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
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Stock Symbol: CZNC
Chartered 1864
FEDERAL DEPOSIT INSURANCE CORP
JUNE 30, 2005 QUARTERLY REPORT
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Dear Shareholder:
Our planned opening of the Jersey Shore office has been temporarily delayed
due to the failure of a landscaping retaining wall. Further engineering has been
completed to assure that the new wall will be sound. We expect the opening to be
delayed about one month as a result. Once the Jersey Shore site is completed, we
will begin the Old Lycoming Township office, which we plan to have opened by
January 2006. Our new administration building is well under way and we expect to
move in by November.
The acquisition of the Canisteo Valley Corporation, the parent company of
First State Bank, should be completed during the third quarter of this year. The
people of First State Bank and we are eager to begin the process of bringing our
organizations together.
Financial results for the first 6 months of 2005 continue to be affected by
the increased costs from the expansion into Williamsport and Lycoming County and
the costs associated with the new core processing system. Additionally, as the
Federal Reserve continues to increase the Fed Funds rate, longer-term rates have
remained relatively unchanged. This has had the effect of reducing our interest
rate spread. Interest and dividend income have increased 4.38%, or $1.24 million
as a result or our growing loan portfolio, while interest expense increased
8.18%, or $916 thousand due to deposit rate competitive pressures. The interest
margin increased 1.9%, or $327 thousand, which was not enough to offset the
other expenses increase of 14.25% or $1.784 million. Net income as compared to
the same period of 2004 is down 10.85%. We believe that these current expense
increases due to the branch expansion and the new core system are investments
that will enhance future revenues and net income.
Total assets increased from last year by only 1.3%. Loan demand and
origination remains strong with an increase of 10.85%, $59.1 million. The loan
portfolio increase was funded primarily by a decrease in available-for-sale
securities of 10.01%, or $50.4 million. Deposits and repo sweeps increased by a
modest 2.77%, or $19.066 million and borrowed funds decreased by approximately
the same amount. Trust assets under management compared to the same period last
year increased by 11.73% to over $401 million.
Our stock was added to the Russell 2000(R) on June 24th, which has created a
great deal of trading by institutional investors. The increased institutional
demand has positively affected the share price.
We continue to be excited by the opportunities for growth that lie before us.
Thank you for your continued support.
Craig G. Litchfield
Chairman, President & CEO
CITIZENS & NORTHERN CORPORATION
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
DIRECTORS EMERITI
F. David Pennypacker
OFFICERS
Craig G. Litchfield Chairman, President and Chief Executive Officer
Mark A. Hughes Treasurer
Kathleen M. Osgood Corporate Secretary
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 16901800-487-8784
428 Main Street, Towanda, PA 18848888-987-8784
503 N. Elmira Street, Sayre, PA 18840888-760-8192
3461 Rte 405 Highway, Muncy, PA 17756570-546-6666
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
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INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901 570-724-0266
www.cnbankpa.com
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C&N FINANCIAL SERVICES CORPORATION - 68 Main Street, Wellsboro, PA 866-ASK-CNFS
www.cnfinancialservices.com
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CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE JUNE
2005 2004 2005 2004
(CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR)
Interest and Dividend Income $ 14,908 $ 14,343 $ 29,601 $ 28,358
Interest Expense 6,155 5,493 12,112 11,196
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Interest Margin 8,753 8,850 17,489 17,162
Provision for Loan Losses 375 350 750 700
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Interest Margin After Provision for Loan Losses 8,500 16,739 16,462
8,378
Other Income 1,889 1,855 3,592 3,480
Realized Gains on Securities, Net 929 321 1,995 1,285
Other Expenses 7,173 6,289 14,301 12,517
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Income Before Income Tax Provision 4,023 4,387 8,025 8,710
Income Tax Provision 725 698 1,432 1,315
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NET INCOME $ 3,298 $ 3,689 $ 6,593 $ 7,395
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PER SHARE DATA (**):
Net Income - Basic $0.40 $0.45 $0.80 $0.90
Net Income - Diluted $0.40 $0.45 $0.80 $0.90
Dividend Per Share $0.23 $0.22 $0.46 $0.44
Number Shares Used in Computation - Basic 8,210,469 8,182,034 8,201,902 8,187,606
Number Shares Used in Computation - Diluted 8,274,780 8,229,149 8,269,365 8,239,222
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
JUNE 30, JUNE 30,
2005 2004
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ASSETS
Cash & Due from Banks $ 16,653 $ 15,334
Available-for-Sale Securities 453,288 503,700
Loans, Net 604,514 545,360
Other Assets 59,246 54,745
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TOTAL ASSETS $1,133,701 $1,119,139
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LIABILITIES
Deposits $ 685,105 $ 670,098
Repo Sweep Accounts 21,812 17,753
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Total Deposits and Repo Sweeps 706,917 687,851
Borrowed Funds 283,349 302,353
Other Liabilities 10,619 7,778
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TOTAL LIABILITIES 1,000,885 997,982
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SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 124,338 117,060
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 8,478 4,097
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TOTAL SHAREHOLDERS' EQUITY 132,816 121,157
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,133,701 $1,119,139
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CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data)
(Unaudited)
6 MONTHS ENDED %
JUNE INCREASE
2005 2004 (DECREASE)
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EARNINGS PERFORMANCE
Net Income $ 6,593 $ 7,395 -10.85%
Return on Average Assets 1.17% 1.35% -13.33%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 1.18% 1.37% -13.87%
Return on Average Equity 9.96% 11.52% -13.54%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.67% 12.74% -16.25%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,133,701 $ 1,119,139 1.30%
Available-for-Sale Securities 453,288 503,700 -10.01%
Loans (Net) 604,514 545,360 10.85%
Allowance for Loan Losses 7,037 6,609 6.48%
Deposits and Repo Sweep Accounts 706,917 687,851 2.77%
Trust Assets Under Management 401,360 359,230 11.73%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $ 0.80 $ 0.90 -11.11%
Net Income - Diluted $ 0.80 $ 0.90 -11.11%
Dividends $ 0.46 $ 0.44 4.55%
Book Value $ 16.18 $ 14.81 9.25%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 15.14 $ 14.31 5.80%
Market Value (Last Trade) $ 31.24 $ 25.20 23.97%
Market Value / Book Value 193.08% 170.16% 13.47%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 206.34% 176.10% 17.17%
Price Earnings Multiple 19.53 14.00 39.50%
Dividend Yield 2.94% 3.49% -15.76%
SAFETY AND SOUNDNESS
Shareholders' Equity / Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 11.06% 10.76% 2.79%
Nonperforming Assets / Total Assets 0.70% 0.75% -6.67%
Allowance for Loan Losses / Total Loans 1.15% 1.20% -4.17%
Risk Based Capital Ratio 18.45% 19.40% -4.90%
AVERAGE BALANCES
Average Assets $ 1,130,873 $ 1,096,969 3.09%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,117,488 1,078,350 3.63%
Average Equity 132,410 128,340 3.17%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 123,576 116,052 6.48%
(*) 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.