EXHIBIT 99.2
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
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
December 31, 2006 | QUARTERLY REPORT |
Dear Shareholder:
The big news for this quarter was the announcement of the signing of a definitive merger agreement with Citizens Bancorp of Coudersport. The combination of the two banks is an exciting prospect for both organizations. The extension of C&N’s footprint to the west is a natural and appropriate next step. We believe that the addition of Charles Updegraff and his strong and experienced management group to C&N’s team will result in increased opportunities for the combined organization. We expect this transaction to close in the second quarter of 2007.
The historically long (over 2 years) flat and inverted yield curve continues to challenge our ability to achieve earnings growth. Although we have successfully grown our loan portfolio (helped significantly by our entry into the Lycoming County market) by 5.3% since the end of 2005, we have shrunk the investment portfolio by nearly 17%. The result is a 3% reduction in total assets. Interest and dividend income has increased by 5.5%, but interest expense has grown by 19.9%. The net result is a reduction of 4.89% in our main net revenue source. Until the investment yield curve returns to a normal positive slope, we will continue to emphasize growth in loans to increase revenues.
Our Trust and Financial Management Group has grown Assets Under Management by over 23.8% since the end of 2005, and increased their revenue by 15.3%. We are focused on this area of non-interest revenue in an effort to reduce our reliance on the net interest margin. We believe the prospects for growth in this area are encouraging.
Thank you for your continued support.
| Craig G. Litchfield Chairman, President & CEO | ||||
CITIZENS & NORTHERN CORPORATION
BOARD OF DIRECTORS
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 |
CITIZENS & NORTHERN BANK
OFFICES
OFFICES
428 S. Main Street,ATHENS, PA 18810 | 570-888-2291 | |
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 | |
RR 2 Box 3036,MONROETON, PA 18832 | 570-265-2157 | |
3461 Rte.405 Highway,MUNCY, PA 17756 | 570-546-6666 | |
Thompson Street,RALSTON, PA 17763 | 570-995-5421 | |
1827 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, PA18848 | 570-265-6171 | |
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 | |
1510 Dewey Ave.,WILLIAMSPORT, PA 17702 | 570-323-9305 | |
Route 6,WYSOX, PA 18854 | 570-265-9148 | |
TRUST & FINANCIAL MANAGEMENT GROUP | ||
90-92 Main Street,Wellsboro, PA 16901 | 800-487-8784 | |
428 Main Street,Towanda, PA 18848 | 888-987-8784 | |
503 N. Elmira Street,Sayre, PA 18840 | 888-760-8192 | |
130 Court Street,Williamsport,PA 17701 | 570-601-6000 | |
ACCOUNT SERVICES- 90-92 Main St., Wellsboro, PA 16901 | 800-726-2265 | |
BANKCARD SERVICES- 10 Nichols St., Wellsboro PA 16901 | 800-676-6639 | |
CASH MANAGEMENT / INTERNET BANKING– 10 Nichols St., Wellsboro, PA 16901 | 570-724-0266 | |
| www.cnbankpa.com | ||
FUNDS MANAGEMENT– 10 Nichols St., Wellsboro, PA 16901 | 800-577-9397 | |
| www.fmt@cnbankpa.com | ||
C&N FINANCIAL SERVICES CORPORATION– 90-92 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, NY14823 | 607-698-4295 | |
6250 County Route 64,HORNELL, NY14843 | 607-324-4081 | |
| www.fsbcanisteo.com |
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)
(In Thousands, Except Per Share Data) (Unaudited)
| 3 MONTHS ENDED | 12 MONTHS ENDED | |||||||||||||||
| DECEMBER | DECEMBER | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
| (Current) | (Prior Yr) | (Current) | (Prior Yr) | |||||||||||||
| Interest and Dividend Income | $ | 16,477 | $ | 15,936 | $ | 64,476 | $ | 61,108 | ||||||||
| Interest Expense | 8,111 | 7,149 | 30,788 | 25,687 | ||||||||||||
| Interest Margin | 8,366 | 8,787 | 33,688 | 35,421 | ||||||||||||
| Provision for Loan Losses | 181 | 901 | 672 | 2,026 | ||||||||||||
| Interest Margin After Provision for Loan Losses | 8,185 | 7,886 | 33,016 | 33,395 | ||||||||||||
| Other Income | 2,045 | 1,895 | 7,970 | 7,636 | ||||||||||||
| Realized Gains (Losses) on Securities, Net | 796 | (586 | ) | 5,046 | 1,802 | |||||||||||
| Gain from Sale of Credit Card Loans | 340 | 1,906 | 340 | 1,906 | ||||||||||||
| Other Expenses | 8,155 | 7,358 | 31,614 | 28,962 | ||||||||||||
| Income Before Income Tax Provision | 3,211 | 3,743 | 14,758 | 15,777 | ||||||||||||
| Income Tax Provision | 517 | 639 | 2,772 | 2,793 | ||||||||||||
NET INCOME | $ | 2,694 | $ | 3,104 | $ | 11,986 | $ | 12,984 | ||||||||
PER SHARE DATA (**): | ||||||||||||||||
| Net Income — Basic | $ | 0.32 | $ | 0.37 | $ | 1.44 | $ | 1.55 | ||||||||
| Net Income — Diluted | $ | 0.32 | $ | 0.37 | $ | 1.43 | $ | 1.54 | ||||||||
| Dividend Per Share | $ | 0.24 | $ | 0.24 | $ | 0.96 | $ | 0.93 | ||||||||
| Number Shares Used in Computation — Basic | 8,291,435 | 8,385,961 | 8,339,104 | 8,375,062 | ||||||||||||
| Number Shares Used in Computation — Diluted | 8,311,656 | 8,426,980 | 8,364,778 | 8,433,847 | ||||||||||||
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
(In Thousands, Except Per Share Data) (Unaudited)
| DEC. 31, | DEC. 31, | |||||||
| 2006 | 2005 | |||||||
ASSETS | ||||||||
| Cash & Due from Banks | $ | 27,159 | $ | 26,446 | ||||
| Available-for-Sale Securities | 356,665 | 427,298 | ||||||
| Loans, Net | 679,300 | 644,938 | ||||||
| Intangible Assets | 3,145 | 3,383 | ||||||
| Other Assets | 61,099 | 60,889 | ||||||
TOTAL ASSETS | $ | 1,127,368 | $ | 1,162,954 | ||||
LIABILITIES | ||||||||
| Deposits | $ | 760,349 | $ | 757,065 | ||||
| Repo Sweep Accounts | 29,258 | 27,734 | ||||||
| Total Deposits and Repo Sweeps | 789,607 | 784,799 | ||||||
| Borrowed Funds | 199,182 | 239,205 | ||||||
| Other Liabilities | 8,691 | 6,982 | ||||||
TOTAL LIABILITIES | 997,480 | 1,030,986 | ||||||
SHAREHOLDERS’ EQUITY | ||||||||
| Shareholders’ Equity, Excluding Accumulated Other Comprehensive Income/Loss | 129,275 | 127,270 | ||||||
| Accumulated Other Comprehensive Income/ Loss: | ||||||||
| Net Unrealized Gain/Loss on Available-for-sale Securities | 1,794 | 4,698 | ||||||
| Defined Benefit Plans Adjustment, Net (*) | (1,181 | ) | — | |||||
TOTAL SHAREHOLDERS’ EQUITY | 129,888 | 131,968 | ||||||
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | $ | 1,127,368 | $ | 1,162,954 | ||||
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
(In Thousands, Except Per Share Data) (Unaudited)
| 12 MONTHS ENDED | % | |||||||||||
| DECEMBER | INCREASE | |||||||||||
| 2006 | 2005 | (DECREASE) | ||||||||||
EARNINGS PERFORMANCE | ||||||||||||
| Net Income | $ | 11,986 | $ | 12,984 | -7.69 | % | ||||||
| Return on Average Assets | 1.06 | % | 1.13 | % | -6.19 | % | ||||||
| Return on Average Equity | 9.18 | % | 9.80 | % | -6.33 | % | ||||||
BALANCE SHEET HIGHLIGHTS | ||||||||||||
| Total Assets | $ | 1,127,368 | $ | 1,162,954 | -3.06 | % | ||||||
| Available-for-Sale Securities | 356,665 | 427,298 | -16.53 | % | ||||||||
| Loans (Net) | 679,300 | 644,938 | 5.33 | % | ||||||||
| Allowance for Loan Losses | 8,201 | 8,361 | -1.91 | % | ||||||||
| Deposits and Repo Sweep Accounts | 789,607 | 784,799 | 0.61 | % | ||||||||
| Trust Assets Under Management | 517,775 | 418,259 | 23.79 | % | ||||||||
SHAREHOLDERS’ VALUE (PER SHARE) (**) | ||||||||||||
| Net Income — Basic | $ | 1.44 | $ | 1.55 | -7.10 | % | ||||||
| Net Income — Diluted | $ | 1.43 | $ | 1.54 | -7.14 | % | ||||||
| Dividends | $ | 0.96 | $ | 0.93 | 3.23 | % | ||||||
| Book Value | $ | 15.66 | $ | 15.74 | -0.51 | % | ||||||
| Market Value (Last Trade) | $ | 22.00 | $ | 25.63 | -14.16 | % | ||||||
| Market Value / Book Value | 140.49 | % | 162.83 | % | -13.72 | % | ||||||
| Price Earnings Multiple | 15.28 | 16.54 | -7.62 | % | ||||||||
| Dividend Yield | 4.36 | % | 3.63 | % | 20.11 | % | ||||||
SAFETY AND SOUNDNESS | ||||||||||||
| Tangible Equity / Tangible Assets | 11.27 | % | 11.09 | % | 1.62 | % | ||||||
| Nonperforming Assets / Total Assets | 0.75 | % | 0.55 | % | 36.36 | % | ||||||
| Allowance for Loan Losses / Total Loans | 1.19 | % | 1.28 | % | -7.03 | % | ||||||
| Risk Based Capital Ratio | 18.18 | % | 18.19 | % | -0.05 | % | ||||||
AVERAGE BALANCES | ||||||||||||
| Average Assets | $ | 1,135,000 | $ | 1,144,619 | -0.84 | % | ||||||
| Average Equity | 130,542 | 132,465 | -1.45 | % | ||||||||
| (*) | Effective December 31, 2006, Statement of Financial Accounting Standards No. 158 requires gains or losses, prior service costs or credits, and transition assets or obligations as of the end of the period that have not yet been included in net periodic benefit cost be recognized as accumulated other comprehensive income or loss, net of tax. | |
| (**) | 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 2006 and 2005. |