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
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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
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Interest Margin 7,898 8,000 23,439 23,104
Provision for Loan Losses 250 280 850 640
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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
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Income Before Income Tax Provision 4,677 4,541 14,527 14,306
Income Tax Provision 759 831 2,617 2,938
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NET INCOME $ 3,918 $ 3,710 $ 11,910 $ 11,368
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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
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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
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TOTAL ASSETS $1,050,010 $ 984,812
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LIABILITIES
Deposits $ 652,728 $ 636,479
Repo Sweep Accounts 22,866 19,116
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Total Deposits and Repo Sweeps 675,594 655,595
Borrowed Funds 238,997 200,287
Other Liabilities 13,313 14,132
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TOTAL LIABILITIES 927,904 870,014
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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
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TOTAL SHAREHOLDERS' EQUITY 122,106 114,798
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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.