Citizens & Northern (CZNC) 8-K C&N Announces Third Quarter 2008 Unaudited Financial Results

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, 2008          QUARTERLY REPORT

Dear Shareholder:

     Net income for the first nine months of 2008 was $7,881,000, or $0.88 per diluted share, an increase of 6.0% over the first nine months of 2007. Pre-tax losses from available-for-sale securities totaled $5,460,000 for the nine month period. The security losses included the effects of impairment charges on pooled trust-preferred securities totaling $4,289,000 and bank stocks totaling $1,878,000. Excluding the after-tax impact of losses on available-for-sale securities, net income per diluted share for the nine months was $1.28, or 54.2% higher than the same period last year.

     Pooled trust-preferred securities are long-term instruments, mainly issued by banks, with 30 or more companies included in each pool. The impairment charges on the trust-preferreds resulted from management’s assessment that it is unlikely that all previously anticipated principal and interest will be received on some of the securities. Thus the cost basis of the affected securities was written down to their estimated fair values as of the end of the third quarter.

     Excluding the security losses, we have experienced a solid increase in our interest margin after provision for loan losses (+17.3%), and in our other income (+27.5%), which includes a $533,000 gain from redemption of Visa shares, resulting from Visa’s initial public offering. Other expenses have increased only 1.3%. The merger with Citizens Trust Company has contributed significantly to the revenue improvements. Staffing reductions due to our recent reorganization have helped us maintain salaries and benefits relatively even with 2007, when Citizens Trust’s employees were not included for the first four months of the year.

     Despite the securities losses that are due, in large part, to the current national and international economic chaos, your company’s earnings power and capital ratios remain strong.

     The recent structural reorganization, revenue enhancements and expense containments and reductions we have put into place should position us to weather the current economic storm.

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

DIRECTOR EMERITUS

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
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
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, 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
1827 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

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)

	3RD			2ND			3RD			9 MONTHS ENDED
	QUARTER			QUARTER			QUARTER			SEPT.
	2008			2008			2007			2008			2007
	(Current)			(Prior Qtr)			(Prior Yr)			(Current)			(Prior Yr)
Interest and Dividend Income	$	18,575		$	18,373		$	18,058		$	55,648		$	51,993
Interest Expense		7,474			7,724			8,551			23,854			25,230
Interest Margin		11,101			10,649			9,507			31,794			26,763
Provision (Credit) for Loan Losses		141			(376	)		—			669			229
Interest Margin After Provision for Loan Losses		10,960			11,025			9,507			31,125			26,534
Other Income		3,062			3,155			2,877			9,704			7,609
Net (Losses) on Available-for-sale Securities		(4,483	)		(867	)		(68	)		(5,460	)		(79	)
Other Expenses		8,736			8,257			8,691			25,457			25,127
Income Before Income Tax (Credit) Provision		803			5,056			3,625			9,912			8,937
Income Tax (Credit) Provision		(209	)		1,303			777			2,031			1,695
NET INCOME	$	1,012		$	3,753		$	2,848		$	7,881		$	7,242
PER SHARE DATA:
Net Income — Basic	$	0.11		$	0.42		$	0.32		$	0.88		$	0.83
Net Income — Diluted	$	0.11		$	0.42		$	0.32		$	0.88		$	0.83
Dividend Per Share	$	0.24		$	0.24		$	0.24		$	0.72		$	0.72
Number Shares Used in Computation — Basic		8,957,774			8,963,552			8,986,822			8,965,230			8,743,490
Number Shares Used in Computation — Diluted		8,986,253			8,977,540			8,994,805			8,985,211			8,756,013

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

	SEPT. 30,			JUNE 30,			SEPT. 30,
	2008			2008			2007
ASSETS
Cash & Due from Banks	$	23,160		$	26,202		$	21,853
Trading Securities		1,630			1,770			2,515
Available-for-Sale Securities		417,761			422,589			344,310
Loans, Net		748,909			741,377			737,408
Intangible Assets		12,978			13,116			13,606
Other Assets		84,459			82,007			75,339
TOTAL ASSETS	$	1,288,897		$	1,287,061		$	1,195,031
LIABILITIES
Deposits	$	856,576		$	848,393		$	827,389
Repo Sweep Accounts		40,150			33,959			39,829
Total Deposits and Repo Sweeps		896,726			882,352			867,218
Borrowed Funds		261,895			265,060			177,467
Other Liabilities		8,202			9,175			9,963
TOTAL LIABILITIES		1,166,823			1,156,587			1,054,648
SHAREHOLDERS’ EQUITY
Shareholders’ Equity, Excluding Accumulated Other Comprehensive Income/Loss		145,336			146,664			143,674
Accumulated Other Comprehensive Income/ Loss:
Net Unrealized Gains/Losses on Available-for-sale Securities		(23,149	)		(15,796	)		(2,130	)
Defined Benefit Plans Adjustment, Net		(113	)		(394	)		(1,161	)
TOTAL SHAREHOLDERS’ EQUITY		122,074			130,474			140,383
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	1,288,897		$	1,287,061		$	1,195,031

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

	9 MONTHS ENDED						%
	SEPT.						INCREASE
	2008			2007			(DECREASE)
EARNINGS PERFORMANCE
Net Income	$	7,881		$	7,242			8.82	%
Return on Average Assets		0.82	%		0.83	%		-1.20	%
Return on Average Equity		7.97	%		7.02	%		13.53	%
BALANCE SHEET HIGHLIGHTS
Total Assets	$	1,288,897		$	1,195,031			7.85	%
Available-for-sale Securities		417,761			344,310			21.33	%
Loans (Net)		748,909			737,408			1.56	%
Allowance for Loan Losses		8,498			8,709			-2.42	%
Deposits and Repo Sweep Accounts		896,726			867,218			3.40	%
Trust Assets Under Management		602,072			682,428			-11.78	%
SHAREHOLDERS’ VALUE (PER SHARE)(*)
Net Income — Basic	$	0.88		$	0.83			6.02	%
Net Income — Diluted		0.88			0.83			6.02	%
Dividends		0.72			0.72			0.00	%
Book Value		13.65			15.63			-12.67	%
Tangible Book Value		12.20			14.12			-13.60	%
Market Value (Last Trade)		21.55			18.37			17.31	%
Market Value / Book Value		157.88	%		117.53	%		34.33	%
Market Value / Tangible Book Value		176.64	%		130.10	%		35.77	%
Price Earnings Multiple		18.37	x		16.60	x		10.66	%
Dividend Yield		4.45	%		5.23	%		-14.91	%
SAFETY AND SOUNDNESS
Tangible Equity / Tangible Assets		8.55	%		10.73	%		-20.32	%
Nonperforming Assets / Total Assets		0.73	%		0.58	%		26.12	%
Allowance for Loan Losses / Total Loans		1.12	%		1.17	%		-4.27	%
Risk Based Capital Ratio		16.39	%		16.87	%		-2.85	%
AVERAGE BALANCES
Average Assets		1,285,959			1,167,740			10.12	%
Average Equity		131,853			137,507			-4.11	%

(*) 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.