Note 9 - Fair Value Measurements and Disclosures (Tables)

3 Months Ended

Mar. 31, 2020

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 March 31, 2020:

March 31, 2020	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
Available-for-sale securities:
U.S. Treasury securities	$	—	$	—	$	—	$	—
U.S. Government agency securities		—		31,074		—		31,074
State and municipal securities		—		62,838		—		62,838
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		140,644		—		140,644
Collateralized mortgage obligations (CMOs)		—		84,646		—		84,646
Pooled trust preferred securities		—		—		71		71
Corporate debt securities		—		8,052		—		8,052
Total debt securities available-for-sale		—		327,254		71		327,325
Equity securities		9,417		—		—		9,417
Total recurring fair value measurements	$	9,417	$	327,254	$	71	$	336,742
Nonrecurring fair value measurements
Impaired loans	$	—	$	—	$	5,133	$	5,133
Mortgage servicing rights		—		—		160		160
Total nonrecurring fair value measurements	$	—	$	—	$	5,293	$	5,293

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, 2019:

December 31, 2019	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
Debt securities available-for-sale
U.S. Government agency securities	$	-	$	69,298	$	—	$	69,298
State and municipal securities		—		50,781		—		50,781
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		134,829		—		134,829
Collateralized mortgage obligations (CMOs)		—		86,610		—		86,610
Pooled trust preferred securities		—		—		79		79
Corporate debt securities		—		8,113		—		8,113
Total debt securities available-for-sale		—		349,631		79		349,710
Equity securities		9,164		—		—		9,164
Total recurring fair value measurements	$	9,164	$	349,631	$	79	$	358,874
Nonrecurring fair value measurements
Impaired loans	$	—	$	—	$	5,212	$	5,212
Mortgage servicing rights		—		—		7		7
Total nonrecurring fair value measurements	$	—	$	—	$	5,219	$	5,219

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
March 31, 2020	Fair value		Valuation techniques		Unobservable input		Value or range of values
Impaired loans	$	3,628	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-5% to -40%
					Liquidation expenses	(3)		-10	%
Impaired loans		1,469	Financial statement values for UCC collateral		Financial statement value discounts	(5)	-20% to -100%
Impaired loans		36	Used commercial vehicle guides		Guide value discounts	(4)		-30	%
Mortgage servicing rights		160	Discounted cash flow		Remaining term		2 to 26 years
					Discount rate			12.00	%

	Quantitative information about Level 3 fair value measurements
December 31, 2019	Fair value		Valuation techniques		Unobservable input		Value or range of values
Impaired loans	$	4,655	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-5% to -40%
					Liquidation expenses	(3)		-10	%
Impaired loans		521	Financial statement values for UCC collateral		Financial statement value discounts	(5)	-30% to -100%
Impaired loans		36	Used commercial vehicle guides		Guide value discounts	(4)		-30	%
Mortgage servicing rights		7	Discounted cash flow		Remaining term		2 to 27 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 three months ended March 31, 2020 and 2019:

	Fair value measurements using significant unobservable inputs (Level 3)
	2020			2019
Balance, January 1,	$	79		$	116
Payments received		—			—
Total gains or losses (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive (loss) income		(8	)		(4	)
Transfers in and/or out of Level 3		—			—
Balance, March 31,	$	71		$	112

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
March 31, 2020	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	$	46,489	$	46,489	$	46,489	$	—	$	—
Investment securities:
Equities		9,417		9,417		9,417		—		—
Available-for-sale		327,325		327,325		—		327,254		71
Restricted investment in stocks		1,000		1,000		—		1,000		—
Loans held-for-sale		216		224		—		224		—
Net loans		810,949		847,848		—		—		847,848
Mortgage servicing rights		438		458		—		—		458
Accrued interest receivable		3,023		3,023		—		3,023		—
Financial liabilities
Deposits with no stated maturities	$	828,446	$	828,446	$	828,446	$	—	$	—
Deposits with stated maturities		215,075		217,689		—		217,689		—
Short-term borrowings		43,265		43,265		43,265		—		—
Long-term debt		10,000		10,225		—		10,225		—
Accrued interest payable		507		507		—		507		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		42		—		42		—

					Fair value measurements
December 31, 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	$	17,608	$	17,608	$	17,608	$	—	$	—
Investment securities:
Equities		9,164		9,164		9,164		—		—
Available-for-sale		349,710		349,710		—		349,631		79
Restricted investment in stocks		1,073		1,073		—		1,073		—
Loans held-for-sale		977		997		—		997		—
Net loans		810,729		825,295		—		—		825,295
Mortgage servicing rights		441		551		—		—		551
Accrued interest receivable		2,828		2,828		—		2,828		—
Financial liabilities
Deposits with no stated maturities	$	802,284	$	802,284	$	802,284	$	—	$	—
Deposits with stated maturities		235,576		235,557		—		235,557		—
Short-term borrowings		55,931		55,931		55,931		—		—
Accrued interest payable		909		909		—		909		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		47		—		47		—