EX-99.2

EXHIBIT 99.2

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


*September 30, 2006*		QUARTERLY REPORT

Dear Shareholder:

Fortunately, the increases in the Fed Funds rate have not continued through the third quarter. This is good news for your company, which has had its costs of funds increase substantially over the past two years. The interest rate curve continues to be flat or slightly inverted providing little opportunity to leverage our capital position with additions to our fixed income securities portfolio.

The operating results for the third quarter are a combination continued successes and diminishing interest rate spread and margin. Since 2005, net loans have grown 4.81% and we have reduced available-for-sale securities by nearly 18%. The loan increase is mostly responsible for the 6.25% ($2.8 million] increase in interest and dividend income. Deposits have not increased significantly and we have reduced borrowings by $54 million. Yet interest expense increased 22.3% [$4.1 million]. The result is a 4.9% [$1.3 million] reduction in the interest margin. We have been able to reduce our provision for loan losses due to the reconciliation of some larger problem credits and improved credit quality. Other income is growing and we were able to supplement operating income with some gains from our equity portfolios.

The Trust and Financial Management Group have increased assets-under-management by 22% to nearly a half a billion dollars. Increased income from that department is responsible for a significant portion of the increase in other income.

First State Bank celebrated a reopening of the expanded South Hornell office on October 4^th. The branch was expanded to house a fulltime consumer lender. We believe this move will help grow both loans and deposits for First State.


	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

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
230-232 Railroad Street, JERSEY SHORE, PA 17740		570-398-4555
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
RR 2 Box 3036, MONROETON, PA 18832		570-265-2157
3461 Rte.405 Highway, MUNCY, PA 17756		570-546-6666
Thompson Street, RALSTON, PA 17763		570-995-5421
1827 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
1510 Dewey Ave., WILLIAMSPORT, PA 17702		570-323-9305
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 - 10 Nichols St., Wellsboro PA 16901		800-676-6639
CASH MANAGEMENT / INTERNET BANKING — 10 Nichols St., Wellsboro, PA 16901		570-724-0266
www.cnbankpa.com
FUNDS MANAGEMENT — 10 Nichols St., Wellsboro, PA 16901		800-577-9397
www.fmt@cnbankpa.com
C&N FINANCIAL SERVICES CORPORATION — 90-92 Main Street, Wellsboro, PA		866-ASK-CNFS
www.cnfinancialservices.com

CANISTEO VALLEY CORPORATION


3 Main Street, Canisteo, NY 14823		607-698-4295

FIRST STATE BANK
OFFICES


3 Main Street, CANISTEO, NY 14823		607-698-4295
6250 County Route 64, HORNELL, NY 14843		607-324-4081
www.fsbcanisteo.com

CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Data) (Unaudited)


	3 MONTHS ENDED				9 MONTHS ENDED
	SEPT				SEPT
	2006		2005		2006		2005
	(Current)		(Prior Yr)		(Current)		(Prior Yr)

Interest and Dividend Income	$	16,152	$	15,571	$	47,999	$	45,172
Interest Expense		7,833		6,426		22,677		18,538


Interest Margin		8,319		9,145		25,322		26,634
Provision for Loan Losses		191		375		491		1,125

Interest Margin After Provision for Loan Losses		8,128		8,770		24,831		25,509
Other Income		2,184		2,149		5,910		5,741
Realized Gains on Securities, Net		1,602		393		4,250		2,388
Other Expenses		7,640		7,303		23,459		21,604


Income Before Income Tax Provision		4,274		4,009		11,532		12,034
Income Tax Provision		1,016		722		2,255		2,154


NET INCOME	$	3,258	$	3,287	$	9,277	$	9,880


PER SHARE DATA ():**
Net Income — Basic	$	0.40	$	0.40	$	1.12	$	1.19
Net Income — Diluted	$	0.39	$	0.39	$	1.12	$	1.18
Dividend Per Share	$	0.24	$	0.23	$	0.72	$	0.69
Number Shares Used in Computation — Basic		8,240,036		8,297,519		8,272,449		8,288,502
Number Shares Used in Computation — Diluted		8,261,940		8,365,924		8,299,886		8,353,004

CONSOLIDATED BALANCE SHEET
(In Thousands, Except Per Share Data) (Unaudited)


	SEPT. 30,		SEPT. 30,
	2006		2005
ASSETS
Cash & Due from Banks	$	21,373	$	31,833
Available-for-Sale Securities		368,481		449,059
Loans, Net		668,348		637,646
Intangible Assets		3,287		3,470
Other Assets		63,798		61,591


TOTAL ASSETS	$	1,125,287	$	1,183,599


LIABILITIES
Deposits	$	756,372	$	753,008
Repo Sweep Accounts		27,629		29,805

Total Deposits and Repo Sweeps		784,001		782,813
Borrowed Funds		204,320		258,499
Other Liabilities		7,235		10,819


TOTAL LIABILITIES		995,556		1,052,131


SHAREHOLDERS’ EQUITY
Shareholders’ Equity, Excluding Net Unrealized Gains/Losses on Available-for sale Securities		128,431		125,958
Net Unrealized Gains/Losses on Available- for-sale Securities (*)		1,300		5,510


TOTAL SHAREHOLDERS’ EQUITY		129,731		131,468


TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,125,287	$	1,183,599

CONSOLIDATED FINANCIAL HIGHLIGHTS
(In Thousands, Except Per Share Data)
(Unaudited)


	9 MONTHS ENDED						%
	SEPT.						INCREASE
	2006			2005			(DECREASE)
EARNINGS PERFORMANCE
Net Income	$	9,277		$	9,880			-6.10	%
Return on Average Assets		1.09	%		1.16	%		-6.03	%
Return on Average Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***)		1.09	%		1.17	%		-6.84	%
Return on Average Equity		9.49	%		9.95	%		-4.62	%
Return on Average Equity, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***)		9.66	%		10.62	%		-9.04	%

BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,125,287		$	1,183,599			-4.93	%
Available-for-Sale Securities		368,481			449,059			-17.94	%
Loans (Net)		668,348			637,646			4.81	%
Allowance for Loan Losses		8,095			7,643			5.91	%
Deposits and Repo Sweep Accounts		784,001			782,813			0.15	%
Trust Assets Under Management		494,234			404,899			22.06	%

SHAREHOLDERS’ VALUE (PER SHARE) ()**
Net Income — Basic	$	1.12		$	1.19			-5.88	%
Net Income — Diluted	$	1.12		$	1.18			-5.08	%
Dividends	$	0.72		$	0.69			4.35	%
Book Value	$	15.80		$	15.83			-0.19	%
Book Value, Excluding Unrealized Gains/Losses on Available-for- sale Securities (***)	$	15.65		$	15.17			3.16	%
Market Value (Last Trade)	$	22.43		$	26.70			-15.99	%
Market Value / Book Value		141.96	%		168.67	%		-15.84	%
Market Value / Book Value, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***)		143.32	%		176.01	%		-18.57	%
Price Earnings Multiple		15.02			16.83			-10.75	%
Dividend Yield		4.28	%		3.45	%		24.06	%

SAFETY AND SOUNDNESS
Tangible Equity / Tangible Assets, Excluding Unrealized Gains/Losses on Available-for-Sale Securities (***)		11.17	%		10.45	%		6.89	%
Nonperforming Assets / Total Assets		0.77	%		0.63	%		22.22	%
Allowance for Loan Losses / Total Loans		1.20	%		1.18	%		1.69	%
Risk Based Capital Ratio		18.22	%		17.44	%		4.47	%

AVERAGE BALANCES
Average Assets	$	1,137,968		$	1,136,432			0.14	%
Average Assets, Excluding Unrealized Gains/Losses on Available-for-sale Securities		1,134,580			1,123,609			0.98	%
Average Equity		130,279			132,356			-1.57	%
Average Equity, Excluding Unrealized Gains/Losses on Available-for-sale Securities		128,035			124,090			3.18	%

	(*)		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.

	(***)		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.