QNB Corp.
11/06/2025 | Press release | Distributed by Public on 11/06/2025 07:30
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
QNB Corp. is a bank holding company headquartered in Quakertown, Pennsylvania. QNB Corp., through its wholly-owned subsidiary, the Bank, has been serving the residents and businesses of upper Bucks, northern Montgomery and southern Lehigh counties in Pennsylvania since 1877. Due to its limited geographic area, growth is pursued through expansion of existing customer relationships and building new relationships by stressing a consistent high level of service at all points of contact. The Bank is a locally managed community bank that provides a full range of commercial and retail banking and retail brokerage services. The consolidated entity is referred to herein as "QNB" or the "Company".
Tabular information presented throughout management's discussion and analysis, other than share and per share data, is presented in thousands of dollars.
The Company uses non-GAAP financial information in its analysis of performance. These non-GAAP ratios and calculations provide a better understanding of ongoing operations and comparability with prior period results by showing the effects of significant gains and charges in the periods presented. The Company believes that investors may use these non-GAAP measures to analyze the Company's financial performance without the impact of unusual items or events that may obscure trends. This non-GAAP data is not a substitute for GAAP results and should be considered in addition to results prepared in accordance with GAAP. Non-GAAP financial measures include risks as companies might calculate these measures differently and persons might disagree as to the appropriateness of items included in these measures. Please see table under the RESULTS OF OPERATIONS - OVERVIEW section,"Impact of Merger-Related Costs--GAAP to Non-GAAP Measure Reconciliation."
In 2025, the Company changed its calculation of average assets and average equity to include the impact of accumulated other comprehensive income (loss), net of tax, to align its calculation with its peer group. Prior period information has been restated for this new calculation; specifically impacting the non-GAAP performance ratios for return on average assets and return on average equity.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this document contains forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "intend," "estimate," "project" and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" or similar expressions. The U.S. Private Securities Litigation Reform Act of 1995 provides a safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.
Shareholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, including the risk factors identified in Item 1A of QNB's 2024 Form 10-K, could affect the future financial results of QNB and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document. These factors include, but are not limited, to the following:
•
Volatility in interest rates and shape of the yield curve;
•
Credit risk;
•
Liquidity risk;
•
Operating, legal and regulatory risks;
•
Economic, political and competitive forces affecting QNB's business, including the effects of inflation;
•
The effects of unforeseen external events, including acts of terrorism, natural disasters, and pandemics; and
•
The risk that the analysis of these risks and forces could be incorrect, and/or that the strategies developed to address them could be unsuccessful.
QNB cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and QNB assumes no duty to update forward-looking statements. Management cautions readers not to place undue reliance on any forward-looking statements. These statements speak only as of the date of this report on Form 10-Q, even if subsequently made available by QNB on its website or otherwise, and they advise readers that various factors, including those described above, could affect QNB's financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected. Except as required by law, QNB does not undertake, and specifically disclaims any obligation, to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Disclosure of our significant accounting policies is included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2024, which is incorporated herein by reference. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.
RESULTS OF OPERATIONS - OVERVIEW
QNB reported net income for the third quarter of 2025 of $3,648,000, or $0.98 per share on a diluted basis, compared to net income of $3,338,000, or $0.91 per share on a diluted basis, for the same period in 2024. For the nine-month period ended September 30, 2025, QNB reported net income of $10,109,000, or $2.72 per share on a diluted basis, compared to net income of $8,397,000, or $2.29 per share on a diluted basis, for the same period in 2024.
On September 23, 2025, QNB Corp. and The Victory Bancorp, Inc. (Victory) announced they have entered into a definitive agreement under which QNB will acquire Victory in an all-stock transaction, creating a bank holding company with nearly $2.4 billion in assets. Upon the completion of the merger, the pro-forma post-merger shareholder ownership split would be approximately 76.4% for QNB and 23.6% for Victory. The transaction is expected to close in the fourth quarter of 2025 or first quarter of 2026, subject to satisfaction of customary closing conditions, including regulatory approvals and approval from both QNB and Victory shareholders.
Results for the third quarter and nine months ending September 30, 2025 included significant merger-related costs that are non-recurring
of $519,000; the costs are not normal recurring operating expenses. The following table showscalculated impact of the merger-related costs on net income and ratios, reconciling GAAP to non-GAAP measurements:
|
Impact of Merger-Related Costs--GAAP to Non-GAAP Measure Reconciliation |
|||||||||||||||||||||||
|
(Dollars in thousands, except per share data) |
|||||||||||||||||||||||
|
Three months ended, |
Nine months ended, |
||||||||||||||||||||||
|
For the period: |
9/30/2025 |
9/30/2024 |
Variance |
9/30/2025 |
9/30/2024 |
Variance |
|||||||||||||||||
|
Net income (GAAP) |
$ |
3,648 |
$ |
3,338 |
$ |
310 |
$ |
10,109 |
$ |
8,397 |
$ |
1,712 |
|||||||||||
|
Merger-related costs |
519 |
- |
519 |
519 |
- |
519 |
|||||||||||||||||
|
Income tax benefit |
(109 |
) |
- |
(109 |
) |
(109 |
) |
- |
(109 |
) |
|||||||||||||
|
Merger-related costs, net of tax |
410 |
- |
410 |
410 |
- |
410 |
|||||||||||||||||
|
Net income excluding impact of merger-related costs (Non-GAAP) |
$ |
4,058 |
$ |
3,338 |
$ |
720 |
$ |
10,519 |
$ |
8,397 |
$ |
2,122 |
|||||||||||
|
Share and Per Share Data: |
|||||||||||||||||||||||
|
Basic: |
|||||||||||||||||||||||
|
EPS using Net income (GAAP) |
$ |
0.98 |
$ |
0.91 |
$ |
0.07 |
$ |
2.72 |
$ |
2.29 |
$ |
0.43 |
|||||||||||
|
EPS using Net income excluding impact of merger-related costs (Non-GAAP) |
$ |
1.09 |
$ |
0.91 |
$ |
0.18 |
$ |
2.83 |
$ |
2.29 |
$ |
0.54 |
|||||||||||
|
Fully-diluted: |
|||||||||||||||||||||||
|
EPS using Net income (GAAP) |
$ |
0.98 |
$ |
0.91 |
$ |
0.07 |
$ |
2.72 |
$ |
2.29 |
$ |
0.43 |
|||||||||||
|
EPS using Net income excluding impact of merger-related costs (Non-GAAP) |
$ |
1.09 |
$ |
0.91 |
$ |
0.18 |
$ |
2.83 |
$ |
2.29 |
$ |
0.54 |
|||||||||||
|
Average common shares outstanding: |
|||||||||||||||||||||||
|
Basic |
3,721,501 |
3,679,799 |
3,710,824 |
3,666,937 |
|||||||||||||||||||
|
Diluted |
3,735,993 |
3,682,773 |
3,723,196 |
3,666,937 |
|||||||||||||||||||
|
Selected Ratios: |
|||||||||||||||||||||||
|
Return on Average Assets (ROAA): |
|||||||||||||||||||||||
|
ROAA using Net income (GAAP) |
0.76 |
% |
0.74 |
% |
2 bp |
0.72 |
% |
0.64 |
% |
8 bp |
|||||||||||||
|
ROAA using Net income excluding impact of merger-related costs (Non-GAAP) |
0.85 |
% |
0.74 |
% |
11 bp |
0.74 |
% |
0.64 |
% |
10 bp |
|||||||||||||
|
Return on Average Equity (ROAE): |
|||||||||||||||||||||||
|
ROAE using Net income (GAAP) |
12.49 |
% |
13.25 |
% |
-76 bp |
12.18 |
% |
11.83 |
% |
35 bp |
|||||||||||||
|
ROAE using Net income excluding impact of merger-related costs (Non-GAAP) |
13.89 |
% |
13.25 |
% |
64 bp |
12.68 |
% |
11.83 |
% |
85 bp |
|||||||||||||
|
Average Assets |
$ |
1,904,529 |
$ |
1,792,952 |
$ |
1,888,321 |
$ |
1,744,387 |
|||||||||||||||
|
AverageEquity |
$ |
115,907 |
$ |
100,192 |
$ |
110,934 |
$ |
94,794 |
|||||||||||||||
Excluding the impact of the merger-related costs net of tax, diluted earnings per share were $1.09 and $2.83 for the three and nine month periods of 2025, respectively. The Bank contributed $12,808,000 to net income for the nine months ended September 30, 2025 compared to $8,466,000 for the same period 2024; and the holding company had a negative contribution of $2,699,000 to net income for the nine months ended September 30, 2025 compared to a negative contribution of $69,000 for the same period 2024. The improved results at the Bank were primarily due to improvement in the interest margin causing a $7,612,000 increase in net interest income and a $140,000 increase in non-interest income; this was partly offset by and an increase in the provision for credit losses on loans and unfunded commitments of $310,000 and an increase in non-interest expense of $1,931,000. The change in contribution from QNB Corp. is
primarily due to a decrease in net interest income of $2,312,000, related to the subordinated debt issuance at the end of the third quarter of 2024, an increase in non-interest expense of $793,000, primarily due to merger-related expenses and a decrease of $311,000 in non-interest income due to realized and unrealized gain on the equity portfolio in 2024 compared to none in 2025.
Net income expressed as an annualized rate of return on average assets and average shareholders' equity was 0.76% and 12.49%, respectively, for the quarter ended September 30, 2025 compared with 0.74% and 13.25%, respectively, for the quarter ended September 30, 2024. Net income expressed as an annualized rate of return on average assets and average shareholders' equity was 0.72% and 12.18%, respectively, for the nine months ended September 30, 2025 compared with 0.64% and 11.83%, respectively, for the nine months ended September 30, 2024. . Return on average assets, excluding the impact of the merger-related cost, for the three- and nine-month periods of 2025 was 0.85% and 0.74%, respectively. Return on average equity,excluding the impact of the merger-related cost, for the three- and nine-month periods of 2025 was 0.13.89% and 12.68%, respectively.
Total assets as of September 30, 2025 were $1,903,244,000, compared with $1,870,894,000 at December 31, 2024. Loans receivable at September 30, 2025 were $1,246,529,000, a $30,481,000 increase from $1,216,048,000 at December 31, 2024. Total deposits of $1,681,540,000 at September 30, 2025 increased $52,999,000 compared with total deposits of $1,628,541,000 at December 31, 2024.
Results for the three and nine months ended September 30, 2025 include the following significant components:
•
Net interest income increased $1,871,000, or 16.8%, to $12,998,000 and increased $5,300,000, or 16.6%, to $37,187,000 for the three and nine months ended September 30, 2025, respectively.
•
Net interest margin on a tax-equivalent basis increased 24 basis points for the quarter to 2.72% compared to 2.48% for the same period in 2024. Net interest margin on a tax-equivalent basis increased 19 basis points for the nine months ended September 30, 2025 to 2.64% compared to 2.45% for the same period in 2024.
•
QNB recorded a $98,000 provision for credit losses on loans for the third quarter of 2025, compared with a provision of $154,000 for the same period in 2024. QNB recorded $504,000 in its provision for credit losses on loans for the nine months ended September 30, 2025, compared with $193,000 for the same period in 2024.
•
Non-interest income decreased $120,000, to $1,847,000 for the third quarter and decreased $185,000, to $5,083,000 for the nine months ended September 30, 2025 compared with the same periods in 2024. Excluding realized and unrealized gains (losses) on securities, non-interest income increased $247,000, or 15.4%, to $1,847,000 for the third quarter of 2025 compared to $1,600,000 for the same period in 2024; and increased $449,000, to $5,083,000 for the nine months ended September 30, 2025 compared with $4,634,000 the same period in 2024.
•
Non-interest expense increased $1,546,000 to $10,182,000 for the third quarter of 2025 and increased $2,710,000, to $29,113,000 for the nine months ended September 30, 2025 compared with the same periods in 2024. Non-interest expense, excluding merger-related costs increased $1,027,000, or 11.9% to $9,663,000 for the third quarter of 2025 and increased $2,191,000, or 8.3%,to $28,594,000 for the nine months ended September 30, 2025 compared with the same periods in 2024.
•
Total non-performing loans, comprised of loans on non-accrual status, were $8,947,000, or 0.72% of loans receivable at September 30, 2025, compared to $1,975,000, or 0.16% of loans receivable at December 31, 2024. Net loan recoveries for the nine months ended September 30, 2025 were $7,000, compared with net charge-offs of $58,000 for the same period in 2024.
These items, as well as others, are explained more thoroughly in the next sections.
NET INTEREST INCOME
QNB earns its net income primarily through the Bank. Net interest income, or the spread between the interest, dividends, and fees earned on loans and investment securities and the expense incurred on deposits and other interest-bearing liabilities, is the primary source of operating income for QNB. Management seeks to achieve sustainable and consistent earnings growth while maintaining adequate levels of capital and liquidity and limiting its exposure to credit and interest rate risk levels approved by the Board of Directors.
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, 2025 and 2024.
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Total interest income |
$ |
23,518 |
$ |
21,945 |
$ |
68,826 |
$ |
61,859 |
||||||||
|
Total interest expense |
10,520 |
10,818 |
31,639 |
29,972 |
||||||||||||
|
Net interest income |
12,998 |
11,127 |
37,187 |
31,887 |
||||||||||||
|
Tax-equivalent adjustment |
109 |
137 |
349 |
416 |
||||||||||||
|
Net interest income (fully taxable-equivalent) |
$ |
13,107 |
$ |
11,264 |
$ |
37,536 |
$ |
32,303 |
||||||||
Net interest income is the primary source of operating income for QNB. Net interest income is interest income, dividends, and fees on earning assets, less interest expense incurred for funding sources. Earning assets primarily include loans, investment securities, interest bearing balances at the Federal Reserve Bank and Federal funds sold. Sources used to fund these assets include deposits and borrowed funds. Net interest income is affected by changes in interest rates, the volume and mix of earning assets and interest-bearing liabilities, and the amount of earning assets funded by non-interest-bearing deposits.
For purposes of this discussion, interest income and the average yield earned on loans and investment securities are adjusted to a tax-equivalent basis as detailed in the tables that appear above. This adjustment to interest income is made for analysis purposes only. Interest income is increased by the amount of savings of Federal income taxes, which QNB realizes by investing in certain tax-exempt state and municipal securities and by making loans to certain tax-exempt organizations. In this way, the ultimate economic impact of earnings from various assets can be more easily compared.
The net interest rate spread is the difference between average rates received on earning assets and average rates paid on interest-bearing liabilities, while the net interest rate margin, which includes interest-free sources of funds, is net interest income expressed as a percentage of average interest-earning assets. The Asset/Liability and Investment Management Committee works to manage and maximize the net interest margin for the Company.
Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)
|
For the Three Months Ended |
||||||||||||||||||||||||
|
September 30, 2025 |
September 30, 2024 |
|||||||||||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||||||||||
|
Balance |
Rate |
Interest |
Balance |
Rate |
Interest |
|||||||||||||||||||
|
Assets |
||||||||||||||||||||||||
|
Investment securities (AFS & Equity): |
||||||||||||||||||||||||
|
U.S. Treasury securities |
$ |
20,556 |
4.18 |
% |
$ |
216 |
$ |
12,811 |
4.94 |
% |
$ |
159 |
||||||||||||
|
U.S. Government agencies |
75,965 |
1.18 |
224 |
75,956 |
1.18 |
224 |
||||||||||||||||||
|
State and municipal |
104,934 |
2.87 |
754 |
105,674 |
3.74 |
989 |
||||||||||||||||||
|
Mortgage-backed and CMOs |
344,214 |
2.50 |
2,152 |
345,119 |
2.84 |
2,453 |
||||||||||||||||||
|
Corporate debt securities and money market funds |
66,535 |
6.11 |
1,017 |
8,804 |
5.97 |
131 |
||||||||||||||||||
|
Equities |
- |
- |
- |
3,959 |
4.61 |
46 |
||||||||||||||||||
|
Total investment securities |
612,204 |
2.85 |
4,363 |
552,323 |
2.90 |
4,002 |
||||||||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Commercial real estate |
885,635 |
5.95 |
13,285 |
819,091 |
5.60 |
11,525 |
||||||||||||||||||
|
Residential real estate |
116,550 |
4.52 |
1,316 |
110,760 |
4.21 |
1,165 |
||||||||||||||||||
|
Home equity loans |
71,090 |
6.34 |
1,135 |
66,239 |
6.84 |
1,138 |
||||||||||||||||||
|
Commercial and industrial |
128,744 |
7.45 |
2,418 |
140,980 |
7.61 |
2,696 |
||||||||||||||||||
|
Consumer loans |
3,182 |
8.06 |
64 |
3,613 |
7.75 |
70 |
||||||||||||||||||
|
Tax-exempt loans |
19,629 |
4.28 |
211 |
18,305 |
3.88 |
179 |
||||||||||||||||||
|
Total loans, net of unearned income* |
1,224,830 |
5.97 |
18,429 |
1,158,988 |
5.76 |
16,773 |
||||||||||||||||||
|
Other earning assets |
74,054 |
4.47 |
835 |
95,780 |
5.43 |
1,307 |
||||||||||||||||||
|
Total earning assets |
1,911,088 |
4.91 |
23,627 |
1,807,091 |
4.86 |
22,082 |
||||||||||||||||||
|
Cash and due from banks |
16,062 |
15,540 |
||||||||||||||||||||||
|
Accumulated other comprehensive loss, net of tax |
(56,590 |
) |
(63,082 |
) |
||||||||||||||||||||
|
Allowance for credit losses on loans |
(9,185 |
) |
(8,860 |
) |
||||||||||||||||||||
|
Other assets |
43,154 |
42,263 |
||||||||||||||||||||||
|
Total assets |
$ |
1,904,529 |
$ |
1,792,952 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Interest-bearing demand |
$ |
377,473 |
0.98 |
% |
933 |
$ |
356,763 |
1.00 |
% |
898 |
||||||||||||||
|
Municipals |
179,161 |
3.76 |
1,697 |
154,619 |
4.69 |
1,823 |
||||||||||||||||||
|
Money market |
256,289 |
2.87 |
1,852 |
238,494 |
3.56 |
2,132 |
||||||||||||||||||
|
Savings |
277,808 |
1.28 |
899 |
278,247 |
1.28 |
896 |
||||||||||||||||||
|
Time < $100 |
178,371 |
3.52 |
1,583 |
178,228 |
4.12 |
1,846 |
||||||||||||||||||
|
Time $100 through $250 |
157,409 |
3.89 |
1,545 |
152,416 |
4.64 |
1,777 |
||||||||||||||||||
|
Time > $250 |
56,258 |
3.95 |
560 |
49,506 |
4.61 |
573 |
||||||||||||||||||
|
Total interest-bearing deposits |
1,482,769 |
2.43 |
9,069 |
1,408,273 |
2.81 |
9,945 |
||||||||||||||||||
|
Short-term borrowings |
57,063 |
3.57 |
514 |
34,078 |
2.18 |
186 |
||||||||||||||||||
|
Long-term debt |
- |
- |
- |
30,000 |
4.75 |
364 |
||||||||||||||||||
|
Subordinated debt |
39,191 |
9.57 |
937 |
13,716 |
9.42 |
323 |
||||||||||||||||||
|
Total borrowings |
96,254 |
5.98 |
1,451 |
77,794 |
4.47 |
873 |
||||||||||||||||||
|
Total interest-bearing liabilities |
1,579,023 |
2.64 |
10,520 |
1,486,067 |
2.90 |
10,818 |
||||||||||||||||||
|
Non-interest-bearing deposits |
195,349 |
192,652 |
||||||||||||||||||||||
|
Other liabilities |
14,250 |
14,041 |
||||||||||||||||||||||
|
Shareholders' equity |
115,907 |
100,192 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,904,529 |
$ |
1,792,952 |
||||||||||||||||||||
|
Net interest rate spread |
2.27 |
% |
1.96 |
% |
||||||||||||||||||||
|
Margin/net interest income |
2.72 |
% |
$ |
13,107 |
2.48 |
% |
$ |
11,264 |
||||||||||||||||
|
For the Nine Months Ended |
||||||||||||||||||||||||
|
September 30, 2025 |
September 30, 2024 |
|||||||||||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||||||||||
|
Balance |
Rate |
Interest |
Balance |
Rate |
Interest |
|||||||||||||||||||
|
Assets |
||||||||||||||||||||||||
|
Investment securities (AFS & Equity): |
||||||||||||||||||||||||
|
U.S. Treasury securities |
$ |
20,582 |
4.26 |
% |
$ |
656 |
$ |
8,820 |
5.10 |
% |
$ |
337 |
||||||||||||
|
U.S. Government agencies |
75,963 |
1.18 |
672 |
81,800 |
1.17 |
718 |
||||||||||||||||||
|
State and municipal |
105,092 |
2.87 |
2,264 |
107,237 |
3.56 |
2,860 |
||||||||||||||||||
|
Mortgage-backed and CMOs |
353,997 |
2.46 |
6,544 |
355,878 |
2.72 |
7,262 |
||||||||||||||||||
|
Corporate debt securities |
64,276 |
6.44 |
3,106 |
7,416 |
5.78 |
321 |
||||||||||||||||||
|
Equities |
- |
- |
- |
5,487 |
3.87 |
159 |
||||||||||||||||||
|
Total investment securities |
619,910 |
2.85 |
13,242 |
566,638 |
2.74 |
11,657 |
||||||||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Commercial real estate |
868,880 |
5.87 |
38,129 |
798,714 |
5.47 |
32,701 |
||||||||||||||||||
|
Residential real estate |
115,149 |
4.41 |
3,809 |
109,463 |
4.07 |
3,337 |
||||||||||||||||||
|
Home equity loans |
69,921 |
6.39 |
3,339 |
64,700 |
6.83 |
3,307 |
||||||||||||||||||
|
Commercial and industrial |
140,822 |
7.42 |
7,817 |
141,148 |
7.57 |
7,997 |
||||||||||||||||||
|
Consumer loans |
3,327 |
7.81 |
194 |
3,679 |
7.78 |
214 |
||||||||||||||||||
|
Tax-exempt loans |
19,260 |
4.22 |
608 |
18,410 |
3.86 |
532 |
||||||||||||||||||
|
Total loans, net of unearned income* |
1,217,359 |
5.92 |
53,896 |
1,136,114 |
5.65 |
48,088 |
||||||||||||||||||
|
Other earning assets |
61,114 |
4.46 |
2,037 |
61,999 |
5.45 |
2,530 |
||||||||||||||||||
|
Total earning assets |
1,898,383 |
4.87 |
69,175 |
1,764,751 |
4.71 |
62,275 |
||||||||||||||||||
|
Cash and due from banks |
14,375 |
13,880 |
||||||||||||||||||||||
|
Accumulated other comprehensive loss, net of tax |
(58,821 |
) |
(66,664 |
) |
||||||||||||||||||||
|
Allowance for credit losses on loans |
(9,102 |
) |
(8,897 |
) |
||||||||||||||||||||
|
Other assets |
43,486 |
41,317 |
||||||||||||||||||||||
|
Total assets |
$ |
1,888,321 |
$ |
1,744,387 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Interest-bearing demand |
$ |
378,157 |
0.98 |
% |
2,765 |
$ |
337,632 |
0.89 |
% |
2,243 |
||||||||||||||
|
Municipals |
158,426 |
3.87 |
4,580 |
139,810 |
4.76 |
4,987 |
||||||||||||||||||
|
Money market |
257,392 |
2.87 |
5,532 |
232,140 |
3.57 |
6,196 |
||||||||||||||||||
|
Savings |
279,507 |
1.29 |
2,693 |
288,885 |
1.28 |
2,769 |
||||||||||||||||||
|
Time < $100 |
178,760 |
3.64 |
4,870 |
168,894 |
3.98 |
5,027 |
||||||||||||||||||
|
Time $100 through $250 |
155,532 |
4.04 |
4,700 |
141,156 |
4.53 |
4,790 |
||||||||||||||||||
|
Time > $250 |
52,319 |
4.10 |
1,605 |
50,855 |
4.49 |
1,709 |
||||||||||||||||||
|
Total interest-bearing deposits |
1,460,093 |
2.45 |
26,745 |
1,359,372 |
2.72 |
27,721 |
||||||||||||||||||
|
Short-term borrowings |
58,546 |
3.79 |
1,659 |
57,880 |
2.33 |
1,010 |
||||||||||||||||||
|
Long-term debt |
11,758 |
4.74 |
423 |
26,058 |
4.63 |
918 |
||||||||||||||||||
|
Subordinated debt |
39,142 |
9.58 |
2,812 |
4,605 |
9.35 |
323 |
||||||||||||||||||
|
Total borrowings |
109,446 |
5.98 |
4,894 |
88,543 |
3.40 |
2,251 |
||||||||||||||||||
|
Total interest-bearing liabilities |
1,569,539 |
2.70 |
31,639 |
1,447,915 |
2.77 |
29,972 |
||||||||||||||||||
|
Non-interest-bearing deposits |
193,173 |
187,918 |
||||||||||||||||||||||
|
Other liabilities |
14,675 |
13,760 |
||||||||||||||||||||||
|
Shareholders' equity |
110,934 |
94,794 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
1,888,321 |
$ |
1,744,387 |
||||||||||||||||||||
|
Net interest rate spread |
2.17 |
% |
1.94 |
% |
||||||||||||||||||||
|
Margin/net interest income |
2.64 |
% |
$ |
37,536 |
2.45 |
% |
$ |
32,303 |
||||||||||||||||
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, 2025 and 2024.
Non-accrual loans are included in earning assets.
* Includes loans held-for-sale
Rate/Volume Analysis.The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated to changes in volume.
|
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||||||||||
|
September 30, 2025 compared |
September 30, 2025 compared |
|||||||||||||||||||||||
|
to September 30, 2024 |
to September 30, 2024 |
|||||||||||||||||||||||
|
Total |
Due to change in: |
Total |
Due to change in: |
|||||||||||||||||||||
|
Change |
Volume |
Rate |
Change |
Volume |
Rate |
|||||||||||||||||||
|
Interest income: |
||||||||||||||||||||||||
|
Investment securities (AFS & Equity): |
||||||||||||||||||||||||
|
U.S. Treasury securities |
$ |
57 |
$ |
96 |
$ |
(39 |
) |
$ |
319 |
$ |
448 |
$ |
(129 |
) |
||||||||||
|
U.S. Government agencies |
- |
- |
- |
(46 |
) |
(51 |
) |
5 |
||||||||||||||||
|
State and municipal |
(235 |
) |
(6 |
) |
(229 |
) |
(596 |
) |
(57 |
) |
(539 |
) |
||||||||||||
|
Mortgage-backed and CMOs |
(301 |
) |
(6 |
) |
(295 |
) |
(718 |
) |
(38 |
) |
(680 |
) |
||||||||||||
|
Corporate debt securities and money market funds |
886 |
861 |
25 |
2,785 |
2,463 |
322 |
||||||||||||||||||
|
Equities |
(46 |
) |
(46 |
) |
- |
(159 |
) |
(159 |
) |
- |
||||||||||||||
|
Total Investment securities (AFS & Equity) |
361 |
899 |
(538 |
) |
1,585 |
2,606 |
(1,021 |
) |
||||||||||||||||
|
Loans: |
||||||||||||||||||||||||
|
Commercial real estate |
1,760 |
970 |
790 |
5,428 |
2,840 |
2,588 |
||||||||||||||||||
|
Residential real estate |
151 |
61 |
90 |
472 |
174 |
298 |
||||||||||||||||||
|
Home equity loans |
(3 |
) |
87 |
(90 |
) |
32 |
263 |
(231 |
) |
|||||||||||||||
|
Commercial and industrial |
(278 |
) |
(227 |
) |
(51 |
) |
(180 |
) |
(26 |
) |
(154 |
) |
||||||||||||
|
Consumer loans |
(6 |
) |
(9 |
) |
3 |
(20 |
) |
(21 |
) |
1 |
||||||||||||||
|
Tax-exempt loans |
32 |
12 |
20 |
76 |
24 |
52 |
||||||||||||||||||
|
Total Loans |
1,656 |
894 |
762 |
5,808 |
3,254 |
2,554 |
||||||||||||||||||
|
Other earning assets |
(472 |
) |
(294 |
) |
(178 |
) |
(493 |
) |
(38 |
) |
(455 |
) |
||||||||||||
|
Total interest income |
1,545 |
1,499 |
46 |
6,900 |
5,822 |
1,078 |
||||||||||||||||||
|
Interest expense: |
||||||||||||||||||||||||
|
Interest-bearing deposits: |
||||||||||||||||||||||||
|
Interest-bearing demand |
35 |
55 |
(20 |
) |
522 |
267 |
255 |
|||||||||||||||||
|
Municipals |
(126 |
) |
295 |
(421 |
) |
(407 |
) |
659 |
(1,066 |
) |
||||||||||||||
|
Money market |
(280 |
) |
166 |
(446 |
) |
(664 |
) |
668 |
(1,332 |
) |
||||||||||||||
|
Savings |
3 |
2 |
1 |
(76 |
) |
(92 |
) |
16 |
||||||||||||||||
|
Time < $100 |
(263 |
) |
4 |
(267 |
) |
(157 |
) |
287 |
(444 |
) |
||||||||||||||
|
Time $100 through $250 |
(232 |
) |
63 |
(295 |
) |
(90 |
) |
483 |
(573 |
) |
||||||||||||||
|
Time > $250 |
(13 |
) |
80 |
(93 |
) |
(104 |
) |
48 |
(152 |
) |
||||||||||||||
|
Total interest-bearing deposits |
(876 |
) |
665 |
(1,541 |
) |
(976 |
) |
2,320 |
(3,296 |
) |
||||||||||||||
|
Short-term borrowings |
328 |
129 |
199 |
649 |
12 |
637 |
||||||||||||||||||
|
Long-term debt |
(364 |
) |
(363 |
) |
(1 |
) |
(495 |
) |
(505 |
) |
10 |
|||||||||||||
|
Subordinated debt |
614 |
599 |
15 |
2,489 |
2,421 |
68 |
||||||||||||||||||
|
Total borrowings |
578 |
365 |
213 |
2,643 |
1,928 |
715 |
||||||||||||||||||
|
Total interest expense |
(298 |
) |
1,030 |
(1,328 |
) |
1,667 |
4,248 |
(2,581 |
) |
|||||||||||||||
|
Net interest income |
$ |
1,843 |
$ |
469 |
$ |
1,374 |
$ |
5,233 |
$ |
1,574 |
$ |
3,659 |
||||||||||||
Net Interest Income and Net Interest Margin - Quarterly Comparison
Average earning assets for the third quarter of 2025 were $1,911,088,000, an increase of $103,997,000, or 5.8%, from the third quarter of 2024, with average loans increasing $65,842,000, or 5.7%, and average investment securities increasing $59,881,000, or 10.8%, over the same period in 2024. Proceeds from the growth in average deposits and the issuance of subordinated debt over the past year were invested in loans and higher-yielding securities. Average loans as a percentage of average earning assets was 64.1% for the third quarter of 2025, unchanged from 64.1% for the third quarter of 2024. On the funding side, average deposits increased $77,193,000, or 4.8%, to $1,678,118,000 for the third quarter of 2025 primarily due to an increase in interest-bearing demand, municipal deposits, money market products and time deposits. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements and FHLB borrowings, increased $22,985,000 to $57,063,000 for the third quarter of 2025 compared to $34,078,000 for the same period in 2024. Proceeds from the issuance of short-term debt were used to payoff long-term debt which decreased on average $30,000,000. During the third quarter of 2024, QNB Corp. issued $40,000,000 of subordinated debt; the carrying value net of deferred costs was $39,218,000 at September 30, 2025.
The net interest margin for the third quarter of 2025 increased 24 basis points to 2.72% from 2.48% 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 have had a positive impact on the net interest margin.
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 $1,545,000, or 7.0%, to $23,627,000 for the third quarter of 2025; total interest expense decreased $298,000 to $10,520,000.
The yield on earning assets on a tax-equivalent basis increased five basis points to 4.91% for the third quarter of 2025, from 4.86% for the third quarter of 2024. The cost of interest-bearing liabilities was 2.64% for the third quarter of 2025, compared with 2.90% for the same period in 2024.
Interest income on investment securities (available-for-sale and equity) increased $361,000 when comparing the third quarters of 2025 and 2024. The average yield on the investment portfolio was 2.85% for the third quarter of 2025 compared with 2.90% for the same period in 2024, a decrease of five basis points.
The yield on U.S. Treasury securities was 4.18% for the second quarter of 2025 compared to 4.94% for the same period in 2024; the decline in rate was more than offset by the average balances increase of $7,745,000 for a net increase in interest income of $57,000. The average balances of U.S. Government agency securities increased $9,000 as the average rate remained unchanged at 1.18%.
Interest income on municipal securities, which are primarily tax-exempt, decreased $235,000 due to an 87 basis-point decrease in rate, and a $740,000 decrease in average balances. Typically, QNB purchases municipal bonds with 10- to 20-year maturities and may have call dates between 2-10 years.
Interest income on mortgage-backed securities and CMOs decreased $301,000 and average balances decreased $905,000 and the yield decreased 34 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.
Interest income on corporate debt and mutual funds increased $886,000 as average balances increased $57,731,000 and the average yield increased 14 basis points. Proceeds from the issuance of subordinated debt were invested in high-yielding securities.
Average balances on equities decreased $3,959,000 as the portfolio was sold during 2024; this was the cause of the $46,000 decrease in dividends comparing the third quarter of 2025 to the same period in 2024. Proceeds from sales of equities in 2024 were reinvested in higher yielding treasury securities.
Income on loans increased $1,656,000 to $18,429,000 when comparing the Third quarters of 2025 and 2024, with a $65,842,000 increase in average balances contributing to an increase in interest income of $894,000 and a 21-basis point increase in yield contributing to a $762,000 increase in interest income. Higher interest rates during the repricing period were partially offset by competitive pressures that compressed the yields on new loans.
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 $1,760,000 when comparing the third quarters of 2025 and 2024, primarily due to a 35-basis point increase in rate from 5.60% in 2024 to 5.95% and increased average balances of $66,544,000, or 8.1%.
Income on commercial and industrial loans decreased $278,000 when comparing the third quarters of 2025 and 2024. The average yield on these loans decreased 16 basis points to 7.45% resulting in a decrease in income of $51,000; average balances decreased $12,236,000, to $128,744,000 for the third quarter of 2025 resulting in a $227,000 decrease in interest income. Many of the loans in this category are indexed to the prime interest rate.
Tax-exempt loan income increased $32,000 for the third quarter of 2025 compared to the same period in 2024. Average balances increased $1,324,000 to $19,629,000 for the third quarter of 2025. The yield on municipal loans increased 40 basis points, to 4.28% for the third quarter of 2025, compared with the same period in 2024.
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 $151,000 when comparing the third quarter of 2025 to the same period in 2024. Average residential mortgage loan balances increased by $5,790,000, or 5.2%, to $116,550,000 for the third quarter of 2025 compared to the same period in 2024, which contributed a $61,000 increase in interest income. The average yield on the portfolio increased 31 basis points and contributed an increase of $90,000 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 $4,851,000 to $71,090,000 and the average yield decreased 50 basis points to 6.34% resulting in a $3,000 net decrease in interest income. The yield on the consumer portfolio increased 31 basis points to 8.06% for the third quarter of 2025 and there was a $431,000 decrease in average balances resulting in a net $6,000 decrease in interest income. The decrease in consumer loans was primarily due to the repayment of student loan balances.
Earning assets are funded by deposits and borrowed funds. Interest expense decreased $298,000, when comparing the third 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 $439,000 to $277,808,000. 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 $2,697,000 to $195,349,000 for the third quarter of 2025. Average interest-bearing demand accounts increased $20,710,000, or 5.8%, to $377,473,000 for the third quarter of 2025 and the average rate paid on these deposits decreased two basis points; interest expense on interest-bearing demand accounts increased $35,000 to $933,000 for the same period. Average money market accounts increased $17,795,000, or 7.5%, to $256,289,000 for the third quarter of 2025 compared with the same period in 2024. Interest expense on money market accounts decreased $280,000 to $1,852,000, and the average interest rate paid on money market accounts decreased 69 basis points to 2.87% for the third quarter of 2025. Most of the balances in this category are in products that pay tiered rates based on account balances.
Interest expense on municipal interest-bearing demand accounts decreased $126,000 to $1,697,000 for the third quarter of 2025. The average interest rate paid on municipal interest-bearing demand accounts decreased 93 basis points to 3.76% for the third quarter of 2025 over the same quarter of 2024, and average balances increased $24,542,000 to $179,161,000. 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.
Interest expense on savings accounts increased $3,000 when comparing the third quarter of 2025 to the same quarter of 2024. The average interest rate paid on savings accounts remained the same at 1.28% for the third quarter of 2025. When comparing these same periods, average savings accounts decreased $439,000, or 0.2%, to $277,808,000 for the third quarter of 2025. QNB's online e-Savings product is the largest category of savings deposits, with average balances for the third quarter of 2025 of $206,099,000 compared to $202,810,000 in the same period of 2024. The average yield paid on these accounts was 1.69% for the third quarter of 2025 compared to 1.72% for the same period in 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 $3,728,000 when comparing the third quarter of 2025 to the same period in 2024.
Interest expense on time deposits totaled $3,688,000 for the third quarter of 2025 compared to $4,196,000 in 2024. Average total time deposits increased $11,888,000 to $392,038,000 for the third 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.
Approximately $370,048,000, or 96%, of time deposits at September 30, 2025 will mature over the next 12 months. The average rate paid on these time deposits is approximately 3.09%. 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.
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers and short-term FHLB borrowing. Interest expense on short-term borrowings increased $328,000 for the third quarter of 2025 to $514,000 when
compared to the same period in 2024. When comparing these same periods, average balances increased $22,985,000 to $57,063,000. The yield on customer repos increased 29 basis points for the third quarter of 2025 to 2.47%. FHLB borrowings increased $35,867,000 over the third quarter of 2024 and interest increased $383,000 in the third quarter of 2025 at an average rate of 4.24%.
Average long-term borrowings decreased $30,000,000 as there were no long-term borrowings for the third quarter of 2024.
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 $39,191,000 for the third quarter of 2025 compared to $13,716,000 for same period in 2024. The average yield increased 15 basis points from 9.42% to 9.57% 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.
Net Interest Income and Net Interest Margin - Nine-Month Comparison
For the nine-month period ending September 30, 2025 average earning assets increased $133,632,000, or7.6%, to $1,898,383,000, with average loans increasing 7.2% and average investment securities increasing 9.4%. Average total deposits increased $105,976,000, or 6.8%, to $1,653,266,000 for the nine-month period ended September 30, 2025 compared to the same period in 2024. The net interest margin on a tax-equivalent basis was 2.64% for the nine-month period ended September 30, 2025, a 19-basis point increase from the same period in 2024.
Total interest income on a tax-equivalent basis increased $6,900,000, or 11.1%, to $69,175,000, when comparing the nine-month periods ended September 30, 2025 and September 30, 2024 primarily due to an increase in volume and rate on loans. Interest income on loans increased $3,254,000 as a result of volume and increased $2,554,000 as a result of yields. The analysis of the nine-month comparison periods is similar to what was described in the quarterly analysis.
The yield on earning assets increased from 4.71% to 4.87% for the nine-month periods with the yield on loans up 27 basis points to 5.92%. QNB continues to experience pressure on yields due to competitive pressures on loan pricing.
Total interest expense increased $1,667,000 for the nine-month period ended September 30, 2025 compared with the same period in 2024 attributable to an increase in volume. Average interest-bearing liabilities increased $121,624,000 and the average rate paid on interest-bearing liabilities decreased seven basis points to 2.70% for the nine-month period ended September 30, 2025 versus the same period in 2024. Average interest-bearing deposits increased $100,721,000 and the related interest expense decreased $976,000, as the rate decreased 27 basis points, for the nine-month period ended September 30, 2025 versus the same period in 2024. The average balance of total long-term borrowings decreased $14,300,000 for the nine months ended September 30, 2025 compared to the same period in 2024 and the average balance of subordinated debt increased $34,537,000. QNB invested proceeds from the issuance of subordinated debt and deposit growth into loans, investments and paying off long-term borrowings.
PROVISION FOR CREDIT LOSSES, ALLOWANCE FOR CREDIT LOSSES ON LOANS AND ALLOWANCE FOR CREDIT LOSSES ON UNUSED COMMITMENTS
The provision for credit losses represents management's determination of the amount necessary to be charged to operations to bring the allowance for credit losses on loans and the allowance for credit losses on unused commitments to amounts that are intended to absorb historical loss experience, current conditions and reasonable and supportable forecasts, in the outstanding loan portfolio and the unused commitments. Management believes that it uses the best information available to make determinations about the adequacy of these allowances and that it has established its existing allowances for credit losses on loan and on unused commitments in accordance with U.S. GAAP. The determination of an appropriate level for the allowance for credit losses on loans and the allowance for credit losses on unused commitments are based upon an analysis of the risks inherent in QNB's loan portfolio.
Since the allowance for credit losses on loans and the reserve on unused commitments is dependent, to a great extent, on conditions that may be beyond QNB's control, it is at least reasonably possible that management's calculations and actual results could differ. In addition, various regulatory agencies, as an integral part of their examination process, periodically review QNB's allowance for credit losses on loans. Such agencies may require QNB to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. Actual loan losses, net of recoveries, serve to reduce the allowance.
Based on this analysis, QNB recorded $504,000 in the provision for credit losses on loans for the nine months ended September 30, 2025, through the allowance for credit losses on loans, compared to $193,000 through the provision for credit losses for the same period in 2024. QNB recorded a reversal of provision of $7,000 for the allowance for credit losses for unused commitments in the nine months ended September 30, 2025 compared to a reversal in provision of $6,000 for the same period in 2024.
QNB's allowance for credit losses on loans of $9,255,000 represents 0.74% of loans receivable at September 30, 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 $8,987,000, or 0.77%, at September 30, 2024. Management believes the allowance for credit losses on loans at September 30, 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.
Net charge-offs were $12,000 for the three months ended September 30, 2025 compared to net charge-offs of $25,000 for the three months ended September 30, 2024. Charge-offs consisted of overdrafts of $30,000 and other consumer loans of $3,000. Recoveries of approximately $21,000 during the three months ended September 30, 2025 consisted of $16,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $5,000. Annualized net charge-offs as a percentage of average loans receivable were 0.00% for the three months ended September 30, 2025, compared to annualized net charge-offs of 0.01% for the three months ended September 30, 2024.
Net recoveries were $7,000 for the nine months ended September 30, 2025 compared to net charge-offs of $58,000 for the nine months ended September 30, 2024. Charge-offs of approximately $89,000 during the nine months ended September 30, 2025 consisted primarily of overdrafts of $74,000 and consumer loans of $15,000. These were offset by $96,000 in recoveries comprising $81,000 in repayments from borrowers of previously charged-off credits, and $15,000 related to overdraft recoveries. Annualized net recoveries as a percentage of average loans receivable were 0.00% for the nine months ended September 30, 2025, compared to annualized net charge-offs of 0.01% for the nine months ended September 30, 2024.
Non-performing assets were $8,947,000 at September 30, 2025 compared to $1,975,000 as of December 31, 2024 and $1,696,000 at September 30, 2024. Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest, were 0.72% of loans receivable at September 30, 2025, 0.16% at December 31, 2024 and 0.14% of loans receivable at September 30, 2024. The increase in non-accrual loans was primarily due to one commercial relationship placed on nonaccrual status during 2025. 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 $34,973,000, an increase of $672,000 from the $34,301,000 reported at December 31, 2024 and an increase of $8,140,000 from the $26,833,000 reported at September 30, 2024.
QNB had no loans past due 90 days or more and still accruing interest at September 30, 2025, December 31, 2024, or September 30, 2024. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.61% of loans receivable at September 30, 2025 compared with 0.18% at December 31, 2024, and 0.18% at September 30, 2024.
There were two loan modifications to one borrower experiencing financial difficulty identified during the nine months ended September 30, 2025. These two loans continue to be reported as nonaccrual as there is a collateral deficiency. The loans were modified to interest only payments for twelve months. QNB had no other real estate owned or repossessed assets at September 30, 2025, December 31, 2024 or September 30, 2024.
A loan is considered collateral dependent, based on current information and events, if it is probable that QNB will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining if a loan is collateral dependent include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not collateral dependent. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed. Deficiency is measured on a loan-by-loan basis for all non-accrual loans, except student loans, by either the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent.
The following table shows detailed information and ratios pertaining to the Company's loan and asset quality:
|
September 30, |
December 31, |
September 30, |
||||||||||
|
2025 |
2024 |
2024 |
||||||||||
|
Non-accrual loans |
$ |
8,947 |
$ |
1,975 |
$ |
1,696 |
||||||
|
Loans past due 90 days or more and still accruing interest |
- |
- |
- |
|||||||||
|
Total non-performing loans |
8,947 |
1,975 |
1,696 |
|||||||||
|
Total non-performing assets |
$ |
8,947 |
$ |
1,975 |
$ |
1,696 |
||||||
|
Total loans (excluding loans held-for-sale): |
||||||||||||
|
Average total loans (YTD) |
$ |
1,216,987 |
$ |
1,150,489 |
$ |
1,135,898 |
||||||
|
Total loans |
1,246,529 |
1,216,048 |
1,171,361 |
|||||||||
|
Allowance for credit losses on loans |
9,255 |
8,744 |
8,987 |
|||||||||
|
Allowance for loan losses to: |
||||||||||||
|
Non-performing loans |
103.44 |
% |
442.73 |
% |
529.89 |
% |
||||||
|
Total loans (excluding held-for-sale) |
0.74 |
% |
0.72 |
% |
0.77 |
% |
||||||
|
Average total loans (excluding held-for-sale) |
0.76 |
% |
0.76 |
% |
0.79 |
% |
||||||
|
Non-performing loans / total loans (excluding held-for-sale) |
0.72 |
% |
0.16 |
% |
0.14 |
% |
||||||
|
Non-performing assets / total assets |
0.47 |
% |
0.11 |
% |
0.09 |
% |
||||||
An analysis of net loan charge-offs (recoveries) for the three and nine months ended September 30, 2025 compared to the same periods in 2024 is as follows:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
2025 |
2024 |
2025 |
2024 |
|||||||||||||
|
Net charge-offs (recoveries) |
$ |
12 |
$ |
25 |
$ |
(7 |
) |
$ |
58 |
|||||||
|
Net annualized charge-offs (recoveries) to: |
||||||||||||||||
|
Total loans |
0.00 |
% |
0.01 |
% |
(0.00 |
)% |
0.01 |
% |
||||||||
|
Average total loans excluding held-for-sale |
0.00 |
% |
0.01 |
% |
(0.00 |
)% |
0.01 |
% |
||||||||
|
Allowance for loan losses |
0.51 |
% |
1.11 |
% |
(0.10 |
)% |
0.86 |
% |
||||||||
At September 30, 2025 and December 31, 2024, the recorded investment in collateral dependent loans totaled $8,936,000 and $1,923,000 of which $1,848,000 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 $7,088,000 and $357,000 at September 30, 2025 and December 31, 2024, respectively, and the related allowance for loan losses associated with these loans was $1,412,000 and $308,000, respectively. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of collateral dependent loans.
NON-INTEREST INCOME
|
Non-Interest Income Comparison |
||||||||||||||||||||||||||||||||
|
For the Three Months Ended September 30, |
Change from prior year |
For the Nine Months Ended September 30, |
Change from prior year |
|||||||||||||||||||||||||||||
|
2025 |
2024 |
Amount |
Percent |
2025 |
2024 |
Amount |
Percent |
|||||||||||||||||||||||||
|
Net gain (loss) on sales and calls of available-for-sale and equity securities |
$ |
- |
$ |
224 |
$ |
(224 |
) |
(100.0 |
)% |
$ |
- |
$ |
(495 |
) |
$ |
495 |
N/M% |
|||||||||||||||
|
Unrealized gain (loss) on equity securities |
- |
143 |
(143 |
) |
(100.0 |
) |
- |
1,129 |
(1,129 |
) |
(100.0 |
) |
||||||||||||||||||||
|
Fees for services to customers |
521 |
469 |
52 |
11.1 |
1,453 |
1,316 |
137 |
10.4 |
||||||||||||||||||||||||
|
ATM and debit card |
776 |
691 |
85 |
12.3 |
2,156 |
2,032 |
124 |
6.1 |
||||||||||||||||||||||||
|
Retail brokerage and advisory |
196 |
139 |
57 |
41.0 |
477 |
358 |
119 |
33.2 |
||||||||||||||||||||||||
|
Bank-owned life insurance |
86 |
80 |
6 |
7.5 |
254 |
252 |
2 |
0.8 |
||||||||||||||||||||||||
|
Merchant |
79 |
84 |
(5 |
) |
(6.0 |
) |
236 |
266 |
(30 |
) |
(11.3 |
) |
||||||||||||||||||||
|
Net gain on sale of loans |
41 |
19 |
22 |
115.8 |
63 |
32 |
31 |
N/M |
||||||||||||||||||||||||
|
Other |
148 |
118 |
30 |
25.4 |
444 |
378 |
66 |
17.5 |
||||||||||||||||||||||||
|
Total |
$ |
1,847 |
$ |
1,967 |
$ |
(120 |
) |
(6.1 |
)% |
$ |
5,083 |
$ |
5,268 |
$ |
(185 |
) |
(3.5 |
)% |
||||||||||||||
Quarter to Quarter Comparison
Total non-interest income for the third quarter of 2025 was $1,847,000, a decrease of $120,000, compared to the third quarter of 2024. Excluding realized and unrealized gains (losses) on securities, non-interest income increased $247,000, or 15.4%, for the third quarter of 2025 compared with the same period in 2024.
There was a net realized gain of $224,000 on the sale of investments for the third quarter of 2024 compared to no gains on the sales of securities in the same period in 2025. During the third quarter of 2024, unrealized gains on investment equity securities of $143,000 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 during 2024 and reinvesting the proceeds in treasury securities.
QNB originates residential mortgage loans for sale in the secondary market. Net gain on sale of loans was $41,000 for the third quarter of 2025 compared to a net loss $19,000 in the third quarter of 2024. The net gain or loss on residential mortgage sales is directly related to the volume of mortgages sold and the timing of the sales relative to the interest rate environment and includes any lower-of-cost-market on the loans held-for-sale. Residential mortgage loans to be sold are identified at origination.
Fees for service to customers increased $52,000 for the third quarter of 2025, as overdraft fees increased $37,000 and other deposit-related fees increased $15,000.
QNB provides securities and advisory services under the name QNB Financial Services. Retail brokerage and advisory fees increased $57,000 for the third quarter of 2025 compared to the same period in 2024. Advisory fees increased $32,000 and transactional fees increased $25,000 for the third quarter of 2025 compared with the same period in 2024.
ATM and debit card income increased $85,000 due to usage and merchant fees decreased $5,000 for the third quarter of 2025 compared with the same period in 2024. Other non-interest income increased $30,000 due to growth in letter of credit fees of $12,000 for the third quarter of 2025 compared with the same period in 2024 and a loss on the disposal of equipment in 2024 of $18,000 compared to no loss in 2025.
Nine-Month Comparison
Total non-interest income for the nine-month period ended September 30, 2025 was $5,083,000, a decrease of $185,000 over the same period in 2024. Excluding realized and unrealized gain and losses on securities, total non-interest income increased of $449,000, or 9.7%, over the same period in 2024.
There was a net realized loss of $495,000 on the sale of investments for the nine-month period ended September 30, 2024 compared to no gains on the sales of securities in the same period in 2025. During the nine-month period ended September 30, 2024, unrealized gains on investment equity securities of $1,129,000 were recorded compared to no unrealized gains or losses the same period of 2025.
Net gains on sales of loans increased $31,000 to $63,000, when comparing the nine months ended September 30, 2025 to the same period in 2023. Proceeds from the sale of residential mortgages were $2,254,000 and $801,000 for the nine-month period ended September 30, 2025 and 2024, respectively.
Fees for services to customers increased $137,000 to $1,453,000 for the nine months ended September 30, 2025, as overdraft fees increased $94,000 and other deposit-related fees increased $43,000. ATM and debit card fees increased $124,000 over the same period due to volume.
Retail brokerage and advisory fees increased $119,000, or 33.2%, to $477,000 for the nine months ended September 30, 2025 compared to the same period in 2024; advisory fees decreased $2,000 and transaction-based fees increased $129,000.
Merchant income decreased $30,000 due to volume. Other non-interest income increased $66,000 primarily due to growth in letter of credit fees of $30,000 and title insurance company income of $10,000 for the nine months ended September 30, 2025 compared with the same period in 2024, and a loss on the disposal of equipment in 2024 of $15,000 compared to no loss in 2025.
NON-INTEREST EXPENSE
|
Non-Interest Expense Comparison |
||||||||||||||||||||||||||||||||
|
For the Three Months Ended September 30, |
Change from prior year |
For the Nine Months Ended September 30, |
Change from prior year |
|||||||||||||||||||||||||||||
|
2025 |
2024 |
Amount |
Percent |
2025 |
2024 |
Amount |
Percent |
|||||||||||||||||||||||||
|
Salaries and employee benefits |
$ |
5,248 |
$ |
4,650 |
$ |
598 |
12.9 |
% |
$ |
15,531 |
$ |
14,662 |
$ |
869 |
5.9 |
% |
||||||||||||||||
|
Net occupancy |
569 |
540 |
29 |
5.4 |
1,729 |
1,653 |
76 |
4.6 |
||||||||||||||||||||||||
|
Furniture and equipment |
1,119 |
991 |
128 |
12.9 |
3,376 |
2,874 |
502 |
17.5 |
||||||||||||||||||||||||
|
Marketing |
214 |
197 |
17 |
8.6 |
653 |
691 |
(38 |
) |
(5.5 |
) |
||||||||||||||||||||||
|
Third-party services |
833 |
661 |
172 |
26.0 |
2,283 |
1,946 |
337 |
17.3 |
||||||||||||||||||||||||
|
Telephone, postage and supplies |
127 |
120 |
7 |
5.8 |
371 |
369 |
2 |
0.5 |
||||||||||||||||||||||||
|
State taxes |
278 |
149 |
129 |
86.6 |
781 |
465 |
316 |
68.0 |
||||||||||||||||||||||||
|
FDIC insurance premiums |
243 |
341 |
(98 |
) |
(28.7 |
) |
786 |
1,028 |
(242 |
) |
(23.5 |
) |
||||||||||||||||||||
|
Merger-related expenses |
519 |
- |
519 |
N/M |
519 |
- |
519 |
N/M |
||||||||||||||||||||||||
|
Other |
1,032 |
987 |
45 |
4.6 |
3,084 |
2,715 |
369 |
13.6 |
||||||||||||||||||||||||
|
Total |
$ |
10,182 |
$ |
8,636 |
$ |
1,546 |
17.9 |
% |
$ |
29,113 |
$ |
26,403 |
$ |
2,710 |
10.3 |
% |
||||||||||||||||
Quarter to Quarter Comparison
Total non-interest expense was $10,182,000 for the third quarter of 2025, an increase of $1,546,000 compared to the second quarter of 2024. For both the three- and nine-month periods of 2025, non-interest expense included merger-related cost of $519,000. Excluding merger-related costs, noninterest expense increased $1,027,000 or 11.9% for the third quarter of 2025, compared to the same period in 2024.
Salaries and benefits comprise the largest component of non-interest expense. QNB monitors, through the use of various surveys, the competitive salary and benefit information in its markets and makes adjustments when appropriate. Salaries and benefits expense increased $598,000 to $5,248,000 when comparing the two quarters. Salary expense and related payroll taxes increased $407,000, or 9.7%, to $4,616,000 during the third quarter of 2025 compared to the same period in 2024 due to pay increases. Medical and dental premiums, net of employee contributions, increased $152,000 when comparing the two quarters due to the timing of medical claims as the year-to-date expense is down $179.000.
Net occupancy and furniture and equipment expenses combined increased $157,000 when comparing the third quarters of 2025 and 2024. This is due primarily to increased software maintenance expense. Marketing expense increased $17,000 to $214,000 for the third quarter of 2025, due to timing of advertising campaigns.
Third-party services are comprised of professional services, including legal, accounting, auditing and consulting services, as well as fees paid to outside vendors for support services of day-to-day operations. These support services include correspondent banking services, IT services, statement printing and mailing, investment security safekeeping and supply management services. Third party services expense increased $172,000 due to consulting and legal costs. State taxes increased $129,000 due to increased capital at the Bank and the timing of tax credits received for qualified charitable contributions. FDIC insurance premiums decreased $98,000 due to a decrease in the assessment rate.
Other non-interest expense increased $45,000, or 4.6%, due to increases in director fees of $85,000, as fees were bought in line with peers, debit card expense of $23,000 and business development cost of $21,000; partly offset by a decrease in write-offs due to fraud on customer accounts of $96,000.
Nine-Month Comparison
Total non-interest expense was $29,113,000 for the nine-month period ended September 30, 2025, an increase of $2,710,000, or 10.3%, compared to the nine months ended September 30, 2024. Excluding merger-related costs, noninterest expense increased $2,191,000 or 8.3% for the nine months ended September 30, 2025, compared to the same period in 2024.
Salaries and benefits expense increased $869,000 to $15,531,000 for the nine months ended September 30, 2025 compared to the same period in 2024. Salary and related payroll tax expense increased $956,000 during the period, to $13,407,000 and medical and dental costs decreased $179,000, due to the reasons described in the quarter-to-quarter comparison.
Net occupancy and furniture and equipment expense increased $578,000, or 12.8%, to $5,105,000, due to the reasons described in the quarter-to-quarter comparison. Marketing expenses decreased $38,000 due to timing of advertising and promotions. Third-party services increased $337,000, or 17.3%, to $2,283,000 for the nine months ended September 30, 2025.
FDIC insurance premiums decreased $242,000 and state taxes increased $316,000, due to the reasons described in the quarter-to-quarter comparison.
Other non-interest expense increased $369,000 due to the reasons described above in the quarter-to-quarter comparison.
INCOME TAXES
QNB utilizes an asset and liability approach for financial accounting and reporting of income taxes. As of September 30, 2025, QNB's net deferred tax asset was $15,351,000. The primary components of deferred taxes are deferred tax assets of which $14,138,000 relates to investment securities fair value adjustments and $1,992,000 relates to the allowance for credit losses on loans, partly offset by a deferred tax liability on deferred loan costs of $564,000. As of December 31, 2024, QNB's net deferred tax asset was $18,325,000 of which $17,186,000 is related to investment securities fair value adjustment and $1,882,000 related to the allowance for credit losses on loans, partly offset by a deferred tax liability on deferred loan costs of $531,000. The decrease in the balance of net deferred tax assets when comparing September 30, 2025 to December 31, 2024 of $2,974,000 is due to the unrealized gains on available for sale securities contributing a reduction of $3,048,000.
The realizability of deferred tax assets is dependent upon a variety of factors, including the generation of future taxable income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities and tax planning strategies. Based upon these and other factors, management believes it is more likely than not that QNB will realize the benefits of these remaining deferred tax assets except for a $403,000 deferred tax asset related to a state net operating loss.
Applicable income tax expense was $922,000 for the quarter and $2,551,000 for the nine months ended September 30, 2025, compared to $961,000 for the quarter and $2,168,000 for the nine months ended September 30, 2024, respectively. The effective tax rate for the third quarter and nine-month period ended September 30, 2025 was 20.2% and 20.2%, respectively, compared with 22.4% and 20.5%, respectively, for the same periods in 2024. The effective tax rate for the nine months ended September 30, 2025 was lower due to a higher percentage of tax-free income.
FINANCIAL CONDITION ANALYSIS
Financial service organizations are challenged to demonstrate they can generate sustainable and consistent earnings growth in a dynamic operating environment. Rate competition for quality loans is anticipated to continue through 2025. It is also anticipated that the rate competition for attracting and retaining deposits may increase in the remainder of 2025, which could result in a lower net interest margin and a decline in net interest income.
QNB's primary business is accepting deposits and making loans to meet the credit needs of the communities it serves. Loans are the most significant component of earning assets and growth in loans to small businesses and residents of these communities has been a primary focus of QNB. Inherent within the lending function is the evaluation and acceptance of credit risk and interest rate risk. QNB manages credit risk associated with its lending activities through portfolio diversification, underwriting policies and procedures and loan monitoring practices. QNB is committed to make credit available to its customers.
Total assets at September 30, 2025 were $1,903,244,000 compared with $1,870,894,000 at December 31, 2024. Cash and cash equivalents increased $15,618,000 from $50,713,000 at December 31, 2024 to $66,331,000 at September 30, 2025.
The fixed-income securities portfolio represents a significant portion of QNB's earning assets and is also a primary tool in liquidity and asset/liability management. QNB actively manages its fixed income portfolio to take advantage of changes in the shape of the yield curve and changes in spread relationships in different sectors and for liquidity purposes. Management continually reviews strategies that will result in an increase in the yield or improvement in the structure of the investment portfolio, including monitoring credit and concentration risk in the portfolio. The available-for-sale securities portfolio decreased $8,241,000, due to maturities and prepayments of $81,538,000; this was partly offset by purchases of $59,825,000 and improvement in the fair value mark of $14,161,000.
Loans receivable increased $30,481,000 with commercial loans increasing $23,015,000, to $1,052,824,000 at September 30, 2025 compared to $1,029,809,000 at year-end 2024, and retail loans increasing $7,443,000 to $194,185,000 at September 30, 2025, compared with $186,742,000 at year-end 2024.
Deposits grew $52,999,000 from December 31, 2024 to September 30, 2025. Non-interest-bearing demand deposits increased $5,993,000, with balances of $189,492,000 at September 30, 2025 compared with $183,499,000 at year-end 2024. Interest-bearing demand balances, excluding municipal deposits, decreased $5,059,000 to $378,538,000, with decreases in both business and retail interest-bearing checking products. The $13,716,000 increase in money market accounts was primarily due to the premier money market product offered to both personal and business customers. The $786,000 decrease in savings was primarily due to decreases in the traditional statement savings accounts. Total time deposits increased $5,829,000 from December 31, 2024 to September 30, 2025. Municipal deposit balances increased $33,306,000, to $187,555,000, during the first nine months of 2025. Municipal deposits can be volatile depending on the timing of deposits and withdrawals, and the cash flow needs of the school districts or municipalities. Municipal deposits increase as tax money is received from the local school districts during second and third quarters and it is anticipated that these funds will flow out for the subsequent twelve months as the schools use the funds for operations. These deposits provide an incremental funding source as they are used to fund loans as opposed to borrowing at a higher rate; this improves the net interest margin as it increases the spread related to the net interest margin.
Short-term borrowings decreased 9.5%, from $53,844,000 at December 31, 2024 to $48,703,000 at September 30, 2025. FHLB borrowings decreased $15,208,000. Commercial sweep accounts increased $67,000; these funds may be volatile based on businesses' receipt and disbursement of funds and are offset by business non-interest-bearing demand accounts. Long-term borrowings decrease $30,000,000. During the third quarter of 2024, QNB issued $40,000,000 in subordinated debt. Details can be found in Note 13.
LIQUIDITY
Liquidity represents an institution's ability to generate cash or otherwise obtain funds at reasonable rates to satisfy demand for loans and deposit withdrawals. QNB attempts to manage its mix of cash and interest-bearing balances, Federal funds sold and investment securities to match the volatility, seasonality, interest sensitivity and growth trends of its loans and deposits. The Company manages its liquidity risk by measuring and monitoring its liquidity sources and estimated funding needs. Liquidity is provided from asset sources through repayments and maturities of loans and investment securities. The portfolio of investment securities classified as available for sale and QNB's policy of selling certain residential mortgage originations in the secondary market also provide sources of liquidity. Core deposits and cash management repurchase agreements have historically been the most significant funding source for QNB. These deposits and repurchase agreements are generated from a base of consumers, businesses and public funds primarily located in the Company's market area.
Additional sources of liquidity are provided by the Bank's membership in the FHLB. At September 30, 2025 the Bank had a maximum borrowing availability with the FHLB of approximately $446,497,000, which is net of short-term borrowing outstanding of $30,000,000 and accrued interest payable. The maximum borrowing depends upon qualifying collateral assets and the Bank's asset quality and capital adequacy. In addition, the Bank maintains unsecured Federal funds lines with four correspondent banks totaling $86,000,000. At September 30, 2025 there were no outstanding borrowings under these lines. Future availability under these lines is subject to the policies of the granting banks and may be withdrawn.
Liquid sources of funds, including cash, available-for-sale and equity investment securities, and loans held-for-sale have increased $6,713,000 since December 31, 2024, totaling $604,649,000 at September 30, 2025. The increase in the liquid sources of funds is primarily due to an increase in cash due to the proceeds from deposit growth. Growth in deposits provided cash flows of $52,999,000, enabled the net paydown on long-term borrowings of $30,000,000 and supporting loan growth. Management expects these liquid sources will be adequate to meet normal fluctuations in loan demand or deposit withdrawals. The investment portfolio is expected to continue to provide sufficient liquidity, as municipal bonds are called or mature and cash flow on mortgage-backed and CMO securities continue to be steady.
Approximately $286,724,000 and $241,586,000 of available-for-sale debt securities at September 30, 2025 and December 31, 2024, respectively, were pledged as collateral for repurchase agreements and deposits of public funds and the FRB short-term borrowing. The level of pledged securities corresponds with the municipal deposit and repurchase agreement balances.
QNB is a member of the Certificate of Deposit Account Registry Services (CDARS) program offered by the Promontory Interfinancial Network, LLC. CDARS is a funding and liquidity management tool used by banks to access funds and manage their balance sheet. It enables financial institutions to provide customers with full FDIC insurance on time deposits over $250,000 that are placed in the program. QNB also has available Insured Cash Sweep (ICS), another program through Promontory Interfinancial Network, LLC, which is a product similar to CDARS, but one that provides liquidity like a money market or savings account.
CAPITAL ADEQUACY
A strong capital position is fundamental to support continued growth and profitability and to serve the needs of depositors. QNB's shareholders' equity at September 30, 2025 was $121,487,000, or 6.38% of total assets, compared with shareholders' equity of $103,349,000, or 5.52% of total assets, at December 31, 2024. Shareholders' equity at September 30, 2025 included a negative adjustment of $51,533,000 compared to a negative adjustment of $62,646,000 at December 31, 2024, related to net unrealized holding losses, net of taxes, on investment securities available-for-sale. Without these adjustments, shareholders' equity to total assets would have been 8.85% and 8.59% at September 30, 2025 and December 31, 2024, respectively.
Average shareholders' equity and average total assets were $110,934,000 and $1,888,321,000 for the nine months ended September 30, 2025, an increase of 17.0% and 8.3%, respectively, from the averages for the nine months ended September 30, 2024. The ratio of average total equity to average total assets was 5.87% for the nine months ended September 30, 2025 compared to 5.43% for the same period in 2024.
Retained earnings at September 30, 2025 were impacted by nine months of net income totaling $10,109,000 offset by dividends declared and paid of $4,232,000 for the nine-month period. QNB offers a Dividend Reinvestment and Stock Purchase Plan (the "DRIP") to provide participants a convenient and economical method for investing cash dividends paid on the Company's common stock in additional shares. The DRIP also allows participants to make additional cash purchases of stock. Stock purchases under the DRIP contributed $635,000 to capital during the nine months ended September 30, 2025. The exercise of stock options contributed $186,000 to capital during the nine months ended September 30, 2025. The Employee Stock Purchase Plan contributed $85,000 to capital during the nine months ended September 30, 2025.
The Board of Directors has authorized the repurchase of up to 200,000 shares of QNB common stock in open market or privately negotiated transactions. The repurchase authorization does not bear a termination date. As of June 30, 2025, 102,000 shares have been repurchased since the initial authorization in 2008 at an average price of $24.93 and a total cost of $2,543,000. There were no shares repurchased during the nine months ended September 30, 2025 and 2024.
QNB is subject to various regulatory capital requirements as issued by Federal regulatory authorities. Regulatory capital is defined in terms of Tier 1 capital and Tier 2 capital. Risk-based capital ratios are expressed as a percentage of risk-weighted assets. Risk-weighted assets are determined by assigning various weights to all assets and off-balance sheet arrangements, such as letters of credit and loan commitments, based on associated risk.
The required minimum Common equity Tier 1 capital to risk-weighted assets ratio is 4.5%, the required minimum ratio of Tier 1 capital to risk-weighted assets is 6.0%, the required minimum ratio of Total Capital to risk-weighted assets is 8.0%, and the required minimum Tier 1 leverage ratio is 4.0%. A capital conservation buffer of 2.5% of risk-weighted assets also applies to avoid limitations on certain capital distributions.
The following table sets forth consolidated information for QNB:
|
September 30, |
December 31, |
|||||||
|
Capital Analysis |
2025 |
2024 |
||||||
|
Regulatory Capital |
||||||||
|
Shareholders' equity |
$ |
121,487 |
$ |
103,349 |
||||
|
Net unrealized securities losses, net of tax |
51,533 |
62,646 |
||||||
|
Deferred tax assets on net operating loss |
- |
- |
||||||
|
Disallowed intangible assets |
- |
- |
||||||
|
Common equity tier I capital |
173,020 |
165,995 |
||||||
|
Tier 1 capital |
173,020 |
165,995 |
||||||
|
Allowable portion: |
||||||||
|
Subordinated debt |
32,000 |
40,000 |
||||||
|
Allowance for credit losses on loans and unfunded commitments |
9,255 |
8,831 |
||||||
|
Total regulatory capital |
$ |
214,275 |
$ |
214,826 |
||||
|
Risk-weighted assets |
$ |
1,421,719 |
$ |
1,381,002 |
||||
|
Quarterly average assets for leverage capital purposes |
$ |
1,904,529 |
$ |
1,908,914 |
||||
|
September 30, |
December 31, |
|||||||
|
Capital Ratios |
2025 |
2024 |
||||||
|
Common equity tier I capital / risk-weighted assets |
12.17 |
% |
12.02 |
% |
||||
|
Tier 1 capital / risk-weighted assets |
12.17 |
% |
12.02 |
% |
||||
|
Total regulatory capital / risk-weighted assets |
15.07 |
% |
15.56 |
% |
||||
|
Tier 1 capital / average assets (leverage ratio) |
9.08 |
% |
8.70 |
% |
||||
At September 30, 2025, common equity Tier 1 and Tier 1 capital to risk-weighted assets and the leverage ratio, increased since December 31, 2024 primarily due to capital growth. Total regulatory capital ratios to risk-weighted assets decreased due to a reduction in allowable subordinated debt included as Tier 2 capital. The Company remains well-capitalized by all applicable regulatory requirements as of September 30, 2025.
QNB Corp. published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 13:30 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]