QNBC 10-K & 10-Q changes, risk factors and insider trading
Qnb Corp. · Nasdaq · State Commercial Banks · CIK 750558 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “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.”
Largest changes
“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.”see in full comparison
“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. …”see in full comparison
“The Company’s investment in marketable equity securities during 2024 were primarily consists of investments in large cap stock companies. Changes in fair value were recorded in unrealized gain/(losses) in non-interest income. These equity securities were sold in 2024.”see in full comparison
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 forsee in full comparisonloancredit losses on loans based on a number of factors. If these assumptions are incorrect, the allowance forloancredit 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 forloancreditlosses,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.
Full comparison: every changed paragraph (6)
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 loancredit losses on loans based on a number of factors. If these assumptions are incorrect, the allowance for loancredit 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 loancredit losses,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.
The Company’s investment in marketable equity securities during 2024 were primarily consists of investments in large cap stock companies. Changes in fair value were recorded in unrealized gain/(losses) in non-interest income. These equity securities were sold in 2024.
The Bank has a $914,000$2,064,000 non-controlling investment in a discrete class of non-voting limited liability company membership interestsnterests 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 (1.54301.5108 as of SeptemberDecember 26,23, 20242025), 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.
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.
Management's Discussion & Analysis (MD&A)
Largest changes
“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. …”see in full comparison
“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. …”see in full comparison
Short-term borrowings comprising commercial sweep accounts, overnight and short-term FHLB borrowings and short-term FRB borrowings,see in full comparisondecreasedincreased$40,250,000,$26,757,000, or42.8%,49.7%, to$53,844,000$80,601,000 at December 31,2024. 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%; there are no pre-payment penalties.2025. Commercial sweep accounts decreased$25,458,000$4,035,000 from$44,094,000 at December 31, 2023 to$18,636,000 at December 31,2024.2024 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 and none at December 31, 2023.2024. The FHLB borrowings were used to support loan growth.
“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.”see in full comparison
“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. …”see in full comparison
“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. …”see in full comparison
Full comparison: every changed paragraph (190)
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.
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:
Net income for the year ended December 31, 20242025 was $11,448,000,$14,090,000, or $3.12$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 basisbasis. andExcluding 2022the impact of the merger-related costs net income of $15,921,000,tax, ordiluted $4.47earnings per share onwas a$4.08 dilutedfor basis.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 0.62%,0.74%, 0.54%0.65% and 0.93%0.57% in 2025, 2024, 2023, and 2022,2023, respectively, and return on average shareholders’ equity was 7.05%,12.28%, 6.04%11.78% and 10.90%,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 $12,237,000$18,193,000 to net income for the year ended December 31, 20242025 compared to $9,395,000$12,237,000 for the same period in 20232024; whereas the holding company contributed a net loss of $789,000$4,103,000 to consolidated net income for the year ended December 31, 20242025 compared to net incomeloss of $88,000$789,000 for the same period in 2023.2024. The increase at the Bank was primarily due to improvement in net interest margin and gains on sales of investments securities.margin. The decrease at the holding company resulted primarily from an increase in interest expense related to the issuance of subordinated debt in 2024.2024 and merger-related expenses.
The results for 2025 include the following significant components:
Net interest income increased $8,367,000, or 19.5%, to $51,229,000 for 2025.
The net interest margin on a tax-equivalent basis increased 29 basis points to 2.72% for 2025 from 2.43% for 2024.
Provision for credit losses was $449,000 for 2025, compared with a reversal of the provision for credit losses was $68,000 for 2024.
Non-interest income for 2025 was $6,957,000, an increase of $44,000, or 0.6%, compared with 2024.
Non-interest expense for 2025 was $39,807,000, an increase of $4,323,000, or 12.2%, compared with 2024. Excluding merger-related costs, non-interest expense for 2025 was $38,669,000, an increase of $3,185,000, or 9.0%, compared with 2024.
Total investment securities decreased $3,729,000, or 0.7%, from December 31, 2024.
Loans receivable grew $46,026,000, or 3.8%, from December 31, 2024.
Deposits increased $13,970,000, or 0.9%, from December 31, 2024.
The holding company issued $40,000,000 in subordinated debt in 2024. Other long-term debt decreased $30,000,000 and short-term borrowings increased $26,757,000, comparing 2025 to 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, 2024, compared with $1,975,000, or 0.16% of total loans receivable at December 31, 2024. Net recoveries for 2025 were $11,000, or 0.00% of average total loans for 2025, as compared with net charge-offs for 2024 were $59,000, or 0.01% of average total loans for 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 $1,975,000, or 0.16% of total loans receivable at December 31, 2024, compared with $1,940,000, or 0.18% of total loans receivable at December 31, 2023. Loans on non-accrual status were $1,975,000 at December 31, 2024 compared with $1,940,000 at December 31, 2023. Net charge-offs for 2024 were $59,000, or 0.01% of average total loans, as compared with net recoveries for 2023 of $238,000, or 0.02% of average total loans for 2023.
The results for 2023 include the following significant components:
Net interest income decreased $4,342,000, or 9.76%, to $40,155,000 for 2023.
The net interest margin on a tax-equivalent basis decreased 32 basis points to 2.39% for 2023 from 2.71% for 2022.
Provision for credit losses was a credit of $844,000 for 2023, compared with a credit of $850,000 for 2022.
Non-interest income for 2023 was $4,837,000, a decrease of $894,000, or 15.6%, compared with 2022.
Non-interest expense for 2023 was $34,109,000, an increase of $2,617,000, or 8.3%, compared with 2022.
Total investment securities declined $62,489,000, or 11.2%, from December 31, 2022.
Loans receivable grew $54,148,000, or 5.2%, from December 31, 2022.
Deposits increased $70,344,000, or 5.0%, from December 31, 2022.
Total non-performing loans, which represent loans on non-accrual status and loans past due 90 days or more and still accruing interest, were $1,940,000, or 0.18% of total loans receivable at December 31, 2023, compared with $9,121,000, or 0.88% of total loans receivable at December 31, 2022. Loans on non-accrual status were $1,940,000 at December 31, 2023 compared with $4,820,000 at December 31, 2022. Net recoveries for 2023 were $238,000, or 0.02% of average total loans, as compared with net recoveries for 2022 of $197,000, or 0.02% of average total loans for 2022.
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 (Fed).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.
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.
On a tax-equivalent basis, net interest income for 2023 decreased $4,471,000, or 9.9%, to $40,739,000. The net interest margin, which decreased 32 basis points to 2.39%, was unfavorably impacted by increased rates on deposits and short-term borrowings. The average rate earned on earning assets increased 91 basis points from 3.18% for 2022 to 4.09% for 2023 with the yield on investments increasing 47 basis points and the yield on loans increasing 95 basis points. The yield on investment securities was favorably impacted by increased yields on all categories, causing an increase in interest income of $3,057,000; the yield was unfavorably impacted by a decrease in average volume of $67,778,000 contributing to a $1,307,000 decrease in interest income. The yield on loans was favorably impacted by increased rates in all loan categories, contributing to a $9,999,000 increase in interest income. This was also favorably impacted by a $73,104,000 net increase in average volume, of which $76,271,000 was related to an increase in average commercial real estate loans, contributing $3,204,000 in interest income; partially offset by a decrease of $7,613,000 in commercial and industrial loans average balances, resulting in a decrease of $389,000 in interest income. The yield on total average interest-bearing liabilities increased 151 basis points from 0.60% for 2022 to 2.11% for 2023. The average rate paid on interest-bearing deposits increased from 0.57% to 2.01% for the same time periods, respectively, contributing to an increase in interest expense of $17,446,000, and a $29,102,000 increase in average interest-bearing deposits resulting in additional interest expense of $651,000. The average rate paid on short-term borrowings increased from 1.00% to 3.01% for the same time periods, respectively, contributing to an increase in interest expense of $2,182,000. Net interest spread decreased 60 basis points to 1.98% for 2023 compared to 2.58% for 2022.
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 $14,960,000$8,459,000 to $84,626,000$93,085,000 for 2024,2025, while total interest expense increased $12,279,000$203,000 to $41,206,000.$41,409,000. Volume growth in earning assets contributed an additional $6,500,000$6,655,000 of interest income and interest rate increases contributed an additional $8,460,000$1,804,000 of interest income. Rate-related interest expense increaseddecreased $7,817,000,$3,940,000, while volume-related interest expense increased $4,462,000.$4,143,000.
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 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.
Income on U.S. Government agency securities yields were 1.17% for 2024 compared to 1.11% for 2023. Most of the bonds in the agency portfolio have call features ranging from three months to three years, none of which were exercised during 2024. 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 waswere 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.
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 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.
Interest income on available-for-sale and equity investment securities increased $1,750,000 when comparing the two years. The 47 basis-point increase in rate contributed an additional $3,057,000 to interest income and the $67,778,000 decrease in volume reduced interest income $1,307,000. The average yield on the available-for-sale and equity investment portfolio increased to 2.18% for 2023 compared to 1.71% for 2022.
Income on U.S. Government agency securities remained level at yields of 1.11% for 2023 compared to 1.10% for 2022. Most of the bonds in the agency portfolio have call features ranging from three months to three years, none of which were exercised during 2023.
Interest income on state and municipal securities increased $108,000. Average balances, which decreased $18,528,000, reduced interest income by $441,000. The increase in yield of 50 basis points from 2.39% in 2022 to 2.89% in 2023 contributing $549,000 to interest income more than offset the decrease in interest income caused by volume.
Interest income on mortgage-backed securities and CMOs increased $1,496,000 due to a 56 basis-point increase in rate from 1.58% for 2022 to 2.14% for 2023 adding $2,249,000 to interest income; this was partly offset by a $47,770,000 decrease in average balances reducing interest income by $753,000.
Income on corporate debt securities increased $2,000 due to an increase in yield from 4.37% for 2022 to 4.40% for 2023.
Excess cash at the holding company was invested in Treasury securities during 2023 adding $223,000 to interest income.
Dividend income on equities decreased $79,000 due to a decrease in average balances of $4,427,000, partially offset by an increase in yield of 90 basis points.
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.
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, retailRetail 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.
What changed in the latest 10-Q
Risk Factors
There were no material changes to the Risk Factors described in Item 1A in QNB’s Annual Report on Form 10-K for the period ended December 31, 2025.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Net Interest Income and Net Interest Margin – Six-Month Comparison”
New heading “Six-Month Comparison”
New heading “Six-Month Comparison”
Largest changes
“Net Interest Income and Net Interest Margin – Six-Month Comparison”see in full comparison
“During the third quarter of 2024, the QNB Corp. issued $40,000,000 of subordinated debt; the average carrying value net of deferred costs was $39,291,000 for the first quarter of 2026 compared to $39,092,000 for same period in 2025. The average yield decreased five basis points from 9.59% to 9.54% due to 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. …”see in full comparison
Average loans the three and six months ended June 30, 2026 include the three-month impact of acquiring $408,379,000 in loans from the acquisition of Victory. Income on loans increasedsee in full comparison$1,320,000$8,579,000 to$18,675,000$26,691,000 when comparing thefirstsecond quarters of 2026 and 2025, with a$62,834,000$493,981,000 increase in average balances contributing to an increase in interest income of$835,000$7,449,000 and a14-basis29-basis point increase in yield contributing to a$485,000$1,130,000 increase in interest income.Higher interest rates during the repricing period were partially offset by competitive pressures that compressed the yields on new loans.
see in full comparisonEarning assets are funded by deposits and borrowed funds. Interest expense decreased $1,294,000, when comparing the first quarter of 2026 to the same period in 2025. Interest expense on interest-bearing deposits decreased $1,244,000 to $7,668,000 when comparing the first quarters of 2026 and 2025, with a net $2,045,000 increase in average balances contributing to a net decrease in interest expense of $131,000 and a 35-basis point decrease in yield contributing to a $1,113,000 decrease in interest expense.Average interest-bearing demand accounts increased$18,955,000, or 5.0%,$107,063,000 to$399,248,000$483,798,000 for thefirstsecond quarter of 2026 and the average rate paid on these depositsdecreasedincreasedsix25 basis points; interest expense on interest-bearing demand accountsdecreasedincreased$13,000$550,000 to$931,000$1,438,000 for the same period. Average non-interest-bearing demand accounts increased$3,599,000$61,860,000 to$189,591,000$259,935,000 for thefirstsecond quarter of 2026. Average money market accountsdecreasedincreased$1,045,000$127,331,000 to$255,220,000$386,952,000 for thefirstsecond quarter of 2026 compared with the same period in 2025. Interest expense on money market accountsdecreasedincreased$215,000$829,000 to$1,603,000,$2,691,000, and the average interest rate paid on money market accounts decreased33nine basis points to2.55%2.79% for thefirstsecond quarter of 2026. Most of the balances in this category are in products that pay tiered rates based on account balances.
Full comparison: every changed paragraph (100)
On April 1, 2026, QNB closed the acquisition of Victory Bancorp, Inc. ("Victory"), a highly complementary community banking franchise headquartered in Limerick, Pennsylvania, creating a franchise with nearly $2.4 billion in assets and expanding our presence deeper into Montgomery County. This strategic combination brings together two relationship-focused institutions with shared values, similar operating cultures, and strong community ties. Results for the three and six months of 2026 include three months of post-merger activity related to the acquisition of Victory.
Disclosure of our significant accounting policies is included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2025, which is incorporated herein by reference. Some of these policies were impacted by the acquisition of Victory; the updates are details in Note 2 of this Form 10-Q. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.
Results for the three and six months of 2026 include three months of post-merger activity related to the acquisition of Victory. QNB reported net income for the firstsecond quarter of 2026 of $2,765,000,$3,015,000, or $0.73$0.60 per share on a diluted basis, compared to net income of $2,578,000,$3,883,000, or $0.69$1.04 per share on a diluted basis, for the same period in 2025. For the three-month period of 2026, net income included after-tax merger-related cost of $754,000.$2,227,000. The merger-related costs are significant one-time costscosts, related to the acquisition of Victory and are not normal recurring operating expenses. Adjusted diluted earnings per share excluding the impact of the merger-related cost for the three-month period of 2026 was $0.96.$1.05.
QNB reported net income for the six months ended June 2026 of $5,780,000, or $1.32 per share on a diluted basis, compared to net income of $6,461,000, or $1.74 per share on a diluted basis, for the same period in 2025. For the six-month period of 2026, net income included after-tax merger-related cost of $3,249,000. Adjusted diluted earnings per share excluding the impact of the merger-related cost for the six-month period of 2026 was $2.06.
The merger-related expenses relate to the previously announced acquisition of Victory Bancorp, Inc, a highly complementary community banking franchise headquartered in Limerick, Pennsylvania. This strategic combination brings together two relationship-focused institutions with shared values, similar operating cultures, and strong community ties. The transaction officially closed on April 1, 2026, creating a franchise with nearly $2.4 billion in assets and expanding our presence deeper into Montgomery County.
The Bank contributed $3,759,000$4,575,000 to net income for the three months ended MarchJune 31,30, 2026 compared to $3,292,000$4,679,000 for the same period 2025; and the holding company had a negative contribution of $994,000$1,560,000 to net income for the three months ended MarchJune 31,30, 2026 compared to a negative contribution of $714,000$796,000 for the same period of 2025. The improvedoperating resultsperformance atof the Bank wereincluded three months of post-merger activity and improved for the quarter ended June 30, 2026, in comparison with the same period in 2025, due primarily due to improvement in the interest margin causing a $1,849,000$6,072,000 increase in net interest income and a $229,000$499,000 increase in non-interest income; this was partly offset by and an increase in non-interest expense of $1,500,000,$6,377,000 of which $622,000$2,677,000 was relateddue to merger-related costs. The change in contribution from QNB Corp.Corp., iswhich included three months of post-merger activity, for the quarter ended June 30, 2026, declined compared with the same period in 2025, primarily due to a decrease in net interest income of $27,000$373,000, related to the subordinated debt acquired in the acquisition, and an increase in non-interest expense of $281,000,$509,000, primarily due to merger-related expenses of $266,000.$407,000.
The Bank contributed $8,334,000 of net income for the six months ended June 30 2026 compared to $7,971,000 for the same period 2025; and the holding company had a negative contribution of $2,554,000 to net income for the six months ended June 30, 2026 compared to a negative contribution of $1,510,000 for the same period 2025. The improved results at the Bank were primarily due to improvement in the interest margin causing a $7,671,000 increase in net interest income and a $728,000 increase in non-interest income; this was partly offset by and an increase in non-interest expense of $7,877,000, of which $3,299,000 was related to merger-related costs. The change in contribution from QNB Corp. is primarily due to a decrease in net interest income of $400,000 and an increase in non-interest expense of $790,000, primarily due to merger-related expenses of $673,000.
Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.59%0.50% and 8.40%,6.65%, respectively, for the quarter ended MarchJune 31,30, 2026, compared with 0.56%0.83% and 9.73%,14.25%, respectively, for the quarter ended MarchJune 31,30, 2025. Return on average assets and return on average shareholders’ equity, excluding the impact of the merger-related cost, for the three-month period of 2026 was 0.75%0.88% and 10.69%,11.56%, respectively. Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.54% and 7.38%, respectively, for the six months ended June 30, 2026, compared with 0.69% and 12.02%, respectively, for the six months ended June 30, 2025. Return on average assets and return on average shareholders’ equity, excluding the impact of the merger-related cost, for the six-month period of 2026 was 0.85% and 11.54%, respectively.
Total assets as of MarchJune 31,30, 2026 were $1,923,123,000,$2,398,970,000, compared with $1,906,005,000 at December 31, 2025. Loans receivable at MarchJune 31,30, 2026 were $1,282,773,000,$1,716,599,000; excluding the $408,379,000 in acquired loans, QNB recognized a $20,699,000$46,146,000, or 3.7%, increase from $1,262,074,000 at December 31, 2025. Total deposits of $1,653,431,000$2,067,151,000 at MarchJune 31,30, 2026 increased $10,920,000$15,475,000, excluding the $409,165,000 in deposits acquired, compared with total deposits of $1,642,511,000 at December 31, 2025.
Results for the three and six months ended MarchJune 31,30, 2026 include the following significant components:
Net interest income increased $5,699,000 to $18,351,000 and increased $7,271,000 to $31,460,000 for the three and six months ended June 30, 2026, respectively, and includes three months of post-merger activity related to the acquisition of Victory.
Net interest income increased $1,572,000, or 13.6%, to $13,109,000.
Net interest margin on a tax-equivalent basis increased 3147 basis points for the quarter to 2.82%3.16% compared to 2.51%2.69% for the same period in 2025. Net interest margin on a tax-equivalent basis increased 40 basis points for the six months ended June 30, 2026 to 3.00% compared to 2.60% for the same period in 2025.
QNB recorded a $303,000$218,000 provision for credit losses on loans for the firstsecond quarter of 2026, compared with a provision$145,000 reversal of $551,000its provision for credit losses on loans for the second quarter of 2025. QNB recorded $521,000 in its provision for credit losses on loans for the six months ended June 30, 2026, compared with $406,000 for the same period in 2025.
Non-interest income increased $217,000, to $1,801,000 for the first quarter compared with the same period in 2025.
Non-interest expenseincome increased $1,769,000$487,000, to $11,138,000$2,139,000 for the firstsecond quarter ofand $704,000, to $3,940,000 for the six months ended June 30, 2026 compared with the same periodperiods in 2025. Non-interestExcluding expense,realized excludingand merger-relatedunrealized costsgains on securities and swap termination loss, non-interest income increased $881,000, or 9.4%$426,000 to $10,250,000$2,078,000 for the firstsecond quarter of 2026 compared to $1,652,000 for the same period in 2025; and increased $643,000, to $3,879,000 for the six months ended June 30, 2026 compared with $3,236,000 the same period in 2025.
Non-interest expense increased $6,874,000 to $16,436,000 for the second quarter of 2026 compared with the same period in 2025. Non-interest expense, excluding merger-related costs increased $3,790,000 to $13,352,000 for the second quarter of 2026 compared with the same period in 2025. Non-interest expense increased $1,769,000 to $11,138,000 for the second quarter of 2026 compared with the same period in 2025. Non-interest expense, excluding merger-related costs increased $4,671,000 to $23,602,000 for the six months ended June 30, 2026 compared with the same period in 2025. Non-interest expense includes three months of post-merger activity related to the acquisition of Victory.
Total non-performing loans, comprised of loans on non-accrual status, were $9,614,000,$10,418,000, or 0.75%0.61% of loans receivable at MarchJune 31,30, 2026, compared to $8,793,000, or 0.70% of loans receivable at December 31, 2025. Net loan recoveries for the threesix months ended MarchJune 31,30, 2026 were $13,000,$14,000, compared with net recoveries of $3,000$19,000 for the same period in 2025.
The following table presents the adjustment to convert net interest income to net interest income on a fully taxable-equivalent basis for the three-monththree- and six-month periods ended MarchJune 31,30, 2026 and 2025.
Net interest income is the primary source of operating income for QNB. Net interest income is interest income, dividends, and fees on earning assets and the amortization and accretion of fair value premiums and discounts on acquired earnings assets, less interest expense incurred for funding sources.sources and the amortization and accretion of fair value premiums and discounts on acquired interest-bearing liabilities. Earning assets primarily include loans, investment securities, interest bearinginterest-bearing balances at the Federal Reserve Bank and Federal funds sold. Sources used to fund these assets include deposits and borrowed funds. Net interest income is affected by changes in interest rates, the volume and mix of earning assets and interest-bearing liabilities, and the amount of earning assets funded by non-interest-bearing deposits.
Tax-exempt securities and loans were adjusted to a tax-equivalent basis and are based on the marginal Federal corporate tax rate of 21 percent for three and six months ended MarchJune 31,30, 2026 and 2025.
Average earning assets and interest-bearing liabilities for the three and six months ended June 30, 2026 include the three-month impact of acquiring $434,318,000 in interest-earnings assets and $352,654,000 in interest-bearing liabilities which include the cancellation of $3,000,0000 in subordinated notes owned by QNB and issued by Victory on the acquisition date. Additionally, total average assets, average liabilities and average equity for the three and six months ended June 30, 2026 include the three-month impact of the acquisition on non-earning assets of $37,735,000, non-interest bearing liabilities of $72,296,000 and equity of $47,103,000.
Average earning assets for the firstsecond quarter of 2026 were $1,907,593,000,$2,344,775,000, an increase of $22,630,000,$445,967,000, or 1.2%,23.5%, from the firstsecond quarter of 2025, with average loans increasing $62,834,000,$493,981,000, or 5.2%,40.6%, and average investment securities decreasing $29,663,000,$33,261,000, or 4.7%,5.4%, over the same period in 2025. Proceeds from payments on and maturities of investment securities along with interest-earning deposits over the past year were invested in higher-yielding loans. Average loans as a percentage of average earning assets was 66.8%72.9% for the firstsecond quarter of 2026, compared to 64.2%64.1% for the firstsecond quarter of 2025. On the funding side, average deposits increased $5,644,000,$426,776,000, or 0.3%,25.9%, to $1,638,840,000$2,074,766,000 for the firstsecond quarter of 2026. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements and FHLB borrowings, increaseddecreased $36,044,000$1,936,000 to $83,573,000$69,006,000 for the firstsecond quarter of 2026 compared to $47,529,000$70,942,000 for the same period in 2025. ProceedsSubordinated fromdebt increased $14,850,000, as a result of the issuanceVictory of short-term debt were usedMerger, to payoff long-term debt which decreased $30,111,000 on average.$53,991,000.
The net interest margin for the firstsecond quarter of 2026 increased 3147 basis points to 2.82%3.16% from 2.51%2.69% for the same period in 2025. Competition for quality loans and deposits in our local market continues to exert pressure on the net interest margin. Repricing strategies on loans and deposits have had a positive impact on the net interest margin.
The Rate-Volume Analysis tables, as presented on a tax-equivalent basis, highlight the impact of changing rates and volumes on interest income and interest expense. Total interest income on a tax-equivalent basis increased $285,000,$7,504,000, or 1.3%,32.3%, to $22,623,000$30,714,000 for the firstsecond quarter of 2026; whereasand total interest expense decreasedincreased $1,294,000,$1,822,000, or 12.1%,17.4%, to $9,367,000.$12,280,000.
The yield on earning assets on a tax-equivalent basis remainedincreased flat36 atbasis 4.81%points to 5.26% from 4.90% for the firstsame quarterperiod of 2026 compared to the first quarter ofin 2025. The cost of interest-bearing liabilities declined 3414 basis points to 2.42%2.54% for the firstsecond quarter of 2026, compared with 2.76%2.68% for the same period in 2025.
QNB acquired $3,000,0000 in federal funds from Victory; these funds matured in the second quarter of 2026.
Interest income on investment securities decreased $867,000$835,000 when comparing the firstsecond quarters of 2026 and 2025. The average yield on the investment portfolio was 2.41%2.44% for the firstsecond quarter of 2026 compared with 2.85%2.84% for the same period in 2025, a decrease of 4440 basis points. Average securities for the three and six months ended June 30, 2026 include the three-month impact of acquiring $15,605,000 in securities from the acquisition and the cancellation of $3,000,000 subordinated note owned by QNB and issued by Victory.
The yield on U.S. Treasury securities was 3.71%3.68% for the firstsecond quarter of 2026 compared to 4.38%4.24% for the same period in 2025;2025. theThe 56 basis-point decline in rate was partly offset byand the average balances increasedecrease of $672,000$220,000 forcaused a netthe decrease in interest income of $67,000.$32,000. The average balances of U.S. Government agency securities increased $9,000 as the average rate remained unchanged at 1.18%.
Average loans the three and six months ended June 30, 2026 include the three-month impact of acquiring $408,379,000 in loans from the acquisition of Victory. Income on loans increased $1,320,000$8,579,000 to $18,675,000$26,691,000 when comparing the firstsecond quarters of 2026 and 2025, with a $62,834,000$493,981,000 increase in average balances contributing to an increase in interest income of $835,000$7,449,000 and a 14-basis29-basis point increase in yield contributing to a $485,000$1,130,000 increase in interest income. Higher interest rates during the repricing period were partially offset by competitive pressures that compressed the yields on new loans.
The largest category of the loan portfolio is commercial real estate loans. This category of loans includes commercial purpose loans secured by either commercial propertiesproperties, such as office buildings, factories, warehouses, hotels and restaurants, medical facilities and retail establishments, or residential real estate, usually the residence of the business owner. The category also includes construction and land development loans. Income on commercial real estate loans increased $1,375,000$7,322,000 when comparing the firstsecond quarters of 2026 and 2025, primarily due to a 28-basis$413,526,000 increase in average balances contributing to an increase in interest income of $6,121,000 and a 37-basis point increase in rate from 5.71%5.94% in 2025 to 5.99%6.31% andcontributing increasedto averagean balancesincrease of $53,323,000,$1,201,000 orto 6.2%.interest income.
Income on commercial and industrial loans decreasedincreased $269,000$531,000 when comparing the firstsecond quarters of 2026 and 2025. The average yield on these loans decreased 3829 basis points to 7.03%7.12% resulting in a decrease in income of $133,000$132,000; this was offset by an average balances decreasedincreased $7,476,000,$35,906,000, to $141,204,000$181,167,000 for the firstsecond quarter of 2026 resulting in a $136,000$663,000 decreaseincrease in interest income. Many of the loans in this category are indexed to the prime interest rate.
Tax-exempt loan income increased $43,000$76,000 for the firstsecond quarter of 2026 compared to the same period in 2025. Average balances increased $842,000$1,895,000 to $19,637,000$21,242,000 for the firstsecond quarter of 2026. The yield on municipal loans increased 70108 basis points, to 4.85%5.31% for the firstsecond quarter of 2026, compared with the same period in 2025.
QNB desires to be the “local consumer lender of choice”, focusing its retail lending efforts on product offerings and marketing and promotion. Interest income on residential mortgage loans secured by first lien 1-4 family increased $154,000$169,000 when comparing the firstsecond quarter of 2026 to the same period in 2025. Average residential mortgage loan balances increased by $8,098,000,$8,350,000, or 7.1%,7.3%, to $122,369,000$122,950,000 for the firstsecond quarter of 2026 compared to the same period in 2025, which contributed a $87,000$92,000 increase in interest income. The average yield on the portfolio increased 2225 basis points and contributed an increase of $67,000$77,000 to interest income. QNB chose to retain certain mortgage loans instead of selling them in the secondary market, as the yield on our originated mortgages was higher than comparable mortgage-backed securities. Average home equity loans increased during the 2026 period by $8,561,000$32,331,000 to $76,534,000$102,997,000, andcontributing theto a $516,000 increase in interest income; this was partly offset by an average yield decreaseddecrease 58of 28 basis points to 5.83% resulting incausing a net$71,000 $25,000 net increasedecrease in interest income. The yield on the consumer portfolio increaseddecreased 2311 basis points to 7.91%7.59% for the firstsecond quarter of 2026 and there was a $514,000$1,973,000 decreaseincrease in average balances resulting in a net $8,000$36,000 decreaseincrease in interest income.
Earning assets are funded by deposits and borrowed funds. Average interest-bearing deposits for the three and six months ended June 30, 2026 include the three-month impact of acquiring $338,004,000 from the acquisition of Victory. Average borrowings for the three and six months ended June 30, 2026 include the three-month impact of acquiring $14,650,000 in subordinated debt from the acquisition of Victory. Interest expense increased $1,822,000, when comparing the second quarter of 2026 to the same period in 2025. Interest expense on interest-bearing deposits increased $1,640,000 to $10,404,000 when comparing the second quarters of 2026 and 2025, with a net $364,916,000 increase in average balances contributing to a net increase in interest expense of $1,977,000 and a 12-basis point decrease in yield contributing to a $337,000 decrease in interest expense.
Earning assets are funded by deposits and borrowed funds. Interest expense decreased $1,294,000, when comparing the first quarter of 2026 to the same period in 2025. Interest expense on interest-bearing deposits decreased $1,244,000 to $7,668,000 when comparing the first quarters of 2026 and 2025, with a net $2,045,000 increase in average balances contributing to a net decrease in interest expense of $131,000 and a 35-basis point decrease in yield contributing to a $1,113,000 decrease in interest expense. Average interest-bearing demand accounts increased $18,955,000, or 5.0%,$107,063,000 to $399,248,000$483,798,000 for the firstsecond quarter of 2026 and the average rate paid on these deposits decreasedincreased six25 basis points; interest expense on interest-bearing demand accounts decreasedincreased $13,000$550,000 to $931,000$1,438,000 for the same period. Average non-interest-bearing demand accounts increased $3,599,000$61,860,000 to $189,591,000$259,935,000 for the firstsecond quarter of 2026. Average money market accounts decreasedincreased $1,045,000$127,331,000 to $255,220,000$386,952,000 for the firstsecond quarter of 2026 compared with the same period in 2025. Interest expense on money market accounts decreasedincreased $215,000$829,000 to $1,603,000,$2,691,000, and the average interest rate paid on money market accounts decreased 33nine basis points to 2.55%2.79% for the firstsecond quarter of 2026. Most of the balances in this category are in products that pay tiered rates based on account balances.
Interest expense on municipal interest-bearing demand accounts decreased $393,000$205,000 to $1,603,000$1,222,000 for the firstsecond quarter of 2026. The average interest rate paid on municipal interest-bearing demand accounts decreased 7666 basis points to 3.19%3.26% for the firstsecond quarter of 2026 over the same quarter of 2025, and average balances decreasedincreased $14,437,000$3,986,000 to $135,142,000.$150,200,000. Many of these accounts are indexed to the Federal funds rate with rate floors. Municipal deposits are seasonal in nature and are received during the second and third quarters as tax receipts are collected and are withdrawn over the course of the year.
Interest expense on savings accounts increased $10,000$460,000 when comparing the firstsecond quarter of 2026 to the same quarter of 2025. The average interest rate paid on savings accounts remainedincreased about26 thebasis samepoints atto 1.29%1.55% for the firstsecond quarter of 2026 compared to 1.30%1.29% for the same period in 2025. Average savings balances increased $4,599,000$71,011,000 to $284,256,000, or 1.6%,$352,087,000 for the firstsecond quarter of 2026. QNB’s online e-Savings product is the largest category of savings deposits, with average balances for the firstsecond quarter of 2026 of $211,299,000$216,625,000 compared to $206,579,000$208,239,000 in the same period of 2025. The average yield paid on these accounts was 1.70% for the firstboth second quarters of 2026 and 2025. Other savings account average balances, increased $62,625,000 when comparing the second quarter of 2026 compared to 1.71% for the same period in 2025. Traditional statement savings accounts, passbook savings2025 and clubinterest accountsexpense areincreased also included in the savings category and average balances in these types of savings accounts decreased $121,000 when comparing the first quarter of 2026 to the same period in 2025.$423,000.
Interest expense on time deposits totaled $3,168,000$3,692,000 for the firstsecond quarter of 2026 compared to $3,801,000$3,686,000 in 2025. Average total time deposits decreasedincreased $6,027,000$55,525,000 to $375,383,000$441,794,000 for the firstsecond quarter of 2026. As with fixed-rate loans and investment securities, these deposits reprice over time and, therefore, have less of an immediate impact on costs in either a rising or falling rate environment; however, the maturity and repricing characteristics of time deposits tend to be shorter.
Approximately $350,187,000,$416,806,000, or 96%, of time deposits at MarchJune 31,30, 2026 will mature over the next 12 months. The average rate paid on these time deposits is approximately 3.34%. The yield on the time deposit portfolio may change in the next quarter as short-term time deposits reprice; however, given the short-term nature of these deposits, interest expense may increase if short-term time deposit rates were to increase suddenly or if customers select higher paying time deposits.
Short-term borrowings are comprised of sweep accounts structured as repurchase agreements with our commercial customers and short-term FHLB borrowing. Interest expense on short-term borrowings increaseddecreased $306,000$93,000 for the firstsecond quarter of 2026 to $762,000$596,000 when compared to the same period in 2025. When comparing these same periods, average balances increaseddecreased $36,044,000$1,936,000 to $83,573,000$69,006,000 and average rate decreased 1946 basis points to 3.70%.3.45%.
QNB Corp. issued $40,000,000 of subordinated debt in 2024 and acquired $17,650,000 of subordinated debt from Victory in the Victory Merger; $3,000,0000 of subordinated debt issued by Victory was owned by QNB and cancelled as of the merger date. The average carrying value net of deferred costs was $53,991,000 for the second quarter of 2026 compared to $39,141,000 for same period in 2025. The average yield decreased ten basis points from 9.58% to 9.48%.
Net Interest Income and Net Interest Margin – Six-Month Comparison
For the six-month period ended June 30, 2026 average earnings assets increased $235,469,000, or 12.4%, to $2,127,393,000, with average loans increasing 23.0%, average investment securities decreasing 5.0%, and average total deposits increasing $217,373,000, or 13.2%, to $1,858,007,000, compared to the same period in 2025. The net interest margin on a tax-equivalent basis was 3.00% for the six-month period ended June 30, 2026, a 40-basis point increase from the same period in 2025.
Total interest income on a tax-equivalent basis increased $7,789,000, or 17.1%, to $53,337,000, when comparing the six-month periods ended June 30, 2026 and June 30, 2025 due to an increase in volume and rate on loans. Interest income on loans increased $8,181,000 as a result of volume and increased $1,718,000 as a result of yields. The analysis of the six-month periods is similar to what was described in the quarterly analysis. The yield on earning assets increased from 4.85% to 5.06% for the six-month periods with the yield on loans up 24 basis points to 6.13%.
Total interest expense increased $528,000 for the six-month period ended June 30, 2026 compared with the same period in 2025 attributable to an increase in volume. Average interest-bearing liabilities increased $191,260,000 and the average rate paid on interest-bearing liabilities decreased 23 basis points to 2.49% for the six-month period ended June 30, 2026 versus the same period in 2025.
Average interest-bearing deposits increased $184,482,000 and the related interest expense increased $396,000 for the six-month period ended June 30, 2026 versus the same period in 2025. The average balance of total short-term borrowings increased $16,949,000 primarily due to an increase in FHLB borrowings of $19,667,000. Long-term borrowing average balance decreased $17,735,000 and interest expense decreased $423,000 due to maturity. Subordinated debt average balance increased $7,564,000 and interest expense increased $342,000 for the six-month period ended June 30, 2026 compared to the same period of 2025.
During the third quarter of 2024, the QNB Corp. issued $40,000,000 of subordinated debt; the average carrying value net of deferred costs was $39,291,000 for the first quarter of 2026 compared to $39,092,000 for same period in 2025. The average yield decreased five basis points from 9.59% to 9.54% due to 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.
Based on this analysis, QNB recorded $303,000a in the$521,000 provision for credit losses on loans for the threesix months ended MarchJune 31,30, 2026, through the allowance for credit losses on loans, compared to $551,000a through the$406,000 provision for credit losses for the same period in 2025. QNB recorded a reversal in provision of $3,000$1,000 for the allowance for credit losses for unused commitments in the threesix months ended MarchJune 31,30, 2026 compared to a reversal in provision of $1,000$2,000 for the same period in 2025.
QNB recorded a $3,020,000 allowance for credit losses on loans and a $144,000 allowance for credit losses on unused commitments due to the Victory Merger.
QNB's allowance for credit losses on loans of $9,531,000$12,770,000 represents 0.74% of loans receivable at MarchJune 31,30, 2026 compared with an allowance for credit losses on loans of $9,215,000, or 0.73% of loans receivable, at December 31, 2025, and $9,298,000,$9,169,000, or 0.77%,0.75%, at MarchJune 31,30, 2025. Management believes the allowance for credit losses on loans at MarchJune 31,30, 2026 is adequate as of that date based on its analysis of historical loss experience, current conditions and reasonable and supportable forecasts in the portfolio.
Net recoveries were $13,000$14,000 for the threesix months ended MarchJune 31,30, 2026 compared to net recoveries of $3,000$19,000 for the threesix months ended MarchJune 31,30, 2025. Charge-offs of $44,000 during the six months ended June 30, 2026 consisted of overdrafts of $16,000 and$26,000, a real estate loan secured by junior lien on 1-4 family property of $4,000.$4,000 and other consumer and student loans of $14,000. Recoveries of approximately $33,000$58,000 during the threesix months ended MarchJune 31,30, 2026 consisted of $27,000$45,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $7,000. Annualized net recoveries as a percentage of average loans receivable were 0.00% for the three months ended March 31, 2026, compared to annualized net recoveries of 0.00% for the three months ended March 31, 2025.$13,000.
Non-performing assets were $9,614,000$10,418,000 at MarchJune 31,30, 2026 compared to $8,793,000 as of December 31, 2025 and $8,651,000$8,947,000 at MarchJune 31,30, 2025. Total non-performing loans, which represent loans on non-accrual status,status and loans past due 90 days or more and still accruing interest, were 0.75%0.61% of loans receivable at MarchJune 31,30, 2026, 0.70% at December 31, 2025 and 0.71%0.73% of loans receivable at MarchJune 31,30, 2025. The increase in non-accrual loans was primarily due to two commercial and one consumerretail relationshipcustomer. placedAt onJune nonaccrual30, status2026, during$7,832,000, 2026.or approximately 75% of the loans classified as non-accrual, are current or past due less than 30 days. In cases where there is a collateral shortfall on non-accrual loans, specific impairment reserves have been established based on updated collateral values even if the borrower continues to pay in accordance with the terms of the agreement. Commercial loans classified as substandard or doubtful loans totaled $38,845,000,$49,156,000 aat decreaseJune of30, $374,0002026, fromcompared thewith $39,219,000 reported at December 31, 2025 and2025, an increase of $4,397,000$9,937,000 fromwhich theincludes $34,448,000$6,475,000 reportedof atcommercial Marchreal 31,estate 2025.loans and $3,808,000 of commercial and industrial loans acquired.
QNB had no loans past due 90 days or more and still accruing interest at MarchJune 31,30, 2026, December 31, 2025, or MarchJune 31,30, 2025. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.22%0.46% of loans receivable at MarchJune 31,30, 2026 compared with 0.14% at December 31, 2025, and 0.69%0.98% at MarchJune 31,30, 2025.
There was one loan modification to a borrower experiencing financial difficulty identified during the threesix months ended MarchJune 31,30, 2026. The loan continues to be reported as accruing. The loan was modified to interest only payments for three months and one month deferred payment. QNB had no other real estate owned or repossessed assets at MarchJune 31,30, 2026, December 31, 2025 or MarchJune 31,30, 2025.
An analysis of net loan charge-offs (recoveries) for the three and six months ended MarchJune 31,30, 2026 compared to the same periods in 2025 is as follows:
At MarchJune 31,30, 2026 and December 31, 2025, the recorded investment in collateral dependent loans totaled $9,602,000$10,418,000 and $8,793,000 of which $1,541,000$10,151,000 and $1,704,000, respectively, required no specific allowance for loan loss. The recorded investment in collateral dependent loans requiring an allowance for loan losses was $8,061,000$267,000 and $7,089,000 at MarchJune 31,30, 2026 and December 31, 2025, respectively, and the related allowance for loan losses associated with these loans was $1,878,000$167,000 and $1,649,000, respectively. See Note 89 to the Notes to Consolidated Financial Statements for additional detail of collateral dependent loans.
Total non-interest income for 2026 includes three months of impact from the acquisition of Victory.
Total non-interest income was $2,139,000 for the second quarter of 2026 compared with $1,652,000 for the same period in 2025. The Bank completed the exchange offer to convert its Visa B-2 shares to B-3 and C shares; the Bank subsequently converted one-third of the Visa C shares to Visa A shares and recorded a $268,000 unrealized gain. Non-interest income for the three-months ended June 30, 2026 also included $96,000 of realized gains on the sales of investment securities and a $303,000 loss on the termination of an interest-rate swap acquired in the acquisition.
Total non-interest income for the first quarter of 2026 was $1,801,000, an increase of $217,000, compared to the first quarter of 2025.
QNBC insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 3 Form 4 filings (3 insiders, 2 trade dates, 659 shares, about $29.2K) and open-market sales in 0 filings. Net open-market shares: 659 (purchases minus sales); net value about $29.2K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-25 | Bimes Randy S. |
Open-market purchase | 221 | $45.30 | $10.0K |
| 2026-07-01 | Major Joseph W |
Open-market purchase | 219 | $43.85 | $9.6K |
| 2026-07-01 | Bayles Autumn R |
Open-market purchase | 219 | $43.85 | $9.6K |
| 2026-04-01 | Major Joseph W |
Grant/award | 70,745 | — | — |
| 2026-04-01 | Major Joseph W |
Grant/award | 2,750 | — | — |
| 2026-04-01 | Major Joseph W |
Grant/award | 2,750 | — | — |
| 2026-04-01 | Major Joseph W |
Grant/award | 35,027 | — | — |
| 2026-04-01 | Johnson Kevin L |
Grant/award | 19,905 | — | — |
Well-known investors holding QNBC (13F)
None of the 59 investors we track reported a position in their latest 13F.