Note 2 - Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2022

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Recent Accounting Pronouncements

2. RECENT ACCOUNTING PRONOUNCEMENTS 

On September 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (“CECL”). The new guidance requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

To that end, the new guidance:

• Eliminates the probable initial recognition threshold in current accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term of its financial assets

• Broadens the information an entity can consider when measuring credit losses to include forward-looking information

• Increases usefulness of the financial statements by requiring timely inclusion of forecasted information in forming expectations of credit losses

• Increases comparability of purchased financial assets with credit deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that are expected will be recorded through an allowance for credit losses for all assets

• Increases users’ understanding of underwriting standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage)

• For available-for-sale debt securities, aligns the income statement recognition of credit losses with the reporting period in which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down

The new guidance affects organizations that hold financial assets and net investments in leases that are not accounted for at fair value with changes in fair value reported in net income.  The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

On October 16, 2019, FASB adopted its August 15, 2019 proposal to delay the effective dates for certain smaller reporting companies for the implementation CECL. For public business entities that are U.S. Securities and Exchange Commission (“SEC”) filers, the new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, except for smaller reporting companies, whose effective date is effective for fiscal years, and interim periods with those fiscal years, beginning after December 15, 2022. QNB continues to evaluate the impact of this new standard on its consolidated financial statements and currently does not anticipate a material change to its allowance for loan losses upon the eventual implementation of CECL.

On March 31, 2022, FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures, under Financial Instruments—Credit Losses (topic 326).  The main provisions of ASU 2022-02 supersede the accounting guidance in ASC 310-40 Receivables—Troubled Debt Restructurings by Creditor in its entirety and requires entities to evaluate all receivable modifications under ASC 310-20-35-9 through 35-11 to determine whether a modification made to a borrower results in a new loan or a continuation of the existing loan. ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.  ASU 2022-02 also amends other subtopics to remove references to TDRs for creditors. For QNB, the provisions under ASU 2022-02 are effective for fiscal years, and interim periods with those fiscal years, beginning after December 15, 2022.