EX-99.2 4 l01970aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CITIZENS & NORTHERN BANK 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.OB Chartered 1864 FEDERAL DEPOSIT INSURANCE CORP QUARTERLY REPORT JUNE 30, 2003 Dear Shareholder: While your company delivers quality performance, we are beginning to see the effects of the continued decline in market interest rates. The interest margin has grown due to increases in earning assets - Loans up 17.27% and Available-for-Sale Securities by 6.39%. However, the interest spread, the difference between the cost of funds and the yield on earning assets, has diminished as yields on our loan and securities portfolios drop faster and greater than our ability to reduce interest paid on deposits and borrowed funds. Total Assets have increased by 11.81% year over year, with Net Loans up 17.27% and Available for Sale Securities up 6.39%. Deposits and Repo Sweeps also increased 7.14% over the same period. Trust Assets Under Management are up 3.59%. Net Income for the six months ended June 30th, 2003 is up 4.36% over the same period in 2002. The Interest Margin After Provision for Loan Losses shows an increase for the period of just 1.34%. Other Income decreased by 5.9% and Net Realized Security Gains increased by nearly 31%. Most of the security gains were from the equity portion of our portfolio, which has appreciated significantly in the past year. Other Expenses have increased mostly due to salary and benefits costs. Earnings per Share (Basic and Diluted) increased by 4 cents. Dividends paid for the first two quarters of 2003 have increased by 12.5% compared to the same period last year. Loan quality shows very little deterioration with Nonperforming Assets as a percentage of Total Assets virtually unchanged. We have allowed our Allowance for Loan Losses to decrease, as a percentage of Total Loans, to 1.21%, as loan quality remains strong. Our Risk-Based Capital Ratio remains at a high 20.02% and Shareholder Equity to Average Assets is 10.61%. The market value of our stock has increased by 33.45% year over year with a resulting increase in the Price Earnings Multiple to 12.91%, which is still low compared to our peers. We are formulating our plans and taking steps toward our entry into the Williamsport market. It is our intention to have an office opened before year-end, subject to appropriate regulatory approval. We will share more with you in future communiques. We appreciate 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 J. Robert Bower F. David Pennypacker Lawrence F. Mase Donald E. Treat 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 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 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 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 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 428 S. Main St., Athens, PA 18810 888-760-8192 3461 Rte 405 Highway, Muncy, PA 17756 570-546-6666 ACCOUNT SERVICES 90-92 Main St, Wellsboro, PA 16901 800-726-2265 BANKCARD SERVICES RR 7, Wellsboro PA 16901 800-676-6639 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)
3 MONTHS ENDED 6 MONTHS ENDED JUNE JUNE 2003 2002 2003 2002 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) ---------- ---------- ---------- ---------- Interest and Dividend Income $ 13,943 $ 14,523 $ 27,873 $ 28,165 Interest Expense 6,089 6,745 12,332 13,061 ---------- ---------- ---------- ---------- Interest Margin 7,854 7,778 15,541 15,104 Provision for Loan Losses 250 180 600 360 ---------- ---------- ---------- ---------- Interest Margin After Provision for Loan Losses 7,604 7,598 14,941 14,744 Other Income 1,628 1,681 3,168 3,368 Realized Gains on Securities, Net 908 781 2,629 2,007 Other Expenses 5,356 5,248 10,888 10,354 ---------- ---------- ---------- ---------- Income Before Income Tax Provision 4,784 4,812 9,850 9,765 Income Tax Provision 864 992 1,858 2,107 ---------- ---------- ---------- ---------- NET INCOME $ 3,920 $ 3,820 $ 7,992 $ 7,658 ========== ========== ========== ========== PER SHARE DATA (**): Net Income - Basic $ 0.49 $ 0.48 $ 1.00 $ 0.96 Net Income - Diluted $ 0.49 $ 0.48 $ 0.99 $ 0.95 Dividend Per Share $ 0.21 $ 0.1867 $ 0.42 $ 0.3733 Number Shares Used in Computation - Basic 8,007,797 8,008,290 8,007,428 8,011,743 Number Shares Used in Computation - Diluted 8,057,376 8,029,761 8,047,436 8,029,617
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
JUNE 30, JUNE 30, 2003 2002 ---------- ---------- ASSETS Cash & Due from Banks $ 21,433 $ 15,637 Available-for-Sale Securities 508,312 477,788 Loans, Net 476,640 406,430 Other Assets 52,950 47,580 ---------- ---------- TOTAL ASSETS $1,059,335 $ 947,435 ========== ========== LIABILITIES Deposits $ 657,076 $ 611,846 Repo Sweep Accounts 16,307 16,675 ---------- ---------- Total Deposits and Repo Sweeps 673,383 628,521 Borrowed Funds 239,652 199,793 Other Liabilities 23,313 10,413 ---------- ---------- TOTAL LIABILITIES 936,348 838,727 ---------- ---------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 108,292 99,420 Net Unrealized Gains/Losses on Available- for-sale Securities (*) 14,695 9,288 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 122,987 108,708 ---------- ---------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,059,335 $ 947,435 ========== ==========
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
6 MONTHS ENDED % JUNE INCREASE 2003 2002 (DECREASE) ---- ---- ---------- EARNINGS PERFORMANCE Net Income $ 7,992 $ 7,658 4.36% Return on Average Assets 1.57% 1.68% -6.55% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 1.60% 1.69% -5.33% Return on Average Equity 13.33% 14.93% -10.72% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 15.07% 15.80% -4.62% BALANCE SHEET HIGHLIGHTS Total Assets $1,059,335 $947,435 11.81% Available-for-Sale Securities 508,312 477,788 6.39% Loans (Net) 476,640 406,430 17.27% Allowance for Loan Losses 5,860 5,354 9.45% Deposits and Repo Sweep Accounts 673,383 628,521 7.14% Trust Assets Under Management 304,223 293,675 3.59% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 1.00 $ 0.96 4.17% Net Income - Diluted $ 0.99 $ 0.95 4.21% Dividends $ 0.42 $ 0.3733 12.51% Book Value $ 15.35 $ 13.58 13.03% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 13.52 $ 12.42 8.86% Market Value (Last Trade) $ 25.81 $ 19.34 33.45% Market Value / Book Value 168.14% 142.42% 18.06% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 190.90% 155.72% 22.59% Price Earnings Multiple 12.91 10.07 28.20% Dividend Yield 3.25% 3.86% -15.80% SAFETY AND SOUNDNESS Shareholders' Equity / Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.61% 10.70% -0.84% Nonperforming Assets / Total Assets 0.15% 0.15% 0.00% Allowance for Loan Losses / Total Loans 1.21% 1.30% -6.92% Risk Based Capital Ratio 20.02% 21.46% -6.71%
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited) (Continued)
6 MONTHS ENDED % JUNE INCREASE 2003 2002 (DECREASE) ---- ---- ---------- AVERAGE BALANCES Average Assets $1,020,664 $ 911,571 11.97% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 999,661 905,914 10.35% Average Equity 119,944 102,612 16.89% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 106,068 96,955 9.40%
(*) 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 the 3-for-2 stock split issued in April 2003, and for 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.