EX-99.2 3 l16423aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 [CITIZENS & NORTHERN CORPORATION LOGO] 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 SEPTEMBER 30, 2005 QUARTERLY REPORT Dear Shareholder: The third quarter was an active one for your company. Our long-anticipated acquisition of Canisteo Valley Corporation and its subsidiary First State Bank was completed. We are pleased to welcome the employees, directors and clients of First State to the C&N family. Our market expansion in Lycoming County continues as evidenced by the August opening of the Jersey Shore office and the October ground breaking for the Old Lycoming office, which we plan to open in the first quarter of 2006. In response to the Hurricane Katrina disaster, C&N helped raise over $50,000, which was contributed to the American Red Cross for victim relief. Our 2006 Calendar will be available in our offices shortly. The calendar features fabulous seasonal scenes of our market area taken by talented local photographers. Some would say the calendar is a work of art. The financial results for the year-to-date evidence the narrowing of the interest rate spreads and the increased costs associated with our expansion efforts and the core operating system that was installed in the fourth quarter of 2004. Those increased costs are investments in the future prosperity of C&N. The acquisition of First State Bank is accounted for in the third quarter's financial report. While total assets are up 4.2% compared to the same period last year with loans up 12.9% and deposits and repo sweeps up 12.5%, net income is down by 8.5%. Trust Assets Under Management have increased by nearly 13% to over $400 million. Our stock share price has been quite volatile since we listed on the NASDAQ. We believe that some of the volatility was driven by our entry into the Russell 2000. The board of directors declared a 23-cent quarterly dividend for the third quarter, a 4.5% increase over last year. We believe that your company is well positioned for future growth in its market area and we look forward to the opportunities and challenges that lie ahead. 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 230-232 Railroad Street, JERSEY SHORE, PA 17740 570-398-4555 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 16901800-577-9397 www.fmt@cnbankpa.com INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901570-724-0266 www.cnbankpa.com C&N FINANCIAL SERVICES CORPORATION - 68 Main Street, Wellsboro, PA 866-ASK-CNFS www.cnfinancialservices.com CANISTEO VALLEY CORPORATION 3 Main Street, Canisteo, NY 14823 607-698-4295 FIRST STATE BANK OFFICES 3 Main Street, CANISTEO, NY 14823 607-698-4295 111 Main Street, HORNELL, NY 14843 607-324-4081 www.fsbcanisteo.com CONSOLIDATED STATEMENT OF INCOME (In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED SEPT SEPT 2005 2004 2005 2004 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) ------------ ---------- ---------- ----------- Interest and Dividend Income $ 15,571 $ 14,573 $ 45,172 $ 42,931 Interest Expense 6,426 5,665 18,538 16,861 ------------------------------------------------------------------------------------------------------------------- Interest Margin 9,145 8,908 26,634 26,070 Provision for Loan Losses 375 350 1,125 1,050 ------------------------------------------------------------------------------------------------------------------- Interest Margin After Provision for Loan Losses 8,770 8,558 25,509 25,020 Other Income 2,149 1,627 5,741 5,107 Realized Gains on Securities, Net 393 459 2,388 1,744 Other Expenses 7,303 6,738 21,604 19,255 ------------------------------------------------------------------------------------------------------------------- Income Before Income Tax Provision 4,009 3,906 12,034 12,616 Income Tax Provision 722 501 2,154 1,816 ------------------------------------------------------------------------------------------------------------------- NET INCOME $ 3,287 $ 3,405 $ 9,880 $ 10,800 =================================================================================================================== PER SHARE DATA (**): Net Income - Basic $ 0.40 $ 0.42 $ 1.20 $ 1.32 Net Income - Diluted $ 0.40 $ 0.41 $ 1.19 $ 1.31 Dividend Per Share $ 0.23 $ 0.22 $ 0.69 $ 0.66 Number Shares Used in Computation - Basic 8,215,365 8,182,851 8,206,438 8,186,014 Number Shares Used in Computation - Diluted 8,283,770 8,226,968 8,270,940 8,235,179
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
SEPT. 30, SEPT. 30, 2005 2004 --------- --------- ASSETS Cash & Due from Banks $ 31,833 $ 14,282 Available-for-Sale Securities 449,059 499,572 Loans, Net 637,646 564,867 Intangible Assets 3,470 - Other Assets 61,591 56,712 ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,183,599 $1,135,433 ================================================================================================================ LIABILITIES Deposits $ 753,008 $ 672,875 Repo Sweep Accounts 29,805 22,961 ---------------------------------------------------------------------------------------------------------------- Total Deposits and Repo Sweeps 782,813 695,836 Borrowed Funds 258,499 298,191 Other Liabilities 10,819 12,402 ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 1,052,131 1,006,429 ---------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 125,958 118,769 Net Unrealized Gains/Losses on Available- for-sale Securities (*) 5,510 10,235 ---------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 131,468 129,004 ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,183,599 $1,135,433 ================================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
9 MONTHS ENDED % SEPT. INCREASE 2005 2004 (DECREASE) ---------- --------- -------- EARNINGS PERFORMANCE Net Income $ 9,880 $ 10,800 -8.52% Return on Average Assets 1.16% 1.30% -10.77% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 1.17% 1.32% -11.36% Return on Average Equity 9.92% 11.28% -12.06% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.60% 12.33% -14.03% BALANCE SHEET HIGHLIGHTS Total Assets $ 1,183,599 $ 1,135,433 4.24% Available-for-Sale Securities 449,059 499,572 -10.11% Loans (Net) 637,646 564,867 12.88% Allowance for Loan Losses 7,643 6,570 16.33% Deposits and Repo Sweep Accounts 782,813 695,836 12.50% Trust Assets Under Management 404,899 358,349 12.99% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 1.20 $ 1.32 -9.09% Net Income - Diluted $ 1.19 $ 1.31 -9.16% Dividends $ 0.69 $ 0.66 4.55% Book Value $ 15.99 $ 15.76 1.46% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 15.32 $ 14.51 5.58% Market Value (Last Trade) $ 26.70 $ 25.00 6.80% Market Value / Book Value 166.98% 158.63% 5.26% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 174.28% 172.29% 1.16% Price Earnings Multiple 16.69 14.20 17.54% Dividend Yield 3.45% 3.52% -1.99% SAFETY AND SOUNDNESS Tangible Equity / Tangible Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.45% 10.61% -1.43% Nonperforming Assets / Total Assets 0.63% 0.67% -5.97% Allowance for Loan Losses / Total Loans 1.18% 1.15% 2.61% Risk Based Capital Ratio 17.44% 18.92% -7.82% AVERAGE BALANCES Average Assets $ 1,136,301 $ 1,107,753 2.58% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 1,123,462 1,091,299 2.95% Average Equity 132,788 127,687 3.99% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 124,307 116,828 6.40%
(*) 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.