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
Chartered 1864
FEDERAL DEPOSIT INSURANCE CORP
DECEMBER 31, 2004 QUARTERLY REPORT
Dear Shareholder:
Citizens & Northern Corporation has made great progress over the last few months
of 2004 and first few weeks of 2005! Most recently, on January 13, 2005, C&N's
stock began to trade on the NASDAQ SmallCap market. This change should provide
more liquidity for the stock.
In November, C&N, along with Canisteo Valley Corporation (Canisteo), announced
the signing of a definitive agreement and plan of merger. Canisteo is the parent
company of First State Bank; a New York State chartered bank with two offices in
Steuben County, NY, and assets of $42.5 million as of September 30, 2004. We
anticipate the all-cash merger transaction to be completed during the 2nd
quarter 2005, pending Canisteo stockholder and regulatory approvals. We expect
First State Bank to operate as a separate subsidiary of C&N. We are excited
about this chance to continue, and enhance, First State Bank's tradition of
community banking in the Canisteo area, and look forward to more opportunities
in New York State.
In October, we converted to a new core computer system. Selection, training and
initial implementation took more than a year to complete, and required a
tremendous effort from our dedicated staff. I appreciate your patience as you
become accustomed to changes in our processes, report formats, etc., and I am
confident that our staff will soon become as expert with the new system as they
were the old.
Net income for 2004 totaled $14.863 million, or $1.81 per share (diluted). Net
income was down 8.6% from 2003. In 2004, expenses for the core computer
conversion and start-up expenses and operations for the two new Lycoming County
offices totaled more than $1.5 million. Salaries and wages from operations other
than the new branches increased $1.363 million, primarily from the addition of
new positions. Also, securities gains were $1.922 million lower in 2004. Net
interest income for 2004 was up $3.630 million (11.5%), primarily from growth in
loans. Net loans of $572.826 million as of year-end 2004 were 10.4% higher than
year-end 2003. Total assets of $1.123 billion at December 31, 2004 were up 5.3%
from one year earlier. Trust assets under management increased 16.2% to $383
million.
Nonperforming loans of 0.69% of total assets at December 31, 2004 are
substantially higher than our historical norms. We are closely monitoring our
loan portfolio, and continue to maintain an adequate allowance for loan losses.
Our equity position remains strong at 10.72% average equity to average assets.
The 4th quarter dividend was 23 cents per share, bringing total dividends
declared for 2004 to 89 cents, an increase of 4.7% over 2003.
2004 was a year of significant investments in people, facilities and technology.
We will continue to look for worthwhile opportunities in 2005, always with the
goal of stimulating earnings and productivity. 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
2 E. Mountain Ave., SO. WILLIAMSPORT, PA 17702 570-601-3016
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 16901800-577-9397
www.fmt@cnbankpa.com
INTERNET BANKING - 90-92 Main St., Wellsboro, PA 16901570-724-0266
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 12 MONTHS ENDED
DECEMBER DECEMBER
2004 2003 2004 2003
(CURRENT) (PRIOR YR) (CURRENT) (PRIOR YR)
--------- ---------- --------- ----------
Interest and Dividend Income $ 14,991 $ 13,797 $ 57,922 $ 55,223
Interest Expense 5,745 5,550 22,606 23,537
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Interest Margin 9,246 8,247 35,316 31,686
Provision for Loan Losses 350 250 1,400 1,100
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Interest Margin After Provision for Loan Losses 8,896 7,997 33,916 30,586
Other Income 1,815 1,722 6,922 6,595
Realized Gains on Securities, Net 1,133 1,510 2,877 4,799
Other Expenses 6,746 5,890 26,001 22,114
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Income Before Income Tax Provision 5,098 5,339 17,714 19,866
Income Tax Provision 1,035 992 2,851 3,609
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NET INCOME $ 4,063 $ 4,347 $ 14,863 $ 16,257
================================================================================================================================
PER SHARE DATA (**):
Net Income - Basic $0.50 $0.53 $1.82 $1.99
Net Income - Diluted $0.49 $0.53 $1.81 $1.98
Dividend Per Share $0.23 $0.22 $0.89 $0.85
Number Shares Used in Computation - Basic 8,183,801 8,173,999 8,185,466 8,170,651
Number Shares Used in Computation - Diluted 8,230,739 8,232,179 8,233,992 8,219,366
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)
DEC. 31, DEC. 31,
2004 2003
---- ----
ASSETS
Cash & Due from Banks $ 18,953 $ 15,171
Available-for-Sale Securities 475,085 483,032
Loans, Net 572,826 518,800
Other Assets 56,138 49,898
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TOTAL ASSETS $1,123,002 $1,066,901
================================================================================================================
LIABILITIES
Deposits $ 676,545 $ 658,065
Repo Sweep Accounts 21,178 23,363
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Total Deposits and Repo Sweeps 697,723 681,428
Borrowed Funds 283,827 249,590
Other Liabilities 9,867 10,540
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TOTAL LIABILITIES 991,417 941,558
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SHAREHOLDERS' EQUITY
Shareholders' Equity, Excluding Net Unrealized
Gains/Losses on Available-for sale Securities 121,050 113,306
Net Unrealized Gains/Losses on Available-
for-sale Securities (*) 10,535 12,037
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TOTAL SHAREHOLDERS' EQUITY 131,585 125,343
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $1,123,002 $1,066,901
================================================================================================================
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data) (Unaudited)
12 MONTHS ENDED %
DECEMBER INCREASE
2004 2003 (DECREASE)
---- ---- ------------
EARNINGS PERFORMANCE
Net Income $ 14,863 $ 16,257 -8.57%
Return on Average Assets 1.33% 1.57% -15.29%
Return on Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 1.35% 1.60% -15.63%
Return on Average Equity 11.58% 13.30% -12.93%
Return on Average Equity,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 12.63% 14.93% -15.41%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 1,123,002 $ 1,066,901 5.26%
Available-for-Sale Securities 475,085 483,032 -1.65%
Loans (Net) 572,826 518,800 10.41%
Allowance for Loan Losses 6,787 6,097 11.32%
Deposits and Repo Sweep Accounts 697,723 681,428 2.39%
Trust Assets Under Management 383,062 329,615 16.21%
SHAREHOLDERS' VALUE (PER SHARE) (**)
Net Income - Basic $1.82 $1.99 -8.54%
Net Income - Diluted $1.81 $1.98 -8.59%
Dividends $0.89 $0.85 4.71%
Book Value $ 16.08 $ 15.33 4.89%
Book Value, Excluding Unrealized
Gains/Losses on Available-for-
sale Securities (***) $ 14.79 $ 13.86 6.71%
Market Value (Last Trade) $ 27.00 $ 27.00 0.00%
Market Value / Book Value 167.91% 176.13% -4.67%
Market Value / Book Value,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 182.56% 194.81% -6.29%
Price Earnings Multiple 14.84 13.57 9.36%
Dividend Yield 3.30% 3.15% 4.76%
SAFETY AND SOUNDNESS
Shareholders' Equity / Average Assets,
Excluding Unrealized Gains/Losses
on Available-for-Sale Securities (***) 10.72% 10.73% -0.09%
Nonperforming Assets / Total Assets 0.69% 0.11% 527.27%
Allowance for Loan Losses / Total Loans 1.17% 1.16% 0.86%
Risk Based Capital Ratio 18.90% 20.61% -8.30%
AVERAGE BALANCES
Average Assets $ 1,114,040 $ 1,034,720 7.67%
Average Assets, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 1,097,858 1,014,424 8.22%
Average Equity 128,374 122,271 4.99%
Average Equity, Excluding
Unrealized Gains/Losses on
Available-for-sale Securities 117,695 108,876 8.10%
(*) 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.