QUAKERTOWN, Pa., April 27, 2021 (GLOBE NEWSWIRE) — QNB Corp. (OTC Bulletin Board: QNBC), the parent company of QNB Bank, reported net income for the first quarter of 2021 of $5,050,000, or $1.42 per share on a diluted basis, compared to net income of $220,000, or $0.06 per share on a diluted basis, for the same period in 2020.
The increase in net income and earnings per share, when comparing the two periods, is due in part to improved performance for QNB Bank and a non-cash increase to non-interest income, a result of improved fair values of the equity securities portfolio held by QNB Corp, our bank holding company. The following table presents disaggregated net income:
| 3 months ended | |||||||
| 3/31/2021 | 3/31/2020 | Variance | |||||
| QNB Bank | $ | 4,038,000 | $ | 2,316,000 | $ | 1,722,000 | |
| QNB Corp | 1,012,000 | (2,096,000 | ) | 3,108,000 | |||
| Consolidated net income | $ | 5,050,000 | $ | 220,000 | $ | 4,830,000 | |
Total assets as of March 31, 2021 were $1,570,519,000 compared with $1,440,229,000 at December 31, 2020. Loans receivable at March 31, 2021 were $945,645,000 compared with $920,042,000 at December 31, 2020, an increase of $25,603,000, or 2.8%. Total deposits at March 31, 2021 were $1,341,616,000, increasing $113,549,000, or 9.2%, compared with $1,228,067,000 at December 31, 2020.
“We are pleased to report record net income and earnings per share”, said David W. Freeman, President and CEO. “Although there is still economic uncertainty and many businesses and households are experiencing difficulty, the local and national management of the crisis and especially the rapid rollout of vaccines provides hope. Throughout this health and economic crisis, QNB continues to serve our community and we continued to see growth in our households, deposits and loans.”
Net Interest Income and Net Interest Margin
Net interest income for the quarter ended March 31, 2021 totaled $10,517,000, an increase of $1,354,000 from the same period in 2020. The net interest margin was 3.07% for the first quarter of 2021, declining eleven basis points compared with the 3.18% for the same period in 2020. The yield on earning assets was 3.41% for the first quarter 2021, a decrease of 51 basis points from 3.92% in the first quarter of 2020. The cost of interest-bearing liabilities decreased 48 basis points to 0.44% for the first quarter ended March 31, 2021, compared with 0.92% for the same period in 2020. Net interest income and margin were supported in part by the forgiveness of SBA Paycheck Protection Program loans and the recognition of related fee income.
The decrease in margin is due to repricing loans and prepayment of available for sale investments, and reinvesting in bonds with lower rates, as the general level of interest rates decreased dramatically, starting in February 2020. In addition to the repricing of the loan and investment portfolio, the decrease in net interest margin is also attributable to the increase in interest-bearing cash as a percentage of earnings assets, when comparing the two periods.
Asset Quality, Provision for Loan Loss and Allowance for Loan Loss
QNB recorded a $275,000 provision for loan losses in the first quarter of 2021 compared with $500,000 in the first quarter 2020. QNB’s allowance for loan losses of $11,115,000 represents 1.18% of loans receivable at March 31, 2021 compared to $10,826,000, or 1.18% of loans receivable at December 31, 2020, and $10,334,000, or 1.26% of loans receivable at March 31, 2020. Net loan recoveries were $14,000 for the first quarter of 2021, compared with charge-offs of $53,000, or 0.03%, annualized as a percent of average loans for the first quarter of 2020.
Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest and restructured loans were $13,266,000, or 1.40% of loans receivable at March 31, 2021, compared with $14,109,000, or 1.53% of loans receivable at December 31, 2020, and $15,861,000, or 1.93% of loans receivable at March 31, 2020. In cases where there is a collateral shortfall on impaired loans, specific impairment reserves have been established based on updated collateral values even if the borrower continues to pay in accordance with the terms of the agreement. At March 31, 2021, $4,809,000, or approximately 54% of the loans classified as non-accrual are current or past due less than 30 days. At March 31, 2021, commercial substandard or doubtful loans totaled $21,935,000, a decrease of $258,000 from the $22,193,000 reported at December 31, 2020 and an increase of $6,762,000, from the $15,173,000 reported at March 31, 2020.
Non-Interest Income
Total non-interest income was $3,404,000 for the first quarter of 2021, an increase of $4,975,000 compared with the same period in 2020. The unrealized gain in the equities portfolio was $1,096,000 at March 31, 2021, compared with an unrealized loss of $2,940,000 at March 31, 2020. The equities portfolio comprises blue-chip large-capitalized stocks, providing a taxable equivalent dividend yield of 3.26%. The performance of the portfolio during both periods is commensurate with the overall performance of the U.S. stock market. In addition to the improved fair value, the company realized $339,000 in gains on sale from the equities portfolio during the first quarter 2021. The estimated cumulative contribution (realized and unrealized net gains, plus dividends) of the equities portfolio to earnings per share from January 1, 2011 through March 31, 2021 is $2.14 per share.
Excluding the realized and unrealized gain/(loss) of equities, non-interest income increased $600,000, or 43.8% when comparing the two periods. Increases in non-interest income comprise; ATM and debit card income, retail brokerage and advisory income, net gain on sale of loans and other income, which increased $105,000, $54,000, $271,000, and $279,000 respectively, in first quarter 2021 compared with the same period in 2020. ATM and debit card income improved as card-based transactions increased when comparing the two periods. Brokerage and advisory income increased due to the improved performance of assets under management. Gain on sale of mortgages reflects the increased refinance and purchase activity when comparing the two periods. The increased other fee income comprises: a life insurance benefit claim of $193,000 during the first quarter of 2021, increased title insurance income of $37,000, reflecting the increased mortgage activity during the period, increased merchant income of $13,000 due to increased transaction volume, additional letter of credit income of $24,000, and increased mortgage servicing fee income of $7,000.
Fees for services to customer decreased $112,000 or 27.3% when comparing the two periods, primarily due to a decrease in overdraft fee income. The number of overdraft items decreased due to increased average deposit balances in customer accounts, in part due to government payments to consumers and businesses during the pandemic, and lack of discretionary spending opportunities due to government-mandated business operating restrictions, brought on by the coronavirus.
Non-Interest Expense
Total non-interest expense was $7,323,000 for the first quarter of 2021, increasing $45,000, or 0.60% from $7,278,000 for the same period in 2020. Salaries and benefits expense decreased $55,000, or 1.4%, to $4,017,000 when comparing the two quarters. Salary expense and related payroll taxes decreased $3,000 to $3,428,000 during the first quarter 2021 compared to the same period in 2020, with increases in salary expense and incentive bonus of $44,000 and $74,000, respectively offset by $122,000 additional deferred compensation related to loan originations. Medical premiums expense decreased $87,000 when comparing the two periods, due to reduced medical claims. Net occupancy and furniture and equipment expense increased $90,000, or 7.5%, to $1,288,000 for the first quarter 2021, due primarily to increased building repairs and maintenance expense (additional cleaning and snow removal), and software maintenance of $100,000 and $35,000, respectively, offset in part by reduced leasehold and furniture and fixtures depreciation and equipment maintenance expenses of $9,000, $28,000, and $15,000, respectively, when comparing the two quarters. Other non-interest expense increased $10,000, or 0.50%, when comparing first quarter 2021 with first quarter 2020. Increased third party services expense, state taxes, FDIC deposit insurance, check card processing expenses and loan origination expenses of $34,000, $30,000, $34,000, $18,000, and $28,000 we offset in part due to decreased marketing, travel and entertainment, and third party loan processing expenses of $108,000, $33,000, and $10,000, respectively.
Income tax expense was $1,273,000 in the first quarter 2021, compared to a benefit of $406,000 in the first quarter 2020 due to increased pre-tax income.
About the Company
QNB Corp. is the holding company for QNB Bank, which is headquartered in Quakertown, Pennsylvania. QNB Bank currently operates twelve branches in Bucks, Montgomery and Lehigh Counties and offers commercial and retail banking services in the communities it serves. More information about QNB Corp. and QNB Bank is available at QNBbank.com.
