EX-99.2 3 l08530aexv99w2.txt EXHIBIT 99.2 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 -------------------- ----------------------- Stock Symbol: CZNC.OB Chartered 1864 FEDERAL DEPOSIT INSURANCE CORP QUARTERLY REPORT JUNE 30, 2004 ------------- Dear Shareholder: In many ways 2004 is a year of transition for your company. From a national perspective, the much anticipated Federal Reserve rate increases appear to have begun and the indications are that the increases will continue for some time. The national economy has been growing at a historically rapid pace, which bodes well for local employment and business activity. The rate increases will affect future earnings to the extent that C&N's liabilities are more subject to current repricing than its earning assets. However, we believe that we are positioned to grow our earning assets, specifically loans, at a pace that will offset some if not all of the rising rate environment effects. For C&N, the major transitions include a move to a new core computer processing system in the fourth quarter and the May opening of our eighteenth office on Market Street in Williamsport, and soon our nineteenth office in South Williamsport. Both of these transitions are proceeding smoothly with the leadership of very competent and dedicated people. Both of these initiatives coupled with the solid performance of our existing offices enhance future growth and profit opportunities for your company. The financial results for the first six months show some of the effects of these transitions. Net Income, as compared with the same period of 2003, is down about 7.5%. While our Interest Margin increased by over $1.6 million, or about 10.4%, Realized Gains on Securities decreased by $1.3 million. Much of our Realized Gains over the years has been from our equity portfolio, which is composed primarily of bank stocks. Last year, we believed that some of those equities were "fully valued" and, accordingly, we sold them. This year with the looming prospects of higher interest rates investors feel that bank stocks are less attractive and thus the stock prices have dropped, which reduces the "fully valued" stock opportunities. Additionally, expenses related to the core computer system conversion and our Williamsport branching account for nearly $500 thousand of the increase in Other Expenses. You will note that Non-performing Assets to Total Assets have increased four-fold. During the second quarter, loans that we have been closely monitoring, reached a point where we believed that, conservatively, we should place them in Non-performing status. Our talented Trust and Financial Management Group have successfully increased Assets Under Management through both investment results and the addition of new relationships to $359 million, or over 18%. The Group's prospects for continuing profitable growth are very positive. 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 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 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 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 - 11822 Route 6, Wellsboro PA 16901 800-676-6639 FUNDS MANAGEMENT - 90-92 Main St., Wellsboro, PA 16901 800-577-9397 www.fmt@cnbankpa.com -------------------- 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 2004 2003 2004 2003 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) Interest and Dividend Income $ 14,343 $ 13,943 $ 28,358 $ 27,873 Interest Expense 5,493 6,089 11,196 12,332 ----------------------------------------------------------------------------------------------------------------------- Interest Margin 8,850 7,854 17,162 15,541 Provision for Loan Losses 350 250 700 600 ----------------------------------------------------------------------------------------------------------------------- Interest Margin After Provision for Loan Losses 8,500 7,604 16,462 14,941 Other Income 1,855 1,628 3,480 3,168 Realized Gains on Securities, Net 321 908 1,285 2,629 Other Expenses 6,289 5,356 12,517 10,888 ----------------------------------------------------------------------------------------------------------------------- income Before Income Tax Provision 4,387 4,784 8,710 9,850 Income Tax Provision 698 864 1,315 1,858 ----------------------------------------------------------------------------------------------------------------------- NET INCOME $ 3,689 $ 3,920 $ 7,395 $ 7,992 ======================================================================================================================= PER SHARE DATA (**): Net Income - Basic $0.46 $0.48 $0.91 $0.99 Net Income - Diluted $0.45 $0.48 $0.91 $0.98 Dividend Per Share $0.22 $0.21 $0.44 $0.42 Number Shares Used in Computation - Basic 8,101,024 8,087,875 8,106,541 8,087,502 Number Shares Used in Computation - Diluted 8,148,139 8,137,454 8,158,157 8,127,510
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
JUNE 30, JUNE 30, 2004 2003 ---- ---- ASSETS Cash & Due from Banks $ 15,334 $ 21,433 Available-for-Sale Securities 503,700 508,312 Loans, Net 545,360 476,640 Other Assets 54,745 52,950 -------------------------------------------------------------------------------------------- TOTAL ASSETS $1,119,139 $1,059,335 ============================================================================================ LIABILITIES Deposits $ 670,098 $ 657,076 Repo Sweep Accounts 17,753 16,307 -------------------------------------------------------------------------------------------- Total Deposits and Repo Sweeps 687,851 673,383 Borrowed Funds 302,353 239,652 Other Liabilities 7,778 23,313 -------------------------------------------------------------------------------------------- TOTAL LIABILITIES 997,982 936,348 -------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 117,060 108,292 Net Unrealized Gains/Losses on Available- for-sale Securities (*) 4,097 14,695 -------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 121,157 122,987 -------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,119,139 $1,059,335 ============================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
6 MONTHS ENDED % JUNE INCREASE 2004 2003 (DECREASE) ---- ---- ---------- EARNINGS PERFORMANCE Net Income $ 7,395 $ 7,992 -7.47% Return on Average Assets 1.35% 1.57% -14.01% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 1.37% 1.60% -14.38% Return on Average Equity 11.52% 13.33% -13.58% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 12.74% 15.07% -15.46% BALANCE SHEET HIGHLIGHTS Total Assets $ 1,119,139 $ 1,059,335 5.65% Available-for-Sale Securities 503,700 508,312 -0.91% Loans (Net) 545,360 476,640 14.42% Allowance for Loan Losses 6,609 5,860 12.78% Deposits and Repo Sweep Accounts 687,851 673,383 2.15% Trust Assets Under Management 359,230 304,223 18.08% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 0.91 $ 0.99 -8.08% Net Income - Diluted $ 0.91 $ 0.98 -7.14% Dividends $ 0.44 $ 0.42 4.76% Book Value $ 14.96 $ 15.20 -1.58% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 14.45 $ 13.39 7.92% Market Value (Last Trade) $ 25.20 $ 25.55 -1.37% Market Value / Book Value 168.45% 168.09% 0.21% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 174.39% 190.81% -8.61% Price Earnings Multiple 13.85 12.90 7.36% Dividend Yield 3.49% 3.29% 6.08% SAFETY AND SOUNDNESS Shareholders' Equity / Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***) 10.76% 10.63% 1.22% Nonperforming Assets / Total Assets 0.75% 0.15% 400.00% Allowance for Loan Losses / Total Loans 1.20% 1.21% -0.83% Risk Based Capital Ratio 19.40% 20.02% -3.10% AVERAGE BALANCES Average Assets $ 1,096,969 $ 1,022,525 7.28% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 1,078,350 1,000,919 7.74% Average Equity 128,340 120,641 6.38% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 116,052 106,382 9.09%
(*) 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.