Note 4 - Investment Securities

12 Months Ended

Dec. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Note 4 - Investment Securities

Available-For-Sale Debt Securities

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


			Gross		Gross			Gross
			unrealized		unrealized			unrealized
	Fair		holding		holding			fair value hedge			Amortized
December 31, 2023	value		gains		losses			losses			cost
U.S. Treasuries	$	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 securities available-for-sale	$	490,182	$	5	$	(84,252	)	$	(1,749	)	$	576,178


			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 securities available-for-sale	$	546,525	$	2	$	(102,694	)	$	649,217

The amortized cost and fair value of debt securities available-for-sale by contractual maturity at December 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 state and municipal securities which are based on pre-refunded date, if applicable.


			Amortized
December 31, 2023	Fair value		cost
Due in one year or less	$	8,814	$	8,895
Due after one year through five years		159,745		179,738
Due after five years through ten years		247,158		296,154
Due after ten years		74,465		91,391
Total investment securities available-for-sale	$	490,182	$	576,178

Proceeds from sales of investment debt securities available-for-sale were $33,213,000, $7,551,000 and $282,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

The following table presents information related to QNB’s gains and losses on the sales of debt securities, and losses recognized for impairment of these investments.


December 31,	2023			2022			2021
Gross realized gains	$	—		$	8		$	18
Gross realized losses		(2,058	)		(147	)		—
Impairment		—			—			—
Total net (losses) gains on available-for-sale securities	$	(2,058	)	$	(139	)	$	18

The tax benefit applicable to the net realized losses on debt securities was $432,000 for the year ended December 31, 2023. The tax benefit applicable to the net realized losses on debt securities was $29,000 for the year ended December 31, 2022. The tax expense applicable to the net realized gains on debt securities was $4,000 for the year ended December 31, 2021.

There were no impairment charges recognized for debt securities still held by QNB for the years ended December 31, 2023, 2022 or 2021.

No credit impairments were recognized in 2023, 2022 or 2021. The following table presents a summary of the cumulative credit-related impairment charges recognized as components of earnings for debt securities still held by QNB:


Year ended December 31,	2023		2022		2021
Balance, beginning of year	$	1	$	1	$	1
Reductions: sale, collateralized debt obligation		—		—		—
Additions:
Initial credit impairments		—		—		—
Subsequent credit impairments		—		—		—
Balance, end of year	$	1	$	1	$	1

At December 31, 2023 and 2022, investments in debt securities available-for-sale totaling $289,935,000 and $237,645,000, respectively, were pledged as collateral for repurchase agreements and deposits of public funds.

Debt securities that have been in a continuous unrealized loss position are as follows:


December 31, 2023
			Less than 12 months				12 months or longer					Total
	No. of		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	securities		value		losses		value		losses			value		losses
U.S. Treasuries		1	$	494	$	—	$	—	$	—		$	494	$	—
U.S. Government agency		39		—		—		74,122		(10,828	)		74,122		(10,828	)
State and municipal		191		380		—		89,238		(18,714	)		89,618		(18,714	)
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		165		1		—		225,500		(37,831	)		225,501		(37,831	)
Collateralized mortgage obligations (CMOs)		126		—		—		89,973		(16,383	)		89,973		(16,383	)
Corporate debt and money markets		4		—		—		6,101		(496	)		6,101		(496	)
Total		526	$	875	$	—	$	484,934	$	(84,252	)	$	485,809	$	(84,252	)


December 31, 2022
			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	securities		value		losses			value		losses			value		losses
U.S. 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. Government Agencies, state and municipalities, mortgage-backed securities, CMOs and other issuers, for impairment and considers the current economic conditions, the length of time and the extent to which the fair value has been less than cost, interest rates and the bond rating of each security. The unrealized losses at December 31, 2023 in U.S. Government securities, state and municipal securities, mortgage-backed securities, CMOs and corporate debt securities 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 trust preferred security, PreTSL IV which is classified as available-for-sale and carried at fair value. This security has been in an unrealized loss position for more than twelve months.

The following table provides additional information related to PreTSL IV as of December 31, 2023:


Deal	Class	Book value		Fair value		Unrealized gains (losses)			Realized OTTI credit loss (YTD 2023)		Total recognized OTTI credit loss		Moody's ratings	Current number of performing banks		Actual deferrals and defaults as a % of total collateral			Total performing collateral as a % of outstanding bonds
PreTSL IV	Mezzanine*	$	60	$	52	$	(7	)	$	—	$	1	Ba1		3		0.0	%		305.9	%

Mezzanine* - class of bonds still outstanding, represents the senior-most obligation of the trust)

Marketable Equity Securities

QNB’s equity securities consist of investments with readily determinable fair values in large cap stock companies. Changes in the fair value of these equity securities are recorded to earnings in non-interest income, in accordance with ASU 2016-01 Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities.

At December 31, 2023 and 2022, QNB had $5,910,000 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 2023, 2022 and 2021:


December 31,	2023			2022			2021
Net gain (loss) recognized during the period on equity securities	$	231		$	(621	)	$	2,714
Less: Net (loss) gain recognized during the period on equity securities sold during the period		(19	)		405			1,788
Net unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	250		$	(1,026	)	$	926

Tax expense applicable to the net realized gains for the year ended December 31, 2023 was $67,000. Tax benefit applicable to the net realized losses for the year ended December 31, 2022 was $179,000. Tax expense applicable to the net realized gains for the year ended December 31, 2021 was $784,000. Proceeds from sales of investment equity securities were $8,556,000, $1,594,000 and $7,768,000 for the years ended December 31, 2023, 2022 and 2021, respectively.