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

December 31, 2006 QUARTERLY REPORT

Dear Shareholder:

The big news for this quarter was the announcement of the signing of a definitive merger agreement with Citizens Bancorp of Coudersport. The combination of the two banks is an exciting prospect for both organizations. The extension of C&N’s footprint to the west is a natural and appropriate next step. We believe that the addition of Charles Updegraff and his strong and experienced management group to C&N’s team will result in increased opportunities for the combined organization. We expect this transaction to close in the second quarter of 2007.

The historically long (over 2 years) flat and inverted yield curve continues to challenge our ability to achieve earnings growth. Although we have successfully grown our loan portfolio (helped significantly by our entry into the Lycoming County market) by 5.3% since the end of 2005, we have shrunk the investment portfolio by nearly 17%. The result is a 3% reduction in total assets. Interest and dividend income has increased by 5.5%, but interest expense has grown by 19.9%. The net result is a reduction of 4.89% in our main net revenue source. Until the investment yield curve returns to a normal positive slope, we will continue to emphasize growth in loans to increase revenues.

Our Trust and Financial Management Group has grown Assets Under Management by over 23.8% since the end of 2005, and increased their revenue by 15.3%. We are focused on this area of non-interest revenue in an effort to reduce our reliance on the net interest margin. We believe the prospects for growth in this area are encouraging.

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

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
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					12 MONTHS ENDED
	DECEMBER					DECEMBER
	2006		2005			2006		2005
	(Current)		(Prior Yr)			(Current)		(Prior Yr)
Interest and Dividend Income	$	16,477	$	15,936		$	64,476	$	61,108
Interest Expense		8,111		7,149			30,788		25,687
Interest Margin		8,366		8,787			33,688		35,421
Provision for Loan Losses		181		901			672		2,026
Interest Margin After Provision for Loan Losses		8,185		7,886			33,016		33,395
Other Income		2,045		1,895			7,970		7,636
Realized Gains (Losses) on Securities, Net		796		(586	)		5,046		1,802
Gain from Sale of Credit Card Loans		340		1,906			340		1,906
Other Expenses		8,155		7,358			31,614		28,962
Income Before Income Tax Provision		3,211		3,743			14,758		15,777
Income Tax Provision		517		639			2,772		2,793
NET INCOME	$	2,694	$	3,104		$	11,986	$	12,984
PER SHARE DATA (**):
Net Income — Basic	$	0.32	$	0.37		$	1.44	$	1.55
Net Income — Diluted	$	0.32	$	0.37		$	1.43	$	1.54
Dividend Per Share	$	0.24	$	0.24		$	0.96	$	0.93
Number Shares Used in Computation — Basic		8,291,435		8,385,961			8,339,104		8,375,062
Number Shares Used in Computation — Diluted		8,311,656		8,426,980			8,364,778		8,433,847

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

	DEC. 31,			DEC. 31,
	2006			2005
ASSETS
Cash & Due from Banks	$	27,159		$	26,446
Available-for-Sale Securities		356,665			427,298
Loans, Net		679,300			644,938
Intangible Assets		3,145			3,383
Other Assets		61,099			60,889
TOTAL ASSETS	$	1,127,368		$	1,162,954
LIABILITIES
Deposits	$	760,349		$	757,065
Repo Sweep Accounts		29,258			27,734
Total Deposits and Repo Sweeps		789,607			784,799
Borrowed Funds		199,182			239,205
Other Liabilities		8,691			6,982
TOTAL LIABILITIES		997,480			1,030,986
SHAREHOLDERS’ EQUITY
Shareholders’ Equity, Excluding Accumulated Other Comprehensive Income/Loss		129,275			127,270
Accumulated Other Comprehensive Income/ Loss:
Net Unrealized Gain/Loss on Available-for-sale Securities		1,794			4,698
Defined Benefit Plans Adjustment, Net (*)		(1,181	)		—
TOTAL SHAREHOLDERS’ EQUITY		129,888			131,968
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,127,368		$	1,162,954

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

	12 MONTHS ENDED						%
	DECEMBER						INCREASE
	2006			2005			(DECREASE)
EARNINGS PERFORMANCE
Net Income	$	11,986		$	12,984			-7.69	%
Return on Average Assets		1.06	%		1.13	%		-6.19	%
Return on Average Equity		9.18	%		9.80	%		-6.33	%
BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,127,368		$	1,162,954			-3.06	%
Available-for-Sale Securities		356,665			427,298			-16.53	%
Loans (Net)		679,300			644,938			5.33	%
Allowance for Loan Losses		8,201			8,361			-1.91	%
Deposits and Repo Sweep Accounts		789,607			784,799			0.61	%
Trust Assets Under Management		517,775			418,259			23.79	%
SHAREHOLDERS’ VALUE (PER SHARE) (**)
Net Income — Basic	$	1.44		$	1.55			-7.10	%
Net Income — Diluted	$	1.43		$	1.54			-7.14	%
Dividends	$	0.96		$	0.93			3.23	%
Book Value	$	15.66		$	15.74			-0.51	%
Market Value (Last Trade)	$	22.00		$	25.63			-14.16	%
Market Value / Book Value		140.49	%		162.83	%		-13.72	%
Price Earnings Multiple		15.28			16.54			-7.62	%
Dividend Yield		4.36	%		3.63	%		20.11	%
SAFETY AND SOUNDNESS
Tangible Equity / Tangible Assets		11.27	%		11.09	%		1.62	%
Nonperforming Assets / Total Assets		0.75	%		0.55	%		36.36	%
Allowance for Loan Losses / Total Loans		1.19	%		1.28	%		-7.03	%
Risk Based Capital Ratio		18.18	%		18.19	%		-0.05	%
AVERAGE BALANCES
Average Assets	$	1,135,000		$	1,144,619			-0.84	%
Average Equity		130,542			132,465			-1.45	%

(*)	Effective December 31, 2006, Statement of Financial Accounting Standards No. 158 requires gains or losses, prior service costs or credits, and transition assets or obligations as of the end of the period that have not yet been included in net periodic benefit cost be recognized as accumulated other comprehensive income or loss, net of tax.
(**)	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 2006 and 2005.