Restructure

Citizens & Northern repositions available-for-sale securities portfolio

Sarah Grutka
Sarah Grutka

Friday, January 5, 2024 10:03 AM ET

By Rica Dela Cruz
Market Intelligence

Citizens & Northern Corp. repositioned its available-for-sale securities portfolio and its investments in bank-owned life insurance.

In December 2023, the Wellsboro, Pa.-based company sold available-for-sale (AFS) debt securities — including US Treasury obligations, US government agency obligations and municipal bonds — with an amortized cost basis of $45.5 million and initiated the surrender of bank-owned life insurance (BOLI) with a book value of $14.3 million.

The securities sale resulted in pretax loss of $3.0 million and after-tax loss of $2.4 million, and the surrender of BOLI led to a tax charge of roughly $950,000. Proceeds from the surrender of BOLI are expected to be received in the second half of 2024.

Also, Citizens & Northern recognized $2.1 million of pretax and after-tax income from a one-time enhancement on a $30 million purchase of new BOLI. Proceeds from the securities sale were used in that purchase and in purchases amounting to $13.7 million of AFS debt securities.

In 2024, the expected pretax and after-tax yield on the new BOLI is 4.41%, for a taxable equivalent yield of 5.58%. Comparatively, in 2023, the taxable equivalent yield on the BOLI being surrendered was about 2.20%.

The AFS debt securities purchased were US government agency-issued collateralized mortgage-backed securities with an estimated yield of 4.83% and an estimated average life of 4.4 years. Citizens & Northern's book yield on the AFS debt securities sold was 1.42%, and the weighted-average life of the securities at the time of sale was 2.7 years.

Due to the repositioning, the company will recognize a net charge to earnings of about $1.25 million, or 8 cents per diluted share, in the 2023 fourth quarter. It anticipates recovering the abovementioned 2023 fourth-quarter loss in less than one year, including an estimated positive contribution to net income of $1.5 million in 2024 from reinvestment in higher-yielding assets.