Note 9 - Fair Value Measurements and Disclosures (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Financial Assets Measured at Fair Value on a Recurring and Nonrecurring Basis

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 September 30, 2019:

September 30, 2019	Quotedprices in active markets for identical assets (Level 1)		Significant other observable input (Level 2)		Significant unobservable inputs (Level 3)		Balance at end of period
Recurring fair value measurements
Equity securities	$	5,850	$	—	$	—	$	5,850
Available-for-sale securities:
U.S. Treasury securities		—		5,281		—		5,281
U.S. Government agency securities		—		68,349		—		68,349
State and municipal securities		—		51,104		—		51,104
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		140,553		—		140,553
Collateralized mortgage obligations (CMOs)		—		87,652		—		87,652
Pooled trust preferred securities		—		—		78		78
Corporate debt securities		—		8,140		—		8,140
Total debt securities available-for-sale		—		361,079		78		361,157
Total recurring fair value measurements	$	5,850	$	361,079	$	78	$	367,007
Nonrecurring fair value measurements
Impaired loans	$	—	$	—	$	4,520	$	4,520
Mortgage servicing rights		—		—		7		7
Total nonrecurring fair value measurements	$	—	$	—	$	4,527	$	4,527

The following table sets forth QNB’s financial assets measured at fair value on a recurring and nonrecurring basis, the fair value measurements by level within the fair value hierarchy as of December 31, 2018:

December 31, 2018	Quoted prices in active markets for identical assets (Level 1)		Significant other observable input (Level 2)		Significant unobservable inputs (Level 3)		Balance at end of period
Recurring fair value measurements
Equity securities	$	9,421	$	—	$	—	$	9,421
Debt securities available-for-sale
U.S. Government agency securities		—		68,409		—		68,409
State and municipal securities		—		66,313		—		66,313
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		125,913		—		125,913
Collateralized mortgage obligations (CMOs)		—		75,491		—		75,491
Pooled trust preferred securities		—		—		116		116
Corporate debt securities		—		7,979		—		7,979
Total debt securities available-for-sale		—		344,105		116		344,221
Total recurring fair value measurements	$	9,421	$	344,105	$	116	$	353,642
Nonrecurring fair value measurements
Impaired loans	$	—	$	—	$	3,055	$	3,055
Mortgage servicing rights		—		—		5		5
Total nonrecurring fair value measurements	$	—	$	—	$	3,060	$	3,060

Quantitative Information about Assets Measured at Fair Value

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
September 30, 2019	Fair value		Valuation techniques		Unobservable input		Value or range of values
Impaired loans	$	3,909	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-10.0% to -40.0%
					Liquidation expenses	(3)		-10.0	%
Impaired loans		611	Financial statement values for UCC collateral		Financial statement value discounts	(5)	-30.0% to -100.0%
Mortgage servicing rights		7	Discounted cash flow		Remaining term		1 - 26 years
					Discount rate		12.0% to 12.5%

	Quantitative information about Level 3 fair value measurements
December 31, 2018	Fair value		Valuation techniques		Unobservable input		Value or range of values
Impaired loans	$	1,632	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-20.0% to -90.0%
					Liquidation expenses	(3)		-10.0	%
Impaired loans		1,415	Financial statement values for UCC collateral		Financial statement value discounts	(5)	-25.0% to -100.0%
Impaired loans		8	Used commercial vehicle guides		Guide value discounts	(4)	-10%
Mortgage servicing rights		5	Discounted cash flow		Remaining term		2 to 26 years
					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.

(4) If lendable value (lower than wholesale) is utilized then no additional discounts are taken. If lendable value is not provided, additional discounts are applied.

(5) Values obtained from financial statements for UCC collateral (fixed assets and inventory) are discounted to estimated realizable liquidation value. 

Available-for-sale Securities Measured at Fair Value Using Significant Unobservable Inputs

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 nine months ended September 30, 2019 and 2018:

	Fair value measurements using significant unobservable inputs (Level 3)
	2019			2018
Balance, January 1,	$	116		$	215
Payments received		(36	)		(119	)
Total gains or losses (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive (loss) income		(2	)		23
Transfers in and/or out of Level 3		—			—
Balance, September 30,	$	78		$	119

Financial and Off-balance Sheet Instruments

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

					Fair value measurements
September 30, 2019	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	$	20,787	$	20,787	$	20,787	$	—	$	—
Investment securities:
Equities		5,850		5,850		5,850		—		—
Available-for-sale		361,157		361,157		—		361,079		78
Restricted investment in stocks		2,081		2,081		—		2,081		—
Net loans		821,062		838,492		—		—		838,492
Mortgage servicing rights		437		539		—		—		539
Accrued interest receivable		3,276		3,276		—		3,276		—
Financial liabilities
Deposits with no stated maturities	$	812,358	$	812,358	$	812,358	$	—	$	—
Deposits with stated maturities		235,831		236,041		—		236,041		—
Short-term borrowings		69,945		69,945		69,945		—		—
Accrued interest payable		790		790		—		790		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		38		—		38		—

					Fair value measurements
December 31, 2018	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	$	13,458	$	13,458	$	13,458	$	—	$	—
Investment securities:
Equities		9,421		9,421		9,421		—		—
Available-for-sale		344,221		344,221		—		344,105		116
Restricted investment in stocks		797		797		—		797		—
Net loans		776,614		771,685		—		—		771,685
Mortgage servicing rights		451		604		—		—		604
Accrued interest receivable		2,852		2,852		—		2,852		—
Financial liabilities
Deposits with no stated maturities	$	791,810	$	791,810	$	791,810	$	—	$	—
Deposits with stated maturities		223,788		220,876		—		220,876		—
Short-term borrowings		50,872		50,872		50,872		—		—
Accrued interest payable		449		449		—		449		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		31		—		31		—