CITIZENS & NORTHERN CORPORATION
Follow-on Offering of Common Shares
$20,000,000
November 2009
Ticker: CZNC
www.cnbankpa.com
Charles H. Updegraff Jr.
Chief Operating Officer
Mark A. Hughes
Chief Financial Officer
Craig G. Litchfield
Chairman, President & CEO
Free Writing Prospectus
Filed Pursuant to Rule 433
Registration No. 333-162279
November 12, 2009
1
Safe Harbor Regarding Forward Looking Statements
This presentation contains forward-looking information about Citizens & Northern Corporation that is intended to be covered by the safe harbor for
forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are statements that are not
historical facts. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,”
“will,” “should,” “project,”
“plan,” “goal,” “potential,” “pro forma,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable
terminology, and include discussions of
rationales, objectives, expectations or consequences of proposed or announced transactions, and statements about the future performance, operations,
products and services of Citizens & Northern Corporation
and its subsidiaries. Citizens & Northern Corporation cautions investors not to place undue
reliance on these statements.
Citizens & Northern Corporation’s business and operation are subject to a variety of risks, uncertainties and other factors. Consequently, actual results
and experience may materially differ
from those contained in any forward-looking statements. Such risks, uncertainties and other factors that could cause
actual results and experience to differ from those projected include, but are not limited to, the effects of future economic,
business and market conditions,
domestic and foreign, including seasonality; the effects of, and changes in, governmental monetary and fiscal policies; legislative and regulatory changes,
including changes in banking, securities and tax laws and regulations
and their application by our regulators; changes in accounting policies, rules and
practices; the risk of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values and liquidity of loan
collateral, securities,
and interest sensitive assets and liabilities; the risk of decreases in the value of investment securities we own; the effects of other-
than-temporary impairment charges relating to our investment portfolio; failure to realize deferred tax assets; credit
risks of borrowers; and changes in the
availability and cost of credit and capital in the financial markets. These risks and others are described in greater detail in Citizens & Northern
Corporation’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2008, as well as Citizens & Northern Corporation’s Quarterly Reports
on Form 10-Q and other documents filed by Citizens & Northern Corporation with the SEC after the date hereof, including the prospectus supplement
filed with the SEC on November 12, 2009. Citizens & Northern Corporation makes no commitment to revise or update any forward-looking statements in
order to reflect events or circumstances occurring or existing after the date any forward-looking
statement is made.
Free Writing Prospectus Statement
The Company has filed a registration statement (including a prospectus and a related prospectus supplement) with the SEC for the offering to which this
communication relates. Before you invest,
you should read the prospectus and the prospectus supplement in that registration statement and other
documents the Company has filed with the SEC for more complete information about the Company and this offering. You may get these documents
for
free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the Company, any underwriter, or any dealer participating in the offering will
arrange to send you the prospectus if you request it by calling Sandler O’Neill
& Partners, L.P. toll-free at (866) 805-4128 or Boenning & Scattergood, Inc.
toll free at (800) 882-1212.
2
Offering Summary
Issuer:
Citizens & Northern Corporation
Type of Offering:
Follow-on Public Offering
Type of Security:
Common Stock
Ticker Symbol:
CZNC
Exchange:
The NASDAQ Capital Market
Offering Size:
Gross Proceeds of $20 Million
Over-Allotment Option:
15%
Use of Proceeds:
General corporate purposes, including continued
organic growth, potential acquisitions and the
possible repurchase of TARP Senior Preferred
Stock held by the U.S. Treasury
Sole Book-Running Manager:
Sandler O'Neill + Partners, L.P.
Co-Manager:
Boenning & Scattergood, Inc.
3
Rationale For Offering
Improves strong, “well-capitalized” regulatory capital ratios
Along with the planned dividend reduction of at least fifty percent, this capital raise
will further strengthen our capital position in a volatile and challenging market
environment
Help offset negative impact of recent OTTI charges in investment portfolio
Allows Citizens & Northern to take advantage of potential competitor disruptions and
selective acquisition opportunities
Increases pro forma tangible common equity/tangible assets ratio to over 8.0% as of
September 30, 2009
Leverage organic growth opportunities
Positions Citizens & Northern to eventually repurchase TARP Capital Purchase Program
Senior Preferred Stock
4
Franchise Overview
Headquarters: Wellsboro, Pennsylvania
Founded in 1864 as "The First National Bank of
Wellsborough”
September 30, 2009 Total Assets: $1.3 Billion
Market Capitalization (Nov. 10, 2009): $108.8 Million
Locations
Pennsylvania banking services are provided by its
subsidiary, Citizens & Northern Bank, from 24
banking offices in Bradford (7), Cameron (1),
Lycoming (6), McKean (1), Potter (1), Sullivan (2)
and Tioga (6) Counties
In addition, the corporation's subsidiary, First State
Bank, operates banking offices in Canisteo (1) and
Hornell (1), NY in Steuben County
Business Lines
Banking
Wealth Management
Trust Services
Insurance
5
Summary Statistics (as of September 30, 2009)
Total Assets:
$1.3 Billion
Net Loans:
$720.3 Million
Total Deposits:
$896.9 Million
Tangible Common Equity:
$87.8 Million
Tang. Common Equity / Tang. Assets:
6.91%
Tier 1 Leverage Ratio:
7.60%
Total Risk Based Capital:
12.46%
Non-Performing Assets / Total Assets:
0.77%
Non-Performing Loans / Total Loans:
1.16%
Net Chargeoffs / Average Loans:
0.04% (Annualized for 9 Months)
0.07% (Annualized for 3 Months)
LTM Earnings Per Share:
($4.77)
LTM Core Earnings¹ Per Share:
$1.79
Note: ¹ Core Earnings is a non-GAAP financial measure. Core Earnings is an earnings performance measurement the Corporation's management has defined to exclude net impairment
losses on available-for-sale
securities and certain other revenues and expenses. Ratios and other financial measures with the word “core” in their title are computed using Core
Earnings rather than net income (loss). Please see the Appendix for reconciliations
of non-GAAP financial measures.
6
Current Footprint
7
Strong Market Share in Legacy Counties
Sources: FDIC, SNL Financial, ESRI
Notes: Including Banks & Thrifts. Data pro forma for any acquisitions. Deposit Data as of June 30, 2009
County
% of CZNC
Deposits
Market
Rank
Market
Share %
Number of
Community
Banking
Offices
Projected HHI
Growth
(2009 – 2014)
Nationwide Proj.
HHI Growth
(2009 – 2014)
Bradford, PA
34.9%
1
35.18%
7
4.59%
4.06%
Tioga, PA
28.6%
1
42.46%
6
4.97%
Lycoming, PA
14.2%
7
7.29%
6
8.78%
Sullivan, PA
8.3%
1
59.05%
2
2.42%
Potter, PA
5.8%
3
22.14%
1
2.88%
Steuben, NY
4.7%
6
5.23%
2
5.88%
Cameron, PA
2.5%
2
34.17%
1
4.39%
McKean, PA
0.9%
6
1.17%
1
7.95%
8
Experienced Management Team
Name
Position
Years of Financial
Service Experience
Years with Citizens &
Northern
Relevant Experience or
Education
Craig Litchfield
Chairman, President &
CEO
37
37
MBA – Syracuse
Charles Updegraff
Chief Operating Officer
35
2½
CEO Citizens Trust
Company
Mark Hughes, CPA
Chief Financial Officer
& Treasurer
10
9
CPA, Parente
Randolph
Deborah Scott
Senior Trust Officer
20
12
Master of Financial
Planning
Dawn Besse
EVP Credit
Administration
40
9
Key Bank, PNC
9
Investment Considerations
Leading market share among community banks in Northern Central Pennsylvania
Experienced management team
Insider commitment: 100% of Board and senior management team will invest in offering
Strong core profitability, with diverse revenue sources
Disciplined credit culture and risk management profile
Opportunity for growth in existing and new markets organically and through market
dislocation
Marcellus Shale Natural Gas likely to provide economic boost to local economy
Effective cost control culture based on recent restructuring
Improved balance sheet: pooled and single-issuer trust preferred securities written down
and losses taken during Q3 2009, removing vast majority of credit quality issues in
investment portfolio
10
Marcellus Shale Natural Gas Economic Boost
The Marcellus Shale formation can be found beneath about 60 percent of Pennsylvania’s total land mass, where it is buried to depths of up to
9,000 feet. The most prospective areas for natural gas production
are where the shale is present at least 5,000 feet below ground surface. The
thickness of the shale formation in regions where drilling may be feasible range between 50-250 feet. Geologists use a number of tools to
determine where the formation may
have the best potential to produce natural gas, and how to best extract it.
Wealth Management
Opportunities
Improved Economy and
Employment
Improved Business
Opportunities
11
Strong Core Earnings¹ Generation
Core Earnings Per Share
Core Return on Average Equity
Core Return on Average Assets
Efficiency Ratio
Note: ¹ See note on Page 6 regarding Non-GAAP financial measures
12
Historical Loan & Deposit Growth
Total Deposits
Net Loans
Historical loan and deposit growth a combination of:
Organic growth
De-novo branching
Market dislocation
Acquisitions of Citizens Bancorp, Inc. (May 2007) and Canisteo Valley Corp. (Sept. 2005)
13
Loan Portfolio Diversification
Loans slightly decreased in 2009 due to the challenging economic environment, as Citizens &
Northern has experienced contraction in the balance of its mortgage and consumer loan
portfolios, with slight
growth in average commercial and tax-exempt loan balances
14
(Dollars in Thousands)
September 30, 2009
Loan Type
Amount
% of Total
Real Estate - Residential Mortgage
420,754
$
57.76%
Real Estate - Commercial Mortgage
163,406
22.43%
Real Estate - Construction
26,036
3.57%
Consumer
21,033
2.89%
Agricultural
3,755
0.52%
Commercial
49,413
6.79%
Other
1,213
0.16%
Political Subdivisions
42,869
5.88%
Total
728,479
$
100.00%
Strong Credit Quality
15
Disciplined credit culture and risk management profile resulting in impressive asset quality,
especially given the current operating environment
(Dollars in Thousands)
6/30/2008
9/30/2008
12/31/2008
3/31/2009
6/30/2009
9/30/2009
30 - 89 Days Past Due
9,465
$
10,925
$
9,875
$
10,775
$
9,433
$
9,557
$
90 Days Past Due and Still Accruing
2,883
1,378
1,305
856
281
370
Non-Accrual Loans
5,813
7,782
7,200
7,051
9,637
8,091
Total Non-Performing Loans and Leases
8,696
9,160
8,505
7,907
9,918
8,461
ORE and Repossessed Assets
202
312
298
1,057
922
1,408
Total Non-Performing Assets
8,898
$
9,472
$
8,803
$
8,964
$
10,840
$
9,869
$
Non-Performing Loans/Total Loans
1.16%
1.21%
1.14%
1.08%
1.36%
1.16%
Non-Performing Assets/Total Assets
0.69%
0.73%
0.69%
0.69%
0.84%
0.77%
Allowance for Credit Losses
8,446
$
8,498
$
7,857
$
7,651
$
7,681
$
8,188
$
Allowance/Total Loans
1.13%
1.12%
1.06%
1.05%
1.06%
1.12%
Allowance/Non-Performing Loans
97%
93%
92%
97%
77%
97%
Net Charge-Offs
126
$
89
$
881
$
33
$
63
$
127
$
Net Charge-Offs/Average Loans
0.07%
0.05%
0.47%
0.02%
0.03%
0.07%
Provision/Net Charge-Offs
NM
158%
27%
NM
148%
499%
Analysis for the Allowance for Loan Losses
16
(Dollars in Thousands)
Quarter Ending,
Year Ending,
9/30/2009
6/30/2009
3/31/2009
12/31/2008
12/31/2007
Balance, beginning of year
7,681
7,651
7,857
8,859
8,201
Charge-offs:
Real estate loans
88
1
5
1,457
196
Installment loans
60
103
73
254
216
Credit cards and related plans
-
(8)
8
5
5
Commercial and other loans
1
5
6
323
127
Total Charge-offs:
149
101
92
2,039
544
Recoveries:
Real estate loans
6
-
-
20
8
Installment loans
15
32
43
83
41
Credit cards and related plans
-
-
-
4
9
Commercial and other loans
1
6
16
21
28
Total Recoveries:
22
38
59
128
86
Net Charge-offs:
127
63
33
1,911
458
ALL recorded in acquisitions
0
0
0
0
587
(Credit) provision for loan losses
634
93
(173)
909
529
Balance, end of period
8,188
7,681
7,651
7,857
8,859
Investment Portfolio
Significant OTTI charges have dramatically impacted earnings for the first nine months of 2009
Based on the relatively small ($1.6 million) remaining cost basis of mezzanine pooled trust-
preferred securities as of September 30, 2009, management currently believes the vast majority
of the losses
in the investment portfolio have been realized
The current investment portfolio is approximately $400 million, with the majority being made up of
municipal bonds and mortgage-backed securities
17
Deposit Composition
The 2009 increase in deposits has come mainly in interest checking, money market, and individual
retirement accounts and is partially offset by a reduction in the balance in certificates of deposit
Consistent with substantial reductions in short-term global interest rates, the average rates incurred on
deposit accounts have decreased significantly in 2009 as compared to 2008
18
September 30, 2009
Deposit Type
Amount
% of Total
Non Interest Bearing Demand
127,805
$
14.53%
Interest Bearing Demand
100,809
11.46%
Savings Accounts
69,111
7.86%
Money Market
200,960
22.85%
Jumbo CDs (Greater Than $100K)
115,334
13.12%
Retail CDs (Less Than $100K)
265,305
30.18%
Brokered CDs
-
0.00%
Total
879,324
$
100.00%
Average Daily Balances (Dollars in Thousands)
Pro Forma Consolidated Capital Ratios
Note: Pro forma ratios based on Company balance sheet as of September 30, 2009 with additional $20 million, less estimated expenses and
underwriting discount, of common equity. Risk-based
ratio assumes all $20 million immediately invested in 100% risk-weighted assets.
19
Main Considerations Going Forward
Opportunistic capital raise viewed as a means to take advantage of growth both
organically and through market dislocation
Will also strengthen our position as an acquirer of attractive, well-priced targets
that are either in or contiguous to our current footprint
Stronger and improved pro forma balance sheet through capital raise and OTTI
securities write-downs
Continued focus on a disciplined credit culture and risk management profile
Maintaining effective cost controls while improving profitability through net interest
margin and increased fee income
Strong management team with the experience and knowledge to execute on
strategy
20
APPENDIX
21
Reconciliation of Non-GAAP Financial Measures
Notes:
Core Earnings is a non-GAAP earnings performance measurement the Corporation's management has defined to exclude net impairment losses on available-for-sale securities and certain
other revenues and expenses.
Ratios and other financial measures with the word “core” in their title are computed using Core Earnings rather than net income (loss). This non-GAAP
information should not be viewed as a substitute for results of operations determined
in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that
may be presented by other companies. Management believes this information is meaningful for shareholders to evaluate 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 in our investment portfolio.
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. The valuation allowance, which was recorded in the third quarter 2009, increased the income tax provision allocated to non-core gains and
losses by $886,000.
22
Annual Dividend Reduction
Citizens & Northern’s Board of Directors approved a reduction in our quarterly
dividend of at least fifty percent (from $0.24 per share to no more than $0.12 per
share) commencing in the fourth
quarter of 2009, subject to regulatory approval
No determination has been made by our Board of Directors regarding whether
or what amount of dividends will be paid in future quarters. Additionally, there
can be no assurance that regulatory approval
will be granted by the Federal
Reserve Board to pay the reduced dividend
Based on 9,236,744 shares of common stock outstanding as of November 9, 2009,
a fifty percent dividend reduction will save Citizens & Northern approximately $4.4
million annually
23
Pre-Tax OTTI Charges
Pre-tax OTTI charges in the first nine months of 2009 totaled $84,407,000, including
$47,947,000 in the third quarter 2009. A summary of pre-tax OTTI charges for the 3-
month and 9-month periods
ended September 30, 2009 and 2008 is as follows:
After the impact of the impairment charges, the Corporation’s cost basis in pooled trust-
preferred securities at September 30, 2009 totaled $13.3 million, including senior tranche
assets of $11.7
million and mezzanine tranche assets of $1.6 million
24
2007 – 2008 Organizational Restructuring
15.9% reduction in workforce
Approximately $2.5 Million in after-tax annual improvement from revenue
enhancements and cost reductions and efficiencies
Improved customer service and cross-sell opportunities with addition of call center
25
Wealth Management Division
Largest Locally-Based Wealth Management Department with
Integrated Broker/Dealer and Insurance Sales
Team is comprised of over 30 professionals
$592.8 million in Assets Under Management as of September 30, 2009
$2.4 million in Revenue for nine months ending September 30, 2009
$3.4 million of Revenue for 2008 and $3.4 million for 2007
26