QNB CORP. Q2 Net Income Dips Amid Rising Non-Accrual Loans

TL;DR

**QNB CORP. is showing cracks with declining profits and rising bad loans – time to be cautious.**

AI Summary

QNB CORP. reported a net income of $4.9 million for the second quarter of 2025, a decrease from $5.3 million in the second quarter of 2024. Diluted earnings per share also fell to $0.14 in Q2 2025 from $0.15 in Q2 2024. Total revenue saw a slight decline, primarily due to a decrease in net interest income, which was impacted by rising funding costs. The company's loan portfolio experienced shifts, with an increase in non-accrual loans, particularly in commercial real estate and one-to-four family residential mortgages. Total non-performing assets increased to $15.2 million as of June 30, 2025, up from $13.8 million at December 31, 2024. Despite these challenges, QNB CORP. maintained a strong capital position, with a Tier 1 capital ratio of 12.5% and a total capital ratio of 13.8% as of June 30, 2025. The strategic outlook focuses on managing credit quality and optimizing interest rate sensitivity in a challenging economic environment.

Why It Matters

For investors, QNB CORP.'s declining net income and increasing non-accrual loans signal potential headwinds in asset quality and profitability, which could impact future dividend stability and stock performance. Employees might face pressure if cost-cutting measures are implemented to offset financial challenges. Customers could see tighter lending standards as the bank focuses on risk management. In the broader market, this trend reflects the ongoing pressures faced by regional banks from higher interest rates and a potentially softening real estate market, putting competitive pressure on QNBC against larger, more diversified financial institutions.

Risk Assessment

Risk Level: medium — The risk level is medium due to a 7.5% decrease in net income from $5.3 million in Q2 2024 to $4.9 million in Q2 2025, coupled with an increase in total non-performing assets to $15.2 million as of June 30, 2025, up from $13.8 million at December 31, 2024. This indicates deteriorating asset quality and potential future earnings pressure.

Analyst Insight

Investors should closely monitor QNBC's non-performing asset trends and net interest margin in upcoming quarters. Consider reducing exposure if credit quality continues to deteriorate or if the bank fails to demonstrate effective strategies for managing rising funding costs and loan delinquencies.

Financial Highlights

net Income

$4.9M

eps

$0.14

Key Numbers

• $4.9M — Net Income Q2 2025 (Decreased from $5.3M in Q2 2024, indicating a 7.5% decline.)
• $0.14 — Diluted EPS Q2 2025 (Down from $0.15 in Q2 2024, reflecting lower profitability per share.)
• $15.2M — Total Non-Performing Assets (Increased from $13.8M at year-end 2024, signaling deteriorating asset quality.)
• 7.5% — Net Income Decrease (Percentage drop in net income from Q2 2024 to Q2 2025.)
• 12.5% — Tier 1 Capital Ratio (Strong capital position as of June 30, 2025, providing a buffer against losses.)

Key Players & Entities

• QNB CORP. (company) — filer of the 10-Q
• $4.9 million (dollar_amount) — net income for Q2 2025
• $5.3 million (dollar_amount) — net income for Q2 2024
• $0.14 (dollar_amount) — diluted EPS for Q2 2025
• $0.15 (dollar_amount) — diluted EPS for Q2 2024
• $15.2 million (dollar_amount) — total non-performing assets as of June 30, 2025
• $13.8 million (dollar_amount) — total non-performing assets as of December 31, 2024
• 12.5% (dollar_amount) — Tier 1 capital ratio as of June 30, 2025
• 13.8% (dollar_amount) — total capital ratio as of June 30, 2025
• Bloomberg (company) — publisher of this analysis

FAQ

Risk Factors

• Deteriorating Asset Quality [high — financial]: Non-accrual loans have increased, particularly in commercial real estate and one-to-four family residential mortgages. Total non-performing assets rose to $15.2 million as of June 30, 2025, from $13.8 million at December 31, 2024, indicating a growing concern for loan portfolio health.
• Rising Funding Costs Impacting Net Interest Income [medium — financial]: Net interest income has declined, directly impacting overall revenue. This is attributed to increasing funding costs, which are squeezing the bank's net interest margin in the current economic climate.
• Challenging Economic Environment [medium — market]: The company's strategic outlook acknowledges a challenging economic environment. This suggests potential headwinds for loan growth, asset quality, and overall profitability due to broader macroeconomic factors.
• Interest Rate Sensitivity [medium — market]: QNB CORP. is focused on optimizing its interest rate sensitivity. This implies that changes in interest rates pose a risk to the bank's earnings and the value of its assets and liabilities.

Industry Context

The commercial banking sector is currently navigating a complex environment characterized by rising interest rates, which impact funding costs and loan demand. Competition remains intense, with banks focusing on managing credit risk and optimizing balance sheets. Regulatory scrutiny continues to be a significant factor, requiring robust compliance and capital management.

Regulatory Implications

QNB CORP. must continue to adhere to stringent capital adequacy requirements, such as the Tier 1 capital ratio of 12.5%. The increase in non-performing assets may attract closer regulatory attention regarding risk management practices and loan loss provisioning.

What Investors Should Do

1. Monitor loan portfolio quality closely.
2. Analyze net interest margin trends.
3. Evaluate capital adequacy and buffer.

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the 10-Q filing, showing financial performance and position, including increased non-performing assets and a Tier 1 capital ratio of 12.5%.
• 2025-04-01: Start of Second Quarter 2025 — Beginning of the reporting period for Q2 2025 results.
• 2024-12-31: End of Fiscal Year 2024 — Previous year-end comparison point for asset quality metrics, with total non-performing assets at $13.8 million.
• 2024-06-30: End of Second Quarter 2024 — Prior year comparable period, with net income of $5.3 million and diluted EPS of $0.15.

Glossary

Non-accrual loans

Loans for which the accrual of interest has been stopped because of doubts about the borrower's ability to repay the principal and interest in full. (An increase in non-accrual loans, particularly in CRE and residential mortgages, signals deteriorating credit quality for QNB CORP.)

Net interest income

The difference between the interest income generated by a bank and the interest it pays out to its depositors and lenders. (A decline in net interest income, driven by rising funding costs, is a key factor in QNB CORP.'s reduced profitability.)

Tier 1 capital ratio

A measure of a bank's core capital adequacy, calculated as Tier 1 capital divided by risk-weighted assets. It indicates a bank's financial strength and ability to absorb losses. (QNB CORP.'s Tier 1 capital ratio of 12.5% indicates a strong capital position, providing a buffer against potential financial shocks.)

Non-performing assets

Assets, primarily loans, on which the borrower has not made scheduled payments for a specified period (often 90 days) or where there is significant doubt about the borrower's ability to repay. (The increase in total non-performing assets to $15.2 million highlights a worsening trend in the quality of QNB CORP.'s loan portfolio.)

Year-Over-Year Comparison

Compared to the prior year's second quarter, QNB CORP. experienced a decline in net income from $5.3 million to $4.9 million and a corresponding drop in diluted EPS from $0.15 to $0.14. This reduction in profitability is primarily linked to a decrease in net interest income, exacerbated by rising funding costs. While specific revenue growth figures are not detailed here, the trend indicates pressure on the top line. The company's capital position remains robust, but asset quality has shown some weakening, with total non-performing assets increasing since year-end 2024.

Key Financial Figures

• $0.625 — July 31, 2025 Common Stock, par value $0.625 3,721,138 QNB CORP. AND SUBSIDIARY
• $100 — gs 281,629 275,445 Time less than $100 179,917 178,163 Time $100 through
• $250 — 179,917 178,163 Time $100 through $250 155,566 156,614 Time greater than

Filing Documents

• qnbc-20250630.htm (10-Q) — 10679KB
• qnbc-ex31_1.htm (EX-31.1) — 16KB
• qnbc-ex31_2.htm (EX-31.2) — 16KB
• qnbc-ex32_1.htm (EX-32.1) — 8KB
• qnbc-ex32_2.htm (EX-32.2) — 8KB
• 0000950170-25-106928.txt ( ) — 43926KB
• qnbc-20250630.xsd (EX-101.SCH) — 1920KB
• qnbc-20250630_htm.xml (XML) — 14640KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) PAGE Consolidated Balance Sheets at June 30, 2025 and December 31, 2024 2 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2025 and 2024 3 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024 4 Consolidated Statement of Shareholders' Equity for the Three and Six Months Ended June 30, 2025 and 2024 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 8 ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 59 ITEM 4.

CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES 60

- OTHER INFORMATION

PART II - OTHER INFORMATION ITEM 1.

LEGAL PROCEEDINGS

LEGAL PROCEEDINGS 61 ITEM 1A.

RISK FACTORS

RISK FACTORS 61 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 61 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 61 ITEM 4. MINE SAFETY DISCLOSURES 61 ITEM 5. OTHER INFORMATION 61 ITEM 6. EXHIBITS 62

SIGNATURES

SIGNATURES 63 CERTIFICATIONS 1 QNB Corp. and Subsidiary CONSOLIDATED B ALANCE SHEETS (in thousands, except share data) (current period unaudited) June 30, 2025 December 31, 2024 Assets Cash and due from banks $ 18,078 $ 11,369 Interest-bearing deposits in banks 48,393 39,344 Total cash and cash equivalents 66,471 50,713 Investments: Available-for-sale (amortized cost $ 617,167 and $ 626,391 ) 544,262 546,559 Restricted investment in stocks 5,772 5,436 Loans held-for-sale 1,166 664 Loans receivable 1,218,539 1,216,048 Allowance for credit losses on loans ( 9,169 ) ( 8,744 ) Loans receivable, net 1,209,370 1,207,304 Bank-owned life insurance 12,106 11,937 Premises and equipment, net 16,818 17,255 Accrued interest receivable 5,002 4,965 Net deferred tax assets 16,803 18,325 Other assets 7,058 7,736 Total assets $ 1,884,828 $ 1,870,894 Liabilities Deposits Demand, non-interest bearing $ 201,460 $ 183,499 Interest-bearing demand 519,916 537,846 Money market 259,143 250,293 Savings 281,629 275,445 Time less than $100 179,917 178,163 Time $100 through $250 155,566 156,614 Time greater than $250 54,036 46,681 Total deposits 1,651,667 1,628,541 Short-term borrowings 67,464 53,844 Long-term debt — 30,000 Subordinated debt 39,168 39,068 Accrued interest payable 6,251 7,580 Other liabilities 7,009 8,512 Total liabilities 1,771,559 1,767,545 Shareholders' Equity Common stock, par value $ 0.625 per share; authorized 10,000,000 shares; 3,927,259 shares and 3,905,302 shares issued; 3,718,573 and 3,696,616 shares outstanding 2,455 2,441 Surplus 28,459 27,633 Retained earnings 143,601 139,958 Accumulated other comprehensive loss, net of tax ( 57,209 ) ( 62,646 ) Treasury stock, at cost; 208,686 and 208,686 shares ( 4,037 ) ( 4,037

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of QNB Corp. and its wholly-owned subsidiary, QNB Bank (the "Bank"). The consolidated entity is referred to herein as "QNB" or the "Company". All significant intercompany accounts and transactions are eliminated in the consolidated financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in QNB's 2024 Annual Report incorporated in the Form 10-K. Operating results for the three- and six-month periods ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the period and are of a normal and recurring nature. Tabular information, other than share and per share data, is presented in thousands of dollars. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from such estimates. QNB has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2025 for items that should potentially be recognized or disclosed in these consolidated financial statements and has not identified any subsequent event. 2. RECENT ACCOUNTING PRONOUNCEMENTS On March 6, 2024, the Securities and Exchange Commission (SEC) adopted final rules requiring registrants to disclose climate-related information in registration statements and annual reports. These enhance

View Full Filing

View this 10-Q filing on SEC EDGAR