10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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 revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The accompanying notes are an integral part of the consolidated financial statements.

(1) Included in Net gain on sales and calls of available-for-sale and equity securities on the Consolidated Statements of Income

(2) Included in Interest and dividends on available-for-sale & equity securities on the Consolidated Statements of Income

The accompanying notes are an integral part of the consolidated financial statements.

8. LOANS & ALLOWANCE FOR CREDIT LOSSES ON LOANS

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 and 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 consists of residential mortgage loans that 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.

The Company maintains an allowance for credit losses on loans, which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. The allowance is reduced by actual credit losses and is increased or decreased by the provision (reversal) for loan losses and increased by recoveries of previous losses. The provisions or reversals for credit losses are charged to earnings to bring the total allowance for loan losses to a level considered necessary by management.

The allowance for credit losses is measured on a pool basis when similar risk characteristics exist; these pools are identified in the first table below. The Company establishes a general valuation allowance for performing loans, including non-accrual student loans. QNB calculates each segment's historical loss rate using a full economic cycle of loan balance and historical loss experienced. 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. The general component is adjusted for qualitative factors. These qualitative risk factors include:

Concentrations: The Company adjusts historic loss for concentrations in the current commercial portfolio that were not present during the down-turn of economic cycle.

Economic Forecast: The Company utilizes an entire economic cycle of data to determine loss rates by segment. This approach reflects an inherent reversion to the historical losses during life of the loans within the pool considering prepayments and loss experience throughout an entire economic cycle. However, the Company feels it is prudent to maintain a floor in its model to assure that there is enough reserve on hand to sustain any losses upon an upcoming recession.

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. The Company’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 allowance for loan losses. Management meets monthly to review the credit quality of the loan portfolio and quarterly to review the allowance for loan losses.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses on loans. Such agencies may require the Company 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 allowance for credit losses on loans in accordance with Accounting Principles Generally Accepted in the United States of America (U.S. GAAP.) If circumstances differ substantially from the current calculation, future adjustments to the allowance for credit losses on loans 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.

Major classes of loans are as follows:


	March 31,			December 31,
	2024			2023
Commercial:
Commercial and industrial	$	148,356		$	137,086
Construction and land development		117,535			116,173
Real estate secured by multi-family properties		110,402			109,193
Real estate secured by owner-occupied properties		164,828			160,695
Real estate secured by other commercial properties		276,049			265,101
Revolving real estate secured by 1-4 family properties-business		6,483			5,442
Real estate secured by 1st lien on 1-4 family properties-business		102,339			103,572
Real estate secured by junior lien on 1-4 family properties-business		2,964			3,445
State and political subdivisions		17,970			18,708
Retail:
1-4 family residential mortgages		108,883			108,906
Construction-individual		—			—
Revolving home equity secured by 1-4 family properties-personal		44,619			34,231
Real estate secured by 1st lien on 1-4 family properties-personal		7,385			11,981
Real estate secured by junior lien on 1-4 family properties-personal		11,540			15,625
Student loans		1,605			1,662
Overdrafts		166			194
Other consumer		1,784			1,757
Total loans		1,122,908			1,093,771
Net unearned (fees) costs		(292	)		(238	)
Allowance for credit losses on loans		(8,738	)		(8,852	)
Loans receivable, net	$	1,113,878		$	1,084,681

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.

The Company engages in a variety of lending activities, including commercial, residential real estate and consumer transactions. The Company 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.

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 consumer 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 kinds 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 eastern 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 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.

The Company 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 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

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.

The Company 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.

The Company 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.

Excellent - no apparent risk

Good - minimal risk

Acceptable - lower risk

Acceptable - average risk

Acceptable – higher risk

Pass watch

Special Mention - potential weaknesses

Substandard - well defined weaknesses

Doubtful - full collection unlikely

10.

Loss - considered uncollectible

The Company 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 all loans in the portfolio at the time the loan is originated. Loans with risk ratings of one through five are reviewed annually based on the borrower’s fiscal year. Loans with risk ratings of six are reviewed every six to twelve months based on the dollar amount of the relationship with the borrower. Loans with risk ratings of seven through ten are reviewed at least quarterly, and as often as monthly, at management’s discretion. The Company 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 Company’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 loan losses to determine compliance to policy and regulatory guidance.

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 Company’s internal risk rating system as of March 31, 2024 and December 31, 2023:


	Term Loans by Origination Year
March 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving		Total
Commercial Loans
Commercial and industrial:
Risk rating
Pass	$	5,300	$	17,527	$	13,503	$	7,630	$	4,978	$	11,942	$	84,958	$	145,838
Special mention		—		1,296		—		—		—		—		—		1,296
Substandard		—		—		—		—		—		77		1,145		1,222
Doubtful		—		—		—		—		—		—		—		—
Total commercial and industrial	$	5,300	$	18,823	$	13,503	$	7,630	$	4,978	$	12,019	$	86,103	$	148,356
Construction and land development:
Risk rating
Pass	$	11,164	$	42,245	$	32,119	$	14,684	$	3,432	$	8,366	$	—	$	112,010
Special mention		—		5,484		—		—		—		—		—		5,484
Substandard		—		—		—		—		—		41		—		41
Doubtful		—		—		—		—		—		—		—		—
Total construction and land development	$	11,164	$	47,729	$	32,119	$	14,684	$	3,432	$	8,407	$	—	$	117,535
Real estate secured by multi-family properties:
Risk rating
Pass	$	1,847	$	11,096	$	28,575	$	23,084	$	9,709	$	33,253	$	—	$	107,564
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		2,838		—		2,838
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by multi-family properties	$	1,847	$	11,096	$	28,575	$	23,084	$	9,709	$	36,091	$	—	$	110,402
Real estate secured by owner-occupied properties:
Risk rating
Pass	$	2,554	$	17,969	$	29,344	$	26,595	$	18,423	$	63,716	$	—	$	158,601
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		6,227		—		6,227
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by owner-occupied properties	$	2,554	$	17,969	$	29,344	$	26,595	$	18,423	$	69,943	$	—	$	164,828
Real estate secured by other commercial properties:
Risk rating
Pass	$	2,220	$	32,822	$	54,981	$	42,094	$	17,605	$	125,561	$	—	$	275,283
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		766		—		766
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by other commercial properties	$	2,220	$	32,822	$	54,981	$	42,094	$	17,605	$	126,327	$	—	$	276,049
Revolving real estate secured by 1-4 family properties-business:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	6,483	$	6,483
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total revolving real estate secured by 1-4 family properties-business	$	—	$	—	$	—	$	—	$	—	$	—	$	6,483	$	6,483


	Term Loans by Origination Year
March 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving		Total
Real estate secured by 1st lien on 1-4 family properties-business:
Risk rating
Pass	$	2,173	$	14,496	$	27,490	$	20,030	$	9,667	$	27,610	$	—	$	101,466
Special mention		—		—		—		136		—		—		—		136
Substandard		—		—		—		188		—		549		—		737
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by 1st lien on 1-4 family properties-business	$	2,173	$	14,496	$	27,490	$	20,354	$	9,667	$	28,159	$	—	$	102,339
Real estate secured by junior lien on 1-4 family properties-business:
Risk rating
Pass	$	80	$	552	$	576	$	193	$	569	$	973	$	—	$	2,943
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		21		—		—		—		—		21
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by junior lien on 1-4 family properties-business	$	80	$	552	$	597	$	193	$	569	$	973	$	—	$	2,964
State and political subdivisions:
Risk rating
Pass	$	48	$	705	$	—	$	4,239	$	16	$	12,962	$	—	$	17,970
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by junior lien on 1-4 family properties-business	$	48	$	705	$	—	$	4,239	$	16	$	12,962	$	—	$	17,970
Total Commercial Loans:
Risk rating
Pass	$	25,386	$	137,412	$	186,588	$	138,549	$	64,399	$	284,383	$	91,441	$	928,158
Special mention		—		6,780		—		136		—		—		—		6,916
Substandard		—		—		21		188		—		10,498		1,145		11,852
Doubtful		—		—		—		—		—		—		—		—
Total Commercial loans	$	25,386	$	144,192	$	186,609	$	138,873	$	64,399	$	294,881	$	92,586	$	946,926


	Term Loans by Origination Year
December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving		Total
Commercial Loans
Commercial and industrial:
Risk rating
Pass	$	20,473	$	14,439	$	8,574	$	5,913	$	8,626	$	7,175	$	70,716	$	135,916
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		1,170		1,170
Doubtful		—		—		—		—		—		—		—		—
Total commercial and industrial	$	20,473	$	14,439	$	8,574	$	5,913	$	8,626	$	7,175	$	71,886	$	137,086
Construction and land development:
Risk rating
Pass	$	46,171	$	43,472	$	14,630	$	3,434	$	4,028	$	4,395	$	—	$	116,130
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		43		—		43
Doubtful		—		—		—		—		—		—		—		—
Total construction and land development	$	46,171	$	43,472	$	14,630	$	3,434	$	4,028	$	4,438	$	—	$	116,173
Real estate secured by multi-family properties:
Risk rating
Pass	$	10,826	$	28,858	$	23,430	$	9,808	$	5,804	$	27,609	$	—	$	106,335
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		704		2,154		—		2,858
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by multi-family properties	$	10,826	$	28,858	$	23,430	$	9,808	$	6,508	$	29,763	$	—	$	109,193
Real estate secured by owner-occupied properties:
Risk rating
Pass	$	14,430	$	29,576	$	26,908	$	18,693	$	12,239	$	53,030	$	—	$	154,876
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—				—		—		5,819		—		5,819
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by owner-occupied properties	$	14,430	$	29,576	$	26,908	$	18,693	$	12,239	$	58,849	$	—	$	160,695
Real estate secured by other commercial properties:
Risk rating
Pass	$	32,297	$	44,526	$	42,582	$	17,798	$	28,947	$	98,173	$	—	$	264,323
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		778		—		778
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by other commercial properties	$	32,297	$	44,526	$	42,582	$	17,798	$	28,947	$	98,951	$	—	$	265,101
Revolving real estate secured by 1-4 family properties-business:
Risk rating
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	5,442	$	5,442
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total revolving real estate secured by 1-4 family properties-business	$	—	$	—	$	—	$	—	$	—	$	—	$	5,442	$	5,442
Real estate secured by 1st lien on 1-4 family properties-business:
Risk rating
Pass	$	14,697	$	28,596	$	20,890	$	9,794	$	8,441	$	20,262	$	—	$	102,680
Special mention		—		—		137		—		—		—		—		137
Substandard		—		189		—		—		423		143		—		755
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by 1st lien on 1-4 family properties-business	$	14,697	$	28,785	$	21,027	$	9,794	$	8,864	$	20,405	$	—	$	103,572


Real estate secured by junior lien on 1-4 family properties-business:
Risk rating
Pass	$	558	$	604	$	542	$	580	$	40	$	934	$	—	$	3,258
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		187		—		187
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by junior lien on 1-4 family properties-business	$	558	$	604	$	542	$	580	$	40	$	1,121	$	—	$	3,445
State and political subdivisions:
Risk rating
Pass	$	707	$	—	$	4,247	$	18	$	5,444	$	8,292	$	—	$	18,708
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total real estate secured by junior lien on 1-4 family properties-business	$	707	$	—	$	4,247	$	18	$	5,444	$	8,292	$	—	$	18,708
Total Commercial Loans:
Risk rating
Pass	$	140,159	$	190,071	$	141,803	$	66,038	$	73,569	$	219,870	$	76,158	$	907,668
Special mention		—		—		137		—		—		—		—		137
Substandard		—		189		—		—		1,127		9,124		1,170		11,610
Doubtful		—		—		—		—		—		—		—		—
Total Commercial loans	$	140,159	$	190,260	$	141,940	$	66,038	$	74,696	$	228,994	$	77,328	$	919,415

For retail loans, the Company evaluates credit quality based on the performance of the individual credits. The following tables present the recorded investment in the retail classes of the loan portfolio based on payment activity as of March 31, 2024 and December 31, 2023:


	Term Loans by Origination Year
March 31, 2024	2024		2023		2022		2021		2020		Prior		Revolving		Total
Retail Loans
1-4 family residential mortgages:
Payment performance
Performing	$	1,275	$	12,590	$	14,521	$	30,100	$	20,068	$	29,425	$	—	$	107,979
Nonperforming		—		—		—		—		—		904		—		904
Total 1-4 family residential mortgages	$	1,275	$	12,590	$	14,521	$	30,100	$	20,068	$	30,329	$	—	$	108,883
Construction-individual:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Nonperforming		—		—		—		—		—		—		—		—
Total construction-individual	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Revolving home equity secured by 1-4 family properties-personal:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	44,329	$	44,329
Nonperforming		—		—		—		—		—		—		290		290
Total revolving home equity secured by 1-4 family properties-personal	$	—	$	—	$	—	$	—	$	—	$	—	$	44,619	$	44,619
Real estate secured by 1st lien on 1-4 family properties-personal:
Payment performance
Performing	$	162	$	801	$	1,165	$	1,321	$	977	$	2,848	$	—	$	7,274
Nonperforming		—		—		—		—		—		111		—		111
Total real estate secured by 1st lien on 1-4 family properties-personal	$	162	$	801	$	1,165	$	1,321	$	977	$	2,959	$	—	$	7,385
Real estate secured by junior lien on 1-4 family properties-personal:
Payment performance
Performing	$	1,123	$	3,742	$	1,010	$	1,129	$	1,128	$	3,390	$	—	$	11,522
Nonperforming		—		—		18		—		—		—		—		18
Total real estate secured by junior lien on 1-4 family properties-personal	$	1,123	$	3,742	$	1,028	$	1,129	$	1,128	$	3,390	$	—	$	11,540
Student loans:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	1,594	$	—	$	1,594
Nonperforming		—		—		—		—		—		11		—		11
Total student loans	$	—	$	—	$	—	$	—	$	—	$	1,605	$	—	$	1,605
Overdrafts:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	166	$	166
Nonperforming		—		—		—		—		—		—		—		—
Total overdrafts	$	—	$	—	$	—	$	—	$	—	$	—	$	166	$	166
Other consumer:
Payment performance
Performing	$	248	$	711	$	251	$	192	$	70	$	83	$	194	$	1,749
Nonperforming		—		—		—		—		—		35		—		35
Total other consumer	$	248	$	711	$	251	$	192	$	70	$	118	$	194	$	1,784
Total Retail Loans:
Payment performance
Performing	$	2,808	$	17,844	$	16,947	$	32,742	$	22,243	$	37,340	$	44,689	$	174,613
Nonperforming		—		—		18		—		—		1,061		290		1,369
Total Retail Loans	$	2,808	$	17,844	$	16,965	$	32,742	$	22,243	$	38,401	$	44,979	$	175,982


	Term Loans by Origination Year
December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving		Total
Retail Loans
1-4 family residential mortgages:
Payment performance
Performing	$	12,641	$	14,635	$	30,495	$	20,304	$	4,526	$	25,500	$	—	$	108,101
Nonperforming		—		—		—		—		—		805		—		805
Total 1-4 family residential mortgages	$	12,641	$	14,635	$	30,495	$	20,304	$	4,526	$	26,305	$	—	$	108,906
Construction-individual:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Nonperforming		—		—		—		—		—		—		—		—
Total construction-individual	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Revolving home equity secured by 1-4 family properties-personal:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	33,936	$	33,936
Nonperforming		—		—		—		—		—		—		295		295
Total revolving home equity secured by 1-4 family properties-personal	$	—	$	—	$	—	$	—	$	—	$	—	$	34,231	$	34,231
Real estate secured by 1st lien on 1-4 family properties-personal:
Payment performance
Performing	$	2,591	$	1,613	$	2,933	$	1,030	$	931	$	2,767	$	—	$	11,865
Nonperforming		—		—		—		—		—		116		—		116
Total real estate secured by 1st lien on 1-4 family properties-personal	$	2,591	$	1,613	$	2,933	$	1,030	$	931	$	2,883	$	—	$	11,981
Real estate secured by junior lien on 1-4 family properties-personal:
Payment performance
Performing	$	6,438	$	1,613	$	2,184	$	1,180	$	676	$	3,515	$	—	$	15,606
Nonperforming		—		19		—		—		—		—		—		19
Total real estate secured by junior lien on 1-4 family properties-personal	$	6,438	$	1,632	$	2,184	$	1,180	$	676	$	3,515	$	—	$	15,625
Student loans:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	1,645	$	—	$	1,645
Nonperforming		—		—		—		—		—		17		—		17
Total student loans	$	—	$	—	$	—	$	—	$	—	$	1,662	$	—	$	1,662
Overdrafts:
Payment performance
Performing	$	—	$	—	$	—	$	—	$	—	$	—	$	194	$	194
Nonperforming		—		—		—		—		—		—		—		—
Total overdrafts	$	—	$	—	$	—	$	—	$	—	$	—	$	194	$	194
Other consumer:
Payment performance
Performing	$	793	$	290	$	245	$	89	$	73	$	41	$	189	$	1,720
Nonperforming		—		—		—		—		—		37		—		37
Total other consumer	$	793	$	290	$	245	$	89	$	73	$	78	$	189	$	1,757
Total Retail Loans:
Payment performance
Performing	$	22,463	$	18,151	$	35,857	$	22,603	$	6,206	$	33,468	$	34,319	$	173,067
Nonperforming		—		19		—		—		—		975		295		1,289
Total Retail Loans	$	22,463	$	18,170	$	35,857	$	22,603	$	6,206	$	34,443	$	34,614	$	174,356

Revolving home equity lines of credit secured by 1-4 family properties termed out during 2024 and 2023 were $1,215,000 and $4,534,000; all of which are performing.

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. The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2024 and December 31, 2023:


March 31, 2024	30-59 days past due		60-89 days past due		90 days or more past due		Total past due loans		Current		Total loans receivable
Commercial:
Commercial and industrial	$	23	$	—	$	—	$	23	$	148,333	$	148,356
Construction and land development		794		—		—		794		116,741		117,535
Real estate secured by multi-family properties		—		—		—		—		110,402		110,402
Real estate secured by owner-occupied properties		468		—		186		654		164,174		164,828
Real estate secured by other commercial properties		992		—		—		992		275,057		276,049
Revolving real estate secured by 1-4 family properties-business		—		—		—		—		6,483		6,483
Real estate secured by 1st lien on 1-4 family properties-business		—		223		—		223		102,116		102,339
Real estate secured by junior lien on 1-4 family properties-business		—		—		—		—		2,964		2,964
State and political subdivisions		—		—		—		—		17,970		17,970
Retail:
1-4 family residential mortgages		704		—		476		1,180		107,703		108,883
Construction-individual		—		—		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		19		—		129		148		44,471		44,619
Real estate secured by 1st lien on 1-4 family properties-personal		95		—		—		95		7,290		7,385
Real estate secured by junior lien on 1-4 family properties-personal		—		—		18		18		11,522		11,540
Student loans		—		—		—		—		1,605		1,605
Overdrafts		21		—		—		21		145		166
Other consumer		1		—		—		1		1,783		1,784
Total	$	3,117	$	223	$	809	$	4,149	$	1,118,759	$	1,122,908


December 31, 2023	30-59 days past due		60-89 days past due		90 days or more past due		Total past due loans		Current		Total loans receivable
Commercial:
Commercial and industrial	$	77	$	—	$	—	$	77	$	137,009	$	137,086
Construction and land development		—		—		—		—		116,173		116,173
Real estate secured by multi-family properties		—		—		—		—		109,193		109,193
Real estate secured by owner-occupied properties		186		—		—		186		160,509		160,695
Real estate secured by other commercial properties		9,675		—		—		9,675		255,426		265,101
Revolving real estate secured by 1-4 family properties-business		—		—		—		—		5,442		5,442
Real estate secured by 1st lien on 1-4 family properties-business		323		—		—		323		103,249		103,572
Real estate secured by junior lien on 1-4 family properties-business		—		—		—		—		3,445		3,445
State and political subdivisions		—		—		—		—		18,708		18,708
Retail:
1-4 family residential mortgages		433		381		481		1,295		107,611		108,906
Construction-individual		—		—		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		56		—		129		185		34,046		34,231
Real estate secured by 1st lien on 1-4 family properties-personal		—		96		—		96		11,885		11,981
Real estate secured by junior lien on 1-4 family properties-personal		—		—		18		18		15,607		15,625
Student loans		—		11		6		17		1,645		1,662
Overdrafts		21		2		—		23		171		194
Other consumer		—		8		—		8		1,749		1,757
Total	$	10,771	$	498	$	634	$	11,903	$	1,081,868	$	1,093,771

As previously discussed, the Company 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 impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company 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 generally are not classified as impaired. 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 less costs to sell if the loan is collateral dependent.

An allowance for credit losses is established for a non-accrual loan if its carrying value exceeds its estimated fair value. The estimated fair values of the majority of the Company’s non-accrual loans are measured based on the estimated fair value of the loan’s collateral less costs to sell.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes individually evaluated, 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.

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 discloses 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 March 31, 2024 and December 31, 2023:


March 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	$	—	$	252	$	32	$	284
Construction and land development		—		—		—		—
Real estate secured by multi-family properties		—		—		—		—
Real estate secured by owner-occupied properties		—		348		—		348
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		—		904		—		904
Construction-individual		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		—		20		270		290
Real estate secured by 1st lien on 1-4 family properties-personal		—		111		—		111
Real estate secured by junior lien on 1-4 family properties-personal		—		18		—		18
Student loans		—		11		—		11
Other consumer		—		35		—		35
Total	$	—	$	1,699	$	302	$	2,001


December 31, 2023	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	$	—	$	278	$	33	$	311
Construction and land development		—		—		—		—
Real estate secured by multi-family properties		—		—		—		—
Real estate secured by owner-occupied properties		—		175		—		175
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		—		—		165		165
State and political subdivisions		—		—		—		—
Retail:
1-4 family residential mortgages		—		805		—		805
Construction-individual		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		—		21		274		295
Real estate secured by 1st lien on 1-4 family properties-personal		—		116		—		116
Real estate secured by junior lien on 1-4 family properties-personal		—		19		—		19
Student loans		—		17		—		17
Other consumer		—		37		—		37
Total	$	—	$	1,468	$	472	$	1,940

QNB recognized interest income of $24,000 and $14,000 on non-accrual loans during the three months ended March 31, 2024 and 2023, respectively.

The following table presents the collateral-dependent loans by loan category at March 31, 2024:


March 31, 2024	Real Estate Secured		Other (1)		Deficiency in Collateral		Total Collateral Dependent Nonaccrual Loans
Commercial:
Commercial and industrial	$	—	$	252	$	32	$	284
Construction and land development		—		—		—		—
Real estate secured by multi-family properties		—		—		—		—
Real estate secured by owner-occupied properties		348		—		—		348
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		904		—		—		904
Construction-individual		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		185		—		105		290
Real estate secured by 1st lien on 1-4 family properties-personal		111		—		—		111
Real estate secured by junior lien on 1-4 family properties-personal		18		—		—		18
Other consumer		—		35		—		35
Total	$	1,566	$	287	$	137	$	1,990

(1) Secured by business assets, personal property and equipment or guarantees


December 31, 2023	Real Estate Secured		Other (1)		Deficiency in Collateral		Total Collateral Dependent Nonaccrual Loans
Commercial:
Commercial and industrial	$	—	$	278	$	33	$	311
Construction and land development		—		—		—		—
Real estate secured by multi-family properties		—		—		—		—
Real estate secured by owner-occupied properties		175		—		—		175
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		—		—		165		165
State and political subdivisions		—		—		—		—
Retail:
1-4 family residential mortgages		805		—		—		805
Construction-individual		—		—		—		—
Revolving home equity secured by 1-4 family properties-personal		185		—		110		295
Real estate secured by 1st lien on 1-4 family properties-personal		116		—		—		116
Real estate secured by junior lien on 1-4 family properties-personal		19		—		—		19
Other consumer		—		37		—		37
Total	$	1,300	$	315	$	308	$	1,923

Activity in the allowance for credit losses on loans for the three months ended March 31, 2024 and 2023 are as follows:


For the Three Months Ended March 31, 2024	Balance, beginning of period		Credit loss expense (reversal)			Charge-offs			Recoveries		Balance, end of period
Commercial:
Commercial and industrial	$	823	$	119		$	—		$	12	$	954
Construction and land development		1,252		22			—			—		1,274
Real estate secured by multi-family properties		1,735		18			—			—		1,753
Real estate secured by owner-occupied properties		1,001		(12	)		—			—		989
Real estate secured by other commercial properties		1,167		36			—			—		1,203
Revolving real estate secured by 1-4 family properties-business		27		4			—			—		31
Real estate secured by 1st lien on 1-4 family properties-business		1,507		(210	)		—			2		1,299
Real estate secured by junior lien on 1-4 family properties-business		14		(2	)		—			—		12
State and political subdivisions		55		(8	)		—			—		47
Retail:
1-4 family residential mortgages		427		(34	)		—			—		393
Construction-individual		—		—			—			—		—
Revolving home equity secured by 1-4 family properties-personal		138		27			—			—		165
Real estate secured by 1st lien on 1-4 family properties-personal		182		(35	)		—			—		147
Real estate secured by junior lien on 1-4 family properties-personal		105		(32	)		—			—		73
Student loans		369		(17	)		(6	)		4		350
Overdrafts		16		23			(33	)		8		14
Other consumer		34		8			(8	)		—		34
Total	$	8,852	$	(93	)	$	(47	)	$	26	$	8,738


For the Three Months Ended March 31, 2023	Beginning balance prior to adoption of ASC 326		Impact of adopting ASC 326			Credit loss expense (reversal)			Charge-offs			Recoveries		Balance, end of period
Commercial:
Commercial and industrial	$	1,316	$	(70	)	$	(940	)	$	—		$	593	$	899
Construction and land development		755		(10	)		4			—			—		749
Real estate secured by multi-family properties		995		684			(102	)		—			—		1,577
Real estate secured by owner-occupied properties		1,549		(374	)		(203	)		—			—		972
Real estate secured by other commercial properties		2,458		(1,128	)		(239	)		—			—		1,091
Revolving real estate secured by 1-4 family properties-business		25		7			2			—			—		34
Real estate secured by 1st lien on 1-4 family properties-business		1,210		490			(430	)		—			3		1,273
Real estate secured by junior lien on 1-4 family properties-business		30		(14	)		242			—			—		258
State and political subdivisions		94		(20	)		(19	)		—			—		55
Retail:
1-4 family residential mortgages		682		(196	)		(81	)		—			—		405
Construction-individual		1		—			—			—			—		1
Revolving home equity secured by 1-4 family properties-personal		299		(7	)		(43	)		—			—		249
Real estate secured by 1st lien on 1-4 family properties-personal		57		15			(8	)		—			—		64
Real estate secured by junior lien on 1-4 family properties-personal		55		29			(9	)		—			2		77
Student loans		454		12			(17	)		(3	)		2		448
Overdrafts		8		3			31			(43	)		10		9
Other consumer		41		(8	)		29			(32	)		—		30
Unallocated		502		(502	)		—		N/A			N/A			—
Total	$	10,531	$	(1,089	)	$	(1,783	)	$	(78	)	$	610	$	8,191

Since the implementation of ASC 326 on January 1, 2023, the Company measures loan modifications to borrowers in financial distress as a troubled debt modification ("TDM"). A TDM 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. Any amount forgiven would be charged to the allowance for credit losses. There were no TDMs in 2024 or 2023.

The Company has three loans secured by residential real estate totaling $273,000 for which foreclosure proceedings are in process at March 31, 2024.

9. FAIR VALUE MEASUREMENTS AND DISCLOSURES

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 for transaction costs). ASC 820 also establishes a framework (fair value hierarchy) for measuring fair value under U.S. 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.

The following table sets forth QNB’s financial assets measured at fair value on a recurring and nonrecurring basis and the fair value measurements by level within the fair value hierarchy as of March 31, 2024:


March 31, 2024	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance at end of period
Recurring fair value measurements
Available-for-sale securities:
U.S. Treasury securities	$	—	$	5,455	$	—	$	5,455
U.S. Government agency securities		—		73,529		—		73,529
State and municipal securities (1)		—		89,554		—		89,554
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed securities (1)		—		220,271		—		220,271
Collateralized mortgage obligations (CMOs)		—		86,564		—		86,564
Corporate debt securities and money market funds		—		6,171		52		6,223
Total debt securities available-for-sale		—		481,544		52		481,596
Equity securities		6,217		—		—		6,217
Total recurring fair value measurements	$	6,217	$	481,544	$	52	$	487,813

Nonrecurring fair value measurements
Collateral dependent loans	$	—	$	—	$	165	$	165
Mortgage servicing rights		—		—		1		1
Total nonrecurring fair value measurements	$	—	$	—	$	166	$	166


December 31, 2023	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance at end of period
Recurring fair value measurements
Debt securities available-for-sale
U.S. Treasuries	$	—	$	6,451	$	—	$	6,451
U.S. Government agency securities		—		74,122		—		74,122
State and municipal securities (1)		—		89,189		—		89,189
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed securities (1)		—		224,238		—		224,238
Collateralized mortgage obligations (CMOs)		—		89,973		—		89,973
Corporate debt securities		—		6,157		52		6,209
Total debt securities available-for-sale		—		490,130		52		490,182
Equity securities		5,910		—		—		5,910
Total recurring fair value measurements	$	5,910	$	490,130	$	52	$	496,092

Nonrecurring fair value measurements
Collateral dependent loans	$	—	$	—	$	164	$	164
Mortgage servicing rights		—		—		7		7
Total nonrecurring fair value measurements	$	—	$	—	$	171	$	171

(1) Includes derivatives designated as fair value hedging instruments as discussed in Note 12

There were no transfers in and out of Level 1, Level 2, or Level 3 fair value measurements during the three months ended March 31, 2024. There were no losses included in earnings attributable to the change in unrealized gains or losses relating to the available-for-sale securities above with fair value measurements utilizing significant unobservable inputs for the three-month period ended March 31, 2024.

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

        March 31, 2024

        Fair value

        Valuation
techniques

        Unobservable
inputs

        Value or range
of values

Collateral dependent loans

165

Appraisal of collateral

(1)

Appraisal adjustments

(2)

-20% to -100%

Liquidation expenses

(3)

-10

Mortgage servicing rights

1

Discounted cash flow

Remaining term

2 to 30 years

         
        Prepayment speeds

        94% to 178%

         
        Discount rate

        12.0% to 12.5%

         
        Quantitative information about Level 3 fair value measurements

        December 31, 2023

        Fair value

        Valuation
techniques

        Unobservable
inputs

        Value or range
of values

Collateral dependent loans

164

Appraisal of collateral

(1)

Appraisal adjustments

(2)

-20% to -100%

         
        Liquidation expenses

        (3)

        -10%

Mortgage servicing rights

7

Discounted cash flow

Remaining term

2 to 30 yrs

         
        Prepayment speeds

        104% to 214%

         
        Discount rate

        12.0% to 12.5%

(1)

Fair value is primarily determined through appraisals of the underlying collateral by independent parties, which generally includes various Level 3 inputs which are not always identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and the age of the appraisal. The range is presented as a percent of the initial appraised value.

(3)

Appraisals and pending agreements of sale are adjusted by management for estimated liquidation expenses. The range is presented as a percent of the initial appraised value.

The following table presents additional information about the available-for-sale securities 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 three months ended March 31, 2024 and 2023:


	Fair value measurements using significant unobservable inputs (Level 3)
	2024		2023
Balance, January 1,	$	52	$	53
Payments received		—		—
Total gains or losses (realized/unrealized)
Included in earnings		—		—
Included in other comprehensive (loss) income		—		(1	)
Transfers in and/or out of Level 3		—		—
Balance, March 31,	$	52	$	52

The Level 3 securities consist of one collateralized debt obligation security, the PreTSL security, which is backed by trust preferred securities issued by banks. The market for this security at March 31, 2024 was not active and markets for similar securities also are not active. The new issue market is also inactive and there are currently very few market participants who are willing and able to transact for these securities.

Given conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, we determined:

•

The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at March 31, 2024;

•

An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at prior measurement dates; and

•

The PreTSL will be classified within Level 3 of the fair value hierarchy because significant adjustments are required to determine fair value at the measurement date.

QNB used an independent third party to value this security using a discounted cash flow analysis. Based on management’s review of the bond’s three underlying issuers, there are no expected credit losses or prepayments; cashflows used were contractual based on the Bloomberg YA screen. The assumed cashflows have been discounted using an estimated market discount rate based on the 30-year swap rate. The 30-year is used as the reference rate since it is indicative of market expectation for short-term rates in the future. This is consistent with the 30-year nature of the PreTSL security, which is priced using the 3-month LIBOR as a reference rate. The discount rate of 8.12% includes the risk-free rate, a credit component and a spread for illiquidity.

The following information should not be interpreted as an estimate of the fair value of the entire Company 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 March 31, 2024 and December 31, 2023:

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, 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 Atlantic Community Bankers Bank, the Federal Home Loan Bank, VISA Class B and SHCPFIC is the carrying amount, based on redemption provisions, and considers the limited marketability of and restrictions on 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 liquidity, 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). 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.

Off-balance-sheet instruments (disclosed at cost): The fair values for QNB’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 the Company’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 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 period end.

The estimated fair values and carrying amounts of the Company’s financial and off-balance sheet instruments are summarized as follows:


					Fair value measurements
March 31, 2024	Carrying amount		Fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial assets
Cash and cash equivalents	$	50,963	$	50,963	$	50,963	$	—	$	—
Investment securities:
Available-for-sale (1)		481,596		481,596		—		481,544		52
Equities		6,217		6,217		6,217		—		—
Restricted investment in stocks		2,730		2,730		—		2,730		—
Net loans		1,113,878		1,100,014		—		—		1,100,014
Mortgage servicing rights		410		594		—		—		594
Accrued interest receivable		6,184		6,184		—		6,184		—

Financial liabilities
Deposits with no stated maturities	$	1,178,711	$	1,178,711	$	1,178,711	$	—	$	—
Deposits with stated maturities		357,477		352,960		—		352,960		—
Short-term borrowings		55,088		55,088		55,088		—		—
Long-term debt		20,000		19,858		19,858		—		—
Accrued interest payable		3,806		3,806		—		3,806		—

Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		60		—		60		—


					Fair value measurements
December 31, 2023	Carrying amount		Fair value		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Financial assets
Cash and cash equivalents	$	62,657	$	62,657	$	62,657	$	—	$	—
Investment securities:
Available-for-sale (1)		490,182		490,182		—		490,130		52
Equity		5,910		5,910		5,910		—		—
Restricted investment in bank stocks		2,730		2,730		—		2,730		—
Loans held for sale		549		560
Net loans		1,084,681		1,077,544		—		—		1,077,544
Mortgage servicing rights		415		585		—		—		585
Accrued interest receivable		6,101		6,101		—		6,101		—

Financial liabilities
Deposits with no stated maturities	$	1,173,732	$	1,173,732	$	1,173,732	$	—	$	—
Deposits with stated maturities		314,981		311,735		—		311,735		—
Short-term borrowings		94,094		94,094		94,094		—		—
Long-term debt		20,000		19,906		19,906		—		—
Accrued interest payable		5,294		5,294		—		5,294		—

Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		79		—		79		—

(1) Includes derivatives designated as fair value hedging instruments as discussed in Note 12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

QNB Corp. is a bank holding company headquartered in Quakertown, Pennsylvania. QNB Corp., through its wholly-owned subsidiary, the Bank, has been serving the residents and businesses of upper Bucks, northern Montgomery and southern Lehigh counties in Pennsylvania since 1877. Due to its limited geographic area, 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. The Bank is a locally managed community bank that provides a full range of commercial and retail banking and retail brokerage services. The consolidated entity is referred to herein as “QNB” or the “Company”.

Tabular information presented throughout management’s discussion and analysis, other than share and per share data, is presented in thousands of dollars.

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, including the risk factors identified in Item 1A of QNB’s 2023 Form 10-K, could affect the future financial results of QNB 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 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 report on Form 10-Q, 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.

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, 2023, which is incorporated herein by reference. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

QNB reported net income for the first quarter of 2024 of $2,594,000, or $0.71 per share on a diluted basis, compared to net income of $4,118,000, or $1.15 per share on a diluted basis, for the same period in 2023. The Bank contributed $2,331,000 to net income for the three months ended March 31, 2024 compared to $4,287,000 for the same period 2023; and the holding company contributed $263,000 to net income for the three months ended March 31, 2024 compared to a negative $169,000 for the same period 2023. The results at the Bank were primarily due to net interest margin compression, a decrease in the amount of reversal in the provision for credit losses on loans and commitments and an increase in non-interest expense. The results at the holding company are due primarily to gains on sales of equity securities included in the investment portfolio.

Net income expressed as an annualized rate of return on average assets and average shareholders’ equity was 0.59% and 6.53%, respectively, for the quarter ended March 31, 2024 compared with 0.97% and 10.81%, respectively, for the quarter ended March 31, 2023.

Total assets as of March 31, 2024 were $1,716,081,000, compared with $1,706,318,000 at December 31, 2023. Loans receivable at March 31, 2024 were $1,122,616,000, a $29,083,000 increase from $1,093,533,000 at December 31, 2023. Total deposits of $1,536,188,000 at March 31, 2024 increased $47,475,000 compared with total deposits of $1,488,713,000 at December 31, 2023.

Results for the three months ended March 31, 2024 include the following significant components:

These items, as well as others, are explained more thoroughly in the next sections.

QNB earns its net income primarily through 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. Management 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.

The following table presents the adjustment to convert net interest income to net interest income on a fully taxable-equivalent basis for the three-month periods ended March 31, 2024 and 2023.

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, interest 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.

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 tables that appear 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 rate 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.

Average Balances, Rate, and Interest Income and Expense Summary (Tax-Equivalent Basis)

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 months ended March 31, 2024 and 2023.

Rate/Volume Analysis. The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense. Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated to changes in volume.

Average earning assets for the first quarter of 2024 were $1,734,164,000, an increase of $56,538,000, or 3.4%, from the first quarter of 2023, with average loans increasing $87,510,000, or 8.6%, average other interest earning assets increasing $39,644,000, primarily interest-earnings cash at the Federal Reserve Bank, and average investment securities decreasing $70,616,000, or 10.9%, over the same period in 2023. Cash generated from repayments on the investment portfolio supported loan growth. Average loans as a percent of average earning assets was 63.9% for the first quarter of 2024, compared with 60.9% for the first quarter of 2023. On the funding side, average deposits increased $82,928,000, or 5.9%, to $1,497,692,000 for the first quarter of 2024 primarily due to an increase in time deposits and money market products. Average short-term borrowed funds, which consisted primarily of average commercial repurchase agreements, short-term Federal Reserve Bank ("FRB") borrowing and over-night FHLB borrowings, decreased $47,477,000 to $87,441,000 during the first quarter of 2024 compared to $134,918,000 for the same period in 2023.

The net interest margin for the first quarter of 2024 decreased 16 basis points to 2.39% from 2.55% for the same period in 2023. Competition for quality loans and deposits in our local market continues to exert pressure on the net interest margin. The increases in interest rates starting in March 2022 have compressed the net interest margin as QNB had been liability sensitive; QNB entered into

interest rate hedging derivatives during the second quarter of 2023 moving QNB to be asset sensitive. The swap added 28 basis points to the net interest margin for the first quarter of 2024. The net interest margin is expected to improve as loans and deposits reprice.

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 $4,097,000, or 26.2%, to $19,710,000 for the first quarter of 2024; total interest expense increased $4,355,000 to $9,401,000.

The yield on earning assets on a tax-equivalent basis increased 80 basis points to 4.57% for the first quarter of 2024, from 3.77% for the first quarter of 2023. The cost of interest-bearing liabilities was 2.66% for the first quarter of 2024, compared with 1.53% for the same period in 2023.

Interest income on investment securities (available-for-sale and equity) increased $1,021,000 when comparing the quarters ended March 31, 2024 and 2023. The average yield on the investment portfolio was 2.62% for the first quarter of 2024 compared with 1.70% for the same period in 2023, an increase of 92 basis points of which the interest rate swaps contributed 85 basis points.

The yield on U.S. Treasury securities was 5.33% for the first quarter of 2024 compared to 1.49% for the same period in 2023. The yield on U.S. Government agency securities increased six basis points offset by a decrease in average balances of $16,992,000, for a net reduction in interest income of $35,000.

Interest income on municipal securities, which are primarily tax-exempt, increased $303,000 due to a 119 basis-point increase in rate, partly offset by a $2,977,000 decrease in average balances. The rate and interest income increases on municipal securities was positively impacted by the interest rate swap, contributing to 120 basis points of the increase in rate. Typically, QNB purchases municipal bonds with 10- to 20-year maturities and may have call dates between 2-10 years.

Interest income on mortgage-backed securities and CMOs increased $688,000 while average balances decreased $51,154,000 and yield increased 97 basis points. The rate and interest income increases on mortgage-backed securities were positively impacted by the interest rate swap, contributing 99 basis points. This portfolio generally provides higher yields relative to agency bonds and also provides monthly cash flow which can be used for liquidity purposes or can be reinvested as interest rates increase. Since most of these securities were purchased at a premium, any prepayments result in a shorter amortization period of this premium and therefore a reduction in income.

The dividend yield on equities increased 32 basis points as average balances decreased $6,077,000. Proceeds from sales of equities were reinvested in higher yielding treasury securities.

Income on loans increased $2,536,000 to $15,286,000 when comparing the first quarters of 2024 and 2023, with an $87,510,000 increase in average balances contributing to an increase in interest income of $988,000 and a 48-basis point increase in yield contributing to a $1,548,000 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 properties 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 $2,698,000 when comparing the first quarters of 2024 and 2023, primarily due to an 82-basis point increase in rate from 4.52% in 2023 to 5.34% and increased average balances of $93,520,000, or 13.7%.

Income on commercial and industrial loans decreased $481,000 when comparing the first quarters of 2024 and 2023. The average yield on these loans decreased 72 basis points to 7.50% resulting in a decrease in income of $252,000; average balances decreased $12,463,000, to $140,293,000 for the first quarter of 2024 resulting in a $229,000 decrease in interest income. The first quarter of 2023 included interest recovered on a nonaccrual loan that paid off; without this interest, the rate was 7.42% for the 2023 period. Many of the loans in this category are indexed to the prime interest rate.

Tax-exempt loan income remained level at $177,000 for the first quarter of 2024 compared to the same period in 2023. Average balances decreased $1,950,000, or 9.5%, to $18,641,000 for the first quarter of 2024. The yield on municipal loans increased 33 basis points, to 3.82% for the first quarter of 2024, compared with the same period in 2023.

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 $129,000 when comparing the first quarter of 2024 to the same period in 2023. Average residential mortgage loan balances increased by $3,224,000, or 3.1%, to $108,922,000 for the first quarter of 2024 compared to the same period in 2023, which contributed a $29,000 increase in interest income.

The average yield on the portfolio increased 37 basis points and contributed an increase of $100,000 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 2024 period by $5,624,000 to $62,269,000; interest income increased $185,000 as the average yield increased 58 basis points to 6.81%. The yield on the consumer portfolio increased 137 basis points to 8.10% for the first quarter of 2024 and there was a $445,000 decrease in average balances resulting in a net $5,000 increase in interest income. The decrease in student loan balances of $470,000 was partially offset by an increase in consumer installment loans.

Earning assets are funded by deposits and borrowed funds. Interest expense increased $4,355,000, when comparing the first quarter of 2024 to the same period in 2023. QNB experienced an increase in all deposit categories except non-interest-bearing checking and savings accounts. Average non-interest-bearing demand accounts decreased $39,353,000 to $182,595,000 for the first quarter of 2024. Average savings balances decreased $107,719,000 to $298,353,000. QNB offered several new interest-bearing demand and money market products offering higher yields to retain large depositors and reduce the reliance on higher-cost short-term borrowings. Average interest-bearing demand accounts increased $4,289,000, or 1.4%, to $321,904,000 for the first quarter of 2024 and the average rate paid on these deposits increased 41 basis points; interest expense on interest-bearing demand accounts increased $341,000 to $643,000 for the same period. Average money market accounts increased $97,245,000, or 74.4%, to $227,872,000 for the first quarter of 2024 compared with the same period in 2023. Interest expense on money market accounts increased $1,673,000 to $2,015,000, and the average interest rate paid on money market accounts increased 250 basis points to 3.56% for the first quarter of 2024. 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 increased $502,000 to $1,577,000 for the first quarter of 2024. The average interest rate paid on municipal interest-bearing demand accounts increased 92 basis points to 4.81% for the first quarter of 2024 over the same quarter of 2023, and average balances increased $19,933,000, or 17.8%, to $131,887,000. 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 decreased $128,000 when comparing the first quarter of 2024 to the same quarter of 2023. The average interest rate paid on savings accounts increased 20 basis points to 1.28% for the first quarter of 2024. When comparing these same periods, average savings accounts decreased $107,719,000, or 26.5%, to $298,353,000 for the first quarter of 2024 primarily due to decreases in the e-Savings product. QNB’s online e-Savings product is the largest category of savings deposits, with average balances for the first quarter of 2024 of $217,409,000 compared to $304,409,000 in the same period of 2023. The average yield paid on these accounts was 1.71% for the first quarter of 2024 and 1.35% for the same period in 2023. Traditional statement savings accounts, passbook savings and club accounts are also included in the savings category and average balances in these types of savings accounts decreased $20,719,000 when comparing the first quarter of 2024 to the same period in 2023.

Interest expense on time deposits totaled $3,372,000 for the first quarter of 2024 compared to $1,232,000 in 2023. Average total time deposits increased $108,533,000 to $335,081,000 for the first quarter of 2024. 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. The average rate paid on total time deposits increased 186 basis points from 2.19% to 4.05% when comparing the first quarter of 2024 to the same period in 2023.

Approximately $303,251,000, or 85%, of time deposits at March 31, 2024 will mature over the next 12 months. The average rate paid on these time deposits is approximately 4.49%. 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, overnight FHLB borrowing and short-term FRB borrowing. Interest expense on short-term borrowings decreased $370,000 for the first quarter of 2024 to $625,000 when compared to the same period in 2023. When comparing these same periods, average balances decreased $47,477,000 to $87,441,000. The yield on customer repos increased 52 basis points for the first quarter of 2024 to 1.58%. There were no FHLB borrowings during 2024. The yield on the short-term FHLB borrowing was 4.84% for the first quarter of 2023 and average balances were $59,742,000. 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%; there are no pre-payment penalties. The FRB borrowings were paid off during the first quarter of 2024 but carried an average balance of $40,110,000 for the first quarter of 2024 compared to an average balance of $8,889,000 for the same period in 2023. During the second quarter of 2023, QNB borrowed long-term debt of $20,000,000 to lock in borrowing at a lower yield than short-term borrowings.

PROVISION FOR CREDIT LOSSES, ALLOWANCE FOR CREDIT LOSSES ON LOANS AND ALLOWANCE FOR CREDIT LOSSES ON UNUSED COMMITMENTS

On January 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), as amended ("ASU 326"), which replaces the incurred loss methodology with an expected credit losses (“CECL”) for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. On January 1, 2023, QNB recorded a decrease to its allowance for credit losses on loans of $989,000 and an increase to its allowance for credit losses on unused commitments of $5,000.

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.

Since the allowance for credit losses on loans and the reserve on unused commitments is dependent, to a great extent, on conditions that may be beyond QNB’s control, it is at least reasonably possible that management’s calculations and actual results could differ. In addition, various regulatory agencies, as an integral part of their examination process, periodically review QNB’s allowance for credit losses on loans. Such agencies may require QNB to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. Actual loan losses, net of recoveries, serve to reduce the allowance.

Based on this analysis, QNB reversed $93,000 in the provision for credit losses for the three months ended March 31, 2024, through the allowance for credit losses on loans, compared to a reversal of $1,783,000 through the provision for credit losses for the same period in 2023. QNB recorded a provision of $7,000 for the allowance for credit losses for unused commitments in the three months ended March 31, 2024 compared to a reversal of $22,000 for the same period in 2023.

QNB's allowance for credit losses on loans of $8,738,000 represents 0.78% of loans receivable at March 31, 2024 compared with an allowance for credit losses on loans of $8,852,000 or 0.81% of loans receivable, at December 31, 2023, and $8,191,000, or 0.81%, at March 31, 2023. Management believes the allowance for credit losses on loans at March 31, 2024 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 charge-offs were $21,000 for the three months ended March 31, 2024 compared to net recoveries of $532,000 for the three months ended March 31, 2023. Charge-offs consisted of overdrafts of $33,000 and student and other consumer loans of $14,000. Recoveries of approximately $26,000 during the three months ended March 31, 2024 consisted of $18,000 in repayments from borrowers of previously charged-off credits and overdrafts recoveries of $8,000. Annualized net charge-offs as a percentage of average loans receivable were 0.01% for the three months ended March 31, 2024, compared to annualized net recoveries of 0.21% for the three months ended March 31, 2023.

Non-performing assets were $2,001,000 at March 31, 2024 compared to $1,940,000 as of December 31, 2023 and $4,561,000 at March 31, 2023. Total non-performing loans, which represent loans on non-accrual status, loans past due 90 days or more and still accruing interest and restructured loans, were 0.18% of loans receivable at March 31, 2024, 0.18% at December 31, 2023, and 0.45% of loans receivable at March 31, 2023. 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. At March 31, 2024, $1,192,000, or approximately 60%, of the loans classified as non-accrual are current or past due less than 30 days. Commercial loans classified as substandard or doubtful totaled $11,852,000, an increase of $242,000 from the $11,610,000 reported at December 31, 2023 and a decrease of $1,727,000, or 12.7%, from the $13,579,000 reported at March 31, 2023. The increase in classified loans since December 31, 2023 was due to two relationships downgraded, partially offset by repayments; and the decrease since March 31, 2023 is primarily due to repayments and pay-offs on existing substandard loans.

QNB had no loans past due 90 days or more and still accruing interest at March 31, 2024, December 31, 2023, or March 31, 2023. Total loans 30 days or more past due, which includes non-accrual loans by actual number of days delinquent, represented 0.37% of loans receivable at March 31, 2024 compared with 1.15% at December 31, 2023, and 0.60% at March 31, 2023. The December 31, 2023 past-dues included one large relationship past maturity and in the process of refinancing.

There were no troubled debt modifications identified during the three months ended March 31, 2024 or 2023. QNB had no other real estate owned or repossessed assets at March 31, 2024, December 31, 2023 or March 31, 2023.

A loan is considered collateral dependent, 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 if a loan is collateral dependent 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 generally are not collateral dependent. 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. Deficiency is measured on a loan-by-loan basis for all non-accrual loans, except student 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.

The following table shows detailed information and ratios pertaining to the Company’s loan and asset quality:

An analysis of net loan charge-offs (recoveries) for the three months ended March 31, 2024 compared to 2023 is as follows:

At March 31, 2024 and December 31, 2023, the recorded investment in loans for which impairment has been identified totaled $1,990,000 and $1,923,000 of which $1,688,000 and $1,451,000, respectively, required no specific allowance for loan loss. The recorded investment in impaired loans requiring an allowance for loan losses was $302,000 and $472,000 at March 31, 2024 and December 31, 2023, respectively, and the related allowance for loan losses associated with these loans was $137,000 and $308,000, respectively. Most of the loans that have been identified as impaired are collateral-dependent. See Note 8 to the Notes to Consolidated Financial Statements for additional detail of impaired loans.

Total non-interest income for the first quarter of 2024 was $1,836,000, an increase of $617,000, compared to $1,219,000 for the first quarter of 2023. Excluding realized and unrealized gains (losses) on securities and loans, non-interest income decreased $147,000, or 9.1%, to $1,474,000 for the quarter ended March 31, 2024 compared with the same period in 2023.

During the first quarter of 2024, unrealized losses on investment equity securities of $30,000 were recorded compared to unrealized gains of $57,000 in the same period of 2023. The unrealized losses and gains for the three months ended March 31, 2024 and 2023 resulted from the change in the fair value of the equities included in the investment portfolio. The equities portfolio comprises blue-chip large-capitalized stocks, providing a year-to-date taxable equivalent dividend yield of 3.71%. The estimated cumulative contribution (realized and unrealized net gains (losses), plus dividends) of the equity portfolio to earnings per share from January 1, 2011 through March 31, 2024 is $2.57 per diluted share. Details of the equity portfolio’s contribution to net income since January 1, 2017 is detailed in the following table.

QNB originates residential mortgage loans for sale in the secondary market. Net gains on sale of loans was $15,000 for first quarter of 2024; compared to $6,000 in the first quarter of 2023. 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.

Fees for services to customers increased $18,000 to $420,000 for the first quarter of 2024, due primarily to an increase in net overdraft income of $6,000 and other deposit fees of $18,000. ATM and debit card income decreased $23,000 to $636,000 for the first quarter of 2024, compared to the same period in 2023.

QNB provides securities and advisory services under the name QNB Financial Services. Retail brokerage and advisory fees decreased for the first quarter of 2024 compared to the same period in 2023. Advisory fees decreased $98,000 for the first quarter of 2024 compared with the same period in 2023 and transactional fees decreased $43,000 due to a decrease in client balances following employee turnover.

Other non-interest income decreased $15,000 primarily due to a reduction in mortgage services fees of $10,000.

Total non-interest expense was $8,833,000 for the first quarter of 2024, an increase of $633,000 compared to the first quarter of 2023.

Salaries and benefits comprise the largest component of non-interest expense. QNB monitors, through the use of various surveys, the competitive salary and benefit information in its markets and makes adjustments when appropriate. Salaries and benefits expense increased $411,000, or 9.0%, to $4,974,000 when comparing the two quarters. Salary expense and related payroll taxes increased $178,000 to $4,145,000 during the first quarter of 2024 compared to the same period in 2023 due to pay increases and filling open positions. Medical and dental premiums, net of employee contributions, increased $180,000 when comparing the two quarters due to medical claims. Retirement and post-retirement costs increased $50,000.

Net occupancy and furniture and equipment expenses combined increased $138,000, or 10.0%, when comparing the first quarters of 2024 and 2023. This is due primarily to increased software maintenance expense. Marketing expense increased $63,000, or 31.0%, to $266,000 for the quarter ended March 31, 2024, due to timing of promotions and community support donations.

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 correspondent banking services, IT services, statement printing and mailing, investment security safekeeping and supply management services. Third party services expense increased $15,000. Telephone, postage and supplies expense decreased $41,000 primarily due to a reduction in postage and mailing expenses as there was an increase in the use of electronic delivery. State taxes decreased $24,000, or 19.4%, due to the timing of tax credits received for qualified charitable contributions. FDIC insurance premiums increased $170,000 due to an increase in the assessment rate.

Other non-interest expense decreased $99,000, or 10.1%, due to a $161,000 decrease in write-offs primarily due to fraud on customer accounts, partly offset by an increase in debit card expense of $53,000 and business development costs of $24,000.

QNB utilizes an asset and liability approach for financial accounting and reporting of income taxes. As of March 31, 2024, QNB’s net deferred tax asset was $19,029,000. The primary components of deferred taxes are deferred tax assets of which $18,630,000 relates to investment securities fair value adjustments and $1,835,000 relates to the allowance for credit losses on loans, partly offset by a deferred tax liability on interest rate swap fair value adjustments of $933,000. As of December 31, 2023, QNB’s net deferred tax asset was $19,290,000 of which $17,692,000 is related to investment securities fair value adjustment and $1,859,000 relates to the allowance for credit losses on loans. The decrease in the balance of net deferred tax assets when comparing March 31, 2024 to December 31, 2023 of $261,000 is due to the unrealized gains on interest rate swaps contributing a reduction of $1,300,000, partly offset by a reduction in unrealized losses on available for sale securities contributing $938,000.

The realizability of 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 these remaining deferred tax assets.

Applicable income tax expense was $663,000 for the quarter ended March 31, 2024, compared to $1,123,000 for the quarter and March 31, 2023. The effective tax rate for the first quarter ended March 31, 2024 was 20.4% compared with 21.4% for the same period in 2023.

The decrease in the effective tax rate for the three months ended March 31, 2024 is due to the state income tax at the parent company and a lower proportion of tax-exempt net interest income to income before taxes for 2024 over 2023.

Financial service organizations are challenged to demonstrate they can generate sustainable and consistent earnings growth in a dynamic operating environment. Rate competition for quality loans is anticipated to continue through 2024. It is also anticipated that the rate competition for attracting and retaining deposits may increase in the remainder of 2024, which could result in a lower net interest margin and a decline in net interest income.

QNB’s primary business is accepting deposits and making 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 is committed to make credit available to its customers.

Total assets at March 31, 2024 were $1,716,081,000 compared with $1,706,318,000 at December 31, 2023. Cash and cash equivalents decreased $11,694,000 from $62,657,000 at December 31, 2023 to $50,963,000 at March 31, 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 and 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. The available-for-sale securities portfolio decreased $8,586,000, due to maturities and prepayments of $11,338,000; this was partly offset by purchases of $2,967,000 and improvement in the fair value mark of $1,728,000.

Loans receivable increased $29,083,000 with commercial loans increasing $27,511,000 to $946,926,000 at March 31, 2024, compared with $919,415,000 at year-end 2023.

Deposits grew $47,475,000 from December 31, 2023 to March 31, 2024. Non-interest-bearing demand deposits increased $3,162,000, with balances of $188,260,000 at March 31, 2024 compared with $185,098,000 at year-end 2023. Interest-bearing demand balances, excluding municipal deposits, increased $4,877,000 to $334,829,000, with increases in both personal and business interest-bearing checking products. The $12,677,000 increase in money market accounts was primarily to a new premium money market product offered to both personal and business customers. The $8,642,000 decrease in savings was primarily due to declines in the E-Savings on-line product as some of these funds moved to higher-yield certificates of deposit or the new premium money market accounts. Total time deposits increased $42,496,000 from December 31, 2023 to March 31, 2024 as customers took advantage of higher-yielding time deposits, moving from lower-yielding products. Municipal deposit balances decreased $7,095,000, to $125,665,000, during the first three months of 2024. Municipal deposits can be volatile depending on the timing of deposits and withdrawals, and the cash flow needs of the school districts or municipalities. Municipal deposits increase as tax money is received from the local school districts during second and third quarters and it is anticipated that these funds will flow out for the subsequent twelve months as the schools use the funds for operations. These deposits provide an incremental funding source as they are used to fund loans as opposed to borrowing at a higher rate; this improves the net interest margin as it increases the spread related to the net interest margin.

Short-term borrowings decreased 41.5%, from $94,094,000 at December 31, 2023 to $55,088,000 at March 31, 2024. Commercial sweep accounts increased $10,994,000; these funds may be volatile based on businesses’ receipt and disbursement of funds and is offset by business non-interest-bearing demand accounts. 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; these borrowing were paid off during the first quarter of 2024. During the three months ended March 31, 2023, QNB borrowed long-term debt from the FHLB of $20,000,000 to lock in a low yield.

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.

Additional sources of liquidity are provided by the Bank’s membership in the FHLB. At March 31, 2024 the Bank had a maximum borrowing availability with the FHLB of approximately $388,484,000, which is net of long-term borrowing outstanding of $20,000,000, a $283,000 letter of credit and accrued interest payable. The maximum borrowing depends upon qualifying collateral assets and the Bank’s asset quality and capital adequacy. In addition, the Bank maintains unsecured Federal funds lines with four correspondent banks totaling $86,000,000. At March 31, 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.

Liquid sources of funds, including cash, available-for-sale and equity investment securities, and loans held-for-sale have decreased $20,522,000 since December 31, 2023, totaling $538,776,000 at March 31, 2024. The reduction in the liquid sources of funds is primarily due to maturities and sales of available-for-sale securities. Growth in deposits provided cash flows of $47,475,000 and net proceeds from available-for-sale investment activities provided $8,371,000; combined, the proceeds enabled the net paydown on short-term borrowings of $39,006,000 and funding for the net growth in loans of $29,104,000. Management expects these liquid sources will be adequate to meet normal fluctuations in loan demand or deposit withdrawals. The investment portfolio is expected to continue to provide sufficient liquidity, as municipal bonds are called or mature and cash flow on mortgage-backed and CMO securities continues to be steady.

Approximately $251,927,000 and $289,935,000 of available-for-sale debt securities at March 31, 2024 and December 31, 2023, respectively, were pledged as collateral for repurchase agreements and deposits of public funds and the FRB short-term borrowing. The level of pledged securities corresponds with the municipal deposit and repurchase agreement balances.

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. It 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.

A strong capital position is fundamental to support continued growth and profitability and to serve the needs of depositors. QNB's shareholders' equity at March 31, 2024 was $93,686,000, or 5.46% of total assets, compared with shareholders' equity of $90,824,000, or 5.32% of total assets, at December 31, 2023. Shareholders’ equity at March 31, 2024 included a negative adjustment of $66,571,000 compared to a negative adjustment of $67,937,000 at December 31, 2023, related to net unrealized holding losses, net of taxes, on investment securities available-for-sale and gains on fair value hedges, net of tax. Without these adjustments, shareholders' equity to total assets would have been 8.99% and 8.95% at March 31, 2024 and December 31, 2023, respectively.

Average shareholders' equity and average total assets were $159,739,000 and $1,778,585,000 for the three months ended March 31, 2024, an increase of 3.4% and 3.5%, respectively, from the averages for the three months ended March 31, 2023. The ratio of average total equity to average total assets was 8.98% for the three months ended March 31, 2024 compared to 8.99% for the same period in 2023.

Retained earnings at March 31, 2024 were impacted by three months of net income totaling $2,594,000 offset by dividends declared and paid of $1,352,000 for the three-month period. 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 $217,000 to capital during the three months ended March 31, 2024.

The Board of Directors has authorized the repurchase of up to 200,000 shares of QNB common stock in open market or privately negotiated transactions. The repurchase authorization does not bear a termination date. As of March 31, 2024, 102,000 shares have been repurchased since the initial authorization at an average price of $24.93 and a total cost of $2,543,000.

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 capital. 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.

The required minimum Common equity Tier 1 capital to risk-weighted assets ratio is 4.5%, the required minimum ratio of Tier 1 capital to risk-weighted assets is 6.0%, the required minimum ratio of Total Capital to risk-weighted assets is 8.0%, and the required minimum

Tier 1 leverage ratio is 4.0%. A capital conservation buffer of 2.5% of risk-weighted assets also applies to avoid limitations on certain capital distributions.

At March 31, 2024, common equity Tier 1, Tier 1 capital, and total regulatory capital ratios slightly decreased since December 31, 2023. The Company remains well-capitalized by all applicable regulatory requirements as of March 31, 2024.

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 than its earning assets (investments securities and loans). 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 March 31, 2024 is asset sensitive. Management expects that market interest rates may increase over the next 12 months, based on the economic environment and policy of the Board of Governors of the Federal Reserve System.

The following table shows the estimated impact of changes in interest rates on net interest income as of March 31, 2024 and 2023 assuming instantaneous rate shocks, and consistent levels of assets and liabilities. Net interest income for the subsequent twelve months is projected to decrease when interest rates are higher than current rates.

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 March 31, 2024, QNB had two derivatives designated as fair value hedging instruments, these interest rate swaps had a notional value of $300,000,000.

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the consolidated financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. No changes were made to our internal control over financial reporting during the nine month period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2023.

QNB did not repurchase shares of its common stock during the quarter ended March 31, 2024. The following provides certain information relating to QNB's stock repurchase plan.

* These interactive data files are being furnished as part of this Quarterly 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.

Pursuant to the requirements 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.


15 North Third Street, P.O. Box 9005 Quakertown, PA		18951-9005
(Address of Principal Executive Offices)		(Zip Code)


Class		Outstanding at April 26, 2024
Common Stock, par value $0.625		3,664,074


	PART I - FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	PAGE

	Consolidated Balance Sheets at March 31, 2024 and December 31, 2023	2

	Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023	3

	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023	4

	Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	6

	Notes to Consolidated Financial Statements	7

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	53

ITEM 4.	CONTROLS AND PROCEDURES	54

	PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	55

ITEM 1A.	RISK FACTORS	55

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	55

ITEM 4.	MINE SAFETY DISCLOSURES	55

ITEM 5.	OTHER INFORMATION	55

ITEM 6.	EXHIBITS	56

SIGNATURES		57

CERTIFICATIONS


	(in thousands, except share data)
	(current period unaudited)
	March 31, 2024			December 31, 2023
Assets
Cash and due from banks	$	12,470		$	11,447
Interest-bearing deposits in banks		38,493			51,210
Total cash and cash equivalents		50,963			62,657
Investments:
Available-for-sale (amortized cost $565,864 and $576,178)		481,596			490,182
Equity securities (cost of $6,032 and $5,695)		6,217			5,910
Restricted investment in stocks		2,730			2,730
Loans held-for-sale		—			549
Loans receivable		1,122,616			1,093,533
Allowance for credit losses on loans		(8,738	)		(8,852	)
Loans receivable, net		1,113,878			1,084,681
Bank-owned life insurance		11,700			11,946
Premises and equipment, net		14,849			14,952
Accrued interest receivable		6,184			6,101
Net deferred tax assets		19,029			19,290
Other assets		8,935			7,320
Total assets	$	1,716,081		$	1,706,318

Liabilities
Deposits
Demand, non-interest bearing	$	188,260		$	185,098
Interest-bearing demand		460,494			462,712
Money market		235,520			222,843
Savings		294,437			303,079
Time less than $100		163,951			149,851
Time $100 through $250		137,895			121,793
Time greater than $250		55,631			43,337
Total deposits		1,536,188			1,488,713
Short-term borrowings		55,088			94,094
Long-term debt		20,000			20,000
Accrued interest payable		3,806			5,294
Other liabilities		7,313			7,393
Total liabilities		1,622,395			1,615,494

Shareholders' Equity
Common stock, par value $0.625 per share;
authorized 10,000,000 shares; 3,872,760 shares and 3,861,940
shares issued; 3,664,074 and 3,653,254 shares outstanding		2,420			2,414
Surplus		26,687			26,439
Retained earnings		135,187			133,945
Accumulated other comprehensive loss, net of tax		(66,571	)		(67,937	)
Treasury stock, at cost; 208,686 and 208,686 shares		(4,037	)		(4,037	)
Total shareholders' equity		93,686			90,824
Total liabilities and shareholders' equity	$	1,716,081		$	1,706,318


	(in thousands - unaudited)
	2024									2023
For the Three Months Ended March 31,	Before tax amount			Tax expense			Net of tax amount			Before tax amount		Tax expense		Net of tax amount
Net income	$	3,257		$	663		$	2,594		$	5,241	$	1,123	$	4,118
Other comprehensive income (loss):
Net unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising during the period		(4,466	)		(938	)		(3,528	)		11,152		2,342		8,810
Reclassification adjustment for losses included in net income (1)		—			—			—			257		54		203
Net unrealized holding gains on fair value hedge:
Unrealized holding gains arising during the period		6,121			1,285			4,836			—		—		—
Reclassification adjustment for fair value remeasurements included in net income (2)		74			16			58			—		—		—
Other comprehensive income:		1,729			363			1,366			11,409		2,396		9,013
Total comprehensive income	$	4,986		$	1,026		$	3,960		$	16,650	$	3,519	$	13,131


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐


	For the Three Months Ended March 31,
(in thousands, except per share data - unaudited)	2024			2023
Interest income
Interest and fees on loans	$	15,250		$	12,714
Interest and dividends on available-for-sale & equity securities:
Taxable		3,325			2,279
Tax-exempt		357			374
Interest on interest-bearing balances and other interest income		637			96
Total interest income		19,569			15,463
Interest expense
Interest on deposits
Interest-bearing demand		2,220			1,377
Money market		2,015			342
Savings		949			1,077
Time less than $100		1,473			382
Time of $100 through $250		1,377			727
Time greater than $250		522			123
Interest on short-term borrowings		625			995
Interest on long-term debt		220			23
Total interest expense		9,401			5,046
Net interest income		10,168			10,417
Provision (reversal) for credit losses on loans		(86	)		(1,805	)
Net interest income after provision for loan losses		10,254			12,222
Non-interest income
Net gain (loss) on sales and calls of available-for-sale and equity securities		377			(465	)
Unrealized (loss) gain on investment equity securities		(30	)		57
Fees for services to customers		420			402
ATM and debit card		636			659
Retail brokerage and advisory		93			234
Bank-owned life insurance		94			86
Merchant		99			93
Net gain on sale of loans		15			6
Other		132			147
Total non-interest income		1,836			1,219
Non-interest expense
Salaries and employee benefits		4,974			4,563
Net occupancy		578			540
Furniture and equipment		937			837
Marketing		266			203
Third party services		624			609
Telephone, postage and supplies		126			167
State taxes		100			124
FDIC insurance premiums		345			175
Other		883			982
Total non-interest expense		8,833			8,200
Income before income taxes		3,257			5,241
Provision for income taxes		663			1,123
Net income	$	2,594		$	4,118
Earnings per share - basic	$	0.71		$	1.15
Earnings per share - diluted	$	0.71		$	1.15
Cash dividends per share	$	0.37		$	0.37
The accompanying notes are an integral part of the consolidated financial statements.


For the Three Months Ended March 31, 2024 and 2023

											Accumulated
	Number of										Other
(unaudited)	Shares		Common					Retained			Comprehensive			Treasury
(in thousands, except share and per share data)	Outstanding		Stock		Surplus			Earnings			Loss			Stock			Total
Balance, January 1, 2024		3,653,254	$	2,414	$	26,439		$	133,945		$	(67,937	)	$	(4,037	)	$	90,824
Net income				—		—			2,594			—			—			2,594
Other comprehensive income, net of tax				—		—			—			1,366			—			1,366
Cash dividends declared ($0.37 per share)				—		—			(1,352	)		—			—			(1,352	)
Stock issued in connection with dividend reinvestment and stock purchase plan		9,290		5		212			—			—			—			217
Stock issued for Non-Employee Director Compensation		1,530		1		(1	)		—			—			—			—
Stock-based compensation expense		—		—		37			—			—			—			37
Balance, March 31, 2024		3,664,074	$	2,420	$	26,687		$	135,187		$	(66,571	)	$	(4,037	)	$	93,686


											Accumulated
	Number of										Other
(unaudited)	Shares		Common					Retained			Comprehensive			Treasury
(in thousands, except share and per share data)	Outstanding		Stock		Surplus			Earnings			Loss			Stock			Total
Balance, January 1, 2023		3,588,262	$	2,373	$	24,798		$	128,951		$	(81,127	)	$	(4,037	)	$	70,958
Cumulative change in accounting principle				—		—			857			—			—			857
Balance at January 2, 2023 (as adjusted for change in accounting principle)				2,373		24,798			129,808			(81,127	)		(4,037	)		71,815
Net income				—		—			4,118			—			—			4,118
Other comprehensive income, net of tax				—		—			—			9,013			—			9,013
Cash dividends declared ($0.37 per share)				—		—			(1,328	)		—			—			(1,328	)
Stock issued in connection with dividend reinvestment and stock purchase plan		9,083		6		230			—			—			—			236
Stock-based compensation expense		—		—		20			—			—			—			20
Balance, March 31, 2023		3,597,345	$	2,379	$	25,048		$	132,598		$	(72,114	)	$	(4,037	)	$	83,874


	(in thousands, unaudited)
For the Three Months Ended March 31,	2024			2023
Operating Activities
Net income	$	2,594		$	4,118
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		402			412
Reversal of provision for credit losses		(86	)		(1,805	)
Net (gain) loss on calls and sales of debt and equity securities		(377	)		465
Net unrealized loss (gain) on equity securities		30			(57	)
Net gain on sale of loans		(15	)		(6	)
Proceeds from sales of residential mortgages held-for-sale		801			388
Origination of residential mortgages held-for-sale		(237	)		(770	)
Increase in cash surrender value of bank-owned life insurance		(94	)		(86	)
Stock-based compensation expense		37			20
Deferred income tax (benefit) expense		(102	)		284
Net increase (decrease) in income taxes payable		194			(284	)
Net (increase) decrease in accrued interest receivable		(82	)		1,613
Fair value remeasurements on interest rate swap		74			—
Amortization of mortgage servicing rights and change in valuation allowance		12			11
Net amortization of premiums and discounts on investment securities		369			482
Net (decrease) increase in accrued interest payable		(1,488	)		456
Operating lease payments		(157	)		(156	)
Increase in other assets		(323	)		(343	)
Increase (decrease) in other liabilities		53			(663	)
Net cash provided by operating activities		1,605			4,079
Investing Activities
Proceeds from payments, maturities and calls of investments available-for-sale		11,338			10,210
Proceeds from the sale of investments available-for-sale		—			9,081
Proceeds from the sale of equity securities		1,210			709
Purchases of investments available-for-sale		(2,967	)		—
Purchases of equity securities		(1,170	)		(712	)
Proceeds from redemption of investment in restricted stock		—			4,944
Purchases of restricted stock		—			(1,849	)
Net (increase) decrease in loans		(29,104	)		27,961
Net purchases of premises and equipment		(281	)		(115	)
Redemption of Bank Owned Life Insurance investment		341			—
Net cash (used in) provided by investing activities		(20,633	)		50,229
Financing Activities
Net increase (decrease) in non-interest bearing deposits		3,162			(19,590	)
Net increase in interest-bearing deposits		44,313			25,811
Net decrease in short-term borrowings		(39,006	)		(51,135	)
Repayment of long-term debt		—			(10,000	)
Cash dividends paid, net of reinvestment		(1,198	)		(1,151	)
Proceeds from issuance of common stock		63			59
Net cash provided by (used in) financing activities		7,334			(56,006	)
Decrease in cash and cash equivalents		(11,694	)		(1,698	)
Cash and cash equivalents at beginning of year		62,657			15,899
Cash and cash equivalents at end of period	$	50,963		$	14,201
Supplemental Cash Flow Disclosures
Interest paid	$	10,889		$	4,590
Net income taxes paid		571			1,123
Non-cash transactions:
Cumulative change in accounting principal		—			857
Unsettled trades for matured securities		1,500			—
Right-of-use assets obtained in exchange for new operating lease liabilities		—			369
The accompanying notes are an integral part of the consolidated financial statements.


	Number of options			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2023		121,550		$	34.29
Granted		40,000			23.40
Exercised		—			—
Forfeited		(24,275	)		37.69
Outstanding at March 31, 2024		137,275		$	30.51		6.00	$	31,600
Exercisable at March 31, 2024		45,315		$	33.74		2.51	$	—


For the Three Months Ended March 31,	Amount reclassified from accumulated other comprehensive loss
Details about accumulated other comprehensive loss	2024			2023			Affected line item in statement of income
Unrealized net holding losses on available-for-sale securities	$	—		$	(257	)	Net gain (loss) on sales of investments available-for-sale
Impairment on investment securities		—			—		Net impairment on investment securities
Fair value remeasurements on fair value hedges		(74	)		—		Interest and dividends on available-for-sale & equity securities
		(74	)		(257	)
Tax effect		16			54		Provision for income taxes
Total reclassification out of accumulated other comprehensive loss, net of tax	$	(58	)	$	(203	)	Net of tax


	Fair		Gross unrealized holding		Gross unrealized holding			Gross unrealized fair value hedge		Amortized
March 31, 2024	value		gains		losses			gains (1)		cost
U.S. Treasury	$	5,455	$	—	$	(1	)	$	—	$	5,456
U.S. Government agency		73,529		—		(11,423	)		—		84,952
State and municipal		89,554		—		(19,816	)		1,299		108,071
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		220,271		—		(40,093	)		3,146		257,218
Collateralized mortgage obligations (CMOs)		86,564		—		(16,893	)		—		103,457
Corporate debt and money market funds		6,223		10		(497	)		—		6,710
Total investment debt securities available-for-sale	$	481,596	$	10	$	(88,723	)	$	4,445	$	565,864


			Gross		Gross			Gross
			unrealized		unrealized			unrealized
	Fair		holding		holding			fair value hedge			Amortized
December 31, 2023	value		gains		losses			losses (1)			cost
U.S. Treasury	$	6,451	$	3	$	—		$	—		$	6,448
U.S. Government agency		74,122		—		(10,828	)		—			84,950
State and municipal		89,189		—		(18,714	)		(445	)		108,348
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		224,238		—		(37,831	)		(1,304	)		263,373
Collateralized mortgage obligations (CMOs)		89,973		—		(16,383	)		—			106,356
Corporate debt and money market funds		6,209		2		(496	)		—			6,703
Total investment debt securities available-for-sale	$	490,182	$	5	$	(84,252	)	$	(1,749	)	$	576,178

(1) See Note 12



March 31, 2024	Fair value		Amortized cost
Due in one year or less	$	7,567	$	7,606
Due after one year through five years		58,360		65,933
Due after five years through ten years		39,424		44,892
Due after ten years		69,410		86,758
		174,761		205,189
Residential mortgage-backed securities		220,271		257,218
Collateralized mortgage obligations		86,564		103,457
Total	$	481,596	$	565,864



			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2024	securities		value		losses			value		losses			value		losses
U.S. Treasury		6	$	2,970	$	(1	)	$	—	$	—		$	2,970	$	(1	)
U.S. Government agency		39		—		—			73,529		(11,423	)		73,529		(11,423	)
State and municipal		190		—		—			87,967		(19,816	)		87,967		(19,816	)
U.S. Government agencies and sponsored enterprises (GSEs):				—		—
Mortgage-backed		164		—		—			217,140		(40,093	)		217,140		(40,093	)
Collateralized mortgage obligations (CMOs)		125		—		—			86,564		(16,893	)		86,564		(16,893	)
Corporate debt and money market funds		4		—		—			6,089		(497	)		6,089		(497	)
Total		528	$	2,970	$	(1	)	$	471,289	$	(88,722	)	$	474,259	$	(88,723	)


	Capital levels
	Actual					Adequately capitalized					Well capitalized
March 31, 2024	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total risk-based capital (to risk-weighted assets):
The Company	$	169,099		12.87	%	$	105,143		8.00	%	$	131,429		10.00	%
Bank		155,045		11.98			103,510	8.00				129,388	10.00

Tier 1 capital (to risk-weighted assets):
The Company	$	160,249		12.19			78,858	6.00				78,858	6.00
Bank		146,195		11.30			77,633	6.00				103,510	8.00

Common equity tier 1 capital (to risk-weighted assets):
The Company		160,249		12.19			59,143	4.50			N/A		N/A
Bank		146,195		11.30			58,225	4.50				84,102	6.50

Tier 1 capital (to average assets):
The Company		160,249		9.01			71,143	4.00			N/A		N/A
Bank		146,195		8.28			70,590	4.00				88,237	5.00


	Interest Rate Swaps-Fair Value Hedges
	At March 31, 2024						At December 31, 2023
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	$	75,000	$	97,208	$	1,299	$	75,000	$	97,373	$	(445	)
U.S. Government agencies and GSE mortgage backed securities		225,000		335,668		3,146		225,000		343,453		(1,304	)
Total	$	300,000	$	432,876	$	4,445	$	300,000	$	440,826	$	(1,749	)


	For the Three Months Ended March 31,
Income Sheet Classification	2024			2023
Interest and dividends on available-for-sale and equity securities:
State and municipal securities
Recognized on fair value hedge	$	1,010		$	—
Recognized on hedge portfolio		(668	)		—
Recognized on remeasurement of fair value hedge		(18	)		—
U.S. Government agencies and GSE mortgage backed securities
Recognized on fair value hedge		2,996			—
Recognized on hedge portfolio		(2,037	)		—
Recognized on remeasurement of fair value hedge		(56	)		—
Total	$	1,227		$	—


	For the Three Months Ended
	March 31, 2024								March 31, 2023
	Average			Average					Average			Average
	Balance			Rate			Interest		Balance			Rate			Interest
Assets
Investment securities (AFS & Equity):
U.S. Treasury securities	$	6,782			5.33	%	$	90	$	269			1.49	%	$	1
U.S. Government agencies		84,951			1.17			248		101,943			1.11			283
State and municipal		108,173			3.42			924		111,150			2.23			621
Mortgage-backed and CMOs		365,983			2.59			2,373		417,137			1.62			1,685
Corporate debt securities and money market funds		6,707			5.59			94		6,636			4.40			73
Equities		6,019			3.71			56		12,096			3.39			101
Total investment securities		578,615			2.62			3,785		649,231			1.70			2,764
Loans:
Commercial real estate		775,135			5.34			10,300		681,615			4.52			7,602
Residential real estate		108,922			3.92			1,066		105,698			3.55			937
Home equity loans		62,269			6.81			1,055		56,645			6.23			870
Commercial and industrial		140,293			7.50			2,615		152,756			8.22			3,096
Consumer loans		3,644			8.10			73		4,089			6.73			68
Tax-exempt loans		18,641			3.82			177		20,591			3.49			177
Total loans, net of unearned income*		1,108,904			5.54			15,286		1,021,394			5.06			12,750
Other earning assets		46,645			5.51			639		7,001			5.71			99
Total earning assets		1,734,164			4.57			19,710		1,677,626			3.77			15,613
Cash and due from banks		12,769								12,881
Allowance for loan losses		(8,946	)							(9,937	)
Other assets		40,598								38,597
Total assets	$	1,778,585							$	1,719,167
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Interest-bearing demand	$	321,904			0.80	%		643	$	317,615			0.39	%		302
Municipals		131,887			4.81			1,577		111,954			3.89			1,075
Money market		227,872			3.56			2,015		130,627			1.06			342
Savings		298,353			1.28			949		406,072			1.08			1,077
Time < $100		157,712			3.76			1,473		101,208			1.53			382
Time $100 through $250		127,613			4.34			1,377		97,617			3.02			727
Time > $250		49,756			4.22			522		27,723			1.80			123
Total interest-bearing deposits		1,315,097			2.62			8,556		1,192,816			1.37			4,028
Short-term borrowings		87,441			2.88			625		134,918			2.99			995
Long-term debt		20,000			4.36			220		5,833			1.57			23
Total interest-bearing liabilities		1,422,538			2.66			9,401		1,333,567			1.53			5,046
Non-interest-bearing deposits		182,595								221,948
Other liabilities		13,713								9,149
Shareholders' equity		159,739								154,503
Total liabilities and shareholders' equity	$	1,778,585							$	1,719,167
Net interest rate spread					1.91	%							2.24	%
Margin/net interest income					2.39	%	$	10,309					2.55	%	$	10,567


	For the Three Months Ended
	March 31, 2024 compared
	to March 31, 2023
	Total			Due to change in:
	Change			Volume			Rate
Interest income:
Investment securities (AFS & Equity):
U.S. Treasury securities	$	89		$	24		$	65
U.S. Government agencies		(35	)		(47	)		12
State and municipal		303			(16	)		319
Mortgage-backed and CMOs		688			(207	)		895
Corporate debt securities and money market funds		21			1			20
Equities		(45	)		(50	)		5
Total Investment securities (AFS & Equity)		1,021			(295	)		1,316
Loans:
Commercial real estate		2,698			1,116			1,582
Residential real estate		129			29			100
Home equity loans		185			95			90
Commercial and industrial		(481	)		(229	)		(252	)
Consumer loans		5			(7	)		12
Tax-exempt loans		—			(16	)		16
Total Loans		2,536			988			1,548
Other earning assets		540			563			(23	)
Total interest income		4,097			1,256			2,841
Interest expense:
Interest-bearing deposits:
Interest-bearing demand		341			7			334
Municipals		502			203			299
Money market		1,673			261			1,412
Savings		(128	)		(279	)		151
Time < $100		1,091			218			873
Time $100 through $250		650			231			419
Time > $250		399			99			300
Total interest-bearing deposits		4,528			740			3,788
Short-term borrowings		(370	)		(345	)		(25	)
Long-term debt		197			56			141
Total interest expense		4,355			451			3,904
Net interest income	$	(258	)	$	805		$	(1,063	)


Non-Interest Income Comparison
	For the Three Months Ended March 31,						Change from prior year
	2024			2023			Amount			Percent
Net gain on sales of investment securities	$	377		$	(465	)	$	842			-181.1	%
Unrealized gain (loss) on investment equity securities		(30	)		57			(87	)		(152.6	)
Fees for services to customers		420			402			18			4.5
ATM and debit card		636			659			(23	)		(3.5	)
Retail brokerage and advisory		93			234			(141	)		(60.3	)
Bank-owned life insurance		94			86			8			9.3
Merchant		99			93			6			6.5
Net gain on sale of loans		15			6			9			150.0
Other		132			147			(15	)		(10.2	)
Total	$	1,836		$	1,219		$	617			50.6	%


Net Income (Expense) on Equity Securities
	For the Year Ended December 31,																						For the Three Months Ended March 31,
		2017			2018			2019			2020			2021			2022			2023			2024			2023

Equity Securities:
Tax-equivalent dividends*		$	249		$	300		$	274		$	392		$	437		$	399		$	320		$	56		$	101
Net gain (loss) on sales			1,557			(79	)		1,781			585			1,788			405			(19	)		377			(208	)
Impairment			(80	)	N/A			N/A			N/A			N/A			N/A			N/A			N/A			N/A
Unrealized (loss) gain		N/A				(336	)		770			(47	)		926			(1,026	)		250			(30	)		57
Tax-equivalent income before tax			1,726			(115	)		2,825			930			3,151			(222	)		551			403			(50	)
Tax expense (benefit)*			700			(33	)		816			269			910			(64	)		159			111			(14	)
Net income		$	1,026		$	(82	)	$	2,009		$	661		$	2,241		$	(158	)	$	392		$	292		$	(36	)

Earnings per share - basic		$	0.30		$	(0.02	)	$	0.57		$	0.19		$	0.63		$	(0.04	)	$	0.11		$	0.08		$	(0.01	)
Earnings per share - diluted		$	0.30		$	(0.02	)	$	0.57		$	0.19		$	0.63		$	(0.04	)	$	0.11		$	0.08		$	(0.01	)
Tax-equivalent yield*			3.49	%		3.08	%		3.31	%		3.54	%		3.02	%		3.32	%		4.22	%		3.71	%		3.39	%

*Based on Federal tax rates of 21%.


Non-Interest Expense Comparison
	For the Three Months Ended March 31,				Change from prior year
	2024		2023		Amount			Percent
Salaries and employee benefits	$	4,974	$	4,563	$	411			9.0	%
Net occupancy		578		540		38			7.0
Furniture and equipment		937		837		100			11.9
Marketing		266		203		63			31.0
Third-party services		624		609		15			2.5
Telephone, postage and supplies		126		167		(41	)		(24.6	)
State taxes		100		124		(24	)		(19.4	)
FDIC insurance premiums		345		175		170			97.1
Other		883		982		(99	)		(10.1	)
Total	$	8,833	$	8,200	$	633			7.7	%


	March 31,			December 31,
Capital Analysis	2024			2023
Regulatory Capital
Shareholders' equity	$	93,686		$	90,824
Net unrealized securities losses, net of tax		66,571			67,937
Deferred tax assets on net operating loss		—			—
Disallowed intangible assets		(8	)		(8	)
Common equity tier I capital		160,249			158,753

Tier 1 capital		160,249			158,753
Allowable portion: Allowance for loan losses and reserve for unfunded commitments		8,850			8,958
Total regulatory capital	$	169,099		$	167,711
Risk-weighted assets	$	1,314,292		$	1,281,418
Quarterly average assets for leverage capital purposes	$	1,778,577		$	1,779,619


	March 31,			December 31,
Capital Ratios	2024			2023
Common equity tier I capital / risk-weighted assets		12.19	%		12.39	%
Tier 1 capital / risk-weighted assets		12.19			12.39
Total regulatory capital / risk-weighted assets		12.87			13.09
Tier 1 capital / average assets (leverage ratio)		9.01			8.90


Estimated Change in Net Interest Income
Changes in Interest rates	March 31,
(in basis points)	2024			2023
+300		7.43	%		-8.93	%
+200		4.96	%		-5.88	%
+100		2.52	%		-2.91	%
-100		-3.28	%		2.37	%
-200		-7.97	%		2.62	%
-300		-13.74	%		1.40	%


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares that may yet be Purchased Under the Plan

January 1, 2024 through January 31, 2024		—	$	—		—		98,000
February 1, 2024 through February 29, 2024		—		—		—		98,000
March 1, 2024 through March 31, 2024		—		—		—		98,000
Total		—	$	—		—		98,000


Exhibit 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 September 13, 2015.)

Exhibit 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.)

Exhibit 31.1		Section 302 Certification of Chief Executive Officer

Exhibit 31.2		Section 302 Certification of Chief Financial Officer

Exhibit 32.1		Section 1350 Certification of Chief Executive Officer

Exhibit 32.2		Section 1350 Certification of Chief Financial Officer


No.		Description

101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents*
104		Cover Page Interactive Data File (formatted as inline iXBRL and contained in Exhibit 101)


	QNB Corp.

Date: May 9, 2024	By:	/s/ David W. Freeman
		David W. Freeman
		Chief Executive Officer

Date: May 9, 2024	By:	/s/ Jeffrey Lehocky
		Jeffrey Lehocky
		Chief Financial Officer

Date: May 9, 2024	By:	/s/ Mary E. Liddle
		Mary E. Liddle
		Chief Accounting Officer, QNB Bank