 | PO Box 9005 Quakertown PA 18951-9005 215.538.5600 1.800.491.9070 www.QNB.com |
FOR IMMEDIATE RELEASE
QNB CORP. REPORTS INCREASE IN NET INCOME FOR 2008
QUAKERTOWN, PA (23 January 2009) QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the holding company for QNB Bank, reported net income for the fourth quarter of 2008 of $871,000, or $.28 per share on a diluted basis. This compares to $1,021,000, or $.32 per share on a diluted basis, for the same period in 2007. For the year ended December 31, 2008, net income was $5,753,000, or $1.82 per share on a diluted basis, compared to net income of $3,047,000, or $.96 per share on a diluted basis, for the comparable period in 2007.
Thomas J. Bisko, President and Chief Executive Officer, stated, “In my 40 years in this industry, this is the deepest and broadest-based recession to occur. Given the unprecedented economic environment, I am proud of QNB’s results for 2008. These results reflect our continued commitment to make loans to credit worthy businesses and individuals and the reduced cost of both deposits and borrowings resulting in strong growth in net interest income, the Company’s primary earnings driver. In addition, we remain well capitalized as defined by all regulatory measurements.”
Mr. Bisko continued, “We are thrilled with the initial success of our ninth branch opened in November 2008 in the Wescosville community located in Lehigh County. In addition, the hiring of three experienced commercial loan officers will provide support to our continued goal of building customer relationships. We enter the year 2009 optimistic, yet cautious, given the difficult economic environment.”
Net interest income increased $739,000, or 16.4%, to $5,251,000 for the fourth quarter of 2008 compared to the fourth quarter of 2007, reflecting a 22 basis point increase in the net interest margin as well as growth in earning assets. The net interest margin was 3.62% for the fourth quarter of 2008 compared to 3.40% for the fourth quarter of 2007. The increase in the net interest margin is primarily the result of lower customer deposit costs resulting from market interest rates declining. Average earning assets increased 8.6%, with average loans increasing 4.0% and average investment securities increasing 18.3%. The growth in the investment portfolio was primarily in high quality U.S. government agency and agency mortgage-backed securities.
For the twelve-month period ended December 31, 2008, net interest income was $19,966,000 a $2,399,000, or 13.7%, increase from the amount reported in 2007. Contributing to this increase in net interest income was a 24 basis point increase in the net interest margin to 3.56% for 2008. Average earning assets increased 5.2% to $602,446,000 when comparing 2008 to 2007 with average loans increasing 5.1%.
The results for the fourth quarter and full year of 2008 reflect the impact of the current economic environment and the deterioration of the financial markets. During the fourth quarter, as a result of significant declines in the equity markets, QNB recorded $610,000 of net securities losses, which reflects $615,000 related to other-than-temporary impairment (OTTI) charges on holdings in the equity investment portfolio. This compares to $346,000 of net securities losses in the fourth quarter of 2007, consisting of $146,000 realized on the sale of equity securities and a $200,000 OTTI charge.
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For the twelve-month period ended December 31, 2008, net securities losses were $609,000, including $917,000 in OTTI charges on the equity portfolio. The results for 2007 were impacted by the balance sheet restructuring reported in the first half of 2007 which resulted in an OTTI charge in the fixed income securities portfolio of $2,758,000 and a $740,000 prepayment penalty on Federal Home Loan Bank advances.
The Company’s adjusted net income, as shown below in the supplemental financial information, reflects the Company’s performance excluding the impact of OTTI and prepayment charges in both 2008 and 2007. On this basis, adjusted net income for the three months ended December 31, 2008 was $1,277,000 or $.40 per share on a diluted basis, compared to $1,153,000, or $.36 per share on a diluted basis, for the three months ended December 31, 2007. For the twelve months ended December 31, 2008 and 2007, adjusted net income was $6,358,000, or $2.01 per share on a diluted basis, and $5,487,000, or $1.72 per share on a diluted basis, respectively.
As a result of increases in net charge-offs, loan growth and the current economic environment, QNB increased its provision for loan losses to $750,000 in the fourth quarter of 2008. This compares to provisions of $150,000 for the quarter ended September 30, 2008 and $325,000 for the quarter ended December 31, 2007. For the year ended December 31, 2008 the provision for loan losses was $1,325,000, an increase from the $700,000 recorded in 2007. Net loan charge-offs were $407,000 for the fourth quarter of 2008 compared with $130,000 for the third quarter of 2008 and $47,000 for the fourth quarter of 2007. For the twelve-month periods ended December 31, 2008 and 2007, net charge-offs were $769,000 and $150,000, respectively. Total non-performing loans, which represent loans on non-accrual status and loans past due more than 90 days, were $1,308,000, or .32% of total loans, at December 31, 2008 compared with $1,190,000, or .31%, at September 30, 2008 and $1,615,000, or .42% of total loans, at December 31, 2007. QNB’s non-performing loans to total loans experience continues to compare extremely favorably with the average for Pennsylvania commercial banks with assets between $500 million and $1 billion which was 1.01% of total loans as reported by the FDIC using September 30, 2008 data. QNB’s allowance for loan losses of $3,836,000 represents .95% of total loans at December 31, 2008 compared with an allowance for loan losses of $3,492,000, or .92% at September 30, 2008, and $3,279,000, or .86% of total loans, at December 31, 2007.
Total non-interest income for the fourth quarter of 2008 was $272,000, a decline from the $650,000 reported for the same period in 2007. Excluding the investment securities losses discussed previously total non-interest income was $882,000 for the fourth quarter of 2008 and $996,000 for the fourth quarter of 2007. When comparing the two periods, fees for services to customers declined $17,000, mortgage servicing fees declined $30,000 and gains on the sale of mortgages declined $23,000. The decline in mortgage servicing income is a result of a $33,000 valuation allowance recorded against the mortgage servicing asset.
For the twelve-month period ended December 31, 2008, total non-interest income, excluding securities losses, was $3,909,000. This compares to $3,722,000 for the comparable period in 2007. Positively impacting non-interest income for 2008 was the recognition of $230,000 of income as a result of the Visa initial public offering, comprised of a $175,000 gain related to the mandatory redemption of shares of restricted common stock in Visa and $55,000 of income related to the reversal of liabilities recorded in the fourth quarter of 2007 to fund settlements of, or judgments in, indemnified litigation involving Visa.
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Non-interest expense was $3,834,000 for the fourth quarter of 2008 compared to $3,640,000 for the fourth quarter of 2007. Higher personnel costs contributed to the increase in non-interest expense for the quarter. Salary and benefit expense increased $142,000, or 7.4%, when comparing the periods. An accrual for incentive compensation contributed $27,000 to the increase. Net occupancy and furniture and equipment expense increased $88,000 when comparing the three-month periods, reflecting an increase in depreciation expense. In addition, Federal Deposit Insurance Corporation (FDIC) premiums increased $69,000 when comparing the fourth quarter of 2008 to the fourth quarter of 2007. During 2007, QNB had a credit from prior year payments that was used to offset the premiums. The remainder of the credit was utilized in early 2008. As mentioned above non-interest expense for the fourth quarter of 2007 included an accrual of $55,000 related to Visa litigation.
For the twelve months ended December 31, 2008 total non-interest expense was $14,628,000. This compares to $13,701,000 for the same period in 2007, excluding the prepayment penalty previously noted. Salary and benefit expense increased $513,000, or 6.9%, to $7,977,000, compared to the same period in 2007. The accrual for incentive compensation in 2008 contributed $170,000 to the increase in salary and benefit expense. Also contributing to the increase in this category was an expense of $38,000 related to the adoption of EITF 06-04 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance, which was adopted January 1, 2008. When comparing the two years, net occupancy and furniture and fixture expense increased $270,000 to $2,574,000. Higher depreciation costs, branch rent expense, building and equipment maintenance and utilities costs contributed to this increase. In addition, expense related to FDIC premiums increased $216,000 when comparing the twelve-month periods. This was partially offset by a reduction in regulatory assessment fees of $95,000 resulting from the change in bank charters from a national bank to a state bank.
The following is an overview of other key financial highlights:
| - | Total assets were $664,394,000 at December 31, 2008, an increase of 9.0% from $609,813,000 at December 31, 2007. |
| - | Total loans were $403,579,000 at December 31, 2008, an increase of 5.9% from $381,016,000 at December 31, 2007. The Company continues to make credit available to its customers. |
| - | Total investment securities were $223,195,000 at December 31, 2008, an increase of 14.1% from $195,533,000 at December 31, 2007. As of December 31, 2008, QNB owns pooled trust preferred securities with a book value of $5,093,000 and a market value of $1,963,000. The market for trust preferred securities issued by Banks and Insurance companies has become inactive in response to the global credit crisis. Bid-ask spreads on these types of securities have widened significantly and the volume of trades has been virtually non-existent during 2008. Based on an analysis of cash flows and stress tests it was determined that these securities are not other-than-temporarily impaired as of December 31, 2008. |
| - | QNB is a member of the Federal Home Loan Bank of Pittsburgh (FHLB). The FHLB provides a source of liquidity for the Company as well as providing an outlet for selling residential mortgages. As a member, QNB is required to purchase capital stock of the FHLB. As of December 31, 2008, QNB held $2,279,000 of stock of the FHLB. In December 2008 the FHLB announced that it would be eliminating its dividend and not repurchasing excess stock from its members until further notice. |
| - | Total deposits of $549,790,000 at December 31, 2008 represent an increase of 11.3% from $494,124,000 at December 31, 2007. The new Wescosville branch opened in November 2008 had deposits totaling $22,479,000 at December 31, 2008. |
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Explanatory note: This press release contains certain financial information, as detailed below, which has been derived by methods other than Generally Accepted Accounting Standards ("GAAP") that Management uses in its analysis of the Company's performance. The Company has presented these non-GAAP measures because it believes that they provide more useful and comparative information to assess trends in the QNB's quarterly and year end results of operations. These non-GAAP measures should not be considered a substitute for GAAP basis measures and the Company strongly encourages a review of its condensed consolidated financial statements in their entirety.
| Reconciliation of Non-GAAP Measures (unaudited) | ||||||||||||||||||||||||
| Quarter ended December 31, 2008 | Quarter ended December 31, 2007 | |||||||||||||||||||||||
Pre-tax (Expense)/ Income | After-tax (Expense)/ Income | Diluted EPS Impact | Pre-tax (Expense)/ Income | After-tax (Expense)/ Income | Diluted EPS Impact | |||||||||||||||||||
| Other-than-temporary impairment of equity securities | $ | (615 | ) | $ | (406 | ) | $ | (0.12 | ) | $ | (200 | ) | $ | (132 | ) | $ | (0.04 | ) | ||||||
| Net income available to common shareholders | 871 | 0.28 | 1,021 | 0.32 | ||||||||||||||||||||
| Adjusted net income available to common shareholders | $ | 1,277 | $ | 0.40 | $ | 1,153 | $ | 0.36 | ||||||||||||||||
| Year ended December 31, 2008 | Year ended December 31, 2007 | |||||||||||||||||||||||
Pre-tax (Expense)/ Income | After-tax (Expense)/ Income | Diluted EPS Impact | Pre-tax (Expense)/ Income | After-tax (Expense)/ Income | Diluted EPS Impact | |||||||||||||||||||
| Other-than-temporary impairment of equity securities | $ | (917 | ) | $ | (605 | ) | $ | (0.19 | ) | $ | (200 | ) | $ | (132 | ) | $ | (0.04 | ) | ||||||
| Balance sheet restructuring charges | - | - | - | (2,758 | ) | (1,820 | ) | (0.57 | ) | |||||||||||||||
Loss on prepayment of Federal Home Loan Bank advances | - | - | - | (740 | ) | (488 | ) | (0.15 | ) | |||||||||||||||
| $ | (917 | ) | $ | (605 | ) | $ | (0.19 | ) | $ | (3,698 | ) | $ | (2,440 | ) | $ | (0.76 | ) | |||||||
| Net income available to common shareholders | 5,753 | 1.82 | 3,047 | 0.96 | ||||||||||||||||||||
| Adjusted net income available to common shareholders | $ | 6,358 | $ | 2.01 | $ | 5,487 | $ | 1.72 | ||||||||||||||||
QNB Corp. offers commercial and retail banking services through the nine banking offices of its subsidiary, QNB Bank. In addition, QNB provides retail brokerage services through Raymond James Financial Services, Inc. and title insurance as a member of Laurel Abstract Company LLC.
This press release may contain forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that increased demand or prices for the Company’s financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission, including "Item lA. Risk Factors," set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007. You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this press release.
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| QNB Corp. | ||||||||||||||||||||
| Consolidated Selected Financial Data (unaudited) | ||||||||||||||||||||
| December 31, 2008 | ||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Balance Sheet (Period End) | 12/31/08 | 9/30/08 | 6/30/08 | 3/31/08 | 12/31/07 | |||||||||||||||
| Assets | $ | 664,394 | $ | 638,327 | $ | 636,480 | $ | 617,873 | $ | 609,813 | ||||||||||
| Securities (AFS & HTM) | 223,195 | 223,273 | 207,081 | 202,150 | 195,533 | |||||||||||||||
| Loans, gross | 403,579 | 380,105 | 387,205 | 379,671 | 381,016 | |||||||||||||||
| Allowance for loan losses | (3,836 | ) | (3,492 | ) | (3,473 | ) | (3,411 | ) | (3,279 | ) | ||||||||||
| Loans, net | 399,743 | 376,613 | 383,732 | 376,260 | 377,737 | |||||||||||||||
| Deposits | 549,790 | 526,919 | 520,616 | 505,292 | 494,124 | |||||||||||||||
| Demand, non-interest bearing | 53,280 | 49,125 | 56,464 | 53,439 | 50,043 | |||||||||||||||
| Interest-bearing demand, money market and savings | 185,208 | 190,221 | 189,474 | 182,648 | 189,031 | |||||||||||||||
| Time | 311,302 | 287,573 | 274,678 | 269,205 | 255,050 | |||||||||||||||
| Short-term borrowings | 21,663 | 19,557 | 23,083 | 18,736 | 33,990 | |||||||||||||||
| Long-term debt | 35,000 | 35,000 | 35,000 | 35,000 | 25,000 | |||||||||||||||
| Shareholders' equity | 53,909 | 52,297 | 52,309 | 54,392 | 53,251 | |||||||||||||||
| Asset Quality Data (Period End) | 12/31/08 | 9/30/08 | 6/30/08 | 3/31/08 | 12/31/07 | |||||||||||||||
| Nonaccrual loans | $ | 830 | $ | 1,120 | $ | 625 | $ | 1,418 | $ | 1,397 | ||||||||||
| Loans past due 90 days or more and still accruing | 478 | 70 | 198 | 139 | 218 | |||||||||||||||
| Other real estate owned and repossessed assets | 319 | 142 | 104 | 37 | 6 | |||||||||||||||
| Nonperforming assets | 1,627 | 1,332 | 927 | 1,594 | 1,621 | |||||||||||||||
| Allowance for loan losses | 3,836 | 3,492 | 3,473 | 3,411 | 3,279 | |||||||||||||||
| Nonperforming loans / Loans | 0.32 | % | 0.31 | % | 0.21 | % | 0.41 | % | 0.42 | % | ||||||||||
| Nonperforming assets / Assets | 0.24 | % | 0.21 | % | 0.15 | % | 0.26 | % | 0.27 | % | ||||||||||
| Allowance for loan losses / Loans | 0.95 | % | 0.92 | % | 0.90 | % | 0.90 | % | 0.86 | % | ||||||||||
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| QNB Corp. | ||||||||||||||||||||||||||||
| Consolidated Selected Financial Data (unaudited) | ||||||||||||||||||||||||||||
| December 31, 2008 | ||||||||||||||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||
| For the three months ended, | For the year ended, | |||||||||||||||||||||||||||
| For the period: | 12/31/08 | 9/30/08 | 6/30/08 | 3/31/08 | 12/31/07 | 12/31/08 | 12/31/07 | |||||||||||||||||||||
| Interest income | $ | 8,825 | $ | 8,832 | $ | 8,838 | $ | 8,790 | $ | 8,916 | $ | 35,285 | $ | 35,305 | ||||||||||||||
| Interest expense | 3,574 | 3,787 | 3,782 | 4,176 | 4,404 | 15,319 | 17,738 | |||||||||||||||||||||
| Net interest income | 5,251 | 5,045 | 5,056 | 4,614 | 4,512 | 19,966 | 17,567 | |||||||||||||||||||||
| Provision for loan losses | 750 | 150 | 200 | 225 | 325 | 1,325 | 700 | |||||||||||||||||||||
| Net interest income after provision for loan losses | 4,501 | 4,895 | 4,856 | 4,389 | 4,187 | 18,641 | 16,867 | |||||||||||||||||||||
| Non-interest income: | ||||||||||||||||||||||||||||
| Fees for services to customers | 456 | 474 | 428 | 445 | 473 | 1,803 | 1,833 | |||||||||||||||||||||
| ATM and debit card income | 231 | 237 | 242 | 219 | 225 | 929 | 858 | |||||||||||||||||||||
| Net gain (loss) on investment securities available-for-sale | (610 | ) | (103 | ) | (118 | ) | 222 | (346 | ) | (609 | ) | (2,815 | ) | |||||||||||||||
| Other operating income | 195 | 207 | 277 | 498 | 298 | 1,177 | 1,031 | |||||||||||||||||||||
| Total non-interest income | 272 | 815 | 829 | 1,384 | 650 | 3,300 | 907 | |||||||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||||||||||
| Salaries and employee benefits | 2,052 | 1,999 | 1,955 | 1,971 | 1,910 | 7,977 | 7,464 | |||||||||||||||||||||
| Net occupancy and furniture and fixture expense | 707 | 619 | 619 | 629 | 619 | 2,574 | 2,304 | |||||||||||||||||||||
Loss on prepayment of Federal Home Loan Bank advances | - | - | - | - | - | - | 740 | |||||||||||||||||||||
| Other expense | 1,075 | 1,050 | 1,009 | 943 | 1,111 | 4,077 | 3,933 | |||||||||||||||||||||
| Total non-interest expense | 3,834 | 3,668 | 3,583 | 3,543 | 3,640 | 14,628 | 14,441 | |||||||||||||||||||||
| Income before income taxes | 939 | 2,042 | 2,102 | 2,230 | 1,197 | 7,313 | 3,333 | |||||||||||||||||||||
| Provision for income taxes | 68 | 476 | 496 | 520 | 176 | 1,560 | 286 | |||||||||||||||||||||
| Net income | $ | 871 | $ | 1,566 | $ | 1,606 | $ | 1,710 | $ | 1,021 | $ | 5,753 | $ | 3,047 | ||||||||||||||
| Share and Per Share Data: | ||||||||||||||||||||||||||||
| Net income - basic | $ | 0.28 | $ | 0.50 | $ | 0.51 | $ | 0.55 | $ | 0.33 | $ | 1.83 | $ | 0.97 | ||||||||||||||
| Net income - diluted | $ | 0.28 | $ | 0.50 | $ | 0.51 | $ | 0.54 | $ | 0.32 | $ | 1.82 | $ | 0.96 | ||||||||||||||
| Book value | $ | 17.21 | $ | 16.67 | $ | 16.68 | $ | 17.35 | $ | 16.99 | $ | 17.21 | $ | 16.99 | ||||||||||||||
| Cash dividends | $ | 0.23 | $ | 0.23 | $ | 0.23 | $ | 0.23 | $ | 0.22 | $ | 0.92 | $ | 0.88 | ||||||||||||||
| Average common shares outstanding - basic | 3,136,078 | 3,136,423 | 3,135,214 | 3,134,704 | 3,132,614 | 3,135,608 | 3,130,179 | |||||||||||||||||||||
| Average common shares outstanding - diluted | 3,154,238 | 3,161,840 | 3,163,809 | 3,166,976 | 3,177,375 | 3,161,326 | 3,174,873 | |||||||||||||||||||||
| Selected Ratios: | ||||||||||||||||||||||||||||
| Return on average assets | 0.53 | % | 0.97 | % | 1.04 | % | 1.13 | % | 0.68 | % | 0.91 | % | 0.51 | % | ||||||||||||||
| Return on average shareholders' equity | 6.32 | % | 11.55 | % | 12.15 | % | 13.22 | % | 7.79 | % | 10.76 | % | 5.94 | % | ||||||||||||||
| Net interest margin (tax equivalent) | 3.62 | % | 3.52 | % | 3.67 | % | 3.46 | % | 3.40 | % | 3.56 | % | 3.32 | % | ||||||||||||||
| Efficiency ratio (tax equivalent) | 64.94 | % | 58.88 | % | 57.30 | % | 55.62 | % | 65.86 | % | 59.09 | % | 72.59 | % | ||||||||||||||
Average shareholders' equity to total average assets | 8.46 | % | 8.39 | % | 8.52 | % | 8.56 | % | 8.69 | % | 8.47 | % | 8.51 | % | ||||||||||||||
| Net loan charge-offs | 407 | 130 | 138 | 94 | 47 | 769 | 150 | |||||||||||||||||||||
Net loan charge-offs (annualized) / Average loans | 0.42 | % | 0.14 | % | 0.14 | % | 0.10 | % | 0.05 | % | 0.20 | % | 0.04 | % | ||||||||||||||
| Balance Sheet (Average) | ||||||||||||||||||||||||||||
| Assets | $ | 648,112 | $ | 647,045 | $ | 623,393 | $ | 607,871 | $ | 598,967 | $ | 631,693 | $ | 602,601 | ||||||||||||||
| Securities (AFS & HTM) | 226,142 | 222,344 | 199,916 | 194,247 | 191,238 | 210,737 | 199,224 | |||||||||||||||||||||
| Loans, gross | 389,198 | 380,758 | 384,552 | 377,440 | 374,186 | 382,998 | 364,348 | |||||||||||||||||||||
| Deposits | 478,105 | 477,861 | 460,192 | 446,662 | 443,406 | 465,772 | 441,219 | |||||||||||||||||||||
| Shareholders' Equity | 54,848 | 53,918 | 53,141 | 52,016 | 52,029 | 53,486 | 51,299 | |||||||||||||||||||||
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# # #
| Contacts: | Thomas J. Bisko. President/CEO | Bret H. Krevolin, CFO |
| 215-538-5600 x-5612 | 215-538-5600 x-5716 | |
| tbisko@qnb.com | bkrevolin@qnb.com |