Note 9 - Fair Value Measurements and Disclosures (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2020:

September 30, 2020	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Balance at end of period
Recurring fair value measurements
Available-for-sale securities:
U.S. Government agency securities	$	—	$	81,533	$	—	$	81,533
State and municipal securities		—		77,016		—		77,016
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		176,982		—		176,982
Collateralized mortgage obligations (CMOs)		—		101,843		—		101,843
Pooled trust preferred securities		—		—		68		68
Corporate debt securities		—		7,174		—		7,174
Total debt securities available-for-sale		—		444,548		68		444,616
Equity securities		11,691		—		—		11,691
Total recurring fair value measurements	$	11,691	$	444,548	$	68	$	456,307
Nonrecurring fair value measurements*
Impaired loans	$	—	$	—	$	4,670	$	4,670
Mortgage servicing rights		—		—		326		326
Total nonrecurring fair value measurements	$	—	$	—	$	4,996	$	4,996
*Impairment

The following table sets forth QNB’s financial assets measured at fair value on a recurring and nonrecurring basis, showing 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 inputs (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
*Impairment

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, 2020	Fair value		Valuation techniques		Unobservable inputs		Value or range of values
Impaired loans	$	3,712	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-10% to -30%
					Liquidation expenses	(3)		-10	%
Impaired loans		922	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		326	Discounted cash flow		Remaining term		2 to 30 years
					Discount rate		12.0% to 12.5%

	Quantitative information about Level 3 fair value measurements
December 31, 2019	Fair value		Valuation techniques		Unobservable inputs		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 nine months ended September 30, 2020 and 2019:

	Fair value measurements using significant unobservable inputs (Level 3)
	2020			2019
Balance, January 1,	$	79		$	116
Payments received		(1	)		(36	)
Total gains or losses (realized/unrealized)
Included in earnings		—			—
Included in other comprehensive (loss) income		(10	)		(2	)
Transfers in and/or out of Level 3		—			—
Balance, September 30,	$	68		$	78

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, 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	$	37,520	$	37,520	$	37,520	$	—	$	—
Investment securities:
Equities		11,691		11,691		11,691		—		—
Available-for-sale		444,616		444,616		—		444,548		68
Restricted investment in stocks		1,041		1,041		—		1,041		—
Loans held-for-sale		9,077		9,435		—		9,435		—
Net loans		877,027		888,952		—		—		888,952
Mortgage servicing rights		475		491		—		—		491
Accrued interest receivable		4,674		4,674		—		4,674		—
Financial liabilities
Deposits with no stated maturities	$	1,010,709	$	1,010,709	$	1,010,709	$	—	$	—
Deposits with stated maturities		203,754		206,280		—		206,280		—
Short-term borrowings		52,406		52,406		52,406		—		—
Long-term debt		10,000		10,292		—		10,292		—
Accrued interest payable		447		447		—		447		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		86		—		86		—

					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		—