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Note 3 - Investment Securities

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 3 - INVESTMENT SECURITIES

The amortized cost and estimated fair value of debt securities at September 30, 2024 and December 31, 2023 are summarized as follows (in thousands):

		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
September 30, 2024
Debt Securities, Available-for-Sale:
U.S. Treasury notes		$	69,717				—				4,145				65,572
U.S. Agency notes			88,668				—				5,360				83,308
Corporate bonds			7,450				—				588				6,862
U.S. Agency mortgage-backed securities			75,422				7				7,090				68,339
Municipal securities:															—
Non-taxable			4,596				—				222				4,374
Taxable			36,674				1				2,508				34,167
		$	282,527				8				19,913				262,622

Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable		$	15,454				10				765				14,699
Taxable			3,283				—				300				2,983
		$	18,737				10				1,065				17,682

December 31, 2023
Debt Securities, Available-for-Sale:
U.S. Treasury notes		$	74,404				—				6,202				68,202
U.S. Agency notes			88,978				—				8,077				80,901
Corporate Bonds			7,450				—				916				6,534
U.S. Agency mortgage-backed securities			81,634				2				8,846				72,790
Municipal securities:
Non-taxable			7,416				—				245				7,171
Taxable			44,923				1				3,921				41,003
		$	304,805				3				28,207				276,601

Debt Securities, Held-to-Maturity:
Municipal securities:
Non-taxable		$	13,580				4				872				12,712
Taxable			3,283				—				316				2,967
		$	16,863				4				1,188				15,679

The amortized cost of debt securities in the above table excludes accrued interest of $1.23 million and $1.07 million at September 30, 2024 and December 31, 2023, respectively, that is recorded in other assets on the consolidated balance sheets.

The Company estimated the expected credit losses at September 30, 2024 and December 31, 2023 to be immaterial based on the composition of the securities portfolio.

Information concerning debt securities with gross unrealized losses at September 30, 2024 and December 31, 2023, aggregated by length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

		Less than Twelve Months								Twelve Months or Greater
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
September 30, 2024
Available-for-Sale:
U.S. Treasury notes		$	1,982				6				63,590				4,139
U.S. Agency notes			—				—				83,308				5,360
Corporate bonds			—				—				6,862				588
U.S. Agency mortgage-backed securities			—				—				68,025				7,090
Municipal securities:			—				—				—				—
Non-taxable			—				—				4,374				222
Taxable			—				—				34,046				2,508
		$	1,982				6				260,205				19,907

Held-to-Maturity:
Municipal securities:
Non-taxable		$	—				—				11,707				765
Taxable			—				—				2,983				300
		$	—				—				14,690				1,065

December 31, 2023
Available-for-Sale:
U.S. Treasury notes		$	—				—				68,202				6,202
U.S. Agency notes			—				—				80,901				8,077
Corporate Bonds			734				16				5,800				900
U.S. Agency mortgage-backed securities			—				—				72,287				8,846
Municipal securities:
Non-taxable			1,540				10				5,631				235
Taxable			—				—				40,392				3,921
		$	2,274				26				273,213				28,181

Held-to-Maturity:
Municipal securities:
Non-taxable		$	6,012				476				5,975				396
Taxable			—				—				2,966				316
		$	6,012				476				8,941				712

At September 30, 2024, LCNB’s securities portfolio consisted of 167 securities, 161 of which were in an unrealized loss position. At December 31, 2023, LCNB's securities portfolio consisted of 207 securities, 176 of which were in an unrealized loss position. After considering the issuers of the securities, LCNB management determined that that the unrealized losses were due to changing interest rate environments. LCNB had no intent at September 30, 2024 to sell its debt securities before recovery of their cost basis and as it was more likely than not that it will not be required to sell its debt securities before recovery of their cost basis.

Each quarter, LCNB performs an analysis to determine if any of the unrealized losses on available-for-sale debt securities are comprised of credit losses as compared to unrealized losses due to market interest rate adjustments. The assessment includes a review of the unrealized loss for each security issuance held; the financial condition and near-term prospects of the issuer, including external credit ratings and recent downgrades; and LCNB's ability and intent to hold the security for a period of time sufficient for a recovery in value. LCNB also considers the extent to which the securities are issued by the federal government or its agencies and any guarantee of issued amounts by those agencies. The portfolio continues to consist of a mix of fixed and floating-rate, high quality securities, largely rated AA (or better), displaying an overall effective duration of approximately 3.3 years. No credit losses were determined to be present as of September 30, 2024, as there was no credit quality deterioration noted. Therefore, no provision for credit losses on available-for-sale debt securities was recognized for the third quarter of 2024.

Debt securities with a market value of $148.7 million and $124.4 million at September 30, 2024 and December 31, 2023, respectively, were pledged to secure public deposits and for other purposes required or as permitted by law.

Excluding holdings in U.S. Treasury securities and U.S. Government Agencies, there were no investments in securities of any issuer that exceeded 10% of LCNB's consolidated shareholders' equity at September 30, 2024.

Contractual maturities of debt securities at September 30, 2024 were as follows (in thousands). Actual maturities may differ from contractual maturities when issuers have the right to call or prepay obligations.

		Available-for-Sale								Held-to-Maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due within one year		$	25,093				24,668				1,163				1,158
Due from one to five years			153,392				143,285				1,301				1,278
Due from five to ten years			28,620				26,331				10,459				9,919
Due after ten years			—				—				5,814				5,327
			207,105				194,284				18,737				17,682
U.S. Agency mortgage-backed securities			75,422				68,338				—				—
		$	282,527				262,622				18,737				17,682

Certain information concerning the sale of debt securities available-for-sale for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2024				2023				2024				2023
Proceeds from sales		$	—				—				9,615				—
Gross realized gains			—				—				—				—
Gross realized losses			—				—				214				—

Realized gains or losses from the sale of securities are computed using the specific identification method.

Equity securities with a readily determinable fair value are carried at fair value, with changes in fair value recognized in other operating income in the consolidated condensed statements of income. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer. LCNB was not aware of any impairment or observable price change adjustments that needed to be made at September 30, 2024 on its investments in equity securities without a readily determinable fair value.

The amortized cost and estimated fair value of equity securities with a readily determinable fair value at September 30, 2024 and December 31, 2023 are summarized as follows (in thousands):

		September 30, 2024								December 31, 2023
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Mutual Funds		$	1,442				1,294				1,415				1,240
Equity Securities			10				94				10				96
Total equity securities with a readily determinable fair value		$	1,452				1,388				1,425				1,336

Certain information concerning changes in the fair value of equity securities with a readily determinable fair value for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2024				2023				2024				2023
Net gains (losses) recognized during the period on equity securities		$	49				(33	)			25				(78	)
Less net losses recognized during the period on equity securities sold during the period			—				—				—				(61	)
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at period end		$	49				(33	)			25				(17	)

LCNB is a member of the FHLB system and its regional FRB. Members are required to own a certain amount of stock based on predetermined formulas. FHLB and FRB stock are carried at cost, which is equal to par value, and periodically evaluated for impairment based on ultimate recovery of par value.