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 |
| December 31, 2010 | QUARTERLY REPORT |
Dear Shareholder:
I am pleased to report net income of $4,884,000 for the fourth quarter of 2010 which is a $642,000 increase over the fourth quarter of 2009, or 15.1%. Year-to-date earnings for 2010 were a record $17,581,000 which represents a $58,344,000 increase over the prior year. Redemption of the outstanding preferred stock during the third quarter positively affected fourth quarter net income by $373,000. Return on average assets was 1.44% and return on average equity was 12.69% for the year which places Citizens & Northern near the top of its peer group.
Total assets remained relatively unchanged over the past quarter and year. A deleveraging of the balance sheet over the past year has resulted in the reduction of borrowed funds by $52,747,000. Historically low investment yields precipitated the decision to deleverage the balance sheet. Management increased the provision for loan losses by $530,000 over the prior quarter but asset quality remains strong with nonperforming assets being .92% of total assets.
We are encouraged by the continued rise in our stock price which closed the year at $14.86 per share, an increase of 55.77% over the prior year-end.
As we close a very successful 2010, I solicit your continued support as we strive to enhance shareholder value. 2011 will present many challenges but with the dedicated effort of our employees and Board of Directors I am confident that we will succeed.
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) |
| | 4TH | 3RD | 4TH | YEAR ENDED |
| | QUARTER | QUARTER | QUARTER | DECEMBER 31, |
| | 2010 | 2010 | 2009 | 2010 | 2009 |
| | (Current) | (Prior Qtr) | (Prior Yr) | (Current) | (Prior Yr) |
| Interest and Dividend Income | $ 15,500 | $ 15,495 | $ 16,256 | $ 62,114 | $ 67,976 |
Interest Expense | 4,310 | 4,639 | 5,670 | 19,245 | 24,456 |
| Net Interest Income | 11,190 | 10,856 | 10,586 | 42,869 | 43,520 |
Provision for Loan Losses | 719 | 189 | 126 | 1,191 | 680 |
| Net Interest Income After Provision for Loan Losses | 10,471 | 10,667 | 10,460 | 41,678 | 42,840 |
| Other Income (a) | 3,480 | 3,575 | 3,663 | 13,917 | 13,021 |
| Net Gains (Losses) on Available-for-sale Securities | 64 | 388 | (318) | 829 | (83,840) |
Other Expenses (a) | 7,720 | 8,095 | 7,682 | 31,569 | 34,011 |
| Income (Loss) Before Income Tax Provision (Credit) | 6,295 | 6,535 | 6,123 | 24,855 | (61,990) |
Income Tax Provision (Credit) | 1,411 | 1,671 | 1,508 | 5,800 | (22,655) |
| Net Income (Loss) | 4,884 | 4,864 | 4,615 | 19,055 | (39,335) |
U.S. Treasury Preferred Dividends | - | 729 | 373 | 1,474 | 1,428 |
| | | | | | |
Net Income (Loss) Available to Common Shareholders | $ 4,884 | $ 4,135 | $ 4,242 | $ 17,581 | $ (40,763) |
| | | | | | |
| Adjustments to Calculate Core Earnings (b): | | | | | |
| Net Income (Loss) | $ 4,884 | $ 4,864 | $ 4,615 | $ 19,055 | $ (39,335) |
| Add: OTTI Losses | - | - | 956 | 433 | 85,363 |
| Less: Realized gains on assets previously written down | (38) | (334) | (947) | (707) | (1,308) |
Add/Less: Income Tax (c) | (135) | 114 | (516) | (280) | (28,206) |
Core Earnings (b) | $ 4,711 | $ 4,644 | $ 4,108 | $ 18,501 | $ 16,514 |
Core Earnings Available to Common Shareholders (b) | $ 4,711 | $ 3,915 | $ 3,735 | $ 17,027 | $ 15,086 |
| | | | | | |
| PER COMMON SHARE DATA: | | | | | |
| Net Income (Loss) - Basic | $0.40 | $0.34 | $0.42 | $1.45 | ($4.40) |
| Net Income (Loss) - Diluted | $0.40 | $0.34 | $0.42 | $1.45 | ($4.40) |
| Dividend Per Share | $0.12 | $0.10 | $0.00 | $0.39 | $0.72 |
| Number Shares Used in Computation - Basic | 12,148,541 | 12,136,516 | 10,141,903 | 12,131,039 | 9,271,869 |
| Number Shares Used in Computation - Diluted | 12,148,772 | 12,136,516 | 10,141,903 | 12,131,039 | 9,271,869 |
| Number Shares Used in Computation - Diluted - for | | | | | |
| Ratios Based on Core Earnings (b) | 12,148,772 | 12,136,516 | 10,141,903 | 12,131,039 | 9,272,489 |
| CONDENSED, CONSOLIDATED BALANCE SHEET DATA |
| (In Thousands, Except Per Share Data) (Unaudited) |
| | DEC. 31, | SEPT. 30, | DEC. 31, |
| | 2010 | 2010 | 2009 |
| ASSETS | | | |
| Cash & Due from Banks | $ 46,301 | $ 53,225 | $ 92,065 |
| Available-for-sale Securities | 443,956 | 433,392 | 396,288 |
| Loans Held for Sale (a) | 5,247 | 561 | 592 |
| Loans, Net (a) | 721,304 | 717,526 | 712,746 |
| Intangible Assets | 12,268 | 12,312 | 12,444 |
| Other Assets | 87,512 | 91,092 | 107,660 |
| TOTAL ASSETS | $ 1,316,588 | $ 1,308,108 | $ 1,321,795 |
| | | | |
| LIABILITIES | | | |
| Deposits | $ 1,004,348 | $ 983,516 | $ 926,789 |
| Repo Sweep Accounts | 18,413 | 18,402 | 34,229 |
| Total Deposits and Repo Sweeps | 1,022,761 | 1,001,918 | 961,018 |
| Borrowed Funds | 148,495 | 158,654 | 201,242 |
| Other Liabilities | 6,388 | 6,454 | 7,125 |
| TOTAL LIABILITIES | 1,177,644 | 1,167,026 | 1,169,385 |
| | | | |
| SHAREHOLDERS' EQUITY | | | |
| Preferred Stock | - | - | 25,749 |
| Common Shareholders' Equity, Excluding Accumulated | | | |
| Other Comprehensive Income (Loss) | 140,545 | 136,920 | 127,552 |
| Accumulated Other Comprehensive Income (Loss): | | | |
| Net Unrealized Gains/Losses on | | | |
| Available-for-sale Securities | (1,351) | 4,394 | (522) |
| Defined Benefit Plans | (250) | (232) | (369) |
| TOTAL SHAREHOLDERS' EQUITY | 138,944 | 141,082 | 152,410 |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ 1,316,588 | $ 1,308,108 | $ 1,321,795 |
| CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS |
| (In Thousands, Except Per Share Data) (Unaudited) |
| | YEAR ENDED | % |
| | DECEMBER 31, | INCREASE |
| | 2010 | 2009 | (DECREASE) |
| EARNINGS PERFORMANCE | | | |
| Net Income (Loss) | $ 19,055 | $ (39,335) | NM |
| Return on Average Assets | 1.44% | -3.03% | NM |
| Return on Average Equity | 12.69% | -27.74% | NM |
| Core Earnings (b) | $ 18,501 | $ 16,514 | 12.03% |
| Core Earnings/Average Assets (b) | 1.40% | 1.27% | 10.24% |
| Core Earnings/Average Equity (b) | 12.32% | 11.65% | 5.75% |
| | | | |
| BALANCE SHEET HIGHLIGHTS | | | |
| Total Assets | $ 1,316,588 | $ 1,321,795 | -0.39% |
| Available-for-Sale Securities | 443,956 | 396,288 | 12.03% |
| Loans (Net) | 721,304 | 712,746 | 1.20% |
| Allowance for Loan Losses | 9,107 | 8,265 | 10.19% |
| Deposits and Repo Sweep Accounts | 1,022,761 | 961,018 | 6.42% |
| | | | |
| Trust Assets Under Management | 608,843 | 605,062 | 0.62% |
| | | | |
| SHAREHOLDERS' VALUE | | | |
| (PER COMMON SHARE) | | | |
| Net Income - Basic | $1.45 | ($4.40) | NM |
| Net Income - Diluted | $1.45 | ($4.40) | NM |
| Core Earnings - Basic (b) | $1.40 | $1.63 | -14.11% |
| Core Earnings - Diluted (b) | $1.40 | $1.63 | -14.11% |
| Dividends | $0.39 | $0.72 | -45.83% |
| Common Book Value | $11.43 | $10.46 | 9.27% |
| Tangible Common Book Value | $10.42 | $9.43 | 10.50% |
| Market Value (Last Trade) | $14.86 | $9.54 | 55.77% |
| Market Value / Common Book Value | 130.01% | 91.20% | 42.55% |
| Market Value / Tangible Common Book Value | 142.61% | 101.17% | 40.97% |
| Price Earnings Multiple | 10.25 | NM | NM |
| Dividend Yield | 2.62% | 7.55% | -65.30% |
| | | | |
| SAFETY AND SOUNDNESS | | | |
| Tangible Common Equity / Tangible Assets | 9.71% | 8.72% | 11.35% |
| Nonperforming Assets / Total Assets | 0.92% | 0.76% | 21.65% |
| Allowance for Loan Losses / Total Loans | 1.25% | 1.15% | 8.70% |
| Total Risk Based Capital Ratio (d) | 17.08% | 17.89% | -4.52% |
| Tier 1 Risk Based Capital Ratio (d) | 15.78% | 16.70% | -5.48% |
| Leverage Ratio (d) | 9.17% | 9.86% | -6.99% |
| | | | |
| AVERAGE BALANCES | | | |
| Average Assets | $1,326,145 | $1,296,086 | 2.32% |
| Average Equity | 150,133 | 141,787 | 5.89% |
NM - Not meaningful.
(a) Certain information that was previously reported has been reclassified for consistency with the current presentation.
(b) 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.
(c) 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, further reduced to $148,000 in the 2nd quarter 2010 and reduced to $0 in the fourth quarter 2010.
(d) Capital ratios as of December 31, 2010 are estimated.
