<SUBMISSION>
<ACCESSION-NUMBER>0000950152-01-503793
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>1
<PERIOD>20010630
<FILING-DATE>20010813
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CITIZENS & NORTHERN CORP
<CIK>0000810958
<ASSIGNED-SIC>6022
<IRS-NUMBER>232451943
<STATE-OF-INCORPORATION>PA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-16084
<FILM-NUMBER>1706089
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>THOMPSON ST
<CITY>RALSTON
<STATE>PA
<ZIP>17763
<PHONE>7172656171
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>90-92 MAIN ST
<CITY>WELLSBORO
<STATE>PA
<ZIP>16901
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>l89587ae10-q.txt
<DESCRIPTION>CITIZENS & NORTHERN CORPORATION      10-Q
<TEXT>
<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

/X/  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the three-month period ended June 30, 2001
                                       OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from ________ to ___________

Commission file number: 0-16084

                         CITIZENS & NORTHERN CORPORATION
             (Exact name of Registrant as specified in its charter)

Pennsylvania                                                 23-2451943
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

90-92 Main Street
Wellsboro, Pa. 16901
(Address of principal executive offices)  (Zip code)

                                  570-724-3411
               (Registrant's telephone number including area code)

                                 Not applicable
     (Former name, former address, and former fiscal year, if changed since
                                  last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X   No
                                             ----    ----

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

Title                                             Outstanding
Common Stock ($1.00 par value)     5,234,800 Shares Outstanding August 10, 2001

                                       1
<PAGE>   2




                   CITIZENS & NORTHERN CORPORATION
                                Index

Part I.  Financial Information

Item 1.  Financial Statements

Consolidated Balance Sheet - June 30, 2001 and
December 31, 2000                                             Page    3

Consolidated Statement of Income - Three and Six Months
Ended June 30, 2001 and 2000                                  Page    4

Consolidated Statement of Cash Flows - Six Months Ended
June 30, 2001 and 2000                                        Page    5

Notes to Consolidated Financial Statements                    Pages 6 and 7

Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations                           Pages 7 through 19

Item 3.  Information About Market Risk                        Pages 20 and 21

Part II.  Other Information                                   Page 22

Signatures                                                    Page 23



                                       2
<PAGE>   3


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET                                        JUNE 30,      DECEMBER  31,
(In Thousands Except Share Data)                                   2001            2000
                                                                 (UNAUDITED)      (NOTE)
<S>                                                                <C>            <C>
ASSETS Cash and due from banks:
     Noninterest-bearing                                           $  11,580      $  11,638
     Interest-bearing                                                  1,236          2,186
--------------------------------------------------------------------------------------------
          Total cash and cash equivalents                             12,816         13,824

Available-for-sale securities                                        422,424        346,747
Held-to-maturity securities                                            1,639          1,911
Loans, net                                                           338,893        323,014
Bank-owned life insurance                                             15,451         15,000
Accrued interest receivable                                            5,420          4,953
Bank premises and equipment, net                                       9,694          9,332
Foreclosed assets held for sale                                          299            316
Other assets                                                           2,533          4,238
--------------------------------------------------------------------------------------------
TOTAL ASSETS                                                       $ 809,169      $ 719,335
============================================================================================
LIABILITIES
Deposits:
     Noninterest-bearing                                           $  72,361      $  66,125
     Interest-bearing                                                476,843        462,842
--------------------------------------------------------------------------------------------
          Total deposits                                             549,204        528,967

Dividends payable                                                      1,365          1,353
Short-term borrowings                                                 85,562         94,691
Long-term borrowings                                                  70,595            605
Accrued interest and other liabilities                                 7,595          4,750
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                    714,321        630,366
--------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share; authorized 10,000,000
     shares; issued 5,378,212 in 2001 and 5,324,962 in 2000            5,378          5,325
Stock dividend distributable                                            --            1,054
Paid-in capital                                                       19,759         18,756
Retained earnings                                                     67,929         65,206
--------------------------------------------------------------------------------------------
     Total                                                            93,066         90,341
Accumulated other comprehensive income                                 3,748             82
Unamortized stock compensation                                           (29)           (35)
Treasury stock, at cost:
     143,412 shares at June 30, 2001                                  (1,937)
     117,718 shares at December 31, 2000                                             (1,419)
--------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                            94,848         88,969
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 809,169      $ 719,335
============================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all the information and
notes required by generally accepted accounting principles for complete
financial statements.

                                       3
<PAGE>   4



CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                        3 MONTHS ENDED             FISCAL YEAR TO DATE
(In thousands, except per share data)                 (Unaudited)   JUNE 30,        JUNE 30,     6 MONTHS ENDED JUNE 30,
                                                                      2001            2000         2001            2000
 INTEREST INCOME                                                    (CURRENT)     (PRIOR YEAR)   (CURRENT)     (PRIOR YEAR)
<S>                                                                <C>            <C>            <C>            <C>
   Interest and fees on loans                                      $    7,010     $    6,686     $   13,912     $   13,194
   Interest on balances with depository institutions                       11             31             30             56
   Interest on loans to political subdivisions                            177            156            348            319
   Interest on federal funds sold                                          65              7            126             13
   Income from available-for-sale and
      Held-to-maturity securities:
      Taxable                                                           5,276          4,609         10,009          9,288
      Tax-exempt                                                        1,016          1,117          1,960          2,231
      Dividends                                                           392            343            776            705
----------------------------------------------------------------------------------------------------------------------------
   Total interest and dividend income                                  13,947         12,949         27,161         25,806
----------------------------------------------------------------------------------------------------------------------------
 INTEREST EXPENSE
   Interest on deposits                                                 5,258          5,668         10,951         11,081
   Interest on short-term borrowings                                    1,149          1,410          2,480          2,470
   Interest on long-term borrowings                                       871            318          1,339            990
----------------------------------------------------------------------------------------------------------------------------
   Total interest expense                                               7,278          7,396         14,770         14,541
----------------------------------------------------------------------------------------------------------------------------
   Interest margin                                                      6,669          5,553         12,391         11,265
   Provision for loan losses                                              150            150            300            376
----------------------------------------------------------------------------------------------------------------------------
   Interest margin after provision for possible loan losses             6,519          5,403         12,091         10,889
----------------------------------------------------------------------------------------------------------------------------

 OTHER INCOME
   Service charges on deposit accounts                                    330            287            626            555
   Service charges and fees                                                59             68            127            119
   Trust and financial management income                                  427            424            814            825
   Insurance commissions, fees and premiums                               115             94            253            174
   Increase in cash surrender value of life insurance                     229           --              451           --
   Fees related to credit card operation                                  148            149            276            614
   Other operating income                                                  91             28            165            121
----------------------------------------------------------------------------------------------------------------------------
   Total other income before realized gains on securities, net          1,399          1,050          2,712          2,408
    Realized gains on securities, (net)                                   742            322          1,197            337
----------------------------------------------------------------------------------------------------------------------------
   Total other income                                                   2,141          1,372          3,909          2,745
----------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
   Salaries and wages                                                   2,052          1,848          4,070          3,677
   Pensions and other employee benefits                                   523            449          1,103            936
   Occupancy expense, net                                                 250            206            509            459
   Furniture and equipment expense                                        352            304            698            557
   Expenses related to credit card operation                               61             93            138            284
   Pennsylvania shares tax                                                198            199            394            380
   Other operating expense                                              1,144          1,017          2,266          2,032
----------------------------------------------------------------------------------------------------------------------------
   Total other expenses                                                 4,580          4,116          9,178          8,325
----------------------------------------------------------------------------------------------------------------------------
   Income before income tax provision                                   4,080          2,659          6,822          5,309
   Income tax provision                                                   891            446          1,368            947
----------------------------------------------------------------------------------------------------------------------------
NET INCOME                                                         $    3,189     $    2,213     $    5,454     $    4,362
=============================================================================================================================
PER SHARE DATA:
Net income - basic                                                 $     0.61     $     0.42     $     1.04     $     0.83
Net income - diluted                                               $     0.61     $     0.42     $     1.04     $     0.83
----------------------------------------------------------------------------------------------------------------------------
Dividend per share                                                 $     0.26     $     0.24     $     0.52     $     0.48
----------------------------------------------------------------------------------------------------------------------------
Number of shares used in computation - basic                        5,248,992      5,257,546      5,252,478      5,257,461
Number of shares used in computation - diluted                      5,249,781      5,259,156      5,252,984      5,258,682
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements
                                       4

<PAGE>   5


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
(In Thousands)        (Unaudited)                                           SIX MONTH PERIODS ENDED
                                                                         JUNE 30, 2001     JUNE 30, 2000
<S>                                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                               $   5,454      $   4,362
  Adjustments to reconcile net income to
  net cash provided by operating activities
   Provision for possible loan losses                                            300            376
   Realized gains on securities, net                                          (1,197)          (337)
   Gain on sale of foreclosed assets, net                                         (5)           (51)
   Depreciation expense                                                          616            537
   Accretion and amortization, net                                            (1,166)        (1,205)
   Increase in cash surrender value of life insurance                           (451)          --
   Amortization of restricted stock                                               11           --
   Deferred income tax                                                          --              (59)
   (Increase) decrease in accrued interest receivable and other assets          (928)           770
   Increase in accrued interest payable and other liabilities                  3,122          1,703
----------------------------------------------------------------------------------------------------
       Net Cash Provided by Operating Activities                               5,756          6,096
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from the maturity of held-to-maturity securities                      894             32
  Purchase of held-to-maturity securities                                       (626)           (96)
  Proceeds from sales of available-for-sale securities                         2,559         13,413
  Proceeds from maturities of available-for-sale securities                   54,637          6,598
  Purchase of available-for-sale securities                                 (124,951)        (9,467)
  Net increase in loans                                                      (16,437)        (8,926)
  Purchase of premises and equipment                                            (978)        (1,030)
  Proceeds from sale of foreclosed assets                                        280            461
----------------------------------------------------------------------------------------------------
       Net Cash (Used in) Provided by Investing Activities                   (84,622)           985
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in deposits                                         20,237         (1,523)
  Net (decrease) increase in short-term borrowings                            (9,129)         2,744
  Proceeds from long-term borrowings                                          70,000           --
  Repayments of long-term borrowings                                             (10)        (9,410)
  Proceeds from the sale of treasury stock                                      --                5
  Purchase of treasury stock                                                    (521)          --
  Dividends paid                                                              (2,719)        (2,500)
----------------------------------------------------------------------------------------------------
       Net Cash Provided by (Used in) Financing Activities                    77,858        (10,684)
----------------------------------------------------------------------------------------------------
DECREASE IN CASH  AND CASH EQUIVALENTS                                        (1,008)        (3,603)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                13,824         18,063
----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                   $  12,816      $  14,460
====================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Assets acquired through foreclosure of real estate loans                 $     258      $     225
  Interest paid                                                            $  11,915      $  12,051
  Income taxes paid                                                        $   1,014      $     842
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

                                       5

<PAGE>   6


CITIZENS & NORTHERN CORPORATION - FORM  10 - Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF INTERIM PRESENTATION

The financial information included herein, with the exception of the
consolidated balance sheet dated December 31, 2000, is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods.

Results reported for the three-month and six-month periods ended June 30, 2001
might not be indicative of the results for the year ending December 31, 2001.

This document has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation or any other regulatory agency.

2. PER SHARE DATA

Net income per share is based on the weighted-average number of shares of common
stock outstanding. The number of shares used in calculating net income and cash
dividends per share reflect the retroactive effect of stock dividends for all
periods presented. The following data show the amounts used in computing net
income per share and the weighted average number of shares of dilutive stock
options. The dilutive effect of stock options is computed as the
weighted-average common shares available from the exercise of all dilutive stock
options, less the number of shares that could be repurchased with the proceeds
of stock option exercises based on the average share price of the Corporation's
common stock during the period.
<TABLE>
<CAPTION>
                                                             WEIGHTED-
                                                              AVERAGE        EARNINGS
                                                 NET          COMMON           PER
                                               INCOME         SHARES           SHARE
<S>                                        <C>             <C>           <C>
SIX-MONTH PERIOD ENDED JUNE 30, 2001
Earnings per share - basic                   $5,454,000      5,252,478     $     1.04
Dilutive effect of stock options                                   506
-------------------------------------------------------------------------------------
Earnings per share - diluted                 $5,454,000      5,252,984     $     1.04
======================================================================================

SIX-MONTH PERIOD ENDED JUNE 30, 2000
Earnings per share - basic                   $4,362,000      5,257,461     $     0.83
Dilutive effect of stock options                                 1,221
-------------------------------------------------------------------------------------
Earnings per share - diluted                 $4,362,000      5,258,682     $     0.83
======================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                             WEIGHTED-
                                                              AVERAGE        EARNINGS
                                                 NET          COMMON           PER
                                               INCOME         SHARES           SHARE
<S>                                        <C>             <C>           <C>
QUARTER ENDED JUNE 30, 2001
Earnings per share - basic                   $3,189,000      5,248,992     $     0.61
Dilutive effect of stock options                                   789
-------------------------------------------------------------------------------------
Earnings per share - diluted                 $3,189,000      5,249,781     $     0.61
======================================================================================

QUARTER ENDED JUNE 30, 2000
Earnings per share - basic                   $2,213,000      5,257,546     $     0.42
Dilutive effect of stock options                                 1,610
-------------------------------------------------------------------------------------
Earnings per share - diluted                 $2,213,000      5,259,156     $     0.42
======================================================================================
</TABLE>


                                       6

<PAGE>   7


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

3. COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.

Comprehensive income is calculated as follows (in thousands):

<TABLE>
<CAPTION>
                                                            3 MONTHS ENDED             6 MONTHS ENDED
                                                          JUNE 30,   JUNE 30,       JUNE 30,      JUNE 30,
                                                           2001         2000         2001          2000
<S>                                                    <C>          <C>          <C>          <C>
Net income                                                $ 3,189      $ 2,213      $ 5,454      $ 4,362
Other comprehensive income (loss):
  Unrealized holding gains (losses) on
    available-for-sale securities:
    Gains (losses) arising during the period                 (289)        (583)       6,752       (1,207)
    Reclassification adjustment for realized gains           (742)        (322)      (1,197)        (337)
---------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) before income tax        (1,031)        (905)       5,555       (1,544)
Income tax related to other comprehensive income/loss         350          308       (1,889)         526
---------------------------------------------------------------------------------------------------------
Other comprehensive income (loss)                            (681)        (597)       3,666       (1,018)
---------------------------------------------------------------------------------------------------------
Comprehensive income                                      $ 2,508      $ 1,616      $ 9,120      $ 3,344
==========================================================================================================
</TABLE>





CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

PART I - FINANCIAL INFORMATION  (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Certain statements in this section and elsewhere in Form 10-Q are
forward-looking statements. Citizens & Northern Corporation and its wholly-owned
subsidiaries (collectively, the Corporation) intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995.
Forward-looking statements, which are based on certain assumptions and describe
future plans, business objectives and expectations, are generally identifiable
by the use of words such as, "believe", "expect", "intend", "anticipate",
"estimate", "project", and similar expressions. The Corporation's ability to
predict results or the actual effect of future plans or occurrences is
inherently uncertain. Factors which could have a material adverse effect on the
operations and future prospects of the Corporation include, but are not limited
to, the following:

-        changes in monetary and fiscal policies of the U.S. Treasury and the
         Federal Reserve Board, particularly related to changes in interest
         rates
-        changes in general economic conditions
-        legislative or regulatory changes
-        downturn in demand for loan, deposit and other financial services in
         the Corporation's market area
-        increased competition from other banks and non-bank providers of
         financial services
-        technological changes and increased technology-related costs
-        changes in accounting principles.

These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.

                                       7
<PAGE>   8



CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

REFERENCES TO 2001 AND 2000

Unless otherwise noted, all references to "2001" in the following discussion of
operating results are intended to mean the six months ended June 30, 2001, and
similarly, references to "2000" are intended to mean the first six months of
2000.

EARNINGS OVERVIEW

Net income for the first six months of 2001 was $5,454,000, or $1.04 per share
(basic and diluted). This represents an increase of 25.0% over the first six
months of 2000. Most of the increase is reflected in second quarter results, as
net income of $3,189,000 in the second quarter 2001 exceeded net income for the
second quarter 2000 by 44.1%. The most significant income statement changes
between the 6-month periods were as follows:

-    The interest margin increased significantly ($1,126,000, or 10.0%), to
     $12,391,000 in 2001 from $11,265,000 in 2000. Most of this increase
     occurred during the second quarter 2001 compared to the second quarter
     2000, as discussed in more detail in the "Second Quarter 2001" section
     below.

-    Realized gains on securities were $1,197,000 in 2001, compared to $337,000
     in 2000. Most of the gains in 2001 resulted from sales of bank stocks. The
     2 largest individual gains (each in excess of $300,000) were from sales of
     stock of banking companies that have announced they are being acquired.

-    In 2001, the Corporation recorded an increase in cash surrender value of
     life insurance of $451,000. In late December 2000, the Corporation
     purchased bank-owned life insurance (BOLI) at a cost of $15,000,000.

-    Credit card fee revenues (excluding interest income) decreased to $276,000
     in 2001 from $614,000 in 2000. In late 1999, the Corporation sold its
     merchant processing program, which dramatically reduced the amount of
     interchange fees earned and costs incurred. In the first quarter 2000, the
     Corporation recorded final residual fees.

-    Other (noninterest) expenses increased $853,000, or 10.2%, in 2001 compared
     to 2000. Changes in other expenses are discussed in more detail later in
     Management's Discussion and Analysis.

-    The income tax provision increased to $1,368,000 in 2001 from $947,000
     in 2000, because pre-tax income is higher.

SECOND QUARTER 2001

The Corporation's net interest margin (excess of interest and dividend income
over interest expense) widened dramatically in the second quarter 2001 compared
to the previous several quarters. This resulted primarily from reductions in
interest rates on deposits and borrowed funds. As widely publicized, the Federal
Reserve Board has lowered its targeted federal funds rate several times in 2001,
from 6.25% as of December 31, 2000, to 3.5% as of June 30, 2001. The Fed's
actions have led to a decline in short-term interest rates in the Corporation's
market. Long-term rates, on the other hand, have held fairly steady, and the
Corporation has been able to generate loans and purchase mortgage-backed and
other long-term securities at interest rates that are only slightly lower (on
average) than the Corporation's holdings in 2000.

                                       8
<PAGE>   9



CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE I - QUARTERLY FINANCIAL DATA

(IN THOUSANDS)
<TABLE>
<CAPTION>
                                                    QUARTER ENDED:
                                                    JUNE 30,   MAR. 31,   DEC. 31,    SEPT. 30,    JUNE 30,   MAR. 31,
                                                     2001        2001       2000         2000        2000       2000
<S>                                              <C>         <C>         <C>         <C>         <C>         <C>
Interest income                                     $13,947     $13,214     $13,224     $13,125     $12,949     $12,857
Interest expense                                      7,278       7,492       7,814       7,790       7,396       7,145
-----------------------------------------------------------------------------------------------------------------------
Interest margin                                       6,669       5,722       5,410       5,335       5,553       5,712
Provision for loan losses                               150         150         150         150         150         226
-----------------------------------------------------------------------------------------------------------------------
Interest margin after provision for loan losses       6,519       5,572       5,260       5,185       5,403       5,486
Other income                                          1,399       1,313       1,119         963       1,050       1,358
Securities gains                                        742         455         810         230         322          15
Other expenses                                        4,580       4,598       4,410       4,171       4,116       4,209
-----------------------------------------------------------------------------------------------------------------------
Income before income tax provision                    4,080       2,742       2,779       2,207       2,659       2,650
Income tax provision                                    891         477         498         374         446         501
-----------------------------------------------------------------------------------------------------------------------
Net income                                          $ 3,189     $ 2,265     $ 2,281     $ 1,833     $ 2,213     $ 2,149
=======================================================================================================================
Net income per share - basic                        $  0.61     $  0.43     $  0.43     $  0.35     $  0.42     $  0.41
=======================================================================================================================
Net income per share - diluted                      $  0.61     $  0.43     $  0.43     $  0.35     $  0.42     $  0.41
=======================================================================================================================
</TABLE>

The number of shares used in calculating net income per share for each quarter
of 2000 reflects the retroactive effect of a 1% stock dividend declared in
November 2000 and issued in January 2001.

PROSPECTS FOR THE REST OF 2001

Based on current economic forecasts, management believes the net interest margin
throughout the remainder of 2001 will be fairly consistent with the second
quarter 2001 results, and may increase slightly. In fact, many economic
forecasts indicate that the Federal Reserve Board may lower their targeted
federal funds rate again, by .25%, in August. The possible negative consequences
of a further downturn in the economy in the Corporation's markets is a concern;
however, to date, there has been no evidence of deterioration in collectibility
of the loan portfolio, and new loan demand has been good. Securities gains and
losses have a significant impact on the Corporation's net income - it is
impossible to predict, with any degree of precision, the amounts of securities
gains and losses that may be realized in the rest of 2001.

NET INTEREST MARGIN

The Corporation's primary source of operating income is represented by the net
interest margin. The net interest margin is equal to the difference between the
amounts of interest income and interest expense. Tables II, III and IV include
information regarding the Corporation's net interest margin in 2001 and 2000. In
each of these tables, the amounts of interest income earned on tax-exempt
securities and loans have been adjusted to a fully taxable-equivalent basis.
Accordingly, the net interest margin amounts reflected in these tables exceed
the amounts presented in the consolidated financial statements. The discussion
that follows is based on amounts in the Tables.

The net interest margin, on a tax-equivalent basis, was $13,417,000 in 2001, an
increase of $1,035,000 or 8.4% from 2000. As described in the "Earnings
Overview" section of Management's Discussion, the main reason for the increase
in net interest margin was the decrease in interest rates on the Corporation's
deposits and borrowed funds. Table IV displays the effect of volume and rate
changes on the Corporation's major interest earning assets and interest-bearing
liabilities. Most significantly, Table IV shows that interest rate changes had
the effect of increasing net interest income $1,077,000 in 2001. Similarly,
Table III, which displays average daily balances and rates, shows a widening of
the "Interest Rate Spread" (excess of average rate of return on interest-bearing
assets over average cost of funds on interest-bearing liabilities) to 2.98% in
2001 from 2.71% in the first 6 months of 2000.


                                       9
<PAGE>   10


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

INTEREST INCOME AND EARNING ASSETS

Interest income increased 4.7% to $28,187,000 in 2001 from $26,923,000 in 2000.
Income from available-for-sale securities increased $425,000, or 3.2%, and
interest from loans increased $762,000 or 5.6%. The increase in income from
available-for-sale securities was mainly attributable to higher average
available-for-sale securities balances in 2001. As indicated in Table III,
average available-for-sale securities in 2001 amounted to $391,631,000, an
increase of 5.1% over the first 6 months of 2000. Most of the increase in
available-for-securities was in mortgage-backed securities, which increased
$25,103,000, or 23.4%. As reflected in Table IV, the increase in interest from
loans was also primarily volume-related. Average gross loans in 2001 (as shown
in Table III) amounted to $331,666,000, or 5.9% higher than in the 1st 6 months
of 2000.

INTEREST EXPENSE AND INTEREST-BEARING LIABILITIES

Interest expense increased to $14,770,000 in 2001, an increase of 1.6% over
2000. The increase in interest expense resulted from increases in volume,
primarily of CDs, money market accounts and borrowed funds. As you can see in
Table III, the average balances of CDs increased $22,630,000 (15.8%) in 2001
compared to 2000, and average money market balances increased $10,410,000
(7.3%). Growth in these deposit categories resulted from several factors,
including increased deposits from governmental entities and school districts and
an expanded branch system, with relatively new offices opened in Mansfield
(1998) and Muncy (2000). Average borrowed funds (excluding federal funds
purchased) increased $20,980,000, or 18.2%, in 2001. As indicated in the
consolidated statement of cash flows, the Corporation entered into long-term
borrowing arrangements totaling $70,000,000 in 2001. Proceeds from these
borrowings were used to help fund the purchase of available-for-sale securities,
principally mortgage-backed securities.

As reflected in Table IV, lower interest rates significantly reduced interest
expense from money market accounts and IRAs in 2001 compared to 2000. The
average interest rate on money market accounts fell to 4.08% in 2001 from 5.23%
in 2000, and the average rate on IRAs fell to 5.26% from 6.29%. However, the
average rate incurred on CDs was higher in 2001 than in 2000, offsetting some of
the lower interest costs from the other deposit categories. A significant amount
of the CDs in 2001 were initiated during 2000, when short-term interest rates
were higher than in 2001. Management expects many of these accounts to be
refunded at lower rates over the remaining months of 2001.



                                       10
<PAGE>   11


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE II - ANALYSIS OF INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
                                                                        SIX-MONTHS ENDED
                                                                           JUNE 30,
(IN THOUSANDS)                                                         2001          2000

<S>                                                                    <C>         <C>
INTEREST INCOME Available-for-sale securities:
     U.S. Treasury securities                                          $    76     $    79
     Securities of other U.S. Government agencies and corporations       4,505       4,654
     Mortgage-backed securities                                          4,354       3,635
     Obligations of states and political subdivisions                    2,832       3,209
     Equity securities                                                     776         705
     Other securities                                                    1,022         858
--------------------------------------------------------------------------------------------
          Total available-for-sale securities                           13,565      13,140
--------------------------------------------------------------------------------------------
Held-to-maturity securities:
     U.S. Treasury securities                                               20          17
     Securities of other U.S. Government agencies and corporations          23          34
     Mortgage-backed securities                                              9          11
--------------------------------------------------------------------------------------------
          Total held-to-maturity securities                                 52          62
--------------------------------------------------------------------------------------------
Interest-bearing due from banks                                             30          56
Federal funds sold                                                         126          13
Loans:
     Real estate loans                                                  11,296      10,675
     Consumer                                                            1,543       1,521
     Agricultural                                                           94          94
     Commercial/industrial                                                 936         860
     Other                                                                  34          33
     Political subdivisions                                                502         458
     Leases                                                                  9          11
--------------------------------------------------------------------------------------------
          Total loans                                                   14,414      13,652
--------------------------------------------------------------------------------------------
Total Interest Income                                                   28,187      26,923
--------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest checking                                                          367         500
Money market                                                             3,693       3,092
Savings                                                                    545         570
Certificates of deposit                                                  3,891       4,856
Individual Retirement Accounts                                           2,403       2,067
Other time deposits                                                         24          24
Federal funds purchased                                                     69         187
Other borrowed funds                                                     3,750       3,273
--------------------------------------------------------------------------------------------
Total Interest Expense                                                  14,770      14,541
--------------------------------------------------------------------------------------------
Net Interest Income                                                    $13,417     $12,382
============================================================================================
</TABLE>


Income on tax-exempt securities and loans is presented on a fully
taxable-equivalent basis, using the Corporation's marginal federal income tax
rate of 34%.

                                       11
<PAGE>   12


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE III - ANALYSIS OF AVERAGE DAILY BALANCES AND RATES
<TABLE>
<CAPTION>
                                                           SIX          RATE OF                     RATE OF    SIX        RATE OF
(IN THOUSANDS)                                           MONTHS         RETURN/        YEAR       RETURN/   MONTHS      RETURN/
                                                          ENDED         COST OF       ENDED       COST OF   ENDED       COST OF
EARNING ASSETS                                          06/30/01        FUNDS %      12/31/00     FUNDS %  06/30/00     FUNDS %
<S>                                                      <C>              <C>      <C>               <C>   <C>             <C>
   Available-for-sale securities, at amortized cost:
   U.S. Treasury securities                              $   2,507        6.11%    $   2,512         6.13% $   2,513       6.34%
   Securities of other U.S. Gov't agencies and
     corporations                                          128,709        7.06%      133,063         7.08%   132,287       7.09%
   Mortgage-backed securities                              132,339        6.63%      101,155         6.80%   107,236       6.84%
   Obligations of states and political subdivisions         71,006        8.04%       81,312         7.80%    81,229       7.97%
   Equity Securities                                        28,870        5.42%       25,899         5.68%    26,096       5.45%
   Other securities                                         28,200        7.31%       22,572         7.64%    23,254       7.44%
----------------------------------------------------------------------------------------------------------------------------------
      Total available-for-sale securities                  391,631        6.98%      366,513         7.09%   372,615       7.11%
----------------------------------------------------------------------------------------------------------------------------------

Held-to-maturity securities:
   U. S. Treasury securities                                   742        5.44%          685         5.40%       635       5.40%
   Securities of other U.S. Gov't agencies and
     corporations                                              721        6.43%        1,019         6.67%     1,036       6.62%
   Mortgage-backed securities                                  231        7.86%          283         7.42%       297       7.47%
----------------------------------------------------------------------------------------------------------------------------------
      Total held-to-maturity securities                      1,694        6.19%        1,987         6.34%     1,968       6.35%
----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing due from banks                              1,539        3.93%        1,861         6.13%     2,473       4.57%
Federal funds sold                                           5,224        4.86%        1,000         6.40%       441       5.94%
Loans:
   Real estate loans                                       266,502        8.55%      254,225         8.61%   249,646       8.62%
   Consumer                                                 27,755       11.21%       27,760        11.01%    27,971      10.97%
   Agricultural                                              1,992        9.52%        1,963         9.73%     1,962       9.66%
   Commercial/industrial                                    21,596        8.74%       21,336         8.66%    20,528       8.45%
   Other                                                       862        7.95%          886         8.01%       845       7.88%
   Political subdivisions                                   12,762        7.93%       12,009         7.57%    12,001       7.70%
   Leases                                                      197        9.21%          203        10.84%       177      12.53%
----------------------------------------------------------------------------------------------------------------------------------
    Total loans                                            331,666        8.76%      318,382         8.79%   313,130       8.79%
----------------------------------------------------------------------------------------------------------------------------------
    Total Earning Assets                                   731,754        7.77%      689,743         7.87%   690,627       7.86%
Cash                                                        11,096                    10,887                  10,335
Unrealized gain/loss on securities                           3,200                   (12,831)                (13,472)
Allowance for loan losses                                   (5,374)                   (5,233)                 (5,152)
Bank premises and equipment                                  9,399                     8,712                   8,388
Other assets                                                24,689                    12,943                  13,356
----------------------------------------------------------------------------------------------------------------------------------
Total Assets                                             $ 774,764                 $ 704,221               $ 704,082
===================================================================================================================================
INTEREST-BEARING LIABILITIES
Interest checking                                        $  35,980        2.06%    $  36,086         2.87% $  36,423       2.77%
Money market                                               152,826        4.08%      146,209         5.39%   142,416       5.23%
Savings                                                     45,788        2.40%       45,963         2.49%    45,968       2.50%
Certificates of deposit                                    166,308        5.89%      144,997         5.64%   143,678       5.46%
Individual Retirement Accounts                              79,252        5.26%       76,439         6.32%    77,057       6.29%
Other time deposits                                          2,011        2.41%        1,717         2.56%     1,663       2.91%
Federal funds purchased                                      2,915        4.77%        5,721         6.71%     6,097       6.18%
Other borrowed funds                                       136,425        5.54%      108,581         6.13%   115,445       5.72%
----------------------------------------------------------------------------------------------------------------------------------
   Total Interest-bearing Liabilities                      621,505        4.79%      565,713         5.33%   568,747       5.16%

Demand deposits                                             53,579                    52,437                  51,163
Other liabilities                                            7,600                     7,279                   5,411
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                          682,684                   625,429                 625,321
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity, excluding other
  comprehensive income/loss                                 89,968                    87,258                  87,439
Other comprehensive income/loss                              2,112                    (8,466)                 (8,678)
----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity                                  92,080                    78,792                  78,761
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity               $ 774,764                 $ 704,221               $ 704,082
===================================================================================================================================
Interest Rate Spread                                                      2.98%                      2.54%                 2.71%
Net Interest Income/Earning Assets                                        3.70%                      3.50%                 3.62%
</TABLE>

(1) Changes in income on tax-exempt securities and loans is presented on a fully
taxable-equivalent basis, using the Corporation's marginal federal income tax
rate of 34%.

(2) Nonaccrual loans have been included with loans for the purpose of analyzing
net interest earnings.

                                       12
<PAGE>   13


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE IV - ANALYSIS OF THE EFFECT OF VOLUME AND RATE CHANGES ON INTEREST INCOME
AND INTEREST EXPENSE

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                      PERIODS ENDED JUNE 30, 2001/2000
                                                                   CHANGE IN     CHANGE IN      TOTAL
                                                                     VOLUME        RATE         CHANGE
<S>                                                                  <C>          <C>          <C>
EARNING ASSETS Available-for-sale securities:
   U.S Treasury securities                                           $  --        $    (3)     $    (3)
   Securities of other U.S. Government agencies and corporations        (125)         (24)        (149)
   Mortgage-backed securities                                            829         (110)         719
   Obligations of states and political subdivisions                     (408)          31         (377)
   Equity securities                                                      75           (4)          71
   Other securities                                                      179          (15)         164
--------------------------------------------------------------------------------------------------------
      Total available-for-sale securities                                550         (125)         425
--------------------------------------------------------------------------------------------------------
Held-to-maturity securities
   U.S Treasury securities                                                 3         --              3
   Securities of other U.S. Government agencies and corporations         (10)          (1)         (11)
   Mortgage-backed securities                                             (3)           1           (2)
--------------------------------------------------------------------------------------------------------
      Total held-to-maturity securities                                  (10)        --            (10)
--------------------------------------------------------------------------------------------------------
Interest-bearing due from banks                                          (19)          (7)         (26)
Federal funds sold                                                       115           (2)         113
Loans:
   Real estate loans                                                     715          (94)         621
   Consumer                                                              (12)          34           22
   Agricultural                                                            1           (1)        --
   Commercial/industrial                                                  46           30           76
   Other                                                                   1         --              1
   Political subdivisions                                                 30           14           44
   Leases                                                                  1           (3)          (2)
--------------------------------------------------------------------------------------------------------
           Total loans                                                   782          (20)         762
--------------------------------------------------------------------------------------------------------
Total Interest Income                                                  1,418         (154)       1,264
--------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
   Interest checking                                                      (6)        (127)        (133)
   Money market                                                          255         (856)        (601)
   Savings                                                                (2)         (23)         (25)
   Certificates of deposit                                               645          320          965
   Individual Retirement Accounts                                         66         (402)        (336)
   Other time deposits                                                     4           (4)        --
   Federal funds purchased                                               (82)         (36)        (118)
   Other borrowed funds                                                  580         (103)         477
--------------------------------------------------------------------------------------------------------
   Total  Interest Expense                                             1,460       (1,231)         229
--------------------------------------------------------------------------------------------------------
Net Interest Income                                                  $   (42)     $ 1,077      $ 1,035
========================================================================================================
</TABLE>



(1) Changes in income on tax-exempt securities and loans is presented on a fully
taxable-equivalent basis, using the Corporation's marginal federal income tax
rate of 34%.

(2) The change in interest due to both volume and rates has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amount of the change in each.

                                       13


<PAGE>   14


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q


TABLE V - COMPARISON OF NONINTEREST INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                      SIX MONTHS ENDED
                                                                 JUNE 30,        JUNE 30,
                                                                   2001             2000
<S>                                                             <C>             <C>
 Service charges on deposit accounts                            $    626        $    555
 Service charges and fees                                            127             119
 Trust and financial management revenue                              814             825
 Insurance commissions, fees and premiums                            253             174
 Increase in cash surrender value of life insurance                  451               -
 Fees related to credit card operation                               276             614
 Other operating income                                              165             121
-----------------------------------------------------------------------------------------
 Total other operating income, before realized
  gains on securities, net                                         2,712           2,408
 Realized gains on securities, net                                 1,197             337
-----------------------------------------------------------------------------------------
 Total Other Income                                            $   3,909       $   2,745
=========================================================================================
</TABLE>

Total noninterest income increased $1,164,000, or 42.4%, in 2001 compared to
2000. The most significant changes - the increase in security gains, income from
the (BOLI) life insurance contract and the decrease in credit card-related fees
- are discussed in the "Earnings Overview" section of Management's Discussion
and Analysis.

TABLE VI- COMPARISON OF NONINTEREST EXPENSE
(IN THOUSANDS)
<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
                                                              JUNE 30,      JUNE 30,
                                                                2001           2000
<S>                                                           <C>            <C>
 Salaries and wages                                           $   4,070      $   3,677
 Pensions and other employee benefits                             1,103            936
 Occupancy expense, net                                             509            459
 Furniture and equipment expense                                    698            557
 Expenses related to credit card operation                          138            284
 Pennsylvania shares tax                                            394            380
 Other operating expense                                          2,266          2,032
---------------------------------------------------------------------------------------
 Total Other Expense                                          $   9,178      $   8,325
========================================================================================
</TABLE>


Salaries and wages increased $393,000, or 10.7%, in 2001 compared to 2000. The
increase is the result of annual merit raises ranging from 2%-5%, and an
increase in the number of employees. Higher staffing levels were required for
the Muncy branch, trust and financial management and insurance sales and
service.

Pensions and other employee benefits increased $167,000, or 17.8%, in 2001
compared to 2000. In addition to increased costs resulting from the higher
number of employees, the Corporation experienced an increase in medical
insurance premium rates.


                                       14
<PAGE>   15


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q


Furniture and equipment expense increased $141,000, or 25.3%, in 2001 compared
to 2000. The major categories of furniture and equipment expense that increased
in 2001 compared to 2000 were maintenance costs associated with computer
hardware and software, and depreciation. The increase in computer maintenance
costs is mainly attributable to the timing of certain expenses. Increased
depreciation expense resulted primarily from the addition of the Muncy branch,
which began operations in the 4th quarter 2000, and the opening of a new credit
card operations facility in mid-2000.

Credit card expenses decreased in 2001 because of lower interchange fees paid.
This change resulted from the sale of the merchant banking program, as discussed
in the "Earnings Overview" section of Management's Discussion and Analysis.

Other expense increased $234,000, or 11.5%, in 2001 compared to 2000. This
category includes many different types of expenses. Some of the overall increase
in this category was caused by increases in number of transactions processed and
number of employees. The most significant fluctuations in individual types of
expenses between years are as follows:

     -        Advertising expenses increased $27,000, to $157,000, in 2001. This
              increase resulted from several factors, including a decision to
              advertise on an additional cable television network, costs related
              to promoting the Muncy branch and costs associated with internet
              advertising for the Corporation's "Virtual Village" program.
              Virtual Village is an e-commerce web site for consumers and
              businesses in the Corporation's market area.

     -        Telephone expenses related to data lines increased $27,000, to
              $122,000, in 2001. These costs are mainly related to the
              Corporation's computer network that allows all branches and
              operating locations to access mainframe and PC applications. The
              Corporation's monthly data line costs increased to approximately
              the current level starting in the 2nd quarter 2000.

     -        Public relations expense increased $24,000, to $113,000, in 2001.
              This increase includes new sponsorships of several
              community-oriented programs located in the Corporation's market
              area, as well as costs related to promotion of the Muncy office.

     -        Employee meetings, educational seminars and other
              education-related expenses increased $23,000, to $199,000, in
              2001. Included in this category are costs associated with trust
              and financial management employees' efforts to obtain required
              licenses, as well as costs related to employees' attendance at
              conferences and courses.

FINANCIAL CONDITION

Significant changes in the average balances of the Corporation's earning assets
and interest-bearing liabilities are described in the "Net Interest Margin"
section of Management's Discussion and Analysis. This section addresses changes
in the Corporation's balance sheet (excluding the allowance for loan losses and
stockholders' equity, which are discussed in separate sections) that are not
addressed in that discussion.

As reflected in the consolidated balance sheet, available-for-sale securities
increased $75,677,000, or 21.8%, from December 31, 2000 to June 30, 2001. Table
VII provides a breakdown of securities at June 30, 2001 and December 31, 2000.
In 2001, the Corporation purchased substantial amounts of mortgage-backed
securities, other securities (mainly "Trust Preferred" securities issued by
financial institutions) and municipal bonds. Securities purchases were funded
primarily from 2 sources: (1) proceeds from maturities of available-for-sale
securities (mainly U.S. Agency securities that were called and principal
repayments from mortgage-backed securities) of $54,637,000, and (2) long-term
borrowings of $70,000,000. The terms of the long-term borrowings range from 2002
to 2011, with $45,000,000 maturing in 2002 and 2003. As short-term and
intermediate-term interest rates declined in 2001, management identified
opportunities to purchase securities using borrowed funds at a positive spread.

Net loans increased $15,879,000, or 4.9%, at June 30, 2001 compared to December
31, 2000. As indicated in Table X, most of the growth in loans occurred in loans
secured by real estate.

Total deposits increased $20,237,000, or 3.8%, at June 30, 2001 compared to
December 31, 2000. The most significant change within types of deposits was in
CDs, which increased $23,345,000. Much of the increase in CDs was from new and
larger accounts held by governmental entities and school districts.

                                       15
<PAGE>   16


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE VII - INVESTMENT SECURITIES

(IN THOUSANDS)
<TABLE>
<CAPTION>
                                                             JUNE 30, 2001              DECEMBER 31, 2000
                                                         AMORTIZED       FAIR        AMORTIZED       FAIR
                                                           COST          VALUE         COST          VALUE
<S>                                                         <C>           <C>            <C>           <C>
AVAILABLE-FOR-SALE SECURITIES:
Obligations of the U.S. Treasury                            $  2,506      $  2,557       $ 2,509       $ 2,533
Obligations of other U.S. Government agencies                118,620       117,210       132,713       128,883
Obligations of states and political subdivisions              78,641        79,482        68,236        69,065
Other securities                                              36,788        36,086        22,111        20,964
Mortgage-backed securities                                   151,643       151,265        91,708        91,240
--------------------------------------------------------------------------------------------------------------
Total debt securities                                        388,198       386,600       317,277       312,685
Marketable equity securities                                  28,547        35,824        29,346        34,062
--------------------------------------------------------------------------------------------------------------
Total                                                      $ 416,745     $ 422,424     $ 346,623      $346,747
==============================================================================================================

HELD-TO-MATURITY SECURITIES:
Obligations of the U.S. Treasury                             $   743       $   733        $  707        $  708
Obligations of other U.S. Government agencies                    696           701           946           947
Mortgage-backed securities                                       200           204           258           259
--------------------------------------------------------------------------------------------------------------
Total                                                       $  1,639      $  1,638       $ 1,911       $ 1,914
==============================================================================================================
</TABLE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses includes two components, allocated and
unallocated. The allocated component of the allowance for loan losses reflects
probable losses resulting from the analysis of individual loans, specific
allowances for loans in certain industries and historical loss experience for
each loan category. The historical loan loss experience element is determined
based on the ratio of net charge-offs to average loan balances over a five-year
period, for each significant type of loan. The charge-off ratio is then applied
to the current outstanding loan balance for each type of loan (net of other
loans that are individually evaluated).

The unallocated portion of the allowance is determined based on management's
assessment of general economic conditions as well as specific economic factors
in the market area. This determination inherently involves a higher degree of
uncertainty and considers current risk factors that may not have yet manifested
themselves in the Bank's historical loss factors used to determine the allocated
component of the allowance, and it recognizes that knowledge of the portfolio
credit risk may be incomplete.

As noted in Table IX below, the unallocated portion of the allowance for loan
losses increased to $2,364,000 at June 30, 2001 from $1,983,000 at December 31,
2000. The unallocated balance at June 30, 2001 is consistent with the March 31,
2001 unallocated allowance of $2,331,000. The larger unallocated allowance
balances in 2001 reflect management's concern related to adverse changes in the
economy, including several local plant lay-offs. Through June 30, 2001, these
adverse changes had not yet significantly increased levels of delinquent loans.

The provision for loan losses decreased to $300,000 in 2001 from $376,000 in
2000. The amount of the provision in each period is determined based on the
amount required to maintain an appropriate allowance in light of the factors
described above.

Tables VIII, IX and X present an analysis of the allowance for loan losses, the
allocation of the allowance and a five-year summary of loans by type.


                                       16
<PAGE>   17


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q
<TABLE>
<CAPTION>
TABLE VIII- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

(IN THOUSANDS)                              SIX-MONTHS
                                               ENDED
                                              JUNE 30,                    YEARS ENDED DECEMBER 31:
                                        2001      2000       1999       1998       1997        1996
---------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Balance at beginning of year          $5,291     $5,131     $4,820     $4,913     $4,776     $4,579
Charge-offs:
   Real estate loans                     123        272         81        257        246        157
   Installment loans                      44         77        138        144        230        240
   Credit cards and related plans        103        214        192        264        305        201
   Commercial and other loans           --           53        219        301          3         74
---------------------------------------------------------------------------------------------------
Total charge-offs                        270        616        630        966        784        672
---------------------------------------------------------------------------------------------------
Recoveries:
   Real estate loans                       5         26         81         12         21         22
   Installment loans                      13         23         60         43         64         53
   Credit cards and related plans         15         28         30         40         30         38
   Commercial and other loans             32         23         10         15          9         55
---------------------------------------------------------------------------------------------------
Total recoveries                          65        100        181        110        124        168
---------------------------------------------------------------------------------------------------
Net charge-offs                          205        516        449        856        660        504
Additions charged to operations          300        676        760        763        797        701
---------------------------------------------------------------------------------------------------
Balance at end of period              $5,386     $5,291     $5,131     $4,820     $4,913     $4,776
=====================================================================================================
</TABLE>

<TABLE>
<CAPTION>
TABLE IX - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES BY TYPE

(IN THOUSANDS)
                                        AT
                                     JUNE 30,     AT DECEMBER 31:
                                       2001       2000       1999       1998       1997        1996
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
Commercial                            $1,589     $1,612     $2,081     $  650     $  625     $  630
Noncommercial mortgages                  830        952        834         97        350         58
Impaired loans                           169        273        609        290        274        113
Consumer                                 434        471        437        702        375        303
All other commitments                   --         --          150        202        343        369
Unallocated                            2,364      1,983      1,020      2,879      2,946      3,303
---------------------------------------------------------------------------------------------------
Total Allowance                       $5,386     $5,291     $5,131     $4,820     $4,913     $4,776
=====================================================================================================
</TABLE>


                                       17


<PAGE>   18


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE X - LOANS BY TYPE
<TABLE>
<CAPTION>
(IN THOUSANDS)                        JUNE 30,       DEC. 31,      DEC. 31,       DEC. 31,        DEC. 31,       DEC. 31,
                                        2001           2000          1999           1998            1997           1996
<S>                                  <C>            <C>            <C>            <C>            <C>            <C>
 Real estate - construction          $   1,989      $     452      $     649      $   1,004      $     406      $   1,166
 Real estate - mortgage                275,365        263,325        247,604        230,815        219,952        213,957
 Consumer                               26,925         28,141         29,140         30,924         33,094         33,420
 Agriculture                             2,155          1,983          1,899          1,930          2,424          2,603
 Commercial                             23,384         20,776         18,050         17,630         17,176         15,751
 Other                                     916            948          1,025          1,062          6,260          5,014
 Political subdivisions                 13,367         12,462         12,332          7,449          5,895          6,464
 Lease receivables                         178            218            222            218            256            264
---------------------------------------------------------------------------------------------------------------------------
 Total                                 344,279        328,305        310,921        291,032        285,463        278,639
 Less: unearned discount                  --             --              (29)           (29)           (37)           (42)
---------------------------------------------------------------------------------------------------------------------------
                                       344,279        328,305        310,892        291,003        285,426        278,597
 Less: allowance for loan losses        (5,386)        (5,291)        (5,131)        (4,820)        (4,913)        (4,776)
---------------------------------------------------------------------------------------------------------------------------
Loans, net                           $ 338,893      $ 323,014      $ 305,761      $ 286,183      $ 280,513      $ 273,821
===========================================================================================================================
</TABLE>

LIQUIDITY

Liquidity is the ability to quickly raise cash at a reasonable cost. An adequate
liquidity position permits the Corporation to pay creditors, compensate for
unforeseen deposit fluctuations and fund unexpected loan demand. The Corporation
maintains overnight borrowing facilities with several correspondent banks that
provide a source of day-to-day liquidity. Also, the Corporation maintains
borrowing facilities with the Federal Home Loan Bank of Pittsburgh, secured by
mortgage loans and mortgage-backed securities. At June 30, 2001, the Corporation
had unused borrowing availability with correspondent banks and the Federal Home
Loan Bank of Pittsburgh totaling approximately $242,054,000. Additionally, the
Corporation uses repurchase agreements placed with brokers to borrow short-term
funds secured by investment assets, and uses "RepoSweep" arrangements to borrow
funds from commercial banking customers on an overnight basis.

STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY

The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. For many years, the
Corporation and the Bank have maintained strong capital positions. The following
table presents consolidated capital ratios at June 30, 2001:

TABLE XI - CAPITAL RATIOS

(In thousands)
<TABLE>
<CAPTION>
                                                           CITIZENS & NORTHERN      REGULATORY STANDARDS
                                                                CORPORATION          WELL          MINIMUM
                                                                (ACTUAL)         CAPITALIZED      STANDARD
-------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>             <C>
Total capital to risk-weighted assets                             22.53%            10.00%          8.00%
Tier 1 capital to risk-weighted assets                            20.57%             6.00%          4.00%
Tier 1 capital to average total assets                            11.76%             5.00%          4.00%
</TABLE>


Management expects the Corporation and the Bank to maintain capital levels that
exceed the regulatory standards for well-capitalized institutions for the next
12 months and for the foreseeable future. Planned capital expenditures during
the next 12 months are not expected to have a detrimental effect on capital
ratios or results of operations.

                                       18
<PAGE>   19


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

INFLATION

Over the last several years, direct inflationary pressures on the Corporation's
payroll-related and other noninterest costs have been modest. However, the
Corporation is significantly affected by the Federal Reserve Board's efforts to
control inflation through changes in interest rates. Management monitors the
impact of economic trends, including any indicators of inflationary pressure, in
managing interest rate and other financial risks.


                                       19
<PAGE>   20


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

PART I - FINANCIAL INFORMATION  (CONTINUED)
ITEM 3. INTEREST RATE RISK AND MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

The Corporation's two major categories of market risk, interest rate and equity
securities risk, are discussed in the following sections.

INTEREST RATE RISK

Business risk arising from changes in interest rates is an inherent factor in
operating a bank. The Corporation's assets are predominantly long-term, fixed
rate loans and debt securities. Funding for these assets comes principally from
short-term deposits and borrowed funds. Accordingly, there is an inherent risk
of lower future earnings or decline in fair value of the Corporation's financial
instruments when interest rates change.

The Bank uses a simulation model to calculate the potential effects of interest
rate fluctuations on net interest income and the market value of portfolio
equity. Only assets and liabilities of the Bank are included in management's
monthly simulation model calculations. Since the Bank makes up more than 90% of
the Corporation's total assets and liabilities, and because the Bank is the
source of the most volatile interest rate risk, management does not consider it
necessary to run the model for the remaining entities within the consolidated
group. For purposes of these calculations, the market value of portfolio equity
includes the fair values of financial instruments, such as securities, loans,
deposits and borrowed funds, and the book values of nonfinancial assets and
liabilities, such as premises and equipment and accrued interest. The model
measures and projects potential changes in net interest income, and calculates
the discounted present value of anticipated cash flows of financial instruments,
under the "base most likely" and "what if" scenarios. Typically, management runs
these calculations using the base most likely scenario, and assuming increases
and decreases of 100 basis points (1%), 200 basis points and 300 basis points
from the base most likely interest rates.

The Bank's Board of Directors has established policy guidelines for acceptable
levels of interest rate risk, based on an immediate increase or decrease in
interest rates of 200 basis points. The policy limit for fluctuation in net
interest income is minus 20% from the base most likely one-year scenario. The
policy limit for market value variance is minus 30% from the base most likely
one-year scenario. As Table XII shows, as of June 30, 2001, the Bank's interest
rate risk calculations were within the policy thresholds. The most sensitive
scenario presented is the "+200 basis points" scenario. If interest rates were
to immediately increase 200 basis points, the Bank's calculations based on the
model show that net interest income would decrease 19.1% over the next 12
months, and the market value of portfolio equity would decrease 27.91%.

The table that follows was prepared using the simulation model described above.
The model makes estimates, at each level of interest rate change, regarding cash
flows from principal repayments on loans and mortgage-backed securities and call
activity on other investment securities. Actual results could vary significantly
from these estimates, which could result in significant differences in the
calculations of projected changes in net interest margin and market value of
portfolio equity. Also, the model does not make estimates related to changes in
the composition of the deposit portfolio that could occur due to rate
competition and the table does not necessarily reflect changes that management
would make to realign the portfolio as a result of changes in interest rates.


                                       20

<PAGE>   21


CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

TABLE XII - THE EFFECT OF HYPOTHETICAL CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
                                                                          PERIOD ENDING JUNE 30, 2002
(IN THOUSANDS)

                                                                  PLUS 200              MINUS 200
                                                    MOST LIKELY    BASIS                 BASIS
                                                      FORECAST    POINTS                 POINTS
                                                       AMOUNT     AMOUNT       % CHANGE  AMOUNT       % CHANGE
<S>                                                   <C>         <C>            <C>     <C>           <C>
Interest income:
     Securities                                       $25,472     $26,183        2.79    $24,654       (3.21)
     Interest-bearing due from banks
       and federal funds sold                             258         330       27.91        201      (22.09)
     Loans                                             30,198      31,502        4.32     28,148       (6.79)
---------------------------------------------------------------------------------------------------------------
          Total interest income                        55,928      58,015        3.73     53,003       (5.23)
---------------------------------------------------------------------------------------------------------------
Interest expense:
     Interest on deposits                              21,273      27,757       30.48     17,310      (18.63)
     Interest on borrowed funds                         6,434       7,428       15.45      5,853       (9.03)
---------------------------------------------------------------------------------------------------------------
          Total interest expense                       27,707      35,185       26.99     23,163      (16.40)
---------------------------------------------------------------------------------------------------------------
Net Interest Income                                   $28,221     $22,830      (19.10)   $29,840        5.74
===============================================================================================================
Market Value of Portfolio Equity at June 30, 2001     $83,859     $60,452      (27.91)   $98,212       17.12
===============================================================================================================
</TABLE>


EQUITY SECURITIES RISK

The Corporation's equity securities portfolio consists primarily of investments
in stock of banks and bank holding companies located mainly in Pennsylvania. The
Corporation also owns restricted stock issued by the Federal Home Loan Bank of
Pittsburgh.

Investments in bank stocks are subject to the risk factors that affect the
banking industry in general, including competition from nonbank entities, credit
risk, interest rate risk and other factors, which could result in a decline in
market prices. Also, losses could occur in individual stocks held by the
Corporation because of specific circumstances related to each bank. Further,
since the stocks held are bank and bank holding companies concentrated in
Pennsylvania, these investments could decline in market value if there is a
downturn in the state's economy.

Equity securities held as of June 30, 2001 and December 31, 2000 are presented
in Table XII.
<TABLE>
<CAPTION>
TABLE XIII - EQUITY SECURITIES                                  HYPOTHETICAL    HYPOTHETICAL
                                                                10% DECLINE      20% DECLINE
                                                    FAIR          IN MARKET      IN MARKET
                                       COST         VALUE         VALUE          VALUE
<S>                                  <C>           <C>           <C>           <C>
AT JUNE 30, 2001
Banks and bank holding companies     $ 21,542      $ 28,819      $ (2,882)     $ (5,764)
Federal Home Loan Bank                  7,005         7,005          (701)       (1,401)
-------------------------------------------------------------------------------------------
Total                                $ 28,547      $ 35,824      $ (3,583)     $ (7,165)
==========================================================================================

</TABLE>

<TABLE>
<CAPTION>
                                                                 HYPOTHETICAL    HYPOTHETICAL
                                                                 10% DECLINE      20% DECLINE
                                                       FAIR      IN MARKET        IN MARKET
                                       COST           VALUE        VALUE            VALUE
<S>                                  <C>           <C>           <C>           <C>
AT DECEMBER 31, 2000
Banks and bank holding companies     $ 22,098      $ 26,814      $ (2,681)     $ (5,362)
Federal Home Loan Bank                   (725)       (1,450)        7,248         7,248
-------------------------------------------------------------------------------------------
Total                                $ 29,346      $ 34,062      $ (3,406)     $ (6,812)
==========================================================================================
</TABLE>


                                       21

<PAGE>   22



CITIZENS & NORTHERN CORPORATION - FORM 10 - Q

PART  II  -  OTHER INFORMATION

Item   1.   Legal Proceedings

            Neither the Corporation nor any of its subsidiaries is a party
            to any material pending legal proceedings.

Item   2.   Not Applicable

Item   3.   Not Applicable

Item   4.   Not Applicable

Item   5.   Other Information

            a.   None

Item   6.    Exhibits and Reports on Form 8 - K

         a. Exhibits have been omitted either because not applicable or because
         the required information is included elsewhere in Form 10-Q.

         b. There were no reports on Form 8-K filed during the 2nd quarter 2001.


                                       22

<PAGE>   23

CITIZENS AND NORTHERN CORPORATION  -  FORM 10 - Q

Signature Page



                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                               CITIZENS & NORTHERN CORPORATION

AUGUST 13, 2001           By: CRAIG G. LITCHFIELD /S/
---------------               -----------------------
Date                          Chairman, President and Chief Executive Officer



AUGUST 13, 2001           By: MARK A. HUGHES /S/
---------------               ------------------
Date                          Treasurer and Principal Accounting Officer


                                       23

</TEXT>
</DOCUMENT>
</SUBMISSION>
