EX-99.2 4 l04972aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 [CITIZENS & NORTHERN CORPORATION LOGO] 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 DECEMBER 31, 2003 Dear Shareholder: The year 2003 represents another very successful year for your company. Net Income increased by nearly 8.7% from 2002 to $16.257 million, or $2.00 per share. Much of the increase can be attributed to a $1.9 million increase in Security Gains on predominantly bank stocks held in both the bank and the investment company portfolios. The Interest Margin actually grew thanks to the substantial growth (+16.5%) in our outstanding loans. You may find it interesting that our continued focus on growing our commercial lending relationships coupled with our continued retail lending activity has increased loans outstanding to the highest levels as a percentage of deposits and repo sweep accounts (76%) and as a percentage of Total Assets (48.6%) that we have seen in over 30 years. Our Available-for-Sale Securities portfolio actually shrunk due to the growth in loans. Return on Average Assets at 1.57% and Return on Average Equity at 13.30% are very comparable to last year's results of 1.59% and 13.90%. Total Assets grew by 4.7% and Deposit and Repo Sweep Accounts grew by 3.2%. As the US equity market begins to perform well, it is likely that deposit growth will be more modest as customers may begin to invest in stocks rather than bank CD's and Money Market Accounts. Trust Assets Under Management grew by over 15.5% due to strong equity value growth and due to the sales efforts of our Trust and Financial Management Group. We believe that as we enter the Williamsport/Lycoming County market in 2004 with the opening of our new Market Street office, there will be increasing opportunities for substantial growth in Assets Under Management, Deposits and Loans. The Board of Directors declared both a 1% Stock Dividend and a 22 cent cash dividend for the fourth quarter. Total per share dividends paid for the year were 85 cents, an increase of 9.92% over 2002. The market value of a share of our stock closed the year at $27.00 up nearly 32% as compared to the last trade in 2002. Shareholders' Equity as a percentage of Average Assets increased slightly to 10.73%, and Nonperforming Loans as a percentage of Total Assets decreased slightly to 0.11%. Our loan portfolio quality has allowed us to reduce the Allowance for Loan Losses to 1.16% of Total Loans. All in all, your company continues to be strong, growing and profitable. Our Lycoming County Trust and Financial Management and Commercial Lending staffs should be occupying their new offices in our Market Street facility before the end of January. It is our hope to have the full service branch at that location opened before the end of the first quarter. We are exploring and identifying other potential branch sites in Lycoming County and would like to begin construction of at least one more office in that market before the end of 2004. Our Core Software System search continues and we should arrive at a decision before the end of the first quarter of 2004. Training, conversion and implementation will require a significant amount of time and planning to do the job properly. It is a pleasure to report that the people of C&N unceasingly impress and awe me with their talent, commitment and dedication. We have a wonderful team of employees whose focus is on our clients and on serving the best interests of C&N. Thank you for your continued support. We will strive to exceed the expectations of our customers, communities and shareholders. 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, PA 18848 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 11822 Route 6, 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 CITIZENS & NORTHERN CORPORATION CONSOLIDATED STATEMENT OF INCOME (In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED 12 MONTHS ENDED DECEMBER DECEMBER ------------------------------ ------------------------------ 2003 2002 2003 2002 (CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR) ---------- ---------- ---------- ---------- Interest and Dividend Income $ 13,797 $ 14,445 $ 55,223 $ 57,285 Interest Expense 5,550 6,579 23,537 26,315 ---------- ---------- ---------- ---------- Interest Margin 8,247 7,866 31,686 30,970 Provision for Loan Losses 250 300 1,100 940 ---------- ---------- ---------- ---------- Interest Margin After Provision for Loan Losses 7,997 7,566 30,586 30,030 Other Income 1,722 1,614 6,595 6,624 Realized Gains on Securities, Net 1,510 392 4,799 2,888 Other Expenses 5,890 5,185 22,114 20,849 ---------- ---------- ---------- ---------- Income Before Income Tax Provision 5,339 4,387 19,866 18,693 Income Tax Provision 992 796 3,609 3,734 ---------- ---------- ---------- ---------- NET INCOME $ 4,347 $ 3,591 $ 16,257 $ 14,959 ========== ========== ========== ========== PER SHARE DATA (**): Net Income - Basic $ 0.54 $ 0.44 $ 2.01 $ 1.85 Net Income - Diluted $ 0.53 $ 0.44 $ 2.00 $ 1.84 Dividend Per Share $ 0.22 $ 0.20 $ 0.85 $ 0.7733 Number Shares Used in Computation - Basic 8,093,068 8,087,217 8,089,753 8,089,266 Number Shares Used in Computation - Diluted 8,151,248 8,114,524 8,138,468 8,111,154
CONSOLIDATED BALANCE SHEET (In Thousands, Except Per Share Data) (Unaudited)
DEC. 31, DEC. 31, 2003 2002 ---------- ---------- ASSETS Cash & Due from Banks $ 15,171 $ 14,900 Available-for-Sale Securities 483,032 512,175 Loans, Net 518,800 445,356 Other Assets 49,825 46,337 ---------- ---------- TOTAL ASSETS $1,066,828 $1,018,768 ========== ========== LIABILITIES Deposits $ 658,065 $ 640,304 Repo Sweep Accounts 23,363 20,218 ---------- ---------- Total Deposits and Repo Sweeps 681,428 660,522 Borrowed Funds 249,590 231,631 Other Liabilities 10,467 10,778 ---------- ---------- TOTAL LIABILITIES 941,485 902,931 ---------- ---------- SHAREHOLDERS' EQUITY Shareholders' Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities 113,306 103,691 Net Unrealized Gains/Losses on Available-for-sale Securities (*) 12,037 12,146 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 125,343 115,837 ---------- ---------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,066,828 $1,018,768 ========== ==========
CITIZENS & NORTHERN CORPORATION CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
12 MONTHS ENDED DECEMBER % ------------------------------- INCREASE 2003 2002 (DECREASE) ----------- ----------- ----------- EARNINGS PERFORMANCE Net Income $ 16,257 $ 14,959 8.68% Return on Average Assets 1.57% 1.59% -1.26% Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities(***) 1.60% 1.61% -0.62% Return on Average Equity 13.30% 13.90% -4.32% Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities(***) 14.93% 15.06% -0.86% BALANCE SHEET HIGHLIGHTS Total Assets $ 1,066,828 $ 1,018,768 4.72% Available-for-Sale Securities 483,032 512,175 -5.69% Loans (Net) 518,800 445,356 16.49% Allowance for Loan Losses 6,097 5,789 5.32% Deposits and Repo Sweep Accounts 681,428 660,522 3.17% Trust Assets Under Management 329,615 285,221 15.56% SHAREHOLDERS' VALUE (PER SHARE) (**) Net Income - Basic $ 2.01 $ 1.85 8.65% Net Income - Diluted $ 2.00 $ 1.84 8.70% Dividends $ 0.85 $ 0.7733 9.92% Book Value $ 15.48 $ 14.32 8.10% Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***) $ 14.00 $ 12.82 9.20% Market Value (Last Trade) $ 27.00 $ 20.46 31.96% Market Value / Book Value 174.42% 142.88% 22.07% Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities(***) 192.86% 159.59% 20.85% Price Earnings Multiple 13.43 11.06 21.43% Dividend Yield 3.15% 3.78% -16.67% SAFETY AND SOUNDNESS Shareholders' Equity / Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities(***) 10.73% 10.68% 0.47% Nonperforming Assets / Total Assets 0.11% 0.12% -8.33% Allowance for Loan Losses / Total Loans 1.16% 1.28% -9.38% Risk Based Capital Ratio 20.61% 20.09% 2.59%
CITIZENS & NORTHERN CORPORATION CONSOLIDATED FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data) (Unaudited)
12 MONTHS ENDED DECEMBER % ------------------------------ INCREASE 2003 2002 (DECREASE) ---------- ---------- ---------- AVERAGE BALANCES Average Assets $1,034,720 $ 943,001 9.73% Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities 1,014,424 930,539 9.01% Average Equity 122,271 107,595 13.64% Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities 108,876 99,361 9.58%
(*) 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, and for the 3-for-2 stock split in April 2003. (***) 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.