 | PO Box 9005 Quakertown PA 18951-9005 215.538.5600 1.800.491.9070 www.QNB.com |
FOR IMMEDIATE RELEASE
QNB CORP. REPORTS RECORD SECOND QUARTER AND FIRST HALF EARNINGS
QUAKERTOWN, PA (July 21, 2011) QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the parent company of QNB Bank (the “Bank”), reported net income for the second quarter of 2011 of $2,435,000, or $0.77 per share on a diluted basis. This represents a 24.0% increase compared to net income of $1,963,000, or $0.63 per share on a diluted basis, for the same period in 2010 and a 10.1% increase from first quarter 2011 results.
For the six month period ended June 30, 2011, QNB reported net income of $4,646,000, or $1.47 per share on a diluted basis. This represents a 22.6% increase in net income compared to the $3,789,000, or $1.22 per share on a diluted basis, reported for the six month period ended June 30, 2010.
The results for both the second quarter and first six months of 2011 represent record profits for QNB and reflect higher net interest income, resulting from an increase in the net interest margin and strong growth in deposits and earning assets. Also contributing to the increase in net income was a lower provision for loan losses.
Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 1.18% and 15.62%, respectively, for the quarter ended June 30, 2011 compared with 1.02% and 13.83% for the quarter ended June 30, 2010. For the six month periods the annualized rate of return on average assets and average shareholders’ equity was 1.15% and 15.18%, respectively, for the period ended June 30, 2011 compared with 1.01% and 13.58%, respectively, for the period ended June 30, 2010.
“We are proud of the record results for the quarter and first half of 2011 and the resulting return on average assets and return on average shareholders’ equity which places QNB near the top of its peer group in these two critical measures of financial performance”, stated Thomas J. Bisko, Chief Executive Officer. “Noting only gradual improvement in the economy, loan demand remained weak. Despite the sluggish economy, asset quality improved, deposit growth remained strong and QNB continued to operate as a “well capitalized institution” by all regulatory standards”.
Net Interest Income and Net Interest Margin
Growth in net interest income continues to be the most significant contributor to the Company’s record performance. Net interest income for the quarter ended June 30, 2011 totaled $7,151,000, an increase of $716,000, or 11.1%, over the same period in 2010. Net interest income for the second quarter of 2011 also reflects an improvement of $194,000, or 2.8%, compared to the first quarter of 2011. The net interest margin for the second quarter of 2011 was 3.84% compared to 3.74% for the second quarter of 2010 and 3.89% for the first quarter of 2011.
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For the six month period ended June 30, 2011 net interest income was $14,108,000, an increase of $1,649,000, or 13.2% over the $12,459,000 reported for the first half of 2010. The net interest margin for these same periods was 3.87% and 3.69%, respectively.
The increase in net interest income when comparing both the three and six month periods ended June 30, 2011 and 2010 is the result of an increase in the net interest margin and growth in deposits and earning assets. The improvement in the net interest margin during these periods reflects the impact of lower deposit costs partially offset by lower yields on loans and investment securities. The interest rate paid on interest-bearing deposits declined by 45 basis points to 1.07% for the second quarter of 2011 compared to the second quarter of 2010 and by 48 basis points when comparing the six month periods. The decline in the rate paid on deposits largely resulted from the repricing of time deposits, interest bearing transaction accounts and money market accounts at lower market rates. Lower-cost time deposits was the greatest contributor with the average rate paid on time deposits declining 57 basis points from 2.15% for the second quarter of 2010 to 1.58% for the second quarter of 2011. When comparing the six month periods the average rate paid on time deposits declined 62 basis points from 2.27% for the first half of 2010 to 1.65% for the same period in 2011.
In comparison, the average rate earned on loans and investment securities declined from 5.84% and 4.21%, respectively, for the second quarter of 2010 to 5.76% and 3.72% for the second quarter of 2011, a decline of 8 basis points and 49 basis points, respectively. When comparing the six month periods the average yield on loans and investment securities declined 3 basis points and 57 basis points, respectively. The decline in the cost of deposits as well as the yield on earning assets reflects the impact of a long period of historically low interest rates.
The slight decline in the net interest margin between the first and second quarters of 2011 primarily reflects a change in the mix of earning assets resulting from the economic environment which has reduced the demand for loans by both businesses and consumers. Average total loans increased 0.1% when comparing the two quarters while average investment securities and interest bearing cash increased $20,041,000, or 6.7%, when comparing the same two periods. In general, loans provide a higher return than investment securities.
Average earning assets grew by $59,023,000, or 8.0%, when comparing the second quarter of 2011 to the same period in 2010, with average loans increasing $11,051,000, or 2.4%, and average investment securities increasing $46,970,000, or 18.2%. On the funding side, average deposits increased $52,580,000, or 7.9%, with average transaction accounts increasing $80,180,000, or 23.4%. The growth in transaction accounts is largely due to the success of QNB's Online eSavings account. This product had an average balance of $100,045,000 for the quarter ended June 30, 2011 compared to $36,724,000 for the same 2010 quarter. Offsetting a portion of this growth was a decline in average time deposits of $27,600,000 when comparing the second quarter 2011 with the same period in 2010.
For the six-month period average earning assets increased by $58,844,000, or 8.1%, with average loans increasing $18,302,000, or 4.0%, and average investment securities increasing $42,552,000, or 16.7%. Over this same period average total deposits increased $54,324,000, or 8.3%.
Asset Quality, Provision for Loan Loss and Allowance for Loan Loss
QNB closely monitors the quality of its loan portfolio and as a result of increases in non-performing and classified loans, higher than normal levels of charge-offs and continued concerns about the economy, has increased the allowance for loan losses over the past few years to reflect these conditions. As of June 30, 2011, the level of non-performing and delinquent loans declined relative to the levels reported at the end of the first quarter of 2011. As a result of this and other factors the Company was able to reduce its provision for loan losses and its allowance for loan losses.
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Total non-performing assets were $13,844,000 at June 30, 2011 compared with $14,697,000 as of March 31, 2011 and $11,634,000 as of December 31, 2010. Included in this classification are non-performing loans, other real estate owned (OREO) and repossessed assets, and non-performing pooled trust preferred securities. Total non-performing loans, which represent loans on non-accrual status, loans past due more than 90 days and still accruing interest and restructured loans were $11,882,000, or 2.49% of total loans, at June 30, 2011 compared with $12,988,000, or 2.71% of total loans, at March 31, 2011 and $9,872,000, or 2.05% of total loans, at December 31, 2010. QNB had no OREO or repossessed assets at either June 30, 2011 or March 31, 2011 compared with $90,000 at December 31, 2010. Non-performing pooled trust preferred securities are carried at fair value which was $1,962,000, $1,709,000 and $1,672,000 at June 30, 2011, March 31, 2011 and December 31, 2010, respectively. Total delinquent loans that are thirty days or more past due decreased to 1.72% of total loans at June 30, 2011 compared with 1.90% of total loans at March 31, 2011 and 2.82% of total loans at December 31, 2010.
QNB recorded a provision for loan losses of $450,000 in the second quarter of 2011 compared to $650,000 in the first quarter of 2011 and $700,000 in the second quarter of 2010. For the six month periods ended June 30, 2011 and 2010 the provision for loan losses was $1,100,000 and $1,400,000, respectively. Net loan charge-offs were $792,000 for the second quarter of 2011, or 0.67% annualized of total average loans, compared with $413,000 for the first quarter of 2011, or 0.35% annualized of total average loans, and $48,000 for the second quarter of 2010, or 0.04% annualized of total average loans. Most of the loans charged-off in the second quarter of 2011 had been recognized as impaired with specific reserves prior to March 31, 2011. For the six month periods ended June 30, 2011 and 2010 net loan charge-offs were $1,205,000, or 0.51% annualized, and $608,000, or 0.27% annualized, respectively.
QNB's allowance for loan losses of $8,850,000 represents 1.86% of total loans at June 30, 2011 compared to an allowance for loan losses of $8,955,000, or 1.86% of total loans, at December 31, 2010 and $7,009,000, or 1.48% of total loans, at June 30, 2010.
Non-Interest Income
Total non-interest income was $1,070,000 for the second quarter of 2011, an increase of $43,000 compared with the same period in 2010. Net securities gains increased by $121,000 when comparing the two quarters with net gains of $54,000 recorded on the sale of debt and equity securities in the second quarter of 2011 while net securities losses of $67,000 were recorded during the second quarter of 2010, most of which was a result of credit-related other-than-temporary impairment (OTTI) charges on two pooled trust preferred securities. Less residential mortgage activity for the 2011 quarter resulted in gains on sales of residential mortgage loans decreasing $124,000 to $18,000.
Fees for services to customers decreased $59,000, or 14.5%, comparing the second quarter of 2011 to the second quarter of 2010. The decrease was primarily caused by lower overdraft charges as a result of the implementation of new rules under Regulation E. ATM and debit card income contributed $52,000 in additional non-interest income when comparing the three-month periods primarily due to an increase in volume and in the amount earned per transaction.
The increase in non-interest income when comparing the two quarters is primarily the result of small increases in several areas including: income on bank-owned life insurance - $12,000, merchant processing income - $7,000, mortgage servicing fees - $7,000, retail brokerage income - $7,000 and title company income - $8,000.
Total non-interest income for the six month period ended June 30, 2011 was $2,010,000, a decrease of $149,000, or 6.9%, from the amount recorded in 2010. Fees for services to customers declined $137,000, or 16.9%, to $674,000 and gains on the sale of residential mortgage loans declined $160,000, or 73.7%, to $57,000. The reasons for the decline in these areas are the same as noted above. Net gains on investment securities were $11,000 for the first six months of 2011 compared with net gains of $69,000 in 2010. In 2010, net gains of $295,000 on the sale of investments, primarily equity securities, were offset by credit-related OTTI charges of $226,000 on three pooled trust preferred securities. Partially offsetting these declines was a $109,000 increase in ATM and debit card income and a $58,000 increase in income on bank-owned life insurance.
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Non-Interest Expense
Total non-interest expense was $4,584,000 for the second quarter of 2011, an increase of 8.1% compared to $4,241,000 for the second quarter of 2010. A $241,000, or 11.1%, increase in salaries and employee benefits was the largest component of the higher expense, a result of filling the Chief Operating Officer and Chief Compliance Officer positions, a 2011 incentive compensation accrual of $103,000, and normal merit increases. Also contributing to the increase in non-interest expense when comparing the two quarters were increases in equipment maintenance costs, consultant expense and costs associated with the conversion to a new online and mobile banking system to be introduced in the fourth quarter of 2011.
Total non-interest expense was $9,004,000 for the six month period ended June 30, 2011. This represents an increase of $645,000, or 7.7%, from the same period in 2010. Higher salary and benefits expense contributed $491,000 of the increase with the accrual for incentive compensation accounting for $206,000 of the total increase in salary and benefits expense. The other items mentioned above for the quarter also impacted the six month salary and benefit expense amount. In addition, payroll related taxes increased $40,000 and medical and dental premium expense increased $32,000 when comparing the six month periods. Also contributing to the increase in total non-interest expense was a $37,000 increase in branch rent related primarily to lease expense for the permanent Wescosville branch which opened in October 2010 and a $48,000 increase in equipment maintenance costs.
About the Company
QNB Corp. is the holding company for QNB Bank, which is headquartered in Quakertown, Pennsylvania. QNB Bank currently operates nine branches in Bucks, Montgomery and Lehigh Counties and offers commercial and retail banking services in the communities it serves. In addition, the Company provides retail brokerage services through Raymond James Financial Services, Inc. and title insurance as a member of Laurel Abstract Company LLC. More information about QNB Corp. and QNB Bank is available at www.qnb.com.
Forward Looking Statement
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, 2010. 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) |
| (Dollars in thousands) | ||||||||||||||||||||
| Balance Sheet (Period End) | 6/30/11 | 3/31/11 | 12/31/10 | 9/30/10 | 6/30/10 | |||||||||||||||
| Assets | $ | 839,280 | $ | 819,445 | $ | 809,260 | $ | 791,236 | $ | 776,115 | ||||||||||
| Investment securities (AFS & HTM) | 327,936 | 296,312 | 293,231 | 282,098 | 264,719 | |||||||||||||||
| Loans receivable | 475,710 | 478,394 | 482,182 | 477,940 | 474,678 | |||||||||||||||
| Allowance for loan losses | (8,850 | ) | (9,192 | ) | (8,955 | ) | (8,132 | ) | (7,009 | ) | ||||||||||
| Net loans | 466,860 | 469,202 | 473,227 | 469,808 | 467,669 | |||||||||||||||
| Deposits | 719,681 | 707,406 | 694,977 | 674,247 | 657,970 | |||||||||||||||
| Demand, non-interest bearing | 65,542 | 61,881 | 55,377 | 53,100 | 59,235 | |||||||||||||||
| Interest-bearing demand, money market and savings | 360,150 | 353,844 | 329,368 | 309,688 | 281,448 | |||||||||||||||
| Time | 293,989 | 291,681 | 310,232 | 311,459 | 317,287 | |||||||||||||||
| Short-term borrowings | 30,553 | 26,033 | 29,786 | 31,173 | 34,059 | |||||||||||||||
| Long-term debt | 20,303 | 20,306 | 20,308 | 20,311 | 20,000 | |||||||||||||||
| Shareholders' equity | 66,194 | 62,683 | 61,090 | 62,682 | 61,128 | |||||||||||||||
| Asset Quality Data (Period End) | ||||||||||||||||||||
| Non-accrual loans | $ | 9,455 | $ | 10,589 | $ | 7,183 | $ | 8,094 | $ | 7,180 | ||||||||||
| Loans past due 90 days or more and still accruing | 10 | 12 | 268 | 199 | 62 | |||||||||||||||
| Restructured loans | 2,417 | 2,387 | 2,421 | 1,615 | 506 | |||||||||||||||
| Non-performing loans | 11,882 | 12,988 | 9,872 | 9,908 | 7,748 | |||||||||||||||
| Other real estate owned and repossessed assets | - | - | 90 | 12 | 40 | |||||||||||||||
| Non-accrual pooled trust preferred securities | 1,962 | 1,709 | 1,672 | 1,497 | 1,539 | |||||||||||||||
| Non-performing assets | $ | 13,844 | $ | 14,697 | $ | 11,634 | $ | 11,417 | $ | 9,327 | ||||||||||
| Allowance for loan losses | $ | 8,850 | $ | 9,192 | $ | 8,955 | $ | 8,132 | $ | 7,009 | ||||||||||
| Non-performing loans / Loans | 2.49 | % | 2.71 | % | 2.05 | % | 2.07 | % | 1.63 | % | ||||||||||
| Non-performing assets / Assets | 1.65 | % | 1.79 | % | 1.44 | % | 1.44 | % | 1.20 | % | ||||||||||
| Allowance for loan losses / Loans | 1.86 | % | 1.92 | % | 1.86 | % | 1.70 | % | 1.48 | % | ||||||||||
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| QNB Corp. |
| Consolidated Selected Financial Data (unaudited) |
| (Dollars in thousands, except per share data) | For the three months ended, | For the six months ended, | ||||||||||||||||||||||||||
| For the period: | 6/30/11 | 3/31/11 | 12/31/10 | 9/30/10 | 6/30/10 | 6/30/11 | 6/30/10 | |||||||||||||||||||||
| Interest income | $ | 9,188 | $ | 9,095 | $ | 9,189 | $ | 9,117 | $ | 9,049 | $ | 18,283 | $ | 17,877 | ||||||||||||||
| Interest expense | 2,037 | 2,138 | 2,376 | 2,476 | 2,614 | 4,175 | 5,418 | |||||||||||||||||||||
| Net interest income | 7,151 | 6,957 | 6,813 | 6,641 | 6,435 | 14,108 | 12,459 | |||||||||||||||||||||
| Provision for loan losses | 450 | 650 | 1,200 | 1,200 | 700 | 1,100 | 1,400 | |||||||||||||||||||||
| Net interest income after provision for loan losses | 6,701 | 6,307 | 5,613 | 5,441 | 5,735 | 13,008 | 11,059 | |||||||||||||||||||||
| Non-interest income: | ||||||||||||||||||||||||||||
| Fees for services to customers | 347 | 327 | 368 | 392 | 406 | 674 | 811 | |||||||||||||||||||||
| ATM and debit card | 366 | 328 | 326 | 317 | 314 | 694 | 585 | |||||||||||||||||||||
| Net gain (loss) on investment securities available-for-sale | 54 | (43 | ) | (23 | ) | (47 | ) | (67 | ) | 11 | 69 | |||||||||||||||||
| Other | 303 | 328 | 505 | 342 | 374 | 631 | 694 | |||||||||||||||||||||
| Total non-interest income | 1,070 | 940 | 1,176 | 1,004 | 1,027 | 2,010 | 2,159 | |||||||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||||||||||
| Salaries and employee benefits | 2,408 | 2,387 | 2,286 | 2,409 | 2,167 | 4,795 | 4,304 | |||||||||||||||||||||
| Net occupancy and furniture and equipment | 690 | 700 | 757 | 681 | 648 | 1,390 | 1,299 | |||||||||||||||||||||
| FDIC insurance premiums | 276 | 262 | 262 | 268 | 257 | 538 | 511 | |||||||||||||||||||||
| Other | 1,210 | 1,071 | 1,259 | 1,120 | 1,169 | 2,281 | 2,245 | |||||||||||||||||||||
| Total non-interest expense | 4,584 | 4,420 | 4,564 | 4,478 | 4,241 | 9,004 | 8,359 | |||||||||||||||||||||
| Income before income taxes | 3,187 | 2,827 | 2,225 | 1,967 | 2,521 | 6,014 | 4,859 | |||||||||||||||||||||
| Provision for income taxes | 752 | 616 | 415 | 349 | 558 | 1,368 | 1,070 | |||||||||||||||||||||
| Net income | $ | 2,435 | $ | 2,211 | $ | 1,810 | $ | 1,618 | $ | 1,963 | $ | 4,646 | $ | 3,789 | ||||||||||||||
| Share and Per Share Data: | ||||||||||||||||||||||||||||
| Net income - basic | $ | 0.77 | $ | 0.71 | $ | 0.58 | $ | 0.52 | $ | 0.63 | $ | 1.48 | $ | 1.22 | ||||||||||||||
| Net income - diluted | $ | 0.77 | $ | 0.70 | $ | 0.58 | $ | 0.52 | $ | 0.63 | $ | 1.47 | $ | 1.22 | ||||||||||||||
| Book value | $ | 20.98 | $ | 19.94 | $ | 19.52 | $ | 20.13 | $ | 19.67 | $ | 20.98 | $ | 19.67 | ||||||||||||||
| Cash dividends | $ | 0.25 | $ | 0.25 | $ | 0.24 | $ | 0.24 | $ | 0.24 | $ | 0.50 | $ | 0.48 | ||||||||||||||
| Average common shares outstanding - basic | 3,144,935 | 3,134,449 | 3,119,039 | 3,108,535 | 3,099,852 | 3,139,721 | 3,097,208 | |||||||||||||||||||||
| Average common shares outstanding - diluted | 3,161,761 | 3,145,239 | 3,132,689 | 3,123,262 | 3,113,467 | 3,153,641 | 3,107,683 | |||||||||||||||||||||
| Selected Ratios: | ||||||||||||||||||||||||||||
| Return on average assets | 1.18 | % | 1.11 | % | 0.89 | % | 0.82 | % | 1.02 | % | 1.15 | % | 1.01 | % | ||||||||||||||
| Return on average shareholders' equity | 15.62 | % | 14.72 | % | 12.08 | % | 11.01 | % | 13.83 | % | 15.18 | % | 13.58 | % | ||||||||||||||
| Net interest margin (tax equivalent) | 3.84 | % | 3.89 | % | 3.75 | % | 3.75 | % | 3.74 | % | 3.87 | % | 3.69 | % | ||||||||||||||
| Efficiency ratio (tax equivalent) | 52.50 | % | 52.57 | % | 53.76 | % | 55.00 | % | 53.48 | % | 52.53 | % | 53.83 | % | ||||||||||||||
| Average shareholders' equity to total average assets | 7.56 | % | 7.55 | % | 7.41 | % | 7.43 | % | 7.39 | % | 7.56 | % | 7.41 | % | ||||||||||||||
| Net loan charge-offs | $ | 792 | $ | 413 | $ | 377 | $ | 77 | $ | 48 | $ | 1,205 | $ | 608 | ||||||||||||||
| Net loan charge-offs (annualized)/Average loans | 0.67 | % | 0.35 | % | 0.32 | % | 0.07 | % | 0.04 | % | 0.51 | % | 0.27 | % | ||||||||||||||
| Balance Sheet (Average) | ||||||||||||||||||||||||||||
| Assets | $ | 826,901 | $ | 806,289 | $ | 802,144 | $ | 784,500 | $ | 769,539 | $ | 816,652 | $ | 759,598 | ||||||||||||||
| Investment securities (AFS & HTM) | 305,196 | 290,523 | 280,111 | 262,160 | 258,226 | 297,900 | 255,348 | |||||||||||||||||||||
| Loans receivable | 477,151 | 476,699 | 475,828 | 474,903 | 466,100 | 476,926 | 458,624 | |||||||||||||||||||||
| Deposits | 714,628 | 696,877 | 690,469 | 669,756 | 662,048 | 705,802 | 651,478 | |||||||||||||||||||||
| Shareholders' equity | 62,531 | 60,896 | 59,436 | 58,327 | 56,905 | 61,718 | 56,274 | |||||||||||||||||||||
| Contacts: | Thomas J. Bisko, CEO | Bret H. Krevolin, CFO | |
| 215-538-5600 x-5612 | 215-538-5600 x-5716 | ||
tbisko@qnb.com | bkrevolin@qnb.com |