Citizens & Northern 8K C&N Announces Second Quarter 2009 Unaudited Financial Results | CZNC 30 Jul 09

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
	Member
		FEDERAL DEPOSIT INSURANCE CORP
*June 30, 2009*	QUARTERLY REPORT

Dear Shareholder:

Due to continued credit deterioration that resulted in charges for other-than-temporary-impairment (OTTI) on pooled trust preferred securities held in our security portfolio, Citizens & Northern is reporting a second quarter loss of $8.7 million, which brings the year-to-date loss to $15.8 million. Core earnings, which is a performance measurement that excludes OTTI losses on available-for-sale securities, continued to reflect positive results as compared to 2008. Like most banks, we have seen a substantial increase in FDIC insurance premium along with a special assessment. For us, even paying one of the lowest possible rates, the FDIC costs have risen $1.2 million.

Pooled trust preferred securities are securities that are aggregations of debt issued by trusts formed by bank and insurance holding companies to raise capital. In the current economy, some of the issuers have defaulted or are deferring payment. The result is the securities have become illiquid and are experiencing OTTI. We are managing the process; though we expect that until the economy improves for financial institutions there may be more OTTI that will affect our results. We have a remaining book value of $56.5 million of pooled trust preferred.

Despite the OTTI created losses, C&N is a strongly capitalized company with capital ratios well in excess of the regulatory “well capitalized” thresholds; and the core earnings of the bank are strong reflecting the value of the company once the pooled trust preferred issue comes to resolution. Additionally, loan quality remains strong.

Total trust assets under management remain below last year’s number, but saw a 6.3% improvement from the end of the first quarter due to market gains and continued growth in new business.

We are now offering a program through our dividend reinvestment program that allows participants the opportunity to purchase our stock through the plan at a 5% discount. Information was sent to all shareholders, which we encourage you to review.

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		Raymond R. Mattie
Jan E. Fisher		Edward H. Owlett, III
R. Bruce Haner		Leonard Simpson
Susan E. Hartley		James E. Towner
Leo F. Lambert		Ann M. Tyler
Edward L. Learn		Charles H. Updegraff, Jr.

DIRECTORS EMERITI


R. Robert DeCamp		Karl W. Kroeck

CITIZENS & NORTHERN BANK
OFFICES


428 S. Main Street,ATHENS, PA 18810		570-888-2291
10 N Main Street,COUDERSPORT,PA 16915		814-274-9150
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
135 East Fourth Street,EMPORIUM, PA 15834		814-486-1112
230-232 Railroad Street, JERSEY SHORE, PA 17740		570-398-4555
102 E. Main Street,KNOXVILLE, PA 16928		814-326-4151
514 Main Street,LAPORTE, PA 18626		570-946-4011
4534 Williamson TrailLIBERTY, 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
100 Maple Street,PORT ALLEGANY,PA 16743		814-642-2571
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, PA 18848		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, PA16901		800-487-8784
428 Main Street,Towanda, PA 18848		888-987-8784
1827 Elmira Street,Sayre, PA 18840		888-760-8192
130 Court Street,Williamsport,PA 17701		570-601-6000
10 N Main Street,Coudersport,PA 16915		800-921-9150
135 East Fourth Street,Emporium, PA 15834		814-486-1112
ACCOUNT SERVICES— 90-92 Main St., Wellsboro, PA 16901
BANKCARD SERVICES— 10 Nichols St., Wellsboro PA 16901		800-577-8001
ELECTRONIC BANKING— 10 Nichols St., Wellsboro, PA 16901		800-577-9397
www.cnbankpa.com
C&N FINANCIAL SERVICES CORPORATION— 90-92 Main Street, Wellsboro, PA		866-ASK-CNFS
www.cnfinancialservices.com

FIRST STATE BANK
OFFICES


3 Main Street,CANISTEO, NY14823		607-698-4295
6250 County Route 64,HORNELL, NY14843		607-324-4081
www.fsbcanisteo.com

CONSOLIDATED STATEMENT OF INCOME

(In Thousands, Except Per Share Data) (Unaudited)


	2ND			1ST			2ND			6 MONTHS ENDED
	QUARTER			QUARTER			QUARTER			JUNE
	2009			2009			2008			2009			2008
	(Current)			(Prior Qtr)			(Prior Yr)			(Current)			(Prior Yr)
Interest and Dividend Income	$	17,341		$	17,571		$	18,373		$	34,912		$	37,073
Interest Expense		6,164			6,606			7,724			12,770			16,380

Interest Margin		11,177			10,965			10,649			22,142			20,693
Provision (Credit) for Loan Losses		93			(173	)		(376	)		(80	)		528

Interest Margin After Provision (Credit) for Loan Losses		11,084			11,138			11,025			22,222			20,165
Other Income		3,054			2,766			3,155			5,820			6,642
Net Losses on Available-for-sale Securities		(18,995	)		(16,679	)		(867	)		(35,674	)		(977	)
Other Expenses		9,158			8,638			8,257			17,796			16,721

(Loss) Income Before Income Tax (Credit) Provision		(14,015	)		(11,413	)		5,056			(25,428	)		9,109
Income Tax (Credit) Provision		(5,284	)		(4,388	)		1,303			(9,672	)		2,240

Net (Loss) Income		(8,731	)		(7,025	)		3,753			(15,756	)		6,869
U.S. Treasury Preferred Dividends		373			309			—			682			—


Net (Loss) Income Available to Common Shareholders	$	(9,104	)	$	(7,334	)	$	3,753		$	(16,438	)	$	6,869


Adjustments to Calculate Core Earnings (a):
Net (Loss) Income	$	(8,731	)	$	(7,025	)	$	3,753		$	(15,756	)	$	6,869
Add: OTTI Losses		19,780			16,680			1,171			36,460			1,420
Less: Income Tax on OTTI Losses, at 34%		(6,725	)		(5,671	)		(398	)		(12,396	)		(483	)


Core Earnings (a)	$	4,324		$	3,984		$	4,526		$	8,308		$	7,806


Core Earnings Available to Common Shareholders (a)	$	3,951		$	3,675		$	4,526		$	7,626		$	7,806


PER COMMON SHARE DATA:
Net (Loss) Income — Basic		($1.01	)		($0.82	)	$	0.42			($1.83	)	$	0.77
Net (Loss) Income — Diluted		($1.01	)		($0.82	)	$	0.42			($1.83	)	$	0.76
Dividend Per Share	$	0.24		$	0.24		$	0.24		$	0.48		$	0.48
Number Shares Used in Computation — Basic		8,973,531			8,956,076			8,963,552			8,964,850			8,968,999
Number Shares Used in Computation — Diluted		8,973,531			8,956,076			8,977,540			8,964,850			8,984,398
Number Shares Used in Computation — Diluted — for Ratios Based on Core Earnings (a)		8,987,999			8,958,604			8,977,540			8,973,687			8,984,398

CONSOLIDATED BALANCE SHEET

(In Thousands, Except Per Share Data) (Unaudited)


	JUNE 30,			MARCH 31,			JUNE 30,
	2009			2009			2008
ASSETS
Cash & Due from Banks	$	51,279		$	54,250		$	26,202
Trading Securities		547			2,685			1,770
Available-for-sale Securities		415,791			418,428			422,589
Loans, Net		719,347			723,388			741,377
Intangible Assets		12,607			12,688			13,116
Other Assets		97,412			93,485			82,007

TOTAL ASSETS	$	1,296,983		$	1,304,924		$	1,287,061


LIABILITIES
Deposits	$	885,944		$	874,006		$	848,393
Repo Sweep Accounts		34,390			36,769			33,959

Total Deposits and Repo Sweeps		920,334			910,775			882,352
Borrowed Funds		226,658			241,453			265,060
Other Liabilities		13,433			11,550			9,175

TOTAL LIABILITIES		1,160,425			1,163,778			1,156,587


SHAREHOLDERS’ EQUITY
Preferred Stock		25,664			25,622			—
Common Shareholders’ Equity, Excluding Accumulated Other Comprehensive/Loss		128,809			139,593			146,664
Accumulated Other Comprehensive Income/ Loss:
Net Unrealized Gains/Losses on Available-for-sale Securities		(17,560	)		(23,816	)		(15,796	)
Defined Benefit Plans		(355	)		(253	)		(394	)

TOTAL SHAREHOLDERS’ EQUITY		136,558			141,146			130,474

TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,296,983		$	1,304,924		$	1,287,061

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


	6 MONTHS ENDED						%
	JUNE 30,						INCREASE
	2009			2008			(DECREASE)
EARNINGS PERFORMANCE
Net (Loss) Income	$	(15,756	)	$	6,869			-329.38	%
Return on Average Assets		-2.43	%		1.08	%		-325.00	%
Return on Average Equity		-21.78	%		10.07	%		-316.29	%
Core Earnings (a)	$	8,308		$	7,806			6.43	%
Core Earnings/Average Assets (a)		1.28	%		1.22	%		4.92	%
Core Earnings/Average Equity (a)		11.48	%		11.44	%		0.35	%

BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,296,983		$	1,287,061			0.77	%
Available-for-Sale Securities		415,791			422,589			-1.61	%
Loans (Net)		719,347			741,377			-2.97	%
Allowance for Loan Losses		7,681			8,446			-9.06	%
Deposits and Repo Sweep Accounts		920,334			882,352			4.30	%

Trust Assets Under Management		553,058			624,041			-11.37	%

SHAREHOLDERS’ VALUE (PER COMMON SHARE)
Net Income — Basic		($1.83	)	$	0.77			-337.66	%
Net Income — Diluted		($1.83	)	$	0.76			-340.79	%
Core Earnings — Basic (a)	$	0.85		$	0.87			-2.30	%
Core Earnings — Diluted (a)	$	0.85		$	0.87			-2.30	%
Dividends	$	0.48		$	0.48			0.00	%
Common Book Value	$	12.35		$	14.57			-15.24	%
Tangible Common Book Value	$	10.95		$	13.11			-16.48	%
Market Value (Last Trade)	$	20.57		$	16.56			24.21	%
Market Value / Common Book Value		166.56	%		113.66	%		46.54	%
Market Value / Tangible Common Book Value		187.85	%		126.32	%		48.72	%
Price Earnings Multiple	NM				10.75		NM
Dividend Yield		4.67	%		5.80	%		-19.48	%

SAFETY AND SOUNDNESS
Tangible Common Equity / Tangible Assets		7.65	%		9.21	%		-16.94	%
Nonperforming Assets / Total Assets		0.84	%		0.69	%		21.50	%
Allowance for Loan Losses / Total Loans		1.06	%		1.13	%		-6.19	%
Risk Based Capital Ratio		14.71	%		16.43	%		-10.47	%

AVERAGE BALANCES
Average Assets	$	1,294,760		$	1,277,253			1.37	%
Average Equity		144,683			136,490			6.00	%


NM — Not meaningful.

(a)		Core Earnings is an earnings performance measurement which management has defined to exclude other-than-temporary impairment (OTTI) losses on available-for-sale securities. Core Earnings is a performance measurement that is not based on U.S. generally accepted accounting principles (U.S. GAAP). Management believes Core Earnings information is meaningful for evaluating the Corporation’s operating performance, because it excludes the effects of market volatility, particularly as it relates to the Corporation’s investments in pooled trust-preferred securities and bank stocks.

Citizens & Northern (CZNC) 8-KC&N Announces Second Quarter 2009 Unaudited Financial Results