As filed with the Securities and Exchange Commission on February 12, 2007

Registration Statement No.                    

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CITIZENS & NORTHERN CORPORATION

(Exact Name of Registrant as specified in its Charter)

Pennsylvania		6021		23-2951943
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

90-92 Main Street
Wellsboro, Pennsylvania 16901
(570) 724-3411
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)

CRAIG G. LITCHFIELD
Chairman, President and Chief Executive Officer
Citizens & Northern Corporation
90-92 Main Street
Wellsboro, Pennsylvania 16901
(570) 724-3411
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)

Copies to:

Charles J. Ferry, Esquire Carl D. Lundblad, Esquire Rhoads & Sinon LLP One South Market Square, 12th Floor Harrisburg, Pennsylvania 17108-1146 (717) 233-5731		Charles C. Cohen, Esquire Michael D. Winterhalter, Esquire Cohen & Grigsby 11 Stanwix Street, 15th Floor Pittsburgh, PA 15222-1319 (412) 297-4900

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

CALCULATION OF REGISTRATION FEE

Proposed

Proposed

maximum

maximum

Amount of

Amount to be

offering price

aggregate

registration

Title of each class of securities to be registered

registered (1)

per share

offering price

fee (2)

Common Stock, $1.00 par value

637,658

n/a

n/a

$

1,533.67

     The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED FEBRUARY 12, 2007

CITIZENS BANCORP, INC.
10 North Main Street
Coudersport, PA 16915

MERGER PROPOSED – YOUR VOTE IS VERY IMPORTANT

Dear Shareholder:

     We cordially invite you to attend a special meeting of shareholders of Citizens Bancorp, Inc. to be held at 2:30 p.m., local time on Monday, _________ ___, 2007 at the main office of Citizens Trust Company, 10 North Main Street, Coudersport, Pennsylvania. At the special meeting, we will ask you to consider and vote upon a proposal to approve and adopt an agreement and plan of merger pursuant to which Citizens Bancorp, Inc. will merge with and into Citizens & Northern Corporation.

     If the merger is approved, you may elect to receive, for each share of Citizens common stock you own, either 1.297 shares of Citizens & Northern common stock or $28.57 in cash. You may elect to receive all cash, all Citizens & Northern common stock or a combination of cash and Citizens & Northern common stock, subject to the limitations described in the next paragraph.

     In general, elections will be limited by the requirement that 50% of the outstanding shares of Citizens common stock be exchanged for Citizens & Northern common stock and 50% of the outstanding shares of Citizens common stock be exchanged for cash. Therefore, the actual allocation of cash and common stock you receive will depend on the elections of other Citizens shareholders and may be different from what you elect. The federal income tax consequences to you will depend upon the value and form of the consideration you receive in exchange for your shares of Citizens common stock. You will receive a separate mailing that will contain instructions for making your election.

     Citizens & Northern common stock is traded on the Nasdaq Capital Market under the symbol “CZNC”. On February 9, 2007, the closing price of Citizens & Northern common stock was $22.30 per share, making the value of 1.297 shares on that date $28.92. Trades in Citizens common stock are quoted in the OTC Bulletin Board under the symbol “CZPY.” As of February 9, 2007, the last reported sales price for Citizens common stock was for $27.75 per share for a trade that occurred on February 7, 2007. These prices will fluctuate between now and the closing of the merger. We urge you to obtain current market quotations for Citizens & Northern and Citizens common stock.

     We cannot complete the merger unless the shareholders of Citizens approve it. Approval of the merger agreement requires the affirmative vote of at least a majority of the votes cast at the special meeting.

     The Citizens board of directors unanimously approved the merger agreement and recommends that you vote “FOR” the merger. We invite all shareholders of Citizens to attend the special meeting in person. However, whether or not you plan to attend the special meeting, please take the time to vote by completing and mailing the enclosed proxy card to ensure that your shares will be voted.

     The attached notice of special meeting and this document provide you with detailed information about the proposed transaction. We encourage you to read the entire document carefully. Please give particular attention to the discussion beginning on page 14 for risk factors relating to the transaction which you should consider.

     You should retain this document to assist you in making your election to receive cash, Citizens & Northern common stock or a combination of cash and Citizens & Northern common stock for your shares of Citizens common stock.

     Neither the SEC nor any state securities commission has approved or disapproved of the shares of Citizens & Northern Corporation to be issued under this document or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. The shares of Citizens & Northern common stock offered by this document are not savings accounts, deposits or other obligations of any bank or non-bank subsidiary of any of the parties and are not insured by the FDIC or any other governmental agency.

     This document is dated _________ ___, 2007, and first mailed to shareholders on or about ______, 2007.

HOW TO OBTAIN MORE INFORMATION

     This document incorporates important business and financial information about Citizens & Northern that is not included in or delivered with this document. You can obtain free copies of this information through the SEC website at http://www.sec.gov or by requesting them in writing or by calling:

Jessica Brown, Secretary
Citizens & Northern Corporation
90-92 Main Street
Wellsboro, PA 16901
(570) 724-3411

     Citizens has historically provided its shareholders with quarterly and annual financial reports. To obtain free copies of recent quarterly summary data and annual reports, please write or call:

Nancy S. Lent, Asstistant Secretary
Citizens Bancorp, Inc.
10 North Main Street
Coudersport, PA 16915
(814) 274-1929

     To obtain timely delivery of requested documents, you should request the information no later than _____, 2007.

     See “Where You Can Find More Information” at page 76 and “Incorporation of Certain Information by Reference” at page 76.

CITIZENS BANCORP, INC.
10 North Main Street
Coudersport, PA 16915

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

     NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Citizens Bancorp, Inc. will be held at the main office of Citizens Trust Company, 10 North Main Street, Coudersport, Pennsylvania on ____, 2007 at 2:30 p.m., local time, for the following purposes:

1. To consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of December 21, 2006, by and between Citizens Bancorp, Inc. and Citizens & Northern Corporation, which provides, among other things, for the acquisition of Citizens by Citizens & Northern through the merger of Citizens with and into Citizens & Northern and the conversion of each share of Citizens common stock outstanding immediately prior to the merger into either $28.57 in cash or 1.297 shares of Citizens & Northern common stock, upon the terms and subject to the conditions set forth in the merger agreement, as more fully described in the accompanying document.

2. To consider and vote upon a proposal to adjourn the meeting if more time is needed to solicit proxies.

3. To transact such other business as may properly come before the meeting.

     The board of directors has fixed the close of business on _____, 2007 as the record date for determining the shareholders of Citizens entitled to notice of and to vote at the special meeting and any adjournments or postponements of the meeting.

     The board of directors of Citizens unanimously recommends that you vote “FOR” approval of the merger agreement and related transactions.

     Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the special meeting, the board of directors of Citizens urges you to complete and sign the enclosed proxy card and mail it promptly in the accompanying postage-prepaid envelope. Prior to the Citizens special meeting, you may revoke any proxy that you deliver by delivering a written notice to the Corporate Secretary of Citizens stating that you have revoked the proxy or by delivering a later dated proxy. Shareholders of record of Citizens common stock who attend the Citizens meeting may vote in person, even if they have previously delivered a signed proxy. If you are a shareholder whose shares are registered in “street name,” you will need additional documentation from your broker in order to vote in person at the special meeting.

		By Order of the Board of Directors
		George M. Raup, Secretary

Coudersport, PA
                     ___, 2007

Table of Contents

		Page
Questions and Answers About the Transaction			1
Summary			4
The Special Meeting			4
The Merger			5
The Companies			9
Market Price and Dividend Information			10
Market Value of Securities			11
Selected Historical and Pro Forma Financial Data			12
Risk Factors			14
A Caution About Forward-Looking Information			18
The Special Meeting			20
Date, Time and Place			20
Matters To Be Considered At The Special Meeting			20
Recommendation Of Citizens Board Of Directors			20
Shareholders Entitled To Vote			20
Quorum			20
Required Vote; Voting Agreements			20
Voting By Proxy			21
Abstentions			21
Broker-Held Shares			21
Changing Your Vote			22
Adjournment			22
Solicitation Of Proxies			22
Dissenter’s Rights			22
The Transaction			23
General			23
Background of the Merger			23
Reasons for the Transaction: Citizens’ Board of Directors			26
Recommendation of Citizens’ Board of Directors			27
Opinion of Citizens’ Financial Advisor			27
Reasons for the Transaction: Citizens & Northern’s Board of Directors			39
What You Will Receive			40
Election and Exchange Procedures			41

		Page
Allocation of Citizens & Northern Common Stock and Cash			43
Effective Date			44
Rights of Dissenting Shareholders			44
Representations and Warranties			46
Conduct of Business Pending the Merger Transaction			47
No Solicitation of Other Transactions			49
Dividends			50
Conditions to the Merger			50
Subsidiary Bank Merger			51
Regulatory Approvals			51
Amendment; Waiver			53
Termination			53
Termination Fee			54
Expenses			54
Nasdaq Listing			54
Management and Operations After the Transaction			55
Interests of Management and Others in the Transaction			56
Voting Agreements			58
Accounting Treatment			59
Material Federal Income Tax Consequences			59
Resale of Citizens & Northern Common Stock			62
Material Contracts			63
Information About Citizens & Northern			63
General			63
Indemnification			64
Description of Citizens & Northern Capital Stock			65
New Citizens & Northern Directors			68
Information About Citizens			68
Business			68
Security Ownership by Certain Beneficial Owners and Management of Citizens			69
Comparison of Shareholders’ Rights			71
Special Meetings of Shareholders			71
Number of Directors			71
Composition of Board			72
Qualification of Directors			72
Shareholder Nominations of Directors			72
Election of Directors			72
Shareholder Vote Required for Certain Fundamental Transactions			73

		Page
Control Share Transactions			73
Amendment of Articles of Incorporation			73
Amendment of Bylaws			74
Anti-takeover Provisions			74
Other Matters			74
Legal Matters			75
Experts			75
Shareholder Proposals			75
Where You Can Find More Information			76
Incorporation by Reference			76
Annexes
Annex A Agreement and Plan of Merger			A-1
Exhibit 1 Form of Bank Plan of Merger			A1-1
Exhibit 2 Form of Affiliates Letter			A2-1
Exhibit 3 Form of Tax Opinion			A3-1
Exhibit 4 Form of Opinion of Citizens & Northern Counsel			A4-1
Exhibit 5 Form of Opinion of Citizens Counsel			A5-1
Exhibit 6 Index Group			A6-1
Annex B Fairness Opinion of Ryan Beck & Co., Inc.			B-1
Annex C Statutory Provisions Relating to Rights of Dissenting Shareholders			C-1
EX-5
EX-8.1
EX-23.1
EX-23.2
EX-99.2

Questions and Answers About the Transaction

Q:		What am I being asked to vote on?

A:		You are being asked to vote on the merger agreement between Citizens Bancorp, Inc. and Citizens & Northern Corporation, providing for the merger of Citizens with and into Citizens & Northern.

Q:		Why are Citizens and Citizens & Northern proposing to merge?

A:		The board of directors of each of Citizens and Citizens & Northern believes that a combination of the two companies is in the best interests of its respective company. From Citizens’ perspective, Citizens’ board of directors believes that the transaction presents a more favorable opportunity for Citizens to maximize value for its shareholders than Citizens continuing to operate on a stand-alone basis. See “The Transaction — Reasons for the Transaction: Citizens’ Board of Directors” beginning on page 26 and “The Transaction — Reasons for the Transaction: Citizens & Northern’s Board of Directors” beginning on page 39.

Q:		How does the Citizens board of directors recommend I vote on the proposal?

A:		The Citizens board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger agreement.

Q:		What will I receive in the transaction?

A:		If the merger agreement is approved and the merger is subsequently completed, you may elect to receive, for each share of Citizens common stock that you own, either 1.297 shares of Citizens & Northern common stock or $28.57 in cash. You may elect to receive all cash, all Citizens & Northern common stock, or a combination of cash and Citizens & Northern common stock for your shares of Citizens common stock, subject to allocation procedures designed to ensure 50% of the total outstanding shares of Citizens common stock is converted into the right to receive Citizens & Northern common stock and 50% is converted into the right to receive cash.

Q:		What are the tax consequences of the transaction to me?

A:		For United States federal income tax purposes, you will recognize income and/or gain equal to the lesser of: (1) the amount of cash you receive (including cash received for fractional shares); or (2) the amount of gain you realize. The amount of gain you realize equals the amount of cash you receive plus the fair market value of any Citizens & Northern common stock you receive less your adjusted basis in the shares of Citizens common stock that you surrender in the exchange. Your income or gain per share may vary if you acquired your Citizens common stock in more than one transaction.

		No gain or loss will be recognized on the Citizens & Northern common stock that you receive. Your basis and holding periods in the Citizens & Northern common stock may vary per share depending upon if you acquired your Citizens common stock in more than one transaction. Due to the potential varying tax recognition, basis and holding period consequences which will be governed by your individual consequences, we urge you to consult with your tax advisor to fully understand the tax consequences to you. Additionally, the generalizations set forth above may not apply to all Citizens shareholders.

Q:		How do I vote?

A:		After you have carefully read this document, indicate on your proxy card how you want your shares to be voted, then sign, date and mail it in the enclosed postage-paid envelope as soon as possible so that your shares may be represented and voted at the Citizens special meeting. If you are a record owner of shares of Citizens common stock on the record date for the special meeting, you may attend Citizens’ special meeting in person and vote, whether or not you have signed and mailed your proxy card.

		If you sign and send in your proxy card and do not indicate how you want to vote, your proxy card will be counted as a vote in favor of the merger agreement.

Q;		If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A:		Maybe. Your broker will vote your shares only if you provide instructions on how to vote. You should follow the directions provided by your broker.

Q:		Can I change my vote after I have mailed my signed proxy card?

A:		Yes. There are three ways for you to revoke your proxy and change your vote. First, you may send to the Secretary of Citizens a later-dated, signed proxy card before the Citizens special meeting. Second, you may attend Citizens’ special meeting in person and vote. Third, you may revoke any proxy by written notice to the Secretary of Citizens prior to Citizens’ special meeting. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote.

Q:		Do I have dissenters rights of appraisal in connection with the merger?

A:		Yes. Under Pennsylvania law, Citizens shareholders have the right to dissent from the merger and receive a payment in cash for the value of their shares of Citizens common stock, as determined by an appraisal process. This value may be less than the value of the consideration you would receive in the merger if you do not dissent. To perfect your dissenter’s rights, you must precisely follow the required statutory procedures. See “The Transaction-Rights of Dissenting Shareholders” at page 44 and the information attached at Annex C.

Q.		Should I send in my stock certificates now?
A.		No. You should not send in your stock certificates at this time. Approximately two weeks after the date of this document, you will receive a form of election on which you will indicate the form of merger consideration you wish to receive for your Citizens common stock. Please retain this document in connection with making your election to receive cash, Citizens & Northern common stock, or a combination of cash and Citizens & Northern common stock for your shares of Citizens common stock. You will have until the election date, which is two business days before the closing of the transaction, to return the completed and signed form of election, together with the certificates that represent your shares of Citizens common stock.
Q.		When do you expect to complete the transaction?
A.		We are working towards completing the transaction as quickly as possible and currently expect that the merger will be completed during the second quarter of 2007. In addition to the approval of Citizens shareholders, we must also obtain certain bank regulatory approvals. We expect to receive all necessary approvals no later than April 15, 2007.
Q.		Why haven’t you included financial information about Citizens in this document?
A.		As a Citizens shareholder, Citizens distributes annual and summary unaudited quarterly financial information to you. In considering the proposed merger, Citizens believes you need information concerning Citizens & Northern more than information concerning Citizens. Due to the size of Citizens & Northern relative to the size of Citizens, financial information about Citizens is not required to be provided in this document by any applicable law or regulation. However, if you would like to review copies of Citizens’ most recent quarterly and annual reports to shareholders, you may obtain them from Citizens. See “Where You Can Find More Information” on page 76.
Q.		Whom should I call with questions or to obtain additional copies of this document?
A.		You should call either of the following:

Citizens & Northern Corporation		Citizens Bancorp, Inc.
90-92 Main Street		10 North Main Street
Wellsboro, PA 16901		Coudersport, PA 16915
Attn: Jessica Brown, Secretary		Attn: Nancy S. Lent, Assistant Secretary
Phone No.: (570) 724-3411		Phone No.: (814) 274-1929

(1)		There were no trades in Citizens common stock reported on the OTC Bulletin Board for February 9, 2007. The price shown for that date is the closing sales price on February 7, 2007, the latest practicable trading day before filing this document on which trades in Citizens common stock are reported.
(2)		The equivalent market value for a stock election was calculated based on the exchange ratio of 1.297.

Notes to Citizens & Northern Selected Financial Data
(1)		All share and per share data has been restated to give retroactive effect to stock dividends and splits.
(2)		Includes loans held for sale.
(3)		Rates of return on tax-exempt securities and loans are calculated on a fully-taxable equivalent basis.

Risk Factors

     An investment in Citizens & Northern common stock in connection with the merger transaction involves certain risks, including, among others, the risks described below. In addition to the other information contained in this document, you should carefully consider the following risk factors in deciding whether to vote for approval of the merger agreement.

Risk Factors Related to the Transaction

If the transaction is not completed, Citizens will have incurred substantial expenses without realizing the expected benefits.

     Citizens has incurred substantial expenses in connection with the transaction. The completion of the transaction depends on the satisfaction of specified conditions and the receipt of regulatory approvals. We cannot guarantee that these conditions will be met. If the transaction is not completed, these expenses could have a material adverse impact on the financial condition of Citizens because they would not have realized the expected benefits.

Although you will receive fixed value in terms of any cash consideration that you receive in the transaction, you will not know for sure the value of the Citizens & Northern common stock that you may receive at the time you vote on the merger or at the time you elect to receive cash or stock and you may receive Citizens & Northern common stock valued at less than $28.57 per share of Citizens common stock.

     You will not know the value of the Citizens & Northern common stock you will receive in the transaction at the time you vote or at the time you make an election as to the form of consideration. We currently expect that the transaction will close during the second quarter of 2007. You will be required to make your election to receive cash or shares of Citizens & Northern common stock prior to the closing. The actual value of the stock consideration received will be less than $28.57 per share of common stock exchanged in the transaction if the closing price of Citizens & Northern common stock on the closing date is less than $22.03.

You may not receive the form of consideration that you elect for your shares of Citizens common stock.

     The merger agreement requires that 50% of the total outstanding shares of Citizens common stock be converted into the right to receive the cash consideration and 50% of the total outstanding shares of Citizens common stock be converted into the right to receive Citizens & Northern common stock. In the event there is an over-election of the stock consideration, each Citizens shareholder who elects to receive Citizens & Northern common stock will receive some cash in addition to shares of Citizens & Northern common stock. Similarly, if there is an over-election of the cash consideration, each Citizens shareholder who elects to receive cash will receive some shares of Citizens & Northern common stock in addition to cash. Thus, you may not receive exactly the form of consideration that you request and you may receive a combination of cash and shares of Citizens & Northern common stock even if you request all cash or all stock.

If the Citizens board does not terminate the merger agreement if the twenty-day average of the closing sales prices for Citizens & Northern common stock at closing is below $17.62, the value of the stock consideration you receive could be less than $22.85 per share.

     If the transaction closes at a time when the twenty-day average of the closing sales prices for Citizens & Northern common stock is below $17.62, the consideration received by Citizens shareholders who receive Citizens & Northern common stock in exchange for their shares of Citizens common stock would be less than $22.85 per share of Citizens common stock. Citizens has the option, but is not required, to terminate the merger agreement if the twenty-day average of the Citizens & Northern common stock is below $17.62 and the decline in price of Citizens & Northern common stock since November 10, 2006 is at least 20% more than the change during this same period in an index based on the stock prices of 20 other bank and thrift holding companies. Citizens cannot predict now whether or not the Citizens board of directors would exercise its right to terminate the merger agreement if the above conditions are met. The merger agreement does not provide for a resolicitation of Citizens shareholders in the event the above conditions are met and the Citizens board, nevertheless, chooses to complete the transaction. The Citizens board of directors has made no decision as to whether it would exercise its right to terminate the merger agreement if the above conditions are satisfied. In considering whether to exercise its right to terminate the merger agreement, the Citizens board would take into account all relevant facts and circumstances that exist at such time and would consult with its financial advisors and legal counsel.

You will have less influence as a shareholder of Citizens & Northern than as a shareholder of Citizens.

     As a Citizens shareholder, you currently have the right to vote in the election of the board of directors of Citizens and on other matters affecting Citizens. The amount of Citizens & Northern common stock and/or cash you will receive for your shares of Citizens common stock will result in the transfer of control of Citizens to the shareholders of Citizens & Northern. If you receive Citizens & Northern common stock for some or all of your shares of Citizens common stock, your percentage ownership of Citizens & Northern will be significantly less than your percentage ownership of Citizens. Because of this, you will have less influence on the management and policies of Citizens & Northern than you now have on the management and policies of Citizens.

Citizens & Northern may fail to realize all of the anticipated benefits of the transaction.

     The success of the transaction will depend, in part, on Citizens & Northern’s ability to realize the anticipated benefits and cost savings from integrating the business of Citizens with the business of Citizens & Northern. If Citizens & Northern is not able to achieve these objectives, the anticipated benefits and cost savings of the transaction may not be realized fully, or at all, or may take longer to realize than expected.

     Citizens and Citizens & Northern have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of the ongoing businesses of Citizens & Northern and/or Citizens, or inconsistencies in standards, controls, procedures and policies. The occurrence of any of the foregoing could adversely affect Citizens & Northern’s ability to maintain relationships with the respective clients, customers, depositories and employees of Citizens & Northern and Citizens and its ability to achieve the anticipated benefits of the merger. Integration efforts between Citizens & Northern and Citizens may, to some extent, also divert management attention and resources. These integration

matters could have an adverse effect on each of Citizens and Citizens & Northern during the transition period.

The merger agreement limits Citizens’ ability to pursue alternatives to the merger transaction with Citizens & Northern and requires Citizens to pay a termination fee under certain circumstances.

     The merger agreement contains “no shop” provisions that, subject to certain exceptions, limit Citizens’ ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of Citizens. Additionally, if the merger would fail to occur in certain circumstances that relate to a possible combination of Citizens with another acquiror, Citizens could be obligated to pay Citizens & Northern $900,000 as a termination fee. See “The Transaction-Termination Fee” beginning on page 54. These provisions may discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of Citizens from considering or proposing an acquisition of Citizens even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquiror proposing to pay a lower per share price to acquire Citizens than it might otherwise have proposed to pay.

Citizens’ directors have financial interests in the transaction that are different from, or in addition to, the interests of shareholders of Citizens.

     Executive officers of Citizens negotiated the terms of the merger agreement with their counterparts at Citizens & Northern, and the Citizens board of directors unanimously approved the merger agreement and recommended that Citizens shareholders vote to approve the merger agreement. In considering these facts and the other information contained in this document, you should be aware that the Citizens directors have financial interests in the transaction that are different from, or in addition to, the interests of Citizens shareholders. For example, upon completion of the transaction, Charles H. Updegraff, Jr., currently the Chairman, President and Chief Executive Officer of Citizens, will be added as a director of Citizens & Northern and Citizens & Northern Bank and appointed as Executive Vice President and Chief Operating Officer of Citizens & Northern Bank. Additionally, Citizens &Northern Bank will create an advisory board for the newly created Citizens Trust Company division of Citizens & Northern Bank, comprised of the current directors of Citizens Trust Company who qualify for membership on such a board pursuant to Citizens & Northern’s policies concerning advisory boards. Mr. Updegraff and the directors of Citizens Trust Company who continue to serve on the advisory board will be entitled to certain compensation for their services in such capacities. These and other interests of the Citizens directors may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than you may view it as a shareholder. Please see “The Transaction — Interests of Management and Others in the Transaction” beginning on page 56 for information about these financial interests.

Risk Factors Related to Citizens & Northern’s Business

Changes in interest rates may have an adverse effect on Citizens & Northern’s profitability.

     Citizens & Northern’s business is affected by fiscal and monetary policies of the federal government, including those of the Federal Reserve board, which regulates the national money supply in order to manage recessionary and inflationary pressures. Among the techniques available to the Federal Reserve board are engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. The use of these techniques may also affect interest rates charged on loans and paid on deposits.

     Net interest income is the most significant component of Citizens & Northern’s net income, accounting for approximately 75.7% of total revenues in 2005 and 71.6% of total revenues in 2006. The narrowing of interest rate spreads (the difference between interest rates earned on loans and investments and interest rates paid on deposits and borrowings), could adversely affect Citizens & Northern’s earnings and financial condition. Among other things, regional and local economic conditions as well as fiscal and monetary policies of the federal government, including those of the Federal Reserve board, may affect prevailing interest rates. Citizens & Northern cannot predict or control changes in interest rates.

     When short-term interest rates fall, Citizens & Northern generally expects improvements in net interest income. However, a rising interest rate environment would adversely impact Citizens & Northern’s net interest income. In addition, increasing short-term rates tend to have a detrimental impact on mortgage loan origination volumes and related mortgage-banking income.

Changes in economic conditions and the composition of the loan portfolios of Citizens & Northern’s subsidiary banks could lead to higher loan charge-offs or an increase in their allowance for loan losses and may reduce Citizens & Northern’s income.

     Changes in national and regional economic conditions could impact the loan portfolios of Citizens & Northern’s subsidiary banks. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities Citizens & Northern serves. Weakness in the market areas served by Citizens & Northern could depress its earnings and consequently its financial condition because:

	•		customers may not want or need Citizens & Northern’s products or services;
	•		borrowers may not be able to repay their loans;
	•		the value of the collateral securing Citizens & Northern’s loans to borrowers may decline; and
	•		the quality of Citizens & Northern’s loan portfolio may decline.

     Any of the later three scenarios could require Citizens & Northern to charge-off a higher percentage of its loans and/or increase its provision for loan and lease losses, which would reduce its income.

     In addition, the amount of Citizens & Northern’s provision for loan losses and the percentage of loans it is required to charge-off may be impacted by the overall risk composition of the loan portfolio. While Citizens & Northern believes that its allowance for loan losses as of September 30, 2006 is sufficient to cover losses inherent in the loan portfolio on that date, Citizens & Northern cannot assure you that it will not be required in the future to increase its loan-loss provision or charge-off a higher percentage of loans due to changes in the risk characteristics of the loan portfolio resulting from the merger, which would thereby reduce its net income.

The competition Citizens & Northern faces is increasing and may reduce Citizens & Northern’s customer base and negatively impact Citizens & Northern’s results of operations.

     There is significant competition among commercial banks and credit unions in the market areas served by Citizens & Northern. In addition, as a result of the deregulation of the financial industry, Citizens & Northern also competes with other providers of financial services such as savings and loan

associations, consumer finance companies, securities firms, insurance companies, commercial finance and leasing companies, the mutual funds industry, full service brokerage firms and discount brokerage firms, some of which are subject to less extensive regulations than Citizens & Northern is with respect to the products and services they provide. Some of Citizens & Northern’s competitors have greater resources than Citizens & Northern has, and as such, may have higher lending limits and may offer other services not offered by Citizens & Northern.

     Citizens & Northern also experiences competition from a variety of institutions outside its market areas. Some of these institutions conduct business primarily over the internet and may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer.

     Competition may adversely affect the interest rates Citizens & Northern pays on deposits and charges on loans, thereby potentially adversely affecting Citizens & Northern’s profitability. Citizens & Northern’s profitability depends upon its continued ability to successfully compete in the market areas it serves while achieving its investment objectives.

A Caution About Forward-Looking Information

     This document and the documents incorporated by reference into this document contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include information concerning possible or assumed future results of operations of Citizens & Northern and its subsidiaries, or the combined businesses of Citizens & Northern and Citizens. When we use words such as “believes,” “expects,” “anticipates” or similar expressions, we are making forward-looking statements. Forward-looking statements are also statements that are not statements of historical fact. These forward-looking statements involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities:

	•		regulatory approvals and clearances and other prerequisites or conditions to the merger may not be obtained, or may be received outside of expected time frames;
	•		competitive pressures among depository and other financial institutions may increase significantly;
	•		revenues may be lower than expected;
	•		changes in the interest rate environment may reduce interest margins;
	•		general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit;
	•		legislative or regulatory changes, including changes in accounting standards, may adversely affect the ability of the combined company to conduct its current and future operations;
	•		costs or difficulties related to the integration of the businesses of Citizens & Northern and Citizens may be greater than expected;
	•		expected cost savings associated with the merger may not be fully realized or realized within the expected time frames;

	•		deposit attrition, customer loss, or revenue loss following the merger may be greater than expected;
	•		competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than Citizens & Northern; and
	•		adverse changes may occur in the securities markets or with respect to inflation.

     This list is not exhaustive. Forward-looking statements speak only as of the date they are made. Citizens & Northern and Citizens do not undertake to update forward-looking statements to reflect future circumstances or events. If one or more of these risks or uncertainties occurs or if the underlying assumptions prove incorrect, actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statement.

     Further information on other factors that could affect the financial results of Citizens & Northern after the merger is included in this document under “Risk Factors” beginning on page 14 and in Citizens & Northern’s Securities and Exchange Commission filings incorporated by reference in this document.

The Special Meeting

Date, Time and Place

     Citizens will hold a special meeting of shareholders on                      ___, 2007 at 2:30 p.m., local time, at the main office of Citizens Trust Company, 10 North Main Street, Coudersport, Pennsylvania.

Matters to be Considered at the Special Meeting

     At the special meeting, Citizens shareholders will consider and vote upon proposals to:

	•		approve and adopt the merger agreement;
	•		adjourn the meeting if more time is needed to solicit proxies; and
	•		transact any other business that may properly be brought before the meeting.

Recommendation of Citizens Board of Directors

     The Citizens board of directors unanimously approved the merger agreement and the related transactions and recommends a vote FOR approval and adoption of the merger agreement.

Shareholders Entitled to Vote

     You are entitled to notice of and to vote at the Citizens special meeting if you were a holder of record of Citizens common stock at the close of business on                      ___, 2007, the record date established by the Citizens board of directors for the special meeting. As of the record date, there were 1,016,824 shares of Citizens common stock issued and outstanding, held by approximately 228 holders of record. Each share entitles the holder to one vote. Shareholders may vote either in person or by proxy.

Quorum

     To have a quorum at the Citizens special meeting, the holders of at least a majority of the issued and outstanding shares of Citizens common stock entitled to vote must be present either in person or by properly executed proxy. Citizens intends to count the following shares as present at the special meeting for the purpose of determining a quorum:

	•		shares of Citizens common stock present in person at the special meeting but not voting or abstaining on any matter;
	•		shares of Citizens common stock represented by proxy on which the shareholder has abstained on any matter; and
	•		shares of Citizens common stock represented by proxies from a broker that are voted on any issue other than a procedural motion.

Required Vote; Voting Agreements

     Under the Citizens articles of incorporation, shareholder approval and adoption of the merger agreement requires the affirmative vote of at least a majority of the votes cast at the special meeting. Approval of the adjournment proposal also requires the affirmative vote of the holders of a majority of

the votes cast at the special meeting. At any subsequent reconvening of the special meeting, all proxies obtained before the adjournment or postponement will be voted in the same manner as they would have been voted at the original convening of the special meeting. However, any proxies which have been properly revoked or withdrawn will not be voted.

     The directors and executive officers of Citizens have agreed to vote all shares of Citizens common stock that they own or over which they exercise voting control for approval and adoption of the merger agreement. As of                      ___, 2007, the record date for the special meeting, Citizens directors and executive officers and their affiliates had the right to vote an aggregate of 160,243 shares of Citizens common stock. This number amounts to approximately 15.76% of the voting power of all outstanding shares on that date. In addition, as of the record date, the trust department of Citizens Trust Company held 133,250 shares of Citizens common stock as fiduciary for certain trusts, estates and agency accounts that beneficially own the shares. Citizens Trust Company has voting power as to 47,416 of these shares and, subject to the provisions of governing instruments and/or in accordance with applicable provisions of fiduciary law, we anticipate that these shares will be voted in favor of the merger proposal and any proposal to adjourn the meeting if more time is needed to submit proxies.

     In addition, on the record date, Citizens & Northern held 33,542 shares of Citizens common stock through one its subsidiaries and the chief executive officer of Citizens & Northern beneficially owned 103 shares of Citizens common stock. Other than these shares, which together comprise approximately 3.3% of the shares entitled to vote at the special meeting, neither Citizens & Northern, nor, to the best of its knowledge any of its directors or executive officers and its affiliates, beneficially owned any shares of Citizens common stock.

Voting by Proxy

     All shares of Citizens common stock represented by properly executed proxy cards will be voted in accordance with the instructions indicated on those proxy cards, unless those proxies have been previously revoked. If you return a signed proxy card but fail to indicate how you want to vote, your shares of Citizens common stock will be voted FOR approval and adoption of the merger agreement and in favor of the adjournment proposal.

     You should not mail your common stock certificates with your proxy cards. You will receive separate instructions on how to make your election and exchange your shares. See “The Transaction-Election and Exchange Procedures” beginning on page 41.

Abstentions

     A properly executed proxy card marked “abstain” will not be voted on the approval and adoption of the merger agreement but will count toward determining whether a quorum is present. Because approval and adoption of the merger agreement requires the affirmative vote of a majority of all votes cast at the special meeting, a vote to “abstain” will not affect the vote on the merger agreement.

Broker-Held Shares

     Brokers who hold shares of Citizens common stock in “street name” for the beneficial owners of those shares cannot vote those shares without specific instructions from the beneficial owners. Therefore, if you are the beneficial owner of shares of Citizens common stock held by a broker in

“street name,” you should sign, date and return your proxy card to the broker in the envelope provided by the broker. If a broker indicates on the proxy card that it does not have discretionary authority as to shares of common stock to vote on a particular matter, those shares of common stock will be considered as present but shall not be voted with respect to that matter. Because approval and adoption of the merger agreement requires the affirmative vote of a majority of all votes cast at the special meeting, if your shares are held in “street name” and you fail to instruct your broker how to vote, such failure will not affect the vote on the merger agreement.

Changing your Vote

     If you give the proxy we are soliciting, you may revoke it at any time before it is exercised:

	•		by giving written notice to Citizens Bancorp, Inc., 10 North Main Street, Coudersport, PA 16915, Attention: George Raup, Secretary
	•		by signing and returning a later-dated proxy, or
	•		by voting in person at the special meeting.

     A shareholder whose shares are held in street name should follow the instructions of his or her broker regarding revocation of proxies. You should note that your presence at the Citizens special meeting without voting in person will not revoke an otherwise valid proxy.

Adjournment

     In the event that there are not sufficient votes to constitute a quorum or approve the adoption of the merger agreement at the time of the special meeting, the merger agreement would not be able to be approved unless the meeting could be adjourned to a later date in order to permit further solicitation of proxies. Approval for the adjournment proposal requires the affirmative vote of the holders of a majority of the votes cast at the special meeting by shareholders entitled to vote. No proxy voted against the proposal to approve the merger agreement will be voted in favor of any such adjournment or postponement.

Solicitation Of Proxies

     Citizens will bear its own cost of solicitation of proxies. Citizens & Northern has agreed to bear the expense of any proxy solicitor engaged by Citizens at Citizens & Northern’s request. In addition to solicitation by mail, Citizens’ directors, officers and employees may solicit proxies personally or by telephone, facsimile transmission or otherwise. These directors, officers and employees will not be additionally compensated for their solicitation efforts but may be reimbursed for out-of-pocket expenses incurred in connection with these efforts. Citizens will reimburse brokerage firms, fiduciaries, nominees and others for their out-of-pocket expenses incurred in forwarding proxy materials to beneficial owners of shares of common stock held in their names.

Dissenters Rights

     Citizens shareholders have a right to dissent from the merger transaction and to obtain payment in cash of the fair value of their Citizens shares by complying with the applicable requirements of the Pennsylvania Business Corporation Law, a copy of which is included as Annex C to this document. See “The Transaction — Rights of Dissenting Shareholders” beginning at page 44.

The Transaction

     The following information describes the material terms of the proposed transaction. This description, however, is not a complete statement of all provisions of the merger agreement and related documents. A copy of the merger agreement, including its exhibits, is attached to this document as Annex A to provide information regarding the terms of the proposed transaction. We qualify this discussion in its entirety by reference to the merger agreement, which we incorporate by reference in this document. Except for the merger agreement’s status as the contractual document between the parties with respect to the transaction described in it, it is not intended to provide factual information about the parties. The representation and warranties contained in the merger agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to that agreement, and may be subject to limitations agreed to by the contracting parties, including being qualified by disclosure schedules exchanged by Citizens and Citizens & Northern. Accordingly, they should not be relied on by investors as statements of factual information. We urge you to read the full text of the merger agreement carefully.

General

     The merger agreement provides for the acquisition of Citizens by Citizens & Northern through the merger of Citizens with and into Citizens & Northern with Citizens & Northern continuing as the surviving corporation. In addition, Citizens Trust Company will merge into Citizens & Northern Bank with Citizens & Northern Bank surviving. When the merger is completed, the boards of directors of Citizens & Northern and Citizens & Northern Bank will each be increased to include Charles H. Updegraff, Jr., currently the Chairman, President and Chief Executive Officer of Citizens, and Mr. Updegraff will be appointed Executive Vice President and Chief Operating Officer of Citizens & Northern Bank.

     In the transaction, each share of Citizens common stock will be converted into the right to receive $28.57 in cash or 1.297 shares of Citizens & Northern common stock. You will receive a cash payment for any fractional shares due. The merger consideration is fixed and is not subject to adjustment other than to prevent dilution in the event of a stock split, stock dividend or similar transaction with respect to Citizens & Northern common stock; provided, however, that there will be no adjustment for the 1% stock dividend declared by Citizens & Northern in December 2006.

     We expect to complete the merger during the second quarter of 2007.

Background of the Merger

     From time to time over the last several years, the Citizens management and board of directors have considered various strategic alternatives as part of their primary mission to provide quality financial services to the community and enhance shareholder value. While not adopting a strategy to sell the bank, the board recognized that an opportunity to affiliate with the right partner would be one possible option toward accomplishing this mission.

     In the course of deliberations, the board recognized as an important concern that the bank’s ability to grow both deposits and loans was becoming increasingly difficult and limited by the slow growth of the local economy. The board also recognized that the corporation was over capitalized and that this was depressing the corporation’s return on equity. This trend, together with the increasing costs associated with compliance, led the board during a meeting on September 25, 2006, to consider various options, including the possibility of a strategic alliance with a larger, but still relatively local community bank.

     With the prior approval of the board, on October 5, 2006, Charles H. Updegraff, Jr., Chairman, President and Chief Executive Officer of Citizens, met with representatives of Cohen & Grigsby, P.C., Citizens’ legal counsel, and Ryan Beck & Co., Inc., an investment banking firm. Mr. Updegraff reviewed with those present his views of the current state of banking for a small rural bank with offices located in low growth areas. The discussion also included reviewing the bank’s earnings history, potential merger partners, excess capital and expectations of large shareholders. The meeting concluded with the understanding that Ryan Beck would assist the Citizens board in the review of its strategic options.

     On October 6, 2006, Mr. Updegraff met with Craig G. Litchfield, Chairman, President and Chief Executive Officer of Citizens & Northern, to explore the possibility of an acquisition transaction with Citizens. Messrs. Updegraff and Litchfield have been acquainted for years and had informally discussed such possibility on prior occasions. At the October 6 meeting, Mr. Litchfield and Mr. Updegraff discussed in general terms Citizens & Northern’s community banking philosophy and the possible benefits to both parties from a combination, including revenue enhancements and cost savings. In contemplation of possible additional discussions, Mr. Updegraff and Mr. Litchfield executed a confidentiality agreement during the meeting.

     At a Citizens board meeting on October 23, 2006, representatives of Ryan Beck presented an analysis of Citizens’ financial data and operating ratios, current merger and acquisition trends and a financial analysis of a possible transaction with Citizens & Northern and other potential partners. The board inquired specifically of Mr. Updegraff and Ryan Beck why Citizens & Northern may present a good potential fit for Citizens. Mr. Updegraff and representatives of Ryan Beck responded that there were no overlapping bank offices, the Citizens market was a logical extension to the west of Citizens & Northern’s present market and that potential cost savings associated with the transaction could make the acquisition accretive to Citizens & Northern shareholders in a short period of time. At the meeting, Ryan Beck and Cohen & Grigsby discussed with the board three options: stay independent, pursue a negotiated transaction with Citizens & Northern or pursue a controlled auction with multiple parties. Upon completion of a thorough discussion of the alternatives, a motion was made authorizing management to execute an engagement letter with Ryan Beck.

     On November 8, 2006, following a meeting of the executive committee of the Citizens & Northern board, Citizens & Northern presented a non-binding indication of interest letter to Citizens, which, among other things, proposed merger consideration equal to $29.15 for each Citizens share, composed of a maximum of 50% Citizens & Northern common stock and 50% cash, subject to satisfactory completion of due diligence and execution of a definitive acquisition agreement. The letter also confirmed Citizens & Northern’s willingness to appoint Mr. Updegraff as Chief Operating Officer of Citizens & Northern Bank and to appoint one Citizens director to the Citizens & Northern and Citizens & Northern Bank board of directors upon the effective date of the acquisition.

     At a meeting of the Citizens board on November 13, 2006, Mr. Updegraff, together with representatives of Ryan Beck and Cohen & Grigsby, P.C., reviewed the indication of interest letter in detail and responded to questions from the board. Representatives of Ryan Beck also reviewed various

other alternatives available to Citizens, including engaging in a broad based share repurchase program, buying back only the shares of stock held by certain large shareholders and pursuing other strategies while remaining independent. The board reviewed the advantages and disadvantages of each alternative, including a detailed financial analysis of how each transaction would affect the company. Ryan Beck then reviewed a transaction analysis if Citizens & Northern were to acquire Citizens per the terms of the non-binding indication of interest letter. Ryan Beck noted that the purchase price would be 45% higher than the current trading price of the Citizens common stock and that Citizens shareholders could expect a significant increase in earnings per share and dividends per share at the proposed exchange ratio. The board also reviewed information demonstrating that the proposed price relative to earnings per share and book value was in line with current multiples for selected comparable merger transactions. The board also reviewed financial and stock market data for Citizens & Northern. After due consideration of Citizens’ circumstances, the indicated purchase price and other factors, the board authorized Mr. Updegraff to commence negotiation of a definitive acquisition agreement containing the terms set forth in the indication of interest letter and to execute an Exclusivity Agreement with Citizens & Northern which would prohibit Citizens from negotiating an acquisition with any party other than Citizens & Northern until December 31, 2006.

     Thereafter, Citizens & Northern submitted its due diligence request list to Citizens and instructed its counsel, Rhoads & Sinon LLP, to prepare a draft of the definitive acquisition agreement. Citizens & Northern’s counsel provided the first draft of the definitive acquisition agreement and related ancillary documents to Citizens’ counsel Cohen & Grigsby, and Ryan Beck on November 28, 2006 and during the weekend of December 2, 2006, Citizens & Northern conducted a due diligence review of Citizens. Arms length negotiations over many aspects of the proposed acquisition agreement took place over the next several weeks.

     Mr. Updegraff informed Mr. Litchfield in a telephone discussion on December 7, 2006, that it had come to his attention that Time Warner intended to close a call center located in Coudersport, Pennsylvania, which would result in the approximate loss of 500 jobs in the Coudersport community, which is the principal place of business of Citizens. Thereafter, Mr. Updegraff and Mr. Litchfield, together with representatives of their respective investment banking firms, discussed the impact of the Time Warner decision on Citizens and whether a downward adjustment in the price and exchange ratio for the merger was appropriate.

     On December 13, 2006, Mr. Litchfield proposed to Mr. Updegraff a reduction in the merger consideration from $29.15 per share to $28.57 per share to account for an expected downturn in the local economy as a result of the Time Warner layoffs. This revised price and exchange ratio was reflected in the next draft of the definitive acquisition agreement.

     The Citizens board met on December 18, 2006, in a regular meeting attended by representatives of Ryan Beck and Cohen & Grigsby to review the terms and conditions of the proposed final draft of the definitive acquisition agreement, including the reduction in price as a result of the pending Time Warner layoffs in the Coudersport area. Legal counsel reviewed with the board all of the major aspects of the proposed agreement, including:

	•		the terms of the proposed exchange ratio of stock and cash;
	•		conditions to closing the transaction;
	•		rights of the parties to terminate the acquisition agreement under certain circumstances;
	•		the conditions under which Citizens would be required to pay Citizens & Northern a termination fee in the event that the transaction did not close under certain circumstances;

	•		the terms of severance for employees who might not continue employment with Citizens & Northern following the transaction; and
	•		the terms of the voting agreements required from Citizens directors and affiliates.

     Legal counsel also reviewed with the Citizens board its fiduciary duties under Pennsylvania law. Ryan Beck presented to the Citizens board a transaction overview, analysis of selected acquisition transactions, discounted cash flow analysis, pro forma merger analysis and the proposed terms of the transaction. The board discussed the proposed terms, including the financial and non- financial aspects of the transaction. The Citizens board discussed the rationale for the reduced purchase price and discussed the possible benefits and risks of remaining independent or pursuing additional prospective partners. After due consideration of the advice and information furnished by its legal and financial advisors, as well as the local economy and the operating challenges potentially facing Citizens, the board tentatively agreed to proceed with the revised offer from Citizens & Northern. Since the Citizens & Northern board was meeting to review and approve the transaction on December 21, the Citizens board agreed to convene a special meeting with the board’s legal and financial advisors on Thursday, December 21, 2006, with a view to giving final approval at that time.

     The Citizens & Northern board of directors met on December 21, 2006, at which time counsel to Citizens & Northern reviewed the terms of the definitive agreement and related documents with the board. After due consideration of the acquisition agreement and consultation with its advisors, the Citizens & Northern board voted unanimously to approve the definitive agreement and authorized Mr. Litchfield to execute the agreement and related documents on behalf of Citizens & Northern.

     Also on December 21, the Citizens board met to take final action on the definitive agreement. Representatives of Cohen & Grigsby reviewed the terms and conditions of the agreement. A representative of Ryan Beck reviewed the financial terms of the transaction and delivered an oral opinion that the consideration, as of December 21, was fair to the Citizens shareholders from a financial point of view. After further discussion and following consideration of the reports of its advisors, the Citizens board of directors unanimously approved the agreement.

     The parties executed the definitive agreement and related documents following the Citizens board meeting on December 21, 2006 and issued a joint press release publicly announcing the transaction after the close of the financial markets on December 21, 2006.

Reasons for the Transaction: Citizens’ Board of Directors

     In the course of reaching its decision to approve the merger agreement, the Citizens board of directors reviewed the financial results of Citizens and assessed its future opportunities and challenges. The board also consulted with Ryan Beck & Co. and its legal counsel.

     After careful consideration, the board of directors of Citizens believes the merger is fair to, and in the best interests of Citizens and its shareholders. In reaching these conclusions, the Citizens board of directors considered a number of factors, including the following:

	•		the challenges facing a small rural bank and the board of directors’ belief that remaining independent does not address these challenges in the long term;
	•		the absence of operational or financial restructuring alternatives, such as share repurchases, that would overcome the challenges facing Citizens as a small rural bank;

	•		the belief that the challenges facing Citizens can be more effectively managed as part of a larger, more geographically and functionally diverse institution;
	•		the cost savings synergies that may be achieved from the merger;
	•		historical information concerning Citizens’ and Citizens & Northern’s respective businesses, financial performance and condition, operations, management and competitive position, including the results of operations for each company;
	•		current securities trading market conditions and historical information with respect to Citizens common stock and Citizens & Northern common stock;
	•		the value and amount of consideration to be paid to Citizens shareholders pursuant to the merger;
	•		a review of comparable merger transactions;
	•		the belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable;
	•		detailed financial analysis and pro forma and other information with respect to Citizens and Citizens & Northern presented to the board of directors;
	•		the significantly greater liquidity of Citizens & Northern common stock;
	•		the opinion of Ryan Beck that the merger consideration was fair, as of such date, from a financial point of view, to Citizens shareholders, and the procedures and methods used by Ryan Beck to reach that opinion; and
	•		the impact of the merger on Citizens’ customers, community and employees.

     The list of factors considered by the Citizens board of directors is not exhaustive, but we have highlighted the important factors considered. Individual directors may have given different weights to these factors in reaching their decision; however, the Citizens board of directors did not assign specific weights or priority to any one factor.

Recommendation of the Citizens Board of Directors

     The Citizens board of directors has unanimously approved the merger agreement, and believes that the proposed merger transaction is in the best interests of Citizens and its shareholders. Accordingly, the Citizens board of directors unanimously recommends that Citizens shareholders vote “FOR” approval of the merger agreement.

Opinion of Citizens’ Financial Advisor

     Ryan Beck acted as financial advisor to Citizens in connection with its potential acquisition by Citizens & Northern pursuant to the merger agreement. Ryan Beck, as a customary part of its business, is continually engaged in the valuation of financial institutions in connection with mergers, acquisitions and other securities-related transactions. Citizens selected Ryan Beck as its financial advisor based on Ryan Beck’s qualifications, expertise and reputation as a nationally recognized specialist in the financial services industry with extensive experience in advising banks and thrifts.

     On December 21, 2006, the Citizens board held a meeting to evaluate the proposed merger with Citizens & Northern. In its capacity as Citizens’ financial advisor, Ryan Beck participated in the negotiations with respect to the pricing and other terms and conditions of the Merger, but the decision

as to whether to accept the Citizens & Northern proposal and the pricing of the Merger was made by the board of directors of Citizens. At the December 21 meeting, Ryan Beck rendered an oral opinion to the Citizens board (the written opinion was delivered separately and dated as of December 21, 2006) and reconfirmed the opinion in writing as of the date of this document, (a copy of which is attached as Annex B), that based on and subject to the assumptions, factors, and limitations as set forth in the attached opinion and as described below, the consideration offered to Citizens shareholders was fair as of the respective dates from a financial point of view. No limitations were imposed by the Citizens board of directors upon Ryan Beck with respect to the investigations made or procedures followed by it in arriving at its opinion.

     The full text of Ryan Beck’s opinion, which sets forth assumptions made and matters considered, is attached as Annex B to this document. Shareholders of Citizens are urged to read the attached Ryan Beck opinion in its entirety. The Ryan Beck opinion is directed only to the financial fairness of the consideration offered to Citizens shareholders and does not constitute a recommendation to any shareholder as to how such shareholder should vote at the special meeting. Ryan Beck has not considered, nor is it expressing any opinion herein with respect to, the price at which Citizens & Northern common stock will trade following consummation of the merger. The summary of the Ryan Beck opinion set forth in this document is qualified in its entirety by reference to the full text of the Ryan Beck opinion. In rendering its opinion, Ryan Beck does not admit that it is an expert within the meaning of the term “expert” as used within the Securities Act and the rules and regulations promulgated thereunder, or that its opinion constitutes a report or valuation within the meaning of Section 11 of the Securities Act and the rules and regulations promulgated thereunder.

     Material and Information Considered with Respect to the Proposed Merger. In connection with its opinion, Ryan Beck reviewed the following information:

	•		the merger agreement and related documents;
	•		Citizens & Northern’s annual reports on Form 10-K, including audited financial statements, for the years ended December 31, 2005, 2004 and 2003;
	•		Citizens & Northern’s quarterly reports on Form 10-Q for the quarters ended September 30, 2006, June 30, 2006 and March 31, 2006;
	•		Citizens’ annual reports for the years ended December 31, 2005, 2004 and 2003;
	•		Citizens’ quarterly call reports for the periods ended September 30, 2006, June 30, 2006 and March 31, 2006;
	•		certain other public and non-public information, primarily financial in nature, related to the respective businesses, earnings, assets and prospects of Citizens and Citizens & Northern provided to Ryan Beck by management of the respective companies or obtained by Ryan Beck from other sources;
	•		the publicly available financial data of commercial banking organizations which Ryan Beck deemed generally comparable to Citizens and Citizens & Northern;
	•		the historical stock prices and trading volumes of Citizens’ and Citizens & Northern’s common stock; and
	•		the terms of acquisitions of banking organizations which Ryan Beck deemed generally comparable in whole or in part to Citizens.

     Additionally, Ryan Beck:

	•		conducted or reviewed such other studies, analyses, inquiries and examinations as it deemed appropriate;
	•		analyzed the impact of the merger on Citizens & Northern;
	•		considered the future prospects of Citizens in the event it remained independent; and
	•		participated in meetings and telephone conferences with certain members of Citizens’ and Citizens & Northern’s senior management to discuss Citizens’ and Citizens & Northern’s past and current business operations, regulatory standing, financial condition, strategic plan and future prospects, including any potential operating efficiencies and synergies that may arise from the merger.

     In connection with its review, Ryan Beck relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information regarding Citizens and Citizens & Northern that was publicly available or provided to Ryan Beck by Citizens and Citizens & Northern. Ryan Beck is not an expert in the evaluation of loan portfolios or the allowance for loan losses. Therefore, Ryan Beck has not assumed any responsibility for making an independent evaluation of the adequacy of the allowance for loan losses set forth in the consolidated balance sheets of Citizens and Citizens & Northern as of September 30, 2006, and Ryan Beck has assumed such allowances were adequate and complied fully with applicable law, regulatory policy, sound banking practice and policies of the Securities and Exchange Commission as of the date of such financial statements. Ryan Beck discussed certain operating forecasts and financial projections (and the assumptions and bases therefore) with the management of Citizens and Citizens & Northern. Ryan Beck assumed that such forecasts and projections reflected the best currently available estimates and judgments of management. Ryan Beck was not retained to nor did it make any independent evaluation or appraisal of the assets or liabilities of Citizens or Citizens & Northern nor did Ryan Beck review any loan files of Citizens or Citizens & Northern. Ryan Beck also assumed that the merger in all respects is, and will be, undertaken and consummated in compliance with all laws and regulations that are applicable to Citizens and Citizens & Northern.

     The preparation of a fairness opinion for a transaction such as the merger involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, Ryan Beck’s opinion is not readily conducive to summary description. In arriving at its opinion, Ryan Beck performed a variety of financial analyses. Ryan Beck believes that its analyses must be considered as a whole and that the consideration of portions of such analyses and the factors considered therein, or any one method of analysis, without considering all factors and analyses, could create an incomplete view of the analyses and the process underlying Ryan Beck’s opinion. No one method of analysis was assigned a greater significance than any other.

     The forecasts and projections utilized in the analysis were based on information provided by Citizens and Citizens & Northern management. Citizens and Citizens & Northern do not publicly disclose internal management projections of the type discussed with Ryan Beck in connection with the review of the merger. Such projections were not prepared with a view towards public disclosure. The public disclosure of such projections could be misleading since the projections were based on numerous variables and assumptions which are inherently uncertain, including without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projections.

     In its analyses, Ryan Beck made numerous assumptions with respect to industry performance, general business and economic conditions, and other matters, many of which are beyond the control of Citizens or Citizens & Northern. Any estimates contained in Ryan Beck’s analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such estimates. Estimates of values of companies do not purport to be appraisals nor do they necessarily reflect the prices at which companies or their securities may actually be sold.

     Ryan Beck’s opinion was based solely upon the information available to it and the economic, market and other circumstances as they existed as of the date of the opinion. Events occurring after such date could materially affect the assumptions and conclusions contained in Ryan Beck’s opinion. Ryan Beck has not undertaken to reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of its reconfirmed opinion. Ryan Beck did not and does not express any opinion as to the price or range of prices at which Citizens & Northern’s common stock might trade subsequent to the merger.

     The following is a brief summary of the analyses and procedures performed by Ryan Beck in the course of arriving at its opinion. The summary does not purport to be a complete description, but is a brief summary of the material analyses and procedures performed by Ryan Beck in the course of arriving at its opinion.

     Analysis of Selected Publicly Traded Companies. Ryan Beck compared Citizens’ financial data as of September 30, 2006, to a peer group of 25 banking organizations in Pennsylvania, Ohio and New York with assets between $100 million and $350 million, tangible equity as a percentage of tangible assets greater than 8.00% and for which last twelve month earnings per share, public trading and pricing information was available. Ryan Beck deemed this group to be generally comparable to Citizens.

     The results of the comparisons are reflected in the following table. The financial data and ratios shown in the table are as of or for the twelve months ended September 30, 2006 for Citizens and as of the most recent twelve month period available for the peer group companies. The market valuation multiples are based on market prices as of December 20, 2006.

		Citizens				Peer				Peer
		Bancorp, Inc. (1)				Average (1)				Median (1)
Capitalization
Total Assets (000s)		$	142,663			$	210,556			$	212,695
Total Deposits (000s)			98,802				171,985				166,885
Total Shareholders’ Equity (000s)			18,240				22,898				21,380
Total Equity / Assets			12.79	%			11.00	%			9.88	%
Tangible Equity / Tangible Assets			12.79				10.86				9.70
Leverage Ratio			12.88				11.69				10.57
Tier I Capital / Risk-Adjusted Assets			27.64				18.05				16.78
Total Capital / Risk-Adjusted Assets			28.50				19.21				17.65
Total Borrowings / Total Assets			17.56				5.57				4.17
Asset Quality
Non-Performing Loans / Loans			0.09				0.91				0.69
Non-Performing Loans + 90 Days Past Due / Loans			0.09				1.04				1.18
Loan Loss Reserves / NPLs			1,132.08				186.37				92.29
Loan Loss Reserves / NPLs + 90 Days Past Due			1,132.08				775.53				115.12
Loan Loss Reserves / Loans			0.98				1.17				1.13
Non-Performing Assets / Assets			0.12				0.71				0.48
Non-Performing Assets + 90 Days Past Due / Assets			0.12				0.80				0.82
Non-Performing Assets / Equity			0.96				7.29				4.95
Loan & Deposit Composition
Total Loans / Total Assets			42.93				67.78				69.75
Total Loans / Deposits			61.99				82.98				85.19
1-4 Family Loans / Total Loans			57.21				44.22				48.69
5+ Family Loans / Total Loans			0.17				2.14				0.93
Construction & Developmental Loans / Total Loans			0.10				3.26				2.81
Other Real Estate Loans / Total Loans			12.06				24.94				23.84
Real Estate Loans/Total Loans			69.54				74.57				79.62
Consumer Loans / Total Loans			7.19				8.04				4.24
Commercial Loans / Total Loans			16.74				14.73				11.39
Non-Interest Bearing Deposits/Total Deposits			11.99				15.97				13.59
Transaction Accounts/Total Deposits			54.91				53.35				53.62
Total CD’s/Total Deposits			45.09				46.65				46.38
Time Deposits > $100,000 / Total Deposits			8.16				15.37				13.28
Performance
Return on Average Assets			1.02				0.96				0.99
Return on Average Equity			8.21				8.95				9.83
Net Interest Margin			2.87				4.09				3.94
Yield / Cost Spread			2.31				3.81				3.77
Yield on Interest Earning Assets			5.83				6.59				6.41
Cost of Interest Bearing Liabilities			3.52				2.78				2.69
Non Interest Income / Average Assets			1.08				0.63				0.67
Non Interest Expense/Avg Assets			2.43				2.97				3.01
Efficiency Ratio			64.31				66.03				65.34
Growth Rates
Asset Growth			(2.63	)			5.00				3.97
Loan Growth Rate			2.14				6.13				4.72
Deposit Growth Rate			0.04				4.30				3.53
Revenue Growth Rate			(0.29	)			6.76				5.48
EPS Growth Rate			2.16				17.22				1.47
Market Statistics
Stock Price at December 20, 2006		$	20.45
Price / LTM EPS			14.40	x			20.16	x			16.30	x
Price / Book Value			113.99	%			149.39	%			145.98	%
Price / Tangible Book Value			113.99				151.80				146.58
Market Capitalization ($M)		$	20.79			$	34.37			$	31.21
Dividend Yield			4.30	%			2.08	%			2.35	%

     Ryan Beck noted that Citizens had total loans as a percentage of deposits of 61.99%, lower than the peer median of 85.19%. Ryan Beck also noted that 69.54% of Citizens’ loan portfolio is real estate oriented, lower than the peer group median of 79.62%. Approximately 57.21% of Citizens’ loans are 1-4 family loans, higher than the peer group median of 48.69%. Citizens’ portfolio of construction & development loans at 0.10% was lower than the peer median of 2.81%. Citizens’ commercial loans at 16.74% of total loans were higher than the peer group median of 11.39%. Citizens’ transaction account deposits equaled 54.91% of total deposits, slightly higher than the peer group median of 53.62%, but Citizens’ non-interest bearing demand deposits were only 11.99% of total deposits, lower than the peer group median of 13.59%. Citizens’ jumbo deposits, or time deposits with balances greater than $100,000, represented 8.16% of total deposits, lower than the peer median of 13.28%.

     Citizens’ return on average assets of 1.02% was slightly higher than the peer group median of 0.99%, but Citizens’ return on average equity of 8.21% was lower than the peer group median of 9.83%. Contributing to Citizens’ performance was its net interest margin of 2.87%, which was significantly lower than the peer group median of 3.94%. Citizens’ efficiency ratio of 64.31% was slightly lower than the peer group median of 65.34%. Ryan Beck also noted that Citizens’ non-interest income as a percentage of average assets at 1.08% was significantly higher than the peer group median of 0.67%.

     Additionally, Ryan Beck noted that Citizens had non-performing loans as a percentage of total loans of 0.09%, which was significantly lower than the peer median of 0.69%. At 0.98%, Citizens maintained a level of loan loss reserves as a percentage of total loans below the peer median of 1.13%. Citizens’ capital ratios were significantly higher than the peer group medians as evidenced by its tangible equity to tangible assets ratio of 12.79% compared to 9.70% for the peer group. Citizens’ asset, loan and deposit growth rates over the past twelve months of -2.63%, 2.14% and 0.04%, respectively, were lower than the peer median growth rates of 3.97%, 4.72% and 3.53%, respectively. Over the same period, Citizens’ revenue decreased 0.29% and earnings per share increased by 2.16%, while peer median revenue and earnings per share increased by 5.48% and 1.47%, respectively.

     Based on its December 20, 2006 stock price, Citizens’ stock traded at 14.40 times last twelve months earnings per share, below the peer group median of 16.30 times. Citizens’ price-to-book and price-to-tangible book value ratio of 113.99% was lower than the respective peer group medians of 145.98% and 146.58%. Citizens’ dividend yield of 4.30% was significantly higher than the peer group median of 2.35%.

     Ryan Beck also compared Citizens & Northern’s financial data as of September 30, 2006, to a nationwide peer group of 32 banking organizations with assets between $750 million and $2.5 billion, and with latest twelve months return on average assets greater than between 0.75% and 1.00%, and tangible equity as a percentage of tangible assets greater than 8.00% for which public trading and pricing information was available. Ryan Beck deemed this group to be generally comparable to Citizens & Northern.

     The results of the comparisons are reflected in the following table. The financial data and ratios shown in the table are as of or for the twelve months ended September 30, 2006 for Citizens & Northern and as of the most recent twelve month period available for the peer group companies. The market valuation multiples are based on market prices as of December 20, 2006.

		Citizens &
		Northern				Peer				Peer
		Corporation (1)				Average (1)				Median (1)
Capitalization
Total Assets (000s)		$	1,125,287			$	1,233,777			$	1,086,486
Total Deposits (000s)			756,372				959,277				853,279
Total Shareholders’ Equity (000s)			129,731				131,346				112,241
Total Equity / Assets			11.53	%			10.55	%			9.99	%
Tangible Equity / Tangible Assets			11.27				9.59				9.33
Leverage Ratio			11.00				10.38				9.86
Tier I Capital / Risk-Adjusted Assets			16.49				13.63				12.51
Total Capital / Risk-Adjusted Assets			17.94				14.98				14.29
Total Borrowings / Total Assets			20.61				10.24				7.83
Asset Quality
Non-Performing Loans / Loans			1.33				0.38				0.29
Non-Performing Loans + 90 Days Past Due / Loans			1.53				0.52				0.37
Loan Loss Reserves / NPLs			89.69				307.58				239.47
Loan Loss Reserves / NPLs + 90 Days Past Due			78.17				969.30				361.25
Loan Loss Reserves / Loans			1.20				1.32				1.19
Non-Performing Assets / Assets			0.83				0.32				0.25
Non-Performing Assets + 90 Days Past Due / Assets			0.94				0.41				0.31
Non-Performing Assets / Equity			7.17				2.94				2.53
Loan & Deposit Composition
Total Loans / Total Assets			60.11				68.34				67.29
Total Loans / Deposits			89.43				87.99				88.75
1-4 Family Loans / Total Loans			54.39				28.92				28.31
5+ Family Loans / Total Loans			1.04				3.19				1.12
Construction & Developmental Loans / Total Loans			1.36				13.24				12.83
Other Real Estate Loans / Total Loans			26.86				32.29				29.44
Real Estate Loans/Total Loans			83.64				77.66				79.15
Consumer Loans / Total Loans			4.78				6.50				4.85
Commercial Loans / Total Loans			5.97				12.60				11.44
Non-Interest Bearing Deposits/Total Deposits			13.69				16.31				14.84
Transaction Accounts/Total Deposits			54.73				53.79				53.07
Total CD’s/Total Deposits			45.27				46.21				46.93
Time Deposits > $100,000 / Total Deposits			12.29				24.04				18.39
Performance
Return on Average Assets			1.08				1.03				1.05
Return on Average Equity			9.48				10.19				9.82
Net Interest Margin			3.40				4.00				3.99
Yield / Cost Spread			2.75				3.56				3.69
Yield on Interest Earning Assets			6.03				6.76				6.65
Cost of Interest Bearing Liabilities			3.28				3.23				3.20
Non Interest Income / Average Assets			0.68				0.92				0.91
Non Interest Expense/Avg Assets			2.68				2.95				3.02
Efficiency Ratio			68.74				62.00				63.89
Growth Rates
Asset Growth			(4.93	)			9.00				6.56
Loan Growth Rate			4.83				13.17				12.82
Deposit Growth Rate			0.45				9.01				6.53
Revenue Growth Rate			(3.47	)			9.32				5.40
EPS Growth Rate			(9.64	)			7.68				5.84
Market Statistics
Stock Price at December 20, 2006		$	22.07
Price / LTM EPS			14.71	x			18.66	x			17.68	x
Price / Book Value			139.68	%			171.47	%			168.49	%
Price / Tangible Book Value			143.31				190.46				180.03
Market Capitalization ($M)		$	181.18			$	226.76			$	195.49
Dividend Yield			4.35	%			2.03	%			1.83	%

     Ryan Beck noted that Citizens & Northern had total loans as a percentage of deposits of 89.43%, slightly higher than the peer median of 88.75%. Ryan Beck also noted that 83.64% of Citizens & Northern’s loan portfolio is real estate oriented, higher than the peer group median of 79.15%. Approximately 26.86% of Citizens & Northern’s loans are commercial real estate loans, significantly lower than the peer group median of 29.44%. Citizens & Northern’s portfolio of construction & development loans at 1.36% was significantly lower than the peer median of 12.83%. At 5.97% of total loans, Citizens & Northern’s commercial loans were lower than the peer median of 11.44%. Citizens & Northern’s transaction account deposits equaled 54.73% of total deposits, slightly higher than the peer group median of 53.07%, while Citizens & Northern’s non-interest bearing demand deposits were 13.69% of total deposits, versus the peer group median of 14.84%. Citizens & Northern’s jumbo deposits, or time deposits with balances greater than $100,000, represented 12.29% of total deposits, less than the peer median of 18.39%.

     Citizens & Northern’s return on average assets of 1.08% was slightly higher than the peer group median of 1.05%, but Citizens & Northern’s return on average equity of 9.48% was slightly lower than the peer group median of 9.82%. Citizens & Northern’s net interest margin of 3.40% was lower than the peer group median of 3.99%, and Citizens & Northern’s efficiency ratio of 68.74% was higher than the peer group median of 63.89%. Ryan Beck also noted that Citizens & Northern’s non-interest income as a percentage of average assets at 0.68% was lower than the peer group median of 0.91%.

     Additionally, Ryan Beck noted that Citizens & Northern had non-performing loans as a percentage of total loans of 1.33%, which was significantly higher than the peer median of 0.29%. At 1.20%, Citizens & Northern maintained a level of loan loss reserves as a percentage of total loans similar to the peer median of 1.19%. Citizens & Northern’s capital ratios were significantly higher than the peer group medians as evidenced by its tangible equity to tangible assets ratio of 11.27%, compared to a median of 9.33% for the peer group. Citizens & Northern’s asset, loan and deposit growth rates over the past twelve months of -4.93%, 4.83% and 0.45%, respectively, were lower than the peer median growth rates of 6.56%, 12.82% and 6.53%, respectively. Over the same period, Citizens & Northern’s revenue and earnings per share decreased by 3.47% and 9.64%, respectively, while peer median revenue and earnings per share increased by 5.40% and 5.84%, respectively.

     Based on its December 20, 2006 stock price, Citizens & Northern’s stock traded at 14.71 times last twelve months earnings per share, below the peer group median of 17.68 times. Citizens & Northern’s price-to-book and price-to-tangible book value ratios of 139.68% and 143.31%, respectively, were both lower than the respective peer group medians of 168.49% and 180.03%. Citizens & Northern’s dividend yield of 4.35% was significantly higher than the peer group median of 1.83%.

     Analysis of Selected Transactions. Ryan Beck compared the financial terms of the Merger with those of a group of 20 bank acquisitions announced since January 1, 2004, for which pricing data pertaining to the transactions was publicly available. The group included selected transactions located outside of metropolitan areas in which the seller was a commercial bank or thrift; seller had assets greater than $50 million and less than $250 million; seller had ROAA between 0.75% and 1.25%; and seller had tangible equity as a percentage of tangible assets greater than 9.00%.

     The following table compares selected ratios of Citizens with the average and median ratios of the sellers in the above peer group of announced transactions.

						Peer
						Group				Peer Group
		Citizens				Average				Median
Total Assets (000s)		$	142,663			$	124,189			$	122,458
Tangible Equity / Tangible Assets			12.79	%			11.57	%			11.39	%
YTD Return on Average Assets			0.99	%			0.96	%			0.93	%
YTD Return on Average Equity			7.58	%			8.47	%			8.54	%
Non-Performing Assets / Assets			0.12	%			0.54	%			0.32	%
Efficiency Ratio			68.23	%			66.03	%			66.37	%

     Ryan Beck noted that Citizens’ tangible equity as a percentage of tangible assets of 12.79% was significantly higher than the peer group median of 11.39%. Ryan Beck also noted that Citizens’ return on average assets of 0.99% was higher than the peer group median 0.93%, but Citizens’ return on average equity of 7.58% was lower than the peer median of 8.54% due to Citizens’higher capital levels. Citizens’ non-performing assets as a percentage of assets of 0.12% compared favorably to the peer median ratio of 0.32% while Citizens’ efficiency ratio of 68.23% was higher than the peer median of 66.37%.

     The median pricing ratios for the comparable transactions are illustrated in the following table:

Price /

Core

Price /

Price / Tangible

LTM

Deposit

Book Value

Book Value

Earnings

Premium

Peer Group Median

156.08

%

161.85

%

19.18x

12.77

%

     The imputed value of Citizens based upon the median ratios of the comparable transactions can be seen in the table below:

						Price /								Core
		Price /				Tangible				Price / LTM				Deposit
		Book Value				Book Value				Earnings				Premium				Average				Median
		$	28.00			$	29.04			$	27.24			$	29.44			$	28.43			$	28.52

     The median pricing ratios for the comparable transactions adjusted for the change in the Nasdaq Bank Index between the date of announcement of the transaction and the date of the analysis are illustrated in the following table:

Price /

Core

Price /

Price / Tangible

LTM

Deposit

Book Value

Book Value

Earnings

Premium

Peer Group Median

172.06

%

174.81

%

20.67x

13.84

%

     The imputed value of Citizens based upon the adjusted median ratios of the comparable transactions can be seen in the table below:

						Price /								Core
		Price /				Tangible				Price / LTM				Deposit
		Book Value				Book Value				Earnings				Premium				Average				Median
		$	30.87			$	31.36			$	29.34			$	30.41			$	30.49			$	30.64

     Based on the Citizens & Northern stock closing price on December 20, 2006 and a 50% stock, 50% cash mix, the merger consideration had an indicated blended value on that date of $28.45 per share.

     Assuming a transaction value of $28.45 per share based on the terms of the merger, Ryan Beck calculated the transaction value as a multiple of Citizens’ September 30, 2006 stated book value per share ($17.94), tangible book value per share ($17.94), and tangible book premium over core deposits as follows:

Price to stated book value			158.62	%
Price to tangible book value			158.62	%
Multiple of last-twelve-months earnings per share			20.04	x
Tangible book premium over core deposits			11.67	%

     Ryan Beck noted that the value of the consideration being offered to Citizens’ shareholders of $28.45 per share was slightly lower than the median imputed value of the comparable transactions prior to the market adjustment of $28.52 and lower than the median imputed value of the comparable transactions after the market adjustment of $30.64. As noted in the “Background of the Merger” section, one of the largest employers in Coudersport had recently announced the elimination of 500 local jobs. The news caused Citizens & Northern to lower its price from the offer of $29.15 that had been agreed to prior to the local economic news.

     No company used as a comparison in the above analyses is identical to Citizens, Citizens & Northern or the combined resulting company, and no other transaction is identical to the merger. Accordingly, an analysis of the results of the foregoing is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved, market areas in which the companies operate and other factors that could affect the trading values of the securities of the company or companies to which they are being compared.

     Discounted Dividend Analysis. Using a discounted dividend analysis, Ryan Beck estimated the present value of the future dividend stream that Citizens could produce in perpetuity. As a basis for performing this analysis, Ryan Beck utilized 2007 to 2011 earnings per share estimates for Citizens which were based on information provided by Citizens management. These projections are based upon various factors and assumptions, many of which are beyond the control of Citizens. These projections are, by their nature, forward-looking and may differ materially from the actual future values or actual future results for the reasons discussed above. Actual future values or results may be significantly more or less favorable than suggested by such projections. In producing a range of per share Citizens

values, Ryan Beck utilized the following assumptions: discount rates ranging from 11.00% to 13.00%, terminal price/earnings multiples ranging from 15x to 17x (which, when applied to terminal year estimated earnings, produces a value which approximates the net present value of the dividends in perpetuity, given certain assumptions regarding growth rates and discount rates) and earnings that include estimated savings in Citizens’ non-interest expense equal to Citizens & Northern management’s estimates of 5.25% in the first year following the merger with 21.00% thereafter. The discounted dividend analysis produced the range of net present values per share of Citizens common stock illustrated in the chart below:

						Discount Rates
						11%				12%				13%
Terminal Year Multiple of Earnings			15x			$	26.93			$	26.08			$	25.28
			16x			$	27.85			$	26.96			$	26.11
			17x			$	28.77			$	27.83			$	26.94

     Ryan Beck noted that the estimated transaction value of $28.45 per share was above the midpoint of the estimated values derived from the discounted dividend analysis.

     These analyses do not purport to be indicative of actual values or expected values or an appraisal range of the shares of Citizens common stock. The discounted dividend analysis is a widely used valuation methodology, but Ryan Beck noted that it relies on numerous assumptions, including expense savings levels, dividend payout rates, terminal values and discount rates, the future values of which may be significantly more or less than such assumptions. Any variation from these assumptions would likely produce different results.

     Financial Impact Analysis: In order to measure the impact of the merger on the combined company’s operating results and financial position after the merger, Ryan Beck analyzed the pro forma effects of the merger for 2007. In performing this analysis, Ryan Beck utilized a pro forma summary balance sheet and income statement for Citizens & Northern. For its analysis, Ryan Beck used Citizens & Northern management’s estimates of earnings for Citizens & Northern in 2006, 2007 and 2008, and a 5.00% projected growth rate to estimate 2009 through 2011 earnings for Citizens & Northern. For Citizens’ projected earnings, Ryan Beck used Citizens management’s estimates for 2006, 2007 and 2008, and used a projected growth rate of 3.00% to estimate 2009 to 2011 earnings for Citizens. In its analysis, Ryan Beck utilized Citizens & Northern’s after-tax cost savings assumptions of approximately 5.25% of Citizens’ non-interest expense base for 2007 and 21.0% for 2008 through 2011. No assumptions were made regarding revenue enhancements following the completion of the transaction and no assumptions were made regarding mark-to-market purchase accounting adjustments.

     This analysis indicated that the merger would be slightly accretive to Citizens & Northern’s earnings in 2007 by approximately 0.01% and would be accretive to Citizens & Northern’s 2008 estimated earnings per share by approximately 2.05%, before the effect of any stock repurchases. Ryan Beck also estimated that the transaction would be 2.78% accretive to Citizens & Northern’s stated book value per share and would be 5.83% dilutive to Citizens & Northern’s tangible book value per share. The transaction analysis indicated that, at closing, Citizens & Northern’s tangible equity to tangible assets would be 10.43%, lower than the 11.42% projected in our analysis before the merger.

     Contribution Analysis: As a means to gauge the impact of Citizens’ and Citizens & Northern’s potential financial impact on the combined organization, Ryan Beck prepared a contribution analysis which compared the relative contributions each entity would make toward total assets, loans, deposits, common equity, tangible common equity and earnings. Ryan Beck analyzed the contribution of the last-twelve-months net income as well as the 2007 and 2008 projected net income for each company as estimated by their respective management teams. For this analysis, Ryan Beck assumed a 100% stock transaction and an exchange ratio of 1.297 shares of Citizens & Northern stock for Citizens stock and estimated that Citizens shareholders would own 13.83% of the combined company on a pro forma basis. This figure is above the relative contributions of Citizens for total assets at 11.25%, total loans at 8.30%, total deposits at 11.55% and total tangible equity at 12.61%. The estimated Citizens’ stock ownership exceeds Citizens’ projected 2007 net income contribution of 12.05% without accounting for synergies and 12.91% after accounting for synergies. The estimated Citizens’ stock ownership also exceeds Citizens’ projected 2008 net income contribution of 10.84% without accounting for synergies. Citizens’ estimated stock ownership is slightly below Citizens’ projected 2008 net income contribution of 13.85% after accounting for synergies.

     In connection with Ryan Beck’s updated opinion dated as of the date of this document and contained in Annex B, Ryan Beck reviewed this document and confirmed the appropriateness of its reliance on the analyses used to render its December 21, 2006 written opinion by performing procedures to update certain of such analyses and by reviewing the assumptions and conclusions upon which the December 21, 2006 opinion was based.

     Citizens paid Ryan Beck a non-refundable retainer fee of $20,000 upon execution of the engagement letter. Citizens also has agreed to pay Ryan Beck a transaction fee in connection with the transaction in the amount equal to 1.25% of the aggregate transaction value payable. Based on the average per share closing price of Citizens & Northern’s common stock immediately prior to the public announcement of the transaction, Ryan Beck’s fee would be approximately $360,000, $75,000 of which was paid upon execution of the merger agreement, with the balance, less the initial $20,000 retainer fee, due upon completion of the merger. Citizens has also agreed to reimburse certain of Ryan Beck’s reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Ryan Beck and its affiliates and their respective partners, directors, officers, employees, agents, and controlling persons against certain expenses and liabilities, including liabilities under securities laws.

     Prior to this transaction, Ryan Beck did not have an investment banking relationship with Citizens or Citizens & Northern. Ryan Beck expects to solicit investment banking business from Citizens & Northern in the future.

     Ryan Beck acts as a market maker in the common stock of Citizens & Northern. Ryan Beck is not a market maker in the common stock of Citizens. In the ordinary course of its business as a broker dealer, however, Ryan Beck may actively trade securities of Citizens or Citizens & Northern for its own account and the account of its customers and, accordingly, may at any time hold long or short positions in such securities.

Reasons For The Transaction: Citizens & Northern’s Board of Directors

     Citizens & Northern’s acquisition strategy consists of identifying financial institutions with business philosophies similar to those of Citizens & Northern, which operate in markets that are geographically compatible with Citizens & Northern ‘s operations and which can be acquired at an acceptable cost.

     In connection with its approval of the transaction with Citizens, the Citizens & Northern board of directors reviewed the terms of the proposed reorganization agreement and its potential impact on Citizens & Northern. In reaching its decision to approve the reorganization agreement, Citizens & Northern’s board of directors, with the assistance of management and Citizens & Northern’s advisors, considered the following factors:

	•		its observation that the acquisition of Citizens represents an attractive opportunity for Citizens & Northern to expand the geographic market area currently served by Citizens & Northern Bank, into the contiguous markets of Cameron, McKean and Potter Counties;
	•		its familiarity with Citizens’ management team and employees, particularly its President, Charles H. Updegraff, Jr., who have the leadership and talent to ensure the continuation of Citizens & Northern’s tradition of strong performance community offices;
	•		Citizens’ customer service-oriented emphasis with local decision-making ability and a clear focus on the community, which are consistent with Citizens & Northern’s business approach;
	•		its understanding of the business, operations, financial condition, earnings and prospects of each of Citizens & Northern and Citizens;
	•		its understanding of the historical and current pro forma financial performance and condition, business operations, capital levels and asset quality of Citizens;
	•		a review of comparable transactions, including a comparison of the price being paid in the transaction with the prices paid in other comparable financial institution acquisitions, expressed as, among other things, multiples of book value and earnings;
	•		its understanding that the transaction should be accretive to Citizens & Northern’s earnings within a year;
	•		perceived opportunities to increase the combined company’s commercial lending, and to reduce the combined company’s operating expenses, following the transaction;
	•		the structure of the merger consideration and the financial and other terms of the transaction, including the fixed stock and fixed cash components;
	•		its understanding of the likelihood that the regulatory approvals needed to complete the transaction would be obtained; and
	•		its review of the terms of the merger agreement with Citizens & Northern’s legal advisors.

     This discussion of factors considered by Citizens & Northern’s board of directors is not intended to be exhaustive, but includes all material factors considered. In approving the merger agreement and related transactions, Citizens & Northern’s board did not specifically identify any one factor or group of factors as being more significant than any other factor in the decision making process. Rather, Citizens & Northern’s board of directors based its decision on the totality of information presented to it. In addition, individual members of the Citizens & Northern board may have given differing weight or priority to different factors.

     Citizens & Northern’s board of directors also considered potential risks associated with the transaction, including (1) the challenges of integrating Citizens’ businesses, operations and workforce with those of Citizens & Northern, (2) the conversion of Citizens’ systems into Citizens & Northern’s systems, (3) the need to obtain Citizens shareholder approval and regulatory approval in order to complete the transaction, (4) the risks associated with achieving anticipated cost savings, potential revenue enhancements and other potential financial benefits as well as with maintaining reorganization, integration and restructuring expenses at anticipated levels, and (5) the risk that the final purchase price allocation based on the fair value of acquired assets at acquisition date and related adjustments to yield and/or amortization schedules of acquired assets and liabilities may be materially different than those assumed.

     The foregoing discussion contains a number of forward-looking statements that reflect the current views of Citizens & Northern with respect to future events that may have an effect on its future financial performance. Forward-looking statements are subject to risks and uncertainties. Actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Cautionary statements that identify important factors that could cause or contribute to differences in results and outcomes include those discussed under the section entitled “A Caution About Forward-Looking Information” on page 18 of this document. For more information on the factors that could affect actual results, see “Risk Factors” beginning on page 14.

What you will Receive

     If the merger is completed, each share of Citizens common stock that you hold at the time of the merger will automatically be converted into the right to receive cash or shares of Citizens & Northern common stock. You will be mailed a form of election approximately two weeks after the date of this document in order to make your election. Subject to the restrictions described below, you may elect to receive, in exchange for each of your shares of Citizens common stock, either:

	•		$28.57 in cash; or
	•		1.297 shares of Citizens & Northern common stock.

     You may choose to exchange all of your shares for cash, or all of your shares for Citizens & Northern common stock, or some of your shares for cash and the rest of your shares for Citizens & Northern common stock.

     Under the terms of the merger agreement, 50% of the total outstanding shares of Citizens common stock will be exchanged for cash and 50% of the total outstanding shares of Citizens common stock will be exchanged for Citizens & Northern common stock. In the event that the holders of the outstanding shares of Citizens common stock elect to receive cash or stock that would exceed these

limitations, the number of shares that you elected to exchange for cash or stock, as appropriate, will be adjusted through an allocation formula described below.

     If you do not make a valid election, you will be deemed to have made no election. No election shares will be converted into stock consideration, cash consideration or a mix of stock and cash consideration, depending on the elections of other Citizens shareholders.

     You may receive significantly more or less cash or more or fewer shares of Citizens common stock than you elect. For more information about the allocation rules and the potential effects of the allocation procedures described above see the sections entitled “The Transaction — Election and Exchange Procedures” and “The Transaction — Allocation of Citizens & Northern Common Stock and Cash,” on pages 41 and 42, respectively.

Election and Exchange Procedures

     Subject to the allocation process described in the next section, each Citizens shareholder may elect to receive with respect to his or her shares of Citizens common stock, all Citizens & Northern common stock, all cash or a combination of Citizens & Northern common stock and cash.

     Stock Election Shares. Citizens shareholders who validly elect to receive Citizens & Northern common stock for some or all of their shares will receive the per share stock consideration for that portion of the shareholder’s shares of Citizens common stock equal to the shareholder’s stock election, subject to the allocation process described below. In our discussion below, we refer to shares with respect to which shareholders have made stock elections as “stock election shares.”