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
Chartered 1864
Member
FEDERAL DEPOSIT INSURANCE CORP
September 30, 2009 QUARTERLY REPORT
Dear Shareholder:
We are reporting a net loss available to shareholders of $45 million, or $5.01 per share for the first nine months of 2009. Core Earnings for the nine month period were $11.35 million, or $1.26 per share. For the third quarter the net loss was $28.6 million, or $3.17 per share, including Core Earnings of $3.9 million, or $0.43 per share. As we have reported for the last four quarters, other-than-temporary-impairment (OTTI) losses from bank stocks and predominantly from pooled trust preferred securities account for these significant losses. Through the end of the third quarter, we have written off most of the pooled trust preferred securities, as they have continued to deteriorate in credit quality due mostly to the performance of the bank holding companies in the pools. While we cannot guarantee there will be no additional securities losses, we believe the vast majority of losses have now been realized. Our Board and management team remains committed to putting the securities issues behind us and returning to the kind of positive contributions that C&N has made for its shareholders, customers, employees and communities for many, many years.
We are reporting Core Earnings, which is not based on U.S. generally accepted account principles, but that we believe is a meaningful way of evaluating C&N’s performance for 2009, because it excludes some of the impact of market volatility as it relates to investments in pooled trust preferreds and other securities.
Citizens & Northern Corporation and both of its subsidiary banks, Citizens & Northern Bank and First State Bank remain above the regulatory well-capitalized levels for all three of the capital measures. This is a sign of continued strength.
Reporting these results for an organization that has historically performed well is not an experience that we ever wish to have again. As the economy recovers and stability returns, we are positioned once again to perform at a much higher level.
Craig G. Litchfield
Chairman, President, & CEO
CITIZENS & NORTHERN CORPORATION
BOARD OF DIRECTORS
Craig G. Litchfield Chairman of the Board
| Dennis F. Beardslee | Raymond R. Mattie |
| Jan E. Fisher | Edward H. Owlett, III |
| R. Bruce Haner | Leonard Simpson |
| Susan E. Hartley | James E. Towner |
| Leo F. Lambert | Ann M. Tyler |
| Edward L. Learn | Charles H. Updegraff, Jr. |
| R. Robert DeCamp | Karl W. Kroeck |
CITIZENS & NORTHERN BANK
OFFICES
428 S. Main Street, ATHENS, PA 18810 | 570-888-2291 |
10 N Main Street, COUDERSPORT, PA 16915 | 814-274-9150 |
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 |
135 East Fourth Street, EMPORIUM, PA 15834 | 814-486-1112 |
230-232 Railroad Street, JERSEY SHORE, PA 17740 | 570-398-4555 |
102 E. Main Street, KNOXVILLE, PA 16928 | 814-326-4151 |
514 Main Street, LAPORTE, PA 18626 | 570-946-4011 |
4534 Williamson Trail 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 |
100 Maple Street, PORT ALLEGANY, PA 16743 | 814-642-2571 |
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 |
1827 Elmira Street, Sayre, PA 18840 | 888-760-8192 |
130 Court Street, Williamsport, PA 17701 | 570-601-6000 |
10 N Main Street, Coudersport, PA 16915 | 800-921-9150 |
135 East Fourth Street, Emporium, PA 15834 | 814-486-1112 |
| | |
ACCOUNT SERVICES - 90-92 Main St., Wellsboro, PA 16901 | |
BANKCARD SERVICES - 10 Nichols St., Wellsboro PA 16901 | 800-577-8001 |
ELECTRONIC BANKING – 10 Nichols St., Wellsboro, PA 16901 | 800-577-9397 |
| www.cnbankpa.com | |
C&N FINANCIAL SERVICES CORPORATION – 90-92 Main Street, Wellsboro, PA | 866-ASK-CNFS |
| www.cnfinancialservices.com | |
3 Main Street, CANISTEO, NY 14823 | 607-698-4295 |
6250 County Route 64, HORNELL, NY 14843 | 607-324-4081 |
| www.fsbcanisteo.com | |
| CONDENSED, CONSOLIDATED EARNINGS INFORMATION | | | | | | | | | | | | | | | |
| In Thousands, Except Per Share Data) (Unaudited) | | | | | | | | | | | | | | | |
| | | 3RD | | | 2ND | | | 3RD | | | 9 MONTHS ENDED | |
| | | QUARTER | | | QUARTER | | | QUARTER | | | SEPTEMBER | |
| | | 2009 | | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | (Current) | | | (Current) | | | (Prior Yr) | | | (Current) | | | (Prior Yr) | |
| Interest and Dividend Income | | $ | 16,808 | | | $ | 17,341 | | | $ | 18,575 | | | $ | 51,720 | | | $ | 55,648 | |
| Interest Expense | | | 6,016 | | | | 6,164 | | | | 7,474 | | | | 18,786 | | | | 23,854 | |
| Interest Margin | | | 10,792 | | | | 11,177 | | | | 11,101 | | | | 32,934 | | | | 31,794 | |
| Provision for Loan Losses | | | 634 | | | | 93 | | | | 141 | | | | 554 | | | | 669 | |
| Interest Margin After Provision for Loan Losses | | | 10,158 | | | | 11,084 | | | | 10,960 | | | | 32,380 | | | | 31,125 | |
| Other Income | | | 3,282 | | | | 3,054 | | | | 3,062 | | | | 9,102 | | | | 9,704 | |
| Net Losses on Available-for-sale Securities | | | (47,848 | ) | | | (18,995 | ) | | | (4,483 | ) | | | (83,522 | ) | | | (5,460 | ) |
| Other Expenses | | | 8,277 | | | | 9,158 | | | | 8,736 | | | | 26,073 | | | | 25,457 | |
| (Loss) Income Before Income Tax (Credit) Provision | | | (42,685 | ) | | | (14,015 | ) | | | 803 | | | | (68,113 | ) | | | 9,912 | |
| Income Tax (Credit) Provision | | | (14,491 | ) | | | (5,284 | ) | | | (209 | ) | | | (24,163 | ) | | | 2,031 | |
| Net (Loss) Income | | | (28,194 | ) | | | (8,731 | ) | | | 1,012 | | | | (43,950 | ) | | | 7,881 | |
| U.S. Treasury Preferred Dividends | | | 373 | | | | 373 | | | | - | | | | 1,055 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Net (Loss) Income Available to Common Shareholders | | $ | (28,567 | ) | | $ | (9,104 | ) | | $ | 1,012 | | | $ | (45,005 | ) | | $ | 7,881 | |
| | | | | | | | | | | | | | | | | | | | | |
| Adjustments to Calculate Core Earnings (a): | | | | | | | | | | | | | | | | | | | | |
| Net (Loss) Income | | $ | (28,194 | ) | | $ | (8,731 | ) | | $ | 1,012 | | | $ | (43,950 | ) | | $ | 7,881 | |
| Add: OTTI Losses | | | 47,947 | | | | 19,780 | | | | 4,747 | | | | 84,407 | | | | 6,167 | |
| Less: Realized gains on related bank stock sales | | | (70 | ) | | | (261 | ) | | | - | | | | (361 | ) | | | - | |
| Less: Income Tax (b) | | | (15,392 | ) | | | (6,636 | ) | | | (1,614 | ) | | | (27,690 | ) | | | (2,097 | ) |
| Core Earnings (a) | | $ | 4,291 | | | $ | 4,152 | | | $ | 4,145 | | | $ | 12,406 | | | $ | 11,951 | |
| Core Earnings Available to Common Shareholders (a) | | $ | 3,918 | | | $ | 3,779 | | | $ | 4,145 | | | $ | 11,351 | | | $ | 11,951 | |
| | | | | | | | | | | | | | | | | | | | | |
| PER COMMON SHARE DATA: | | | | | | | | | | | | | | | | | | | | |
| Net (Loss) Income – Basic | | $ | (3.17 | ) | | $ | (1.01 | ) | | $ | 0.11 | | | $ | (5.01 | ) | | $ | 0.88 | |
| Net (Loss) Income – Diluted | | $ | (3.17 | ) | | $ | (1.01 | ) | | $ | 0.11 | | | $ | (5.01 | ) | | $ | 0.88 | |
| Dividend Per Share | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.72 | | | $ | 0.72 | |
| Number Shares Used in Computation - Basic | | | 9,005,850 | | | | 8,973,531 | | | | 8,957,774 | | | | 8,978,665 | | | | 8,965,230 | |
| Number Shares Used in Computation - Diluted | | | 9,005,850 | | | | 8,973,531 | | | | 8,986,253 | | | | 8,978,665 | | | | 8,985,211 | |
| Number Shares Used in Computation - Diluted - for | | | | | | | | | | | | | | | | | | | | |
| Ratios Based on Core Earnings (a) | | | 9,023,370 | | | | 8,987,999 | | | | 8,986,253 | | | | 8,993,014 | | | | 8,985,211 | |
| CONDENSED, CONSOLIDATED BALANCE SHEET DATA | | | | | | | | | |
| (In Thousands, Except Per Share Data) (Unaudited) | | | | | | | | | |
| | | SEPT. 30, | | | JUNE 30, | | | SEPT. 30, | |
| | | 2009 | | | 2009 | | | 2008 | |
| ASSETS | | | | | | | | | |
| Cash & Due from Banks | | $ | 47,967 | | | $ | 51,279 | | | $ | 23,160 | |
| Trading Securities | | | - | | | | 547 | | | | 1,630 | |
| Available-for-sale Securities | | | 399,112 | | | | 415,791 | | | | 417,761 | |
| Loans, Net | | | 720,291 | | | | 719,347 | | | | 748,909 | |
| Intangible Assets | | | 12,525 | | | | 12,607 | | | | 12,978 | |
| Other Assets | | | 103,483 | | | | 97,412 | | | | 84,459 | |
| TOTAL ASSETS | | $ | 1,283,378 | | | $ | 1,296,983 | | | $ | 1,288,897 | |
| | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | |
| Deposits | | $ | 896,866 | | | $ | 885,944 | | | $ | 856,576 | |
| Repo Sweep Accounts | | | 34,236 | | | | 34,390 | | | | 40,150 | |
| Total Deposits and Repo Sweeps | | | 931,102 | | | | 920,334 | | | | 896,726 | |
| Borrowed Funds | | | 215,268 | | | | 226,658 | | | | 261,895 | |
| Other Liabilities | | | 10,955 | | | | 13,433 | | | | 8,202 | |
| TOTAL LIABILITIES | | | 1,157,325 | | | | 1,160,425 | | | | 1,166,823 | |
| | | | | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| Preferred Stock | | | 25,706 | | | | 25,664 | | | | - | |
| Common Shareholders' Equity, Excluding Accumulated | | | | | | | | | | | | |
| Other Comprehensive Income (Loss) | | | 100,290 | | | | 128,809 | | | | 145,336 | |
| Accumulated Other Comprehensive Income (Loss): | | | | | | | | | | | | |
| Net Unrealized Gains/Losses on | | | | | | | | | | | | |
| Available-for-sale Securities | | | 403 | | | | (17,560 | ) | | | (23,149 | ) |
| Defined Benefit Plans | | | (346 | ) | | | (355 | ) | | | (113 | ) |
| TOTAL SHAREHOLDERS' EQUITY | | | 126,053 | | | | 136,558 | | | | 122,074 | |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | | $ | 1,283,378 | | | $ | 1,296,983 | | | $ | 1,288,897 | |
| CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS | | | | | | | | | |
| (In Thousands, Except Per Share Data) (Unaudited) | | | | | | | |
| | | 9 MONTHS ENDED | | | % | |
| | | SEPTEMBER 30, | | | INCREASE | |
| | | 2009 | | | 2008 | | | (DECREASE) | |
| EARNINGS PERFORMANCE | | | | | | | | | |
| Net (Loss) Income | | $ | (43,950 | ) | | $ | 7,881 | | | | -657.67 | % |
| Return on Average Assets | | | -4.52 | % | | | 0.82 | % | | | -651.22 | % |
| Return on Average Equity | | | -40.75 | % | | | 7.87 | % | | | -617.79 | % |
| Core Earnings (a) | | $ | 12,406 | | | $ | 11,951 | | | | 3.81 | % |
| Core Earnings/Average Assets (a) | | | 1.28 | % | | | 1.24 | % | | | 3.23 | % |
| Core Earnings/Average Equity (a) | | | 11.50 | % | | | 11.94 | % | | | -3.69 | % |
| | | | | | | | | | | | | |
| BALANCE SHEET HIGHLIGHTS | | | | | | | | | | | | |
| Total Assets | | $ | 1,283,378 | | | $ | 1,288,897 | | | | -0.43 | % |
| Available-for-Sale Securities | | | 399,112 | | | | 417,761 | | | | -4.46 | % |
| Loans (Net) | | | 720,291 | | | | 748,909 | | | | -3.82 | % |
| Allowance for Loan Losses | | | 8,188 | | | | 8,498 | | | | -3.65 | % |
| Deposits and Repo Sweep Accounts | | | 931,102 | | | | 896,726 | | | | 3.83 | % |
| | | | | | | | | | | | | |
| Trust Assets Under Management | | | 592,841 | | | | 602,072 | | | | -1.53 | % |
| | | | | | | | | | | | | |
| SHAREHOLDERS' VALUE | | | | | | | | | | | | |
| (PER COMMON SHARE) | | | | | | | | | | | | |
| Net Income - Basic | | $ | (5.01 | ) | | $ | 0.88 | | | | -669.32 | % |
| Net Income - Diluted | | $ | (5.01 | ) | | $ | 0.88 | | | | -669.32 | % |
| Core Earnings - Basic (a) | | $ | 1.26 | | | $ | 1.33 | | | | -5.26 | % |
| Core Earnings - Diluted (a) | | $ | 1.26 | | | $ | 1.33 | | | | -5.26 | % |
| Dividends | | $ | 0.72 | | | $ | 0.72 | | | | 0.00 | % |
| Common Book Value | | $ | 11.02 | | | $ | 13.65 | | | | -19.27 | % |
| Tangible Common Book Value | | $ | 9.64 | | | $ | 12.20 | | | | -20.98 | % |
| Market Value (Last Trade) | | $ | 14.79 | | | $ | 21.55 | | | | -31.37 | % |
| Market Value / Common Book Value | | | 134.21 | % | | | 157.88 | % | | | -14.99 | % |
| Market Value / Tangible Common Book Value | | | 153.42 | % | | | 176.64 | % | | | -13.14 | % |
| Price Earnings Multiple | | NM | | | | 18.37 | | | NM | |
| Dividend Yield | | | 6.49 | % | | | 4.45 | % | | | 45.84 | % |
| | | | | | | | | | | | | |
| SAFETY AND SOUNDNESS | | | | | | | | | | | | |
| Tangible Common Equity / Tangible Assets | | | 6.91 | % | | | 8.55 | % | | | -19.18 | % |
| Nonperforming Assets / Total Assets | | | 0.77 | % | | | 0.73 | % | | | 4.78 | % |
| Allowance for Loan Losses / Total Loans | | | 1.12 | % | | | 1.12 | % | | | 0.00 | % |
| Risk Based Capital Ratio | | | 13.58 | % | | | 15.96 | % | | | -14.91 | % |
| | | | | | | | | | | | | |
| AVERAGE BALANCES | | | | | | | | | | | | |
| Average Assets | | $ | 1,296,174 | | | $ | 1,281,551 | | | | 1.14 | % |
| | | | | | | | | | | | | |
| Average Equity | | | 143,798 | | | | 133,494 | | | | 7.72 | % |
(a) Core Earnings is an earnings performance measurement which management has defined to exclude the effects of other-than-temporary impairment (OTTI) losses on available-for-sale securities and realized gains on securities for which OTTI has previously been recognized. Core Earnings is a performance measurement that is not based on U.S. generally accepted accounting principles (GAAP). Management believes Core Earnings information is meaningful for evaluating the Corporation’s operating performance, because it excludes some of the impact of market volatility as it relates to investments in pooled trust-preferred securities and other securities. The amount of Core Earnings reported for the 2nd quarter 2009 in this report is lower than the amount reported previously, because in this report for last quarter, we did not exclude realized gains on securities for which OTTI had previously been recognized, net of tax, from Core Earnings. The impact of this change in presentation is to reduce Core Earnings and Core Earnings Available to Common Shareholders by $172,000. The disclosure of Core Earnings should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. This table includes a reconciliation of Core Earnings to net (loss) income, the most directly comparable GAAP financial measure.
(b) Income tax has been allocated to non-core losses at 34%, adjusted for a valuation allowance on deferred tax assets associated with losses from securities classified as capital assets for federal income tax reporting purposes. The valuation allowance of $886,000 was recorded in the third quarter 2009.
