EXHIBIT 99.2
[CITIZENS & NORTHERN CORPORATION LOGO]
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, 2005 QUARTERLY REPORT
Dear Shareholder:
The third quarter was an active one for your company. Our long-anticipated
acquisition of Canisteo Valley Corporation and its subsidiary First State Bank
was completed. We are pleased to welcome the employees, directors and clients of
First State to the C&N family. Our market expansion in Lycoming County continues
as evidenced by the August opening of the Jersey Shore office and the October
ground breaking for the Old Lycoming office, which we plan to open in the first
quarter of 2006.
In response to the Hurricane Katrina disaster, C&N helped raise over $50,000,
which was contributed to the American Red Cross for victim relief.
Our 2006 Calendar will be available in our offices shortly. The calendar
features fabulous seasonal scenes of our market area taken by talented local
photographers. Some would say the calendar is a work of art.
The financial results for the year-to-date evidence the narrowing of the
interest rate spreads and the increased costs associated with our expansion
efforts and the core operating system that was installed in the fourth quarter
of 2004. Those increased costs are investments in the future prosperity of C&N.
The acquisition of First State Bank is accounted for in the third quarter's
financial report. While total assets are up 4.2% compared to the same period
last year with loans up 12.9% and deposits and repo sweeps up 12.5%, net income
is down by 8.5%. Trust Assets Under Management have increased by nearly 13% to
over $400 million.
Our stock share price has been quite volatile since we listed on the NASDAQ. We
believe that some of the volatility was driven by our entry into the Russell
2000. The board of directors declared a 23-cent quarterly dividend for the third
quarter, a 4.5% increase over last year.
We believe that your company is well positioned for future growth in its market
area and we look forward to the opportunities and challenges that lie ahead.
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
230-232 Railroad Street, JERSEY SHORE, PA 17740 570-398-4555
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 16901800-577-9397
www.fmt@cnbankpa.com
INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901570-724-0266
www.cnbankpa.com
C&N FINANCIAL SERVICES CORPORATION - 68 Main Street, Wellsboro, PA 866-ASK-CNFS
www.cnfinancialservices.com
CANISTEO VALLEY CORPORATION
3 Main Street, Canisteo, NY 14823 607-698-4295
FIRST STATE BANK
OFFICES
3 Main Street, CANISTEO, NY 14823 607-698-4295
111 Main Street, HORNELL, NY 14843 607-324-4081
www.fsbcanisteo.com
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED
SEPT SEPT
2005 2004 2005 2004
(CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR)
------------ ---------- ---------- -----------
Interest and Dividend Income $ 15,571 $ 14,573 $ 45,172 $ 42,931
Interest Expense 6,426 5,665 18,538 16,861
- -------------------------------------------------------------------------------------------------------------------
Interest Margin 9,145 8,908 26,634 26,070
Provision for Loan Losses 375 350 1,125 1,050
- -------------------------------------------------------------------------------------------------------------------
Interest Margin After Provision for Loan Losses 8,770 8,558 25,509 25,020
Other Income 2,149 1,627 5,741 5,107
Realized Gains on Securities, Net 393 459 2,388 1,744
Other Expenses 7,303 6,738 21,604 19,255
- -------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Provision 4,009 3,906 12,034 12,616
Income Tax Provision 722 501 2,154 1,816
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,287 $ 3,405 $ 9,880 $ 10,800
===================================================================================================================
PER SHARE DATA (**):
Net Income - Basic $ 0.40 $ 0.42 $ 1.20 $ 1.32
Net Income - Diluted $ 0.40 $ 0.41 $ 1.19 $ 1.31
Dividend Per Share $ 0.23 $ 0.22 $ 0.69 $ 0.66
Number Shares Used in Computation - Basic 8,215,365 8,182,851 8,206,438 8,186,014
Number Shares Used in Computation - Diluted 8,283,770 8,226,968 8,270,940 8,235,179
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
SEPT. 30, SEPT. 30,
2005 2004
--------- ---------
ASSETS
Cash & Due from Banks $ 31,833 $ 14,282
Available-for-Sale Securities 449,059 499,572
Loans, Net 637,646 564,867
Intangible Assets 3,470 -
Other Assets 61,591 56,712
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,183,599 $1,135,433
================================================================================================================
LIABILITIES
Deposits $ 753,008 $ 672,875
Repo Sweep Accounts 29,805 22,961
- ----------------------------------------------------------------------------------------------------------------
Total Deposits and Repo Sweeps 782,813 695,836
Borrowed Funds 258,499 298,191
Other Liabilities 10,819 12,402
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,052,131 1,006,429
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 125,958 118,769
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 5,510 10,235
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 131,468 129,004
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,183,599 $1,135,433
================================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data)
(Unaudited)
9 MONTHS ENDED %
SEPT. INCREASE
2005 2004 (DECREASE)
---------- --------- --------
EARNINGS PERFORMANCE
Net Income $ 9,880 $ 10,800 -8.52%
Return on Average Assets 1.16% 1.30% -10.77%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 1.17% 1.32% -11.36%
Return on Average Equity 9.92% 11.28% -12.06%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.60% 12.33% -14.03%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,183,599 $ 1,135,433 4.24%
Available-for-Sale Securities 449,059 499,572 -10.11%
Loans (Net) 637,646 564,867 12.88%
Allowance for Loan Losses 7,643 6,570 16.33%
Deposits and Repo Sweep Accounts 782,813 695,836 12.50%
Trust Assets Under Management 404,899 358,349 12.99%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $ 1.20 $ 1.32 -9.09%
Net Income - Diluted $ 1.19 $ 1.31 -9.16%
Dividends $ 0.69 $ 0.66 4.55%
Book Value $ 15.99 $ 15.76 1.46%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 15.32 $ 14.51 5.58%
Market Value (Last Trade) $ 26.70 $ 25.00 6.80%
Market Value / Book Value 166.98% 158.63% 5.26%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 174.28% 172.29% 1.16%
Price Earnings Multiple 16.69 14.20 17.54%
Dividend Yield 3.45% 3.52% -1.99%
SAFETY AND SOUNDNESS
Tangible Equity / Tangible Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.45% 10.61% -1.43%
Nonperforming Assets / Total Assets 0.63% 0.67% -5.97%
Allowance for Loan Losses / Total Loans 1.18% 1.15% 2.61%
Risk Based Capital Ratio 17.44% 18.92% -7.82%
AVERAGE BALANCES
Average Assets $ 1,136,301 $ 1,107,753 2.58%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,123,462 1,091,299 2.95%
Average Equity 132,788 127,687 3.99%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 124,307 116,828 6.40%
</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.