EX-99.2 4 l03400aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 [LOGO] 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 -------------------- ----------------------- Stock Symbol: CZNC.OB Chartered 1864 FEDERAL DEPOSIT INSURANCE CORP QUARTERLY REPORT SEPTEMBER 30, 2003 Dear Shareholder: So far the year 2003 has been reasonably predictable from a financial perspective. The predictability is due in great measure to the fact that interest rates have not changed much from our budget projections for the year. The Federal Reserve continues to espouse a low interest rate philosophy, and there is no evidence of an inflationary trend in the economy. Thus, rates are expected to remain at or near current levels at least through the remainder of the year. Our 6.4% increase in earning assets, due predominantly to net loan growth of 17.56%, or nearly $75 million, combined with the 8.9% decrease in Interest Expense have allowed us to show a modest increase in the Interest Margin for the first nine months. Additionally, our equity holdings have grown substantially over the past year, thus allowing us to reap some additional gains on stocks that we believe are fully valued. Total Assets of your company have grown to $1.050 billion, up 6.62% from last year. Trust Assets Under Management have increased by 13.76% to $307.6 million, both due to a recovery in the equity market and to new business. Deposit growth has slowed from the pace that we saw over the past two years with growth since last year of just 3.05%. Our vigilant and on-going review of our loan portfolio reveals little change in nonperforming or problem loans, resulting in the shrinkage in our Allowance for Loan Losses as a percentage of total loans to 1.17% from 1.28%. Our significant holding of tax-free municipal bonds has allowed us to reduce our total tax provision by over $300 thousand. The Return on Average Assets remains high, performing at 1.54% and the Return on Average Equity of 13.10% is acceptable given your company's higher than average equity to asset ratio. As of September 30th, the market value of C&N stock, based on the last trade, was up over 32% from the previous year. Dividends for the first nine months are up 9.89%. Since the end of the second quarter, we have acquired a building on Market Street in Williamsport that will house a full service branch and our Lycoming County Region Commercial Lending and Trust staffs. We believe that there is opportunity for a community-focused, local $1 billion bank to prosper in the Lycoming County area, while fostering economic benefits for local business and communities. We continue to identify other locations in the area for branching opportunities. We have been hard at work looking for a new core operating system that can keep C&N in the lead technologically. This process has been underway for over six months and is proceeding as expected. It is likely that a final decision will be made within the next three months after careful and meticulous review. Thanks to the great people of C&N, your company continues to prosper, grow and look for more opportunities to deliver value for you, our shareholders, our customers and clients, our communities and our employees. Your continued support and faith in us is greatly appreciated. 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 9 MONTHS ENDED SEPTEMBER SEPTEMBER 2003 2002 2003 2002 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) ---------- ---------- ---------- ----------- Interest and Dividend Income $ 13,553 $ 14,675 $ 41,426 $ 42,840 Interest Expense 5,655 6,675 17,987 19,736 --------------------------------------------------------------------------------------------------- Interest Margin 7,898 8,000 23,439 23,104 Provision for Loan Losses 250 280 850 640 --------------------------------------------------------------------------------------------------- Interest Margin After Provision for Loan Losses 7,648 7,720 22,589 22,464 Other Income 1,705 1,642 4,873 5,010 Realized Gains on Securities, Net 660 489 3,289 2,496 Other Expenses 5,336 5,310 16,224 15,664 --------------------------------------------------------------------------------------------------- Income Before Income Tax Provision 4,677 4,541 14,527 14,306 Income Tax Provision 759 831 2,617 2,938 --------------------------------------------------------------------------------------------------- NET INCOME $ 3,918 $ 3,710 $ 11,910 $ 11,368 =================================================================================================== PER SHARE DATA (**): Net Income - Basic $ 0.49 $ 0.46 $ 1.49 $ 1.42 Net Income - Diluted $ 0.49 $ 0.46 $ 1.48 $ 1.42 Dividend Per Share $ 0.21 $ 0.20 $ 0.63 $ 0.5733 Number Shares Used in Computation - Basic 8,010,753 8,006,142 8,008,547 8,009,856 Number Shares Used in Computation - Diluted 8,071,173 8,031,880 8,055,627 8,030,398
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
SEPT. 30, SEPT. 30, 2003 2002 ---- ---- ASSETS Cash & Due from Banks $ 18,458 $ 17,989 Available-for-Sale Securities 481,418 497,161 Loans, Net 500,005 425,315 Other Assets 50,129 44,347 -------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,050,010 $ 984,812 ================================================================================================== LIABILITIES Deposits $ 652,728 $ 636,479 Repo Sweep Accounts 22,866 19,116 -------------------------------------------------------------------------------------------------- Total Deposits and Repo Sweeps 675,594 655,595 Borrowed Funds 238,997 200,287 Other Liabilities 13,313 14,132 -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 927,904 870,014 -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 110,619 101,617 Net Unrealized Gains/Losses on Available- for-sale Securities (*) 11,487 13,181 -------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 122,106 114,798 -------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,050,010 $ 984,812 ==================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
9 MONTHS ENDED % SEPTEMBER INCREASE 2003 2002 (DECREASE) ---- ---- ---------- EARNINGS PERFORMANCE Net Income $ 11,910 $ 11,368 4.77% Return on Average Assets 1.54% 1.63% -5.52% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 1.57% 1.65% -4.85% Return on Average Equity 13.10% 14.39% -8.96% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 14.76% 15.43% -4.34% BALANCE SHEET HIGHLIGHTS Total Assets $ 1,050,010 $ 984,812 6.62% Available-for-Sale Securities 481,418 497,161 -3.17% Loans (Net) 500,005 425,315 17.56% Allowance for Loan Losses 5,898 5,495 7.33% Deposits and Repo Sweep Accounts 675,594 655,595 3.05% Trust Assets Under Management 307,623 270,403 13.76% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 1.49 $ 1.42 4.93% Net Income - Diluted $ 1.48 $ 1.42 4.23% Dividends $ 0.63 $ 0.5733 9.89% Book Value $ 15.24 $ 14.34 6.28% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 13.81 $ 12.69 8.83% Market Value (Last Trade) $ 26.50 $ 20.05 32.17% Market Value / Book Value 173.88% 139.82% 24.36% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 191.89% 158.00% 21.45% Price Earnings Multiple 13.34 10.59 25.97% Dividend Yield 3.17% 3.81% -16.80% SAFETY AND SOUNDNESS Shareholders' Equity / Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.66% 10.70% -0.37% Nonperforming Assets / Total Assets 0.13% 0.12% 8.33% Allowance for Loan Losses / Total Loans 1.17% 1.28% -8.59% Risk Based Capital Ratio 20.55% 20.77% -1.06%
AVERAGE BALANCES Average Assets $ 1,029,637 $ 929,080 10.82% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 1,008,971 918,377 9.86% Average Equity 121,199 105,308 15.09% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 107,560 98,239 9.49%
(*) 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.