QNB Corp. (OTCQX: QNBC) posts 2025 growth and details Victory Bancorp merger
Rhea-AI Filing Summary
QNB Corp. reports solid 2025 results and outlines a pending merger with The Victory Bancorp. Total assets reached
Net income was
The bank’s net interest margin improved to
QNB operates 12 full‑service branches in southeastern Pennsylvania and continues to emphasize community banking, small‑business lending, and technology-enabled services. Under a definitive agreement signed in
Positive
- Strategic expansion via merger: QNB agreed to acquire The Victory Bancorp in an all-stock deal, targeting a nearly
$2.4B asset company with an approximate77.2% /22.8% post-merger ownership split, which should significantly increase scale and market presence once closed.
Negative
- None.
Insights
QNB posts organic margin-driven earnings growth and plans a sizable merger.
QNB Corp. delivered higher 2025 earnings mainly from net interest income, as net interest margin expanded to
Capital ratios are comfortably above regulatory minimums, with Tier 1 at
The pending all-stock acquisition of The Victory Bancorp is material, targeting a combined asset base near
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______________ to _______________. |
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Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-l(b).
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of February 28, 2026,
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant’s Proxy Statement for the annual meeting of its shareholders to be held June 9, 2026 are incorporated by reference in Part III of this report.
FORM 10-K INDEX
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Item 1 |
Business |
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Item 1A |
Risk Factors |
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Item 1B |
Unresolved Staff Comments |
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Cybersecurity |
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Properties |
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Legal Proceedings |
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Quantitative and Qualitative Disclosures about Market Risk |
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Financial Statements and Supplementary Data |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Controls and Procedures |
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Directors, Executive Officers and Corporate Governance |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Certain Relationships and Related Transactions, and Director Independence |
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Exhibits, Financial Statement Schedules |
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PART I
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, could affect the future financial results of QNB Corp. and its subsidiary 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:
QNB Corp. (herein referred to as “QNB” or the “Company”) 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 Annual Report on Form 10-K, 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.
ITEM 1. BUSINESS
Overview
QNB was incorporated under the laws of the Commonwealth of Pennsylvania on June 4, 1984. QNB is registered with the Board of Governors of the Federal Reserve System as a bank holding company under the Bank Holding Company Act of 1956 and conducts its business through its wholly-owned subsidiary, QNB Bank (the “Bank”).
Prior to December 28, 2007, the Bank was a national banking association organized in 1877 as The Quakertown National Bank, was chartered under the National Banking Act and was subject to Federal and state laws applicable to national banks. Effective December 28, 2007, the Bank became a Pennsylvania chartered commercial bank and changed its name to QNB Bank. The Bank, whose principal office is located in Quakertown, Bucks County, Pennsylvania, operated twelve full-service community banking offices in Bucks, Montgomery and Lehigh counties in southeastern Pennsylvania as of December 31, 2025.
The Bank is engaged in the general commercial banking business and provides a full range of banking services to its customers. These banking services consist of, among other things, attracting deposits and using these funds in making commercial loans, residential mortgage loans, consumer loans, and purchasing investment securities. These deposits are in the form of time, demand and savings accounts. Time deposits include certificates of deposit and individual retirement accounts. The Bank’s demand and savings accounts include money market accounts, interest-bearing demand accounts (including a higher yielding checking account), club accounts, traditional statement savings accounts, and a higher yielding online savings account.
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At December 31, 2025, QNB had total assets of $1,906,005,000, total loans receivable of $1,262,074,000, total deposits of $1,642,511,000 and total shareholders’ equity of $129,563,000. For the year ended December 31, 2025, QNB reported net income of $14,090,000 compared to net income for the year ended December 31, 2024 of $11,448,000 and December 31, 2023 of $9,483,000.
As previously disclosed, on September 23, 2025, QNB and The Victory Bancorp, Inc., a Pennsylvania corporation (“Victory”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides for a business combination whereby Victory will merge with and into QNB (the “Merger”), with QNB as the surviving corporation in the Merger. Immediately after the effective time of the Merger (the “Effective Time”), Victory’s wholly-owned subsidiary bank, The Victory Bank, a Pennsylvania-chartered state bank (“Victory Bank”), will merge with and into QNB Bank, with QNB Bank as the surviving bank in the subsidiary bank merger. The transactions under the Merger Agreement are expected to close during the second quarter of 2026, subject to customary closing conditions.
At February 18, 2026, the Bank had 191 full-time employees and six part-time employees. The Bank’s employees have a customer-oriented philosophy emphasizing personal service and flexible solutions which together make achieving our customers’ goals possible. They maintain close contact with both the residents and local business people in the communities in which they serve, responding to changes in market conditions and customer requests in a timely manner.
Competition and Market Area
The banking business is highly competitive, and the profitability of QNB depends principally upon the Bank’s ability to compete in its market area. QNB faces intense competition within its market, both in making loans and attracting deposits. Bucks, Lehigh, and Montgomery counties have a high concentration of financial institutions, including large national and regional banks, community banks, savings institutions and credit unions. Some of QNB’s competitors offer products and services that QNB currently does not offer, such as traditional trust services and full-service insurance.
In addition, as a result of consolidation in the banking industry, some of QNB’s competitors may enjoy advantages such as greater financial resources, a wider geographic presence, more favorable pricing alternatives and lower origination and operating costs. However, QNB has been able to compete effectively with other financial institutions by emphasizing the establishment of long-term relationships and customer loyalty. A strong focus on small-business solutions, providing fast local decision-making on loans, exceptional personal customer service and technology solutions, including internet- and mobile-banking, electronic bill pay and remote deposit capture, also enable QNB to compete successfully.
Competition for loans and deposits comes principally from commercial banks, savings institutions, credit unions and non-bank financial service providers. Factors in successfully competing for deposits include providing excellent customer service, convenient locations and hours of operation, attractive rates, low fees, and alternative delivery systems. One such delivery system is remote deposit capture for those commercial customers that are not conveniently located near one of our branches, or mobile banking for retail customers. Successful loan origination tends to depend not only on interest rate and terms of the loan but also on being responsive and flexible to the customers’ needs. While many competitors within the Bank’s primary market have substantially higher legal lending limits, QNB often has the ability, through loan participations, to meet the larger lending needs of its customers.
QNB’s success is dependent to a significant degree on economic conditions in southeastern Pennsylvania, especially Bucks, Lehigh and Montgomery counties, which it defines as its primary market. The banking industry is affected by general economic conditions, including the effects of recession, unemployment, declining real estate values, inflation, changes interest rates, trends in the national and global economies, and other factors beyond QNB’s control.
Monetary Policy and Economic Conditions
The business of financial institutions is affected not only by general economic conditions, but also by the policies of various governmental regulatory agencies, including the Board of Governors of the Federal Reserve (the “Federal Reserve”). The Federal Reserve regulates money, credit conditions and interest rates to influence general economic conditions primarily through open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in the reserve requirements against depository institutions’ deposits. These policies and regulations significantly affect the overall growth and distribution of loans, investments and deposits, as well as the interest rates charged on loans and the interest rates paid on deposits.
The monetary policies of the Federal Reserve have had a significant effect on the operating results of financial institutions in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and the financial markets in addition to the activities of monetary and fiscal authorities, the prediction of future changes in interest rates, credit availability or deposit levels is very challenging.
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Supervision and Regulation
Banks and bank holding companies operate in a highly-regulated environment and are regularly examined by Federal and state regulatory authorities. Federal statutes that apply to QNB and its subsidiary include the Bank Holding Company Act of 1956 (“BHCA”), the Federal Reserve Act and the Federal Deposit Insurance Act (“FDIA”), as those statutes have been significantly amended by recent laws such as the Dodd-Frank Wall Street Reform and Consumer Protection Act the “Dodd-Frank Act”), the Gramm-Leach-Bliley Act (“GLBA”), and others. In general, these statutes regulate the corporate governance of the Bank and eligible business activities of QNB and impose certain restrictions and limitations on such important matters as mergers and acquisitions, intercompany transactions, loans and dividends, and capital adequacy, among others. Other corporate governance requirements are imposed on QNB by Federal securities and other laws, including the Sarbanes-Oxley Act, described later.
The Company is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offering and sale of its securities. In addition, the Company is subject to the Securities and Exchange Commission’s rules and regulations relating to periodic reporting, proxy solicitation and insider trading.
Set forth below is a brief summary of some of the significant regulatory concepts and laws that affect QNB and the Bank. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by references to the particular statutory or regulatory provisions themselves. Proposals to change banking laws and regulations are frequently introduced in Congress, the state legislatures, and before the various bank regulatory agencies. QNB cannot determine the likelihood of passage or timing of any such proposals or legislation or the impact they may have on QNB and its subsidiary. A change in law, regulations or regulatory policy may have a material effect on QNB and its subsidiary.
Bank Holding Company Regulation
QNB is registered as a bank holding company and is subject to the regulations of the Federal Reserve under the BHCA. In addition, QNB Corp., as a Pennsylvania business corporation, is subject to the Pennsylvania Business Corporation Law of 1988 (the “BCL”), as amended, and to certain provisions of the Pennsylvania Banking Code of 1965, as amended (the “Banking Code”).
Bank holding companies are required to file periodic reports with, and are subject to examination by, the Federal Reserve. The Federal Reserve’s regulations require a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve, pursuant to its “source of strength” regulations, may require QNB to commit its resources to provide adequate capital funds to the Bank during periods of financial distress or adversity.
Federal Reserve approval may be required before QNB may begin to engage in any non-banking activity and before any non-banking business may be acquired by QNB.
Regulatory Restrictions on Dividends
Dividend payments made by the Bank to the Company are subject to the Pennsylvania Banking Code, the FDIA, and the regulations of the Federal Deposit Insurance Corporation (“FDIC”). Under the Banking Code, no dividends may be paid except from “accumulated net earnings” (generally retained earnings). The Federal Reserve and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. Under the FDIA, the Bank is prohibited from paying any dividends, making other distributions or paying any management fees if, after such payment, it would fail to satisfy its minimum capital requirements. See also “Supervision and Regulation – Bank Regulation”.
In addition to the dividend restrictions described above, the banking regulators have the authority to prohibit or to limit the payment of dividends by the Bank if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the Bank.
Under Pennsylvania law, QNB may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of QNB would be less than the sum of its total liabilities plus the amount that would be needed, if QNB were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend.
It is also the policy of the Federal Reserve that a bank holding company generally only pay dividends out of net income over the past year and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. In the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged dividend pay-out ratios at the 100% level unless both asset quality and capital are very strong. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries.
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The minimum capital requirements implemented by Basel III, and described below under “Capital Adequacy,” also introduced a capital conservation buffer, comprised of common equity Tier 1 capital, above a banking institution’s minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets in order to avoid limitations on certain distributions, including dividend payments. Under the restrictions applicable to the Bank, to remain “well capitalized,” the Bank had approximately $87,401,000 available for payment of dividends to the Company at December 31, 2025.
Capital Adequacy
In July 2013, the Federal bank regulatory agencies adopted revisions to the agencies’ capital adequacy guidelines and prompt corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The rules generally implemented higher minimum capital requirements, added a new common equity Tier 1 capital requirement, and established criteria that instruments must meet to be considered common equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. Tier 1 capital consists principally of common shareholders’ equity, plus retained earnings, less certain intangible assets. Tier 2 capital includes the allowance for loan and lease losses (up to 1.25 percent of risk-weighted assets), qualifying preferred stock, subordinated debt, and qualifying Tier 2 minority interests. The current minimum capital requirements are a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%. In addition, in order to avoid limitations on certain capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), as of January 1, 2019, a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. At December 31, 2025, QNB’s Tier 1 capital, total capital (Tier 1 and Tier 2 combined) and common equity Tier 1 equity ratios were 12.39%, 15.86%, and 12.39%, respectively.
In addition to the risk-based capital guidelines, the Federal Reserve requires a bank holding company to maintain a minimum leverage ratio. This requires a minimum level of Tier 1 capital (as determined under the risk-based capital rules) to average total consolidated assets of 4% for those bank holding companies that have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. The Federal Reserve expects all other bank holding companies to maintain a ratio of at least 1% to 2% above the stated minimum. At December 31, 2025, QNB’s leverage ratio was 9.02%.
During 2018, the FRB raised the threshold of its "Small Bank Holding Company" exemption to the application of consolidated capital requirements for qualifying small bank holding companies from $1 billion to $3 billion of consolidated assets. Consequently, qualifying bank holding companies having less than $3 billion of consolidated assets are not subject to the consolidated capital requirements unless otherwise directed by the FRB.
Under the Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in May 2018, the Federal banking agencies adopted the community bank leverage ratio (“CBLR”) framework available to depository institutions having less than $10 billion in total assets and meeting certain other qualifying criteria. The CBLR rules provide that qualifying community banking organizations that adopt the CBLR framework and that maintain a CBLR in excess of 9% will be considered to have met the generally applicable leverage and risk-based capital requirements under the banking agencies’ capital rules and the capital ratio requirements necessary to be considered “well capitalized.” QNB has not elected to use the CBLR framework at this time.
Pursuant to the prompt corrective action provisions of the FDIA, the Federal banking agencies have specified, by regulation, the levels at which an insured institution is considered well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. Under these regulations, an institution is considered well capitalized if it satisfies each of the following requirements:
At December 31, 2025 and 2024, the Bank qualified as well capitalized under these regulatory standards. See Note 22 of the Notes to Consolidated Financial Statements included in Item 8 of this Report for additional information.
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Bank Regulation
As a Pennsylvania-chartered insured commercial bank, the Bank is subject to extensive regulation and examination by the Pennsylvania Department of Banking and Securities (the “Department”) and by the FDIC, which insures its deposits to the maximum extent permitted by law.
The Federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds, the nature and amount of collateral for certain loans, the activities of a bank with respect to mergers and consolidations, and the establishment of branches. The laws and regulations governing the Bank generally have been promulgated to protect depositors and not for the purpose of protecting QNB’s shareholders. This regulatory structure also gives the Federal and state banking agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulation, whether by the Department, the FDIC or the United States Congress, could have a material impact on the Company, the Bank and their operations.
As a subsidiary bank of a bank holding company, the Bank is subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to QNB, on investments in the stock or other securities of QNB, and on taking such stock or securities as collateral for loans.
FDIC Insurance Assessments
The Bank’s deposits are insured to the applicable limits as determined by the FDIC, which is currently $250,000 per depositor. Under the FDIC's risk-based assessment system, deposit insurance assessments are based on each insured institution's total assets less tangible equity, thereby basing deposit insurance assessments on an institution’s total liabilities, not only insured deposits. Small banks (generally, those with less than $10 billion in assets) are assigned an individual rate based on a formula using financial data and CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) ratings. A bank’s assessment is calculated by multiplying its individual assessment rate by its assessment base (average consolidated total assets less average tangible equity), determined quarterly.
For the years ended December 31, 2025, 2024 and 2023, the Bank recorded $1,033,000, $1,156,000, and $1,058,000, respectively, in FDIC deposit insurance premium expense.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”), which is one of 11 regional Federal Home Loan Banks. Each Federal Home Loan Bank serves as a reserve or central bank for members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e. advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank. At December 31, 2025 the Bank had $11,000,000 overnight FHLB advances outstanding $55,000,000 in short-tern FHLB borrowings and no long-term debt.
The Bank is required to purchase and maintain stock in the FHLB as a condition of membership in an amount equal to 0.10% of its assets. In addition, each member is required to purchase and maintain activity-based stock of 4% of outstanding advances from the FHLB. At December 31, 2025, the Bank had $3,587,000 in stock of the FHLB.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”) as amended, the FDIC is required to assess all financial institutions that it regulates to determine whether these institutions are meeting the credit needs of the communities that they serve. The CRA focuses specifically on low- and moderate-income neighborhoods.
An institution’s record is considered during the evaluation of any application made by such institutions for, among other things:
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The CRA also requires that the regulatory agency make publicly available the evaluation of the Bank’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods. This evaluation includes a descriptive rating of either outstanding, satisfactory, needs to improve, or substantial noncompliance, and a statement describing the basis for the rating. The Bank’s most recent CRA rating was “Satisfactory”.
In October 2023, the Federal banking regulators issued a final rule, effective April 1, 2024, to modernize their respective CRA regulations. The revised rule substantially alters the methodology for assessing compliance with the CRA. Among other things, the revised rule evaluates lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarifies eligible CRA activities. Prior to the proposed effective date of the revised CRA rule, a Federal District Court enjoined enforcement of the rule as it relates to certain industry trade groups and their members, including the Bank, pending further litigation on the merits. The injunction remains in place. Accordingly, it is not possible at present to determine the timing of the applicability of the revised CRA rule at the Bank.
USA Patriot Act
The USA Patriot Act strengthens the anti-money laundering provisions of the Bank Secrecy Act. The Act requires financial institutions to establish certain procedures to be able to identify and verify the identity of its customers. Specifically, the Bank must have procedures in place to:
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act is intended to bolster public confidence in the nation’s capital markets by imposing new duties and penalties for non-compliance on public companies and their executives, directors, auditors, attorneys and securities analysts. Some of the more significant aspects of the Act as it relates to QNB include:
The Act also imposes requirements for corporate governance, auditor independence, accounting standards, audit committee member independence and increased authority, executive compensation, insider loans and whistleblower protection. As a result of the Act, QNB adopted a Code of Business Conduct and Ethics applicable to its CEO, CFO and Controller, which meets the requirements of the Act, to supplement its long-standing Code of Ethics, which applies to all directors and employees.
QNB’s Code of Business Conduct and Ethics can be found on the Bank’s website at QNBBank.com.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”)
The Dodd-Frank Act was enacted on July 21, 2010. This law made significant changes to the bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.
The Dodd-Frank Act created a new Consumer Financial Protection Bureau (“CFPB”) with broad powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets such as the Bank will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also weakened the Federal preemption rules that had been applicable for national banks and Federal savings associations and gave state attorneys general the ability to enforce Federal consumer protection laws.
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Many of the provisions of the Dodd-Frank Act do not apply to the Bank, as it does not engage in many of the specific activities sought to be regulated by the Dodd-Frank Act. Many of the provisions, however, such as increased capital requirements and changes to FDIC insurance premiums already implemented, affected all banking entities. In addition, the financial crisis of 2008 and the enactment of the Dodd-Frank Act in response to that crisis has resulted in an era of increased regulatory oversight over all financial entities. The ultimate changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.
Possible Future Legislation
Congress is often considering some financial industry legislation, and the Federal banking agencies routinely propose new regulations. The Company cannot predict the future effect any new legislation, or new rules adopted by Federal or state banking agencies, will have on the business of the Company and its subsidiaries. The Company expects that there will be legislative and regulatory actions that may materially affect the banking industry in the foreseeable future.
Additional Information
QNB’s principal executive offices are located at 320 West Broad Street, Quakertown, Pennsylvania. Its telephone number is (215) 538-5600.
QNB also makes its periodic and current reports available, including this annual report for Form 10-K, free of charge, on its website, QNBBank.com, as soon as reasonably practicable after such material is electronically filed with the SEC. Information available on the website is not a part of, and should not be incorporated into, this annual report on Form 10-K. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including QNB, that file electronically with the SEC which can be accessed at SEC.gov.
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ITEM 1A. RISK FACTORS
The following discusses risks that management believes are specific to our business and could have a negative impact on QNB’s financial performance. When analyzing an investment in QNB, the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this report, should be carefully considered. This list should not be viewed as comprehensive and may not include all risks that may affect the financial performance of QNB.
Our net interest income, net income and results of operations are sensitive to fluctuations in interest rates.
QNB’s profitability is largely a function of the spread between the interest rates earned on earning assets and the interest rates paid on deposits and other interest-bearing liabilities. Like most financial institutions, QNB’s net interest income and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the Federal government, that influence market interest rates and QNB’s ability to respond to changes in such rates. At any given time, QNB’s assets and liabilities may be such that they are affected differently by a change in interest rates. As a result, an increase or decrease in rates, the length of loan terms or the mix of adjustable- and fixed-rate loans or investment securities in QNB’s portfolio could have a positive or negative effect on its net income, capital and liquidity. Although management believes it has implemented strategies and guidelines to reduce the potential effects of adverse changes in interest rates on results of operations, any substantial and prolonged change in market interest rates could affect operating results negatively.
We are subject to credit risk in connection with our lending activities, and our financial condition and results of operations may be negatively affected by economic conditions and other factors that could adversely affect our customers.
As a lender, QNB is exposed to the risk that its borrowers may be unable to repay their loans and that the current market value of any collateral securing the payment of their loans may not be sufficient to assure repayment in full. Credit losses are inherent in the lending business and could have a material adverse effect on the operating results of QNB. Adverse changes in the economy or business conditions, either nationally or in QNB’s market areas, could increase credit-related losses and expenses and/or limit growth. Substantially all of QNB’s loans are to businesses and individuals in its limited geographic area and any economic decline in this market could impact QNB adversely. QNB makes various assumptions and judgments about the collectability of its loan portfolio and provides an allowance for credit losses on loans based on a number of factors. If these assumptions are incorrect, the allowance for credit losses on loans may not be sufficient to cover losses and may cause QNB to increase the allowance in the future by increasing the provision for credit losses on loans, thereby having an adverse effect on operating results. QNB has adopted underwriting and credit monitoring procedures and credit policies that management believes are appropriate to control these risks; however, such policies and procedures may not prevent unexpected losses that could have a material adverse effect on QNB’s financial condition or results of operations.
A deterioration in regional or national economic conditions may adversely affect our financial condition and results of operations.
QNB primarily provides banking services to customers located in the Bucks, Lehigh and Montgomery Counties in Pennsylvania. Adverse effects of a regional economic downturn could affect QNB’s ability to attract deposits and qualified loans. Economic factors impacting the local economy with this region, such as a decline in real estate values, unemployment, natural disasters, or the effects of armed conflict in other parts of the world, including present armed conflicts in Ukraine and the Gaza Strip, may have a negative impact on credit-worthiness of customers, the value of collateral, and customers’ ability to repay loans, which would result in write-downs, increases in non-performing loans, and a decline in QNB’s financial performance measurements. Unlike larger banks that are more geographically diversified, we provide banking and financial services locally and therefore are more affected by adverse local economic conditions.
Similarly, potential adverse effects of any national economic downturn or concerns with the stability of the financial markets could lead to lack of consumer confidence, increased market volatility, and a general reduction in business activity. Such events may result in increased regulation of the financial services industry and increased compliance costs; greater difficulty in assessing the creditworthiness of customers and increased credit risk; greater difficulty in originating loans that meet our underwriting criteria; liquidity issues to the extent that it becomes more difficult to borrow from third parties, including other financial institutions; and limitations on growth.
We face significant competition from other banks and financial institutions in our market area, many of which are larger in terms of asset size and market capitalization.
The financial services industry is highly competitive, with competition for attracting and retaining deposits and making loans coming from other banks and savings institutions, credit unions, mutual fund companies, insurance companies and other non-bank businesses. Many of QNB’s competitors are much larger in terms of total assets and market capitalization, have a higher lending limit, have greater access to capital and funding, and offer a broader array of financial products and services. In light of this, QNB’s ability to continue to compete effectively is dependent upon its ability to maintain and build relationships by delivering top quality service. Competition within the financial services industry also impacts QNB’s ability to attract and retain low-cost deposits which could impact QNB’s liquidity. Lowering loan rates and increasing deposit rates compresses the interest rate margin and profitability.
- 9 -
At December 31, 2025, our lending limit per borrower was approximately $30,154,000. Accordingly, the size of loans that we may offer to potential borrowers (without participation by other lenders) is less than the size of loans that many of our competitors with larger capitalization are able to offer. Our legal lending limit also impacts the efficiency of our lending operation because it tends to lower our average loan size, which means we have to generate a higher number of transactions to achieve the same portfolio volume. We may engage in loan participations with other banks for loans in excess of our legal lending limit. However, there can be no assurance that such participations will be available or on terms which are favorable to us and our customers.
Our results of operations may be adversely affected by impairment charges relating to our debt securities.
QNB purchases U.S. Government and U.S. Government agency debt securities, U.S. Government agency issued mortgage-backed securities or collateralized mortgage obligation securities, obligations of states and municipalities and corporate debt securities. QNB is exposed to the risk that the issuers of these debt securities may experience significant deterioration in credit quality which could impact the market value of such issuer’s securities. QNB periodically evaluates its debt securities to determine if market value declines indicate impairment. Once a decline is determined to be impairment, the value of the security is reduced and a corresponding charge to earnings is recognized for the credit related portion of the impairment.
Our results of operations may be adversely affected by fair value declines in our investments in equity securities.
At December 31, 2025, the Bank had $3,587,000 in capital stock of the FHLB and $12,000 in capital stock of ACBB. These equity securities are restricted in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other tradable equity securities, their fair value is equal to amortized cost, and no impairment write-downs have been recorded on these securities.
The Bank has a $2,064,000 non-controlling investment in a discrete class of non-voting limited liability company membership nterests
issued by National Energy Improvement Fund, LLC (“NEIF”), a Pennsylvania limited liability company licensed in Pennsylvania as a
consumer discount company. The proceeds of the investment will be used by NEIF to fund a State-sponsored consumer loan program,
the KEEP Home Energy Loan Program, designed to assist Pennsylvania homeowners in reducing their energy costs.
The Bank owns 3,251 shares of Visa Class B-2 stock post conversion of its original Class B shares, which was necessary to participate in Visa services in support of the Bank’s credit card, debit card, and related payment programs (permissible activities under banking regulations) as a member institution. Following the resolution of Visa’s covered litigation, shares of Visa’s Class B-2 stock will be converted to Visa Class A shares using a conversion factor (1.5108 as of December 23, 2025), which is periodically adjusted to reflect VISA’s ongoing litigation costs. There is a very limited market for this stock, as only current owners of Class B-2 shares are permitted to transact in Class B-2. Due to the lack of orderly trades and public information of such trades, Visa Class B-2 does not have a readily determinable fair value.
The Bank owns 100 shares of preferred stock of SHCPFIC. These shares are not transferable without the consent of SHCPFIC and does not have a readily determinable fair value. These restricted investments are carried at cost and evaluated for impairment periodically. As of December 31, 2025, there was no impairment associated with these securities.
Our assets at December 31, 2025 included a deferred tax asset and we may not be able to realize the full benefit of that asset.
As of December 31, 2025, QNB had a net deferred tax asset of $13,993,000. Our ability to realize these tax benefits ultimately depends on the existence of sufficient taxable income of the appropriate character (ordinary income or capital gains) within the applicable carryback and carryforward periods provided under the tax law. Estimating whether the deferred tax asset will be realized requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. The deferred tax asset may be reduced in the future if estimates of future income, our tax planning strategies, or tax rate changes resulting from Federal tax reform do not support the amount of the deferred tax asset. If it is determined in the future that a valuation allowance of the deferred tax asset is necessary, we may incur a charge to earnings and a reduction to regulatory capital for the amount included in any such allowance.
A disruption in components of our business infrastructure resulting from financial or technological difficulties of our third- party vendors on which we rely could adversely affect our business.
Third parties provide key components of our business infrastructure, such as Internet connections, software platforms and network access. Any disruption in Internet, network access or other voice or data communication services provided by these third parties or any failure of these third parties to handle current or higher volumes of use could adversely affect the ability to deliver products and services to clients and otherwise to conduct business. Disruptions or failures in the business infrastructure or operating systems that support our business and customers, or cyber-attacks or security breaches of the networks, systems, or devices that our customers use to access our products and services, could damage our reputation, cause us to incur additional expenses, result in losses, or subject us to regulatory sanctions or additional regulatory scrutiny, any of which could adversely affect our results of operations or financial condition.
- 10 -
Our failure to properly or timely utilize effective technologies to deliver our products and services, or a systems failure or breach of network security with respect to our information systems could adversely affect our business.
The market for financial services is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-based banking and mobile banking. Our ability to compete successfully in our markets may depend on the extent to which we are able to exploit such technological changes. However, we can provide no assurance that we will be able to properly or timely anticipate or implement such technologies or properly train our staff to use such technologies. Any failure to adapt to new technologies could adversely affect our business, financial condition or operating results.
In addition, we rely heavily on our information systems to conduct business. Maintaining and protecting those systems is difficult and expensive, as is dealing with any failure, interruption or breach in security of these systems, whether due to acts or omissions by us or by a third party and whether intentional or not. Any such failure, interruption or breach could result in failures or disruptions in our customer relationship management or our information systems. The policies, procedures and technical safeguards we have in place to prevent or limit the effect of any failure, interruption or security breach of our information systems may be insufficient to prevent or remedy the effects of any such event. Moreover, as cyber threats continue to evolve, we may be required to expend significant additional resources to modify or enhance our protective measures relating to information security. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, cause us to incur additional expenses, result in losses, or subject us to regulatory sanctions or additional regulatory scrutiny, any of which could adversely affect our business, financial condition or operating results.
Changes in accounting standards applicable to us could materially impact how we report our financial condition and results of operations.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time the FASB changes the financial accounting and reporting standards that govern the preparation of our financial statements.
These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements. Management believes the current financial statements are prepared in accordance with U.S. generally accepted accounting principles.
We operate in a highly regulated environment and are subject to examination and supervision by bank regulatory agencies, which could have an adverse impact on our operations or increase the cost of our operations.
We operate in a highly regulated environment and are subject to extensive examination by the Board of Governors of the Federal Reserve System, the FDIC, and the Pennsylvania Department of Banking and Securities. The bank regulatory agencies exercise broad discretion in connection with their supervisory and enforcement activities. Federal and state banking laws and regulations are designed primarily to protect depositors, the deposit funds, and consumers, and not necessarily shareholders of a financial institution. Banking regulations or the activities of bank regulatory agencies may, for example, limit a financial institution’s growth and potential shareholder returns by restricting certain activities such as the payment of dividends, expansion of branch offices, and acquisition activities.
The significant laws and regulations that govern our activities are described under “Item 1 - Description of Business” in this Form 10-K. These laws and regulations, along with existing tax, accounting, securities, and monetary laws, regulations, standards, policies, and interpretations control the manner in which financial institutions conduct business. Such laws, regulations, standards, policies, and interpretations are constantly evolving and may change significantly over time. The potential exists for additional Federal or state laws or regulations, or new policies or interpretations by regulatory agencies having jurisdiction over our activities, to affect many aspects of our operations, including capital requirements, lending and funding practices, and liquidity standards. Additional laws, regulations or other regulatory requirements, or any substantial change in regulation and oversight, may have a material impact on our operations by increasing our cost of regulatory compliance and of doing business and otherwise affecting our operations, and may significantly affect the markets in which we do business, the markets for and value of our investments, the fees we charge and our ongoing operations, costs and profitability.
High concentrations of commercial real estate loans ("CRE loans") could subject the Bank to increased regulatory scrutiny and directives, which could force us to preserve or raise capital and/or limit future commercial lending activities.
Bank regulators have expectations of banks with high CRE concentrations to manage the risk in the concentrated portfolio. Bank regulators recognize that diversification can be achieved within CRE portfolios and differentiates risk in different types of CRE loans. They focus on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a
- 11 -
borrower for which real estate collateral is taken as a secondary source of repayment or through abundance of caution. Generally, these would include development and construction loans for which repayment is dependent upon the sale of the property as well as properties for which repayment is dependent upon rental income.
Financial institutions that have high concentrations of CRE loans within their lending portfolios could face increased risk of financial difficulties in an economic downturn effecting its CRE markets. Therefore, bank regulators have issued guidance directed financial institutions whose concentrations exceed certain percentages of capital to implement heightened risk management practices appropriate to their concentration risk. These general guidelines are not limits, are not viewed negatively, nor are they viewed a safe haven. If a financial institution’s CRE portfolio goes outside of these general guidelines they will not automatically be criticized, but heightened risk management practices may be needed. Risk management practices should align with the complexity of the financial institution and its portfolio and include factors such as: portfolio diversification across property types; geographic dispersion of CRE loans; underwriting standards; level of pre-sold units or other types of take-out commitments on construction loans; and portfolio liquidity (ability to sell or securitize exposures on the secondary market).
Bank regulators may require such financial institutions to reduce their concentrations and/or maintain higher capital ratios than financial institutions with lower concentrations in CRE. At December 31, 2025, our CRE loans did not result in concentrations that require heightened risk management practices.
If we lose the availability of wholesale funding we may be unable to support interest-earning asset growth, which could adversely impact our operating results and liquidity.
Management periodically uses wholesale funding sources to support loan demand and deposit withdrawals and to provide sufficient liquidity. Wholesale funding primarily is made up of borrowings from the FHLB but may also include unsecured Federal funds from correspondent banks, Federal advances and wholesale certificates of deposit.
If wholesale funding becomes unavailable, QNB may need to reduce interest-earning asset growth through production reduction, sale of assets, or participating out future and current loans; this could adversely impact future net income. A termination or change in borrowings from the FHLB, the Federal Reserve or correspondent banks may have an adverse effect on our liquidity and operating results.
Our disclosure controls and procedures and our internal control over financial reporting may not achieve their intended objectives.
Management diligently reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by QNB in reports filed or submitted under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Management believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Any undetected circumvention of these controls could have a material adverse impact on QNB’s financial condition and results of operations.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
We may not be able to attract and retain highly qualified personnel to execute our business strategy.
Our success depends upon the ability to attract and retain highly motivated, well-qualified personnel. We face significant competition in the recruitment of qualified employees. Our ability to execute our business strategy and provide high-quality service may suffer if we are unable to recruit or retain a sufficient number of qualified employees or if the costs of employee compensation or benefits increase substantially. QNB currently has employment agreements and/or change of control agreements with six of its senior officers.
Acts of terrorism and other external events, including natural disasters, national or global health emergencies, and events of armed conflict in other countries, could impact our ability to do business or otherwise adversely affect our business, operations or financial condition.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communications systems. Such events could cause significant damage, impact the stability of our facilities, result in additional expenses, and impair the ability of our borrowers to repay their loans. Although we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations, and financial condition. In addition, other external events, including natural disasters, health emergencies and epidemics or pandemics, and events of armed conflict in other parts
- 12 -
of the world, such as the present armed conflicts involving Ukraine and Russia and involving Israel and Hamas, could adversely affect the global or regional economies resulting in unfavorable economic conditions in the United States. Any of such developments could have an adverse effect on our business, operations or financial condition.
We may be unsuccessful in integrating the operations of the businesses we acquire or expect to acquire in the future, including our pending acquisition of Victory and Victory Bank.
From time to time, we evaluate the potential acquisition of businesses that we believe will complement our existing business. The impact of future acquisitions on our growth strategy depends on the successful integration of these acquisitions. There are numerous risks and challenges to the successful integration of acquired businesses, including the following: the potential for unexpected costs, delays and challenges that may arise in integrating acquisitions into our existing business; limitations on our ability to realize the expected cost savings and synergies from an acquisition; challenges related to integrating acquired operations, including our ability to retain key employees and maintain relationships with significant customers and depositors; challenges related to the integration of businesses that operate in new geographic areas, including difficulties in identifying and gaining access to customers in new markets; and discovery of previously unknown liabilities following an acquisition associated with the acquired business. If we are unable to successfully integrate the businesses that we acquire, including our pending acquisition of Victory and Victory Bank, which is expected to close, during the second quarter of 2026, subject to customary closing conditions, our business, financial condition and results of operations may be materially adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY RISK MANAGEMENT, STRATEGY AND GOVERNANCE
QNB maintains comprehensive and continually evolving processes for assessing, identifying, and managing material risks from cybersecurity threats, including any potential unauthorized occurrence on, or conducted through, QNB’s information systems that may result in adverse effects on the confidentiality, integrity, or availability of such systems or any information residing on such systems. The processes relating to cybersecurity threats are
QNB Bank’s information technology resources are managed by the Information Technology Department, which is responsible for identifying, assessing, and managing material risks from cybersecurity threats.
QNB maintains an Incident Response Plan that provides documented guidelines for handling potential threats and taking appropriate measures, including timely notification of cybersecurity threats and incidents to senior management and the Board of Directors when appropriate. The Incident Response Plan is managed by the Information Security Committee and is reviewed and tested at least annually.
- 13 -
QNB uses
ITEM 2. PROPERTIES
The principal office of both QNB Bank and QNB Corp. is located at 15 North Third Street, Quakertown, Pennsylvania. QNB Bank conducts business from its principal office and eleven other branch offices located in Bucks, Lehigh, and Montgomery Counties in Pennsylvania. QNB Bank owns its principal office, four branch locations, its administrative and operations facility and a computer facility. QNB Bank leases its remaining seven branch properties. The leases on the properties generally contain renewal options. In management’s opinion, these properties are in good condition and are currently adequate for QNB’s purposes.
The following table details QNB Bank’s properties:
Location
|
|
Quakertown, PA – Downtown Branch (Principal Office) - 15 North Third Street |
Owned |
|
|
Quakertown, PA – Towne Bank Center - 320-322 West Broad Street |
Owned |
|
|
Quakertown, PA – Computer Center - 121 West Broad Street |
Owned |
|
|
Quakertown, PA – Country Square Branch - 240 South West End Boulevard |
Owned |
|
|
Quakertown, PA – Quakertown Commons Branch - 901 South West End Boulevard |
Leased |
|
|
Dublin, PA – Dublin Branch - 161 North Main Street |
Leased |
|
|
Pennsburg, PA – Upper Perkiomen Valley Branch - 410 Pottstown Avenue |
Leased |
|
|
Coopersburg, PA – Coopersburg Branch - 51 South Third Street |
Owned |
|
|
Perkasie, PA – Perkasie Branch - 607 Chestnut Street |
Owned |
|
|
Souderton, PA – Souderton Branch - 750 Route 113 |
Leased |
|
|
Wescosville, PA – Wescosville Branch - 950 Mill Creek Road |
Leased |
|
|
Colmar, PA – Colmar Branch - 127 Bethlehem Pike |
Owned |
|
|
Warminster, PA – Warminster Branch - 1402 West Street Road |
Leased |
|
|
Allentown, PA – Allentown Branch - 535 N. 19th Street |
Leased
|
- 14 -
ITEM 3. LEGAL PROCEEDINGS
Although there are currently no material legal proceedings to which QNB is the subject, future litigation that arises during the normal course of QNB’s business could be material and have a negative impact on QNB’s earnings. Future litigation also could adversely impact the reputation of QNB in the communities that it serves.
ITEM 4. MINE SAFETY DISCLOSURES
None
- 15 -
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Information
QNB common stock is quoted on the over-the-counter bulletin board (“OTCBB”). QNB had approximately 610 shareholders of record as of February 28, 2026.
The following table sets forth the high and low bid and ask stock prices for QNB common stock on a quarterly basis during 2025 and 2024. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|||||
|
|
High |
|
|
Low |
|
|
dividend |
|
|||||||||||
|
|
Bid |
|
|
Ask |
|
|
Bid |
|
|
Ask |
|
|
per share |
|
|||||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter |
|
$ |
34.95 |
|
|
$ |
35.99 |
|
|
$ |
32.34 |
|
|
$ |
33.93 |
|
|
$ |
0.38 |
|
Second Quarter |
|
|
35.58 |
|
|
|
35.59 |
|
|
|
32.90 |
|
|
|
33.69 |
|
|
|
0.38 |
|
Third Quarter |
|
|
35.60 |
|
|
|
36.25 |
|
|
|
28.05 |
|
|
|
33.69 |
|
|
|
0.38 |
|
Fourth Quarter |
|
|
35.25 |
|
|
|
35.50 |
|
|
|
34.00 |
|
|
|
34.65 |
|
|
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter |
|
$ |
26.19 |
|
|
$ |
27.69 |
|
|
$ |
22.00 |
|
|
$ |
23.00 |
|
|
$ |
0.37 |
|
Second Quarter |
|
|
23.75 |
|
|
|
23.95 |
|
|
|
22.25 |
|
|
|
22.95 |
|
|
|
0.37 |
|
Third Quarter |
|
|
29.70 |
|
|
|
30.25 |
|
|
|
22.70 |
|
|
|
23.39 |
|
|
|
0.37 |
|
Fourth Quarter |
|
|
33.92 |
|
|
|
35.00 |
|
|
|
28.50 |
|
|
|
29.14 |
|
|
|
0.37 |
|
QNB has traditionally paid quarterly cash dividends on the last Friday of each quarter. The Company expects to continue the practice of paying quarterly cash dividends to its shareholders; however, future dividends are dependent upon future earnings, financial condition, appropriate legal restrictions, and other factors relevant at the time the board of directors considers declaring a dividend. Certain laws restrict the amount of dividends that may be paid to shareholders in any given year. See “Shareholders’ Equity - Capital Adequacy” included in Item 7 of this Form 10-K filing and Note 22 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K filing, for additional information that discusses and quantifies this regulatory restriction.
The following table provides information on repurchases by QNB of its common stock in each month of the quarter ended December 31, 2025.
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number |
|
|
Maximum |
|
||||
October 1, 2025 through October 31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
98,000 |
|
November 1, 2025 through November 30, 2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98,000 |
|
December 1, 2025 through December 31, 2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98,000 |
|
Total |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
98,000 |
|
- 16 -
Stock Performance Graph
Set forth below is a performance graph comparing the yearly cumulative total shareholder return on QNB’s common stock with:
All of these cumulative total returns are computed assuming the reinvestment of dividends at the frequency with which dividends were paid during the applicable years.
|
|
Period Ending |
|
|||||||||||||||||||||
Index |
|
12/31/20 |
|
|
12/31/21 |
|
|
12/31/22 |
|
|
12/31/23 |
|
|
12/31/24 |
|
|
12/31/25 |
|
||||||
QNB Corp. |
|
|
100.00 |
|
|
|
116.72 |
|
|
|
89.49 |
|
|
|
93.67 |
|
|
|
129.21 |
|
|
|
139.13 |
|
NASDAQ Composite Index |
|
|
100.00 |
|
|
|
122.18 |
|
|
|
82.43 |
|
|
|
119.22 |
|
|
|
154.48 |
|
|
|
187.14 |
|
S&P U.S. SmallCap Banks Index |
|
|
100.00 |
|
|
|
139.21 |
|
|
|
122.74 |
|
|
|
123.35 |
|
|
|
145.82 |
|
|
|
160.37 |
|
S&P U.S. BMI Banks - Mid-Atlantic Region Index |
|
|
100.00 |
|
|
|
126.30 |
|
|
|
106.67 |
|
|
|
129.34 |
|
|
|
179.73 |
|
|
|
247.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Source: S&P Global Market Intelligence© 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
ITEM 6. [RESERVED]
- 17 -
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations – Overview
QNB Corp. (“QNB” or the “Company”) earns its net income primarily through its subsidiary, QNB Bank (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. QNB 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. Due to its limited geographic area, comprised principally of Bucks, Lehigh and Montgomery counties, 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.
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 below, "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.
- 18 -
The following table displays five years of selected financial amounts and ratios for the QNB:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||||
Income and expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net interest income |
|
$ |
51,229 |
|
|
$ |
42,862 |
|
|
$ |
40,155 |
|
|
$ |
44,497 |
|
|
$ |
42,127 |
|
Provision for credit losses |
|
|
449 |
|
|
|
(68 |
) |
|
|
(844 |
) |
|
|
(850 |
) |
|
|
458 |
|
Non-interest income |
|
|
6,957 |
|
|
|
6,913 |
|
|
|
4,837 |
|
|
|
5,731 |
|
|
|
9,781 |
|
Non-interest expense |
|
|
39,807 |
|
|
|
35,484 |
|
|
|
34,109 |
|
|
|
31,492 |
|
|
|
30,997 |
|
Net income |
|
|
14,090 |
|
|
|
11,448 |
|
|
|
9,483 |
|
|
|
15,921 |
|
|
|
16,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Share and Per Share Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income - basic |
|
$ |
3.79 |
|
|
$ |
3.12 |
|
|
$ |
2.63 |
|
|
$ |
4.47 |
|
|
$ |
4.64 |
|
Net income - diluted |
|
|
3.78 |
|
|
|
3.12 |
|
|
|
2.63 |
|
|
|
4.47 |
|
|
|
4.64 |
|
Book value |
|
|
34.65 |
|
|
|
27.96 |
|
|
|
24.86 |
|
|
|
19.78 |
|
|
|
38.41 |
|
Cash dividends |
|
|
1.52 |
|
|
|
1.48 |
|
|
|
1.48 |
|
|
|
1.44 |
|
|
|
1.40 |
|
Average common shares outstanding - basic |
|
|
3,715,806 |
|
|
|
3,672,251 |
|
|
|
3,610,713 |
|
|
|
3,564,481 |
|
|
|
3,553,949 |
|
Average common shares outstanding - diluted |
|
|
3,729,246 |
|
|
|
3,673,697 |
|
|
|
3,610,713 |
|
|
|
3,564,481 |
|
|
|
3,554,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance Sheet at Year-end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Investment securities |
|
$ |
542,830 |
|
|
$ |
546,559 |
|
|
$ |
496,092 |
|
|
$ |
558,581 |
|
|
$ |
704,770 |
|
Loans receivable |
|
|
1,262,074 |
|
|
|
1,216,048 |
|
|
|
1,093,533 |
|
|
|
1,039,385 |
|
|
|
926,470 |
|
Allowance for credit losses on loans |
|
|
(9,215 |
) |
|
|
(8,744 |
) |
|
|
(8,852 |
) |
|
|
(10,531 |
) |
|
|
(11,184 |
) |
Other earning assets |
|
|
37,397 |
|
|
|
39,344 |
|
|
|
51,210 |
|
|
|
1,242 |
|
|
|
4,196 |
|
Total assets |
|
|
1,906,005 |
|
|
|
1,870,894 |
|
|
|
1,706,318 |
|
|
|
1,668,497 |
|
|
|
1,673,340 |
|
Deposits |
|
|
1,642,511 |
|
|
|
1,628,541 |
|
|
|
1,488,713 |
|
|
|
1,418,369 |
|
|
|
1,449,745 |
|
Total borrowed funds |
|
|
119,869 |
|
|
|
122,912 |
|
|
|
114,094 |
|
|
|
171,327 |
|
|
|
78,476 |
|
Shareholders' equity |
|
|
129,563 |
|
|
|
103,349 |
|
|
|
90,824 |
|
|
|
70,958 |
|
|
|
136,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Selected Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net interest margin |
|
|
2.72 |
% |
|
|
2.43 |
% |
|
|
2.39 |
% |
|
|
2.71 |
% |
|
|
2.79 |
% |
Net income as a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Average total assets |
|
|
0.74 |
|
|
|
0.65 |
|
|
|
0.57 |
|
|
|
0.96 |
|
|
|
1.04 |
|
Average shareholders' equity |
|
|
12.28 |
|
|
|
11.78 |
|
|
|
11.90 |
|
|
|
17.18 |
|
|
|
12.06 |
|
Average shareholders' equity to average total assets |
|
|
6.07 |
|
|
|
5.49 |
|
|
|
4.77 |
|
|
|
3.78 |
|
|
|
8.62 |
|
Dividend payout ratio |
|
|
40.11 |
|
|
|
47.48 |
|
|
|
56.37 |
|
|
|
32.24 |
|
|
|
30.15 |
|
On September 23, 2025, QNB Corp. and The Victory Bancorp, Inc. (Victory) announced 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 77.2% for QNB
and 22.8% for Victory. The transaction is expected to close in the second quarter of 2026, subject to satisfaction
of customary closing conditions. Results for the year-ended December 31, 2025 included significant merger-related costs that are non-recurring of $1,138,000; the costs are not normal recurring operating expenses. The following table shows calculated impact of the merger-related costs on net income and ratios, reconciling GAAP to non-GAAP measurements:
- 19 -
Impact of Merger-Related Costs--GAAP to Non-GAAP Measure Reconciliation |
|
|||||||||||
(Dollars in thousands, except per share data) |
|
|||||||||||
|
|
Twelve months ended, |
|
|||||||||
For the period: |
|
12/31/2025 |
|
|
12/31/2024 |
|
|
Variance |
|
|||
Net income (GAAP) |
|
$ |
14,090 |
|
|
$ |
11,448 |
|
|
$ |
2,642 |
|
Merger-related costs |
|
|
1,138 |
|
|
|
— |
|
|
|
1,138 |
|
Income tax benefit |
|
|
(27 |
) |
|
|
— |
|
|
|
(27 |
) |
Merger-related costs, net of tax |
|
|
1,111 |
|
|
|
— |
|
|
|
1,111 |
|
Net income excluding impact of merger-related costs (Non-GAAP) |
|
$ |
15,201 |
|
|
$ |
11,448 |
|
|
$ |
3,753 |
|
|
|
|
|
|
|
|
|
|
|
|||
Share and Per Share Data: |
|
|
|
|
|
|
|
|
|
|||
Basic: |
|
|
|
|
|
|
|
|
|
|||
EPS using Net income (GAAP) |
|
$ |
3.79 |
|
|
$ |
3.12 |
|
|
$ |
0.67 |
|
EPS using Net income excluding impact of merger-related costs (Non-GAAP) |
|
$ |
4.08 |
|
|
$ |
3.12 |
|
|
$ |
0.96 |
|
Fully-diluted: |
|
|
|
|
|
|
|
|
|
|||
EPS using Net income (GAAP) |
|
$ |
3.78 |
|
|
$ |
3.12 |
|
|
$ |
0.66 |
|
EPS using Net income excluding impact of merger-related costs (Non-GAAP) |
|
$ |
4.08 |
|
|
$ |
3.12 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|||
Selected Ratios: |
|
|
|
|
|
|
|
|
|
|||
Return on Average Assets (ROAA): |
|
|
|
|
|
|
|
|
|
|||
ROAA using Net income (GAAP) |
|
|
0.74 |
% |
|
|
0.65 |
% |
|
9 bp |
|
|
ROAA using Net income excluding impact of merger-related costs (Non-GAAP) |
|
|
0.80 |
% |
|
|
0.65 |
% |
|
15 bp |
|
|
Return on Average Equity (ROAE): |
|
|
|
|
|
|
|
|
|
|||
ROAE using Net income (GAAP) |
|
|
12.28 |
% |
|
|
11.78 |
% |
|
50 bp |
|
|
ROAE using Net income excluding impact of merger-related costs (Non-GAAP) |
|
|
13.24 |
% |
|
|
11.78 |
% |
|
146 bp |
|
|
Net income for the year ended December 31, 2025 was $14,090,000, or $3.78 per share on a diluted basis. This compares to 2024 net income of $11,448,000 or $3.12 per share on a diluted basis and 2023 net income of $9,483,000, or $2.63 per share on a diluted basis. Excluding the impact of the merger-related costs net of tax, diluted earnings per share was $4.08 for the year-ended December 31, 2025. Two important measures of profitability in the banking industry are an institution’s return on average assets and return on average shareholders’ equity. Return on average assets was 0.74%, 0.65% and 0.57% in 2025, 2024, and 2023, respectively, and return on average shareholders’ equity was 12.28%, 11.78% and 11.90%, respectively, during those same periods. Return on average assets, excluding the impact of the merger-related cost, for the year ended December 31, 2025 was 0.80%. Return on average equity, excluding the impact of the merger-related cost, for the year-ended December 31, 2025 was 13.24%.
The Bank contributed $18,193,000 to net income for the year ended December 31, 2025 compared to $12,237,000 for the same period in 2024; whereas the holding company contributed a net loss of $4,103,000 to consolidated net income for the year ended December 31, 2025 compared to net loss of $789,000 for the same period in 2024. The increase at the Bank was primarily due to improvement in net interest margin. The decrease at the holding company resulted primarily from an increase in interest expense related to the issuance of subordinated debt in 2024 and merger-related expenses.
2025 versus 2024
The results for 2025 include the following significant components:
- 20 -
2024 versus 2023
The results for 2024 include the following significant components:
These items, as well as others, will be explained more thoroughly in the next sections.
Net Interest Income
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the years ended December 31, 2025, 2024, and 2023.
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Total interest income |
|
$ |
92,638 |
|
|
$ |
84,068 |
|
|
$ |
69,082 |
|
Total interest expense |
|
|
41,409 |
|
|
|
41,206 |
|
|
|
28,927 |
|
Net interest income |
|
|
51,229 |
|
|
|
42,862 |
|
|
|
40,155 |
|
Tax-equivalent adjustment |
|
|
447 |
|
|
|
558 |
|
|
|
584 |
|
Net interest income (tax-equivalent basis) |
|
$ |
51,676 |
|
|
$ |
43,420 |
|
|
$ |
40,739 |
|
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 and interest-bearing balances at the Federal Reserve Bank of Philadelphia. 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.
- 21 -
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 table that appears 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 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.
2025 versus 2024
On a tax-equivalent basis, net interest income for 2025 increased $8,256,000, or 19.0%, to $51,676,000. The net interest margin, which increased 29 basis points to 2.72%, was favorably impacted by increased rates on and volume of loans. The average rate earned on earning assets increased 17 basis points from 4.73% for 2024 to 4.90% for 2025 with the yield on loans increasing 42 basis points. The yield on investment securities increased six basis points and was favorably impacted by increased yields on U.S. Government agencies and corporate debt securities, partly offset by decreased rates on U.S. Treasuries, state and municipal securities and mortgage-backed securities, causing a decrease in interest income of $1,289,000; the yield was favorably impacted by an increase in average volume of $37,458,000 contributing to a $2,687,000 increase in interest income. The yield on loans was favorably impacted by increased rates on commercial and residential real estate and tax-exempt loan categories, partly offset by rate a decrease in rate on home equity, commercial and industrial and consumer loan categories, contributing to a net $3,666,000 increase in interest income. This was also favorably impacted by a $74,759,000 net increase in average volume, of which $65,392,000 was related to an increase in average commercial real estate loans contributing $3,614,000 in interest income, an increase of $5,570,000 in residential real estate loans average balances contributing $230,000 in interest income, and an increase of $5,566,000 in home equity loans average balances contributing an increase of $379,000 in interest income. The yield on total average interest-bearing liabilities decreased 16 basis points from 2.80% for 2024 to 2.64% for 2025. The growth in loans was funded by the growth in deposits of $88,474,000, or 5.6%. The average rate paid on interest-bearing deposits decreased from 2.71% to 2.40% for the same time periods, respectively, contributing to a decrease in interest expense of $4,749,000; this was partly offset by $82,107,000 increase in average interest-bearing deposits resulting in additional interest expense of $2,406,000. The average rate paid on total borrowings increased from 4.16% to 6.00% for the same time periods, respectively, and contributed to an $809,000 increase in interest expense; average volume increased $14,887,000 and contributed to an increase in interest expense of $1,737,000. Loan and deposit growth was partially offset by the competitive local interest rate market for quality loans and deposits. Net interest spread increased 33 basis points to 2.26% for 2025 compared to 1.93% for 2024.
2024 versus 2023
On a tax-equivalent basis, net interest income for 2024 increased $2,681,000, or 6.6%, to $43,420,000. The net interest margin, which increased four basis points to 2.43%, was favorably impacted by increased rates on and volume of loans and investments. The average rate earned on earning assets increased 64 basis points from 4.09% for 2023 to 4.73% for 2024 with the yield on investments increasing 57 basis points and the yield on loans increasing 50 basis points. The yield on investment securities was favorably impacted by increased yields on all categories except U.S. Treasuries and Equities, causing an increase in interest income of $2,721,000; the yield was unfavorably impacted by a decrease in average volume of $49,754,000 contributing to a $494,000 decrease in interest income. The yield on loans was favorably impacted by increased rates in all loan categories, contributing to a $5,890,000 increase in interest income. This was also favorably impacted by a $110,151,000 net increase in average volume, of which $97,231,000 was related to an increase in average commercial real estate loans contributing $4,757,000 in interest income, an increase of $7,570,000 in home equity loans contributing $494,000 in interest income, and an increase of $4,032,000 in commercial and industrial loans average balances contributing an increase of $303,000 in interest income. The yield on total average interest-bearing liabilities increased 69 basis points from 2.11% for 2023 to 2.80% for 2024. The growth in loans was funded by the growth in deposits of $113,977,000, or 7.8%. The average rate paid on interest-bearing deposits increased from 2.01% to 2.71% for the same time periods, respectively, contributing to an increase in interest expense of $7,967,000, and a $134,229,000 increase in average interest-bearing deposits resulting in additional interest expense of $4,508,000. The average rate paid on total borrowings increased from 3.15% to 4.16% for the same time periods, respectively, offset by an average volume decrease of $34,917,000; the net impact contributed to a decrease in interest expense of $196,000. Loan and deposit growth was partially offset by the competitive local interest rate market for quality loans and deposits. Net interest spread decreased five basis points to 1.93% for 2024 compared to 1.98% for 2023.
- 22 -
Average Balances, Rates, and Interest Income and Expense Summary (Tax-Equivalent Basis)
|
2025 |
|
|
|
2024 |
|
|
|
2023 |
|
|||||||||||||||||||||||||
|
Average |
|
Average |
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|||||||||||
|
balance |
|
rate |
|
|
Interest |
|
|
|
balance |
|
rate |
|
Interest |
|
|
|
balance |
|
|
rate |
|
Interest |
|
|||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Investment securities (AFS & Equity): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
U.S. Treasury securities |
$ |
20,741 |
|
|
4.18 |
% |
|
$ |
867 |
|
|
|
$ |
11,682 |
|
|
5.00 |
% |
$ |
584 |
|
|
|
$ |
4,535 |
|
|
|
5.06 |
% |
$ |
229 |
|
||
U.S. Government agencies |
|
75,964 |
|
|
1.18 |
|
|
|
896 |
|
|
|
|
80,332 |
|
|
1.17 |
|
|
942 |
|
|
|
|
100,409 |
|
|
|
1.11 |
|
|
1,119 |
|
||
State and municipal |
|
105,014 |
|
|
2.80 |
|
|
|
2,936 |
|
|
|
|
106,806 |
|
|
3.39 |
|
|
3,623 |
|
|
|
|
109,598 |
|
|
|
2.89 |
|
|
3,164 |
|
||
Mortgage-backed and CMOs |
|
349,007 |
|
|
2.41 |
|
|
|
8,408 |
|
|
|
|
357,977 |
|
|
2.68 |
|
|
9,580 |
|
|
|
|
399,599 |
|
|
|
2.14 |
|
|
8,555 |
|
||
Corporate debt securities and money market funds |
|
65,358 |
|
|
6.42 |
|
|
|
4,198 |
|
|
|
|
17,560 |
|
|
5.76 |
|
|
1,012 |
|
|
|
|
6,655 |
|
|
|
4.40 |
|
|
293 |
|
||
Equities |
|
— |
|
|
0.00 |
|
|
|
— |
|
|
|
|
4,269 |
|
|
3.88 |
|
|
166 |
|
|
|
|
7,584 |
|
|
|
4.22 |
|
|
320 |
|
||
Total investment securities |
|
616,084 |
|
|
2.81 |
|
|
|
17,305 |
|
|
|
|
578,626 |
|
|
2.75 |
|
|
15,907 |
|
|
|
|
628,380 |
|
|
|
2.18 |
|
|
13,680 |
|
||
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Commercial real estate |
|
875,917 |
|
|
5.96 |
|
|
|
52,194 |
|
|
|
|
810,525 |
|
|
5.53 |
|
|
44,805 |
|
|
|
|
713,294 |
|
|
|
4.89 |
|
|
34,900 |
|
||
Residential real estate |
|
115,890 |
|
|
4.47 |
|
|
|
5,177 |
|
|
|
|
110,320 |
|
|
4.12 |
|
|
4,542 |
|
|
|
|
107,379 |
|
|
|
3.73 |
|
|
4,005 |
|
||
Home equity loans |
|
71,280 |
|
|
6.32 |
|
|
|
4,508 |
|
|
|
|
65,714 |
|
|
6.81 |
|
|
4,475 |
|
|
|
|
58,144 |
|
|
|
6.52 |
|
|
3,794 |
|
||
Commercial and industrial |
|
139,423 |
|
|
7.35 |
|
|
|
10,248 |
|
|
|
|
141,998 |
|
|
7.52 |
|
|
10,682 |
|
|
|
|
137,966 |
|
|
|
7.50 |
|
|
10,344 |
|
||
Consumer loans |
|
3,266 |
|
|
7.82 |
|
|
|
255 |
|
|
|
|
3,635 |
|
|
8.12 |
|
|
295 |
|
|
|
|
3,889 |
|
|
|
7.29 |
|
|
283 |
|
||
Tax-exempt loans |
|
19,682 |
|
|
4.32 |
|
|
|
850 |
|
|
|
|
18,507 |
|
|
3.90 |
|
|
721 |
|
|
|
|
19,876 |
|
|
|
3.56 |
|
|
707 |
|
||
Total loans, net of unearned income* |
|
1,225,458 |
|
|
5.98 |
|
|
|
73,232 |
|
|
|
|
1,150,699 |
|
|
5.69 |
|
|
65,520 |
|
|
|
|
1,040,548 |
|
|
|
5.19 |
|
|
54,033 |
|
||
Other earning assets |
|
58,275 |
|
|
4.37 |
|
|
|
2,548 |
|
|
|
|
59,734 |
|
|
5.36 |
|
|
3,199 |
|
|
|
|
34,816 |
|
|
|
5.61 |
|
|
1,953 |
|
||
Total earning assets |
|
1,899,817 |
|
|
4.90 |
|
|
|
93,085 |
|
|
|
|
1,789,059 |
|
|
4.73 |
|
|
84,626 |
|
|
|
|
1,703,744 |
|
|
|
4.09 |
|
|
69,666 |
|
||
Cash and due from banks |
|
14,186 |
|
|
|
|
|
|
|
|
|
13,847 |
|
|
|
|
|
|
|
|
13,918 |
|
|
|
|
|
|
||||||||
Accumulated other comprehensive loss, net of tax |
|
(56,407 |
) |
|
|
|
|
|
|
|
|
(65,087 |
) |
|
|
|
|
|
|
|
(77,428 |
) |
|
|
|
|
|
||||||||
Allowance for credit losses on loans |
|
(9,140 |
) |
|
|
|
|
|
|
|
|
(8,965 |
) |
|
|
|
|
|
|
|
(8,820 |
) |
|
|
|
|
|
||||||||
Other assets |
|
43,281 |
|
|
|
|
|
|
|
|
|
41,709 |
|
|
|
|
|
|
|
|
39,187 |
|
|
|
|
|
|
||||||||
Total assets |
$ |
1,891,737 |
|
|
|
|
|
|
|
|
$ |
1,770,563 |
|
|
|
|
|
|
|
$ |
1,670,601 |
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Interest-bearing demand |
$ |
381,199 |
|
|
0.97 |
% |
|
$ |
3,706 |
|
|
|
$ |
346,590 |
|
|
0.93 |
% |
$ |
3,225 |
|
|
|
$ |
315,990 |
|
|
|
0.60 |
% |
$ |
1,900 |
|
||
Municipals |
|
159,245 |
|
|
3.76 |
|
|
|
5,993 |
|
|
|
|
146,446 |
|
|
4.64 |
|
|
6,794 |
|
|
|
|
131,610 |
|
|
|
4.46 |
|
|
5,867 |
|
||
Money market |
|
259,201 |
|
|
2.82 |
|
|
|
7,312 |
|
|
|
|
237,071 |
|
|
3.45 |
|
|
8,181 |
|
|
|
|
183,004 |
|
|
|
2.64 |
|
|
4,823 |
|
||
Savings |
|
279,212 |
|
|
1.29 |
|
|
|
3,591 |
|
|
|
|
285,011 |
|
|
1.28 |
|
|
3,651 |
|
|
|
|
348,878 |
|
|
|
1.20 |
|
|
4,187 |
|
||
Time less than $100 |
|
176,438 |
|
|
3.57 |
|
|
|
6,291 |
|
|
|
|
170,998 |
|
|
3.98 |
|
|
6,808 |
|
|
|
|
121,622 |
|
|
|
2.63 |
|
|
3,194 |
|
||
Time $100 through $250 |
|
154,087 |
|
|
3.95 |
|
|
|
6,088 |
|
|
|
|
145,022 |
|
|
4.53 |
|
|
6,570 |
|
|
|
|
107,560 |
|
|
|
3.59 |
|
|
3,859 |
|
||
Time greater than $250 |
|
53,694 |
|
|
4.01 |
|
|
|
2,152 |
|
|
|
|
49,831 |
|
|
4.51 |
|
|
2,247 |
|
|
|
|
38,076 |
|
|
|
3.08 |
|
|
1,171 |
|
||
Total interest-bearing deposits |
|
1,463,076 |
|
|
2.40 |
|
|
|
35,133 |
|
|
|
|
1,380,969 |
|
|
2.71 |
|
|
37,476 |
|
|
|
|
1,246,740 |
|
|
|
2.01 |
|
|
25,001 |
|
||
Short-term borrowings |
|
56,582 |
|
|
3.72 |
|
|
|
2,103 |
|
|
|
|
48,526 |
|
|
2.37 |
|
|
1,148 |
|
|
|
|
108,862 |
|
|
|
3.01 |
|
|
3,273 |
|
||
Long-term debt |
|
8,795 |
|
|
4.74 |
|
|
|
423 |
|
|
|
|
27,869 |
|
|
4.67 |
|
|
1,322 |
|
|
|
|
15,712 |
|
|
|
4.10 |
|
|
653 |
|
||
Subordinated debt |
|
39,167 |
|
|
9.44 |
|
|
|
3,750 |
|
|
|
|
13,262 |
|
|
9.34 |
|
|
1,260 |
|
|
|
|
— |
|
|
|
— |
|
|
— |
|
||
Total borrowings |
|
104,544 |
|
|
6.00 |
|
|
|
6,276 |
|
|
— |
|
|
89,657 |
|
|
4.16 |
|
|
3,730 |
|
|
— |
|
|
124,574 |
|
|
|
3.15 |
|
|
3,926 |
|
Total interest-bearing liabilities |
|
1,567,620 |
|
|
2.64 |
|
|
|
41,409 |
|
|
— |
|
|
1,470,626 |
|
|
2.80 |
|
|
41,206 |
|
|
— |
|
|
1,371,314 |
|
|
|
2.11 |
|
|
28,927 |
|
Non-interest-bearing deposits |
|
194,892 |
|
|
|
|
|
|
|
|
|
188,525 |
|
|
|
|
|
|
|
|
208,777 |
|
|
|
|
|
|
||||||||
Other liabilities |
|
14,443 |
|
|
|
|
|
|
|
|
|
14,195 |
|
|
|
|
|
|
|
|
10,812 |
|
|
|
|
|
|
||||||||
Shareholders' equity |
|
114,782 |
|
|
|
|
|
|
|
|
|
97,217 |
|
|
|
|
|
|
|
|
79,698 |
|
|
|
|
|
|
||||||||
Total liabilities and shareholders' equity |
$ |
1,891,737 |
|
|
|
|
|
|
|
|
$ |
1,770,563 |
|
|
|
|
|
|
|
$ |
1,670,601 |
|
|
|
|
|
|
||||||||
Net interest rate spread |
|
|
|
2.26 |
% |
|
|
|
|
|
|
|
|
1.93 |
% |
|
|
|
|
|
|
|
|
1.98 |
% |
|
|
||||||||
Margin/net interest income |
|
|
|
2.72 |
% |
|
$ |
51,676 |
|
|
|
|
|
|
2.43 |
% |
$ |
43,420 |
|
|
|
|
|
|
|
2.39 |
% |
$ |
40,739 |
|
|||||
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. Non-accrual loans and investment securities are included in earning assets.
* Includes loans held-for-sale
- 23 -
Rate-Volume Analysis of Changes in Net Interest Income (1) (2) (3)
|
|
2025 vs. 2024 |
|
|
2024 vs. 2023 |
|
||||||||||||||||||
|
|
Due to change in: |
|
|
Total |
|
|
Due to change in: |
|
|
Total |
|
||||||||||||
|
|
Volume |
|
|
Rate |
|
|
Change |
|
|
Volume |
|
|
Rate |
|
|
Change |
|
||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investment securities (AFS & Equity): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. Treasury securities |
|
$ |
452 |
|
|
$ |
(169 |
) |
|
$ |
283 |
|
|
$ |
362 |
|
|
$ |
(7 |
) |
|
$ |
355 |
|
U.S. Government agencies |
|
|
(51 |
) |
|
|
5 |
|
|
|
(46 |
) |
|
|
(224 |
) |
|
|
47 |
|
|
|
(177 |
) |
State and municipal |
|
|
(61 |
) |
|
|
(626 |
) |
|
|
(687 |
) |
|
|
(81 |
) |
|
|
540 |
|
|
|
459 |
|
Mortgage-backed and CMOs |
|
|
(240 |
) |
|
|
(932 |
) |
|
|
(1,172 |
) |
|
|
(892 |
) |
|
|
1,917 |
|
|
|
1,025 |
|
Corporate debt securities and money market funds |
|
|
2,753 |
|
|
|
433 |
|
|
|
3,186 |
|
|
|
481 |
|
|
|
238 |
|
|
|
719 |
|
Equities |
|
|
(166 |
) |
|
|
— |
|
|
|
(166 |
) |
|
|
(140 |
) |
|
|
(14 |
) |
|
|
(154 |
) |
Total Investment securities (AFS & Equity) |
|
|
2,687 |
|
|
|
(1,289 |
) |
|
|
1,398 |
|
|
|
(494 |
) |
|
|
2,721 |
|
|
|
2,227 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial real estate |
|
|
3,614 |
|
|
|
3,775 |
|
|
|
7,389 |
|
|
|
4,757 |
|
|
|
5,148 |
|
|
|
9,905 |
|
Residential real estate |
|
|
230 |
|
|
|
405 |
|
|
|
635 |
|
|
|
109 |
|
|
|
428 |
|
|
|
537 |
|
Home equity loans |
|
|
379 |
|
|
|
(346 |
) |
|
|
33 |
|
|
|
494 |
|
|
|
187 |
|
|
|
681 |
|
Commercial and industrial |
|
|
(193 |
) |
|
|
(241 |
) |
|
|
(434 |
) |
|
|
303 |
|
|
|
35 |
|
|
|
338 |
|
Consumer loans |
|
|
(30 |
) |
|
|
(10 |
) |
|
|
(40 |
) |
|
|
(18 |
) |
|
|
30 |
|
|
|
12 |
|
Tax-exempt loans |
|
|
46 |
|
|
|
83 |
|
|
|
129 |
|
|
|
(48 |
) |
|
|
62 |
|
|
|
14 |
|
Total loans |
|
|
4,046 |
|
|
|
3,666 |
|
|
|
7,712 |
|
|
|
5,597 |
|
|
|
5,890 |
|
|
|
11,487 |
|
Other earning assets |
|
|
(78 |
) |
|
|
(573 |
) |
|
|
(651 |
) |
|
|
1,397 |
|
|
|
(151 |
) |
|
|
1,246 |
|
Total interest income |
|
|
6,655 |
|
|
|
1,804 |
|
|
|
8,459 |
|
|
|
6,500 |
|
|
|
8,460 |
|
|
|
14,960 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Interest-bearing demand |
|
|
322 |
|
|
|
159 |
|
|
|
481 |
|
|
|
184 |
|
|
|
1,141 |
|
|
|
1,325 |
|
Municipals |
|
|
594 |
|
|
|
(1,395 |
) |
|
|
(801 |
) |
|
|
662 |
|
|
|
265 |
|
|
|
927 |
|
Money market |
|
|
764 |
|
|
|
(1,633 |
) |
|
|
(869 |
) |
|
|
1,425 |
|
|
|
1,933 |
|
|
|
3,358 |
|
Savings |
|
|
(74 |
) |
|
|
14 |
|
|
|
(60 |
) |
|
|
(767 |
) |
|
|
231 |
|
|
|
(536 |
) |
Time less than $100 |
|
|
216 |
|
|
|
(733 |
) |
|
|
(517 |
) |
|
|
1,297 |
|
|
|
2,317 |
|
|
|
3,614 |
|
Time $100 through $250 |
|
|
410 |
|
|
|
(892 |
) |
|
|
(482 |
) |
|
|
1,345 |
|
|
|
1,366 |
|
|
|
2,711 |
|
Time greater than $250 |
|
|
174 |
|
|
|
(269 |
) |
|
|
(95 |
) |
|
|
362 |
|
|
|
714 |
|
|
|
1,076 |
|
Total interest-bearing deposits |
|
|
2,406 |
|
|
|
(4,749 |
) |
|
|
(2,343 |
) |
|
|
4,508 |
|
|
|
7,967 |
|
|
|
12,475 |
|
Short-term borrowings |
|
|
191 |
|
|
|
764 |
|
|
|
955 |
|
|
|
(1,814 |
) |
|
|
(311 |
) |
|
|
(2,125 |
) |
Long-term debt |
|
|
(905 |
) |
|
|
6 |
|
|
|
(899 |
) |
|
|
508 |
|
|
|
161 |
|
|
|
669 |
|
Subordinated debt |
|
|
2,451 |
|
|
|
39 |
|
|
|
2,490 |
|
|
|
1,260 |
|
|
|
— |
|
|
|
1,260 |
|
Total borrowings |
|
|
1,737 |
|
|
|
809 |
|
|
|
2,546 |
|
|
|
(46 |
) |
|
|
(150 |
) |
|
|
(196 |
) |
Total interest expense |
|
|
4,143 |
|
|
|
(3,940 |
) |
|
|
203 |
|
|
|
4,462 |
|
|
|
7,817 |
|
|
|
12,279 |
|
Net interest income |
|
$ |
2,512 |
|
|
$ |
5,744 |
|
|
$ |
8,256 |
|
|
$ |
2,038 |
|
|
$ |
643 |
|
|
$ |
2,681 |
|
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 $8,459,000 to $93,085,000 for 2025, while total interest expense increased $203,000 to $41,409,000. Volume growth in earning assets contributed an additional $6,655,000 of interest income and interest rate increases contributed an additional $1,804,000 of interest income. Rate-related interest expense decreased $3,940,000, while volume-related interest expense increased $4,143,000.
Investments
2025 versus 2024
Interest income on available-for-sale and equity investment securities increased $1,398,000 when comparing the two years. The rate on securities increased six basis-points and was negatively impacted by the interest-rate swap that had a more positive impact on the yield in 2024 than 2025. The average yield on the available-for-sale and equity investment portfolio increased to 2.81% for 2025 compared to 2.75% for 2024.
Income on U.S. Government agency securities yields were 1.18% for 2025 compared to 1.17% for 2024. Most of the bonds in the agency portfolio have call features ranging from three months to three years, none of which were exercised during 2025. Average
- 24 -
balances, which decreased $4,368,000, reduced interest income by $51,000; partly offset by $5,000 increase in interest income due to rate.
Interest income on state and municipal securities decreased $687,000. Average balances, which decreased $1,792,000, reduced interest income by $61,000. The decrease in yield of 59 basis points from 3.39% in 2024 to 2.80% in 2025 caused a $626,000 decrease to interest income. The rate on the municipal securities, excluding the impact of the interest rate swap, remained unchanged at 2.22%. The impact of the swap was a positive 58 basis points in 2025 and a positive 118 basis points in 2024, this decrease is the primary cause of the 59-basis-point decrease in the yield. Many of these bonds have either reached maturity or their call dates and are being replaced with municipal bonds with less favorable tax-equivalent yields. Typically, QNB purchased municipal bonds with 10- to 15-year maturities with call dates between 2 and 5 years. Future demand for tax-exempt municipal securities is uncertain, as the tax-equivalent yield could be less favorable compared to other securities with similar risk-based capital asset-weighting characteristics.
All the mortgage-backed and collateralized mortgage obligations (“CMO”) securities owned by QNB are issued by U.S. Government agencies and sponsored enterprises (“GSE”) and carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. Interest income on mortgage-backed securities and CMOs decreased $1,172,000. The rate on the mortgage-backed securities and CMOs, excluding the impact of the interest rate swap, increased 29 basis points from 1.69% in 2024 to 1.98% in 2025. The impact of the swap was a positive 43 basis points in 2025 and a positive 98 basis points in 2024, a decrease of 55 basis points. The net change to rate was a negative 27 basis points. This portfolio generally provides higher yields relative to agency bonds and provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase.
Income on corporate debt securities increased $3,186,000 due to an increase in average balances of $47,798,000 and in yield from 5.76% for 2024 to 6.42% for 2025. Proceeds from the 2024 issuance of subordinated debt were invested in high-yielding securities during 2024 and 2025.
Excess cash at the holding company was invested in U.S. Treasury securities. The 82 basis-point decrease in yield was more than offset by the $9,059 increase in average balances, resulting in a $283,000 increase in interest income on U.S. Treasury securities.
Dividend income on equities decreased $166,000. The equity portfolio was sold during 2024.
2024 versus 2023
Interest income on available-for-sale and equity investment securities increased $2,227,000 when comparing the two years. The 57 basis-point increase in rate, of which the interest rate swaps contributed 38 basis points, contributed an additional $2,721,000 to interest income and the $49,754,000 decrease in volume reduced interest income $494,000. The average yield on the available-for-sale and equity investment portfolio increased to 2.75% for 2024 compared to 2.18% for 2023.
Income on U.S. Government agency securities yields were 1.17% for 2024 compared to 1.11% for 2023. Average balances, which decreased $20,077,000, reduced interest income by $224,000.
Interest income on state and municipal securities increased $459,000. Average balances, which decreased $2,792,000, reduced interest income by $81,000. The increase in yield of 50 basis points from 2.89% in 2023 to 3.39% in 2024 contributing $540,000 to interest income more than offset the decrease in interest income caused by volume. The rate and interest income increases on municipal securities were positively impacted by the interest rate swap, contributing 51 basis points of the increase in rate.
Many of these bonds have either reached maturity or their call dates and are being replaced with municipal bonds with less favorable tax-equivalent yields.
Interest income on mortgage-backed securities and CMOs increased $1,025,000 due to a 54 basis-point increase in rate from 2.14% for 2023 to 2.68% for 2024 adding $1,917,000 to interest income; this was partly offset by a $41,622,000 decrease in average balances reducing interest income by $892,000. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 46 basis points. This portfolio generally provides higher yields relative to agency bonds and provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase.
Income on corporate debt securities increased $719,000 due to an increase in average balances of $10,905,000 and in yield from 4.40% for 2023 to 5.76% for 2024.
Excess cash at the holding company was invested in U.S. Treasury securities during 2024 adding $355,000 to interest income. The yield on U.S. Treasury securities was 5.00% for 2024 compared to 5.06% for 2023. Average balances increased $7,147,000.
Dividend income on equities decreased $154,000 due to a decrease in average balances of $3,315,000. The equity portfolio was sold during 2024.
- 25 -
Loans
2025 versus 2024
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, hotels, factories, warehouses, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner or investment properties. The category also includes construction and land development loans. Income on commercial real estate loans increased $7,389,000. The increase in average balances of $65,392,000, or 8.1%, contributed an increase in interest income of $3,614,000; the 43-basis-point increase in yield, from 5.53% in 2024 to 5.96% in 2025 contributed $3,775,000 to the increase in interest income.
Income on commercial and industrial loans, the second largest category, decreased $434,000 with average balances decreasing $2,575,000 resulting in a decrease to interest income of $193,000 and an average yield decrease of 17 basis points to 7.35% in 2025 from 7.52% in 2024, contributing to a $241,000 decrease in interest income. Many of the loans in this category are indexed to the prime interest rate.
Tax-exempt loan income increased $129,000 to $850,000 in 2025. When comparing the same periods, average balances increased $1,175,000 to $19,682,000, which contributed a $46,000 increase in interest income. The average yield on the tax-exempt loan portfolio increased from 3.90% for 2024 to 4.32% for 2025, resulting in an increase in interest income of $83,000.
QNB strives to be the “local consumer lender of choice.” QNB continues to focus on its retail lending efforts by adding new product offerings and by marketing and promotion. Overall, retail lending balances increased $10,767,000 and interest income for retail lending increased $1,796,000 in 2025 compared with 2024, driven by a 65 basis-point increase in yield.
Average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $5,570,000, or 5.0%, to $115,890,000 for 2025. The average yield on the residential real estate portfolio increased 35 basis points to 4.47% for 2025 compared to 4.12% for 2024. Overall, interest income for this segment grew $635,000 in 2025.
Income on home equity loans increased by $1,201,000 when comparing 2025 and 2024. During 2025 and 2024, QNB offered attractive rates on both variable rate and fixed rate home equity loans. Average balances in home equity loans increased $5,566,000, or 8.5%, to $71,280,000 when comparing 2025 and 2024. The yield on the home equity portfolio decreased 49 basis points to 6.32% when comparing the two years. Home values have continued to grow; therefore, we expect the demand for home equity loans will continue.
Interest income on consumer loans decreased $40,000. Consumer loans at QNB experienced a decline in average balances in 2025 of $369,000, or 10.2%, led by a decline in student loans. Student loan balances are no longer insured, and QNB ceased funding originations through its third-party provider during the second half of 2018; average balances decreased $261,000 and interest income decreased $46,000 when comparing 2025 and 2024. Student loans are primarily variable rate loans and interest income was unfavorably impacted by a 132 basis-point decrease in rate.
2024 versus 2023
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, hotels, factories, warehouses, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner or investment properties. The category also includes construction and land development loans. Income on commercial real estate loans increased $9,905,000. The increase in average balances of $97,231,000, or 13.6%, contributed an increase in interest income of $4,757,000; the 64 basis-point increase in yield, from 4.89% in 2023 to 5.53% in 2024 contributed $5,148,000 to the increase in interest income.
Income on commercial and industrial loans, the second largest category, increased $338,000 with average balances increasing $4,032,000 resulting in an increase to interest income of $303,000 and an average yield increase of two basis points to 7.52% in 2024 from 7.50% in 2023, contributing to a $35,000 increase in interest income. Many of the loans in this category are indexed to the prime interest rate.
Tax-exempt loan income increased $14,000 to $721,000 in 2024. When comparing the same periods, average balances decreased $1,369,000 to $18,507,000, which contributed a $48,000 decrease in interest income. The average yield on the tax-exempt loan portfolio increased from 3.56% for 2023 to 3.90% for 2024, resulting in an increase in interest income of $62,000.
Retail lending balances increased $10,257,000 and interest income for retail lending increased $1,230,000 in 2024 compared with 2023, driven by a 41 basis-point increase in yield.
- 26 -
Average residential mortgage loans secured by first lien 1-4 family residential mortgages increased by $2,941,000, or 2.7%, to $110,320,000 for 2024. The average yield on the residential real estate portfolio increased 39 basis points to 4.12% for 2024 compared to 3.73% for 2023. Overall, interest income for this segment grew $537,000 in 2024.
Income on home equity loans increased by $681,000 when comparing 2024 and 2023. During 2024 and 2023, QNB offered attractive rates on both variable rate and fixed rate home equity loans. Average balances in home equity loans increased $7,570,000, or 13.0%, to $65,714,000 when comparing 2024 and 2023. The yield on the home equity portfolio increased 29 basis points to 6.81% when comparing the two years. Home values have continued to grow; therefore, we expect the demand for home equity loans will continue.
Interest income on consumer loans increased $12,000. Consumer loans at QNB experienced a decline in average balances in 2024 of $254,000, or 6.5%, led by a decline in student loans. Student loan average balances decreased $302,000 and interest income decreased $2,000 when comparing 2024 and 2023. Student loans interest income was favorably impacted by a 160 basis-point increase in rate.
Deposits and Borrowings
2025 versus 2024
Total interest expense for 2025 was $41,409,000 compared with $41,206,000 for 2024, an increase of $203,000. Interest expense on deposits decreased $2,343,000 and interest expense on borrowed funds increased $2,546,000 when comparing the two years. The rate paid on interest-bearing deposits decreased 31 basis points; the rate paid on borrowings increased 184 basis points, when comparing the two periods.
Average non-interest-bearing demand accounts increased $6,367,000, or 3.4%, to $194,892,000 for 2025. Average interest-bearing demand accounts increased $34,609,000, or 10.0%, to $381,199,000 for 2025 compared with 2024, with interest expense on interest-bearing demand accounts increasing $481,000 to $3,706,000 for 2025. The average rate paid increased four basis points to 0.97% for 2025 compared to 0.93% for 2024. Interest-bearing business demand average balances increased by $28,976,000, or 25.8%, and related interest expense increased $491,000, while the yield decreased 16 basis points, when comparing the two years. Also included in the interest-bearing demand category is QNB-Rewards checking, a tiered-rate retail checking account product. In order to receive the high rate a customer must receive an electronic statement, have one direct deposit or other ACH transaction and have at least 12 debit card purchase transactions post and clear per statement cycle. If these qualifications are not met, the rate paid is 0.10%. For 2025, the average balance in this product was $91,929,000 and the related interest expense was $360,000 for an average cost of funds of 0.39%. In comparison, the average balance in this product for 2024 was $91,932,000 and the related interest expense was $373,000 for an average cost of funds of 0.41%. The rate paid on the QNB-Rewards product, assuming qualifications are met, is attractive relative to competitors’ offerings as well as other QNB products. This product also generates fee income through the use of the debit card. The average balance of other interest-bearing demand accounts included in this category increased from $142,347,000 for 2024 to $147,983,000 for 2025. The average rate paid on these balances was 0.05% in 2024 and 2025.
Average money market accounts increased $22,130,000, or 9.3%, to $259,201,000 for 2025 compared with 2024. Interest expense on money market accounts decreased $869,000 to $7,312,000 for 2025 compared with 2024. The average interest rate paid on money market accounts was 2.82% for 2025, a decrease of 63 basis points compared with 2024.
Interest expense on municipal interest-bearing demand accounts decreased $801,000 to $5,993,000 for 2025. The average balance of municipal interest-bearing demand accounts increased $12,799,000, or 8.7%, to $159,245,000 and the average interest rate paid on these accounts decreased 88 basis points to 3.76% for 2025 from 4.64% for 2024. Most of these accounts are indexed to the Federal funds rate with negotiated rate floors between 0.15% and 0.35%. Many of these deposits are seasonal in nature and are received during the third quarter as tax receipts are collected and are withdrawn over the course of the next year.
QNB’s online e-Savings product is the largest category of savings deposits and was created to compete with other online savings accounts. Average e-Savings balances decreased $1,187,000, or 0.6%, to $206,682,000 in 2025 compared with $207,869,000 in 2024. The average cost of funds on these accounts was 1.70% for 2025 and 1.71% for 2024. The yield on this account may rise along with market rates and as competition for savings balances increases. Traditional statement savings accounts and club accounts are also included in the savings category and decreased on average by $4,612,000, or 6.0%, to $72,530,000. The average rate paid on traditional savings accounts was 0.11% for 2025, a one basis-point decrease from 0.12% for 2024 and interest expense decreased $14,000, to $77,000 from $91,000 over the same period.
Interest expense on time deposits decreased $1,094,000, to $14,531,000 in 2025, due to a 49-basis-point decrease in yield from 4.27% in 2024 to 3.78% in 2025, partly offset by an $18,368,000 increase in average balances in 2025 to $384,219,000. Similar to fixed-rate loans and investment securities, time 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.
- 27 -
Approximately $360,511,000, or 95.9%, in time deposits will reprice or mature over the next 12 months. The average rate paid on these time deposits is approximately 3.52%.
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers, overnight FHLB borrowing and short-term FRB borrowing with average balances in 2025 of $19,328,000, $37,253,000 and $1,000, respectively. Interest expense on short-term borrowings increased $955,000 to $2,103,000 when comparing the two years. During this period average balances of repurchase agreements decreased $19,127,000 with a 63 basis-point increase in average rate paid, resulting in a decrease of cost of funds of $229,000. The average balances of borrowings from the FHLB increased $37,155,000 with a 73-basis-point decrease in average rate paid, resulting in an increase in cost of funds of $1,623,000. The average balances of FRB short-term borrowings decreased $9,972,000 resulting in a decrease in cost of funds of $439,000.
Average long-term debt decreased $19,074,000 in 2025 to $8,795,000 with a seven basis-point increase in average yield from 4.67% in 2024 to 4.74% in 2025.
During the third quarter of 2024, the QNB Corp. issued $40,000,000 of subordinated debt; the carrying value net of deferred costs was $39,268,000 at December 31, 2025. The average yield of 9.44% for 2025 and 9.34% for 2024 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.
The yield on interest-bearing liabilities decreased 16 basis points to 2.64% for 2025.
2024 versus 2023
Total interest expense for 2024 was $41,206,000 compared with $28,927,000 for 2023, an increase of $12,279,000. Interest expense on deposits increased $12,475,000 and interest expense on borrowed funds decreased $196,000 when comparing the two years. The rate paid on interest-bearing deposits increased 70 basis points; the rate paid on borrowings increased 101 basis points, when comparing the two periods.
Average non-interest-bearing demand accounts decreased $20,252,000, or 9.7%, to $188,525,000 for 2024. Average interest-bearing demand accounts increased $30,600,000, or 9.7%, to $346,590,000 for 2024 compared with 2023, with interest expense on interest-bearing demand accounts increasing $1,325,000 to $3,225,000 for 2024. The average rate paid increased 33 basis points to 0.93% for 2024 compared to 0.60% for 2023. Interest-bearing business demand average balances increased by $41,304,000, or 58.2%, and related interest expense increased $1,346,000, or 45 basis points in yield, when comparing the two years. For 2024, the average balance in the QNB-Rewards checking product was $91,932,000 and the related interest expense was $373,000 for an average cost of funds of 0.41%. In comparison, the average balance in this product for 2023 was $93,336,000 and the related interest expense was $389,000 for an average cost of funds of 0.42%. The average balance of other interest-bearing demand accounts included in this category decreased from $151,647,000 for 2023 to $142,347,000 for 2024. The average rate paid on these balances was 0.05% in 2023 and 2024.
Average money market accounts increased $54,067,000, or 29.5%, to $237,071,000 for 2024 compared with 2023. Interest expense on money market accounts increased $3,358,000 to $8,181,000 for 2024 compared with 2023. The average interest rate paid on money market accounts was 3.45% for 2024, an increase of 81 basis points compared with 2023.
Interest expense on municipal interest-bearing demand accounts increased $927,000 to $6,794,000 for 2024. The average balance of municipal interest-bearing demand accounts increased $14,836,000, or 11.3%, to $146,446,000 and the average interest rate paid on these accounts increased 18 basis points to 4.64% for 2024 from 4.46% for 2023.
Average e-Savings balances decreased $48,383,000, or 18.9%, to $207,869,000 in 2024 compared with $256,252,000 in 2023. The average cost of funds on these accounts was 1.71% for 2024 and 1.57% for 2023. Traditional statement savings accounts and club accounts are also included in the savings category and decreased on average by $15,484,000, or 16.7%, to $77,142,000. The average rate paid on traditional savings accounts was 0.12% for 2024, a six basis-point decrease from 0.18% for 2023 and interest expense decreased $79,000, to $91,000 from $170,000 over the same period.
Interest expense on time deposits increased $7,401,000, to $15,625,000 in 2024, due to an increase in average balances of $98,593,000 in 2024, to $365,851,000 and a 119 basis-point increase in yield, from 3.08% in 2023 to 4.27% in 2024.
- 28 -
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers, overnight FHLB borrowing and short-term FRB borrowing with average balances in 2024 of $38,455,000, $98,000 and $9,973,000, respectively. Interest expense on short-term borrowings decreased $2,125,000 to $1,148,000 when comparing the two years. During this period average balances of repurchase agreements decreased $14,699,000 with a 44 basis-point increase in average rate paid, resulting in a decrease of cost of funds of $36,000. The average balances of borrowings from the FHLB decreased $15,747,000 with a 20 basis-point increase in average rate paid, resulting in a decrease in cost of funds of $772,000. During the first quarter of 2023, QNB borrowed $50,000,000 from the FRB under its Bank Term Funding Program and locked in a rate of 4.39%; this borrowing was paid off in the first quarter of 2024.
Average long-term debt increased $12,157,000 in 2024 to $27,869,000 with a 57 basis-point increase in average yield from 4.10% in 2023 to 4.67% in 2024.
The average yield of 9.34% on subordinated debt includes the amortization of the deferred costs.
The yield on interest-bearing liabilities increased 69 basis points to 2.80% for 2024.
Provision for Credit Losses
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. QNB recorded a provision for credit losses on loans of $460,000 for the twelve months ended December 31, 2025 compared to a reversal of the provision for credit losses on loans of $49,000 for the twelve-month period ended December 31, 2024 and a reversal of the provision for credit losses on loans of $828,000 for the twelve-month period ended December 31, 2023. QNB recorded a reversal of the provision for credit losses on unused commitments of $11,000 during 2025, a reversal of the provision for credit losses on unused commitments of $19,000 during 2024 and a reversal of the provision for credit losses on unused commitments of $16,000 during 2023. Net loan recoveries were $11,000 in 2025, or 0.00% of average loans receivable, compared to loan charge-offs of $59,000, or 0.01% of total average loans for 2024, and net loan recoveries of $238,000, or 0.02% of total average loans for 2023. The majority of the recoveries during 2025, 2024 and 2023, were on these previously charged off commercial loans and student loans. 2025 was partly offset and 2024 was offset by net charge-offs in overdrafts and student loans. Deterioration in credit quality resulting in charge-offs or significant growth in the loan portfolio may result in a higher provision for credit losses on loans in 2026.
Non-Interest Income
Non-interest income comparison |
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Change from prior year |
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$ Change |
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% Change |
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Year ended December 31, |
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2025 |
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2024 |
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2023 |
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2025 to |
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2024 to |
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|
2025 to |
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|
2024 to |
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Fees for services to customers |
|
$ |
1,986 |
|
|
$ |
1,770 |
|
|
$ |
1,651 |
|
|
$ |
216 |
|
|
$ |
119 |
|
|
|
12.2 |
% |
|
|
7.2 |
% |
ATM and debit card |
|
|
2,991 |
|
|
|
2,740 |
|
|
|
2,735 |
|
|
|
251 |
|
|
|
5 |
|
|
|
9.2 |
|
|
|
0.2 |
|
Retail brokerage and advisory |
|
|
648 |
|
|
|
476 |
|
|
|
862 |
|
|
|
172 |
|
|
|
(386 |
) |
|
|
36.1 |
|
|
|
-44.8 |
|
Bank-owned life insurance |
|
|
338 |
|
|
|
332 |
|
|
|
320 |
|
|
|
6 |
|
|
|
12 |
|
|
|
1.8 |
|
|
|
3.8 |
|
Merchant |
|
|
321 |
|
|
|
348 |
|
|
|
394 |
|
|
|
(27 |
) |
|
|
(46 |
) |
|
|
-7.8 |
|
|
|
-11.7 |
|
Net (loss) gain on sale of investment securities |
|
|
— |
|
|
|
919 |
|
|
|
(2,077 |
) |
|
|
(919 |
) |
|
|
2,996 |
|
|
N/M |
|
|
N/M |
|
||
Unrealized gain (loss) on investment equity securities |
|
|
— |
|
|
|
(215 |
) |
|
|
250 |
|
|
|
215 |
|
|
|
(465 |
) |
|
N/M |
|
|
N/M |
|
||
Net gain on sale of loans |
|
|
63 |
|
|
|
29 |
|
|
|
16 |
|
|
|
34 |
|
|
|
13 |
|
|
N/M |
|
|
N/M |
|
||
Other |
|
|
610 |
|
|
|
514 |
|
|
|
686 |
|
|
|
96 |
|
|
|
(172 |
) |
|
|
18.7 |
|
|
|
-25.1 |
|
Total |
|
$ |
6,957 |
|
|
$ |
6,913 |
|
|
$ |
4,837 |
|
|
$ |
44 |
|
|
$ |
2,076 |
|
|
|
0.6 |
% |
|
|
42.9 |
% |
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|
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|||||||
N/M - Not Meaningful |
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- 29 -
2025 versus 2024
QNB, through its core banking business, generates various fees and service charges. Total non-interest income includes service charges on deposit accounts, ATM and debit card income, retail brokerage and advisory income, income on bank-owned life insurance, merchant income and gains and losses on investment securities and residential mortgage loans. Total non-interest income was $6,957,000 in 2025 compared with $6,913,000 in 2024, an increase of $44,000, or 0.6%. Excluding the unrealized (losses) gains on equity securities and gains (losses) on sales of investment securities, noninterest income was $6,957,000 in 2025 compared to $6,209,000 in 2024, a decrease of $748,000, or 12.0%.
Fees for services to customers are primarily comprised of service charges on deposit accounts. These fees were $1,986,000 for 2025, an increase of $216,000 from 2024. Overdraft income, which represented approximately 75% of total fees for services to customers in both 2025 and 2024, increased by $161,000, or 12.1%, when comparing 2025 to 2024. The increase in overdraft income primarily reflects an increase in the number of overdraft occurrences. Other fees for services increased $55,000 primarily due to the increase in deposit accounts.
ATM and debit card income is primarily comprised of transaction income on debit cards and ATM cards and ATM surcharge income for the use of QNB’s ATM machines by non-QNB customers. ATM and debit card income was $2,991,000 in 2025, an increase of $251,000 from the amount recorded in 2024. Debit card interchange income increased $250,000 to $2,945,000 in 2025, while ATM surcharge income and monthly card fee income increased $1,000 to $46,000. The growth in checking accounts and card usage contributed to the increase in debit card income, including the QNB Rewards checking product, a tiered-rate checking account which requires, among other terms, the posting of a minimum of twelve debit card purchase transactions per statement cycle to receive the high interest rate.
QNB provides securities and advisory services under the name QNB Financial Services through an independent third-party registered Broker/Dealer and Registered Investment Advisor. QNB receives a percentage of the revenue generated but is responsible for salaries and expenses of advisors who are QNB employees. Retail brokerage and advisory revenue was $648,000 for 2025 compared with $476,000 for 2024, an increase of $172,000, or 36.1%. Advisory fees increased $23,000 comparing 2025 to 2024 due to an increase in client balances. Sales in front-loaded products, such as annuities and alternative investments (which include private equity, hedge funds, managed futures, real estate “REITs”, commodities and derivatives contracts) and trailing income related to these increased $149,000 in 2025 over 2024. In 2025, the net income provided by QNB Financial Services was $185,000, compared with $112,000 in net income for 2024.
Income on bank-owned life insurance (“BOLI”) represents the earnings and death benefits on life insurance policies in which the Bank is the beneficiary. The insurance carriers reset the rates on these policies annually taking into consideration the interest rate environment as well as mortality costs. The existing policies have rate floors which limit how low the earnings rate can go. Some of these policies are currently at their floor. Income on these policies during 2025 was $338,000 compared to $332,000 for 2024.
Merchant income represents fees charged to merchants for the Bank’s handling of credit card or charge sales. Merchant income was $321,000 for 2025, a decrease of $27,000 compared to the amount reported in 2024.
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, 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. In addition, the Corporation owned a small portfolio of equity securities for the purpose of generating both dividend income and capital appreciation; this equity portfolio was sold during 2024.
Net gains (losses) on sales of investment securities were $919,000 for the year ended December 31, 2024, there were no sales in 2025. Net gains from sales of equity securities were $2,015,000 in 2024. QNB completed the exchange offer to convert the Bank's Visa B-1 shares to B-2 and C shares in the second quarter of 2024; QNB sold the Visa Class C shares in the fourth quarter of 2024 and realized a gain of $1,498,000. QNB sold its other equity securities and realized a gain of $517,000 during the twelve months ended December 31, 2024. Net loss on the sale of fixed income securities was $1,096,000 for 2024. QNB improved the efficiency of its investment portfolio by executing sales of low yielding fixed rate available-for-sale securities during. QNB sold both state and municipal securities and mortgage-backed and CMO securities totaling $13,139,000 during 2024. Unrealized losses on equity securities of $215,000 were recorded during 2024.
The net gain 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. Residential mortgage loans to be sold are identified at origination. The net gain on the sale of residential mortgage loans was $63,000 and $29,000 for 2025 and 2024, respectively. Mortgage financing activity was greater in 2025, due to
- 30 -
available properties. Proceeds from the sale of residential mortgages were $2,254,000 and $1,765,000 for the years ended December 31, 2025 and 2024, respectively. Included in the gains on the sale of residential mortgages in 2025 and 2024 are $17,000 and $13,000, respectively, related to the recognition of mortgage servicing assets.
QNB retains servicing rights for residential mortgages sold in the secondary market. A servicing fee is retained on all mortgage loans sold and serviced. QNB recognizes its obligation to service financial assets that are retained in a transfer of assets in the form of a servicing asset. The servicing asset is amortized in proportion to, and over, the period of net servicing income or loss. On a quarterly basis, servicing assets are assessed for impairment based on their fair value. Mortgage servicing income of $105,000 for 2025 and $116,000 for 2024 is included in other non-interest income.
Other non-interest income, excluding mortgage servicing income, was $505,000 for 2025, an increase of $107,000 from the amount recorded in 2024. Letter of credit fees increased $46,000 and title company income increased $20,000 when comparing 2025 to 2024.
2024 versus 2023
Total non-interest income was $6,913,000 in 2024 compared with $4,837,000 in 2023, an increase of $2,076,000. Excluding the unrealized (losses) gains on equity securities and gains (losses) on sales of investment securities, noninterest income was $6,209,000 in 2024 compared to $6,664,000 in 2023, a decrease of $455,000.
Fees for services to customers were $1,770,000 for 2024, an increase of $119,000 from 2023. Overdraft income, which represented approximately 75% of total fees for services to customers in 2024 and 78% in 2023, increased by $38,000, or 2.9%, when comparing 2024 to 2023. Other fees for services increased $119,000 primarily due to the increase in deposit accounts.
ATM and debit card income was $2,740,000 in 2024, an increase of $5,000 from the amount recorded in 2023. Debit card interchange income increased $10,000 to $2,695,000 in 2024, while ATM surcharge income and monthly card fees income decreased $5,000 to $45,000.
Retail brokerage and advisory revenue was $476,000 for 2024 compared with $862,000 for 2023, a decrease of $386,000, or 44.8%. Advisory fees decreased $461,000 comparing 2024 to 2023 due to a decrease in client balances following employee turnover. Sales in front-loaded products increased $75,000 in 2024 over 2023. In 2024, the net income provided by QNB Financial Services was $112,000, compared with $186,000 in net income for 2023.
Income on BOLI policies during 2024 was $332,000 compared to $320,000 for 2023. Merchant income was $348,000 for 2024, a decrease of $46,000 compared to the amount reported in 2023.
Net gains (losses) on sales of investment securities increased $2,996,000 to a net gain of $919,000 for the year ended December 31, 2024, compared with a net loss of $2,077,000 for the year ended December 31, 2023. Net gains from sales of equity securities were $2,015,000 in 2024 compared to a net loss of $19,000 in 2023. QNB sold the Visa Class C shares in the fourth quarter of 2024 and realized a gain of $1,498,000. QNB sold its other equity securities and realized a gain of $517,000 during the twelve months ended December 31, 2024 compared to a loss of $19,000 for the same period of 2023. Net loss on the sale of fixed income securities was $1,096,000 for 2024 compared to a net loss of $2,058,000 for 2023. QNB improved the efficiency of its investment portfolio by executing sales of low yielding fixed rate available-for-sale securities during 2023 and 2024. QNB sold both state and municipal securities and mortgage-backed and CMO securities totaling $13,139,000 during 2024 and $33,213,000 during 2023. Unrealized losses on equity securities of $215,000 were recorded during 2024 compared to unrealized gains of $250,000 during 2023.
The net gain on the sale of residential mortgage loans was $29,000 and $16,000 for 2024 and 2023, respectively. Mortgage financing activity was greater in 2024, due to available properties. Proceeds from the sale of residential mortgages were $1,765,000 and $989,000 for the years ended December 31, 2024 and 2023, respectively. Included in the gains on the sale of residential mortgages in 2024 and 2023 are $13,000 and $7,000, respectively, related to the recognition of mortgage servicing assets.
Mortgage servicing income of $116,000 for 2024 and $125,000 for 2023 is included in other non-interest income.
Other non-interest income, excluding mortgage servicing income, was $398,000 for 2024, a decrease of $163,000 from the amount recorded in 2023. Other non-interest income included sales tax refunds in 2023 of $117,000 and broker-dealer conversion costs reimbursements of $18,000 in 2023. Losses on premises and equipment were $14,000 in 2024 compared to gains in 2023 of $6,000. Letter of credit fees decreased $16,000 when comparing 2024 to 2023.
- 31 -
Non-Interest Expense
Non-interest expense comparison |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Change from prior year |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
$ Change |
|
|
% Change |
|
|||||||||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2025 to |
|
|
2024 to |
|
|
2025 to |
|
|
2024 to |
|
|||||||
Salaries and employee benefits |
|
$ |
21,261 |
|
|
$ |
19,741 |
|
|
$ |
19,026 |
|
|
$ |
1,520 |
|
|
$ |
715 |
|
|
|
7.7 |
% |
|
|
3.8 |
% |
Net occupancy |
|
|
2,320 |
|
|
|
2,207 |
|
|
|
2,223 |
|
|
|
113 |
|
|
|
(16 |
) |
|
|
5.1 |
|
|
|
-0.7 |
|
Furniture and equipment |
|
|
4,434 |
|
|
|
3,973 |
|
|
|
3,602 |
|
|
|
461 |
|
|
|
371 |
|
|
|
11.6 |
|
|
|
10.3 |
|
Marketing |
|
|
1,038 |
|
|
|
1,044 |
|
|
|
964 |
|
|
|
(6 |
) |
|
|
80 |
|
|
|
-0.6 |
|
|
|
8.3 |
|
Third party services |
|
|
3,069 |
|
|
|
2,595 |
|
|
|
2,422 |
|
|
|
474 |
|
|
|
173 |
|
|
|
18.3 |
|
|
|
7.1 |
|
Telephone, postage and supplies |
|
|
511 |
|
|
|
505 |
|
|
|
571 |
|
|
|
6 |
|
|
|
(66 |
) |
|
|
1.2 |
|
|
|
-11.6 |
|
State taxes |
|
|
947 |
|
|
|
577 |
|
|
|
367 |
|
|
|
370 |
|
|
|
210 |
|
|
|
64.1 |
|
|
|
57.2 |
|
FDIC insurance premiums |
|
|
1,033 |
|
|
|
1,156 |
|
|
|
1,058 |
|
|
|
(123 |
) |
|
|
98 |
|
|
|
-10.6 |
|
|
|
9.3 |
|
Merger-related |
|
|
1,138 |
|
|
|
— |
|
|
|
— |
|
|
|
1,138 |
|
|
|
— |
|
|
N/M |
|
|
N/M |
|
||
Other |
|
|
4,056 |
|
|
|
3,686 |
|
|
|
3,876 |
|
|
|
370 |
|
|
|
(190 |
) |
|
|
10.0 |
|
|
|
-4.9 |
|
Total |
|
$ |
39,807 |
|
|
$ |
35,484 |
|
|
$ |
34,109 |
|
|
$ |
4,323 |
|
|
$ |
1,375 |
|
|
|
12.2 |
% |
|
|
4.0 |
% |
2025 versus 2024
Non-interest expense is comprised of costs related to salaries and employee benefits, net occupancy, furniture and equipment, marketing, third party services, FDIC insurance premiums, regulatory assessments and taxes and various other operating expenses. Total non-interest expense was $39,807,000 in 2025, an increase of $4,323,000, or 12.2%, from the $35,484,000 in 2024. QNB’s overhead efficiency ratio, which represents the percentage of each dollar of revenue that is used for non-interest expense, is calculated by taking non-interest expense divided by net operating revenue (tax-equivalent net interest income plus non-interest income). QNB’s efficiency ratios for 2025, 2024 and 2023 were 67.9%, 70.5%, and 74.8%, respectively. The favorable decrease in the 2025 efficiency ratio is primarily due to an increase in tax-equivalent net interest income of $8,256,000 in 2025 over 2024.
Salaries and benefits expense is the largest component of non-interest expense. QNB monitors, using various surveys, the competitive salary and benefit information in its markets and makes adjustments when appropriate. Salaries and benefits expense for 2025 was $21,261,000, an increase of $1,520,000, or 7.7%, compared with $19,741,000 reported in 2024. Salary expense and related payroll taxes for 2025 were $18,337,000, an increase of $1,455,000, or 8.6%, compared with $16,882,000 reported in 2024, due to annual salary increased and a $684,000 increase in bonus and related tax expense due to performance factors being met or exceeded. Benefit expense for 2025 was $2,924,000, an increase of $65,000, or 2.3%, from the amount recorded in 2024. Medical premiums decreased $53,000 primarily due to a decrease in claims. Retirement plan matching and safe harbor increased $47,000 compared to 2024. QNB utilized unvested forfeited 401(k) contributions to offset retirement plan matching in 2025 and 2024. During 2023, the Bank adopted a Nonqualified Deferred Compensation Plan ("NQDC Plan"). The purpose of the NQDC Plan is to provide a deferred compensation vehicle to which the Bank may credit discretionary amounts on behalf of key employees for recruitment and reward. NQDC Plan expense was $157,000 for the year ended December 31, 2025 compared to $136,000 for the year ended December 31, 2024.
Net occupancy and furniture and equipment expense increased $574,000, to $6,754,000 when comparing 2025 to 2024, due primarily to increased software maintenance.
Marketing expense was $1,038,000 for 2025, a $6,000 decrease from the expense recorded in 2024. QNB’s contributions and sponsorships for not-for-profit organizations, events and clubs in the communities it serves are included in public relations expense which decreased $26,000 in 2025 Advertising and sales promotions costs increased $20,000 in 2025 over 2024.
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 information technology services, correspondent banking services, statement printing and mailing, investment security safekeeping and supply management services. Third party services increased $474,000 primarily due to an increase of $325,000 in information technology services.
Telephone, postage and supplies expense increased $6,000 to $511,000 in 2025 compared with 2024, primarily due to an increase in telephone costs due to usage.
The premium assessment formula for small institutions is based on asset growth and related risk assumptions determined by the FDIC as well as capital. Small institutions, for FDIC premium assessments purposes, are defined as those with total consolidated assets less than $10 billion. FDIC insurance premium expense decreased $123,000 in 2025 as there was a higher assessment rate during 2024.
- 32 -
State tax expense represents the payment of the Pennsylvania Shares Tax and Pennsylvania sales and use tax. State tax expense was $947,000 and $577,000 for the years 2025 and 2024, respectively. The Pennsylvania Shares Tax is based primarily on the equity of the Bank. The increase in Pennsylvania Shares Tax is a result of higher capital.
Merger-related costs are not normal recurring operating expenses. The costs during 2025 of $1,138,000 were related to securing the fairness opinion and preparing and reviewing definitive transaction documents, such as the merger agreement, ensuring regulatory compliance. Approximately 89% of these costs are not deductible for income tax purposes.
Other operating expenses for the twelve months ended December 31, 2025 increased $370,000, or 10.0%. There was an increase of $226,000 in director fees as fees were bought in line with peers. There was an increase of $68,000 in write-offs primarily due to fraud on customer and $69,000 increase in business development costs.
2024 versus 2023
Total non-interest expense was $35,484,000 in 2024, an increase of $1,375,000, or 4.0%, from the $34,109,000 in 2023. QNB’s overhead efficiency ratio, which represents the percentage of each dollar of revenue that is used for non-interest expense, is calculated by taking non-interest expense divided by net operating revenue (tax-equivalent net interest income plus non-interest income). QNB’s efficiency ratios for 2024, 2023 and 2022 were 70.5%, 74.8%, and 61.8%, respectively. The favorable decrease in the 2024 efficiency ratio is primarily due to an increase in tax-equivalent net interest income of $2,681,000 in 2024 over 2023.
Salaries and benefits expense for 2024 was $19,741,000, an increase of $715,000, or 3.8%, compared with $19,026,000 reported in 2023. Salary expense and related payroll taxes for 2024 were $16,882,000, an increase of $893,000 compared with $15,989,000 reported in 2023. Benefit expense for 2024 was $2,859,000, a decrease of $178,000, or 5.9%, from the amount recorded in 2023. Medical premiums decreased $225,000 primarily due to a decrease in claims. Retirement plan matching and safe harbor increased $44,000 compared to 2023. NQDC Plan expense was $136,000 for the year ended December 31, 2024 compared to $108,000 for the year ended December 31, 2023.
Net occupancy and furniture and equipment expense increased $355,000, to $6,180,000 when comparing 2024 to 2023, due primarily to increased software maintenance.
Marketing expense was $1,044,000 for 2024, an $80,000 increase from the expense recorded in 2023. Public relations expense decreased $28,000 in 2024 Advertising and sales promotions costs increased $119,000 in 2024 over 2023.
Third party services increased $173,000.
Telephone, postage and supplies expense decreased $66,000 to $505,000 in 2024 compared with 2023, primarily due to reduction in transportation costs for supplies and mail delivery services due to usage.
FDIC insurance premium expense increased $98,000 in 2024 over 2023 due to an increase in capital.
State tax expense was $577,000 and $367,000 for the years 2024 and 2023, respectively. The Pennsylvania Shares Tax is based primarily on the equity of the Bank. The increase in Pennsylvania Shares Tax is a result of higher capital and a decrease in tax credits.
Other operating expenses for the twelve months ended December 31, 2024 decreased $190,000, or 4.9%. There was a decrease of $478,000 in write-offs primarily due to fraud on customer accounts offset by increases in debit card expense of $233,000 and the recording of a potential expense of $85,000 related to the Visa stock exchange make-whole agreement.
Income Taxes
Applicable income tax expense and effective tax rates were $3,840,000, or 21.4% for 2025, $2,911,000, or 20.3% for 2024 and $2,244,000, or 19.1% for 2023. The primary reason for the increased effective tax rate for 2025 over 2024 was due to non-taxable merger-related cost in 2025 and an increase in the valuation allowance. The primary reason for the increased effective tax rate for 2024 over 2023 was due to a decrease in allowable tax-exempt interest due to higher disallowed interest expense related to a higher cost of funds and an increase in the valuation allowance.
QNB expects the effective tax rate in 2026 to be higher than the 21% corporate rate, due to anticipated non-deductible merger-related costs, partly offset by its holdings of tax-free assets, including municipal bonds, municipal loans, and life insurance contracts. For a more comprehensive analysis of income tax expense and deferred taxes, refer to Note 12 in the Notes to Consolidated Financial Statements.
- 33 -
Financial Condition
ASSETS
The following table presents total assets at the dates indicated:
|
|
|
|
|
|
|
|
Change from prior year |
|
|||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
Percent |
|
||||
Cash and cash equivalents |
|
$ |
50,297 |
|
|
$ |
50,713 |
|
|
$ |
(416 |
) |
|
|
-0.8 |
% |
Investment securities AFS |
|
|
542,830 |
|
|
|
546,559 |
|
|
|
(3,729 |
) |
|
|
-0.7 |
|
Restricted investment in bank stocks |
|
|
6,663 |
|
|
|
5,436 |
|
|
|
1,227 |
|
|
|
22.6 |
|
Loans held for sale |
|
|
246 |
|
|
|
664 |
|
|
|
(418 |
) |
|
|
-63.0 |
|
Loans receivable |
|
|
1,262,074 |
|
|
|
1,216,048 |
|
|
|
46,026 |
|
|
|
3.8 |
|
Allowance for credit losses on loans |
|
|
(9,215 |
) |
|
|
(8,744 |
) |
|
|
(471 |
) |
|
|
-5.4 |
|
Premises and equipment, net |
|
|
16,886 |
|
|
|
17,255 |
|
|
|
(369 |
) |
|
|
-2.1 |
|
Bank-owned life insurance |
|
|
12,275 |
|
|
|
11,937 |
|
|
|
338 |
|
|
|
2.8 |
|
Accrued interest receivable |
|
|
4,839 |
|
|
|
4,965 |
|
|
|
(126 |
) |
|
|
-2.5 |
|
Other assets |
|
|
19,110 |
|
|
|
26,061 |
|
|
|
(6,951 |
) |
|
|
-26.7 |
|
Total assets |
|
$ |
1,906,005 |
|
|
$ |
1,870,894 |
|
|
$ |
35,111 |
|
|
|
1.9 |
% |
Cash and Interest-earning Deposits
Total cash and cash equivalents decreased $416,000 to $50,297,000 at December 31, 2025 from $50,713,000 at December 31, 2024. QNB had interest-bearing balances at the Federal Reserve Bank of $34,780,000 compared with $35,867,000 and interest-bearing balances in a brokerage account of $627,000 compared with $3,414,000 at December 31, 2025 and December 31, 2024, respectively. At December 31, 2025 and December 31, 2024 there was $1,800,000 and $0, respectively, held as collateral against the fair value swaps held a correspondent bank. Net cash was provided by operating and financing activities. Proceeds received from deposit growth and net proceeds from the issuance of short-term borrowings more than offset the repayment of long-term debt, excess funds were used support loan. The maturity, prepayment and sales of investment securities were used to reinvest in higher-yielding securities and to support loan growth.
Investment Securities and Other Short-Term Investments
At December 31, 2025 and 2024, QNB had no Federal funds sold.
QNB accounts for its investments by classifying securities into four categories. Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt securities that QNB has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported as a separate component of shareholders’ equity. Equity investments with readily determinable fair values are measured at fair value with changes in fair value recognized in net income. Management determines the appropriate classification of securities at the time of purchase.
Investment Portfolio History |
|
|
|
|
|
|
|
|
|
|||
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Investment Securities Available-for-Sale |
|
|
|
|
|
|
|
|
|
|||
U.S. Treasuries |
|
$ |
21,583 |
|
|
$ |
18,010 |
|
|
$ |
6,451 |
|
U.S. Government agency |
|
|
70,850 |
|
|
|
66,908 |
|
|
|
74,122 |
|
State and municipal |
|
|
88,787 |
|
|
|
86,352 |
|
|
|
89,189 |
|
U.S. Government agencies and sponsored enterprises (GSEs): |
|
|
|
|
|
|
|
|
|
|||
Mortgage-backed |
|
|
182,208 |
|
|
|
198,510 |
|
|
|
224,238 |
|
Collateralized mortgage obligations (CMOs) |
|
|
149,203 |
|
|
|
161,646 |
|
|
|
89,973 |
|
Corporate debt and money market funds |
|
|
30,199 |
|
|
|
15,133 |
|
|
|
6,209 |
|
Total investment securities available-for-sale |
|
$ |
542,830 |
|
|
$ |
546,559 |
|
|
$ |
490,182 |
|
- 34 -
Investments Available-For-Sale Debt Securities
Available-for-sale investment securities include securities that management intends to use as part of its liquidity and asset/liability management strategy. These securities may be sold in response to changes in market interest rates, changes in the securities prepayment or credit risk, the need for liquidity, or growth in loan demand. At December 31, 2025, the fair value of investment debt securities available-for-sale, including the impact of fair value hedges, was $542,830,000, or $59,217,000 less than the amortized cost of $602,047,000. This compares to a fair value of $546,559,000, or $79,832,000 less than the amortized cost of $626,391,000, at December 31, 2024. The available-for-sale portfolio had a weighted average maturity of approximately 6.0 years at December 31, 2025 and 6.6 years at December 31, 2024 and a weighted average tax-equivalent yield of 2.81% and 2.40% at December 31, 2025 and 2024, respectively.
At December 31, 2025, approximately 74% of QNB’s investment securities available-for-sale were either U.S. Government agency debt securities, U.S. Government agency issued mortgage-backed securities or CMOs. As of December 31, 2025, QNB held no securities of any one issue or any one issuer (excluding the U.S. Treasury, U.S. Government and its agencies) that were in excess of 10% of shareholders’ equity.
The QNB investment portfolio represents a significant portion of earning assets and interest income. QNB actively manages the investment portfolio in an attempt to maximize earnings, while considering liquidity needs, interest rate risk and credit risk. The decrease of the investment portfolio as a percentage of total assets in 2025 is due to the proceeds from payments, maturities and sales being used to fund loan growth. During 2025, $80,940,000 of investment securities available-for-sale were purchased compared with $130,679,000 during 2024. Proceeds from the sale of investment securities available-for-sale were $13,139,000 during 2024 compared with no sales during 2025. Proceeds from maturities, calls and prepayments were $104,326,000 during 2025 compared with $64,959,000 during 2024.
Treasury securities had a fair value of $21,583,000 at December 31, 2025 compared to $18,010,000 at December 31, 2024. Excess cash at the holding company was invested in short-term Treasury securities in 2025 and 2024.
The balance of U.S. Government agency securities increased $3,942,000 to $70,850,000 at December 31, 2025 and represents 13.0% of the available-for-sale investment portfolio, compared with 12.2% at December 31, 2024. U.S. Government agency issued CMO and MBS balances decreased $28,745,000 to $331,411,000 and represents 61.0% of the available-for-sale portfolio compared with 65.9% at December 31, 2024. These bonds provide monthly cash flow to be reinvested in either loans or other securities, potentially at higher yields as rates increase.
The balance of municipal securities increased $2,435,000 to $88,787,000 at December 31, 2025, representing 16.4% of the available-for-sale portfolio compared with 15.8% at December 31, 2024. QNB focuses on the financial performance of the underlying issuer for municipal bond purchases in addition to the bond rating of the issuer or the rating of bond insurer, if present.
QNB owns one collateralized debt obligations (“CDO”) in the form of a pooled trust preferred security and is included in the Corporate debt category. The security is comprised of securities issued by banks or bank holding companies. QNB owns the mezzanine tranche of this security. The security is structured so that the senior and mezzanine tranches are protected from defaults by over-collateralization and cash flow default protection provided by subordinated tranches. The trust preferred security the Bank continues to hold has a carrying balance of $50,000 at December 31, 2025 and represents the senior-most obligation of the trust. There was no credit-related impairment charge during 2025, 2024 or 2023. Future estimates of fair value of the remaining security could require recording additional impairment charges through earnings. For additional detail on these securities see Note 18 of the Notes to Consolidated Financial Statements.
The weighted average maturity in the following table is based on the stated contractual maturity or likely call date of all securities except for MBS and CMOs, which are based on estimated average life. The maturity of the portfolio could become shorter if interest rates decline and prepayments on MBS and CMOs increase or securities are called. However, the estimated average life could lengthen if interest rates were to increase and principal payments on MBS and CMOs slowed or securities anticipated to be called extend past their call date.
- 35 -
Investment Portfolio Maturities and Weighted Average Yields
December 31, 2025 |
|
One year |
|
|
After one |
|
|
After five |
|
|
After ten |
|
|
Total |
|
|||||
Investment Securities Available-for-Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
U.S. Treasuries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
$ |
21,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
21,583 |
|
Weighted average yield |
|
|
3.81 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.81 |
% |
U.S. Government agency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
|
1,962 |
|
|
|
63,515 |
|
|
|
5,373 |
|
|
|
— |
|
|
$ |
70,850 |
|
Weighted average yield |
|
|
0.74 |
% |
|
|
1.14 |
% |
|
|
1.74 |
% |
|
|
— |
|
|
|
1.17 |
% |
State and municipal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
|
— |
|
|
|
3,274 |
|
|
|
31,107 |
|
|
|
54,406 |
|
|
|
88,787 |
|
Weighted average yield |
|
|
— |
|
|
|
2.50 |
% |
|
|
2.19 |
% |
|
|
1.98 |
% |
|
|
2.07 |
% |
Mortgage-backed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
|
80 |
|
|
|
61,611 |
|
|
|
120,517 |
|
|
|
— |
|
|
|
182,208 |
|
Weighted average yield |
|
|
1.74 |
% |
|
|
1.46 |
% |
|
|
1.64 |
% |
|
|
— |
|
|
|
1.58 |
% |
Collateralized mortgage obligations (CMOs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
|
668 |
|
|
|
61,141 |
|
|
|
87,394 |
|
|
|
— |
|
|
|
149,203 |
|
Weighted average yield |
|
|
1.78 |
% |
|
|
3.07 |
% |
|
|
3.50 |
% |
|
|
— |
|
|
|
3.32 |
% |
Corporate debt and money market funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fair value |
|
|
392 |
|
|
|
5,043 |
|
|
|
24,764 |
|
|
|
— |
|
|
|
30,199 |
|
Weighted average yield |
|
|
7.07 |
% |
|
|
6.57 |
% |
|
|
6.54 |
% |
|
|
— |
|
|
|
6.55 |
% |
Total fair value |
|
$ |
24,685 |
|
|
$ |
194,584 |
|
|
$ |
269,155 |
|
|
$ |
54,406 |
|
|
$ |
542,830 |
|
Weighted average yield |
|
|
3.56 |
% |
|
|
2.01 |
% |
|
|
2.76 |
% |
|
|
1.98 |
% |
|
|
2.45 |
% |
Securities are assigned to categories based on stated contractual maturity except for mortgage-backed securities and CMOs which are based on anticipated payment periods and state and municipal securities which are based on pre-refunded date, if applicable. Tax-exempt securities were adjusted to a tax-equivalent basis and are based on the marginal Federal corporate tax rate of 21% and a Tax Equity and Financial Responsibility Act (“TEFRA”) adjustment for the cost of funds. Weighted average yields on investment securities available-for-sale are based on amortized cost.
Investments in Equity Securities
The equity securities portfolio was sold in 2024. Proceeds from the sale of equity securities were $8,880,000, including a net gain of $2,015,000, and purchased $1,170,000 in equities during 2024. QNB completed the exchange offer to convert the Bank's Visa B-1 shares to B-2 and C shares in the second quarter of 2024; QNB sold the Visa Class C shares in the fourth quarter of 2024 and realized a gain of $1,498,000.
Increases and decreases in the fair value of equity securities were recognized in net income. QNB sold its equity portfolio during 2024, reducing the volatility to earnings. However, QNB still has unconverted Visa B-2 shares, as discussed in Note 1, that in the future could be converted to equity securities with a readily determinable fair value.
Loans
QNB’s primary business is to accept deposits and to make 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 has comprehensive policies and procedures that define and govern commercial and retail loan originations and the management of risk. All loans are underwritten in a manner that emphasizes the borrowers’ capacity to pay. The measurement of capacity to pay delineates the potential risk of non-payment or default. The higher potential for default determines the need for and amount of collateral required. QNB makes unsecured commercial loans when the capacity to pay is considered substantial. As capacity lessens, collateral is
- 36 -
required to provide a secondary source of repayment and to mitigate the risk of loss. Various policies and procedures provide guidance to the lenders on such factors as amount, terms, price, maturity and appropriate collateral levels. Each risk factor is considered critical in ensuring that QNB receives an adequate return for the risk undertaken, and that the risk of loss is minimized.
QNB manages the risk associated with commercial loans by having lenders work in tandem with credit analysts while maintaining independence between personnel. In addition, a Bank loan committee and a committee of the Board of Directors review and approve certain loan requests on a weekly basis. Other than disclosed in the forthcoming Loan Portfolio Table, at December 31, 2025, there was a concentration of loans to lessors of residential buildings and dwellings of 22.6% of total loans and to lessors of nonresidential buildings of 23.5% of total loans, compared with 21.9% and 23.3% of total loans, respectively, at December 31, 2024.
QNB’s commercial lending activity is focused on small businesses within the local community. Commercial purpose loans are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or group of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. These loans may involve greater risk because the availability of funds to repay these loans depends on the successful operation of the borrower’s business. The assets financed are used within the business for its ongoing operation. Repayment of these types of loans generally comes from the cash flow of the business or the ongoing conversions of assets, such as accounts receivable and inventory, to cash. Commercial and industrial loans represent commercial purpose loans that are either secured by collateral other than real estate or unsecured.
Commercial loans secured by commercial real estate include commercial purpose loans collateralized at least in part by commercial real estate. Some of these loans may not be for the express purpose of conducting commercial real estate transactions. Commercial loans secured by residential real estate are commercial purpose loans generally secured by the business owner’s residence or residential investment properties owned by the borrower and rented to tenants. Commercial loans secured by either commercial real estate or residential real estate are originated primarily within the Eastern Pennsylvania market area, are within the Bank’s underwriting criteria, and generally include the guarantee of the borrowers. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate and commercial construction loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties.
Loans to state and political subdivisions are tax-exempt or taxable loans to municipalities, school districts and housing and industrial development authorities. These loans can be general obligations of the municipality or school district repaid through their taxing authority, revenue obligations repaid through the income generated by the operations of the authority, such as a water or sewer authority, or loans issued to a housing and industrial development agency, for which a private corporation is responsible for payments on the loans.
The Company originates fixed rate and adjustable-rate residential real estate loans that are secured by the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. To reduce interest rate risk, qualifying originations of fixed-rate loans to individuals for 1-4 family residential mortgages with maturities of 15 years or greater are generally sold in the secondary market. Mortgage loan origination activity increased in 2025 with $2,254,000 in residential mortgages originated for sale compared with $1,851,000 for 2024. There were $246,000 residential mortgage loans held-for-sale at December 31, 2025 and $664,000 at December 31, 2024. Loan held for sale are carried at the lower of aggregate cost or market.
The home equity portfolio consists of fixed-rate home equity loans and variable rate home equity lines of credit. These loans are often in a junior lien position and therefore carry a higher risk than first lien 1-4 family residential loans. Risks associated with loans secured by residential properties, either first lien residential mortgages or home equity loans and lines, are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market. Since most loans are secured by a primary or secondary residence, the borrower’s continued employment is the greatest risk to repayment.
The Company offers a variety of loans to individuals for personal and household purposes. Consumer loans are generally considered to have greater risk than loans secured by residential real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess or more likely to decrease in value than real estate. Credit risk in this portfolio is controlled by conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower, and, if secured, the value of the collateral.
Total loan receivables at December 31, 2025 were $1,262,074,000, an increase of $46,048,000, or 3.8%, from December 31, 2024. A key financial ratio, loans to deposits was 76.8% at December 31, 2025, compared with 74.7% at December 31, 2024. QNB continues to be committed to make loans available to credit worthy consumers and businesses.
- 37 -
Loan Portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
$ |
139,452 |
|
|
$ |
153,187 |
|
|
$ |
137,086 |
|
|
$ |
160,875 |
|
|
$ |
148,610 |
|
Construction and land development |
|
|
93,862 |
|
|
|
129,464 |
|
|
|
116,173 |
|
|
|
62,955 |
|
|
|
55,855 |
|
Real estate secured by multi-family properties |
|
|
153,319 |
|
|
|
137,461 |
|
|
|
109,193 |
|
|
|
99,758 |
|
|
|
69,765 |
|
Real estate secured by owner-occupied properties |
|
|
161,130 |
|
|
|
163,955 |
|
|
|
160,695 |
|
|
|
158,286 |
|
|
|
147,264 |
|
Real estate secured by other commercial properties |
|
|
364,486 |
|
|
|
313,390 |
|
|
|
265,101 |
|
|
|
260,026 |
|
|
|
234,375 |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
8,065 |
|
|
|
5,652 |
|
|
|
5,442 |
|
|
|
5,256 |
|
|
|
5,517 |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
115,114 |
|
|
|
105,779 |
|
|
|
103,572 |
|
|
|
99,805 |
|
|
|
81,274 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
5,248 |
|
|
|
3,238 |
|
|
|
3,445 |
|
|
|
3,613 |
|
|
|
3,467 |
|
State and political subdivisions |
|
|
20,646 |
|
|
|
17,683 |
|
|
|
18,708 |
|
|
|
20,971 |
|
|
|
19,775 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
119,759 |
|
|
|
114,423 |
|
|
|
108,906 |
|
|
|
105,524 |
|
|
|
97,075 |
|
Construction-individual |
|
|
2,307 |
|
|
|
— |
|
|
|
- |
|
|
|
130 |
|
|
|
3,206 |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
56,073 |
|
|
|
48,231 |
|
|
|
34,231 |
|
|
|
36,732 |
|
|
|
33,476 |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
7,178 |
|
|
|
6,561 |
|
|
|
11,981 |
|
|
|
10,575 |
|
|
|
11,172 |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
12,937 |
|
|
|
14,092 |
|
|
|
15,625 |
|
|
|
11,018 |
|
|
|
11,617 |
|
Student loans |
|
|
1,228 |
|
|
|
1,444 |
|
|
|
1,662 |
|
|
|
2,180 |
|
|
|
2,436 |
|
Overdrafts |
|
|
252 |
|
|
|
209 |
|
|
|
194 |
|
|
|
132 |
|
|
|
91 |
|
Other consumer |
|
|
1,455 |
|
|
|
1,782 |
|
|
|
1,757 |
|
|
|
1,801 |
|
|
|
2,172 |
|
Total loans |
|
|
1,262,511 |
|
|
|
1,216,551 |
|
|
|
1,093,771 |
|
|
|
1,039,637 |
|
|
|
927,147 |
|
Net unearned costs (fees) |
|
|
(437 |
) |
|
|
(503 |
) |
|
|
(238 |
) |
|
|
(252 |
) |
|
|
(677 |
) |
Loans receivable |
|
$ |
1,262,074 |
|
|
$ |
1,216,048 |
|
|
$ |
1,093,533 |
|
|
$ |
1,039,385 |
|
|
$ |
926,470 |
|
Loan Maturities and Interest Sensitivity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans due after one year |
|
||||||||||
December 31, 2025 |
|
One year |
|
|
After one |
|
|
After |
|
|
After |
|
|
Total |
|
|
With fixed predetermined interest rate |
|
|
With variable or adjustable interest rates |
|
|||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Commercial and industrial |
|
$ |
82,922 |
|
|
$ |
41,210 |
|
|
$ |
14,546 |
|
|
$ |
774 |
|
|
$ |
139,452 |
|
|
$ |
32,051 |
|
|
$ |
24,479 |
|
Construction and land development |
|
|
27,899 |
|
|
|
12,139 |
|
|
|
1,461 |
|
|
|
52,363 |
|
|
|
93,862 |
|
|
|
3,190 |
|
|
|
62,773 |
|
Real estate secured by multi-family properties |
|
|
19,993 |
|
|
|
13,069 |
|
|
|
40,490 |
|
|
|
79,767 |
|
|
|
153,319 |
|
|
|
3,816 |
|
|
|
129,510 |
|
Real estate secured by owner-occupied properties |
|
|
4,383 |
|
|
|
11,884 |
|
|
|
66,782 |
|
|
|
78,081 |
|
|
|
161,130 |
|
|
|
11,179 |
|
|
|
145,568 |
|
Real estate secured by other commercial properties |
|
|
12,071 |
|
|
|
16,508 |
|
|
|
120,361 |
|
|
|
215,546 |
|
|
|
364,486 |
|
|
|
14,945 |
|
|
|
337,470 |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
7,954 |
|
|
|
— |
|
|
|
111 |
|
|
|
— |
|
|
|
8,065 |
|
|
|
— |
|
|
|
111 |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
865 |
|
|
|
2,835 |
|
|
|
33,045 |
|
|
|
78,369 |
|
|
|
115,114 |
|
|
|
3,351 |
|
|
|
110,898 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
— |
|
|
|
629 |
|
|
|
1,219 |
|
|
|
3,400 |
|
|
|
5,248 |
|
|
|
631 |
|
|
|
4,617 |
|
State and political subdivisions |
|
|
2,194 |
|
|
|
2,127 |
|
|
|
10,616 |
|
|
|
5,709 |
|
|
|
20,646 |
|
|
|
670 |
|
|
|
17,782 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
1-4 family residential mortgages |
|
|
— |
|
|
|
236 |
|
|
|
12,438 |
|
|
|
107,085 |
|
|
|
119,759 |
|
|
|
47,593 |
|
|
|
72,166 |
|
Construction-individual |
|
|
1,608 |
|
|
|
— |
|
|
|
— |
|
|
|
699 |
|
|
|
2,307 |
|
|
|
— |
|
|
|
699 |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
150 |
|
|
|
4,221 |
|
|
|
7,796 |
|
|
|
43,906 |
|
|
|
56,073 |
|
|
|
10,106 |
|
|
|
45,817 |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
13 |
|
|
|
1,622 |
|
|
|
4,156 |
|
|
|
1,387 |
|
|
|
7,178 |
|
|
|
7,165 |
|
|
|
— |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
31 |
|
|
|
3,497 |
|
|
|
7,052 |
|
|
|
2,357 |
|
|
|
12,937 |
|
|
|
12,861 |
|
|
|
45 |
|
Student loans |
|
|
— |
|
|
|
67 |
|
|
|
769 |
|
|
|
392 |
|
|
|
1,228 |
|
|
|
— |
|
|
|
1,228 |
|
Overdrafts |
|
|
252 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
252 |
|
|
|
— |
|
|
|
— |
|
Other consumer |
|
|
228 |
|
|
|
1,092 |
|
|
|
130 |
|
|
|
5 |
|
|
|
1,455 |
|
|
|
1,212 |
|
|
|
15 |
|
Total |
|
$ |
160,563 |
|
|
$ |
111,136 |
|
|
$ |
320,972 |
|
|
$ |
669,840 |
|
|
$ |
1,262,511 |
|
|
$ |
148,770 |
|
|
$ |
953,178 |
|
- 38 -
Demand loans and loans with no stated maturity are included in one year or less. Table details final maturity.
The Allowance for Credit Losses on Loans Allocation table on Page 42 shows the percentage composition of the loan portfolio over the past five years. There was little change in the composition of the portfolio between the periods ended December 31, 2025 and 2024. Loans secured by commercial real estate, including loans secured by multi-family, owner-occupied and other commercial properties, remained the largest sector of the portfolio amounting to 53.8% and 50.6% of the portfolio at December 31, 2025 and December 31, 2024, respectively, as the balances in this sector grew by $64,129,000, or 10.4%, from $614,806,000 at December 31, 2024 to $678,935,000 at December 31, 2025. While loans secured by commercial real estate represent a significant portion of the total portfolio, the collateral is diversified, including investment properties, manufacturing facilities, office buildings, hospitality properties, hospitals, retirement and nursing home facilities, warehouses and owner-occupied facilities. Commercial real estate loans have drawn the attention of regulators in recent years as a potential source of risk. QNB monitors these types of loans closely, obtaining updated appraisals on loans classified substandard or worse. As detailed in the Allowance for Credit Losses on Loans table, QNB had no charge-offs in this category in 2025, 2024 or 2023.
Commercial loans secured by residential real estate, which includes first lien, junior lien and revolving lines loans, increased by $13,758,000, or 12.0%, to $128,427,000 at December 31, 2025 and at 10.2% remained fairly level with the overall portfolio compared to 9.4% at December 31, 2024. Non-accrual commercial loans secured by residential real estate were $556,000, $535,000, and $165,000 at December 31, 2025, 2024, and 2023, respectively. There were no charge-offs in this category over the past three years. Net recoveries were $10,000 in 2025, $10,000 in 2024 and $10,000 in 2023.
Commercial and industrial loans, the second largest sector of the portfolio, experienced a decrease in balances of $13,735,000, or 9.0%, to $139,452,000 at December 31, 2025. Commercial and industrial loans represented 11.0% of the portfolio at year-end 2025 compared with 12.6% at December 31, 2024. This category of loans generally presents a greater risk than loans secured by real estate since these loans are either secured by accounts receivable, inventory or equipment, or are unsecured. During 2025, nonaccrual commercial and industrial loan balances increased $512,000 to $539,000, the majority of which is due to one loan being placed on nonaccrual status of $554,000. During 2024, nonaccrual commercial and industrial loan balances decreased $284,000 to $27,000, the majority of which is due to one loan returning to accrual status of $278,000. During 2023, nonaccrual commercial and industrial loan balances decreased $1,264,000 to $311,000, the majority of which is due to paydowns of $1,264,000.
Construction and land development loans decreased 27.5% to $93,862,000, or 7.5% of the portfolio at December 31, 2025, from $129,464,000, or 10.6% of the portfolio at December 31, 2024. These loans are primarily to developers and builders for the construction of residential units or commercial buildings or to businesses for the construction of owner-occupied facilities. This portfolio is diversified among different types of collateral including: 1-4 family residential, medical and retirement home facilities, office buildings, hotels and land for development loans. Construction loans are generally made only on projects that have municipal approval. These loans are usually originated to include a short construction period followed by permanent financing provided through a commercial mortgage after construction is complete. Once construction is complete, the balance is moved to the appropriate secured by commercial real estate category if the permanent financing is provided by the Bank. There were no charge-offs in the construction loan portfolio since 2011. There was one construction loan on non-accrual of $6,296,000 at December 31, 2025, this was the first loan placed on nonaccrual status in this category since 2014.
Loans to state and political subdivisions increased $2,963,000, or 16.8%, to $20,646,000 at December 31, 2025 from $17,683,000 at December 31, 2024. This sector increased to 1.6% of the total loan portfolio at December 31, 2024 from 1.4% at December 31, 2024. Many municipalities, counties and school districts refinanced their existing bonds or bank debt due to rate.
Residential mortgage loans secured by first lien balances increased by $5,336,000, or 4.7%, to $119,759,000 at December 31, 2025 from $114,423,000 at December 31, 2024. In 2025 and 2024, QNB retained some adjustable and fixed rate mortgages to borrowers with high credit scores and low loan-to-value ratios.
Balances in home equity loans and lines, including first lien, junior lien and revolving line loans, increased $7,304,000, or 10.6%, to $76,188,000 at December 31, 2025. During 2025, QNB continued to offer very attractive rates on both variable and fixed rate home equity loans and lines. These attractive rates, along with excellent customer service, including quick turnaround time, resulted in new originations in home equity loans. QNB expects demand for home equity loans will increase as rates normalize and debt consolidation into mortgage loans decline.
As of December 31, 2025 the balance of student loans was $1,228,000, a decrease of $216,000 compared with December 31, 2024. In 2013, QNB reentered the private student loan market through a relationship with a third party. These student loans are either fixed or variable rate with the rate dependent on the credit scores of the student and/or the cosigner. Student loan balances will decline, as their balances are no longer insured, and QNB ceased funding originations through the third party during 2019 and forward.
Overdrafts increased $43,000, to $252,000 at December 31, 2025. Other consumer loan balances decreased $327,000 to $1,455,000 at December 31, 2025.
- 39 -
Non-Performing Assets
Non-performing assets include non-performing loans, OREO and repossessed assets. Non-performing assets totaled $8,793,000, or 0.46% of total assets at December 31, 2025 compared to the $1,975,000, or 0.11% of total assets at December 31, 2024.
Total non-performing loans, which represent loans on non-accrual status and loans past due 90 days or more and still accruing interest were $8,793,000, or 0.70% of total loans receivable at December 31, 2025 compared with 1,975,000, or 0.16% of total loans receivable at December 31, 2024. Loans on non-accrual status were $8,793,000 at December 31, 2025 compared $1,975,000 at December 31, 2024. The increase was primarily due to $7,394,000 being placed on nonaccrual; partially offset by paydowns of $576,000. 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. Of the total amount of non-accrual loans at December 31, 2025, $7,763,000, or approximately 88% of the loans classified as non-accrual, are current or past due less than 30 days.
QNB had no loans 90 days or more past due and still accruing at December 31, 2025 or at December 31, 2024. Total loans that are 30 days or more past due decreased $424,000 to $1,763,000, representing 0.14% of total loans at December 31, 2025 compared with $2,187,000, representing 0.18% of total loans at December 31, 2024.
QNB held no OREO at December 31, 2025 or 2024. There were no repossessed assets as of December 31, 2025 or 2024.
- 40 -
Non-Performing Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||||
Loans past due 90 days or more and accruing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Construction and land development |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by multi-family properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by owner-occupied properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by other commercial properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Student loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other consumer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total loans past due 90 days or more and accruing |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-accrual loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
|
539 |
|
|
|
27 |
|
|
|
311 |
|
|
|
1,575 |
|
|
|
3,369 |
|
Construction and land development |
|
|
6,296 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by multi-family properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by owner-occupied properties |
|
|
134 |
|
|
|
157 |
|
|
|
175 |
|
|
|
866 |
|
|
|
1,000 |
|
Real estate secured by other commercial properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,165 |
|
|
|
1,279 |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
76 |
|
|
|
93 |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
317 |
|
|
|
205 |
|
|
|
— |
|
|
|
13 |
|
|
|
30 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
239 |
|
|
|
330 |
|
|
|
165 |
|
|
|
276 |
|
|
|
361 |
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
815 |
|
|
|
768 |
|
|
|
805 |
|
|
|
461 |
|
|
|
721 |
|
Construction-individual |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
305 |
|
|
|
313 |
|
|
|
295 |
|
|
|
188 |
|
|
|
375 |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
113 |
|
|
|
118 |
|
|
|
116 |
|
|
|
138 |
|
|
|
159 |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
15 |
|
|
|
17 |
|
|
|
19 |
|
|
|
— |
|
|
|
53 |
|
Student loans |
|
|
— |
|
|
|
11 |
|
|
|
17 |
|
|
|
17 |
|
|
|
37 |
|
Other consumer |
|
|
20 |
|
|
|
29 |
|
|
|
37 |
|
|
|
45 |
|
|
|
53 |
|
Total non-accrual loans |
|
|
8,793 |
|
|
|
1,975 |
|
|
|
1,940 |
|
|
|
4,820 |
|
|
|
7,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Troubled debt restructured loans, not included above |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
|
4,301 |
|
|
|
4,142 |
|
|||
Total non-performing assets |
|
$ |
8,793 |
|
|
$ |
1,975 |
|
|
$ |
1,940 |
|
|
$ |
9,121 |
|
|
$ |
11,672 |
|
Total non-performing assets as a percent of total |
|
|
0.46 |
% |
|
|
0.11 |
% |
|
|
0.11 |
% |
|
|
0.55 |
% |
|
|
0.70 |
% |
Nonaccrual loans to total loans |
|
|
0.70 |
|
|
|
0.16 |
|
|
|
0.18 |
|
|
|
0.88 |
|
|
|
1.26 |
|
Additional loan quality information can be found in Note 5 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Management’s view is that loans classified as substandard or doubtful that are not included in the past due, non-accrual or restructured categories are potential problem loans. For some of these loans, management may have knowledge of possible credit problems that will cause management to question the ability of the borrowers to comply with the present loan repayment terms. Commercial loans classified as substandard or doubtful, which includes non-performing loans, continue to show improvement. At December 31, 2025, commercial substandard or doubtful loans totaled $39,217,000, an increase of $4,916,000 from the $34,301,000,
- 41 -
reported as of December 31, 2024. The increase was primarily due to one commercial customer with balance of $10,100,000 downgraded from a pass category; partly offset my payments; most of these loans are secured by real estate.
Allowance for Credit Losses on Loans
QNB adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), as amended ("ASU 326"), which replaces the incurred loss methodology with expected credit loss (“CECL”), using the modified retrospective method. QNB recorded a reduction in its allowance for credit losses on loans of $1,089,000 as of January 1, 2023 for the cumulative effect of adopting ASU 326. Since the implementation of ASU 326 on January 1, 2023, the Company may make loan modifications to borrowers experiencing financial difficulty ("FDM"). A FDM could involve principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or exchanging or paying off existing debt for new debt with the Company. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
The allowance for credit losses on loans ("ACL") represents management’s best estimate of expected credit losses in the existing loan portfolio, based on historical experience, current conditions and reasonable and supportable forecasts. Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing allowance for credit losses on loans in accordance with U.S. generally accepted accounting principles (“US GAAP”). Since the ACL is dependent on conditions that may be beyond QNB’s control, it is at least reasonably possible that management’s estimates of the ACL and actual results could differ. In addition, various regulatory agencies, as an integral part of their examination process, periodically review QNB’s ACL. Such agencies may require QNB to recognize changes to the ACL based on their judgments about information available to them at the time of their examination. Actual credit losses on loans, net of recoveries, serve to reduce the allowance.
Management closely monitors the quality of its loan portfolio and performs a quarterly analysis of the appropriateness of the ACL. This analysis considers a number of relevant factors including specific impairment reserves, historical loan loss experience, general economic conditions, levels of and trends in delinquent and non-performing loans, levels of classified loans, trends in the growth rate of loans, and concentrations of credit.
Asset and credit quality remained strong in QNB's market area in 2025. The ACL level stated as a percentage of loans receivable increased from 0.72% at December 31, 2024 to 0.73% at December 31, 2025. The ACL on loans increased to $9,215,000 at year-end 2025 from $8,744,000 at year-end 2024.
- 42 -
Allowance for Credit Losses on Loans Allocation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, |
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
||||||||||||||||||||||||
|
Amount |
|
|
Percent |
|
|
Amount |
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
||||||||||
Balance at end of period applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Commercial and industrial |
$ |
631 |
|
|
|
11.0 |
% |
|
$ |
829 |
|
|
12.6 |
% |
|
$ |
823 |
|
|
|
12.5 |
% |
|
$ |
1,316 |
|
|
|
15.5 |
% |
|
$ |
3,368 |
|
|
|
16.0 |
% |
Construction and land development |
|
793 |
|
|
|
7.5 |
|
|
|
1,336 |
|
|
10.6 |
|
|
|
1,252 |
|
|
|
10.6 |
|
|
|
755 |
|
|
|
6.1 |
|
|
|
363 |
|
|
|
6.0 |
|
Real estate secured by multi-family properties |
|
2,344 |
|
|
|
12.1 |
|
|
|
2,012 |
|
|
11.3 |
|
|
|
1,735 |
|
|
|
10.0 |
|
|
|
995 |
|
|
|
9.6 |
|
|
|
746 |
|
|
|
7.5 |
|
Real estate secured by owner-occupied properties |
|
716 |
|
|
|
12.8 |
|
|
|
853 |
|
|
13.5 |
|
|
|
1,001 |
|
|
|
14.7 |
|
|
|
1,549 |
|
|
|
15.2 |
|
|
|
1,460 |
|
|
|
15.9 |
|
Real estate secured by other commercial properties |
|
2,414 |
|
|
|
28.9 |
|
|
|
1,142 |
|
|
25.8 |
|
|
|
1,167 |
|
|
|
24.2 |
|
|
|
2,458 |
|
|
|
25.0 |
|
|
|
2,074 |
|
|
|
25.3 |
|
Revolving real estate secured by 1-4 family properties-business |
|
29 |
|
|
|
0.6 |
|
|
|
24 |
|
|
0.5 |
|
|
|
27 |
|
|
|
0.5 |
|
|
|
25 |
|
|
|
0.5 |
|
|
|
25 |
|
|
|
0.6 |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
1,365 |
|
|
|
9.1 |
|
|
|
1,238 |
|
|
8.7 |
|
|
|
1,507 |
|
|
|
9.5 |
|
|
|
1,210 |
|
|
|
9.6 |
|
|
|
649 |
|
|
|
8.8 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
11 |
|
|
|
0.4 |
|
|
|
339 |
|
|
0.3 |
|
|
|
14 |
|
|
|
0.3 |
|
|
|
30 |
|
|
|
0.3 |
|
|
|
386 |
|
|
|
0.4 |
|
State and political subdivisions |
|
25 |
|
|
|
1.6 |
|
|
|
34 |
|
|
1.4 |
|
|
|
55 |
|
|
|
1.7 |
|
|
|
94 |
|
|
|
2.0 |
|
|
|
69 |
|
|
|
2.1 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
1-4 family residential mortgages |
|
248 |
|
|
|
9.5 |
|
|
|
323 |
|
|
9.4 |
|
|
|
427 |
|
|
|
10.0 |
|
|
|
682 |
|
|
|
10.2 |
|
|
|
625 |
|
|
|
10.5 |
|
Construction-individual |
|
3 |
|
|
|
0.2 |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
Revolving home equity secured by 1-4 family properties-personal |
|
138 |
|
|
|
4.5 |
|
|
|
143 |
|
|
4.0 |
|
|
|
138 |
|
|
|
3.1 |
|
|
|
299 |
|
|
|
3.5 |
|
|
|
255 |
|
|
|
3.6 |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
28 |
|
|
|
0.6 |
|
|
|
31 |
|
|
0.5 |
|
|
|
182 |
|
|
|
1.1 |
|
|
|
57 |
|
|
|
1.0 |
|
|
|
44 |
|
|
|
1.2 |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
58 |
|
|
|
1.0 |
|
|
|
77 |
|
|
1.2 |
|
|
|
105 |
|
|
|
1.4 |
|
|
|
55 |
|
|
|
1.1 |
|
|
|
52 |
|
|
|
1.3 |
|
Student loans |
|
226 |
|
|
|
0.1 |
|
|
|
310 |
|
|
0.1 |
|
|
|
369 |
|
|
|
0.2 |
|
|
|
454 |
|
|
|
0.2 |
|
|
|
303 |
|
|
|
0.3 |
|
Overdrafts |
|
21 |
|
|
|
— |
|
|
|
18 |
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
Other consumer |
|
165 |
|
|
|
0.1 |
|
|
|
35 |
|
|
0.1 |
|
|
|
34 |
|
|
|
0.2 |
|
|
|
41 |
|
|
|
0.2 |
|
|
|
234 |
|
|
|
0.2 |
|
Unallocated |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
|
502 |
|
|
|
|
|
|
505 |
|
|
|
|
|||||
Total |
$ |
9,215 |
|
|
|
100.0 |
% |
|
$ |
8,744 |
|
|
100.0 |
% |
|
$ |
8,852 |
|
|
|
100.0 |
% |
|
$ |
10,530 |
|
|
|
100.0 |
% |
|
$ |
11,163 |
|
|
|
100.0 |
% |
Gross loans represent loans before unamortized net loan fees and costs. Percent gross loans lists the percentage of each loan type to total loans.
A loan is considered impaired, 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 impairment 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 may not be classified as impaired. 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. Impairment is measured on a loan-by-loan basis for commercial 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. Upon the adoption of CECL, performing troubled debt restructured loans are no longer considered impaired. At December 31, 2025 and 2024, the recorded investment in collateral dependent loans totaled $8,793,000 and $1,964,000, respectively, of which $1,704,000 and $1,618,000, respectively, required no specific ACL. The recorded investment in collateral dependent loans requiring a specific ACL was $7,089,000 and $357,000 at December 31, 2025 and 2024, respectively. At December 31, 2024 and 2023, the related ACL associated with these loans was $1,649,000 and $357,000, respectively. See Note 5 to the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional detail of impaired loans.
- 43 -
Allowance for Credit Losses on Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|||||
Allowance for credit losses on loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, January 1 |
|
$ |
8,744 |
|
|
$ |
8,852 |
|
|
$ |
10,531 |
|
|
$ |
11,184 |
|
|
$ |
10,826 |
|
Impact of adopting ASC 326 |
|
|
|
|
|
|
|
|
(1,089 |
) |
|
|
|
|
|
|
||||
As reported under ASC 326 |
|
|
|
|
|
|
|
|
9,442 |
|
|
|
|
|
|
|
||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
|
— |
|
|
|
23 |
|
|
|
313 |
|
|
|
38 |
|
|
|
— |
|
Construction and land development |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by multi-family properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by owner-occupied properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by other commercial properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Student loans |
|
|
— |
|
|
|
52 |
|
|
|
57 |
|
|
|
— |
|
|
|
98 |
|
Overdrafts |
|
|
92 |
|
|
|
101 |
|
|
|
91 |
|
|
|
— |
|
|
|
69 |
|
Other consumer |
|
|
18 |
|
|
|
23 |
|
|
|
14 |
|
|
|
158 |
|
|
|
9 |
|
Total charge-offs |
|
|
110 |
|
|
|
199 |
|
|
|
475 |
|
|
|
196 |
|
|
|
263 |
|
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
|
29 |
|
|
|
52 |
|
|
|
661 |
|
|
|
306 |
|
|
|
92 |
|
Construction and land development |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by multi-family properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by owner-occupied properties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by other commercial properties |
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving real estate secured by 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
- |
|
|
|
21 |
|
Real estate secured by junior lien on 1-4 family properties-business |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45 |
|
|
|
— |
|
State and political subdivisions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
7 |
|
Student loans |
|
|
22 |
|
|
|
30 |
|
|
|
8 |
|
|
|
— |
|
|
|
5 |
|
Overdrafts |
|
|
18 |
|
|
|
34 |
|
|
|
26 |
|
|
|
6 |
|
|
|
36 |
|
Other consumer |
|
|
5 |
|
|
|
10 |
|
|
|
2 |
|
|
|
36 |
|
|
|
2 |
|
Total recoveries |
|
|
121 |
|
|
|
140 |
|
|
|
713 |
|
|
|
393 |
|
|
|
163 |
|
Net (charge-offs) recoveries |
|
|
11 |
|
|
|
(59 |
) |
|
|
238 |
|
|
|
197 |
|
|
|
(100 |
) |
(Reversal) provision for credit losses on loans |
|
|
460 |
|
|
|
(49 |
) |
|
|
(828 |
) |
|
|
(850 |
) |
|
|
458 |
|
Balance, December 31 |
|
$ |
9,215 |
|
|
$ |
8,744 |
|
|
$ |
8,852 |
|
|
$ |
10,531 |
|
|
$ |
11,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total loans (excluding loans held-for-sale) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Average |
|
$ |
1,225,178 |
|
|
$ |
1,150,489 |
|
|
$ |
1,040,121 |
|
|
$ |
967,438 |
|
|
$ |
928,017 |
|
Year-end |
|
|
1,262,074 |
|
|
|
1,216,048 |
|
|
|
1,093,533 |
|
|
|
1,039,385 |
|
|
|
926,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net charge-offs (recoveries) to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Average loans |
|
|
0.00 |
% |
|
|
0.01 |
% |
|
|
-0.02 |
% |
|
|
-0.02 |
% |
|
|
0.01 |
% |
Loans at year-end |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
-0.02 |
|
|
|
-0.02 |
|
|
|
0.01 |
|
Allowance for credit losses on loans |
|
|
-0.12 |
|
|
|
0.67 |
|
|
|
-2.69 |
|
|
|
-1.87 |
|
|
|
0.89 |
|
(Reversal) provision for credit losses on loan |
|
|
-2.39 |
|
|
|
-120.41 |
|
|
|
28.74 |
|
|
|
23.18 |
|
|
|
21.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Allowance for credit losses on loan to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Average loans (excluding loans held-for-sale) |
|
|
0.75 |
% |
|
|
0.76 |
% |
|
|
0.85 |
% |
|
|
1.09 |
% |
|
|
1.21 |
% |
Loans receivable at year-end |
|
|
0.73 |
|
|
|
0.72 |
|
|
|
0.81 |
|
|
|
1.01 |
|
|
|
1.21 |
|
Nonaccrual loans |
|
|
104.80 |
|
|
|
442.73 |
|
|
|
456.29 |
|
|
|
218.49 |
|
|
|
148.53 |
|
QNB had net loan recoveries of $11,000, or 0.00% of average loans for 2025 compared to net charge-offs of $59,000, or 0.01% of average loans for 2024 and net recoveries of $238,000, or 0.02% of average loans for 2023. The majority of charge-offs recorded during these periods had specific reserves established during the allowance for credit losses on loans calculation process prior to the decision to charge-off the loan.
- 44 -
Management believes the ACL of $9,215,000 is adequate as of December 31, 2025, in relation to the estimate of known and inherent losses in the portfolio.
Premises and equipment
Premises and equipment include a right-of-use asset of $2,087,000 and $2,618,000 at December 31, 2025 and December 31, 2024 respectively. The discount rates used in determining the initial value of the right of use assets are based on the FHLB Amortizing Fixed Loan Rate for the term of each lease. QNB typically enters into lease agreements with an initial term of 5 to 10 years and subsequent additional optional terms in increments of 5 years. The lease agreements also contain termination options. None of the leases contain purchase options and none transfer the ownership of the leased asset. QNB has renewed two operating leases during 2024; there were no renewals in 2025. Operating lease liabilities are included with “Other liabilities” on the Consolidated Balance Sheets. All operating lease costs are included in non-interest expense within “Net occupancy” on the Consolidated Statements of Income. Other premises and equipment, net of depreciation increased $162,000 to $14,799,000 at December 31, 2025; this was primarily due to renovations to currently owned properties.
Other assets
Other assets decreased $6,951,000 from $26,061,000 at December 31, 2024 to $19,110,000 at December 31, 2025. Most of the decrease in other assets relates to a decrease to the deferred tax asset resulting from the fair value adjustment on interest rate swaps and the fair value of investment securities available-for-sale. The detail of the net deferred tax asset can be found in Note 12 in the Notes to Consolidated Financial Statements.
LIABILITIES
The following table presents total liabilities at the dates indicated:
|
|
|
|
|
|
|
|
Change from prior year |
|
|||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
Percent |
|
||||
Deposits |
|
$ |
1,642,511 |
|
|
$ |
1,628,541 |
|
|
$ |
13,970 |
|
|
|
0.9 |
% |
Short-term borrowings |
|
|
80,601 |
|
|
|
53,844 |
|
|
|
26,757 |
|
|
|
49.7 |
|
Long-term debt |
|
|
— |
|
|
|
30,000 |
|
|
|
(30,000 |
) |
|
|
-100.0 |
|
Subordinated debt |
|
|
39,268 |
|
|
|
39,068 |
|
|
|
200 |
|
|
N/M |
|
|
Accrued interest payable |
|
|
5,050 |
|
|
|
7,580 |
|
|
|
(2,530 |
) |
|
|
-33.4 |
|
Other liabilities |
|
|
9,012 |
|
|
|
8,512 |
|
|
|
500 |
|
|
|
5.9 |
|
Total liabilities |
|
$ |
1,776,442 |
|
|
$ |
1,767,545 |
|
|
$ |
8,897 |
|
|
|
0.5 |
% |
Deposits
QNB primarily attracts deposits from within its market area by offering various deposit products. These deposits are in the form of time deposits, which include certificates of deposit and individual retirement accounts (“IRAs”) which have a stated maturity, and non-maturity deposit accounts, which include non-interest-bearing demand accounts, interest-bearing demand accounts, money market accounts and savings accounts.
Total deposits increased $13,970,000, or 0.9%, to $1,642,511,000 at December 31, 2025. The mix of deposits continues to be impacted by customers’ reactions to the competition, regulations and the interest rate environment. Many customers are looking for transaction accounts that provide liquidity and pay a reasonable amount of interest, while others look for high rate. Time deposit balances decreased $5,661,000, or 1.5% between 2024 and 2025, as customers took advantage of a higher rate environment's impact on pricing of transaction account.. Customers appear to be looking for the safety of FDIC insured deposits and the stability of a strong local community bank.
Non-interest-bearing demand accounts increased $6,458,000 to $189,957,000 at December 31, 2025. These deposits are both retail and commercial checking accounts and are volatile depending on the timing of deposits and withdrawals. QNB has been successful in attracting new customers and expanding relationships with existing customers, which provides an opportunity for fee income.
- 45 -
Interest-bearing demand accounts, retail and business interest-checking and municipal accounts, decreased $2,992,000, or 0.6%, to $534,854,000 at December 31, 2025. QNB has been successful in maintaining relationships with several school districts and municipalities as well as expanding existing relationships, the balances in these accounts are seasonal in nature and can be volatile on a daily basis. Most of the school district taxes are collected during the third quarter of the year and are disbursed over a nine-month period. Municipal accounts balances decreased $16,664,000, or 10.8% at December 31, 2025 over 2024. Business accounts increased from $144,540,000 at December 31, 2024 to $147,491,000, or 2.0%, at December 31, 2025. Retail checking accounts increased $10,721,000 to $249,778,000 at December 31, 2025. QNB continues to open a significant number of new checking accounts; additionally, customers may choose to switch products.
Money Market accounts increased $10,449,000 from $250,293,000 at December 31, 2024 to $260,742,000 at December 31, 2025. Money market products offering higher yields to retain large depositors and reduce the reliance on higher-cost short-term borrowings were offered to both retail and business customers. Personal money market accounts increased $9,281,000 to $113,906,000 at December 31, 2025. Business money market accounts increased $1,168,000, to $146,836,000 at December 31, 2025.
Total savings account balances increased $5,716,000, or 2.1%, to $281,161,000 at December 31, 2025. This increase is due primarily to an increase of $5,686,000, or 2.8%, in the online eSavings accounts over December 31, 2024.
Total time deposit account balances were $375,797,000 at December 31, 2025, a decrease of $5,661,000, or 1.5%, from the amount reported at December 31, 2024. QNB was able to retain many maturing deposits during 2025 by offering competitive rates and many current customers moved balances to more liquid accounts.
Maturity of Time Deposits of $250,000 or More |
|
|
|
|
|
|
|
|
|
|||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Three months or less |
|
$ |
33,002 |
|
|
$ |
27,110 |
|
|
$ |
11,852 |
|
Over three months through six months |
|
|
19,668 |
|
|
|
8,568 |
|
|
|
9,629 |
|
Over six months through twelve months |
|
|
4,930 |
|
|
|
8,368 |
|
|
|
13,197 |
|
Over twelve months |
|
|
1,437 |
|
|
|
2,635 |
|
|
|
8,659 |
|
Total |
|
$ |
59,037 |
|
|
$ |
46,681 |
|
|
$ |
43,337 |
|
To continue to attract and retain deposits, QNB plans to remain competitive with respect to rates and to continue to deliver products with terms and features that appeal to customers. The QNB Rewards checking, high yield money market accounts and time deposits are examples of such products.
The following table presents trends in balances and yield on the major deposit groups.
Average Deposits by Major Classification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
|
Balance |
|
|
Rate |
|
||||||
Demand, non-interest bearing |
|
$ |
194,892 |
|
|
|
|
|
$ |
188,525 |
|
|
|
|
|
$ |
208,777 |
|
|
|
|
|||
Interest-bearing demand |
|
|
381,199 |
|
|
|
0.97 |
% |
|
|
346,590 |
|
|
|
0.93 |
% |
|
|
315,990 |
|
|
|
0.60 |
% |
Municipals interest-bearing demand |
|
|
159,245 |
|
|
|
3.76 |
|
|
|
146,446 |
|
|
|
4.64 |
|
|
|
131,610 |
|
|
|
4.46 |
|
Money market |
|
|
259,201 |
|
|
|
2.82 |
|
|
|
237,071 |
|
|
|
3.45 |
|
|
|
183,004 |
|
|
|
2.64 |
|
Savings |
|
|
279,212 |
|
|
|
1.29 |
|
|
|
285,011 |
|
|
|
1.28 |
|
|
|
348,878 |
|
|
|
1.20 |
|
Time less than $100 |
|
|
176,438 |
|
|
|
3.57 |
|
|
|
170,998 |
|
|
|
3.98 |
|
|
|
121,622 |
|
|
|
2.63 |
|
Time $100 through $250 |
|
|
154,087 |
|
|
|
3.95 |
|
|
|
145,022 |
|
|
|
4.53 |
|
|
|
107,560 |
|
|
|
3.59 |
|
Time greater than $250 |
|
|
53,694 |
|
|
|
4.01 |
|
|
|
49,831 |
|
|
|
4.51 |
|
|
|
38,076 |
|
|
|
3.08 |
|
Total |
|
$ |
1,657,968 |
|
|
|
2.40 |
% |
|
$ |
1,569,494 |
|
|
|
2.71 |
% |
|
$ |
1,455,517 |
|
|
|
2.01 |
% |
Short-term borrowings
Short-term borrowings comprising commercial sweep accounts, overnight and short-term FHLB borrowings and short-term FRB borrowings, increased $26,757,000, or 49.7%, to $80,601,000 at December 31, 2025. Commercial sweep accounts decreased $4,035,000 from $18,636,000 at December 31, 2024 to $14,601,000 at December 31, 2025. There were $11,000,000 in overnight FHLB borrowings and $55,000,000 in short-term FHLB borrowings outstanding at December 31, 2025 compared to $25,208,000 in overnight FHLB borrowings and $10,000,000 in short-term FHLB borrowings outstanding at December 31, 2024. The FHLB borrowings were used to support loan growth.
- 46 -
Long-term debt
Long-term debt is comprised of $30,000,0000 in FHLB borrowings at December 31, 2024, these borrowings matured in 2025; there were no long-term borrowings at December 31, 2025.
Subordinated debt
On August 30, 2024, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and accredited investors (collectively, the "Subordinated Note Purchasers") pursuant to which the Company issued and sold $40.0 million in aggregate principal amount of its 8.875% Fixed-to-Floating Rate Subordinated Notes due 2034 (the "Subordinated Notes"). The Subordinated Notes mature on September 1, 2034 and bear interest at a fixed annual rate of 8.875%, payable semi-annually in arrears, to but excluding September 1, 2029. From and including September 1, 2029 to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum initially equal to the then-current three-month Secured Overnight Financing Rate published by the Federal Reserve Bank of New York plus 545 basis points, payable quarterly in arrears. The Company is entitled to redeem the Subordinated Notes, in whole or in part, at any time on or after September 1, 2029, and to redeem the Subordinated Notes at any time in whole upon certain other events. Any redemption of the Subordinated Notes will be subject to prior regulatory approval to the extent required. The carrying cost of the Subordinated Notes on the balance sheet represents the outstanding balance of the notes of $40,000,000 net of unamortized origination costs of $732,000 which are amortized to interest expense through September 1, 2029.
Other liabilities
Other liabilities comprise accrued expenses including salaries, post-retirement life insurance benefits and income taxes, operating lease liability, deferred revenue, and ATM/debit card processing clearing. These balances increased $500,000, to $9,012,000 at December 31, 2025.
SHAREHOLDERS’ EQUITY
The following table presents total shareholders’ equity at the dates indicated:
|
|
|
|
|
|
|
|
Change from prior year |
|
|||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
Percent |
|
||||
Common stock |
|
$ |
2,467 |
|
|
$ |
2,441 |
|
|
$ |
26 |
|
|
|
1.1 |
% |
Surplus |
|
|
29,206 |
|
|
|
27,633 |
|
|
|
1,573 |
|
|
|
5.7 |
|
Retained earnings |
|
|
148,397 |
|
|
|
139,958 |
|
|
|
8,439 |
|
|
|
6.0 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(46,470 |
) |
|
|
(62,646 |
) |
|
|
16,176 |
|
|
|
-25.8 |
|
Treasury stock |
|
|
(4,037 |
) |
|
|
(4,037 |
) |
|
|
— |
|
|
|
— |
|
Total shareholders' equity |
|
$ |
129,563 |
|
|
$ |
103,349 |
|
|
$ |
26,214 |
|
|
|
25.4 |
% |
Total shareholders’ equity increased $26,214,000, or 25.4%, to $129,563,000 at December 31, 2025 with an improvement in the negative impact of the market value of available-for-sale securities, net of tax, adjustment contributing $21,294,000 and a reduction in the market value on the fair value hedge, net of tax, of $5,118,000. Retained earnings increased $8,439,000 due to net income of $14,090,000, partly offset by dividends declared of $5,651,000. The dividend reinvestment and stock purchase plan, employee stock purchase plan, employee stock incentive plan and the non-employee compensation plan contributed $1,599,000.
Accumulated other comprehensive loss improved from a loss of $62,646,000 to a loss of $46,470,000, resulting from the fair value of the available-for-sale investment portfolio primarily due to an improvement in market values and the impact of the market value on the fair value hedge, net of tax.
QNB offers a Dividend Reinvestment and Stock Purchase Plan (the “Plan”) to provide participants a convenient and economical method for investing cash dividends paid on the Company’s common stock in additional shares. The Plan also allows participants to make additional cash purchases of stock. Stock purchases under the Plan contributed $838,000 and $873,000 to capital during 2025 and 2024, respectively.
- 47 -
The Board of Directors has authorized the repurchase of up to 200,000 shares of QNB’s common stock in open market or privately negotiated transactions. The repurchase authorization does not bear a termination date. As of December 31, 2024, a total of 102,000 shares were repurchased under this authorization at an average price of $24.93 and a total cost of $2,543,000.
Liquidity and Capital Resources
Liquidity Management
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.
An additional source of liquidity is provided by the Bank’s membership in the FHLB. At December 31, 2025, the Bank’s total maximum borrowing capacity at the FHLB was $484,377,000 of which $418,037,000 remained available. The Bank had $66,000,000 in overnight and short-term borrowings at year-end 2025, related interest payable of $323,000 and other commitments of $17,000. The maximum borrowing capacity changes depending upon the Bank’s level of qualifying collateral assets. In addition, the Bank maintains unsecured Federal funds lines with four correspondent banks totaling $86,000,000. At December 31, 2025 and 2024, 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. As part of its contingency funding plan, QNB successfully tested its ability to borrow from these sources during 2025.
Total cash and cash equivalents, equity and available-for-sale securities and loans held-for-sale totaled $593,373,000 at December 31, 2025 and $597,936,000 at December 31, 2024, of which $234,159,000 and $241,586,000, respectively, were pledged as collateral for repurchase agreements and public deposits. This decrease in liquid sources is primarily the result of maturities of available-for-sale securities. Management anticipates that these liquid sources are adequate to meet normal fluctuations in loan demand or deposit withdrawals. It is anticipated that the investment portfolio will continue to provide sufficient liquidity as municipal bonds are called and as principal and interest payments on mortgage-backed and CMO securities provide steady cash flow. Increases in interest rates, however, result in decreased cash flow available from the investment portfolio.
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. At December 31, 2025 approximately 18% of QNB deposits were uninsured or not collateralized, CDARS 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. QNB had $14,879,000 in CDARS time deposits at December 31, 2025 compared to $14,749,000 at December 31, 2024.
Capital Resources
A strong capital position is fundamental to support continued growth and profitability and to serve the needs of depositors. QNB’s shareholders’ equity at December 31, 2025 was $129,563,000, or 6.80% of total assets, compared with shareholders’ equity of $103,349,000, or 5.52% of total assets, at December 31, 2024. Shareholders’ equity at December 31, 2025 included a negative $45,142,000 related to unrealized holding losses, net of taxes, on investment securities available for sale and a negative $1,328,000, net of taxes, related to unrealized holding gains on fair value hedges, compared to a negative $66,436,000 related to unrealized holding losses, net of taxes, on investment securities available for sale and a positive $3,790,000, net of taxes, related to unrealized holding losses on fair value hedges at December 31, 2024. Excluding these adjustments, shareholders’ equity to total assets would have been 9.02% and 8.59% at December 31, 2025 and 2024, respectively.
Average shareholders’ equity and average total assets were $114,782,000 and $1,891,737,000 for 2025, an increase of 6.8% and 18.1%, respectively, from 2024 average equity and average total assets of $97,217,000 and $1,770,563,000, respectively. The ratio of average total equity to total average assets was 6.07% for 2025, compared with 5.49% for 2024.
QNB is subject to restrictions on the payment of dividends to its shareholders pursuant to the Pennsylvania Business Corporation Law of 1988 as amended (the BCL). The BCL operates generally to preclude dividend payments, if the effect thereof would render QNB insolvent, as defined. As a practical matter, QNB’s payment of dividends is contingent upon its ability to obtain funding in the form of dividends from the Bank. Under Pennsylvania banking law, the Bank is subject to certain restrictions on the amount of dividends that it
- 48 -
may declare without prior regulatory approval. At December 31, 2025, the retained earnings of the Bank totaling $153,739,000 was available for dividends without prior Pennsylvania Department of Banking approval, subject to the regulatory capital requirements discussed below. Under the Federal Deposit Insurance Act, an insured depository institution may not pay a dividend if, after the payment of the dividend, the institution would be undercapitalized under the FDIC’s prompt corrective action rules. In addition, Federal banking agencies have the authority to restrict dividend payments under certain circumstances if such payments are not consistent with the capital needs and financial condition of the institution. It is the policy of the Federal Reserve that a bank holding company generally should not maintain its existing rate of cash dividends on common stock unless the net income available to common shareholders over the prior four quarters, net of dividends previously paid during that period, has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the company’s capital needs, asset quality, and overall financial condition. QNB paid dividends to its shareholders of $1.52 per share, $1.48 per share, and $1.44 per share, in 2025, 2024, and 2023, respectively.
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. 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. QNB is subject to various regulatory capital requirements as issued by Federal regulatory authorities.
Minimum requirements for both the quantity and quality of capital held by banks are as follows: Common equity Tier 1 capital to risk-weighted assets of 4.5%; Tier 1 capital to risk-weighted assets of 6.0%; Total Capital to risk-weighted assets of 8.0%; and Tier 1 leverage ratio of 4.0%. The capital conservation buffer, comprised of common equity Tier 1 capital, was established above the regulatory minimum capital requirements at 2.5%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 established five capital level designations for insured institutions ranging from “well capitalized” to “critically undercapitalized.” At December 31, 2025 and 2024, management believes that the Company and the Bank met all capital adequacy requirements to which they are subject and have met the “well capitalized” criteria.
Capital Analysis |
|
|||||||
December 31, |
|
2025 |
|
|
2024 |
|
||
Regulatory Capital |
|
|
|
|
|
|
||
Shareholders' equity |
|
$ |
129,563 |
|
|
$ |
103,349 |
|
Net unrealized securities losses, net of tax |
|
|
46,470 |
|
|
|
62,646 |
|
Deferred tax assets on net operating loss |
|
|
— |
|
|
|
— |
|
Disallowed goodwill and other disallowed intangible assets |
|
|
— |
|
|
|
- |
|
Common equity tier I capital |
|
|
176,033 |
|
|
|
165,995 |
|
|
|
|
|
|
|
|
||
Tier 1 capital |
|
|
176,033 |
|
|
|
165,995 |
|
Allowable portion: |
|
|
|
|
|
|
||
Subordinated debt |
|
|
40,000 |
|
|
|
40,000 |
|
Allowance for credit losses on loans and unfunded commitments |
|
|
9,291 |
|
|
|
8,831 |
|
Total regulatory capital |
|
$ |
225,324 |
|
|
$ |
214,826 |
|
Risk-weighted assets |
|
$ |
1,420,934 |
|
|
$ |
1,381,002 |
|
Quarterly average assets for leverage capital purposes |
|
$ |
1,951,115 |
|
|
$ |
1,908,914 |
|
Capital Ratios |
|
|||||||
December 31, |
|
2025 |
|
|
2024 |
|
||
Common equity tier I capital / risk-weighted assets |
|
|
12.39 |
% |
|
|
12.02 |
% |
Tier 1 capital / risk-weighted assets |
|
|
12.39 |
% |
|
|
12.02 |
% |
Total regulatory capital / risk-weighted assets |
|
|
15.86 |
% |
|
|
15.56 |
% |
Tier 1 capital / average assets (leverage ratio) |
|
|
9.02 |
% |
|
|
8.70 |
% |
Material Cash Requirements from Known Contractual and Other Obligations
QNB has various financial obligations, including contractual obligations and commitments, which may require future cash payments.
The following table presents, as of December 31, 2025, significant contractual obligations to third parties by payment date and the amounts and expected maturities of significant commitments. Further discussion of the nature of each obligation can be found in the
- 49 -
Notes to Consolidated Financial Statements. The Company’s reserve for credit losses on unfunded commitments totaled $76,000 at December 31, 2025 compared to $87,000 at December 31, 2024.
December 31, 2025 |
|
One year |
|
|
After one |
|
|
After three |
|
|
After |
|
|
Total |
|
|||||
Time deposits |
|
$ |
360,511 |
|
|
$ |
13,031 |
|
|
$ |
2,255 |
|
|
$ |
— |
|
|
$ |
375,797 |
|
Short-term borrowings |
|
|
80,601 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
80,601 |
|
Subordinated debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39,268 |
|
|
|
39,268 |
|
Operating leases |
|
|
504 |
|
|
|
782 |
|
|
|
463 |
|
|
|
1,736 |
|
|
|
3,485 |
|
Commitments to extend credit (a) |
|
|
252,190 |
|
|
|
75,819 |
|
|
|
12,809 |
|
|
|
60,255 |
|
|
|
401,073 |
|
Standby letters of credit |
|
|
16,013 |
|
|
|
3,509 |
|
|
|
— |
|
|
|
— |
|
|
|
19,522 |
|
Total |
|
$ |
709,819 |
|
|
$ |
93,141 |
|
|
$ |
15,527 |
|
|
$ |
101,259 |
|
|
$ |
919,746 |
|
Commitments to extend credit, including loan commitments, standby letters of credit, and commercial letters of credit do not necessarily represent future cash requirements, as these commitments often expire without being drawn upon. The Company does not currently have any commitments for significant capital expenditures or other purchase obligations.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 1 of the Notes to Consolidated Financial Statements for discussion of recently issued accounting standards.
CRITICAL ACCOUNTING ESTIMATES
Disclosure of the Company’s significant accounting policies is included in Note 1 to Consolidated Financial Statements. Additional information is contained in Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements for the most sensitive of these issues. The discussion and analysis of the financial condition and results of operations are based on the Consolidated Financial Statements of QNB, which are prepared in accordance with US GAAP and predominant practices within the banking industry. The preparation of these Consolidated Financial Statements requires QNB to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. QNB evaluates estimates on an on-going basis, including those related to the determination of the allowance for credit losses on investments, loans and unused commitments, the determination of the valuation of other real estate owned, the determination of impairment of securities and restricted stock, the valuation of deferred tax assets, stock-based compensation and income taxes. QNB bases its estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Impairment on Securities and Restricted Stock
Securities are evaluated periodically to determine whether a decline in their value is impairment. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is impairment. The term “impairment” is not intended to indicate that the decline is permanent but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.
The Company follows the accounting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326-30 as it relates to the recognition and presentation of impairment. This accounting guidance specifies that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an impairment recorded in other comprehensive income for the non-credit portion of a previous impairment should be amortized prospectively over the remaining life of the security on the basis of future estimated cash flows of the security. For equity securities without a readily determinable market value, once a decline in value is determined to be an impairment, the value of the equity security is reduced to fair value and a corresponding charge to earnings is recognized.
- 50 -
Allowance for Credit Losses on Loans and Unused Commitments
The Company maintains an allowance for credit losses on loans and unused commitments, which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. The allowance for credit losses is calculated with the objective of maintaining a level believed by management to be sufficient to absorb probable known and inherent losses in the outstanding loan portfolio.
The allowance for credit losses is measured on a pool basis when similar risk characteristics exist. The Company establishes a general valuation allowance for performing loans, including non-accrual student loans. QNB calculates each pool's historical loss rate using a full economic cycle of loan balance and historical loss experienced. The general component is adjusted for qualitative factors including concentrations and economic forecast.
The level of the allowance is determined by assigning specific reserves to all non-accrual loans, except the homogeneous pool of student loans which are measured in the general reserve. An allowance on these non-accrual loans is established when the discounted cash flows (or collateral value) of the loan is lower than the carrying value of that loan. The portion of the allowance that is allocated to non-accrual loans is determined by estimating the inherent loss on each credit after giving consideration to the value of underlying collateral.
Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing allowance for credit losses in accordance with U.S. GAAP. If circumstances differ substantially from the assumptions used in making determinations, future adjustments to the allowance for credit losses may be necessary and results of operations could be affected. Because future events affecting borrowers and collateral cannot be predicted with certainty, increases to the allowance may be necessary should the quality of any loans deteriorate as a result of the factors discussed above.
Stock-Based Compensation
QNB sponsored stock-based compensation plans, administered by a Board committee, under which both qualified and non-qualified stock options may be granted periodically to certain employees. QNB accounts for all awards granted under stock-based compensation plans in accordance with ASC 718, Compensation – Stock Compensation. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. QNB estimates the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature.
Income Taxes
QNB accounts for income taxes under the asset/liability method in accordance with income tax accounting guidance, ASC 740 – Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when, in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond QNB’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
- 51 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk reflects the risk of economic loss resulting from changes in interest rates and market prices. QNB’s primary market risk exposure is interest rate risk and liquidity risk. QNB’s liquidity position was discussed in a prior section.
QNB’s largest source of revenue is net interest income, which is subject to changes in market interest rates. Interest rate risk management seeks to minimize the effect of interest rate changes on net interest margins and interest rate spreads and to provide growth in net interest income through periods of changing interest rates. QNB’s Asset/Liability and Investment Management Committee (“ALCO”) is responsible for managing interest rate risk and for evaluating the impact of changing interest rate conditions on net interest income.
QNB uses computer simulation analysis to measure the sensitivity of projected earnings to changes in interest rates. Simulation considers current balance sheet volumes and the scheduled repricing dates, instrument level optionality, and maturities of assets and liabilities. It incorporates assumptions for growth, changes in the mix of assets and liabilities, prepayments, and average rates earned and paid. Based on this information, management uses the model to project net interest income under multiple interest rate scenarios.
A balance sheet is considered asset sensitive when its assets (investment securities and loans) reprice faster than its interest-bearing liabilities (deposits and borrowings). An asset sensitive balance sheet will produce relatively higher net interest income when interest rates rise and less net interest income when they decline. A balance sheet is considered liability sensitive when its liabilities (deposits and borrowings) reprice faster or to a greater extent than its earning assets (loans and securities). A liability sensitive balance sheet will produce relatively less net interest income when interest rates rise and more net interest income when they decline. Based on our simulation analysis, management believes QNB’s interest sensitivity position at December 31, 2025 is relatively asset sensitive. Management expects market interest rates to decrease in the next 12 months, based on the economic environment and policy of the Federal Reserve.
The following table shows the estimated impact of changes in interest rates on net interest income as of December 31, 2025 and 2024 assuming instantaneous rate shocks, and consistent levels of assets and liabilities. Net interest income for the subsequent twelve months is projected to increase when interest rates are higher than current rates.
Estimated change in net interest income |
|
|||||||
Change in interest rates |
|
December 31, |
|
|||||
(basis points) |
|
2025 |
|
|
2024 |
|
||
+300 |
|
|
0.7 |
% |
|
|
-0.3 |
% |
+200 |
|
|
0.5 |
% |
|
|
0.0 |
% |
+100 |
|
|
0.3 |
% |
|
|
0.2 |
% |
-100 |
|
|
-0.3 |
% |
|
|
-0.7 |
% |
-200 |
|
|
-1.3 |
% |
|
|
-1.7 |
% |
-300 |
|
|
-4.4 |
% |
|
|
-3.8 |
% |
Computations of future effects of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as indicative of actual results. Assets and liabilities may react differently than projected to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag changes in market interest rates. Interest rate shifts may not be parallel.
Changes in interest rates can cause substantial changes in the amount of prepayments of loans and mortgage-backed securities, which may in turn affect QNB’s interest rate sensitivity position. Additionally, credit risk may rise if an interest rate increase adversely affects the ability of borrowers to service their debt. At December 31, 2025 and December 31, 2024, QNB had two derivatives designated as fair value hedging instruments, these interest rate swaps had a notional value of $276,364,000.
QNB is not subject to foreign currency exchange or commodity price risk.
- 52 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited financial statements are set forth in this Annual Report on Form 10-K on the following pages:
|
|
Report of Independent Registered Public Accounting Firm: Baker Tilly US, LLP (PCAOB ID |
Page 55 |
Consolidated Balance Sheets |
Page 57 |
Consolidated Statements of Income |
Page 58 |
Consolidated Statements of Comprehensive Income |
Page 59 |
Consolidated Statements of Shareholders’ Equity |
Page 60 |
Consolidated Statements of Cash Flows |
Page 61 |
Notes to Consolidated Financial Statements |
Page 62 |
- 53 -
Management’s Report on Internal Control over Financial Reporting
March 16, 2026
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, in relation to criteria for effective internal control over financial reporting as described in “Internal Control Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concludes that, as of December 31, 2025, the Company’s system of internal control over financial reporting is effective and meets the criteria of the “Internal Control Integrated Framework (2013).”
/s/ David W. Freeman |
|
/s/ Jeffrey Lehocky |
David W. Freeman |
|
Jeffrey Lehocky |
Chief Executive Officer |
|
Chief Financial Officer |
- 54 -
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of QNB Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QNB Corp. and subsidiary (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
Allowance for Credit Losses (ACL) on Loans Receivable – Qualitative Factors
Critical Audit Matter Description
As disclosed in Notes 1 and 5 to the Company's consolidated financial statements, the Company accounts for credit losses under ASC 326, Financial Instruments – Credit Losses. ASC 326 requires the measurement of current estimate of lifetime credit losses inherent in the loan portfolio at the balance sheet date. As described in the notes, the ACL consists of two components: a specific reserve based on the analysis of individually evaluated loans, and a general reserve that is measured on a pool basis for loans sharing similar risk characteristics (“general valuation allowance”). The Company estimates the ACL for the general valuation allowance via a quantitative analysis and qualitative factors both which consider relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.
- 55 -
The determination of qualitative factor adjustments involves a high degree of management judgement. Management has identified risk factors related to concentrations of credit and economic data as areas where the historical data requires adjustment to reflect current and expected conditions. Changes to these qualitative factors could have a material impact on the Company's financial results.
We have identified auditing the qualitative factors as a critical audit matter as management's determination of the qualitative factors is subjective and involves significant management judgments. Our audit procedures related to the qualitative factors involved a high degree of auditor judgement and significant auditor effort was required in evaluating the audit evidence obtained related to the qualitative factor adjustments.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the qualitative factors included the following, among others:
Substantively testing the appropriateness of the judgment and assumptions used in management's estimation process for developing the qualitative factor adjustments, including:
/s/
March 16, 2026
We have served as the Company's auditor since 2007.
- 56 -
CONSOLIDATED BALANCE SHEETS
|
|
(in thousands, except share data) |
|
|||||
December 31, |
|
2025 |
|
|
2024 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and due from banks |
|
$ |
|
|
$ |
|
||
Interest-bearing deposits in banks |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
|
|
|
|
|
||
Investment securities: |
|
|
|
|
|
|
||
Available-for-sale (amortized cost $ |
|
|
|
|
|
|
||
Restricted investment in stocks |
|
|
|
|
|
|
||
Loans held-for-sale |
|
|
|
|
|
|
||
Loans receivable |
|
|
|
|
|
|
||
Allowance for credit losses on loans |
|
|
( |
) |
|
|
( |
) |
Net loans |
|
|
|
|
|
|
||
Bank-owned life insurance |
|
|
|
|
|
|
||
Premises and equipment, net |
|
|
|
|
|
|
||
Accrued interest receivable |
|
|
|
|
|
|
||
Net deferred tax assets |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Deposits |
|
|
|
|
|
|
||
Demand, non-interest bearing |
|
$ |
|
|
$ |
|
||
Interest-bearing demand |
|
|
|
|
|
|
||
Money market |
|
|
|
|
|
|
||
Savings |
|
|
|
|
|
|
||
Time less than $100 |
|
|
|
|
|
|
||
Time $100 through $250 |
|
|
|
|
|
|
||
Time greater than $250 |
|
|
|
|
|
|
||
Total deposits |
|
|
|
|
|
|
||
Short-term borrowings |
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
Subordinated debt |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Shareholders' Equity |
|
|
|
|
|
|
||
Common stock, par value $ |
|
|
|
|
|
|
||
Surplus |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Accumulated other comprehensive loss, net of tax |
|
|
( |
) |
|
|
( |
) |
Treasury stock, at cost; |
|
|
( |
) |
|
|
( |
) |
Total shareholders' equity |
|
|
|
|
|
|
||
Total liabilities and shareholders' equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of the consolidated financial statements.
- 57 -
CONSOLIDATED STATEMENTS OF INCOME
|
|
(in thousands, except per share data) |
|
|||||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Interest income |
|
|
|
|
|
|
|
|
|
|||
Interest and fees on loans |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Interest and dividends on investment securities (AFS & Equity): |
|
|
|
|
|
|
|
|
|
|||
Taxable |
|
|
|
|
|
|
|
|
|
|||
Tax-exempt |
|
|
|
|
|
|
|
|
|
|||
Interest on interest-bearing balances and other interest income |
|
|
|
|
|
|
|
|
|
|||
Total interest income |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
|
|
|
|
|
|
|
|||
Interest on deposits |
|
|
|
|
|
|
|
|
|
|||
Interest-bearing demand |
|
|
|
|
|
|
|
|
|
|||
Money market |
|
|
|
|
|
|
|
|
|
|||
Savings |
|
|
|
|
|
|
|
|
|
|||
Time less than $100 |
|
|
|
|
|
|
|
|
|
|||
Time $100 through $250 |
|
|
|
|
|
|
|
|
|
|||
Time greater than $250 |
|
|
|
|
|
|
|
|
|
|||
Interest on short-term borrowings |
|
|
|
|
|
|
|
|
|
|||
Interest on long-term debt |
|
|
|
|
|
|
|
|
|
|||
Interest on subordinated debt |
|
|
|
|
|
|
|
|
— |
|
||
Total interest expense |
|
|
|
|
|
|
|
|
|
|||
Net interest income |
|
|
|
|
|
|
|
|
|
|||
Provision (reversal of provision) for credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net interest income after provision for credit losses |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Non-interest income |
|
|
|
|
|
|
|
|
|
|||
Net unrealized (loss) gain on investment equity securities |
|
|
— |
|
|
|
( |
) |
|
|
|
|
Net gain (loss) on sale of investment securities |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Net gain (loss) on investment securities |
|
|
— |
|
|
|
|
|
|
( |
) |
|
Fees for services to customers |
|
|
|
|
|
|
|
|
|
|||
ATM and debit card |
|
|
|
|
|
|
|
|
|
|||
Retail brokerage and advisory |
|
|
|
|
|
|
|
|
|
|||
Bank-owned life insurance |
|
|
|
|
|
|
|
|
|
|||
Merchant |
|
|
|
|
|
|
|
|
|
|||
Net gain on sale of loans |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|||
Total non-interest income |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Non-interest expense |
|
|
|
|
|
|
|
|
|
|||
Salaries and employee benefits |
|
|
|
|
|
|
|
|
|
|||
Net occupancy |
|
|
|
|
|
|
|
|
|
|||
Furniture and equipment |
|
|
|
|
|
|
|
|
|
|||
Marketing |
|
|
|
|
|
|
|
|
|
|||
Third party services |
|
|
|
|
|
|
|
|
|
|||
Telephone, postage and supplies |
|
|
|
|
|
|
|
|
|
|||
State taxes |
|
|
|
|
|
|
|
|
|
|||
FDIC insurance premiums |
|
|
|
|
|
|
|
|
|
|||
Merger-Related |
|
|
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
|
|
|
|||
Total non-interest expense |
|
|
|
|
|
|
|
|
|
|||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Earnings per share - basic |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Earnings per share - diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cash dividends per share |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The accompanying notes are an integral part of the consolidated financial statements.
- 58 -
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
(in thousands) |
|
|||||||||||||||||||||||||||||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||||||||||||||
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|||||||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net unrealized holding gain on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Unrealized holding gain arising during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Reclassification adjustment for loss included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 59 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
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|||||||
|
|
Number of |
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|
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|
|
|
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|
|
Other |
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|
|||||||
|
|
Shares |
|
|
Common |
|
|
|
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
|||||||
|
|
Outstanding |
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Total |
|
|||||||
Balance, January 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Cumulative change in accounting principle |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Balance at January 2, 2023 (as adjusted for change in accounting principle) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||
Net income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other comprehensive loss, net of tax |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Cash dividends declared ($ |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock issued in connection with dividend reinvestment and stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for employee stock purchase plan |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||||
Stock issued for non-employee director compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Stock-based compensation expense |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Balance, December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other comprehensive income, net of tax |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Cash dividends declared ($ |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock issued in connection with dividend reinvestment and stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for non-employee director compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Stock-based compensation expense |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance, December 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other comprehensive income, net of tax |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Cash dividends declared ($ |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock issued in connection with dividend reinvestment and stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for options exercised |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Stock issued for non-employee director compensation |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Stock-based compensation expense |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Balance, December 31, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes are an integral part of the consolidated financial statements.
- 60 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(in thousands) |
|
|||||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Operating Activities |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Provision (reversal of provision) for credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net (gain) loss on sales of investment debt and equity securities |
|
|
|
|
|
( |
) |
|
|
|
||
Net unrealized loss (gain) on equity securities |
|
|
|
|
|
|
|
|
( |
) |
||
Net gain on sale of loans |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of residential mortgages held-for-sale |
|
|
|
|
|
|
|
|
|
|||
Origination of residential mortgages held-for-sale |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase on bank-owned life insurance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|||
Amortization of deferred costs on subordinated debt |
|
|
|
|
|
|
|
|
— |
|
||
Deferred income tax provision (benefit) |
|
|
( |
) |
|
|
|
|
|
|
||
Net increase (decrease) in income taxes payable |
|
|
|
|
|
|
|
|
( |
) |
||
Net decrease (increase) in accrued interest receivable |
|
|
|
|
|
|
|
|
( |
) |
||
Fair value remeasurements on interest rate swap |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of mortgage servicing rights and change in valuation allowance |
|
|
|
|
|
|
|
|
|
|||
Net amortization of premiums and discounts on investment securities |
|
|
|
|
|
|
|
|
|
|||
Net (decrease) increase in accrued interest payable |
|
|
( |
) |
|
|
|
|
|
|
||
Operating lease payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase in other assets |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Increase (decrease) in other liabilities |
|
|
|
|
|
|
|
|
|
|||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|||
Investing Activities |
|
|
|
|
|
|
|
|
|
|||
Proceeds from payments, maturities and calls of investment debt securities |
|
|
|
|
|
|
|
|
|
|||
Proceeds from the sale of investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|||
Purchases of investment securities available-for-sale |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of equity securities |
|
|
|
|
|
|
|
|
|
|||
Purchases of equity securities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Proceeds from redemption of investment in restricted bank stock |
|
|
|
|
|
|
|
|
|
|||
Purchase of restricted bank stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net increase in loans |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net purchases of premises and equipment |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Redemption of Bank Owned Life Insurance investment |
|
|
|
|
|
|
|
|
— |
|
||
Net cash (used) provided in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|||
Net increase (decrease) in non-interest bearing deposits |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net increase in interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|||
Net increase (decrease) in short-term borrowings |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Issuance of long-term debt |
|
|
— |
|
|
|
|
|
|
|
||
Repayment of long-term debt |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Issuance of subordinated debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
Cash dividends paid, net of reinvestment |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|||
(Decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Supplemental Cash Flow Disclosures |
|
|
|
|
|
|
|
|
|
|||
Interest paid |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Federal income taxes paid, net of refunds received |
|
|
|
|
|
|
|
|
|
|||
State income taxes paid, net of refunds received |
|
|
( |
) |
|
|
|
|
|
|
||
Non-cash transactions: |
|
|
|
|
|
|
|
|
|
|||
Cumulative change in accounting principal |
|
|
— |
|
|
|
— |
|
|
|
|
|
Trade-date settlements for matured securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
|
|
|
|
|
|
|
|||
The accompanying notes are an integral part of the consolidated financial statement.
- 61 -
QNB CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Business
QNB Corp. (the “Company”), through its wholly-owned subsidiary, QNB Bank (the “Bank”), has been serving the residents and businesses of Bucks, Lehigh, and Montgomery counties in Pennsylvania since 1877. The Bank is a Pennsylvania chartered commercial bank. The Company and the Bank are subject to regulations of certain state and Federal agencies. These regulatory agencies periodically examine the Company and the Bank for adherence to laws and regulations.
Segment Reporting
The Company manages and operates its business as a operating segment. The segment's financial information is the same as presented in the Consolidated Financial Statements. The segment is locally managed and provides a full range of commercial, retail banking and retail brokerage services. The Company's Banking segment is determined by the ("CEO") who is the chief operating decision maker (the "CODM").
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. The consolidated entity is referred to herein as “QNB”. All significant inter-company accounts and transactions have been eliminated in the Consolidated Financial Statements.
Tabular information, other than share and per share data, is presented in thousands of dollars. Certain prior period amounts have been reclassified to conform with the current year’s presentation.
Use of Estimates
These statements are prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“US GAAP”) and predominant practices within the banking industry. The preparation of these Consolidated Financial Statements requires QNB to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. QNB evaluates estimates on an on-going basis. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, the fair value of financial instruments, impairment of investment securities, the determination of impairment of restricted bank stock and the valuation of deferred tax assets and income taxes. QNB bases its estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Significant Group Concentrations of Credit Risk
Most of the QNB’s activities are with customers located within Bucks, Montgomery and Lehigh Counties in southeastern Pennsylvania. Note 4 discusses the types of investment securities in which the QNB invests. Note 5 discusses the types of lending in which QNB engages. QNB does not have any significant concentrations to any one industry or customer other than what is discussed in Note 5. Although QNB has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents consist of cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in the Federal Reserve Bank and other banks and Federal funds sold. QNB maintains a portion of its interest-bearing deposits at various commercial financial institutions. At times, the balances exceed the FDIC insured limits; QNB has not experienced a loss due to the balances exceeding FDIC limits.
- 62 -
Investment Securities
Investment debt securities that QNB has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Interest is included in interest income. Debt securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale debt securities and reported at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported in other comprehensive income or loss, a separate component of shareholders’ equity. Management determines the appropriate classification of securities at the time of purchase.
Available-for-sale debt securities include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in credit ratings, changes in market interest rates and related changes in the securities’ prepayment risk or to meet liquidity needs.
Premiums and discounts on debt securities are recognized in interest income using a constant yield method. Gains and losses on sales of available-for-sale securities are recorded on the trade date and are computed on the specific identification method and included in non-interest income.
Equity investments with readily determinable fair values are measured at fair value. The changes in fair value are recognized in net income. Dividends are included in interest income.
Impairment of Investment Securities
Securities are evaluated periodically to determine whether a decline in their value is impairment. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is impairment. The term impairment is not intended to indicate that the decline is permanent, it indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. For equity securities that do not have readily-determinable fair values, once a decline in value is determined to be impairment, the value of the equity security is reduced and a corresponding charge to earnings is recognized.
QNB follows the accounting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326-30 as it relates to the recognition and presentation of impairment. This accounting guidance specifies that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an impairment of a debt security in earnings and the remaining portion in other comprehensive income.
Derivatives and Hedges
The fair value hedges are accounted for under Derivatives and Hedging (Topic 815). QNB adopted ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging--Portfolio Layer Method ("ASC 2022-01") as of January 1, 2023. ASC 2022-01 allows for the use of an amortizing notional swap when entering a portfolio layer method hedge. This guidance allows the interest rate swap to be considered a hedge of a single layer of portfolio. QNB's risk management objective with respect to derivative financial instruments is to hedge the risk of changes in the fair value of certain fixed-rate investment securities, included in a closed portfolio, for changes in the Secured Overnight Financing Rate ("SOFR"). The changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income, net of tax, and are reclassified to interest income as interest payments are made or received on the hedged portfolios. QNB assesses the effectiveness of each hedging relationship using a regression analysis of prior periodic changes in fair value of both the hedge and the hedged item. In the assessment of hedge effectiveness, QNB considers the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that could require the counterparty to make payments (counterparty default risk). If the likelihood that the counterparty will not default ceases to be probable, the hedge may no longer be highly effective and hedge ineffectiveness due to counterparty payment risk will be assessed.
Restricted Investment in Stock
Restricted stock is comprised of Federal Home Loan Bank of Pittsburgh (“FHLB”) in the amount of $
- 63 -
The Bank has a $
The Bank owns
The Bank owns
Loans
Loans are segmented and reported on a pool basis with similar risk characteristics; these segments or pools are identified in Note 5. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the principal amount outstanding, net of deferred loan fees and costs. Interest income is accrued on the principal amount outstanding. Loan origination and commitment fees net of related direct costs are deferred and amortized to income over the term of the respective loan and loan commitment period as a yield adjustment.
Loans held-for-sale consist of residential mortgage loans and are carried at the lower of aggregate cost or fair value. Net unrealized losses, if any, are recognized through a valuation allowance charged to income. Gains and losses on residential mortgages held-for-sale are included in non-interest income.
Non-Performing Assets
Non-performing assets are comprised of accruing loans past due 90 days or more, non-accrual loans and investment securities, other real estate owned and repossessed assets. Non-accrual loans and investment securities are those on which the accrual of interest has ceased. Loans are placed on non-accrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and collateral is insufficient to cover principal and interest. Interest accrued, but not collected at the date a loan is placed on non-accrual status, is reversed and charged against interest income. Loans are returned to an accrual status when the borrower’s ability to make periodic principal and interest payments has returned to normal (i.e. brought current with respect to principal or interest or restructured) and the paying capacity of the borrower and/or the underlying collateral is deemed sufficient to cover principal and interest.
Since the implementation of ASU 326 on January 1, 2023, loan modifications to borrowers experiencing financial difficulty ("FDM") could involve principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or exchanging or paying off existing debt for new debt with QNB. Any amount forgiven would be charged to the allowance for credit losses.
Accounting for impairment in the performance of a loan is required when it is probable that all amounts, including both principal and interest, will not be collected in accordance with the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, at the loan’s observable market price or the fair value of the collateral if the loans are collateral dependent. Impairment criteria are applied to the loan portfolio exclusive of smaller homogeneous loans such as residential mortgage and consumer loans which are evaluated collectively for impairment.
Loans are fully charged-off or charged down to net realizable value (fair value of collateral less estimated costs to sell) when deemed uncollectible due to bankruptcy or other factors, or when they reach a defined number of days past due based on loan product, industry practice, terms and other factors.
Loans are considered past due when contractually required principal or interest payments have not been made on the due dates.
- 64 -
Allowance for Credit Losses on Loans and Commitments
QNB maintains an allowance for credit losses on loans ("ACL") , which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. QNB utilizes the Cohort method to calculate its ACL. QNB elected not to measure an allowance for credit losses on accrued interest receivable. The allowance is reduced by actual credit losses and is increased or decreased by the provision (reversal) for credit losses on loans and increased by recoveries of previous losses. The provisions or reversals for credit losses are charged to earnings to bring the total allowance for credit losses on loans to a level considered necessary by management. QNB estimates the ACL via a quantitative analysis and qualitative factors both which consider relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.
The level of the ACL is determined by assigning specific reserves to all non-accrual loans, except the homogeneous pool of student loans which are measured in the general reserve. An allowance on these non-accrual loans is established when the discounted cash flows (or collateral value) of the loan is lower than the carrying value of that loan. The portion of the allowance that is allocated to non-accrual loans is determined by estimating the inherent loss on each credit after giving consideration to the value of underlying collateral.
The general reserve is measured on a pool basis when similar risk characteristics exist; these pools are identified in Note 5. QNB establishes a general valuation allowance for performing loans, including non-accrual student loans. QNB calculates each pool's or segment's historical loss rate using a full economic cycle of loan balance and historical loss experience. The general component is adjusted for qualitative factors. These qualitative risk factors include:
Management emphasizes loan quality and close monitoring of potential problem credits. Credit risk identification and review processes are utilized in order to assess and monitor the degree of risk in the loan portfolio. QNB’s lending and credit administration staff are charged with reviewing the loan portfolio and identifying changes in the economy or in a borrower’s circumstances which may affect the ability to repay debt or the value of pledged collateral. A loan classification and review system exists that identifies those loans with a higher than normal risk of collectability. Each commercial loan is assigned a grade based upon an assessment of the borrower’s financial capacity to service the debt and the presence and value of collateral for the loan. An independent firm reviews risk assessment and evaluates the adequacy of the ACL. Management meets monthly to review the credit quality of the loan portfolio and quarterly to review the ACL.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review QNB's ACL. Such agencies may require QNB to recognize additions to the allowance based on their judgments using information available to them at the time of their examination.
Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing ACL in accordance with U.S. GAAP. If circumstances differ substantially from the current calculation, future adjustments to the ACL may be necessary and results of operations could be affected. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary should the quality of any loans deteriorate.
QNB uses the same lending standards and policies in making credit commitments as it does for on-balance sheet instruments. The activity is controlled through credit approvals, control limits, and monitoring procedures. QNB applies the resulting loss factors under the allowance for credit losses on loans to its unused commitments, assuming: additional funding for commercial lines up to the average line usage for non-pass rated lines with no current usage; and, additional funding up to the average line usage for retail lines with no current usage.
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from QNB, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) QNB does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
- 65 -
Servicing Assets
Servicing assets are recognized as separate assets when rights are acquired through the sale of financial assets. When mortgage loans are sold, a portion of the cost of originating the loan is allocated to the servicing rights based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The Company subsequently measures servicing rights using the amortization method where servicing rights are amortized in proportion to and over the period of estimated net servicing income. On a quarterly basis, an independent third party determines the fair value of QNB’s servicing assets. These assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranches. If QNB later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the valuation allowance may be recorded as an increase to income. Capitalized servicing rights are reported in other assets and are amortized into other noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan and are recorded as other non-interest income when earned and netted against the amortization of mortgage servicing rights.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization.
Buildings |
|
|
Furniture and equipment |
|
|
Leasehold improvements |
|
Expenditures for maintenance and repairs are charged to operations as incurred. Gains or losses upon disposition are reflected in earnings as realized.
The “Premises and equipment, net” category on the Consolidated Balance Sheets also includes the right-of-use assets associated with operating leases. The discount rates used in determining the initial value of the right of use assets are based on the FHLB Amortizing Fixed Loan Rate for the term of each lease.
Bank-Owned Life Insurance
The Bank invests in bank-owned life insurance (“BOLI”) as a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Bank on a select group of employees. The Bank is the owner and beneficiary of the policies. Income from the increase in cash surrender value of the policies as well as the receipt of death benefits is included in non-interest income on the Consolidated Statements of Income. The BOLI policies are an asset that can be liquidated, if necessary, with associated tax costs. However, the Bank intends to hold these policies and, accordingly, has not provided for deferred income taxes on the earnings from the increase in cash surrender value.
The Bank follows the accounting guidance for postretirement benefit aspects of endorsement split-dollar life insurance arrangements which applies to life insurance arrangements that provide an employee with a specified benefit that is not limited to the employee’s active service period, including certain bank-owned life insurance policies. It requires an employer to recognize a liability and related compensation costs for future benefits that
- 66 -
Stock-Based Compensation
At December 31, 2025, QNB sponsored Stock Incentive Plans (the Stock Plans), administered by a Board committee, under which both qualified and non-qualified stock options may be granted periodically to certain employees. QNB accounts for all awards granted under stock-based compensation plans in accordance with FASB ASC 718, Compensation - Stock Compensation. Compensation cost has been measured using the fair value of an award on the grant date and is recognized over the service period, which is usually the vesting period.
Stock-based compensation expense related to the Stock Plans was approximately $
The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. QNB estimated the fair value of stock options on the date of the grant using the Black-Scholes option pricing model. The model requires the use of numerous assumptions, many of which are highly subjective in nature.
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Risk free interest rate |
|
|
% |
|
|
% |
|
|
% |
|||
Dividend yield |
|
|
% |
|
|
% |
|
|
% |
|||
Volatility |
|
|
% |
|
|
% |
|
|
% |
|||
Expected life (years) |
|
|
|
|
|
|
|
|
|
|||
The weighted average fair value per share of options granted during 2025, 2024 and 2023 was $
Income Taxes
QNB accounts for income taxes under the asset/liability method in accordance with income tax accounting guidance, ASC 740 - Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when, in the judgment of management, it is more likely than not that such deferred tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on matters that may, at least in part, be beyond QNB’s control, it is at least reasonably possible that management’s judgment about the need for a valuation allowance for deferred taxes could change in the near term.
In connection with the accounting guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions, QNB has evaluated its tax positions as of December 31, 2025. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has more than a 50 percent likelihood of being realized on examination. For tax positions not meeting the “more likely than not” test,
- 67 -
Treasury Stock
Common stock shares repurchased are recorded as treasury stock at cost.
Earnings Per Share
Basic earnings per share excludes any dilutive effects of options and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the period. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
Treasury shares are not deemed outstanding for earnings per share calculations.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business entity during a period due to transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. Comprehensive income (loss) consists of net income and other comprehensive income (loss). For QNB, the primary component of other comprehensive income (loss) is the unrealized holding gains or losses on available-for-sale investment securities.
Advertising Costs
Advertising costs are recorded in the period they are incurred within operating expenses in non-interest expense in the Consolidated Statements of Income.
Financial Instruments with Off-Balance-Sheet Risk
QNB’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to
Subsequent Events
QNB has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2025 through the date the Consolidated Financial Statements are being issued for items that should potentially be recognized or disclosed in these Consolidated Financial Statements. QNB has not identified any subsequent event except as follows. The Company has received all required regulatory approvals to complete their previously announced merger transaction with The Victory Bancorp, Inc. The transaction, initially announced on September 23, 2025, is expected to close during the second quarter, subject to the satisfaction of customary closing conditions
Recent Accounting Pronouncements
On November 12, 2025, the Financial Accounting Standards Board (FASB) issues ASU 2025-08, amending ASC 326 to expand use of the gross-up approach in ASC 326, Credit Losses, to all purchased seasoned loans. This approach was previously only applied to purchased credit deteriorated (PCD) assets. Purchased seasoned loans are defined as loans that are not PCD assets, credit card receivables, debt securities or trade receivables that are acquired in a business combination, or obtained through a transfer that is not a business combination or initially recognized through the consolidation of a variable interest entity, if certain seasoning criteria are met. A loan is considered seasoned if it is obtained more than 90 days after its origination date and the transferee was not involved in the origination. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods within those years. Entities are required to apply the guidance prospectively. Early adoption is permitted.
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 enhanced and standardized disclosures include material climate-related risks, board oversight and risk management activities descriptions, material impacts of these risks on a registrant’s strategy, business model and outlook, and any material climate-related targets or goals. The SEC’s climate-related disclosure rules are the subject of litigation by certain states and private parties, which has been consolidated in the federal Eighth Circuit Court of Appeals. The SEC previously stayed effectiveness of the rules pending completion of that litigation. On March 27, 2025, the SEC announced that it had
- 68 -
voted to withdraw its defense of its climate-related disclosure rules. On April 4, 2025, the intervenor states filed a motion to hold the litigation in abeyance until the SEC determines whether it will amend or rescind the climate-related disclosure rules through the rulemaking process. The SEC has not at this time indicated whether it is considering amending or rescinding the proposed rules. Management intends to continue to monitor these developments and their potential impact on the Company.
In 2025, QNB
On June 26, 2024, the FASB voted to issue final rules this year that will require public companies to provide enhanced detailed information about their income statement expenses. Companies will be required to break out certain expense items, such as employee compensation and purchases of inventory, in footnotes to their income statements. The standard will apply to fiscal years that start after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption will be permitted prospectively for the disclosure requirements, with optional retrospective application, for both interim and year-end reporting periods
Note 2 – Earnings Per Share and Share Repurchase Plan
The following table sets forth the computation of basic and diluted earnings per share:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Numerator for basic and diluted earnings per share - net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Denominator for basic earnings per share - weighted average shares |
|
|
|
|
|
|
|
|
|
|||
Effect of dilutive securities - employee stock options |
|
|
|
|
|
|
|
|
— |
|
||
Denominator for diluted earnings per share - adjusted weighted |
|
|
|
|
|
|
|
|
|
|||
Earnings per share - basic |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Earnings per share - diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|||
There were
QNB’s current stock repurchase plan was originally approved by the Board of Directors on
Note 3 – Cash and Cash Equivalents
Included in cash and cash equivalents are deposits with the Federal Reserve Bank of Philadelphia. As of December 31, 2025 and 2024, QNB was not required to maintain reserves with the Federal Reserve Bank of Philadelphia. At December 31, 2025 and 2024, there was $
- 69 -
Note 4 - Investment Securities
Available-For-Sale Debt Securities
The amortized cost and fair values of investment debt securities available-for-sale at December 31, 2025 and 2024 were as follows:
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
|
|
|||||
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|||||
|
|
Fair |
|
|
holding |
|
|
holding |
|
|
fair value |
|
|
Amortized |
|
|||||
December 31, 2025 |
|
value |
|
|
gains |
|
|
losses |
|
|
hedge gains |
|
|
cost |
|
|||||
U.S. Treasuries |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
U.S. Government agency |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
State and municipal |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
U.S. Government agencies and sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mortgage-backed |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Collateralized mortgage obligations (CMOs) |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
Corporate debt and money market funds |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
Total investment securities available-for-sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Gross |
|
|
|
|
|||||
|
|
|
|
|
unrealized |
|
|
unrealized |
|
|
unrealized |
|
|
|
|
|||||
|
|
Fair |
|
|
holding |
|
|
holding |
|
|
fair value |
|
|
Amortized |
|
|||||
December 31, 2024 |
|
value |
|
|
gains |
|
|
losses |
|
|
hedge losses |
|
|
cost |
|
|||||
U.S. Treasuries |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
U.S. Government agency |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
State and municipal |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
U.S. Government agencies and sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Mortgage-backed |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
Collateralized mortgage obligations (CMOs) |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
Corporate debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
Total investment securities available-for-sale |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
Amortized |
|
||
December 31, 2025 |
|
Fair value |
|
|
cost |
|
||
Due in one year or less |
|
$ |
|
|
$ |
|
||
Due after one year through five years |
|
|
|
|
|
|
||
Due after five years through ten years |
|
|
|
|
|
|
||
Due after ten years |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Mortgage-backed securities |
|
|
|
|
|
|
||
Collateralized mortgage obligations |
|
|
|
|
|
|
||
Total investment securities available-for-sale |
|
$ |
|
|
$ |
|
||
Proceeds from sales of investment debt securities available-for-sale were $
- 70 -
The following table presents information related to QNB’s gains and losses on the sales of debt securities, and losses recognized for credit impairments of these investments.
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Gross realized gains |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Gross realized losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Impairment |
|
|
|
|
|
|
|
|
|
|||
Total net losses on available-for-sale securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The tax benefit applicable to the net realized losses on debt securities was $
There were
At December 31, 2025 and 2024, investments in debt securities available-for-sale totaling $
Debt securities that have been in a continuous unrealized loss position are as follows:
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
||||||||||||||||
|
|
No. of |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|||||||
|
|
securities |
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|||||||
U.S. Treasuries |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
U.S. Government agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
State and municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Collateralized mortgage |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Corporate debt and money markets |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
- 71 -
December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
||||||||||||||||
|
|
No. of |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|||||||
|
|
securities |
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|||||||
U.S. Treasuries |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
U.S. Government agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
State and municipal |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
U.S. Government agencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||||
Collateralized mortgage |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Corporate debt and money markets |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
Total |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
Management evaluates debt securities, which are comprised of U.S. Government Agencies, state and municipalities, mortgage-backed securities, CMOs and other issuers, for impairment and considers the current economic conditions, the length of time and the extent to which the fair value has been less than cost, interest rates and the bond rating of each security. The unrealized losses at December 31, 2025 in U.S. Government securities, state and municipal securities, mortgage-backed securities, CMOs and corporate debt securities are primarily the results of interest rate fluctuations. If held to maturity, these bonds will mature at par, and QNB will not realize a loss. QNB has the intent to hold the securities and does not believe it will be required to sell the securities before recovery occurs.
Marketable Equity Securities
QNB’s equity securities consist of investments with readily determinable fair values in large cap stock companies. At December 31, 2025 and 2024, QNB had $
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Net gain (loss) recognized during the period on equity securities |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Less: Net gain (loss) recognized during the period on equity securities sold during the period |
|
|
|
|
|
|
|
|
( |
) |
||
Net unrealized (loss) gain recognized during the reporting period on equity securities still held at the reporting date |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Tax expense applicable to the net realized gains for the year ended December 31, 2025 was $
- 72 -
Note 5 - Loans Receivable and the Allowance for Credit Losses on Loans
Major classes of loans are as follows:
December 31, |
|
2025 |
|
|
2024 |
|
||
Commercial: |
|
|
|
|
|
|
||
Commercial and industrial |
|
$ |
|
|
$ |
|
||
Construction and land development |
|
|
|
|
|
|
||
Real estate secured by multi-family properties |
|
|
|
|
|
|
||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
||
Real estate secured by other commercial properties |
|
|
|
|
|
|
||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
||
State and political subdivisions |
|
|
|
|
|
|
||
Retail: |
|
|
|
|
|
|
||
1-4 family residential mortgages |
|
|
|
|
|
|
||
Construction-individual |
|
|
|
|
|
— |
|
|
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
||
Student loans |
|
|
|
|
|
|
||
Overdrafts |
|
|
|
|
|
|
||
Other consumer |
|
|
|
|
|
|
||
Total loans |
|
|
|
|
|
|
||
Net unearned (fees) and deferred costs |
|
|
( |
) |
|
|
( |
) |
Allowance for credit losses on loans |
|
|
( |
) |
|
|
( |
) |
Loans receivable, net |
|
$ |
|
|
$ |
|
||
Loans secured by commercial real estate include all loans collateralized at least in part by commercial real estate. These loans may not be for the express purpose of conducting commercial real estate transactions.
QNB generally lends in Bucks, Lehigh, and Montgomery counties in southeastern Pennsylvania. To a large extent, QNB makes loans collateralized at least in part by real estate. Its lending activities could be affected by changes in the general economy, the regional economy, or real estate values. Other than disclosed in the table above, at December 31, 2025, there was a concentration of loans to lessors of residential buildings and dwellings of
QNB engages in a variety of lending activities, including commercial, residential real estate and consumer transactions. QNB focuses its lending activities on individuals, professionals and small to medium sized businesses. Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral.
- 73 -
Commercial and industrial loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and retail loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. These loans may involve greater risk because the availability of funds to repay these loans depends on the successful operation of the borrower’s business. The assets financed are used within the business for its ongoing operation. Repayment of these types of loans generally comes from the cash flow of the business or the ongoing conversions of assets, such as accounts receivable and inventory, to cash. Typical collateral for commercial and industrial loans includes the borrower’s accounts receivable, inventory and machinery and equipment. Commercial real estate and residential real estate loans secured for a business purpose are originated primarily within the southeastern Pennsylvania market area at conservative loan-to-value ratios and often backed by the individual guarantees of the borrowers or owners. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers.
Loans to state and political subdivisions are tax-exempt or taxable loans to municipalities, school districts and housing and industrial development authorities. These loans can be general obligations of the municipality or school district repaid through their taxing authority, revenue obligations repaid through the income generated by the operations of the authority, such as a water or sewer authority, or loans issued to a housing and industrial development agency, for which a private corporation is responsible for payments on the loans.
QNB originates fixed-rate and adjustable-rate real estate-residential mortgage loans for personal purposes that are secured by first liens on the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the
The real estate-home equity portfolio consists of fixed-rate home equity loans and variable-rate home equity lines of credit. Risks associated with loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market. Since most loans are secured by a primary or secondary residence, the borrower’s continued employment is the greatest risk to repayment.
QNB offers a variety of loans to individuals for personal and household purposes. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and is more likely to decrease in value than real estate. Credit risk in this portfolio is controlled by conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values.
QNB employs a ten-grade risk rating system related to the credit quality of commercial loans and loans to state and political subdivisions of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating.
1 - Excellent - no apparent risk
2 - Good - minimal risk
3 - Acceptable - lower risk
4 - Acceptable - average risk
5 - Acceptable – higher risk
6 - Pass watch
7 - Special Mention - potential weaknesses
8 - Substandard - well defined weaknesses
9 - Doubtful - full collection unlikely
10 - Loss - considered uncollectible
QNB maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential problem loans. Each loan officer assigns a rating to commercial loans and loans to state and political subdivisions at the time the loan is originated. Loans are generally reviewed annually based on the borrower’s fiscal year and the dollar amount of the relationship. Loans with risk ratings of seven through ten are reviewed at least quarterly, and as often as monthly, at management’s discretion. QNB
- 74 -
also utilizes an outside loan review firm to review the portfolio on a semi-annual basis to provide the Board of Directors and senior management an independent review of the Bank’s loan portfolio on an ongoing basis. These reviews are designed to recognize deteriorating credits in their earliest stages in an effort to reduce and control risk in the lending function as well as identifying potential shifts in the quality of the loan portfolio. The examinations by the outside loan review firm include the review of lending activities with respect to underwriting and processing new loans, monitoring the risk of existing loans and to provide timely follow-up and corrective action for loans showing signs of deterioration in quality. In addition, the outside firm reviews the methodology for the allowance for credit losses on loans to determine compliance to policy and regulatory guidance.
- 75 -
The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the QNB’s internal risk rating system as of December 31, 2025 and 2024:
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2025 |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Construction and land development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total construction and land development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by multi-family properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by multi-family properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by owner-occupied properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by owner-occupied properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by other commercial properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by other commercial properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Revolving real estate secured by 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revolving real estate secured by 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
- 76 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2025 |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Real estate secured by 1st lien on 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by 1st lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by junior lien on 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
State and political subdivisions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Commercial Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current Period Gross Charge-Offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
- 77 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2024 |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Construction and land development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total construction and land development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by multi-family properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by multi-family properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by owner-occupied properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by owner-occupied properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by other commercial properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by other commercial properties |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Revolving real estate secured by 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revolving real estate secured by 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by 1st lien on 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
- 78 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2024 |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by 1st lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by junior lien on 1-4 family properties-business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
State and political subdivisions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-business |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Commercial Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current Period Gross Charge-Offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Commercial and industrial |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
The following tables present the recorded investment in the retail classes of the loan portfolio based on payment activity as of December 31, 2025 and 2024:
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2025 |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Retail Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total 1-4 family residential mortgages |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Construction-individual: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total construction-individual |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Revolving home equity secured by 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
- 79 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2025 |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Retail Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revolving home equity secured by 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by 1st lien on 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by 1st lien on 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by junior lien on 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Student loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total student loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Overdrafts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total overdrafts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Other consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total other consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Retail Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Retail Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current Period Gross Charge-Offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Student loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other consumer |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
- 80 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2024 |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Retail Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
1-4 family residential mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total 1-4 family residential mortgages |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Revolving home equity secured by 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total revolving home equity secured by 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by 1st lien on 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by 1st lien on 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Real estate secured by junior lien on 1-4 family properties-personal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total real estate secured by junior lien on 1-4 family properties-personal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Student loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total student loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Overdrafts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total overdrafts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Other consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total other consumer |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Retail Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Performing |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
- 81 -
|
|
Term Loans by Origination Year |
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2024 |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
Retail Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Nonperforming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Retail Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current Period Gross Charge-Offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Student loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Overdrafts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Other consumer |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||||
Retail revolving lines of credit that were termed out during 2025 and 2024 were $
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.
December 31, 2025 |
|
30-59 days |
|
|
60-89 days |
|
|
90 days or |
|
|
Total past |
|
|
Current |
|
|
Total loans |
|
||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Construction-individual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Student loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
- 82 -
December 31, 2024 |
|
30-59 days |
|
|
60-89 days |
|
|
90 days or |
|
|
Total past |
|
|
Current |
|
|
Total loans |
|
||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Student loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
As previously discussed, QNB maintains a loan review system, which includes a continuous review of the loan portfolio by internal and external parties to aid in the early identification of potential collateral dependent loans. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as collateral dependent. When placing a loan on non-accrual status, management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the 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. All non-accrual loans, except student loans, are individually evaluated for an allowance for credit losses ("ACL"). This ACL is measured using 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.
An allowance for credit loss is established for a non-accrual loan if its carrying value exceeds its estimated fair value.
For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.
- 83 -
For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.
The following tables disclose the recorded investment in loans receivable that are either on non-accrual status or past due 90 days or more and still accruing interest as of December 31, 2025 and 2024:
December 31, 2025 |
|
90 Days or More Past Due-Still Accruing |
|
|
Nonaccrual With No Specifically-Related ACL |
|
|
Nonaccrual With Related ACL |
|
|
Total Nonaccrual Loans |
|
||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction-individual |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Student loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
- 84 -
December 31, 2024 |
|
90 Days or More Past Due-Still Accruing |
|
|
Nonaccrual With No Specifically-Related ACL |
|
|
Nonaccrual With Related ACL |
|
|
Total Nonaccrual Loans |
|
||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Student loans |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
QNB recognized interest income of $
- 85 -
The following table presents the collateral-dependent loans by loan category at December 31, 2025 and 2024:
December 31, 2025 |
|
Real Estate Secured |
|
|
Other (1) |
|
|
Deficiency in Collateral |
|
|
Total Collateral Dependent Nonaccrual Loans |
|
||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Construction-individual |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) Secured by business assets, personal property and equipment or guarantees
- 86 -
December 31, 2024 |
|
Real Estate Secured |
|
|
Other (1) |
|
|
Deficiency in Collateral |
|
|
Total Collateral Dependent Nonaccrual Loans |
|
||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial and industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
1-4 family residential mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
- 87 -
Activity in the allowance for credit losses on loans for the years ended December 31, 2025, 2024 and 2023 are as follows:
Year ended December 31, 2025 |
|
Beginning balance |
|
|
Credit loss expense (reversal) |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Balance, end |
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||
Construction and land development |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Construction-individual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Student loans |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Overdrafts |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
- 88 -
Year ended December 31, 2024 |
|
Beginning balance |
|
|
Credit loss expense (reversal) |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Balance, end |
|
|||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Construction and land development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
State and political subdivisions |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
1-4 family residential mortgages |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Student loans |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
Overdrafts |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Other consumer |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
- 89 -
Year ended December 31, 2023 |
|
Beginning balance prior to adoption of ASC 326 |
|
|
Impact of adopting ASC 326 |
|
|
Credit loss expense (reversal) |
|
|
Charge-offs |
|
|
Recoveries |
|
|
Balance, end |
|
||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial and industrial |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Construction and land development |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by multi-family properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by other commercial properties |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Revolving real estate secured by 1-4 family properties-business |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by 1st lien on 1-4 family properties-business |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Real estate secured by junior lien on 1-4 family properties-business |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
State and political subdivisions |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
1-4 family residential mortgages |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Construction-individual |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Revolving home equity secured by 1-4 family properties-personal |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Real estate secured by 1st lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Real estate secured by junior lien on 1-4 family properties-personal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Student loans |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||||
Overdrafts |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Other consumer |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Unallocated |
|
|
|
|
|
( |
) |
|
|
|
|
N/A |
|
|
N/A |
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
Since the implementation of ASU 326 on January 1, 2023, the Company may make loan modifications to borrowers experiencing financial difficulty ("FDM"). A FDM could involve principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or exchanging or paying off existing debt for new debt with the Company. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Any amount forgiven would be charged to the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, modifications could include multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.
- 90 -
|
|
December 31, 2025 |
||||||||
|
|
Amortized Cost Basis |
|
|
% of Total Loan Class |
|
|
Financial Effect |
||
Commercial: |
|
|
|
|
|
|
|
|
||
Payment Modification to Interest Only for Six Months: |
|
|
||||||||
Real estate secured by owner-occupied properties |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Payment Modification to Interest Only for 12 Months: |
|
|
|
|
|
|
|
|
||
C&I Other |
|
$ |
|
|
|
% |
|
Temporary reduction of principal payments with no extension of term |
||
Construction Other and Land Development |
|
|
|
|
|
% |
|
Temporary reduction of principal payments with no extension of term |
||
Total |
|
$ |
|
|
|
|
|
|
||
|
|
December 31, 2024 |
||||||||
|
|
Amortized Cost Basis |
|
|
% of Total Loan Class |
|
|
Financial Effect |
||
Commercial: |
|
|
|
|
|
|
|
|
||
Payment Modification to Interest Only for Six Months: |
|
|
||||||||
Real estate secured by owner-occupied properties |
|
$ |
|
|
|
% |
|
Temporary reduction of principal payments with no extension of term |
||
|
|
|
|
|
|
|
|
|
||
Payment Modification to Interest Only for 12 Months: |
|
|
|
|
|
|
|
|
||
C&I Other |
|
$ |
— |
|
|
|
|
|
|
|
Construction Other and Land Development |
|
|
— |
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
|
|
|
||
There were
There was
Note 6 - Premises and Equipment
Premises and equipment, stated at cost less accumulated depreciation and amortization, are summarized below:
December 31, |
|
2025 |
|
|
2024 |
|
||
Land and buildings |
|
$ |
|
|
$ |
|
||
Furniture and equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Right-of-use asset |
|
|
|
|
|
|
||
Book value |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Net book value |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense on premises and equipment, which excludes operating lease costs in the table below, amounted to $
- 91 -
The following table summarized the quantitative attributes of QNB’s operating leases:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
||
Lease cost |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Total lease cost |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Other information |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Cashflows from operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted average remaining lease terms: |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
||||
Weighted average discount rates: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Note 7 - Intangible Assets and Loan Servicing
Loans serviced for others are not included in the accompanying Consolidated Balance Sheets. The unpaid principal balances of mortgage loans serviced for others were $
The following table reflects the activity of mortgage servicing rights for the periods indicated:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Mortgage servicing rights capitalized |
|
|
|
|
|
|
|
|
|
|||
Mortgage servicing rights amortized |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Fair market value adjustments |
|
|
|
|
|
|
|
|
|
|||
Balance at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The balance of these mortgage servicing rights is included in "Other assets" at December 31, 2025 and 2024 and the fair value of these rights was $
The annual estimated amortization expense of intangible assets for each of the five succeeding fiscal years is as follows:
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
Note 8 - Time Deposits
The aggregate amount of time deposits was $
- 92 -
At December 31, 2025, the scheduled maturities of time deposits were as follows:
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
— |
|
Total time deposits |
|
$ |
|
Note 9 - Short-Term Borrowings
December 31, |
|
Securities sold |
|
|
Other short - term |
|
||
2025 |
|
|
|
|
|
|
||
Balance |
|
$ |
|
|
$ |
|
||
Maximum indebtedness at any month end |
|
|
|
|
|
|
||
Daily average indebtedness outstanding |
|
|
|
|
|
|
||
Average rate paid for the year |
|
|
% |
|
|
% |
||
Average rate on period-end borrowings |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
Balance |
|
$ |
|
|
$ |
|
||
Maximum indebtedness at any month end |
|
|
|
|
|
|
||
Daily average indebtedness outstanding |
|
|
|
|
|
|
||
Average rate paid for the year |
|
|
% |
|
|
% |
||
Average rate on period-end borrowings |
|
|
|
|
|
|
||
The Bank has
Note 10 - Long-Term Debt
FHLB advances are collateralized by certain mortgage loans and also require the purchase of FHLB capital stock, which is included within "Restricted investment in stocks" on the Consolidated Balance Sheets. QNB’s FHLB stock was $
QNB has a maximum borrowing capacity with the FHLB of approximately $
There were
Note 11 - Subordinated Debt
On August 30, 2024, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and accredited investors (collectively, the "Subordinated Note Purchasers") pursuant to which the Company issued and sold $
- 93 -
in aggregate principal amount of its
The Subordinated Notes mature on
The Subordinated Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or
assets of the Company or any of its subsidiaries. The Subordinated Notes are not subject to redemption at the option of the holders. The Subordinated Notes are unsecured, subordinated obligations of the Company only and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Subordinated Notes rank junior in right to payment to the Company's current and future senior indebtedness. The Subordinated Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.
The carrying cost of the Subordinated Notes on the consolidated balance sheets represents the outstanding balance of the notes net of unamortized origination costs of $7
- 94 -
Note 12 - Income Taxes
The components of the provision for income taxes are as follows:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current Federal income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Current state income taxes |
|
|
|
|
|
|
|
|
|
|||
Deferred Federal income taxes (benefits) |
|
|
( |
) |
|
|
|
|
|
|
||
Deferred state income taxes (benefits) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Valuation adjustment |
|
|
|
|
|
|
|
|
( |
) |
||
Net provision |
|
$ |
|
|
$ |
|
|
$ |
|
|||
At December 31, 2025 and 2024, the tax effects of temporary differences that represent the significant portion of deferred tax assets and liabilities are as follows:
December 31, |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Allowance for credit losses on loans |
|
$ |
|
|
$ |
|
||
Net unrealized holding losses on investment |
|
|
|
|
|
|
||
Net unrealized holding losses on investment |
|
|
|
|
|
|
||
Non-accrual interest income |
|
|
|
|
|
|
||
Leasing liability |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Incurred but not reported medical expense |
|
|
|
|
|
|
||
Bonus |
|
|
|
|
|
|
||
State net operating loss carryforward |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Deferred loan income |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Mortgage servicing rights |
|
|
|
|
|
|
||
Net unrealized holding losses on investment |
|
|
|
|
|
|
||
Fair value remeasurements on interest rate swap |
|
|
|
|
|
|
||
Fair value adjustment on equity securities |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Right of use asset |
|
|
|
|
|
|
||
Subordinated debt costs |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total deferred tax liabilities |
|
|
|
|
|
|
||
Valuation allowance |
|
|
|
|
|
|
||
Net deferred tax asset |
|
$ |
|
|
$ |
|
||
The ability to realize 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 the above deferred tax assets except a $
- 95 -
A reconciliation of the tax provision on income before taxes computed at the statutory rates of
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
Dollar |
|
|
% |
|
|
Dollar |
|
|
% |
|
|
Dollar |
|
|
% |
|
||||||
Provision at statutory rate |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Tax-exempt interest and dividend income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Bank-owned life insurance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State income tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Merger-related costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Income tax provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Valuation Adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
|
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||||
Note 13 - Employee Benefit Plans
The
QNB’s Employee Stock Purchase Plan (the Plan) offers eligible employees an opportunity to purchase shares of QNB Corp. common stock at a
Shares issued pursuant to the Plan were as follows:
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Shares |
|
|
|
|
|
|
|
|
|
|||
Price per share |
|
$ |
|
|
$ |
|
|
$ |
|
|||
QNB implemented the Nonqualified Deferred Compensation Plan (NDCP) during 2023 for the benefit of a select group of its management or highly compensated employees. The purpose of the NDCP is to provide a deferred compensation vehicle to which QNB may credit discretionary amounts on behalf of the participants for recruitment and reward. QNB contributed $
Note 14 - Stock Option Plan and Non-Employee Director Compensation Plan
QNB has a stock incentive plan (the 2025 Plan) administered by a committee which consists of three or more members of QNB’s Board of Directors. The 2025 Plan, authorizing the issuance of
The 2015 Stock Incentive Plan (the 2015 Plan) provides for the granting of either (i) Non-Qualified Stock Options (NQSOs) or (ii) Incentive Stock Options (ISOs). The exercise price of an option, as defined by the 2015 Plan, is the fair market value of QNB’s common stock at the date of grant. The 2015 Plan provides for the exercise either in cash or in securities of the Company or in any combination thereof. The 2015 Plan, which expired March 15, 2025, authorized the issuance of
- 96 -
As of December 31, 2025, there was approximately $
Stock option activity during 2025, 2024, and 2023 was as follows:
|
|
Number |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at December 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at December 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of December 31, 2025, outstanding stock options consist of the following:
|
|
Options |
|
|
Exercise |
|
|
Remaining life |
|
|
Options |
|
|
Exercise |
|
|||||
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Outstanding at December 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|||||
The intrinsic value related to total stock options exercised during 2025, 2024, and 2023 are as follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Intrinsic value of stock options exercised |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
The QNB Corp. 2023 Non-Employee Director Compensation Plan was approved by shareholders on May 23, 2023 (The "Director Compensation Plan"). The Director Compensation Plan authorized the issuance of
- 97 -
Note 15 - Related Party Transactions
QNB has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its executive officers, directors, principal shareholders, their immediate families and affiliated companies. The following table presents activity and amounts due from directors, principal officers, and their related interests. All of these transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons.
Balance, December 31, 2024 |
|
$ |
|
|
New loans |
|
|
|
|
Repayments |
|
|
( |
) |
Balance, December 31, 2025 |
|
$ |
|
The following table provides additional information regarding transactions with related parties.
December 31, |
|
2025 |
|
|
2024 |
|
||
Commitments to extend credit |
|
$ |
|
|
$ |
|
||
Letters of credit |
|
|
|
|
|
|
||
Deposits received |
|
|
|
|
|
|
||
Note 16 - Commitments and Contingencies
Financial instruments with off-balance sheet risk:
In the normal course of business there are various legal proceedings, commitments, and contingent liabilities which are not reflected in the Consolidated Financial Statements. Management does not anticipate any material losses as a result of these transactions and activities. They include, among other things, commitments to extend credit and standby letters of credit. The maximum exposure to credit loss, which represents the possibility of sustaining a loss due to the failure of the other parties to a financial instrument to perform according to the terms of the contract, is represented by the contractual amount of these instruments. QNB uses the same lending standards and policies in making credit commitments as it does for on-balance sheet instruments. The activity is controlled through credit approvals, control limits, and monitoring procedures. QNB applies the resulting loss factors under the allowance for credit losses on loans to its unused commitments, assuming: additional funding for commercial lines up to the average line usage for non-pass rated lines with no current usage; and, additional funding up to the average line usage for retail lines with no current usage. This resulted in an allowance for credit losses on unused commitments of $
A summary of the Bank's financial instrument commitments is as follows:
December 31, |
|
2025 |
|
|
2024 |
|
||
Commitments to extend credit and unused lines of credit |
|
$ |
|
|
$ |
|
||
Standby letters of credit |
|
|
|
|
|
|
||
Total financial instrument commitments |
|
$ |
|
|
$ |
|
||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. QNB evaluates each customer’s creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial or performance obligation of a customer to a third party. QNB’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making conditional obligations as it does for on-balance sheet instruments. Standby letters of credit totaling $
- 98 -
sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The amount of the liability as of December 31, 2025 and 2024 for guarantees under standby letters of credit issued is not material.
Other commitments:
QNB has committed to various operating leases for several of their branch and office facilities. Some of these leases include specific provisions relating to rent increases.
|
|
Operating Leases |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total undiscounted cashflows |
|
|
|
|
Total discount on cashflows |
|
|
( |
) |
|
$ |
|
||
Some of the leases contain renewal options to extend the initial terms of the lease for periods ranging from to
Note 17 - Accumulated Other Comprehensive Income (Loss)
The following shows the components of accumulated other comprehensive income (loss) during the periods ended December 31, 2025, 2024 and 2023:
December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Unrealized net holding loss on available-for-sale securities |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Tax effect* |
|
|
|
|
|
|
|
|
|
|||
Accumulated other comprehensive loss income, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
*
The following table presents amounts reclassified out of accumulated other comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023:
|
|
Amount reclassified from accumulated other |
|
|
|
|||||||||
Details about accumulated other comprehensive loss |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
Affected line item in statement of income |
|||
Realized net holding loss on available-for-sale securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net (loss) gain on sales of investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Tax effect* |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|||
Total reclassification out of accumulated other |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net of tax |
|
**
Note 18 - Fair Value Measurements and Fair Values of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (fair values are not adjusted
- 99 -
for transaction costs). ASC 820 also establishes a framework (fair value hierarchy) for measuring fair value under US GAAP and expands disclosures about fair value measurements.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: |
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
|
|
Level 2: |
|
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. |
|
|
|
Level 3: |
|
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). |
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The measurement of fair value should be consistent with one of the following valuation techniques: market approach, income approach, and/or cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). For example, valuation techniques consistent with the market approach often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering factors specific to the measurement (qualitative and quantitative). Valuation techniques consistent with the market approach include matrix pricing. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the security’s relationship to other benchmark quoted securities.
For financial assets measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy used were as follows:
December 31, 2025 |
|
Quoted prices |
|
|
Significant |
|
|
Significant |
|
|
Balance at end |
|
||||
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasuries |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
U.S. Government agency securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
State and municipal securities (1) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
U.S. Government agencies and sponsored enterprises (GSEs): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities (1) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Collateralized mortgage obligations (CMOs) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Corporate debt securities and money market funds |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Total securities available-for-sale |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Total recurring fair value measurements |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
542,830 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nonrecurring fair value measurements * |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Mortgage servicing rights |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total nonrecurring fair value measurements |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
(1)
* impairment
- 100 -
December 31, 2024 |
|
Quoted prices |
|
|
Significant |
|
|
Significant |
|
|
Balance at end |
|
||||
Recurring fair value measurements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasuries |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
U.S. Government agency securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
State and municipal securities (1) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
U.S. Government agencies and sponsored enterprises (GSEs): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Mortgage-backed securities (1) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Collateralized mortgage obligations (CMOs) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Corporate debt securities |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Total securities available-for-sale |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Equity securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
Total recurring fair value measurements |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nonrecurring fair value measurements * |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collateral dependent loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Mortgage servicing rights |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Total nonrecurring fair value measurements |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
(1)
* impairment
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which QNB has utilized Level 3 inputs to determine fair value:
|
|
Quantitative information about Level 3 fair value measurements |
|
|||||||||||
December 31, 2025 |
|
Fair value |
|
|
Valuation |
|
|
Unobservable |
|
|
Value or range |
|
||
Collateral dependent loans |
|
$ |
|
|
Appraisal of collateral |
(1) |
|
Appraisal adjustments |
(2) |
|
- |
|
||
|
|
|
|
|
|
|
|
Liquidation expenses |
(3) |
|
|
% |
||
Mortgage servicing rights |
|
|
|
|
Discounted cash flow |
|
|
Remaining term |
|
|
|
|||
|
|
|
|
|
|
|
|
Prepayment Speeds |
|
|
|
|||
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|||
|
|
Quantitative information about Level 3 fair value measurements |
|
|||||||||||
December 31, 2024 |
|
Fair value |
|
|
Valuation |
|
|
Unobservable |
|
|
Value or range |
|
||
Collateral dependent loans |
|
$ |
|
|
Appraisal of collateral |
(1) |
|
Appraisal adjustments |
(2) |
|
- |
|
||
|
|
|
|
|
|
|
|
Liquidation expenses |
(3) |
|
|
% |
||
Mortgage servicing rights |
|
|
|
|
Discounted cash flow |
|
|
Remaining term |
|
|
|
|||
|
|
|
|
|
|
|
|
Prepayment Speeds |
|
|
|
|||
|
|
|
|
|
|
|
|
Discount rate |
|
|
|
|||
- 101 -
The following table presents additional information about the securities available-for-sale measured at fair value on a recurring basis and for which QNB utilized significant unobservable inputs (Level 3 inputs) to determine fair value for the year ended December 31:
|
|
Fair value measurements using |
|
|||||
Securities available-for-sale |
|
2025 |
|
|
2024 |
|
||
Balance, beginning of year |
|
$ |
|
|
$ |
|
||
Payments received |
|
|
( |
) |
|
|
( |
) |
Sale of securities |
|
|
|
|
|
|
||
Total gains or losses (realized/unrealized) |
|
|
|
|
|
|
||
Included in earnings |
|
|
|
|
|
|
||
Included in other comprehensive |
|
|
|
|
|
|
||
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
||
Balance, end of year |
|
$ |
|
|
$ |
|
||
There were also no transfers in or out of level 3 for the same periods. There were
The Level 3 securities consist of
Given conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, we determined:
The Bank used an independent third party to value this security using a discounted cash flow analysis. Based on management’s review of the bond’s underlying issuer, there are
The following information should not be interpreted as an estimate of the fair value of QNB since a fair value calculation is only provided for a limited portion of QNB’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between QNB’s disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the fair values of each major classification of financial instrument and non-financial asset at December 31, 2025 and 2024:
Cash and cash equivalents, accrued interest receivable and accrued interest payable (carried at cost): The carrying amounts reported in the balance sheet approximate those assets’ fair value.
Investment securities (including derivative instruments) (carried at fair value): The fair value of securities is primarily determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. Level 2 debt securities are valued by a third-party pricing service commonly used in the banking industry. Level 2 fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution date,
- 102 -
market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.
The fair value of derivatives instruments designated as fair value hedges are based on estimates QNB would receive or pay to terminate the contracts or agreement, taking into account current interest rates and when appropriate, the credit-worthiness of the counterparties; these values are included in Level 2.
Restricted investment in stocks (carried at cost): The fair value of stock in ACBB, the FHLB, the SHCPFIC and VISA Class B-2 is the carrying amount, based on redemption provisions, and considers the limited marketability of such securities.
Loans Held for Sale (carried at lower of cost or fair value): The fair value of loans held for sale is determined, when possible, using quoted secondary market prices. If no such quoted prices exist, the fair value of a loan is determined using quoted prices for a similar loan or loans, adjusted for the specific attributes of that loan.
Loans Receivable (carried at cost): The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Collateral Dependent Loans (generally collateral value less cost to sell): Collateral dependent loans are loans for which the Company has measured generally based on the fair value of the loan’s collateral, less cost to sell. The value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Mortgage Servicing Rights (carried at lower of cost or fair value): The fair value of mortgage servicing rights is based on a valuation model that calculates the present value of estimated net servicing income. The mortgage servicing rights are stratified into tranches based on predominant characteristics, such as interest rate, loan type and investor type. The valuation incorporates assumptions that market participants would use in estimating future net servicing income.
Deposit liabilities (carried at cost): The fair value of deposits with no stated maturity (e.g. demand deposits, interest-bearing demand accounts, money market accounts and savings accounts) are by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). This approach to estimating fair value excludes the significant benefit that results from the low-cost funding provided by such deposit liabilities, as compared to alternative sources of funding. Deposits with a stated maturity (time deposits) have been valued using the present value of cash flows discounted at rates approximating the current market for similar deposits.
Short-term borrowings (carried at cost): The carrying amount of short-term borrowings approximates their fair values.
Long-term debt (carried at cost): Long-term debt has stated maturities and have been valued using the present value of cash flows discounted at rates approximating the current market for similar debt instruments.
Subordinated debt (carried at cost): Subordinated debt has stated maturities and call dates and have been valued using the present value of cash flows discounted at rates approximating the current market for similar debt instruments.
Off-balance-sheet instruments (disclosed at cost): The fair value for the Bank’s off-balance sheet instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.
Management uses its best judgment in estimating the fair value of QNB’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of the respective period ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.
- 103 -
The estimated fair values and carrying amounts of QNB’s financial and off-balance sheet instruments are summarized as follows:
|
|
|
|
|
|
|
|
Fair value measurements |
|
|||||||||||
December 31, 2025 |
|
Carrying |
|
|
Fair value |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
|||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Available-for-sale (1) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Restricted investment in bank stocks |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Loand held for sale |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Net loans |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Mortgage servicing rights |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits with no stated maturities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Deposits with stated maturities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Long-term debt |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Subordinated debt |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Accrued interest payable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Off-balance sheet instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commitments to extend credit |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Standby letters of credit |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
(1) Includes derivatives designated as fair value hedging instruments.
- 104 -
|
|
|
|
|
|
|
|
Fair value measurements |
|
|||||||||||
December 31, 2024 |
|
Carrying |
|
|
Fair value |
|
|
Quoted |
|
|
Significant |
|
|
Significant |
|
|||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Available-for-sale (1) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Restricted investment in bank stocks |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Loand held for sale |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Net loans |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Mortgage servicing rights |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits with no stated maturities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Deposits with stated maturities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
Long-term debt |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Subordinated debt |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Accrued interest payable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Off-balance sheet instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commitments to extend credit |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Standby letters of credit |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
(1)
Note 19 - Derivatives and Hedging Activities
QNB's risk management objective with respect to derivative financial instruments is to hedge the risk of changes in the fair value of certain fixed-rate available-for-sale investment securities, included in a closed portfolio, for changes in the Secured Overnight Financing Rate ("SOFR"), to add stability to interest income and to manage its exposure to interest rate movements. The effective and ineffective portions of changes in the fair value of each derivative financial instrument is reported in accumulated other comprehensive (loss) income, net of tax, and are reclassified to interest income as interest payments are made or received on the hedged portfolios. QNB assesses the effectiveness of each hedging relationship using a regression analysis of prior periodic changes in fair value of both the hedge and the hedged item. In the assessment of hedge effectiveness, QNB will consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that could require the counterparty to make payments (counterparty default risk). If the likelihood that the counterparty will not default ceases to be probable, the hedge may no longer be highly effective and hedge ineffectiveness due to counterparty payment risk will be assessed.
The following table presents the notional amounts of derivatives designated as fair value hedging instruments at December 31, 2025 and 2024. QNB pledges cash or securities to cover the negative fair value of derivatives instruments. Cash collateral associated with the derivative instruments are not added to or netted against the fair value amounts.
- 105 -
|
|
At December 31, 2025 |
|
|
At December 31, 2024 |
|
||||||||||||||||||
|
|
Interest Rate Swaps-Fair Value Hedges |
|
|
Interest Rate Swaps-Fair Value Hedges |
|
||||||||||||||||||
Balance Sheet Classification |
|
Notional Amount |
|
|
Amortized Cost of Hedged Portfolio |
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount of Hedged Asset |
|
|
Notional Amount |
|
|
Amortized Cost of Hedged Portfolio |
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount of Hedged Asset |
|
||||||
Investment Securities Available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
State and municipal securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
U.S. Government agencies and GSE mortgage backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The following table presents amounts of included in the Consolidated Statements on Income for derivatives designated as fair value hedging instruments for the years ended December 31, 2025 and 2024.
For the year ended |
|
December 31, |
|
|||||
Income Sheet Classification |
|
2025 |
|
|
2024 |
|
||
Interest and dividends on available-for-sale and equity securities: |
|
|
|
|
|
|
||
State and municipal securities |
|
|
|
|
|
|
||
Recognized on fair value hedge |
|
$ |
|
|
$ |
|
||
Recognized on hedge portfolio |
|
|
( |
) |
|
|
( |
) |
Recognized on remeasurement of fair value hedge |
|
|
|
|
|
|
||
U.S. Government agencies and GSE mortgage backed securities |
|
|
|
|
|
|
||
Recognized on fair value hedge |
|
|
|
|
|
|
||
Recognized on hedge portfolio |
|
|
( |
) |
|
|
( |
) |
Recognized on remeasurement of fair value hedge |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
- 106 -
Note 20 - Revenue Recognition from Contracts with Customer
QNB generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. The main types of revenue contracts included in non-interest income within the Consolidated Statements of Income are as follows:
- 107 -
Note 21 - Parent Company Financial Information
Condensed financial statements of QNB Corp. only:
Balance Sheets |
|
|
|
|
|
|
||
December 31, |
|
2025 |
|
|
2024 |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Balances with subsidiary or affiliated depository institutions |
|
$ |
|
|
$ |
|
||
Balances with unrelated depository institutions |
|
|
|
|
|
|
||
Investment securities: |
|
|
|
|
|
|
||
Available-for-sale (amortized cost $ |
|
|
|
|
|
|
||
Investment in subsidiary |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Subordinated debt |
|
$ |
|
|
$ |
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Shareholders' equity |
|
|
|
|
|
|
||
Total liabilities and shareholders' equity |
|
$ |
|
|
$ |
|
||
Statements of Income |
|
|
|
|
|
|
|
|
|
|||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Dividends from subsidiary |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Interest, dividend and other income |
|
|
|
|
|
|
|
|
|
|||
Securities gains (losses) |
|
|
|
|
|
|
|
|
( |
) |
||
Net unrealized (loss) gain on investment equity securities |
|
|
|
|
|
( |
) |
|
|
|
||
Total income |
|
|
|
|
|
|
|
|
|
|||
Expenses |
|
|
|
|
|
|
|
|
|
|||
Income before applicable income taxes and equity in |
|
|
|
|
|
|
|
|
|
|||
Provision for income tax (benefit) expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income before equity in undistributed income of subsidiary |
|
|
|
|
|
|
|
|
|
|||
Equity in undistributed income of subsidiary |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Statements of Comprehensive Income (Loss) |
|
|||||||||||||||||||||||||||||||||||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||||||||||||||
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|
Before |
|
|
Tax |
|
|
Net of |
|
|||||||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net unrealized holding gain on available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Unrealized holding gain arising during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Reclassification adjustment for loss included in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||
- 108 -
Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|||
Year ended December 31, |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Operating Activities |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
|
|
|
|||
Equity in undistributed income from subsidiary |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net securities gains (losses) |
|
|
|
|
|
( |
) |
|
|
|
||
Net unrealized loss (gain) on investment equity securities |
|
|
|
|
|
|
|
|
( |
) |
||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|||
Accretion of discounts on investment securities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred costs on subordinated debt |
|
|
|
|
|
|
|
|
|
|||
Increase (decrease) in other liabilities |
|
|
|
|
|
|
|
|
( |
) |
||
(Decrease) increase in other assets |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Deferred income tax (benefit) provision |
|
|
( |
) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|||
Investing activities |
|
|
|
|
|
|
|
|
|
|||
Purchase of investment equity securities |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Purchase of investment securities available-for-sale |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of investment equity securities |
|
|
|
|
|
|
|
|
|
|||
Proceeds from maturities of investment securities available-for-sale |
|
|
|
|
|
|
|
|
|
|||
Capital contribution to Bank |
|
|
|
|
|
( |
) |
|
|
|
||
Net cash used by investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|||
Issuance of subordinated debt |
|
|
|
|
|
|
|
|
|
|||
Cash dividend paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Treasury stock purchase |
|
#REF! |
|
|
|
|
|
|
|
|||
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|||
Net cash provided by (used) by financing activities |
|
#REF! |
|
|
|
|
|
|
( |
) |
||
Iincrease) decrease in cash and cash equivalents |
|
#REF! |
|
|
|
|
|
|
|
|||
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at end of year |
|
#REF! |
|
|
$ |
|
|
$ |
|
|||
Note 22 - Regulatory Restrictions
Dividends payable by the Company and the Bank are subject to various limitations imposed by statutes, regulations and policies adopted by bank regulatory agencies. Under Pennsylvania and Federal banking law, the Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. Under Federal Reserve regulations, the Bank is limited as to the amount it may lend affiliates, including the Company, unless such loans are collateralized by specific obligations.
Both the Company and the Bank are subject to regulatory capital requirements administered by Federal bank regulatory agencies. Failure to meet minimum capital requirements can initiate actions by regulators that could have an effect on the financial statements. Under the framework for prompt corrective action, both the Company and the Bank must meet capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items. The capital amounts and classification are also subject to qualitative judgments by the regulators. Management believes, as of December 31, 2025, that the Company and the Bank met capital adequacy requirements to which they were subject.
- 109 -
The Bank is presently considered to be “well capitalized” under the regulatory framework. To be categorized as well capitalized, the Company and the Bank must maintain minimum ratios set forth in the table below.
|
|
Capital levels |
|
|||||||||||||||||||||
|
|
Actual |
|
|
Adequately capitalized |
|
|
Well capitalized |
|
|||||||||||||||
As of December 31, 2025 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
Total risk-based capital (to risk-weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier I capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common equity tier 1 capital (to risk- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
|||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier I capital (to average assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
|||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Capital levels |
|
|||||||||||||||||||||
|
|
Actual |
|
|
Adequately capitalized |
|
|
Well capitalized |
|
|||||||||||||||
As of December 31, 2024 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
Total risk-based capital (to risk-weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
$ |
|
|
|
% |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier I capital (to risk-weighted assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Common equity tier 1 capital (to risk- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
|||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tier I capital (to average assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
N/A |
|
|||||||
Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
- 110 -
Note 23 - Consolidated Quarterly Financial Data (Unaudited)
The unaudited quarterly results of operations for the years ended 2025 and 2024 are in the following table:
|
|
Quarters Ended 2025 |
|
|
Quarters Ended 2024 |
|
||||||||||||||||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||||||
Interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Provison (reversal of provision) for credit losses |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||||
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net Income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Earnings Per Share - basic * |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Earnings Per Share - diluted * |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
*
- 111 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of QNB’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer), management has evaluated the effectiveness of the design and operation of QNB’s disclosure controls and procedures as of December 31, 2025. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to QNB’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Report.
Information required by this item is set forth in Management’s Report included under Item 8, which is incorporated by reference into this item.
On May 14, 2013, COSO issued an updated version of its Internal Control – Integrated Framework, referred to as the 2013 COSO Framework. Management’s assessment of the overall effectiveness of our internal controls over financial reporting for the year ended December 31, 2024 was based on the 2013 COSO Framework.
There were no changes to the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended December 31, 2025 that materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.
ITEM 9B. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the three months ended December 31, 2025,
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
- 112 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference to information appearing in QNB Corp.’s definitive proxy statement to be used in connection with the 2026 Annual Meeting of Shareholders under the captions:
The Company has adopted a Code of Business Conduct and Ethics applicable to its CEO, CFO and Controller as well as its long-standing Code of Ethics which applies to all directors and employees. The codes are available on the Company’s website at www.qnbbank.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the information appearing in QNB Corp.’s definitive proxy statement to be used in connection with the 2026 Annual Meeting of Shareholders under the captions:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes QNB’s equity compensation plan information as of December 31, 2025. Information is included for both equity compensation plans approved by QNB shareholders and equity compensation plans not approved by QNB shareholders.
Plan Category |
|
Number of shares to be |
|
|
Weighted-average |
|
|
Number of shares |
|
|||
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|||
Equity compensation plans approved by QNB shareholders: |
|
|
|
|
|
|
|
|
|
|||
2015 Stock option plan |
|
|
176,145 |
|
|
$ |
31.07 |
|
|
|
— |
|
2025 Stock option plan |
|
|
— |
|
|
|
— |
|
|
|
500,000 |
|
2021 Employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
3,319 |
|
Equity compensation plans not approved by QNB shareholders: |
|
|
|
|
|
|
|
|
|
|||
None |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
176,145 |
|
|
$ |
31.07 |
|
|
|
503,319 |
|
Additional information required by Item 12 is incorporated by reference to the information appearing in QNB Corp.’s definitive proxy statement to be used in connection with the 2026 Annual Meeting of Shareholders under the captions:
- 113 -
The information required by Item 13 is incorporated by reference to the information appearing in QNB Corp.’s definitive proxy statement to be used in connection with the 2026 Annual Meeting of Shareholders under the captions:
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the information appearing in QNB Corp.’s definitive proxy statement to be used in connection with the 2026 Annual Meeting of Shareholders under the captions:
- 114 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following financial statements are included by reference in Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm |
|
55 |
Consolidated Balance Sheets |
|
57 |
Consolidated Statements of Income |
|
58 |
Consolidated Statements of Comprehensive Income |
|
59 |
Consolidated Statements of Shareholders’ Equity |
|
60 |
Consolidated Statements of Cash Flows |
|
61 |
Notes to Consolidated Financial Statements |
|
62 |
2. Financial Statement Schedules
The financial statement schedules required by this Item are omitted because the information is either inapplicable, not required or is in the Consolidated Financial Statements as a part of this Report.
- 115 -
3. The following exhibits are incorporated by reference herein or filed with this Form 10-K:
2.1- |
|
Agreement and Plan of Merger, dated as of September 23, 2025. by and between QNB Corp. and The Victory Bancorp, Inc. (Incorporated by reference to Exhibit 2.1 of the Registrant's Report on Form 8-K, SEC File No. 0-17706, filed with the Commission on September 23, 2025) |
3.1- |
|
Articles of Incorporation of Registrant, as amended. (Incorporated by reference to Exhibit 3(i) of Registrant's Annual Report on Form 10-K, SEC File No. 0-17706, filed with the Commission on March 13, 2015) |
3.2- |
|
By-laws of Registrant, as amended January 26, 2021. (Incorporated by reference to Exhibit 3.1 of the Registrant's Report on Form 8-K, SEC File No. 0-17706, filed with the Commission on January 27, 2021) |
4.1- |
|
Description of Capital Securities (Incorporated by reference to Exhibit 4.1 of Registrant's Annual Report on Form 10-K, SEC File No. 0-17706, filed with the Commission on March 11, 2021) |
4.2- |
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Form of Subordinated Note, dated August 30, 2024. (Incorporated be reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K, SEC file No. 0-17706, filed with the Commission on September 3, 2024.) |
10.1- |
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Employment Agreement between Registrant and David W. Freeman. (Incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K, SEC File No. 0-17706, filed with the Commission on December 28, 2012)* |
10.2- |
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Change of Control Agreement between Registrant and Scott G. Orzehoski. (Incorporated by reference to Exhibit 10.2 of the registrant's Annual Report on Form 10-K, SEC File No. 0-17706 filed with the Commission on March 14, 2023)* |
10.3- |
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Change of Control Agreement between Registrant and Jeffrey Lehocky. (Incorporated by reference to Exhibit 10.1 of Registrant’s Annual Report on Form 8-K, SEC File No. 0-17706, filed with the Commission on November 3, 2022)* |
10.4- |
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Change of Control Agreement between Registrant and Christopher T. Cattie. (Incorporated by reference to Exhibit 10.9 of Registrant’s Annual Report on Form 10-K, SEC File No. 0-17706, filed with the Commission on March 14, 2016)* |
10.5- |
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Change of Control Agreement between Registrant and Courtney L. Covelens. (Incorporated by reference to Exhibit 10.5 of the registrant's Annual Report on Form 10-K, SEC File No. 0-17706 filed with the Commission on March 14, 2023)* |
10.6- |
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Change of Control Agreement between Registrant and Christina S. McDonald. (Incorporated by reference to Exhibit 10.6 of the registrant's Annual Report on Form 10-K, SEC File No. 0-17706 filed with the Commission on March 14, 2023* |
10.7- |
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QNB Corp 2025 Equity Incentive Plan (Incorporated by reference to Exhibit A to QNB Corp.’s proxy statement, filed April 8, 2025)* |
10.9- |
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QNB Corp. 2021 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit A to QNB Corp.’s proxy statement, filed with the Commission on April 15, 2021) |
10.10- |
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QNB Corp. 2023 Non-Employee Director Compensation Plan. (Incorporated by reference to Appendix A to QNB Corp.'s proxy statement, filed April 11, 2023)* |
10.11- |
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QNB Bank Nonqualified Deferred Compensation Plan effective August 1, 2023 (Incorporated by reference to Exhibit 10.11 of the registrant's Annual Report on Form 10-K, SEC File No. 00-17706 filed Commission on March 15, 2024)*. |
10.12- |
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Form of Subordinated Note Purchase Agreement, dated August 30, 2024. (Incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K, SEC File no. 0-17706, filed with the Commission on September 3, 2024.) |
19.1- |
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Policies and Procedures Governing Trading in Securities and Confidentiality of of Insider Information for Officers, Directors and Other Information Sensitive Employees |
21.1- |
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Subsidiaries of the Registrant |
23.1- |
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Consent of Independent Registered Public Accounting Firm |
31.1- |
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Section 302 Certification of the Chief Executive Officer |
31.2- |
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Section 302 Certification of the Chief Financial Officer |
32.1- |
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Section 906 Certification of the Chief Executive Officer |
32.2- |
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Section 906 Certification of the Chief Financial Officer |
* Indicates compensatory plan or arrangement
The following Exhibits are being furnished ** as part of this report:
No. |
|
Description |
101.INS |
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Inline XBRL Instance Document ** |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents ** |
104 |
|
Cover page interactive data file (formatted as inline XBRL and continued in Exhibit 101). |
** These interactive data files are being furnished as part of this Annual Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
- 116 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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QNB Corp. |
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March 16, 2026 |
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BY: |
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/s/ David W. Freeman |
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David W. Freeman |
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Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated
/s/ Randy S. Bimes |
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Director, Chairman |
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March 16, 2026 |
Randy S. Bimes |
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/s/ David W. Freeman |
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Chief Executive Officer, |
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March 16, 2026 |
David W. Freeman |
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Principal Executive |
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Officer and Director |
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/s/ Autumn R. Bayles |
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Director |
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March 16, 2026 |
Autumn R. Bayles
/s/ Laurie A. Bergman |
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Director |
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March 16, 2026 |
Laurie A. Bergman |
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/s/ Kenneth F. Brown, Jr. |
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Director |
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March 16, 2026 |
Kenneth F. Brown, Jr. |
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/s/ Gerald E.Gorski |
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Director |
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March 16, 2026 |
Gerald E. Gorski |
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/s/ Jennifer L. Mann |
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Director |
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March 16, 2026 |
Jennifer L. Mann |
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/s/ Ranajoy Ray-Chaudhuri |
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Director |
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March 16, 2026 |
Ranajoy Ray-Chaudhuri |
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/s/ Randall E. Stauffer |
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Director |
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March 16, 2026 |
Randall E. Stauffer |
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/s/ W. Randall Stauffer |
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Director |
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March 16, 2026 |
W. Randall Stauffer |
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/s/ Scott R. Stevenson |
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Director |
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March 16, 2026 |
Scott R. Stevenson |
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/s/ Jeffrey Lehocky |
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Chief Financial Officer |
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March 16, 2026 |
Jeffrey Lehocky |
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(Principal Financial Officer) |
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/s/ Mary E. Liddle |
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Chief Accounting Officer |
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March 16, 2026 |
Mary E. Liddle |
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(Principal Accounting Officer) |
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- 117 -
FAQ
How did QNB Corp. (QNBC) perform financially in 2025?
What are QNB Corp. (QNBC)’s key balance sheet figures at year-end 2025?
What are QNB Corp. (QNBC)’s capital ratios and asset quality metrics?
What merger has QNB Corp. (QNBC) announced with The Victory Bancorp?
How did QNB Corp. (QNBC)’s net interest margin and loans change in 2025?
What dividends and share repurchases did QNB Corp. (QNBC) report?
What cybersecurity and risk management practices does QNB Corp. (QNBC) describe?
