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
| | FEDERAL DEPOSIT INSURANCE CORP |
September 30, 2010 | QUARTERLY REPORT |
Dear Shareholder:
I am pleased to report net income of $4.1 million for the third quarter of 2010 which is a $32.7 million increase over the third quarter of 2009. Third quarter 2009 net income was adversely affected by $47.9 million other-than-temporary impairment “OTTI” charges on available-for-sale securities. Year-to-date earnings for 2010 of $12.7 million are $57.7 million higher than the first three quarters of 2009. Our earnings improvement is due to increasing non-interest income, prudent control of non-interest expenses and strong asset quality. Non-performing assets to total assets were .82% at the end of the quarter.
During the third quarter the corporation successfully redeemed the $26.44 million of preferred stock that had been purchased by the U.S. Treasury Department under the Troubled Asset Relief Program (TARP). As a result of the redemption, C&N recorded accelerated discount accretion of $607,000. This reduced our third quarter diluted earnings per share by $0.05. Going forward, the elimination of the preferred stock dividends will increase earnings per share. Subsequent to the redemption, we repurchased the Warrant issued to the U.S. Treasury Department which was issued in connection with participation in the TARP Capital Purchase Program for $400,000. The warrant had been exercisable to acquire 194,794 shares of the Corporation’s common stock at a price of $20.36 per share.
With TARP repaid and solid core earnings, Citizens & Northern is well positioned to face the challenges of new regulatory burdens and the opportunities presented by the Marcellus Shale gas play in our market footprint.
We solicit your continued support as the Board of Directors, management and employees strive to meet shareholder expectations.
Charles H. Updegraff, Jr.
Chairman, President, & CEO
CITIZENS & NORTHERN CORPORATION
BOARD OF DIRECTORS
Charles H. Updegraff, Jr. - Chairman
| 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 | | |
| R. Robert DeCamp | | Karl W. Kroeck |
428 S. Main Street, ATHENS, PA 18810 | | 570-888-2291 |
3 Main Street, CANISTEO, NY 14823 | | 607-698-4295 |
10 N Main Street, COUDERSPORT, PA 16915 | | 814-274-9150 |
111 Main Street, DUSHORE, PA 18614 | | 570-928-8124 |
563 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 |
6250 County Route 64, HORNELL, NY 14843 | | 607-324-4081 |
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 |
612 James Monroe Avenue, 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 |
24 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
3 Main Street, Canisteo, NY 14823 | | 607-698-4295 |
10 N Main Street, Coudersport, PA 16915 | | 800-921-9150 |
135 East Fourth Street, Emporium, PA 15834 | | 814-274-1929 |
1827 Elmira Street, Sayre, PA 18840 | | 888-760-8192 |
428 Main Street, Towanda, PA 18848 | | 888-987-8784 |
90-92 Main Street, Wellsboro, PA 16901 | | 888-487-8784 |
130 Court Street, Williamsport, PA 17701 | | 866-732-7213 |
| | | |
ACCOUNT SERVICES - 90-92 Main St., Wellsboro, PA 16901 | | |
BANKCARD SERVICES - 90-92 Main St., Wellsboro PA 16901 | | 800-577-8001 |
ELECTRONIC BANKING – 10 Nichols St., Wellsboro, PA 16901 | | 877-838-2517 |
| www.cnbankpa.com | | |
| | | |
C&N FINANCIAL SERVICES CORPORATION – 90-92 Main Street, Wellsboro, PA | | 866-ASK-CNFS |
| www.cnfinancialservices.com | | |
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(In Thousands, Except Per Share Data) (Unaudited)
| | 3RD | | 2ND | | 3RD | | 9 MONTHS ENDED |
| | QUARTER | | QUARTER | | QUARTER | | SEPTEMBER 30, |
| | 2010 | | 2010 | | 2009 | | 2010 | | 2009 |
| | (Current) | | (Prior Qtr) | | (Prior Yr) | | (Current) | | (Prior Yr) |
| Interest and Dividend Income | $ 15,495 | | $ 15,386 | | $ 16,808 | | $ 46,614 | | $ 51,720 |
| Interest Expense | 4,639 | | 5,036 | | 6,016 | | 14,935 | | 18,786 |
| Net Interest Income | 10,856 | | 10,350 | | 10,792 | | 31,679 | | 32,934 |
| Provision for Loan Losses | 189 | | 76 | | 634 | | 472 | | 554 |
| Net Interest Income After Provision for Loan Losses | 10,667 | | 10,274 | | 10,158 | | 31,207 | | 32,380 |
| Other Income | 3,449 | | 3,186 | | 3,282 | | 10,080 | | 9,102 |
| Net Gains (Losses) on Available-for-sale Securities | 388 | | 319 | | (47,848) | | 765 | | (83,522) |
| Other Expenses | 7,969 | | 7,629 | | 8,277 | | 23,492 | | 26,073 |
| Income (Loss) Before Income Tax Provision (Credit) | 6,535 | | 6,150 | | (42,685) | | 18,560 | | (68,113) |
| Income Tax Provision (Credit) | 1,671 | | 1,281 | | (14,491) | | 4,389 | | (24,163) |
| Net Income (Loss) | 4,864 | | 4,869 | | (28,194) | | 14,171 | | (43,950) |
| U.S. Treasury Preferred Dividends | 729 | | 372 | | 373 | | 1,474 | | 1,055 |
| | | | | | | | | | |
| Net Income (Loss) Available to Common Shareholders | $ 4,135 | | $ 4,497 | | $ (28,567) | | $ 12,697 | | $ (45,005) |
| | | | | | | | | | |
| Adjustments to Calculate Core Earnings (a): | | | | | | | | | |
| Net Income (Loss) | $ 4,864 | | $ 4,869 | | $ (28,194) | | $ 14,171 | | $ (43,950) |
| Add: OTTI Losses | - | | 2 | | 47,947 | | 433 | | 84,407 |
| Less: Realized gains on assets previously written down | (334) | | (51) | | (70) | | (669) | | (361) |
| Add/Less: Income Tax (b) | 114 | | (208) | | (15,392) | | (144) | | (27,690) |
| Core Earnings (a) | $ 4,644 | | $ 4,612 | | $ 4,291 | | $ 13,791 | | $ 12,406 |
| Core Earnings Available to Common Shareholders (a) | $ 3,915 | | $ 4,240 | | $ 3,918 | | $ 12,317 | | $ 11,351 |
| | | | | | | | | | |
| PER COMMON SHARE DATA: | | | | | | | | | |
| Net Income (Loss) - Basic | $0.34 | | $0.37 | | ($3.17) | | $1.05 | | ($5.01) |
| Net Income (Loss) - Diluted | $0.34 | | $0.37 | | ($3.17) | | $1.05 | | ($5.01) |
| Dividend Per Share | $0.10 | | $0.09 | | $0.24 | | $0.27 | | $0.72 |
| Number Shares Used in Computation - Basic | 12,136,516 | | 12,125,072 | | 9,005,850 | | 12,125,142 | | 8,978,665 |
| Number Shares Used in Computation - Diluted | 12,136,516 | | 12,125,072 | | 9,005,850 | | 12,125,142 | | 8,978,655 |
| Number Shares Used in Computation - Diluted - for | | | | | | | | | |
| Ratios Based on Core Earnings (a) | 12,136,516 | | 12,125,072 | | 9,023,370 | | 12,125,142 | | 8,993,014 |
CONDENSED, CONSOLIDATED BALANCE SHEET DATA
(In Thousands, Except Per Share Data) (Unaudited)
| | SEPT. 30, | | JUNE 30, | | SEPT. 30, |
| | 2010 | | 2010 | | 2009 |
| ASSETS | | | | | |
| Cash & Due from Banks | $ 53,225 | | $ 83,652 | | $ 47,967 |
| Available-for-sale Securities | 433,392 | | 426,246 | | 399,112 |
| Loans, Net | 718,087 | | 715,363 | | 720,291 |
| Intangible Assets | 12,312 | | 12,356 | | 12,525 |
| Other Assets | 91,092 | | 101,040 | | 103,483 |
| TOTAL ASSETS | $ 1,308,108 | | $ 1,338,657 | | $ 1,283,378 |
| | | | | | |
| LIABILITIES | | | | | |
| Deposits | $ 983,516 | | $ 968,540 | | $ 896,866 |
| Repo Sweep Accounts | 18,402 | | 28,132 | | 34,236 |
| Total Deposits and Repo Sweeps | 1,001,918 | | 996,672 | | 931,102 |
| Borrowed Funds | 158,654 | | 173,831 | | 215,268 |
| Other Liabilities | 6,454 | | 6,659 | | 10,955 |
| TOTAL LIABILITIES | 1,167,026 | | 1,177,162 | | 1,157,325 |
| | | | | | |
| SHAREHOLDERS' EQUITY | | | | | |
| Preferred Stock | - | | 25,833 | | 25,706 |
| Common Shareholders' Equity, Excluding Accumulated | | | | | |
| Other Comprehensive Income (Loss) | 136,920 | | 134,229 | | 100,290 |
| Accumulated Other Comprehensive Income (Loss): | | | | | |
| Net Unrealized Gains/Losses on | | | | | |
| Available-for-sale Securities | 4,394 | | 1,684 | | 403 |
| Defined Benefit Plans | (232) | | (251) | | (346) |
| TOTAL SHAREHOLDERS' EQUITY | 141,082 | | 161,495 | | 126,053 |
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ 1,308,108 | | $ 1,338,657 | | $ 1,283,378 |
CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
| | 9 MONTHS ENDED | | % |
| | SEPTEMBER 30, | | INCREASE |
| | 2010 | | 2009 | | (DECREASE) |
| EARNINGS PERFORMANCE | | | | | |
| Net Income (Loss) | $ 14,171 | | $ (43,950) | | NM |
| Return on Average Assets | 1.42% | | -4.52% | | NM |
| Return on Average Equity | 12.28% | | -40.75% | | NM |
| Core Earnings (a) | $ 13,791 | | $ 12,406 | | 11.16% |
| Core Earnings/Average Assets (a) | 1.38% | | 1.28% | | 7.81% |
| Core Earnings/Average Equity (a) | 11.95% | | 11.50% | | 3.91% |
| | | | | | |
| BALANCE SHEET HIGHLIGHTS | | | | | |
| Total Assets | $ 1,308,108 | | $ 1,283,378 | | 1.93% |
| Available-for-Sale Securities | 433,392 | | 399,112 | | 8.59% |
| Loans (Net) | 718,087 | | 720,291 | | -0.31% |
| Allowance for Loan Losses | 8,602 | | 8,188 | | 5.06% |
| Deposits and Repo Sweep Accounts | 1,001,918 | | 931,102 | | 7.61% |
| | | | | | |
| Trust Assets Under Management | 591,267 | | 592,841 | | -0.27% |
| | | | | | |
| SHAREHOLDERS' VALUE | | | | | |
| (PER COMMON SHARE) | | | | | |
| Net Income - Basic | $1.05 | | ($5.01) | | NM |
| Net Income - Diluted | $1.05 | | ($5.01) | | NM |
| Core Earnings - Basic (a) | $1.02 | | $1.26 | | -19.05% |
| Core Earnings - Diluted (a) | $1.02 | | $1.26 | | -19.05% |
| Dividends | $0.27 | | $0.72 | | -62.50% |
| Common Book Value | $11.62 | | $11.02 | | 5.44% |
| Tangible Common Book Value | $10.60 | | $9.64 | | 9.96% |
| Market Value (Last Trade) | $13.00 | | $14.79 | | -12.10% |
| Market Value / Common Book Value | 111.88% | | 134.21% | | -16.64% |
Market Value / Tangible Common Book Value | 122.64% | | 153.42% | | -20.06% |
| Price Earnings Multiple | 9.29 | | NM | | NM |
| Dividend Yield | 2.77% | | 6.49% | | -57.32% |
| | | | | | |
| SAFETY AND SOUNDNESS | | | | | |
| Tangible Common Equity / Tangible Assets | 9.94% | | 6.91% | | 43.85% |
| Nonperforming Assets / Total Assets | 0.82% | | 0.77% | | 6.63% |
| Allowance for Loan Losses / Total Loans | 1.18% | | 1.12% | | 5.36% |
| Total Risk Based Capital Ratio (c) | 16.90% | | 13.58% | | 24.45% |
| Tier 1 Risk Based Capital Ratio (c) | 15.67% | | 12.46% | | 25.76% |
| Leverage Ratio (c) | 8.87% | | 7.60% | | 16.71% |
| | | | | | |
| AVERAGE BALANCES | | | | | |
| Average Assets | $1,329,714 | | $1,296,174 | | 2.59% |
| Average Equity | 153,813 | | 143,798 | | 6.96% |
| | | | | | |
| NM - Not meaningful. | | | | | |
(a) Core Earnings is an earnings performance measurement which management has defined to exclude 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 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 gains and 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. A valuation allowance of $886,000 was recorded in the third quarter 2009, was reduced to $373,000 in the fourth quarter 2009 and was further reduced to $148,000 in the 2nd quarter 2010. There was no change to the valuation allowance in the third quarter 2010.
(c) Capital ratios as of September 30, 2010 are estimated.
