Note 9 - Fair Value Measurements and Disclosures (Tables)

6 Months Ended

Jun. 30, 2021

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 June 30, 2021:

June 30, 2021	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	$	—	$	68,879	$	—	$	68,879
State and municipal securities		—		116,657		—		116,657
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		265,793		—		265,793
Collateralized mortgage obligations (CMOs)		—		90,147		—		90,147
Pooled trust preferred securities		—		—		72		72
Corporate debt securities		—		7,837		—		7,837
Total debt securities available-for-sale		—		549,313		72		549,385
Equity securities		15,445		—		—		15,445
Total recurring fair value measurements	$	15,445	$	549,313	$	72	$	564,830
Nonrecurring fair value measurements*
Impaired loans	$	—	$	—	$	4,830	$	4,830
Mortgage servicing rights		—		—		119		119
Total nonrecurring fair value measurements	$	—	$	—	$	4,949	$	4,949
*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, 2020:

December 31, 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
Debt securities available-for-sale
U.S. Government agency securities	$	—	$	69,776	$	—	$	69,776
State and municipal securities		—		87,812		—		87,812
U.S. Government agencies and sponsored    enterprises (GSEs):
Mortgage-backed securities		—		175,847		—		175,847
Collateralized mortgage obligations (CMOs)		—		94,948		—		94,948
Pooled trust preferred securities		—		—		70		70
Corporate debt securities		—		7,193		—		7,193
Total debt securities available-for-sale		—		435,576		70		435,646
Equity securities		12,849		—		—		12,849
Total recurring fair value measurements	$	12,849	$	435,576	$	70	$	448,495
Nonrecurring fair value measurements*
Impaired loans	$	—	$	—	$	5,034	$	5,034
Mortgage servicing rights		—		—		291		291
Total nonrecurring fair value measurements	$	—	$	—	$	5,325	$	5,325
*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
June 30, 2021	Fair value		Valuation techniques		Unobservable inputs		Value or range of values
Impaired loans	$	4,513	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-15% to -20%
					Liquidation expenses	(3)		-10	%
Impaired loans		317	Financial statement values for UCC collateral		Financial statement value discounts	(4)	-30% to -100%
Mortgage servicing rights		119	Discounted cash flow		Remaining term		3 to 30 years
					Prepayment speeds		198% to 325%
					Discount rate		12.0% to 12.5%

	Quantitative information about Level 3 fair value measurements
December 31, 2020	Fair value		Valuation techniques		Unobservable inputs		Value or range of values
Impaired loans	$	4,754	Appraisal of collateral	(1)	Appraisal adjustments	(2)	-10% to -30%
					Liquidation expenses	(3)		-10	%
Impaired loans		280	Financial statement values for UCC collateral		Financial statement value discounts	(4)	-87.5% to -100%
Mortgage servicing rights		291	Discounted cash flow		Remaining term		2 to 30 years
					Prepayment speeds		243% to 320%
					Discount rate		12.0% to 13.0%

(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) 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 six months ended June 30, 2021 and 2020:

	Fair value measurements using significant unobservable inputs (Level 3)
	2021		2020
Balance, January 1,	$	70	$	79
Payments received		—		—
Total gains or losses (realized/unrealized)
Included in earnings		—		—
Included in other comprehensive (loss) income		2		(12	)
Transfers in and/or out of Level 3		—		—
Balance, June 30,	$	72	$	67

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
June 30, 2021	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	$	56,621	$	56,621	$	56,621	$	—	$	—
Investment securities:
Equities		15,445		15,445		15,445		—		—
Available-for-sale		549,385		549,385		—		549,313		72
Restricted investment in stocks		1,142		1,142		—		1,142		—
Loans held-for-sale		5,018		5,139		—		5,139		—
Net loans		909,721		914,744		—		—		914,744
Mortgage servicing rights		566		629		—		—		629
Accrued interest receivable		4,208		4,208		—		4,208		—
Financial liabilities
Deposits with no stated maturities	$	1,167,272	$	1,167,272	$	1,167,272	$	—	$	—
Deposits with stated maturities		176,461		178,616		—		178,616		—
Short-term borrowings		75,021		75,021		75,021		—		—
Long-term debt		10,000		10,206		10,206		—		—
Accrued interest payable		240		240		—		240		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		—		—		56		—

					Fair value measurements
December 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	$	39,331	$	39,331	$	39,331	$	—	$	—
Investment securities:
Equities		12,849		12,849		12,849		—		—
Available-for-sale		435,646		435,646		—		435,576		70
Restricted investment in stocks		1,041		1,041		—		1,041		—
Loans held-for-sale		6,570		6,886		—		6,886		—
Net loans		909,216		915,726		—		—		915,726
Mortgage servicing rights		533		568		—		—		568
Accrued interest receivable		4,825		4,825		—		4,825		—
Financial liabilities
Deposits with no stated maturities	$	1,030,982	$	1,030,982	$	1,030,982	$	—	$	—
Deposits with stated maturities		197,085		199,127		—		199,127		—
Short-term borrowings		58,838		58,838		58,838		—		—
Long-term debt		10,000		10,269		10,269		—		—
Accrued interest payable		350		350		—		350		—
Off-balance sheet instruments
Commitments to extend credit	$	—	$	—	$	—	$	—	$	—
Standby letters of credit		—		88		—		88		—