8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 8-K

CURRENT REPORT

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

January 24, 2017

QNB Corp.

(Exact name of registrant as specified in its charter)

Pennsylvania	0-17706	23-2318082
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

15 North Third Street, P.O. Box 9005, Quakertown, PA 18951-9005

(Address of principal executive offices, including zip code)

(215) 538-5600

(Registrant's telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐  Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On January 24, 2017, QNB Corp. announced its consolidated financial results for the fourth quarter and year ended December 31, 2016.  A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information included in this Item, as well as Exhibit 99.1, referenced herein, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 unless specifically incorporated in such filing.

Item 9.01 Financial Statements and Exhibits

The following exhibits are filed herewith:

Exhibit No.	Description
d
99.1	News release disseminated on January 24, 2017 by QNB Corp.

SIGNATURES

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.

	QNB Corp.
By:	/s/ Janice S. McCracken Erkes
	Janice S. McCracken Erkes
	Chief Financial Officer

Dated:  January 24, 2017

EX-99.1

Exhibit 99.1

	PO Box 9005
	Quakertown, PA 18951-9005
	215.538.5600
	1.800.491.9070
	www.qnbbank.com

FOR IMMEDIATE RELEASE

QNB CORP. REPORTS EARNINGS

QUAKERTOWN, PA (January 24, 2017) QNB Corp. (the “Company” or “QNB”) (OTC Bulletin Board: QNBC), the parent company of QNB Bank (the “Bank”), reported net income for the fourth quarter of 2016 of $2,269,000, or $0.66 per share on a diluted basis, compared with $1,943,000, or $0.58 per share on a diluted basis during the same period in 2015.  For the year ended December 31, 2016, QNB reported net income of $8,924,000, or $2.63 per share on a diluted basis. This compares to net income of $8,233,000, or $2.46 per share on a diluted basis, reported for 2015.

For the year 2016 the rate of return on average assets and average shareholders’ equity was 0.87% and 9.45%, respectively, compared with 0.83% and 9.29%, respectively, for the year 2015.

Total assets as of December 31, 2016 were $1,063,141,000 compared with $1,020,936,000 at December 31, 2015. Loans receivable at December 31, 2016 were $633,079,000 compared with $615,270,000 at December 31, 2015, an increase of $17,809,000, or 2.9%, with commercial lending as the largest contributor to the growth.  Total deposits at December 31, 2016 were $913,355,000, an increase of 2.6% compared with $889,786,000 at December 31, 2015, due to strong growth in non-interest bearing deposits.

David W. Freeman, President and Chief Executive Officer stated, “Our improved results reflect loan, deposit and household growth for the fourth quarter and the entire year.  Our retail brokerage business, QNB Financial Services, achieved a milestone during the quarter, with over $100 million in assets under management. Asset quality is strong.  Net interest margin declined slightly in 2016, as we continue to experience pressure due to the rate environment and competition.”

Net Interest Income and Net Interest Margin

Net interest income for the quarter and twelve months ended December 31, 2016 totaled $7,279,000 and $28,504,000, respectively, an increase of $254,000 and $1,135,000, respectively, from the same periods in 2015. The net interest margin for the fourth quarter of 2016 was 2.97% compared to 3.00% for the fourth quarter of 2015.  Net interest margin for the twelve months ended December 31, 2016 was 3.03%, a decrease of two basis points compared to 2015.  The yield on earning assets decreased two basis points from 3.46% for the fourth quarter of 2015 to 3.44% for the fourth quarter of 2016. For the twelve months ended December 31, 2016, the yield on earning assets declined three basis points, from 3.53% in 2015 to 3.50% in 2016.  The cost of interest-bearing liabilities was 0.57% for the fourth quarter and the year ended December 31, 2016, compared with 0.56% for the same periods in 2015.

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Asset Quality, Provision for Loan Loss and Allowance for Loan Loss

QNB reversed $95,000 in provision for loan losses in the fourth quarter of 2016.  In October 2016, the Company sold its interest in its indirect lease finance portfolio, recording a loss on sale of $223,000.  The allowance for loan losses associated with this sold portfolio, totaling $220,000, was reversed, while provisions for loan losses for the rest of the commercial and retail loan portfolio totaling $125,000 were recorded during the quarter.  A provision of $140,000 was recorded for the fourth quarter 2015.  For the year 2016, QNB recorded $30,000 in provision, compared to $200,000 for the year 2015.  QNB's allowance for loan losses of $7,394,000 represents 1.17% of loans receivable at December 31, 2016 compared to an allowance for loan losses of $7,554,000, or 1.23% of loans receivable at December 31, 2015. Net loan charge-offs were $104,000 for the fourth quarter of 2016, or 0.07% annualized of total average loans, compared with net charge-offs of $255,000 for the fourth quarter of 2015, or 0.17% of total average loans. For the years ended December 31, 2016 and 2015 net loan charge-offs were $190,000, or 0.03%, and $647,000, or 0.11%, of total average loans, respectively. The majority of charge-offs recorded during both 2016 and 2015 had specific reserves established prior to the decision to charge off the loan.

Non-performing assets totaled $14,219,000 at December 31, 2016 compared with $13,372,000 as of December 31, 2015. Included in this classification are non-performing loans, other real estate owned (OREO) and repossessed assets, and non-performing pooled trust preferred securities. 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 $11,938,000, or 1.89% of loans receivable at December 31, 2016, compared with $10,719,000, or 1.74% of loans receivable at December 31, 2015. In cases where there is a collateral shortfall on impaired 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 December 31, 2016, $7,749,000, or approximately 77% of the loans classified as non-accrual are current or past due less than 30 days.  At December 31, 2016 substandard or doubtful loans totaled $22,204,000, a reduction of $5,121,000, or 18.7%, from the $27,325,000 reported at December 31, 2015.

QNB had no other real estate owned and other repossessed assets as of December 31, 2016 and December 31, 2015. Non-accrual pooled trust preferred securities are carried at fair value of $2,281,000, and $2,653,000, at December 31, 2016 and December 31, 2015, respectively.

Non-Interest Income

Total non-interest income was $1,073,000 for the fourth quarter of 2016, and $5,667,000 for the year ended December 31, 2016, a decrease of $190,000 and $365,000, compared to the same periods in 2015, respectively.  Net gain on sale of loans declined $220,000, due to a loss on sale of the indirect lease finance portfolio during the fourth quarter 2016.  Losses in the trading portfolio for the fourth quarter, resulting from the increase in interest rates, contributed $103,000 to the decline.  These decreases in income were offset in part by increases in retail brokerage and advisory fees, gain on investment securities and other non-interest income of $49,000, $41,000, and $40,000, respectively.  

Non-Interest Expense

Total non-interest expense was $5,435,000 for the fourth quarter of 2016, a decrease of $199,000, or 3.5%, compared with $5,634,000 for the fourth quarter of 2015.  For year ended December 31, 2016, total non-interest expense decreased $235,000, or 1.0%, to $22,163,000, compared to the year 2015. Salaries and benefits expense decreased $219,000, or 7.0%, for the quarter ended December 31, 2016, compared to the same period in 2015, due to reduced medical insurance claims of $124,000, a $99,000 reduction in

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accrued bonus expense, and $32,000 in lower 401k expenses, offset in part by increased salary expense of $77,000. For the year ended December 31, 2016 salaries and benefits expense decreased $65,000, or 0.5%, compared to the same period in 2015.  Net occupancy and furniture and equipment expense increased $29,000, or 3.3%, for the fourth quarter 2016 compared to the same period in 2015, due to increases in software and building maintenance.  For year ended December 31, 2016, net occupancy and furniture and equipment costs increased $15,000 compared to the same period in 2015, due primarily to increased software maintenance, building maintenance and security expense, offset in part by lower depreciation expense.  Other operating expenses for the three months ended December 31, 2016 decreased $10,000, with increases in debit card expense and supplies and telecommunications expense of $141,000 and $23,000, respectively, offset by decreased FDIC insurance of $73,000, third party expense of $23,000 and marketing expense of $84,000.  Other operating expenses for the twelve months ended December 31, 2016 decreased $186,000, or 2.7%, due to the same reasons detailed for expense increases and decreases for the quarter.  Debit card expenses in 2015 included a contract termination fee related to card platform upgrades, which took place during 2016.  Provision for income taxes increased in the fourth quarter and year ended December 31, 2016, due to the increase in taxable net income, as well as the effective tax rate.The increase in effective tax rate in 2016 reflects lower proportionate tax-free income in 2016, compared to 2015.

About the Company

QNB Corp. is the holding company for QNB Bank, which is headquartered in Quakertown, Pennsylvania. QNB Bank currently operates eleven branches in Bucks, Montgomery and Lehigh Counties and offers commercial and retail banking services in the communities it serves. In addition, the Company provides securities and advisory services under the name of QNB Financial Services through Investment Professionals, Inc., a registered Broker/Dealer and Registered Investment Advisor, and title insurance as a member of Laurel Abstract Company LLC. More information about QNB Corp. and QNB Bank is available at www.qnbbank.com.

Forward Looking Statement

This press release may contain forward-looking statements as defined in the Private Securities Litigation Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. Such factors include the possibility that increased demand or prices for the Company’s financial services and products may not occur, changing economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission, including "Item lA. Risk Factors," set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015. You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this press release, even if subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this press release.

Contacts:	David W. Freeman	Janice S. McCracken Erkes
	President & Chief Executive Officer	Chief Financial Officer
	215-538-5600 x-5619	215-538-5600 x-5716
	dfreeman@qnbbank.com	jmccracken@qnbbank.com

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QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands)
Balance Sheet (Period End)	12/31/16			9/30/16			6/30/16			3/31/16			12/31/15
Assets	$	1,063,141		$	1,071,931		$	1,030,238		$	1,004,552		$	1,020,936
Cash and cash equivalents		10,721			69,428			57,949			32,138			16,991
Investment securities
Trading		3,596			4,312			3,459			4,006			4,189
Available-for-sale		390,475			368,834			344,253			345,118			361,915
Held-to-maturity		-			147			147			147			147
Loans held-for-sale		789			456			184			90			987
Loans receivable		633,079			608,231			604,478			601,686			615,270
Allowance for loan losses		(7,394	)		(7,593	)		(7,550	)		(7,556	)		(7,554	)
Net loans		625,684			600,638			596,928			594,130			607,716
Deposits		913,355			926,712			893,285			865,360			889,786
Demand, non-interest bearing		119,010			105,029			117,650			105,660			98,543
Interest-bearing demand, money market and savings		568,763			593,307			547,262			532,597			563,867
Time		225,582			228,376			228,373			227,103			227,376
Short-term borrowings		52,660			41,179			36,693			40,426			37,163
Shareholders' equity		93,567			97,996			97,207			94,955			90,443
Asset Quality Data (Period End)
Non-accrual loans	$	10,119		$	8,237		$	8,685		$	8,834		$	9,420
Loans past due 90 days or more and still accruing		-			150			65			8			11
Restructured loans		1,819			1,149			1,433			1,268			1,288
Non-performing loans		11,938			9,536			10,183			10,110			10,719
Other real estate owned and repossessed assets		-			-			-			-			-
Non-accrual pooled trust preferred securities		2,281			2,275			2,400			2,655			2,653
Non-performing assets	$	14,219		$	11,811		$	12,583		$	12,765		$	13,372
Allowance for loan losses	$	7,394		$	7,593		$	7,550		$	7,556		$	7,554
Non-performing loans / Loans excluding held-for-sale		1.89	%		1.57	%		1.68	%		1.68	%		1.74	%
Non-performing assets / Assets		1.34	%		1.10	%		1.22	%		1.27	%		1.31	%
Allowance for loan losses / Loans excluding held-for-sale		1.17	%		1.25	%		1.25	%		1.26	%		1.23	%

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QNB Corp.
Consolidated Selected Financial Data (unaudited)
(Dollars in thousands, except per share data)	Three months ended,															Year ended,
For the period:	12/31/16			9/30/16			6/30/16			3/31/16			12/31/15			12/31/16			12/31/15
Interest income	$	8,486		$	8,287		$	8,184		$	8,280		$	8,184		$	33,237		$	31,875
Interest expense		1,207			1,202			1,165			1,159			1,159			4,733			4,506
Net interest income		7,279			7,085			7,019			7,121			7,025			28,504			27,369
(Credit) provision for loan losses		(95	)		-			-			125			140			30			200
Net interest income after provision     for loan losses		7,374			7,085			7,019			6,996			6,885			28,474			27,169
Non-interest income:
Fees for services to customers		416			425			397			383			417			1,621			1,657
ATM and debit card		422			419			422			388			418			1,651			1,571
Retail brokerage and advisory income		178			129			126			170			129			603			686
Net gain (loss) on investment securities     available-for-sale		24			316			15			319			(17	)		674			783
Net (loss) gain from trading activity		(87	)		(39	)		52			34			16			(40	)		33
Net (loss) gain on sale of loans		(166	)		143			71			49			54			97			356
Other		286			251			291			233			246			1,061			946
Total non-interest income		1,073			1,644			1,374			1,576			1,263			5,667			6,032
Non-interest expense:
Salaries and employee benefits		2,897			3,072			2,988			3,054			3,116			12,011			12,076
Net occupancy and furniture and equipment		896			875			866			866			867			3,503			3,488
Other		1,642			1,669			1,739			1,599			1,651			6,649			6,834
Total non-interest expense		5,435			5,616			5,593			5,519			5,634			22,163			22,398
Income before income taxes		3,012			3,113			2,800			3,053			2,514			11,978			10,803
Provision for income taxes		743			821			702			788			571			3,054			2,570
Net income	$	2,269		$	2,292		$	2,098		$	2,265		$	1,943		$	8,924		$	8,233
Share and Per Share Data:
Net income - basic	$	0.67		$	0.68		$	0.62		$	0.67		$	0.58		$	2.64		$	2.47
Net income - diluted	$	0.66		$	0.67		$	0.62		$	0.67		$	0.58		$	2.63		$	2.46
Book value	$	27.43		$	28.82		$	28.66		$	28.08		$	26.92		$	27.43		$	26.92
Cash dividends	$	0.30		$	0.30		$	0.30		$	0.30		$	0.29		$	1.20		$	1.16
Average common shares outstanding - basic		3,402,479			3,391,471			3,383,109			3,369,782			3,351,909			3,386,766			3,337,505
Average common shares outstanding - diluted		3,416,117			3,404,039			3,391,875			3,377,936			3,366,566			3,395,839			3,350,539
Selected Ratios:
Return on average assets		0.85	%		0.86	%		0.84	%		0.91	%		0.75	%		0.87	%		0.83	%
Return on average shareholders' equity		9.34	%		9.57	%		9.01	%		9.88	%		8.50	%		9.45	%		9.29	%
Net interest margin (tax equivalent)		2.97	%		2.93	%		3.08	%		3.14	%		3.00	%		3.03	%		3.05	%
Efficiency ratio (tax equivalent)		62.17	%		61.49	%		63.52	%		60.43	%		64.43	%		61.89	%		63.66	%
Average shareholders' equity to total average assets		9.10	%		9.04	%		9.30	%		9.21	%		8.87	%		9.16	%		8.97	%
Net loan charge-offs (recoveries)	$	104		$	(43	)	$	6		$	123		$	255		$	190		$	647
Net loan charge-offs (recoveries) - annualized /       Average loans excluding held-for-sale		0.07	%		-0.03	%		0.00	%		0.08	%		0.17	%		0.03	%		0.11	%
Balance Sheet (Average)
Assets	$	1,061,980		$	1,054,001		$	1,007,036		$	1,001,189		$	1,023,365		$	1,031,198		$	987,894
Investment securities (Trading, AFS & HTM)		386,374			351,102			342,132			357,428			370,780			359,410			354,973
Loans receivable		615,853			602,645			600,761			600,808			589,096			605,040			574,339
Deposits		919,623			916,366			871,379			862,239			896,730			892,541			863,801
Shareholders' equity		96,660			95,255			93,688			92,251			90,725			94,472			88,642

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