net loan recoveries for the three months ended March 31, 2025 were $3,000, compared with net charge-offs of $21,000 for the same period in 2024.

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 nine-month periods ended September 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-month periods ended March 31, 2025 and 2024.

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 nine months ended September 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 months ended March 31, 2025 and 2024.

Previous 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.

Current wording

Average earning assets for the first quarter of 2025 were $1,884,963,000, an increase of $150,799,000, or 8.7%, from the first quarter of 2024, with average loans increasing $101,861,000, or 9.2%, and average investment securities increasing $47,942,000, or 8.3%, over the same period in 2024. Proceeds from the growth in average deposits and the issuance of both long-term and subordinated debt over the past year were invested in loans, higher-yielding securities and used to pay down short-term borrowings. Average loans as a percent of average earning assets was 64.2% for the first quarter of 2025, compared with 63.9% for the first quarter of 2024. On the funding side, average deposits increased $135,504,000, or 9.0%, to $1,633,196,000 for the first quarter of 2025 primarily due to an increase in interest-bearing demand, money market products and time deposits. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements, Federal Reserve Bank ("FRB") borrowings and FHLB borrowings, decreased $39,912,000 to $47,529,000 for the first quarter of 2025 compared to $87,441,000 for the same period in 2024. During the third quarter of 2024, QNB Corp. issued $40,000,000 of subordinated debt; the carrying value net of deferred costs was $39,118,000 at March 31, 2025.

Previous 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.

Current wording

The net interest margin for the first quarter of 2025 increased 12 basis points to 2.51% from 2.39% for the same period in 2024. 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. 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 $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.

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 $2,628,000, or 13.3%, to $22,338,000 for the first quarter of 2025; total interest expense increased $1,260,000 to $10,661,000.

Previous 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.

Current wording

The yield on earning assets on a tax-equivalent basis increased 24 basis points to 4.81% for the first quarter of 2025, from 4.57% for the first quarter of 2024. The cost of interest-bearing liabilities was 2.76% for the first quarter of 2025, compared with 2.66% for the same period in 2024.

Previous 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.

Current wording

Interest income on investment securities (available-for-sale and equity) increased $676,000 when comparing the quarters ended March 31, 2025 and 2024. The average yield on the investment portfolio was 2.85% for the first quarter of 2025 compared with 2.62% for the same period in 2024, an increase of 23 basis points.

Previous 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.

Current wording

The yield on U.S. Treasury securities was 4.38% for the first quarter of 2025 compared to 5.33% for the same period in 2024. The average balances of U.S. Government agency securities decreased $8,991,000 as the average rate slightly increased for a net reduction in interest income of $24,000.

Previous 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.

Current wording

Interest income on municipal securities, which are primarily tax-exempt, decreased $170,000 due to a 56 basis-point decrease in rate, and a $2,917,000 decrease in average balances. 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 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.

Current wording

Interest income on mortgage-backed securities and CMOs decreased $165,000 and average balances decreased $2,342,000 and the yield decreased 16 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

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.

Current wording

Income on loans increased $2,069,000 to $17,355,000 when comparing the first quarters of 2025 and 2024, with an $101,861,000 increase in average balances contributing to an increase in interest income of $1,271,000 and a 27-basis point increase in yield contributing to a $798,000 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 $2,237,000 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%.

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 $1,769,000 when comparing the first quarters of 2025 and 2024, primarily due to a 37-basis point increase in rate from 5.34% in 2024 to 5.71% and increased average balances of $82,465,000, or 10.6%.

Previous 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.

Current wording

Income on commercial and industrial loans increased $102,000 when comparing the first quarters of 2025 and 2024. The average yield on these loans decreased nine basis points to 7.41% resulting in a decrease in income of $32,000; average balances increased $8,387,000, to $148,680,000 for the first quarter of 2025 resulting in a $134,000 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 $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.

Current wording

Tax-exempt loan income increased $15,000 for the first quarter of 2025 compared to the same period in 2024. Average balances increased $154,000 to $18,795,000 for the first quarter of 2025. The yield on municipal loans increased 33 basis points, to 4.15% for the first quarter of 2025, compared with the same period in 2024.

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 $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.

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 $172,000 when comparing the first quarter of 2025 to the same period in 2024. Average residential mortgage loan balances increased by $5,349,000, or 4.9%, to $114,271,000 for the first quarter of 2025 compared to the same period in 2024, which contributed a $53,000 increase in interest income. The average yield on the portfolio increased 41 basis points and contributed an increase of $119,000 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 2025 period by $5,704,000 to $67,973,000 and the average yield decreased 40 basis points to 6.41% resulting in a $19,000 net increase in interest income. The yield on the consumer portfolio decreased 42 basis points to 7.68% for the first quarter of 2025 and there was a $198,000 decrease in average balances resulting in a net $8,000 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 $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.

Current wording

Earning assets are funded by deposits and borrowed funds. Interest expense increased $1,260,000, when comparing the first quarter of 2025 to the same period in 2024. QNB experienced average balance increases in all deposit categories except savings accounts. Average savings balances decreased $18,696,000 to $279,657,000. 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 non-interest-bearing demand accounts increased $3,397,000 to $185,992,000 for the first quarter of 2025. Average interest-bearing demand accounts increased $58,389,000, or 18.1%, to $380,293,000 for the first quarter of 2025 and the average rate paid on these deposits increased 21 basis points; interest expense on interest-bearing demand accounts increased $301,000 to $944,000 for the same period. Average money market accounts increased $28,393,000, or 12.5%, to $256,265,000 for the first quarter of 2025 compared with the same period in 2024. Interest expense on money market accounts decreased $197,000 to $1,818,000, and the average interest rate paid on money market accounts decreased 68 basis points to 2.88% for the first quarter of 2025. 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 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.

Current wording

Interest expense on municipal interest-bearing demand accounts decreased $121,000 to $1,456,000 for the first quarter of 2025. The average interest rate paid on municipal interest-bearing demand accounts decreased 86 basis points to 3.95% for the first quarter of 2025 over the same quarter of 2024, and average balances increased $17,7692,000 to $149,579,000. 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 $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.

Current wording

Interest expense on savings accounts decreased $56,000 when comparing the first quarter of 2025 to the same quarter of 2024. The average interest rate paid on savings accounts increased two basis point to 1.30% for the first quarter of 2025. When comparing these same periods, average savings accounts decreased $18,696,000, or 6.3%, to $279,657,000 for the first quarter of 2025 primarily due to decreases in the e-Savings product. QNB’s online e-Savings product is the largest category of savings deposits, with average balances for the first quarter of 2025 of $206,579,000 compared to $217,409,000 in the same period of 2024. The average yield paid on these accounts was 1.71% for both the first quarter of 2025 and 2024. 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 $7,866,000 when comparing the first quarter of 2025 to the same period in 2024.

Previous 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.

Current wording

Interest expense on time deposits totaled $3,801,000 for the first quarter of 2025 compared to $3,372,000 in 2024. Average total time deposits increased $46,329,000 to $381,410,000 for the first quarter of 2025. 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.

Previous 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.

Current wording

Approximately $356,547,000, or 94%, of time deposits at March 31, 2025 will mature over the next 12 months. The average rate paid on these time deposits is approximately 3.96%. 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 $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.

Current wording

Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers, short-term FHLB borrowing and short-term FRB borrowing. Interest expense on short-term borrowings decreased $169,000 for the first quarter of 2025 to $456,000 when compared to the same period in 2024. When comparing these same periods, average balances decreased $39,912,000 to $47,529,000. The yield on customer repos increased 22 basis points for the first quarter of 2025 to 0.61%. There were no FHLB borrowings during 2024 and $29,170,000 in average balance in the first quarter of 2025 at an average rate of 4.78%. 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 were no pre-payment penalties. The FRB borrowings were paid off during the first quarter of 2024; there was an average balance of $40,110,000 for the first quarter of 2024 compared to no average balance in the first quarter of 2025.

Previous wording

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. The average yield of 9.42% includes the amortization of the deferred costs. The subordinated debt will initially bear interest at 8.875% per annum from and including the original issue date of the subordinated notes to but excluding September 1, 2029, payable semi-annually in arrears. From September 1, 2029, through maturity or up to an early redemption date, the interest rate resets quarterly to an interest rate per annum equal to the then current three-month SOFR plus a spread, payable quarterly in arrears. On or after the fifth anniversary of the original issue date through maturity, the QNB has the option to redeem the subordinated debt, in whole or in part, on any scheduled interest payment date. QNB may also redeem the subordinated debt in whole at any time in the event of certain specified events. The subordinated debt will mature on September 1, 2034.

Current wording

During the third quarter of 2024, the QNB Corp. issued $40,000,000 of subordinated debt; the average carrying value net of deferred costs was $39,092,000 for the first quarter of 2025. The average yield of 9.59% includes the amortization of the deferred costs. The subordinated debt will initially bear interest at 8.875% per annum from and including the original issue date of the subordinated notes to but excluding September 1, 2029, payable semi-annually in arrears. From September 1, 2029, through maturity or up to an early redemption date, the interest rate resets quarterly to an interest rate per annum equal to the then current three-month SOFR plus a spread, payable quarterly in arrears. On or after the fifth anniversary of the original issue date through maturity, the QNB has the option to redeem the subordinated debt, in whole or in part, on any scheduled interest payment date. QNB may also redeem the subordinated debt in whole at any time in the event of certain specified events. The subordinated debt will mature on September 1, 2034.

Previous 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.

Current wording

Based on this analysis, QNB recorded $551,000 in the provision for credit losses on loans for the three months ended March 31, 2025, through the allowance for credit losses on loans, compared to a reversal of $93,000 through the provision for credit losses for the same period in 2024. QNB recorded a reversal of provision of $1,000 for the allowance for credit losses for unused commitments in the three months ended March 31, 2025 compared to a provision of $7,000 for the same period in 2024.

Previous 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.

Current wording

QNB's allowance for credit losses on loans of $9,298,000 represents 0.77% of loans receivable at March 31, 2025 compared with an allowance for credit losses on loans of $8,744,000, or 0.72% of loans receivable, at December 31, 2024, and $8,738,000, or 0.78%, at March 31, 2024. Management believes the allowance for credit losses on loans at March 31, 2025 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 $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.

Current wording

Net recoveries were $3,000 for the three months ended March 31, 2025 compared to net charge-offs of $21,000 for the three months ended March 31, 2024. Charge-offs consisted of overdrafts of $13,000 and other consumer loans of $11,000. Recoveries of approximately $27,000 during the three months ended March 31, 2025 consisted of $21,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $6,000. Annualized net recoveries as a percentage of average loans receivable were 0.00% for the three months ended March 31, 2025, compared to annualized net charge-offs of 0.01% for the three months ended March 31, 2024.

Previous 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.

Current wording

Non-performing assets were $8,651,000 at March 31, 2025 compared to $1,975,000 as of December 31, 2024 and $6,676,000 at March 31, 2024. Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest, were 0.71% of loans receivable at March 31, 2025, 0.16% at December 31, 2024 and 0.59% of loans receivable at March 31, 2024. 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. Commercial loans classified as substandard or doubtful totaled $34,448,000, an increase of $147,000 from the $34,301,000 reported at December 31, 2024 and an increase of $22,596,000 from the $11,852,000 reported at March 31, 2024. The increase in classified loans since March 31, 2024 was due to two commercial relationships downgraded; one of these relationships was placed on nonaccrual in the first quarter of 2025.

Previous wording

QNB had no loans past due 90 days or more and still accruing interest at September 30, 2024, December 31, 2023, or September 30, 2023. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.18% of loans receivable at September 30, 2024 compared with 1.09% at December 31, 2023, and 0.97% at September 30, 2023. The December 31, 2023 past-dues included one large relationship past maturity and in the process of refinancing.

Current wording

QNB had no loans past due 90 days or more and still accruing interest at March 31, 2025, December 31, 2024, or March 31, 2024. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.69% of loans receivable at March 31, 2025 compared with .018% at December 31, 2024, and 0.37% at March 31, 2024. The March 31, 2025 past-dues included one large relationship that was placed on nonaccrual during the first quarter of 2025.

Previous wording

There were no modifications to borrowers experiencing financial difficulty identified during the nine months ended September 30, 2024 or 2023. QNB had no other real estate owned or repossessed assets at September 30, 2024, December 31, 2023 or September 30, 2023.

Current wording

There were no modifications to borrowers experiencing financial difficulty identified during the first quarter of 2025. QNB had no other real estate owned or repossessed assets at March 31, 2025, December 31, 2024 or March 31, 2024.

Previous wording

An analysis of net loan charge-offs (recoveries) for the three and nine months ended September 30, 2024 compared to 2023 is as follows:

Current wording

An analysis of net loan charge-offs (recoveries) for the three months ended March 31, 2025 compared to 2024 is as follows:

Previous wording

At September 30, 2024 and December 31, 2023, the recorded investment in loans for which impairment has been identified totaled $1,656,000 and $1,923,000 of which $1,493,000 and $1,451,000, respectively, required no specific allowance for loan loss. The recorded investment in impaired loans requiring an allowance for loan losses was $163,000 and $472,000 at September 30, 2024 and December 31, 2023, respectively, and the related allowance for loan losses associated with these loans was $120,000 and $308,000, respectively. Most of the loans that have been identified as impaired are collateral-dependent. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of impaired loans.

Current wording

At March 31, 2025 and December 31, 2024, the recorded investment in collateral dependent loans totaled $8,640,000 and $1,923,000 of which $1,575,000 and $1,607,000, respectively, required no specific allowance for loan loss. The recorded investment in collateral dependent loans requiring an allowance for loan losses was $7,065,000 and $357,000 at March 31, 2025 and December 31, 2024, respectively, and the related allowance for loan losses associated with these loans was $1,082,000 and $308,000, respectively. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of collateral dependent loans.

Previous wording

Total non-interest income for the third quarter of 2024 was $1,967,000, an increase of $212,000, compared to $1,755,000 for the third quarter of 2023. Excluding realized and unrealized gains (losses) on securities and loans, non-interest income decreased $162,000, or 9.2%, to $1,600,000 for the quarter ended September 30, 2024 compared with the same period in 2023.

Current wording

Total non-interest income for the first quarter of 2025 was $1,584,000, a decrease of $252,000, compared to $1,836,000 for the first quarter of 2024. Excluding realized and unrealized gains (losses) on securities and loans, non-interest income increased $95,000, or 6.4%, for the quarter ended March 31, 2025 compared with the same period in 2024.

Previous wording

There was a net realized gain of $224,000 on the sale of investments for the quarter ended September 30, 2024 compared to a net gain of $131,000 on the sales of securities in the same period in 2023. QNB took the strategic opportunity to better position future earnings by selling lower-yielding equity securities in the third quarter of 2024 and reinvesting the proceeds in higher-yielding assets.

Current wording

There was a net realized gain of $377,000 on the sale of investments for the quarter ended March 31, 2024 compared to no gains on the sales of securities in the same period in 2025. During the first quarter of 2024, unrealized losses on investment equity securities of $30,000 were recorded compared to no unrealized gains or losses the same period of 2025. QNB took the strategic opportunity to better position future earnings by selling all equity securities in the 2024 and reinvesting the proceeds in treasury securities.