[QNB LETTERHEAD]
FOR IMMEDIATE RELEASE
QNB CORP. REPORTS THIRD QUARTER RESULTS
QUAKERTOWN, PA (13 October 2004) QNB Corp. (OTC Bulletin Board: QNBC) the parent
company of The Quakertown National Bank (QNB), reported net income for the third
quarter 2004 of $1,453,000, or $.46 per share on a diluted basis. This
represents a 2.9 percent increase when compared to $1,412,000, or $.45 per share
on a diluted basis, for the same period in 2003. Net income for the first nine
months of 2004 was $4,694,000, or $1.48 per share diluted, a 2.6 percent
increase over the $4,573,000, or $1.46 per share diluted, for the comparable
period in 2003.
The results for the third quarter of 2004 represent an improvement in the core
earnings of QNB, as the third quarter of 2003 included several nonrecurring
items which positively affected net income during the 2003 period. Included in
the results for the third quarter of 2003 was the recognition of $109,000 in
tax-free proceeds from life insurance contracts, a $96,000 reversal of a
valuation allowance for mortgage servicing rights and a $137,000 reversal of a
tax valuation allowance recorded in previous periods. The reversal of the tax
valuation allowance was a result of the ability to realize tax benefits
associated with certain impaired securities, due to the increase in unrealized
gains of certain equity securities held by the company. These three items
account for approximately $309,000 of the net income reported in the third
quarter of 2003. Partially offsetting the impact of the life insurance proceeds
and the reversal of the mortgage servicing valuation allowance were net gains on
investment securities and loans. QNB recorded securities and loan gains of
$66,000 and $33,000, respectively during the third quarter of 2004. This
compares to securities losses of $73,000 and loan gains of $3,000 during the
third quarter of 2003.
"When looking at the detail of the results, I am pleased with the financial
performance we have achieved in the third quarter and for the first nine months
of 2004. We have been able to increase net income primarily through our core
banking activities of acquiring deposits and making loans," said Thomas J.
Bisko, President and CEO. "We remain on target to achieve our ninth consecutive
year of record earnings."
With regard to the core earnings of QNB, net interest income increased $296,000,
or 7.8 percent, when comparing the two quarters. A 6.9 percent increase in
average earning assets and a 3 basis point increase in the net interest margin
contributed to the increase in net interest income. Average loans and average
investment securities increased 12.0 percent and 5.9 percent, respectively. This
growth was funded by a 7.4 percent increase in average deposits, primarily
interest bearing demand deposits and money market deposits. Much of this growth
relates to the seasonal deposits of several school districts received towards
the end of the third quarter. These deposits are short-term in nature and are
primarily invested in securities whose cash flow will closely match the
anticipated run-off of the deposits. While these deposits add to net interest
income, they do so at a much smaller spread, thereby having a negative impact on
the net interest margin.
The net interest margin was 3.30 percent for the third quarter of 2004 compared
to 3.27 percent for the same period in 2003. The improvement in the net interest
margin when comparing the two quarters is a result of yields on interest-bearing
liabilities declining to a greater degree than yields on earning assets.
However, despite three 25 basis point rate increases by the Federal Reserve
Board since the end of June, and a corresponding increase in the prime lending
rate, the net interest margin actually declined 8 basis points when comparing
the second and third quarters of 2004. This decline was partially a result of
the short-term deposits mentioned previously.
Total non-interest income for the three months ended September 30, 2004 and 2003
was $991,000 and $938,000, respectively. In addition to the securities and loan
gains mentioned above, also contributing to the improvement in non-interest
income during the 2004 period were increases in retail brokerage and trust
income, ATM and debit card income and fee income on deposit accounts.
Total non-interest expense increased $40,000, or 1.2 percent, to $3,246,000 as a
result of higher costs related to buildings, furniture and equipment. These
costs include branch rent, building and equipment maintenance as well as
depreciation expense. Some of these increased costs relate to the opening of a
new supermarket branch in 2004. These increases were partially offset by a
decline in marketing expense and third party services expense.
Non-performing assets increased to $1,552,000 at September 30, 2004. This
compares to $68,000 at September 30, 2003. The increase is primarily a result of
loans to two borrowers. One relates to a loan put on non-accrual status during
the fourth quarter of 2003, while the other represents the relinquishment of
assets by the borrower to the bank, as its secured creditor, at the end of
September 2004. In conjunction with the transfer from a loan to other assets, a
charge-off of $350,000 was recorded. This amount could increase or decrease
during the fourth quarter as the assets are liquidated. This transfer had no
impact on reported earnings as no provision for loan losses was needed. As a
result of the charge-off, the allowance for loan losses as a percentage of total
loans declined to .99 percent at September 30, 2004 from 1.27 percent at
September 30, 2003.
QNB Corp. offers commercial and retail banking services through the eight
banking offices of its subsidiary, The Quakertown National Bank. In addition,
QNB provides trust and investment management services in conjunction with The
Trust Company of Lehigh Valley and retail brokerage services through Raymond
James Financial Services, Inc.
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.
QNB CORP.
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
INCOME:
Total interest income $ 6,519 $ 6,203 $18,827 $18,777
Total interest expense 2,425 2,405 6,854 7,381
Net interest income 4,094 3,798 11,973 11,396
Provision for loan losses - - - -
Total non-interest income 991 938 3,534 3,602
Total non-interest expense 3,246 3,206 9,505 9,362
Income before income taxes 1,839 1,530 6,002 5,636
Provision for income taxes 386 118 1,308 1,063
Net income $ 1,453 $ 1,412 $ 4,694 $ 4,573
NET INCOME PER SHARE:
Basic $ 0.47 $ 0.46 $ 1.52 $ 1.48
Diluted 0.46 0.45 1.48 1.46
Dividends 0.185 0.165 0.555 0.495
SELECTED PERIOD END BALANCES:
Total assets $596,627 $556,878
Federal funds sold 11,779 7,196
Investments 280,643 280,987
Loans held-for sale 113 889
Total loans 261,196 229,681
Allowance for loan losses 2,591 2,935
Deposits 484,074 445,848
Borrowed funds 64,460 63,931
Shareholders' equity 45,470 43,416
SELECTED RATIOS:
Return on average assets 1.01% 1.04% 1.13% 1.18%
Return on average shareholders' equity 13.30% 14.09% 14.75% 15.74%
Net interest margin-tax equivalent 3.30% 3.27% 3.37% 3.43%
Efficiency ratio-tax equivalent 59.56% 63.18% 57.31% 58.40%
Average shareholders' equity to total 7.58% 7.41% 7.69% 7.51%
average assets
Nonperforming assets to total assets .26% .01%
Allowance as a % of loans .99% 1.27%
# # #
Contact: Thomas J. Bisko, CEO 215-538-5600 ext. 5612 or
Bret H. Krevolin, CFO ext. 5716
8:30 AM - 5:00 PM