EX-99.1 2 v063301_ex99-1.htm
 
PO Box 9005
Quakertown PA 18951-9005
215.538.5600
1.800.491.9070
www.QNB.com

FOR IMMEDIATE RELEASE

QNB CORP. REPORTS FOURTH QUARTER AND 2006 EARNINGS

QUAKERTOWN, PA (24 January 2007) QNB Corp. (OTC Bulletin Board: QNBC), the parent company of The Quakertown National Bank (QNB), reported net income for the fourth quarter of 2006 of $923,000, or $.29 per share diluted. These results compare to net income for the fourth quarter of 2005 of $1,213,000, or $.38 per share diluted. Net income for the year ended December 31, 2006 was $5,420,000, or $1.71 per share diluted, a 7.4% increase from the $5,046,000, or $1.59 per share diluted, earned for the year ended December 31, 2005.
 
During the fourth quarter of 2006, QNB repositioned the fixed-income investment portfolio by selling some lower-yielding securities at a loss of $250,000 and reinvesting those proceeds into higher-yielding investment securities. The purpose of these transactions is to increase interest income in the future and improve the cash flow structure of the investment portfolio, thereby strengthening the balance sheet. In addition, QNB sold equity securities at a loss of $99,000 during the quarter bringing the total securities losses for the fourth quarter of 2006 to $349,000. This compares with losses of $147,000 for the fourth quarter of 2005.

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In addition, the results for the fourth quarter of 2006 were impacted by a $240,000 provision for loan losses. This provision results in an allowance for loan losses of $2,729,000 or .79% of total loans at December 31, 2006. While QNB’s asset quality remains strong, loan charge-offs, nonperforming loans and delinquent loans increased during the fourth quarter, particularly in the lease portfolio. Total nonperforming loans which represent loans on nonaccrual status or loans past due more than 90 days, were $425,000, or .12% of total loans, at December 31, 2006 compared with $189,000, or .06% of total loans, at September 30, 2006 and $14,000, or .00% of total loans, at December 31, 2005. This increase in non-performing loans, coupled with the continued growth in total loans, prompted the increase in the allowance for loan losses through a charge to the provision for loan losses. There was no provision for loan losses during the fourth quarter of 2005.

Positively impacting net income for the quarter was a $46,000 tax allowance adjustment that reversed the remainder of a tax valuation allowance established in 2005. This valuation allowance was initially recorded in connection with the recognition of the impairment of equity securities, while the reversal was the result of the ability to recognize tax benefits due to realized and unrealized capital gains in the equity portfolio.

Net interest income decreased $30,000, or .7%, when comparing the quarters ended December 31, 2006 and 2005, despite a 5.4% increase in average earning assets and a 14.3% increase in average loans. The competition for deposits, particularly certificates of deposit and money market accounts, has resulted in funding costs increasing to a greater degree than the rate earned on loans and investments. As a result, the net interest margin declined 20 basis points, from 3.21% for the fourth quarter of 2005, to 3.01% for the same period in 2006.

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“The year 2006 was a difficult one for financial institutions like QNB that are heavily dependent on net interest income.” said Thomas J. Bisko, President and CEO. “The challenging business and interest rate environments of 2005 became more difficult in 2006 as competition for deposits and loans grew stronger and the yield curve inverted. We responded by continuing to execute our strategic goal of building loan and deposit relationships”.

When comparing the year-over-year results, net interest income in 2006 decreased $188,000, or 1.2%, as the net interest margin declined from 3.24% for 2005, to 3.12% for 2006. Partially offsetting the impact of the lower net interest margin was a 2.5% increase in average earning assets, with average loans increasing $45,170,000, or 16.2%. Non-interest income, excluding the gains and losses on investment securities, loans, and repossessed assets, was flat. Included in securities losses in 2005 was a $1,253,000 other-than-temporary impairment pre-tax loss related to certain Fannie Mae (FNMA) and Freddie Mac (FHLMC) preferred stock issues. Non-interest expense increased $132,000, or 1.0%, to $13,234,000 which included $118,000 in compensation expense related to stock options associated with the implementation of FASB 123R. The effective tax rate for 2006 was 16.0%, compared with 21.7% for 2005. Included in 2006 was the reversal of a $209,000 tax valuation allowance recorded in 2005 related to the impaired securities. Excluding the impact of the valuation allowance in both years, the effective tax rates were 19.3% and 18.5% for 2006 and 2005, respectively.

Total assets at December 31, 2006 were $614,539,000, an increase of 5.6% from total assets of $582,205,000 at December 31, 2005. During this same period, total loans increased $42,183,000, or 14.0%, to $343,666,000, and total deposits increased $20,252,000, or 4.4%, to $478,922,000, while total investment securities decreased $14,333,000, or 6.0%, to $224,839,000.

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QNB Corp. offers commercial and retail banking services through the eight banking offices of its subsidiary, The Quakertown National Bank. In addition, QNB provides retail brokerage and wealth management services through Raymond James Financial Services, Inc. and title insurance as a member of Laurel Abstract Company LLC.

This press release may contain forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that increased demand or prices for the Company’s financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission.

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QNB CORP.
(Dollars in thousands, except per share data)

   
Three Months Ended
  
Twelve Months Ended
  
   
December 31,
  
December 31,
  
   
2006
  
2005
  
2006
  
2005
  
INCOME:
                          
Total interest income
  
$
8,469
  
$
7,414
  
$
32,002
  
$
28,272
  
Total interest expense
    
4,429
   
3,344
   
15,906
   
11,988
 
Net interest income
    
4,040
   
4,070
   
16,096
   
16,284
 
Provision for loan losses
    
240
    
-
   
345
    
-
 
Total non-interest income
    
631
   
827
   
3,937
   
3,262
 
Total non-interest expense
    
3,462
   
3,410
   
13,234
   
13,102
 
Income before income taxes
    
969
   
1,487
   
6,454
   
6,444
 
Provision for income taxes
    
46
   
274
   
1,034
   
1,398
 
Net income
  
$
923
  
$
1,213
  
$
5,420
  
$
5,046
  
                           
NET INCOME PER SHARE:
                          
Basic
  
$
0.30
  
$
0.39
  
$
1.73
  
$
1.63
  
Diluted
    
0.29
   
0.38
   
1.71
   
1.59
 
Dividends
    
0.21
   
0.195
   
0.84
   
0.78
 
                           
SELECTED PERIOD END BALANCES:
                          
Total assets
  
$
614,539
  
$
582,205
              
Federal funds sold
    
11,664
    
0
              
Investments
    
224,839
    
239,172
              
Loans held-for sale
    
170
    
134
              
Total loans
    
343,496
    
301,349
              
Allowance for loan losses
    
2,729
    
2,526
              
Deposits
    
478,922
    
458,670
              
Borrowed funds
    
82,113
    
74,596
              
Shareholders' equity
    
50,410
    
46,564
              
                           
SELECTED RATIOS:
                          
Return on average assets
    
.60
%
  
.82
%
  
.91
%
  
.86
%
Return on average shareholders' equity
    
7.19
%
  
10.15
%
  
10.89
%
  
10.83
%
Net interest margin-tax equivalent
    
3.01
%
  
3.21
%
  
3.12
%
  
3.24
%
Efficiency ratio-tax equivalent
    
68.95
%
  
64.70
%
  
61.64
%
  
62.33
%
Average shareholders' equity to total average assets
   
8.39
%
  
8.09
%
  
8.37
%
  
7.98
%
Nonperforming assets to total assets
    
.08
%
  
.00
%
            
Allowance as a % of loans
    
.79
%
  
.84
%
            

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Contact:
Thomas J. Bisko
215-538-5612 
tbisko@qnb.com