Note 6 - Investment Securities

3 Months Ended

Mar. 31, 2023

Investments Debt And Equity Securities [Abstract]

6. INVESTMENT SECURITIES

Available-For-Sale Securities

The amortized cost and estimated fair values of investment securities available-for-sale at March 31, 2023 and December 31, 2022 were as follows:


			Gross		Gross
			unrealized		unrealized
	Fair		holding		holding			Amortized
March 31, 2023	value		gains		losses			cost
U.S. Treasury	$	—	$	—	$	—		$	—
U.S. Government agency		88,701		—		(13,243	)		101,944
State and municipal		89,917		—		(19,514	)		109,431
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		252,984		—		(41,314	)		294,298
Collateralized mortgage obligations (CMOs)		100,083		—		(16,800	)		116,883
Corporate debt		6,219		—		(412	)		6,631
Total investment debt securities available-for-sale	$	537,904	$	—	$	(91,283	)	$	629,187


			Gross		Gross
			unrealized		unrealized
	Fair		holding		holding			Amortized
December 31, 2022	value		gains		losses			cost
U.S. Treasuries	$	301	$	2	$	—		$	299
U.S. Government agency		86,709		—		(15,233	)		101,942
State and municipal		95,367		—		(23,494	)		118,861
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		256,161		—		(45,303	)		301,464
Collateralized mortgage obligations (CMOs)		101,672		—		(18,338	)		120,010
Corporate debt		6,315		—		(326	)		6,641
Total investment debt securities available-for-sale	$	546,525	$	2	$	(102,694	)	$	649,217

The amortized cost and estimated fair value of securities available-for-sale by contractual maturity at March 31, 2023 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities are assigned to categories based on contractual maturity except for mortgage-backed securities and CMOs which are based on the estimated average life of these securities and municipal securities that have been pre-refunded.



March 31, 2023	Fair value		Amortized cost
Due in one year or less	$	329	$	338
Due after one year through five years		114,266		126,292
Due after five years through ten years		344,044		405,060
Due after ten years		79,265		97,497
Total investment debt securities available-for-sale	$	537,904	$	629,187

Proceeds from sales of investment securities available-for-sale were approximately $9,081,000 and $0 for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023 and December 31, 2022, investment securities available-for-sale totaling approximately $283,019,000 and $237,645,000, respectively, were pledged as collateral for repurchase agreements and deposits of public funds.

The following table presents information related to the Company’s gains and losses on the sales and calls of securities available-for-sale, and losses recognized for the other-than-temporary impairment (“OTTI”) of these investments. Gains and losses on

available-for-sale securities are computed on the specific identification method and included in non-interest income. Gross realized losses on debt securities are net of other-than-temporary impairment charges:


	For the Three Months Ended March 31,
	2023			2022
Gross realized gains	$	—		$	1
Gross realized losses		(257	)		—
Other-than-temporary impairment		—			—
Total net gains (losses) on AFS securities	$	(257	)	$	1

The tax applicable to the net realized gains for both of the three-month periods ended March 31, 2023 and 2022 was $54,000 and $0, respectively.

QNB recognizes OTTI for debt securities classified as available-for-sale in accordance with FASB ASC 320, Investments – Debt and Equity Securities, which requires an assessment of whether QNB intends to sell or it is more likely than not that QNB will be required to sell a security before recovery of its amortized cost basis less any current-period credit losses. For debt securities that are considered other-than-temporarily impaired and that QNB does not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, the amount of the impairment is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and, therefore, is not required to be recognized as a loss in the statement of income but is recognized in other comprehensive income. QNB believes that it will fully collect the carrying value of securities on which it has recorded a non-credit related impairment in other comprehensive income. No credit impairments were recognized on debt securities during the three months ended March 31, 2023 and 2022, respectively.

The following table indicates the length of time individual debt securities have been in a continuous unrealized loss position as of March 31, 2023 and December 31, 2022:



			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2023	securities		value		losses			value		losses			value		losses
U.S. Government agency		46	$	—	$	—		$	88,701	$	(13,243	)	$	88,701	$	(13,243	)
State and municipal		192		4,746		(223	)		85,171		(19,291	)		89,917		(19,514	)
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		191		4,584		(295	)		248,400		(41,019	)		252,984		(41,314	)
Collateralized mortgage obligations (CMOs)		128		8,213		(534	)		91,870		(16,266	)		100,083		(16,800	)
Corporate debt		4		2,909		(91	)		3,310		(321	)		6,219		(412	)
Total		561	$	20,452	$	(1,143	)	$	517,452	$	(90,140	)	$	537,904	$	(91,283	)



			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2022	securities		value		losses			value		losses			value		losses
U.S. Government agency		46	$	3,647	$	(353	)	$	83,062	$	(14,880	)	$	86,709	$	(15,233	)
State and municipal		216		50,156		(7,816	)		45,210		(15,678	)		95,366		(23,494	)
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		197		58,811		(6,775	)		197,351		(38,528	)		256,162		(45,303	)
Collateralized mortgage obligations (CMOs)		129		35,797		(3,983	)		65,875		(14,355	)		101,672		(18,338	)
Corporate debt		4		6,262		(318	)		53		(8	)		6,315		(326	)
Total		592	$	154,673	$	(19,245	)	$	391,551	$	(83,449	)	$	546,224	$	(102,694	)

Management evaluates debt securities, which are comprised of U.S. Treasury, U.S. Government agencies, state and municipalities, mortgage-backed securities, CMOs and corporate debt securities, for other-than-temporary impairment and considers the current economic conditions, the length of time and the extent to which the fair value has been less than cost, interest rates and the bond rating

of each security. The unrealized losses at March 31, 2023 in U.S. Treasury, U.S. Government agency securities, state and municipal securities, mortgage-backed securities, and CMOs are primarily the result of interest rate fluctuations. If held to maturity, these bonds will mature at par, and QNB will not realize a loss. QNB has the intent to hold the securities and does not believe it will be required to sell the securities before recovery occurs.

QNB holds one pooled trust preferred security as of March 31, 2023. This security has a total amortized cost of approximately $61,000 and a fair value of $52,000. The pooled trust preferred security is available-for-sale and is carried at fair value.

Marketable Equity Securities

The Company’s investment in marketable equity securities primarily consists of investments with readily determinable fair values in large cap stock companies. Changes in fair value is recorded in unrealized gain/(losses) in non-interest income.

At March 31, 2023 and December 31, 2022, the Company had $11,908,000 and $12,056,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2023 and 2022:


	For the Three Months Ended March 31,

	2023			2022
Net (loss) gains recognized during the period on equity securities	$	(151	)	$	27
Less: Net (losses) gains recognized during the period on equity securities sold during the period		(208	)		35
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	57		$	(8	)

Taxes applicable to the net losses recognized for the three months ended March 31, 2023 resulted in an expense of $44,000 compared to a net gain of $8,000 recognized for the three months ended March 31, 2022. Proceeds from sales of investment equity securities were $709,000 and $262,000 for the three months ended March 31, 2023 and 2022, respectively.