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
Member FEDERAL DEPOSIT INSURANCE CORP
MARCH 31, 2006 QUARTERLY REPORT
Dear Shareholder:
As former US Supreme Court Justice Oliver Wendell Holmes, Jr. once said, "I find
the great thing in this world is not so much where we stand, as in what
direction we are moving. To reach the port of heaven, we must sail sometimes
with the wind and sometimes against it, but we must sail, and not drift, nor lie
at anchor."
That sentiment very much applies to your company at this juncture in its
history. We have set out on an ambitious course of building a significant market
share of the Lycoming County market with the completion of our 4th and 5th
community offices in the past six months (Jersey Shore and Old Lycoming). In the
past five years we have opened five community offices in Lycoming County for a
total of six. We have also opened and occupied during the first quarter of 2006
a new Administration Building, which provides the space we have been lacking for
the support staff. Additionally, we have taken on the challenge of bringing
First State Bank of Canisteo, New York into the C&N family. Our Trust and
Financial Management Group has restructured its client delivery process and has
grown assets under management by nearly 20% since last year.
We are creating opportunities for your company's future at the very time the
Federal Reserve is raising short-term interest rates. The rate curve is nearly
flat: i.e., there is very little difference between over-night borrowing rates
and the ten and thirty year rates. Fortunately, loan rates have risen and demand
is strong due to our Lycoming County and commercial lending initiatives.
However, there is no opportunity to leverage our equity through borrowings that
can be invested in fixed income securities, thus the security portfolio is
contracting.
The financial results for the quarter are not what we have been used to, and are
affected by both the shrinking margins and the additional overhead expenses
associated with our growth strategy.
As we sail into the future awaiting a more favorable interest environment, we
are actively taking steps to position C&N for future profitable growth. 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
DIRECTOR EMERITUS
F. David Pennypacker
CITIZENS & NORTHERN BANK
OFFICES
428 S. Main Street, ATHENS, PA 18810 570-888-2291
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
RR 2 Box 3036, MONROETON, PA 18832 570-265-2157
3461 Rte.405 Highway, MUNCY, PA 17756 570-546-6666
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
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 - 10 Nichols St., Wellsboro PA 16901 800-676-6639
CASH MANAGEMENT / INTERNET BANKING - 10 Nichols St.,
Wellsboro, PA 16901 570-724-0266
www.cnbankpa.com
FUNDS MANAGEMENT - 10 Nichols St., Wellsboro, PA 16901 800-577-9397
www.fmt@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
6250 County Route 64, HORNELL, NY 14843 607-324-4081
www.fsbcanisteo.com
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED
MARCH
2006 2005
(CURRENT) (PRIOR YR)
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Interest and Dividend Income $ 15,863 $ 14,693
Interest Expense 7,278 5,957
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Interest Margin 8,736
8,585
Provision for Loan Losses 600 375
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Interest Margin After Provision for Loan Losses 8,361
7,985
Other Income 1,789 1,703
Realized Gains on Securities, Net 1,315 1,066
Other Expenses 7,843 7,128
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Income Before Income Tax Provision 4,002
3,246
Income Tax Provision 426 707
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NET INCOME $ 2,820 $ 3,295
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PER SHARE DATA (**):
Net Income - Basic $0.34 $0.40
Net Income - Diluted $0.34 $0.39
Dividend Per Share $0.24 $0.23
Number Shares Used in Computation - Basic 8,296,922 8,275,172
Number Shares Used in Computation - Diluted 8,335,009 8,346,220
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
MARCH 31, MARCH 31,
2006 2005
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ASSETS
Cash & Due from Banks $ 21,462 $ 13,285
Available-for-Sale Securities 427,975 465,074
Loans, Net 644,071 592,118
Intangible Assets 3,321 -
Other Assets 63,815 59,184
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TOTAL ASSETS $ 1,160,644 $1,129,661
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LIABILITIES
Deposits $ 752,714 $ 684,619
Repo Sweep Accounts 24,364 21,167
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Total Deposits and Repo Sweeps 777,078 705,786
Borrowed Funds 245,239 286,394
Other Liabilities 8,279 8,656
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TOTAL LIABILITIES 1,030,596 1,000,836
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SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 127,716 122,875
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 2,332 5,950
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TOTAL SHAREHOLDERS' EQUITY 130,048 128,825
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,160,644 $1,129,661
=============================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED %
MARCH INCREASE
2006 2005 (DECREASE)
---- ---- ----------
EARNINGS PERFORMANCE
Net Income $ 2,820 $ 3,295 -14.42%
Return on Average Assets 0.97% 1.17% -17.09%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 0.98% 1.18% -16.95%
Return on Average Equity 8.51% 9.87% -13.78%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 8.80% 10.70% -17.76%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,160,644 $ 1,129,661 2.74%
Available-for-Sale Securities 427,975 465,074 -7.98%
Loans (Net) 644,071 592,118 8.77%
Allowance for Loan Losses 8,915 6,925 28.74%
Deposits and Repo Sweep Accounts 777,078 705,786 10.10%
Trust Assets Under Management 474,708 395,843 19.92%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $ 0.34 $ 0.40 -15.00%
Net Income - Diluted $ 0.34 $ 0.39 -12.82%
Dividends $ 0.24 $ 0.23 4.35%
Book Value $ 15.69 $ 15.54 0.97%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 15.41 $ 14.82 3.98%
Market Value (Last Trade) $ 24.20 $ 28.51 -15.12%
Market Value / Book Value 154.24% 183.46% -15.93%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 157.04% 192.38% -18.37%
Price Earnings Multiple 17.97 17.82 -0.17%
Dividend Yield 3.97% 3.23% 22.91%
SAFETY AND SOUNDNESS
Tangible Equity / Tangible
Assets, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities 10.78% 10.96% -1.64%
Nonperforming Assets / Total Assets 0.79% 0.77% 2.60%
Allowance for Loan Losses / Total Loans 1.37% 1.16% 18.10%
Risk Based Capital Ratio 18.06% 18.73% -3.58%
AVERAGE BALANCES
Average Assets $ 1,160,356 $ 1,131,167 2.58%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,152,988 1,115,540 3.36%
Average Equity 132,609 133,494 -0.66%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 128,173 123,180 4.05%
(*) 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.