EX-99.2 3 l14921aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CITIZENS & NORTHERN CORPORATION 90-92 Main Street, P.O. Box 58 Wellsboro, PA 16901 Phone: (570) 724-3411 Fax: (570) 723-8097 E-Mail: cnemail@cnbankpa.com Web Page: http://www.cnbankpa.com -------------------- ----------------------- Stock Symbol: CZNC Chartered 1864 FEDERAL DEPOSIT INSURANCE CORP JUNE 30, 2005 QUARTERLY REPORT ------------- Dear Shareholder: Our planned opening of the Jersey Shore office has been temporarily delayed due to the failure of a landscaping retaining wall. Further engineering has been completed to assure that the new wall will be sound. We expect the opening to be delayed about one month as a result. Once the Jersey Shore site is completed, we will begin the Old Lycoming Township office, which we plan to have opened by January 2006. Our new administration building is well under way and we expect to move in by November. The acquisition of the Canisteo Valley Corporation, the parent company of First State Bank, should be completed during the third quarter of this year. The people of First State Bank and we are eager to begin the process of bringing our organizations together. Financial results for the first 6 months of 2005 continue to be affected by the increased costs from the expansion into Williamsport and Lycoming County and the costs associated with the new core processing system. Additionally, as the Federal Reserve continues to increase the Fed Funds rate, longer-term rates have remained relatively unchanged. This has had the effect of reducing our interest rate spread. Interest and dividend income have increased 4.38%, or $1.24 million as a result or our growing loan portfolio, while interest expense increased 8.18%, or $916 thousand due to deposit rate competitive pressures. The interest margin increased 1.9%, or $327 thousand, which was not enough to offset the other expenses increase of 14.25% or $1.784 million. Net income as compared to the same period of 2004 is down 10.85%. We believe that these current expense increases due to the branch expansion and the new core system are investments that will enhance future revenues and net income. Total assets increased from last year by only 1.3%. Loan demand and origination remains strong with an increase of 10.85%, $59.1 million. The loan portfolio increase was funded primarily by a decrease in available-for-sale securities of 10.01%, or $50.4 million. Deposits and repo sweeps increased by a modest 2.77%, or $19.066 million and borrowed funds decreased by approximately the same amount. Trust assets under management compared to the same period last year increased by 11.73% to over $401 million. Our stock was added to the Russell 2000(R) on June 24th, which has created a great deal of trading by institutional investors. The increased institutional demand has positively affected the share price. We continue to be excited by the opportunities for growth that lie before us. Thank you for your continued support. Craig G. Litchfield Chairman, President & CEO CITIZENS & NORTHERN CORPORATION BOARD OF DIRECTORS Craig G. Litchfield Chairman of the Board Dennis F. Beardslee Leo F. Lambert R. Robert DeCamp Edward L. Learn Jan E. Fisher Edward H. Owlett, III R. Bruce Haner Leonard Simpson Susan E. Hartley James E. Towner Karl W. Kroeck Ann M. Tyler DIRECTORS EMERITI F. David Pennypacker OFFICERS Craig G. Litchfield Chairman, President and Chief Executive Officer Mark A. Hughes Treasurer Kathleen M. Osgood Corporate Secretary CITIZENS & NORTHERN BANK OFFICES 428 S. Main Street, ATHENS, PA 18810570-888-2291 111 Main Street, DUSHORE, PA 18614 570-928-8124 Main Street, EAST SMITHFIELD, PA 18817 570-596-3131 104 Main Street, ELKLAND, PA 16920 814-258-5111 102 E. Main Street, KNOXVILLE, PA 16928 814-326-4151 Main Street, LAPORTE, PA 18626 570-946-4011 Main Street, LIBERTY, PA 16930 570-324-2331 1085 S. Main Street, MANSFIELD, PA 16933 570-662-1111 Route 220, MONROETON, PA 18832 570-265-2157 3461 Rte.405 Highway, MUNCY, PA 17756 570-546-6666 Thompson Street, RALSTON, PA 17763 570-995-5421 503 N. Elmira Street, SAYRE, PA 18840 570-888-2220 2 E. Mountain Ave., SO. WILLIAMSPORT, PA 17702 570-601-3016 41 Main Street, TIOGA, PA 16946 570-835-5236 428 Main Street, TOWANDA, PA18848570-265-6171 Court House Square, TROY, PA 16947 570-297-2159 90-92 Main Street, WELLSBORO, PA 16901 570-724-3411 130 Court Street, WILLIAMSPORT, PA 17701 570-320-0100 Route 6, WYSOX, PA 18854 570-265-9148 TRUST & FINANCIAL MANAGEMENT GROUP 90-92 Main Street, Wellsboro, PA 16901800-487-8784 428 Main Street, Towanda, PA 18848888-987-8784 503 N. Elmira Street, Sayre, PA 18840888-760-8192 3461 Rte 405 Highway, Muncy, PA 17756570-546-6666 130 Court Street, Williamsport, PA 17701 570-601-6000 ACCOUNT SERVICES - 90-92 Main St, Wellsboro, PA 16901 800-726-2265 BANKCARD SERVICES - 11822 Route 6, Wellsboro PA 16901 800-676-6639 FUNDS MANAGEMENT - 90-92 Main St., Wellsboro, PA 16901 800-577-9397 www.fmt@cnbankpa.com -------------------- INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901 570-724-0266 www.cnbankpa.com ---------------- C&N FINANCIAL SERVICES CORPORATION - 68 Main Street, Wellsboro, PA 866-ASK-CNFS www.cnfinancialservices.com --------------------------- CONSOLIDATED STATEMENT OF INCOME (In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED JUNE JUNE 2005 2004 2005 2004 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) Interest and Dividend Income $ 14,908 $ 14,343 $ 29,601 $ 28,358 Interest Expense 6,155 5,493 12,112 11,196 ------------------------------------------------------------------------------------------------------------------------- Interest Margin 8,753 8,850 17,489 17,162 Provision for Loan Losses 375 350 750 700 ------------------------------------------------------------------------------------------------------------------------- Interest Margin After Provision for Loan Losses 8,500 16,739 16,462 8,378 Other Income 1,889 1,855 3,592 3,480 Realized Gains on Securities, Net 929 321 1,995 1,285 Other Expenses 7,173 6,289 14,301 12,517 ------------------------------------------------------------------------------------------------------------------------- Income Before Income Tax Provision 4,023 4,387 8,025 8,710 Income Tax Provision 725 698 1,432 1,315 ------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 3,298 $ 3,689 $ 6,593 $ 7,395 ========================================================================================================================= PER SHARE DATA (**): Net Income - Basic $0.40 $0.45 $0.80 $0.90 Net Income - Diluted $0.40 $0.45 $0.80 $0.90 Dividend Per Share $0.23 $0.22 $0.46 $0.44 Number Shares Used in Computation - Basic 8,210,469 8,182,034 8,201,902 8,187,606 Number Shares Used in Computation - Diluted 8,274,780 8,229,149 8,269,365 8,239,222
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
JUNE 30, JUNE 30, 2005 2004 ---- ---- ASSETS Cash & Due from Banks $ 16,653 $ 15,334 Available-for-Sale Securities 453,288 503,700 Loans, Net 604,514 545,360 Other Assets 59,246 54,745 -------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,133,701 $1,119,139 ================================================================================================== LIABILITIES Deposits $ 685,105 $ 670,098 Repo Sweep Accounts 21,812 17,753 -------------------------------------------------------------------------------------------------- Total Deposits and Repo Sweeps 706,917 687,851 Borrowed Funds 283,349 302,353 Other Liabilities 10,619 7,778 -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,000,885 997,982 -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 124,338 117,060 Net Unrealized Gains/Losses on Available- for-sale Securities (*) 8,478 4,097 -------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 132,816 121,157 -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,133,701 $1,119,139 ==================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
6 MONTHS ENDED % JUNE INCREASE 2005 2004 (DECREASE) ---- ---- ---------- EARNINGS PERFORMANCE Net Income $ 6,593 $ 7,395 -10.85% Return on Average Assets 1.17% 1.35% -13.33% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 1.18% 1.37% -13.87% Return on Average Equity 9.96% 11.52% -13.54% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.67% 12.74% -16.25% BALANCE SHEET HIGHLIGHTS Total Assets $ 1,133,701 $ 1,119,139 1.30% Available-for-Sale Securities 453,288 503,700 -10.01% Loans (Net) 604,514 545,360 10.85% Allowance for Loan Losses 7,037 6,609 6.48% Deposits and Repo Sweep Accounts 706,917 687,851 2.77% Trust Assets Under Management 401,360 359,230 11.73% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 0.80 $ 0.90 -11.11% Net Income - Diluted $ 0.80 $ 0.90 -11.11% Dividends $ 0.46 $ 0.44 4.55% Book Value $ 16.18 $ 14.81 9.25% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 15.14 $ 14.31 5.80% Market Value (Last Trade) $ 31.24 $ 25.20 23.97% Market Value / Book Value 193.08% 170.16% 13.47% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 206.34% 176.10% 17.17% Price Earnings Multiple 19.53 14.00 39.50% Dividend Yield 2.94% 3.49% -15.76% SAFETY AND SOUNDNESS Shareholders' Equity / Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 11.06% 10.76% 2.79% Nonperforming Assets / Total Assets 0.70% 0.75% -6.67% Allowance for Loan Losses / Total Loans 1.15% 1.20% -4.17% Risk Based Capital Ratio 18.45% 19.40% -4.90% AVERAGE BALANCES Average Assets $ 1,130,873 $ 1,096,969 3.09% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 1,117,488 1,078,350 3.63% Average Equity 132,410 128,340 3.17% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 123,576 116,052 6.48%
(*) Net unrealized gains/losses on available-for-sale securities are presented as "Accumulated Other Comprehensive Income" in the annual and quarterly financial statements filed with the Securities and Exchange Commission. (**) For purposes of per share calculations, the market value and number of outstanding shares have been retroactively adjusted for the effects of 1% stock dividends issued in January of each year presented. (***) Generally accepted accounting principles ("GAAP") require that available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings and reported separately through shareholders' equity, net of tax. Management believes there is an inherent mismatch between the income statement and balance sheet related to unrealized gains/losses that may create a material inconsistency in the calculation of earnings-based ratios. Further, the amount of unrealized gains or losses may vary widely from period-to-period, depending on the financial markets as a whole and interest rate movements. Therefore, management has provided these "non-GAAP" ratios because we believe they provide meaningful information for evaluating the Corporation's financial position and results of operations.