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
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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
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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
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TOTAL ASSETS $1,059,335 $ 947,435
========== ==========
LIABILITIES
Deposits $ 657,076 $ 611,846
Repo Sweep Accounts 16,307 16,675
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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
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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
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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.