Note 6 - Investment Securities

6 Months Ended

Jun. 30, 2024

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 June 30, 2024 and December 31, 2023 were as follows:


	Fair		Gross unrealized holding		Gross unrealized holding			Gross unrealized fair value hedge		Amortized
June 30, 2024	value		gains		losses			gains (1)		cost
U.S. Treasury	$	6,449	$	—	$	(1	)	$	—	$	6,450
U.S. Government agency		65,633		—		(10,322	)		—		75,955
State and municipal		86,693		—		(20,809	)		1,761		105,741
U.S. Government agencies and sponsored enterprises (GSEs):
Mortgage-backed		211,783		—		(39,741	)		4,254		247,270
Collateralized mortgage obligations (CMOs)		83,480		—		(16,868	)		—		100,348
Corporate debt and money market funds		6,380		13		(360	)		—		6,727
Total investment debt securities available-for-sale	$	460,418	$	13	$	(88,101	)	$	6,015	$	542,491


			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

The amortized cost and estimated fair value of securities available-for-sale by contractual maturity at June 30, 2024 is 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. Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments of the underlying loans.



June 30, 2024	Fair value		Amortized cost
Due in one year or less	$	8,601	$	8,619
Due after one year through five years		50,606		57,284
Due after five years through ten years		39,675		44,804
Due after ten years		66,273		84,166
		165,155		194,873
Residential mortgage-backed securities		211,783		247,270
Collateralized mortgage obligations		83,480		100,348
Total	$	460,418	$	542,491

Proceeds from sales of investment securities available-for-sale were approximately $13,139,000 and $0 for the three months ended June 30, 2024 and 2023, respectively. Proceeds from sales of investment securities available-for-sale were approximately $13,139,000 and $9,081,000 for the six months ended June 30, 2024 and 2023, respectively.

At June 30, 2024 and December 31, 2023, investment securities available-for-sale totaling approximately $255,369,000 and $289,935,000, 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 impairment 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 impairment charges:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2024			2023		2024			2023
Gross realized gains	$	—		$	—	$	—		$	—
Gross realized losses		(1,096	)		—		(1,096	)		(257	)
Impairment		—			—		—			—
Total net gains (losses) on AFS securities	$	(1,096	)	$	—	$	(1,096	)	$	(257	)

The tax applicable to the net realized losses for both of the three-month periods ended June 30, 2024 and 2023 was $230,000 and $0, respectively. The tax applicable to the net realized losses for both of the six-month periods ended June 30, 2024 and 2023 was $230,000 and $54,000, respectively.

QNB follows the accounting guidance in FASB ASC 326-10 as it relates to the recognition and presentation of impairment. This accounting guidance specifies that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an impairment of a debt security in earnings and the remaining portion in other comprehensive loss. No credit impairments were recognized on debt securities during the three or six months ended June 30, 2024 and 2023, respectively.

The following table indicates the length of time individual debt securities have been in a continuous unrealized loss position as of June 30, 2024 and December 31, 2023:



			Less than 12 months					12 months or longer					Total
	No. of		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
June 30, 2024	securities		value		losses			value		losses			value		losses
U.S. Treasury		11	$	5,460	$	(1	)	$	—	$	—		$	5,460	$	(1	)
U.S. Government agency		35		—		—			65,633		(10,322	)		65,633		(10,322	)
State and municipal		187		289		—			84,636		(20,809	)		84,925		(20,809	)
U.S. Government agencies and sponsored enterprises (GSEs):				—		—
Mortgage-backed		153		—		—			207,501		(39,741	)		207,501		(39,741	)
Collateralized mortgage obligations (CMOs)		125		—		—			83,480		(16,868	)		83,480		(16,868	)
Corporate debt and money market funds		4		—		—			6,215		(360	)		6,215		(360	)
Total		515	$	5,749	$	(1	)	$	447,465	$	(88,100	)	$	453,214	$	(88,101	)



			Less than 12 months				12 months or longer					Total
	No. of		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
December 31, 2023	securities		value		losses		value		losses			value		losses
U.S. Treasury		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	)

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 impairment and considers the current economic conditions, interest rates and the bond rating of each security. The unrealized losses at June 30, 2024 in U.S. Treasury, U.S. Government agency 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 pooled trust preferred security as of June 30, 2024. This security has a total amortized cost of approximately $58,000 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.

In April 2024, Visa, Inc. commenced an initial exchange offer for all of its outstanding shares of Class B-1 common stock for a combination of Class B-2 and Class C common shares. The exchange offer was optional for current Class B-1 holders and expired at 11:59 pm on May 3, 2024. QNB elected to participate in the exchange offer including a required makewhole agreement pursuant to which participating Class B-1 stockholders agree to reimburse Visa for future obligations relating to certain litigation which, but for participation in the exchange offer, would have otherwise been the responsibility of the Class B-1 stockholder as a result of its ownership of the Class B-1 common stock. QNB had 6,502 Class B-1 common shares with a cost basis of $0. Under the exchange offer, QNB received 3,251 shares of Class B-2 common shares and 1,290 Class C shares. The Class C shares are convertible into Class A shares.

QNB recorded an unrealized gain on the Class C shares in the second quarter of 2024 of $1,354,000 and a reserve of the makewhole agreement of $85,000.

At June 30, 2024 and December 31, 2023, QNB had $7,233,000 and $5,910,000, 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 and six months ended June 30, 2024 and 2023:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,

	2024		2023			2024		2023
Net gains (losses) recognized during the period on equity securities	$	1,016	$	(54	)	$	1,363	$	(205	)
Less: Net gains recognized during the period on equity securities sold during the period		—		519			377		311
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	1,016	$	(573	)	$	986	$	(516	)

Taxes applicable to the net gains (losses) recognized for the three months ended June 30, 2024 resulted in an expense of $191,000 compared to a benefit of $15,000 for the three months ended June 30, 2023. Taxes applicable to the net gains (losses) recognized for the six months ended June 30, 2024 resulted in an expense of $287,000 compared to a benefit of $58,000 for the six months ended June 30, 2023. Proceeds from sales of investment equity securities were $1,210,000 and $7,138,000 for the six months ended June 30, 2024 and 2023, respectively.