ITEM 8.01. Other Events
In December 2023, Citizens & Northern Corporation (“C&N”) repositioned its available-for-sale securities portfolio and its investments in bank-owned life insurance (“BOLI”). As a result of the repositioning, in the fourth quarter 2023, C&N will recognize a net charge to earnings of approximately $1.253 million, or $0.08 per diluted share, reflecting the net impact of the following transactions:
| · | Sold available-for-sale (“AFS”) debt securities with an amortized cost basis of $45.5 million, generating a pre-tax loss of $3.0 million and after-tax loss of $2.4 million. |
| · | Initiated the surrender of BOLI with a book value of $14.3 million, resulting in a tax charge of approximately $950,000. Proceeds from the surrender of BOLI are expected to be received in the second half of 2024. |
| · | Recognized $2.1 million of pre-tax and after-tax income from a one-time enhancement on a $30 million purchase of new BOLI. |
C&N’s management expects to recover the fourth quarter 2023 loss described above in less than one year, including an estimated positive contribution to net income of $1.5 million in 2024, from reinvestment in assets with higher yields as compared to the yields on the assets sold. In December 2023, proceeds from the sale of securities were used in the $30 million purchase of BOLI noted above and in purchases totaling $13.7 million of AFS debt securities. In 2024, the expected pre-tax and after-tax yield on the new BOLI is 4.41%, for a taxable equivalent yield of 5.58%. In comparison, in 2023, the taxable equivalent yield on the BOLI being surrendered was approximately 2.20%. The AFS debt securities purchased were U.S. Government Agency-issued collateralized mortgage-backed securities (residential) with an estimated yield of 4.83% and an estimated average life of 4.4 years. The AFS debt securities sold included U.S. Treasury obligations, U.S Government Agency obligations and municipal bonds. C&N’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.
The information furnished under this Item 8.01 shall not be deemed to be filed for purposes of the Securities Exchange Act of 1934.
Safe Harbor Statement: This report contains forward-looking statements. C&N intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995. Forward-looking statements, which are not historical facts, are based on certain assumptions and describe future plans, business objectives and expectations, and are generally identifiable by the use of words such as, "should", “likely”, "expect", “plan”, "anticipate", “target”, “forecast”, and “goal”. This report includes forward-looking statements with respect to the impact of sale and purchase of available-for-sale securities, and surrender and purchase of BOLI, on C&N’s results of operations and financial condition. These forward-looking statements are subject to risks and uncertainties that are difficult to predict, may be beyond management’s control and could cause results to differ materially from those expressed or implied by such forward-looking statements. Additional factors which could have a material, adverse impact on C&N’s operations and future prospects include, but are not limited to, the following:
· | changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates |
· | changes in general economic conditions |
· | recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, sources of liquidity and capital funding, and regulatory responses to these developments |
· | C&N’s credit standards and its on-going credit assessment processes might not protect it from significant credit losses |
· | legislative or regulatory changes |
· | downturn in demand for loan, deposit and other financial services in C&N’s market area |
· | increased competition from other banks and non-bank providers of financial services |
· | technological changes and increased technology-related costs |
· | information security breach or other technology difficulties or failures |
· | changes in accounting principles, or the application of generally accepted accounting principles |
· | failure to achieve merger-related synergies and difficulties in integrating the business and operations of acquired institutions |
