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
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Stock Symbol: CZNC.OB
Chartered 1864
FEDERAL DEPOSIT INSURANCE CORP
QUARTERLY REPORT
MARCH 31, 2004
Dear Shareholder:
It is a pleasure to report the first quarter 2004 financial condition and net
income of your company. Even though the low interest rate environment continues
to erode our interest rate spread, we have successfully increased our interest
margin by growing our earning assets, especially net loans, which are up 14.15%
over last year. Total assets increased 9.41% to $1.121 billion. The interest
margin increased 8.1% as compared to the first quarter of 2003. Total revenue,
which includes interest margin plus other income before realized security gains,
increased 7.7%. However, due to a reduction in realized security gains of $757
thousand and a $696,000 increase in non-interest expense (a great deal of which
can be attributed to new hires and start-up expenses related to our new
Williamsport facility), net income for the quarter decreased by 9% when compared
to the first quarter of 2003. Asset quality as measured by non-performing assets
to total assets remains strong. Shareholder equity before net unrealized
gains/losses on available-for-sale securities increased 9.1%. The first quarter
dividend of 22 cents per share is a 4.76% increase over last year.
As forecasted previously, our Trust and Financial Management staff and
Commercial Lending staff did move into to their new Williamsport Market Street
offices in February. We have been fortunate in acquiring some very talented
people who will lead C&N's effort to build banking, employee benefit, investment
management and trust relationships in the region. We believe the prospects for a
successful entry into the market are strong, and we are continuing to identify
prospective branch sites in and around the Williamsport and Lycoming County
area. The branch facility on Market Street should be opened by May.
After a great deal of investigation and review, our search for a new core data
processing system successfully ended. We were seeking cutting edge and highly
flexible software that would enhance our efforts to better serve our customers.
We believe The Complete Banking Solution(R) from Open Solutions, Inc. is the
right choice for C&N. We expect the conversion to be implemented before
year-end. Fortunately, we have a great team working on this project.
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
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
MARCH
2004 2003
(CURRENT) (PRIOR YR)
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Interest and Dividend Income $ 14,015 $ 13,930
Interest Expense 5,703 6,243
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Interest Margin 8,312 7,687
Provision for Loan Losses 350 350
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Interest Margin After Provision for Loan Losses 7,962 7,337
Other Income 1,625 1,540
Realized Gains on Securities, Net 964 1,721
Other Expenses 6,228 5,532
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Income Before Income Tax Provision 4,323 5,066
Income Tax Provision 617 994
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NET INCOME $ 3,706 $ 4,072
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PER SHARE DATA (**):
Net Income - Basic $0.46 $0.50
Net Income - Diluted $0.45 $0.50
Dividend Per Share $0.22 $0.21
Number Shares Used in Computation - Basic 8,112,061 8,087,124
Number Shares Used in Computation - Diluted 8,168,162 8,115,839
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
MARCH 31, MARCH 31,
2004 2003
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ASSETS
Cash & Due from Banks $ 14,149 $ 21,573
Available-for-Sale Securities 526,985 495,028
Loans, Net 525,561 460,425
Other Assets 54,432 47,661
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TOTAL ASSETS $ 1,121,127 $ 1,024,687
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LIABILITIES
Deposits $ 650,920 $ 648,357
Repo Sweep Accounts 20,282 16,113
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Total Deposits and Repo Sweeps 671,202 664,470
Borrowed Funds 284,784 227,708
Other Liabilities 34,899 13,464
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TOTAL LIABILITIES 990,885 905,642
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SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 115,630 105,942
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 14,612 13,103
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TOTAL SHAREHOLDERS' EQUITY 130,242 119,045
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,121,127 $ 1,024,687
=============================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
3 MONTHS ENDED %
MARCH INCREASE
2004 2003 (DECREASE)
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EARNINGS PERFORMANCE
Net Income $ 3,706 $ 4,072 -8.99%
Return on Average Assets 1.38% 1.62% -14.81%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 1.40% 1.65% -15.15%
Return on Average Equity 11.45% 13.83% -17.21%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 12.88% 15.50% -16.90%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,121,127 $ 1,024,687 9.41%
Available-for-Sale Securities 526,985 495,028 6.46%
Loans (Net) 525,561 460,425 14.15%
Allowance for Loan Losses 6,370 5,337 19.36%
Deposits and Repo Sweep Accounts 671,202 664,470 1.01%
Trust Assets Under Management 353,762 278,548 27.00%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $ 0.46 $ 0.50 -8.00%
Net Income - Diluted $ 0.45 $ 0.50 -10.00%
Dividends $ 0.22 $ 0.21 4.76%
Book Value $ 16.04 $ 14.73 8.89%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 14.24 $ 13.10 8.70%
Market Value (Last Trade) $ 25.05 $ 21.06 18.95%
Market Value / Book Value 156.17% 142.97% 9.23%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 175.91% 160.76% 9.42%
Price Earnings Multiple 13.61 10.53 29.25%
Dividend Yield 3.51% 3.99% -12.03%
SAFETY AND SOUNDNESS
Shareholders' Equity / Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.95% 10.72% 2.15%
Nonperforming Assets / Total Assets 0.12% 0.14% -14.29%
Allowance for Loan Losses / Total Loans 1.20% 1.22% -1.64%
Risk Based Capital Ratio 20.00% 20.25% -1.23%
AVERAGE BALANCES
Average Assets $ 1,077,361 $ 1,007,409 6.94%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,055,668 988,138 6.83%
Average Equity 129,440 117,802 9.88%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 115,123 105,055 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
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.