EXHIBIT 99.2
(CITIZENS & NORTHERN CORPORATION)
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
MARCH 31, 2005 QUARTERLY REPORT
Dear Shareholder:
This year will be challenging in many respects. As the Federal Reserve continues
its "measured" increases in the Fed Funds Rate, we will be experiencing more
rapid repricing of our deposits and borrowings which support our earning assets
that reprice more slowly. This will reduce our interest spread and our interest
margin. Fortunately, we have increased our loan portfolio by nearly 12.7% since
last year and that volume has had a positive effect upon the interest margin for
the first quarter. Other expenses have increased since last year by $900
thousand; due in part to increased costs related to the new core processing
system and the personnel and fixed overhead expenses related to our expansion
into the Williamsport and Lycoming County market. By July 1st, we will open our
20th office in Jersey Shore and we expect to begin the construction of the 21st
office in Old Lycoming Township by the third quarter of this year. We have
already begun hiring personnel for those new locations to enable appropriate
time for training. We believe these investments should result in gaining
significant market share and should result in long-term revenue enhancements for
your company.
In addition to the growth in loans, deposits and repo sweep accounts have
increased 5.15%. Our available-for-sale investments have shrunk by 11.75% to
fund loan growth and because the spreads available for leveraging are not
attractive enough. Our Trust and Financial Management Group has been growing
Trust Assets Under Management, up over $42 million or 11.90%, through
development of new relationships and by virtue of positive investment results.
There has been considerable trading volume in our stock since we listed on the
NASDAQ Small Cap market. We expect that listing will enhance the marketability
of your holdings and allow the price to more accurately reflect the true value
of your investment.
We have filed the regulatory applications for the acquisition of the Canisteo
Valley Corporation, the holding company for First State Bank of Canisteo. We
expect to close the transaction by the 3rd quarter of this year. Both we and the
good people at First State Bank are excited about joining forces to offer C&N
style community banking to the southern tier New York State market.
Craig G. Litchfield
Chairman, President & CEO
CITIZENS & NORTHERN CORPORATION
BOARD OF DIRECTORS
<Table>
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
J. Robert Bower F. David Pennypacker
Lawrence F. Mase
OFFICERS
Craig G. Litchfield Chairman, President and Chief Executive Officer
Mark A. Hughes Treasurer
Kathleen M. Osgood Corporate Secretary
</Table>
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
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 16901 800-487-8784
428 Main Street, Towanda, PA 18848 888-987-8784
503 N. Elmira Street, Sayre, PA 18840 888-760-8192
3461 Rte 405 Highway, Muncy, PA 17756 570-546-6666
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 16901 800-577-9397
www.fmt@cnbankpa.com
INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901 570-724-0266
www.cnbankpa.com
C&N FINANCIAL SERVICES CORPORATION - 68 Main Street, Wellsboro, PA 866-ASK-CNFS
www.cnfinancialservices.com
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)
<Table>
<Caption>
3 MONTHS ENDED
MARCH
2005 2004
(CURRENT) (PRIOR YR)
------------ ------------
Interest and Dividend Income $ 14,693 $ 14,015
Interest Expense 5,957 5,703
------------ ------------
Interest Margin 8,736 8,312
Provision for Loan Losses 375 350
------------ ------------
Interest Margin After Provision for Loan Losses 8,361 7,962
Other Income 1,703 1,625
Realized Gains on Securities, Net 1,066 964
Other Expenses 7,128 6,228
------------ ------------
Income Before Income Tax Provision 4,002 4,323
Income Tax Provision 707 617
------------ ------------
NET INCOME $ 3,295 $ 3,706
============ ============
PER SHARE DATA (**):
Net Income - Basic $ 0.40 $ 0.45
Net Income - Diluted $ 0.40 $ 0.45
Dividend Per Share $ 0.23 $ 0.22
Number Shares Used in Computation - Basic 8,193,240 8,193,182
Number Shares Used in Computation - Diluted 8,264,288 8,249,283
</Table>
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
<Table>
<Caption>
MARCH 31, MARCH 31,
2005 2004
------------ ------------
ASSETS
Cash & Due from Banks $ 13,285 $ 14,149
Available-for-Sale Securities 465,074 526,985
Loans, Net 592,118 525,561
Other Assets 59,184 54,432
------------ ------------
TOTAL ASSETS $ 1,129,661 $ 1,121,127
============ ============
LIABILITIES
Deposits $ 684,619 $ 650,920
Repo Sweep Accounts 21,167 20,282
------------ ------------
Total Deposits and Repo Sweeps 705,786 671,202
Borrowed Funds 286,394 284,784
Other Liabilities 8,656 34,899
------------ ------------
TOTAL LIABILITIES 1,000,836 990,885
------------ ------------
SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 122,875 115,630
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 5,950 14,612
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 128,825 130,242
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,129,661 $ 1,121,127
============ ============
</Table>
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
<Table>
<Caption>
3 MONTHS ENDED %
MARCH INCREASE
2005 2004 (DECREASE)
---- ---- ----------
EARNINGS PERFORMANCE
Net Income $ 3,295 $ 3,706 -11.09%
Return on Average Assets 1.17% 1.38% -15.22%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 1.18% 1.40% -15.71%
Return on Average Equity 9.87% 11.45% -13.80%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.70% 12.88% -16.93%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,129,661 $ 1,121,127 0.76%
Available-for-Sale Securities 465,074 526,985 -11.75%
Loans (Net) 592,118 525,561 12.66%
Allowance for Loan Losses 6,925 6,370 8.71%
Deposits and Repo Sweep Accounts 705,786 671,202 5.15%
Trust Assets Under Management 395,843 353,762 11.90%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $ 0.40 $ 0.45 -11.11%
Net Income - Diluted $ 0.40 $ 0.45 -11.11%
Dividends $ 0.23 $ 0.22 4.55%
Book Value $ 15.69 $ 15.88 -1.20%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 14.97 $ 14.10 6.17%
Market Value (Last Trade) $ 28.51 $ 24.80 14.96%
Market Value / Book Value 181.71% 156.17% 16.35%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 190.45% 175.89% 8.28%
Price Earnings Multiple 17.82 13.78 29.32%
Dividend Yield 3.23% 3.55% -9.01%
SAFETY AND SOUNDNESS
Shareholders' Equity / Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 11.01% 10.95% 0.55%
Nonperforming Assets / Total Assets 0.77% 0.12% 541.67%
Allowance for Loan Losses / Total Loans 1.16% 1.20% -3.33%
Risk Based Capital Ratio 18.73% 20.00% -6.35%
AVERAGE BALANCES
Average Assets $ 1,131,167 $ 1,077,361 4.99%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,115,540 1,055,668 5.67%
Average Equity 133,494 129,440 3.13%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 123,180 115,123 7.00%
</Table>
(*) 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.