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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2005

or



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

Commission File No: 2-96144



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CITIZENS FINANCIAL CORP.

(exact
name of registrant as specified in its charter)



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|                                         |  |                                        
|---------------------------------------- |  | ---------------------------------------
|Delaware                                 |  | 55-0666598                             
|(State of Incorporation)                 |  | (I.R.S. Employer Identification Number)
|                                         | 
|213 Third St. Elkins, West Virginia      |  | 26241                                  
|(Address of Principal Executive Offices) |  | (Zip Code)                             

Registrants Telephone Number, Including Area Code: (304) 636-4095



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Securities Registered Pursuant
to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: None



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes ̈No  x

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 ̈

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer; an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated
Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ̈No  x

The aggregate market value of
Citizens Financial Corp. common stock, representing all of its voting stock that was held by nonaffiliates as of the last business day of Citizens most recently completed second fiscal quarter, approximated $26,090,640.

As of February 28, 2006, Citizens Financial Corp. had 750,000 shares of common stock outstanding with a par value of $2.00.

This report contains 70 pages.



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CITIZENS FINANCIAL CORP.

FORM 10-K INDEX



|         |  |         |  |                                                                                                                      |  |        
|-------- |  | ------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------
|         |  |         |  |                                                                                                                      |  | Page   
|Part I   |  | Item 1  |  | Business                                                                                                             |  | 3 - 7  
|         |  |         | 
|         |  | Item 1A |  | Risk Factors                                                                                                         |  | 8 - 9  
|         |  |         | 
|         |  | Item 2  |  | Properties                                                                                                           |  | 9      
|         |  |         | 
|         |  | Item 3  |  | Legal Proceedings                                                                                                    |  | 9      
|         |  |         | 
|         |  | Item 4  |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 9      
|         |  |         | 
|Part II  |  | Item 5  |  | Market for the Registrants Common Equity and Related Shareholders Matters and Issuer Purchases of Equity Securities |  | 10 - 11
|         |  |         | 
|         |  | Item 6  |  | Selected Financial Data                                                                                              |  | 11 - 17
|         |  |         | 
|         |  | Item 7  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 17 - 23
|         |  |         | 
|         |  | Item 7A |  | Quantitative and Qualitative Disclosures About Market Risk                                                           |  | 23 - 24
|         |  |         | 
|         |  | Item 8  |  | Financial Statements and Supplementary Data                                                                          |  | 25 - 51
|         |  |         | 
|         |  | Item 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                 |  | 52     
|         |  |         | 
|         |  | Item 9A |  | Controls and Procedures                                                                                              |  | 52     
|         |  |         | 
|         |  | Item 9B |  | Other Information                                                                                                    |  | 52     
|         |  |         | 
|Part III |  | Item 10 |  | Directors and Executive Officers of the Registrant                                                                   |  | 52 - 54
|         |  |         | 
|         |  | Item 11 |  | Executive Compensation                                                                                               |  | 54 - 56
|         |  |         | 
|         |  | Item 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                       |  | 56     
|         |  |         | 
|         |  | Item 13 |  | Certain Relationships and Related Transactions                                                                       |  | 57     
|         |  |         | 
|         |  | Item 14 |  | Principal Accounting Fees and Services                                                                               |  | 57     
|         |  |         | 
|Part IV  |  | Item 15 |  | Exhibits and Financial Statement Schedules                                                                           |  | 57 - 59



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Citizens Financial Corp.

Form 10-K, Part I

Item 1. Business

Organizational History and Subsidiaries

Citizens Financial Corp., (Citizens or the company), is a $238 million bank holding company providing retail and commercial banking services primarily in central and eastern West Virginia.
Citizens was incorporated in the State of Delaware in 1986 and is the parent company and sole owner of Citizens National Bank of Elkins (the bank).

The bank was organized in West Virginia in 1923, received approval of the Comptroller of the Currency in 1924, and has continuously operated as a national bank headquartered in Elkins, West Virginia since that time.
In 1987 the stockholders of the bank approved an Agreement and Plan of Reorganization whereby the bank became a wholly-owned subsidiary of Citizens Financial Corp. Since its formation, the bank has expanded to a six branch network by acquiring the
Tucker County Bank in Parsons, West Virginia in 1984 and the Petersburg, West Virginia office of South Branch Valley National Bank in 2000. It also opened branch offices in Beverly, West Virginia in 1992, in Slatyfork, West Virginia in 2000, and in
Marlinton, West Virginia in 2002.

Business of Citizens and Subsidiary

As a bank holding company, Citizens operations have been limited to the ownership of its subsidiary. To date, it has not sought to conduct any other
form of permitted business activity, nor are there any current plans to do so.

Citizens National Bank, however, provides a wide range of
retail and commercial banking services including demand, savings and time deposits; residential, consumer and commercial loans; letters of credit; safe deposit and wire transfer services; and ATM, telebanking and internet banking services. In
addition, the bank operates a trust department and has formed relationships which allow it to provide brokerage and financial planning services as well as fixed rate residential mortgages.

In competing with other financial service providers, the bank utilizes selective pricing and marketing strategies but primarily relies on developing
personal relationships with customers and providing superior customer service. The bank is heavily involved in local charitable, civic, educational and community development efforts and prides itself on being a responsible corporate citizen.

Lending Activities

One of the objectives held by the banks founders is the granting of loans to creditworthy individuals and businesses, and the bank now provides such services from five of its six offices. In this regard, the
bank has developed three primary loan portfolios: real estate, commercial, and consumer. Real estate loans consist of both residential and nonresidential loans. Residential real estate loans are typically made for the purchase or refinancing of
single family homes and are usually secured by a first lien deed of trust. In general, these loans do not exceed an 80% loan to value ratio as determined by the use of independent appraisals or evaluations and carry a variable interest rate. Nearly
all residential mortgage loans are made within the banks primary market area, and they tend to be in amounts of under $100,000. Loans, be they for residential real estate or other purposes, which exceed the established lending limit of the
loan officer require approval of a superior officer or the directors loan committee. Historically, we have not experienced significant losses in this area, and these loans are viewed among the least risky made by the bank. Nonetheless, these loans,
particularly those with larger balances, are subject to periodic review by the banks loan review officer.

Commercial real estate
loans consist of commercial mortgages which are generally secured by nonresidential and multifamily (five or more) residential properties. These loans are typically made to local businesses and are subject to many of the same criteria and controls
as residential real estate loans. These loans do tend to be larger than residential real estate loans and usually require approval of the directors loan committee as a result. Because of their size and higher degree of risk, these loans are
usually subject to more extensive credit analysis prior to being made, require the appraisal of the real property collateral, and are subject to periodic reviews by the banks loan review officer.

The commercial loan portfolio consists of loans to local businesses and are secured by liens on accounts receivable, inventory, machinery and equipment,
or other business assets. If necessary, personal guarantees of the business owners, key man life insurance, and other forms of collateral are also required although business cash flow represents the primary source of repayment. These loans are
subject to the risks of the borrowers industry. Such industries include auto dealerships, lumbering and lumber related businesses, various tourism and hospitality businesses, and retail and wholesale merchants. Commercial loans are typically among
the largest loans made by the bank and are



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considered to carry a higher level of risk than smaller loans. Underwriting standards require a comprehensive credit
analysis, and the appraisal of real property and significant machinery, such as lumbering equipment, held as collateral. We attempt to limit risk by diversifying the commercial loan portfolio within the constraints of our economic market and closely
monitoring any concentrations of credit. Periodic credit reviews of commercial loans are performed by the loan review officer.

Due to the
limited size of our market area as well as the increased competition for home mortgage and auto loans, we also participate in commercial loans in surrounding markets through a group of community banks similar to ourselves. These loans may be secured
by commercial real estate or other business property although the primary source of repayment is from business operations. Because these loans may be outside our primary market area they are subject to extensive analysis including the business and
credit history of the borrowers and any guarantors, cash flow and payment abilities, collateral valuations and other pertinent factors. Additional security such as the assignment of life insurance and various loan covenants designed to limit risk
are also obtained when necessary. As of December 31, 2005, these loans totaled $4.5 million, or 2.9% of our total loan portfolio.

Consumer loans are made to individuals for the financing of household and personal needs, often the purchase of a car. In such cases, the car is typically held as collateral although the bank does grant unsecured consumer loans usually for
small amounts and with significantly higher interest rates than otherwise offered. Cash flow analysis and knowledge of the financial strength and character traits of the borrower are important considerations in granting many consumer loans. When
securing consumer loans with cars, the value of the car relative to the loan is a key factor and is determined by auto industry guides. Loan terms on consumer loans are typically three to six years, depending on the type of collateral. Unlike real
estate and commercial loans, few consumer loans require loan committee approval or are subject to review by the loan review officer. As a result, risk is closely tied to adherence to proper underwriting procedures and the condition of the local
economy.

Our credit policies and procedures are updated periodically and approved by the board of directors annually. These policies and
procedures are applied uniformly throughout Citizens banking network and are designed to ensure credit quality is maintained while meeting the legitimate credit needs of the communities we serve. Adherence to policies is ensured by testing by
both the internal auditor and compliance officer. Further information on our lending activities may be found in the Managements Discussion and Analysis portion of this report as well as in the Notes to the accompanying consolidated financial
statements.

Investment Activities

Funds not needed to satisfy loan demand or other operational needs are invested in a portfolio of securities designed to improve earnings, provide liquidity, and balance interest sensitivity concerns. Our investment
policy is updated periodically and approved by the board of directors annually. This policy limits securities which may be held to those of the U.S. government or its agencies having maturities of less than five years; bank qualified, investment
grade municipal obligations maturing in less than ten years; investment grade corporate bonds with maturities of five years or less; and mortgage backed obligations of the federal government having a weighted average life of under 10 years. All
purchases, sales and calls of securities, together with municipal and corporate holdings of any single issuer which exceed 10% of capital and any holdings with a credit quality below investment grade, are reported to the board of directors monthly.

The investment portfolio is managed by the companys chief financial officer who meets with the president on a quarterly basis to
discuss investment strategies and related liquidity and interest sensitivity issues. Additional information about the companys investing activities is contained in the Managements Discussion and Analysis and in the Notes to the
accompanying consolidated financial statements.

Deposit Functions

Our primary source of funding is provided by our deposit base. We offer a variety of deposit products including demand deposits, savings, and time
deposits to customers in our market area to satisfy their saving, investing, and retirement needs. We do not solicit or accept out of market or wholesale deposits, nor do we utilize the services of any deposit brokers. As is the case with our
lending activities, some selective pricing and marketing strategies are utilized in an effort to attract and retain deposits, but developing strong customer relationships and providing superior customer service remain central to the banks
success.

Banking Operations

Operationally, we have centralized administrative and support functions in an attempt to achieve consistency and efficiency. The banks main office provides services such as bookkeeping, accounting, loan
administration and review, compliance, marketing, training and development, human resources, and information technology support. Data processing and internal audit, while administered through the main office, are provided through third parties who
are expert in their fields.



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Employees

As of February 28, 2006, Citizens National Bank had a staff of 94 full-time equivalent employees. The banks employees are not represented by
any union or other collective bargaining agreement and employee relations are believed to be good. Citizens Financial Corp. does not have any paid employees.

Competition

Despite
having a generally rural marketplace, Citizens faces a high degree of competition for its services from other banks, savings institutions, credit unions, insurance companies, mutual funds, securities brokers, financial planners, mortgage brokers,
credit card companies, and some governmental agencies. We believe our focus on providing superior, personalized services, as well as the ability to offer trust, brokerage, and fixed rate mortgage products, help us prosper within this environment.

We maintain offices in Randolph, Tucker, Grant and Pocahontas Counties, West Virginia where a total of 26 banking offices representing 12
banks are located. As of June 30, 2005, the most recent date data is available, Citizens held 22.7% share of the $782 million deposit base in those counties.

Technological advances have created new ways to serve customers and new forms of competition. In 2004 we began offering internet banking as a way of reaching customers and meeting competitive demands. Internet banking
thus joins our other delivery channels which include telebanking, ATMs and in-person branch delivery.

Economic
Characteristics of Citizens Marketplace

Citizens serves an area of West Virginia including the counties of Randolph, Tucker,
Grant and Pocahontas. This market is a largely rural, mountainous region covering approximately 2,876 square miles with a civilian labor force of 24,620.

The economy of this area typically does not experience highs or lows to the same degree as the national economy and is generally less prosperous than the nation as a whole. Major industries in the area include lumber
and wood products, tourism, and poultry operations. Other major sources of employment include public schools, hospitals and other health care providers and various forms of local and state governmental services. As of December, 2005, the
unemployment rate in this market was 5.2% compared to 4.2% for West Virginia and 4.6% nationwide. Average annual wages in the area approximate $24,240 which is below both state and national levels. Ongoing roadway improvements are helping to improve
access to and transportation within the area and are expected to provide long-term economic benefits. However, the local economy is not expected to undergo significant changes in the short-term.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting Citizens and its subsidiary and is qualified in its entirety by reference to such statutes and regulations:

Bank Holding Company Regulation

Citizens is a bank holding company under the Bank Holding Company Act of 1956 (BHCA), which restricts its activities as well as any acquisition by it of voting stock or assets of any bank, savings
association or other company. The holding company is subject to the reporting requirements of, and examination and regulation by, the Federal Reserve Board. The subsidiary bank is subject to restrictions imposed by the Federal Reserve Act on
transactions with affiliates, including any loans or extensions of credit to the holding company or its subsidiaries, investments in the stock or other securities thereof and the taking of such stock or securities as collateral for loans to any
borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the holding company
and other subsidiaries. The bank is prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve
Board. Citizens and its subsidiary is prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the holding company or its subsidiaries.

The BHCA also permits Citizens to purchase or redeem its own securities. However, Regulation Y provides that prior notice must be given to
the Federal Reserve Board if the gross consideration for such purchase or consideration, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the



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preceding 12 months, is equal to 10 percent or more of the companys consolidated net worth. Prior notice is not
required if (i) both before and immediately after the redemption, the bank holding company is well-capitalized; (ii) the financial holding company is well-managed and (iii) the bank holding company is not the subject of any unresolved
supervisory issues.

The Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999) permits bank holding
companies to become financial holding companies. This allows them to affiliate with securities firms and insurance companies and to engage in other activities that are financial in nature. A bank holding company may become a financial holding
company if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. No regulatory approval will be required for a financial holding company to acquire a company,
other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Financial Services Modernization Act defines financial in nature to include: securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A bank also may engage, subject to
limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the
bank is well capitalized, well managed and has at least a satisfactory Community Reinvestment Act rating.

Bank
Subsidiary Regulation

Citizens National Bank, as a national banking association, is subject to supervision, examination and regulation
by the Office of the Comptroller of the Currency (OCC). It is also a member of the Federal Reserve System, and as such is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder.

The deposits of the bank are insured by the Federal Deposit Insurance Corporation (FDIC) to the extent provided by law. Accordingly, the bank
is also subject to regulation by the FDIC. The FDIC may terminate a banks deposit insurance upon finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, rule, order or condition enacted or imposed by the banks regulatory agency.

Capital Requirements

As a bank holding company, Citizens is subject to the Federal Reserve Boards risk-based capital
guidelines. The guidelines establish a systematic framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into account and minimizes
disincentives to holding liquid, low-risk assets. Under the guidelines, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and leverage ratio test on a consolidated basis. The risk-based ratio is
determined by allocating assets and specified off-balance-sheet commitments into four weighted categories, with higher levels of capital being required for categories perceived as representing greater risk.

Citizens National Bank is subject to substantially similar capital requirements adopted by its applicable regulatory agencies. In addition, the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) established a regulatory framework which ties the level of supervisory intervention by bank regulatory authorities primarily to a depository institutions capital
category. Among other things, FDICIA authorized regulatory authorities to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Citizens is well capitalized as detailed in Note 13 to the accompanying consolidated financial statements.

Federal and State Laws

Citizens National Bank is subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and
community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of a bank to open a new branch or engage in a merger transaction. Community reinvestment regulations evaluate how well
and to what extent a bank lends and invests in its designated service area, with particular emphasis on low-to-moderate income communities and borrowers in such areas.



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Monetary Policy and Economic Conditions

The business of financial institutions is affected not only by general economic conditions, but also by the policies of various governmental regulatory
agencies, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions primarily through open market operations in U.S. government securities,
changes in the discount rate on bank borrowings and changes in the reserve requirements against depository institutions deposits. These policies and regulations significantly affect the overall growth and distribution of loans, investments and
deposits, and the interest rates charged on loans, as well as the interest rates paid on deposits.

The monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and the money
markets and the activities of monetary and fiscal authorities, we cannot definitely predict future changes in interest rates, credit availability or deposit levels.

Effect of Environmental Regulation

Citizens National Banks primary exposure to environmental risk is through its lending activities. In cases when management believes environmental risk potentially exists, the bank mitigates its environmental
risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to
present and past uses of the subject property and adjacent sites. Environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.

With regard to residential real estate lending, management reviews those loans with inherent environmental risk on an individual basis and makes
decisions based on the dollar amount of the loan and the materiality of the specific credit.

We anticipate no material effect on capital
expenditures, earnings or competitive position as a result of compliance with federal, state or local environmental protection laws or regulations.

International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (USA Patriot Act)

The International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (the Patriot Act) was adopted in response to the September 11, 2001 terrorist attacks. The Patriot Act provides law enforcement with
greater powers to investigate terrorism and prevent future terrorist acts. Among the broad-reaching provisions contained in the Patriot Act are several designed to deter terrorists ability to launder money in the United States and provide law
enforcement with additional powers to investigate how terrorists and terrorist organizations are financed. The Patriot Act creates additional requirements for banks, which were already subject to similar regulations. The Patriot Act authorizes the
Secretary of the Treasury to require financial institutions to take certain special measures when the Secretary suspects that certain transactions or accounts are related to money laundering. These special measures may be ordered when
the Secretary suspects that a jurisdiction outside of the United States, a financial institution operating outside of the United States, a class of transactions involving a jurisdiction outside of the United States or certain types of accounts are
of primary money laundering concern. The special measures include the following: (a) require financial institutions to keep records and report on the transactions or accounts at issue; (b) require financial institutions to
obtain and retain information related to the beneficial ownership of any account opened or maintained by foreign persons; (c) require financial institutions to identify each customer who is permitted to use a payable-through or correspondent
account and obtain certain information from each customer permitted to use the account; and (d) prohibit or impose conditions on the opening or maintaining of correspondent or payable-through accounts.

Sarbanes-Oxley

On
July 30, 2002, the Senate and the House of Representatives of the United States enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and
enhanced and timely disclosure of corporate information.

Effective August 29, 2002, as directed by Section 302(a) of
Sarbanes-Oxley, Citizens chief executive officer and chief financial officer are each required to certify that Citizens Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several
requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of Citizens internal controls; they have made certain disclosures to Citizens
auditors and the audit committee of the Board of Directors about Citizens internal controls; and they have included information in Citizens Quarterly and Annual Reports about their evaluation and whether there have been significant
changes in Citizens internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation. Effective in 2007, Section 404 of Sarbanes-Oxley will become applicable to Citizens.



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Item 1.A. Risk Factors

You should consider the risks described below as well as the other information
included or incorporated by reference in this Annual Report on Form 10-K, before making an investment in Citizens common stock. The risks described below are not the only ones we face in our business. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operation results could be materially harmed. In such an event, our common
stock could decline in price, and you may lose all or part of your investment.

The Banking Business is Very Competitive

As explained under Item 1 of this report, Citizens faces a high degree of competition for its services.

In particular, our competitors include national and regional financial and banking companies whose greater resources may afford them a marketplace
advantage by enabling them to mount extensive promotional and advertising campaigns. Additionally, other banks and other financial institutions may have products and services not offered by Citizens, or may have greater lending capabilities due to
their larger legal lending limits, which may cause current and potential customers to choose those institutions. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits and range and quality of services
provided. If we are unable to attract new and retain current customers, loan and deposit growth could decrease causing our results of operations and financial condition to be negatively impacted.

A Deterioration in Economic Conditions Could Negatively Impact Earnings

A downturn in local, regional or national economic conditions could negatively impact our earnings. The markets we serve in West Virginia do not have a large or diverse economic base and many customers rely on the
lumber, tourism and poultry industries. A general economic slowdown, or one involving these specific industries, could have the following consequences.



| |  |  | Loan delinquencies may increase;
| | - |  | --------------------------------



| |  |  | Problem assets and foreclosures may increase;
| | - |  | ---------------------------------------------



| |  |  | Loan charge-offs and provisions for loan losses may increase;
| | - |  | -------------------------------------------------------------



| |  |  | Demand for the products and services of the company may decline;
| | - |  | ----------------------------------------------------------------



| |  |  | Collateral (including real estate) for loans made by the company may decline in value, in turn reducing customers borrowing power and making existing loans less secure; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Customers may need to withdraw existing deposits to satisfy current living expenses causing reduced liquidity.
| | - |  | --------------------------------------------------------------------------------------------------------------

Customers May Default on the Repayment of Loans

Our
customers may default on the repayment of loans, which may negatively impact our earnings due to loss of principal and interest income. Increased operating expenses may result from the allocation of management time and resources to the collection
and work-out of the loan. Collection efforts may or may not be successful causing us to write off the loan or repossess the collateral securing the loan, which may or may not exceed the balance of the loan.

Management evaluates the adequacy of the allowance for loan losses at least quarterly, which includes testing certain individual loans as well as
collective pools of loans for impairment. This evaluation includes an assessment of actual loss experience within each category of the portfolio, individual commercial and commercial real estate loans that exhibit credit weakness; current economic
events, including employment statistics, trends in bankruptcy filings, and other pertinent factors; industry or geographic concentrations, and regulatory guidance. Additions to the allowance for loan loss result in an expense for the period.

Our regulatory agencies periodically review the allowance for loan losses. Based on their assessment the regulatory agencies could require
us to adjust the allowance for loan losses. Any such adjustments could negatively impact the results of operations or financial position.



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Increased Commercial Lending Could Result in Increased Risk

Much of our loan growth has centered on commercial loans including those in the lumber, tourism and lodging industries. Commercial loans are typically
larger and more complex than residential and consumer lending and now represent our largest type of loan. Our ability to properly identify, measure and manage the risks involved in commercial lending, including our ability to attract and retain
qualified staff, may impact the degree to which loans are realized.

Current Market Interest Rates and Cost of Funds may Negatively Impact Earnings

Fluctuations in interest rates may negatively impact the business of the bank. The banks main source of income from operations is
net interest income, which is equal to the difference between the interest income received on interest-bearing assets and the interest expense incurred in connection with interest-bearing liabilities. These rates are highly sensitive to many factors
beyond our control, including general economic conditions, both domestic and foreign and the monetary and fiscal policies of various governmental and regulatory authorities. The banks net interest income can be affected significantly by
changes in market interest rates. Changes in relative interest rates may reduce the banks net interest income as the difference between interest income and interest expense decreases. As a result, the bank has adopted asset and liability
management policies to minimize the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments and funding sources. However, even with these policies in place, we
cannot assure you that a decrease in interest rates will not negatively impact its results from operations or financial position.

There is an Illiquid
Market for the Companys Shares.

Because a very limited market exists for the companys common stock, a shareholder may have
difficulty selling his or her shares in the secondary market. We cannot predict when, if ever, we could meet the listing qualifications of the Nasdaq Stock Markets National Tier or any exchange. We cannot assure you that there will be a more
active public market for the shares in the near future.

Item 2. Properties

We provide services from offices owned by the bank including its approximately 16,940
square foot main office located at 213 Third Street, Elkins, West Virginia. In addition, the bank owns a drive-in facility directly across from its main office on Third Street and it has owned and operated a 5,000 square foot full service branch in
Parsons, West Virginia since 1984. In 1992 a branch facility was opened in Beverly, West Virginia which contains approximately 1,840 square feet. This facility, which is also owned, provides drive-in and ATM service in addition to traditional
deposit and teller services. Loan services, however, are not provided at the Beverly branch. During 2000 the bank acquired and opened a full service facility in Petersburg, West Virginia. That facility was expanded in 2004 to 2,980 square feet. We
also constructed a full service facility in Slatyfork, West Virginia containing 3,200 square feet in 2000. All of these facilities are fully utilized for banking purposes except the Parsons branch which leases approximately 800 square feet to a
cable television company.

In January 2002, the bank opened a full-service branch located in leased space within a supermarket in
Marlinton, West Virginia. In 2004, we completed the construction of a 3,500 square foot free-standing branch in Marlinton and which allowed us to exit the supermarket facility.

The bank also owns two properties which adjoin its main office for future expansion. One such building has been demolished while the other will be leased
to the current tenants until May, 2006. In 2004 we purchased a property adjacent to our Beverly branch as a means of both maintaining our own property value and providing for expansion needs. This facility is currently occupied by a tenant under a
lease agreement which expires in 2008.

Citizens Financial Corp. does not own or lease any property. To date Citizens has utilized the
banks facilities and has not occupied more than a minimal amount of space. No compensation is paid to the bank in any way for such usage as it is deemed to be insignificant.

Item 3. Legal Proceedings

As of December 31, 2005 Citizens Financial Corp. was not involved in any
material legal proceedings. The bank is involved in various legal proceedings which occur in the normal course of business, however. After consultation with legal counsel, we believe that all such litigation will be resolved without materially
affecting the companys financial position or results of operations. In addition, there are no material proceedings known to be threatened or contemplated against the company or its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of
security holders of Citizens Financial Corp. during the fourth quarter of 2005.



9



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##### Table of Contents

Part II

Item 5. Market for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities

Historically, the stock of Citizens Financial Corp. has traded only sporadically. The
stock is traded on the over the counter bulletin board system, and a number of brokerage firms provide an efficient and orderly market for transactions involving its shares. There are no further plans, understandings, arrangements or agreements to
list the stock on any larger exchanges at this time.

Citizens has only one class of stock, that being common stock, and all voting rights
are vested in its holders. The shareholders of Citizens are entitled to one vote for each share of common stock owned on all matters subject to a vote of shareholders. At February 28, 2006 shareholders of record numbered approximately 470. The
company has no plans to issue any other forms of capital.

Citizens maintains a policy under which it may purchase shares of its own stock
for treasury, subject to certain limitations, when the Board of Directors determines it is in the best interest of the company to do so. Such shares are purchased on the open market through independent brokers. At December 31, 2005 and 2004 the
number of treasury shares was 132,012 and 126,087, respectively. The purchase of these shares has not had a material impact on either capital or liquidity. No plans currently exist regarding their use and there are no plans regarding future
purchases.

The following table presents the high and low market prices for Citizens common stock for the periods indicated.



|                                        |  |      |       |     |   |      
|--------------------------------------- |  | ---- | ----- | --- | - | -----
|                                        |  | High |       | Low
|First Quarter through February 28, 2006 |  | $    | 52.50 |     | $ | 51.25
|                                        |  |     
|2005                                    |  |      |       |     |   |      
|First Quarter                           |  | $    | 49.50 |     | $ | 45.50
|Second Quarter                          |  | $    | 50.00 |     | $ | 47.25
|Third Quarter                           |  | $    | 51.60 |     | $ | 48.00
|Fourth Quarter                          |  | $    | 51.50 |     | $ | 49.00
|                                        |  |     
|2004                                    |  |      |       |     |   |      
|First Quarter                           |  | $    | 44.00 |     | $ | 42.00
|Second Quarter                          |  | $    | 44.00 |     | $ | 41.75
|Third Quarter                           |  | $    | 47.00 |     | $ | 42.00
|Fourth Quarter                          |  | $    | 47.00 |     | $ | 45.00

The prices listed above are based upon information available to management through those brokers
which deal in the companys stock as well as through certain internet quotation services and are believed to accurately represent the amount at which its stock was traded during the periods indicated. Prices reflect amounts paid by purchasers
of the stock and, therefore, may include commissions or fees paid to brokers. The amounts of such commissions or fees, if any, are not known to management. No attempt was made by management to ascertain the prices for every sale made during these
periods.

Citizens shareholders are entitled to receive dividends when and as declared by its Board of Directors. Dividends are typically
paid quarterly. Aggregate dividends were $1.60 per share in 2005 and $1.55 per share in 2004. Payment of dividends by Citizens is dependent upon payment of dividends to it by the subsidiary bank. The ability of the bank to pay dividends is subject
to certain limitations imposed by national banking laws as outlined in Note 13 to the accompanying consolidated financial statements.

During the first quarter of 2006 Citizens announced a stock split in the form of a 200% stock dividend. This dividend will be paid on April 14, 2006 to shareholders of record April 3, 2006. The payment of this dividend will use
all of the authorized and unissued shares available. Consequently, shareholders are being asked to approve an increase in the number of authorized shares from 2,250,000 to 4,500,000 at the annual shareholders meeting on April 22, 2006.

No shares of Citizens stock have been authorized for issuance under any type of equity compensation plan. In addition, at no time during
the last three years have we sold any Citizens stock which was not registered under the Securities Act of 1933.



10



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##### Table of Contents

The following table provides information with respect to Citizens purchases of its own common stock
during the fourth quarter of the fiscal year. All such purchases were made under a general policy, noted earlier, permitting the Board of Directors to make such purchases when it is believed to be in the best interest of the company to do so and not
as part of any publicly announced plan or program.

ISSUER PURCHASES OF EQUITY SECURITIES



|                    |  |                                |  |                            |       |                                                                             |     |                                                                            |    
|------------------- |  | ------------------------------ |  | -------------------------- | ----- | --------------------------------------------------------------------------- | --- | -------------------------------------------------------------------------- | ---
|Period              |  | Total Numberof sharespurchased |  | Averageprice paidper share |       | Total Numberof sharespurchased aspart of publiclyannounced plansor
programs |     | Maximum Numberof shares that may yet bepurchased underthe plans orprograms
|October 1-31, 2005  |  | 1,500                          |  | $                          | 50.15 |                                                                             | N/A |                                                                            | N/A
|November 1-30, 2005 |  | 650                            |  |                            | 50.00 |                                                                             | N/A |                                                                            | N/A
|December 1-31, 2005 |  | 675                            |  |                            | 50.85 |                                                                             | N/A |                                                                            | N/A

Item 6. Selected Financial Data

Selected financial data for the five years ended December 31, 2005 is
presented in the following table. This summary should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this report.

Citizens Financial Corp.

Selected Financial Data Five Year Summary

(in thousands of dollars, except per share
data)



|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|--------------------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                    |  | 2005 |         | 2004 |   | 2003    |  | 2002 |         | 2001
|BALANCE SHEET DATA:                                 |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total assets                                        |  | $    | 238,190 |      | $ | 213,783 |  | $    | 209,129 |      | $ | 182,400 |  | $ | 166,819
|Securities                                          |  |      | 66,854  |      |   | 53,874  |  |      | 60,077  |      |   | 54,219  |  |   | 48,964 
|Loans, net                                          |  |      | 152,136 |      |   | 144,587 |  |      | 134,311 |      |   | 115,187 |  |   | 107,075
|Deposit                                             |  |      | 190,486 |      |   | 165,301 |  |      | 161,549 |      |   | 147,741 |  |   | 131,752
|Total shareholders equity                          |  |      | 19,613  |      |   | 20,223  |  |      | 20,478  |      |   | 20,605  |  |   | 19,022 
|                                                    |  |      |         |      |  
|SUMMARY OF OPERATIONS:                              |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total interest income                               |  | $    | 12,976  |      | $ | 11,443  |  | $    | 11,415  |      | $ | 11,519  |  | $ | 11,830 
|Total interest expense                              |  |      | 4,056   |      |   | 3,073   |  |      | 3,193   |      |   | 3,972   |  |   | 4,677  
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net interest income                                 |  |      | 8,920   |      |   | 8,370   |  |      | 8,222   |      |   | 7,547   |  |   | 7,153  
|Provision for loan losses                           |  |      | 275     |      |   | 935     |  |      | 324     |      |   | 288     |  |   | 347    
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net interest income after provision for loan losses |  |      | 8,645   |      |   | 7,435   |  |      | 7,898   |      |   | 7,259   |  |   | 6,806  
|Noninterest income                                  |  |      | 1,468   |      |   | 1,393   |  |      | 1,292   |      |   | 1,353   |  |   | 1,131  
|Noninterest expense                                 |  |      | 7,139   |      |   | 6,745   |  |      | 6,194   |      |   | 5,692   |  |   | 5,035  
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Income before income taxes                          |  |      | 2,974   |      |   | 2,083   |  |      | 2,996   |      |   | 2,920   |  |   | 2,902  
|Income taxes                                        |  |      | 927     |      |   | 427     |  |      | 984     |      |   | 992     |  |   | 997    
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net income                                          |  | $    | 2,047   |      | $ | 1,656   |  | $    | 2,012   |      | $ | 1,928   |  | $ | 1,905  
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|PER SHARE DATA:                                     |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Net income                                          |  | $    | 3.29    |      | $ | 2.63    |  | $    | 3.14    |      | $ | 2.98    |  | $ | 2.93   
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        
|Cash dividends                                      |  | $    | 1.60    |      | $ | 1.55    |  | $    | 1.50    |      | $ | 1.40    |  | $ | 1.30   
|                                                    |  |      |         |      |   |         |  |      |         |      |   |         |  |   |        



11



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##### Table of Contents

Additional information required under Securities Act Industry Guide 3 for Bank Holding Companies follows:

Distribution of Assets, Liabilities & Shareholders Equity;

Interest Rates and Interest Differential



|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|------------------------------------------------- |  | ------------------------- | ------- | - | ------------------------- | - | ---------- | ------------------------- | ---- | ------- |  | - | -------- | - | ---------- | - | ------ | ------- | ---- | - | -------- | - | ---------- | - |  | - | ------ |  | ---- | -
|                                                  |  | 2005                      |         |   | 2004                      |   |            | 2003                      |     
|                                                  |  | Avg Bal                   |         |   | Interest                  |   | Yield/Rate |                           |      | Avg Bal |  |   | Interest |   | Yield/Rate |   |        | Avg Bal |      |   | Interest |   | Yield/Rate |  
|                                                  |  | (in thousands of dollars) |         |   | (in thousands of dollars) |   |            | (in thousands of dollars) |     
|Interest Earning Assets:                          |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Federal funds sold                                |  | $                         | 3,807   |   |                           | $ | 123        |                           | 3.23 | %       |  | $ | 1,506    |   |            | $ | 18     |         | 1.19 | % |          | $ | 1,525      |   |  | $ | 15     |  | 1.01 | %
|Securities:                                       |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Taxable                                           |  |                           | 51,340  |   |                           |   | 1,781      |                           | 3.47 |         |  |   | 45,362   |   |            |   | 1,634  |         | 3.60 |   |          |   | 47,656     |   |  |   | 2,019  |  | 4.24 |  
|Tax-exempt (1)                                    |  |                           | 8,825   |   |                           |   | 496        |                           | 5.62 |         |  |   | 8,721    |   |            |   | 479    |         | 5.49 |   |          |   | 9,137      |   |  |   | 525    |  | 5.74 |  
|Loans (net of unearned interest) (1) (2)          |  |                           | 149,177 |   |                           |   | 10,799     |                           | 7.24 |         |  |   | 142,296  |   |            |   | 9,542  |         | 6.71 |   |          |   | 124,725    |   |  |   | 9,088  |  | 7.29 |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Total interest earning assets (1)                 |  |                           | 213,149 |   |                           |   | 13,199     |                           | 6.19 |         |  |   | 197,885  |   |            |   | 11,673 |         | 5.90 |   |          |   | 183,043    |   |  |   | 11,647 |  | 6.36 |  
|                                                  |  |                           |         |   |                           |   |            |                           |     
|Nonearning assets:                                |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Cash and due from banks                           |  |                           | 5,981   |   |                           |   |            |                           |      |         |  |   | 5,417    |   |            |   |        |         |      |   |          |   | 4,824      |   |  |   |        |  |      |  
|Bank premises and equipment, net                  |  |                           | 4,205   |   |                           |   |            |                           |      |         |  |   | 4,075    |   |            |   |        |         |      |   |          |   | 3,122      |   |  |   |        |  |      |  
|Other assets                                      |  |                           | 4,642   |   |                           |   |            |                           |      |         |  |   | 5,572    |   |            |   |        |         |      |   |          |   | 6,250      |   |  |   |        |  |      |  
|Allowance for loan losses                         |  |                           | (1,512  | ) |                           |   |            |                           |      |         |  |   | (1,293   | ) |            |   |        |         |      |   |          |   | (1,409     | ) |  |   |        |  |      |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Total assets                                      |  | $                         | 226,465 |   |                           |   |            |                           |      |         |  | $ | 211,656  |   |            |   |        |         |      |   |          | $ | 195,830    |   |  |   |        |  |      |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Interest Bearing Liabilities:                     |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Savings deposits                                  |  | $                         | 26,077  |   |                           |   | 130        |                           | .50  |         |  | $ | 27,604   |   |            |   | 127    |         | .46  |   |          | $ | 26,910     |   |  |   | 164    |  | .61  |  
|Time deposits                                     |  |                           | 82,768  |   |                           |   | 2,583      |                           | 3.12 |         |  |   | 76,565   |   |            |   | 2,134  |         | 2.79 |   |          |   | 71,976     |   |  |   | 2,273  |  | 3.16 |  
|NOW accounts                                      |  |                           | 37,057  |   |                           |   | 613        |                           | 1.65 |         |  |   | 31,306   |   |            |   | 347    |         | 1.11 |   |          |   | 29,111     |   |  |   | 329    |  | 1.13 |  
|Money market accounts                             |  |                           | 7,165   |   |                           |   | 50         |                           | .69  |         |  |   | 7,478    |   |            |   | 38     |         | .50  |   |          |   | 8,524      |   |  |   | 60     |  | .70  |  
|Borrowings                                        |  |                           | 26,933  |   |                           |   | 680        |                           | 2.52 |         |  |   | 23,719   |   |            |   | 427    |         | 1.80 |   |          |   | 15,868     |   |  |   | 367    |  | 2.31 |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Total interest bearing liabilities                |  |                           | 180,000 |   |                           |   | 4,056      |                           | 2.25 |         |  |   | 166,672  |   |            |   | 3,073  |         | 1.84 |   |          |   | 152,389    |   |  |   | 3,193  |  | 2.10 |  
|                                                  |  |                           |         |   |                           |   |            |                           |     
|Noninterest bearing liabilities:                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Demand deposits                                   |  |                           | 24,696  |   |                           |   |            |                           |      |         |  |   | 22,889   |   |            |   |        |         |      |   |          |   | 20,799     |   |  |   |        |  |      |  
|Other liabilities                                 |  |                           | 1,348   |   |                           |   |            |                           |      |         |  |   | 1,535    |   |            |   |        |         |      |   |          |   | 1,786      |   |  |   |        |  |      |  
|Shareholders equity                              |  |                           | 20,421  |   |                           |   |            |                           |      |         |  |   | 20,560   |   |            |   |        |         |      |   |          |   | 20,856     |   |  |   |        |  |      |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Total liabilities and shareholders equity        |  | $                         | 226,465 |   |                           |   |            |                           |      |         |  | $ | 211,656  |   |            |   |        |         |      |   |          | $ | 195,830    |   |  |   |        |  |      |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Net interest income (1)                           |  |                           |         |   |                           | $ | 9,143      |                           |      |         |  |   |          |   |            | $ | 8,600  |         |      |   |          |   |            |   |  | $ | 8,454  |  |      |  
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  
|Net interest income to average earning assets (1) |  |                           |         |   |                           |   |            |                           | 4.29 | %       |  |   |          |   |            |   |        |         | 4.35 | % |          |   |            |   |  |   |        |  | 4.62 | %
|                                                  |  |                           |         |   |                           |   |            |                           |      |         |  |   |          |   |            |   |        |         |      |   |          |   |            |   |  |   |        |  |      |  

---

|(1) | Yields on tax-exempt holdings are expressed on a tax equivalent basis using a 34% tax rate.
|--- | -------------------------------------------------------------------------------------------

|(2) | For the purpose of these computations, nonaccruing loans are included in the amounts of average loans outstanding.
|--- | ------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

Rate Volume Analysis

The following table sets forth a summary on the changes in interest earned and interest expense detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior years average rate),
(ii) changes in rate (change in the average rate times the prior years average volume). The changes in rate/volume (change in the average volume times the change in the average rate), has been allocated to the changes in volume and
changes in rate in proportion to the relationship of the absolute dollar amounts of the change in each.



|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|---------------------- |  | -------------------------- | --- | - | -------------------------- | - | --- | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ------ | - |  | - | ---- | -
|                       |  | 2005 Compared to 2004      |     |   | 2004 Compared to 2003      |  
|                       |  | Increase (Decrease) Due to |     |   | Increase (Decrease) Due to |  
|                       |  | (in thousands of dollars)  |    
|                       |  | Volume                     |     |   | Rate                       |   |     | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|Interest earned on:    |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Federal funds sold     |  | $                          | 50  |   |                            | $ | 55  |       |  | $ | 105    |   |  | $    | 0     |   |       | $ | 3      |   |  | $ | 3    |  
|Taxable securities     |  |                            | 209 |   |                            |   | (65 | )     |  |   | 144    |   |  |      | (93   | ) |       |   | (292   | ) |  |   | (385 | )
|Tax-exempt securities  |  |                            | (43 | ) |                            |   | (8  | )     |  |   | (51    | ) |  |      | (23   | ) |       |   | (23    | ) |  |   | (46  | )
|Loans                  |  |                            | 538 |   |                            |   | 790 |       |  |   | 1,328  |   |  |      | 1,214 |   |       |   | (760   | ) |  |   | 454  |  
|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Total interest earned  |  |                            | 754 |   |                            |   | 772 |       |  |   | 1,526  |   |  |      | 1,098 |   |       |   | (1,072 | ) |  |   | 26   |  
|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Interest expense on:   |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Savings deposits       |  |                            | (7  | ) |                            |   | 10  |       |  |   | 3      |   |  |      | 4     |   |       |   | (41    | ) |  |   | (37  | )
|Time deposits          |  |                            | 183 |   |                            |   | 267 |       |  |   | 450    |   |  |      | 139   |   |       |   | (278   | ) |  |   | (139 | )
|NOW accounts           |  |                            | 73  |   |                            |   | 193 |       |  |   | 266    |   |  |      | 24    |   |       |   | (6     | ) |  |   | 18   |  
|Money market accounts  |  |                            | (2  | ) |                            |   | 14  |       |  |   | 12     |   |  |      | (2    | ) |       |   | (20    | ) |  |   | (22  | )
|Other borrowing        |  |                            | 64  |   |                            |   | 188 |       |  |   | 252    |   |  |      | 153   |   |       |   | (93    | ) |  |   | 60   |  
|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Total interest expense |  |                            | 311 |   |                            |   | 672 |       |  |   | 983    |   |  |      | 318   |   |       |   | (438   | ) |  |   | (120 | )
|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  
|Net interest income    |  | $                          | 443 |   |                            | $ | 100 |       |  | $ | 543    |   |  | $    | 780   |   |       | $ | (634   | ) |  | $ | 146  |  
|                       |  |                            |     |   |                            |   |     |       |  |   |        |   |  |      |       |   |       |   |        |   |  |   |      |  



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##### Table of Contents

Securities Portfolio

Presentation of the amortized cost of securities as of December 31, 2005 and 2004 may be found in Note 3 to the accompanying consolidated financial statements.

The following table sets forth the maturities of securities as of December 31, 2005 and the weighted average yields of such securities (calculated
on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security).



|                                          |  |                           |        |       |                                |   |        |                                |        |  |                 |        |  |       |       |  |        |   |       |   |     |        |      |       |  |   |        |  |      |  
|----------------------------------------- |  | ------------------------- | ------ | ----- | ------------------------------ | - | ------ | ------------------------------ | ------ |  | --------------- | ------ |  | ----- | ----- |  | ------ | - | ----- | - | --- | ------ | ---- | ----- |  | - | ------ |  | ---- | -
|                                          |  | Within One Year           |        |       | After One butWithin Five Years |   |        | After Five butWithin Ten Years |        |  | After Ten Years |        |  | Total |      
|                                          |  | Amount                    |        | Yield |                                |   | Amount |                                | Yield  |  |                 | Amount |  | Yield |       |  | Amount |   | Yield |   |     | Amount |      | Yield | 
|                                          |  | (in thousands of dollars) |       
|U.S. Treasury and other                   |  |                           |        |       |                                |   |        |                                |        |  |                 |        |  |       |       |  |        |   |       |   |     |        |      |       |  |   |        |  |      |  
|U.S. government agencies and corporations |  | $                         | 16,570 |       | 3.69                           | % |        | $                              | 40,874 |  | 3.72            | %      |  | $     | 122   |  | 5.48   | % |       | $ |    |        |     | %     |  | $ | 57,566 |  | 3.72 | %
|State and political subdivisions (1)      |  |                           | 941    |       | 5.97                           |   |        |                                | 6,441  |  | 5.00            |        |  |       | 898   |  | 5.76   |   |       |   |    |        |     |       |  |   | 8,280  |  | 5.19 |  
|Other securities                          |  |                           | 1,271  |       | 2.28                           |   |        |                                |       |  |                |        |  |       |      |  |       |   |       |   | 704 |        | 3.46 |       |  |   | 1,975  |  | 2.70 |  
|                                          |  |                           |        |       |                                |   |        |                                |        |  |                 |        |  |       |       |  |        |   |       |   |     |        |      |       |  |   |        |  |      |  
|Total                                     |  | $                         | 18,782 |       | 3.71                           | % |        | $                              | 47,315 |  | 3.90            | %      |  | $     | 1,020 |  | 5.73   | % |       | $ | 704 |        | 3.46 | %     |  | $ | 67,821 |  | 3.87 | %
|                                          |  |                           |        |       |                                |   |        |                                |        |  |                 |        |  |       |       |  |        |   |       |   |     |        |      |       |  |   |        |  |      |  

The portfolio contains no securities of any single issuer in which the aggregate amortized cost of such securities
exceeds ten percent of shareholders equity.



---

|(1) | Tax-equivalent adjustments, using a rate of 34%, have been made in calculating yields on obligations of state and political subdivisions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Loan Portfolio

Types of Loans

The
distribution of loans by major category for each of the last five fiscal year ends are provided below. All loans in the portfolio are domestic in nature.



|                                       |  |                           |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------------- |  | ------------------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                       |  | December 31              
|                                       |  | 2005                      |         | 2004 |   | 2003    |  | 2002 |         | 2001
|                                       |  | (in thousands of dollars)
|Commercial, financial and agricultural |  | $                         | 26,589  |      | $ | 23,831  |  | $    | 25,417  |      | $ | 20,819  |  | $ | 16,741 
|Real estate-construction               |  |                           | 10,559  |      |   | 8,759   |  |      | 5,963   |      |   | 2,689   |  |   | 3,753  
|Real estate-mortgage                   |  |                           | 104,868 |      |   | 101,083 |  |      | 89,111  |      |   | 77,937  |  |   | 70,281 
|Installment loans                      |  |                           | 9,726   |      |   | 10,734  |  |      | 12,396  |      |   | 13,657  |  |   | 15,889 
|Other                                  |  |                           | 2,051   |      |   | 1,636   |  |      | 2,868   |      |   | 1,566   |  |   | 1,913  
|                                       |  |                           |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total loans                            |  | $                         | 153,793 |      | $ | 146,043 |  | $    | 135,755 |      | $ | 116,668 |  | $ | 108,577
|                                       |  |                           |         |      |   |         |  |      |         |      |   |         |  |   |        

Loan Maturities and Interest Rate Sensitivity

Note 4 to the accompanying consolidated financial statements also provides data concerning the contractual maturities of loans, including commercial,
financial and agricultural loans as well as real estate construction loans, as of December 31, 2005. Also provided are the amounts due after one year classified as fixed rate and variable rate loans.

Risk Elements

Nonperforming Loans

The table below presents our nonperforming loan data for each of the last five
fiscal year ends:



|                                                       |  |                           |     |      |   |      |  |      |     |      |   |    |  |   |    
|------------------------------------------------------ |  | ------------------------- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | -- |  | - | ---
|                                                       |  | December 31              
|                                                       |  | 2005                      |     | 2004 |   | 2003 |  | 2002 |     | 2001
|                                                       |  | (in thousands of dollars)
|Nonaccrual loans                                       |  | $                         | 58  |      | $ |     |  | $    | 16  |      | $ | 14 |  | $ | 30 
|Loans past due 90 days or more still accruing interest |  |                           | 538 |      |   | 559  |  |      | 352 |      |   | 57 |  |   | 337
|Troubled debt restructurings                           |  |                           |    |      |   |     |  |      |    |      |   |   |  |   |   
|                                                       |  |                           |     |      |   |      |  |      |     |      |   |    |  |   |    
|Total                                                  |  | $                         | 596 |      | $ | 559  |  | $    | 368 |      | $ | 71 |  | $ | 367
|                                                       |  |                           |     |      |   |      |  |      |     |      |   |    |  |   |    

Potential Problem Loans

As stated in Note 5 to the accompanying consolidated financial statements, impaired loans totaled $3,650,075 and $48,053 at December 31, 2005 and
2004. These loans were classified as impaired due to doubts about the borrowers ability to repay as called for in the loan documents. Additional information regarding these loans may also be found in Note 5.

Loan Concentrations

Information concerning loan concentrations is provided in Note 4 to the accompanying consolidated financial statements.

Summary of Loan Loss Experience

The following table provides an analysis of our allowance for loan losses for each of the
last five fiscal year ends.



|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|-------------------------------------- |  | ------------------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|                                       |  | December 31              
|                                       |  | 2005                      |       | 2004 |   | 2003  |  | 2002 |       | 2001
|                                       |  | (in thousands of dollars)
|Balance, beginning of year             |  | $                         | 1,378 |      | $ | 1,396 |  | $    | 1,386 |      | $ | 1,398 |  | $ | 1,151
|Charge offs:                           |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Commercial, financial and agricultural |  |                           |      |      |   | 1,031 |  |      | 129   |      |   | 134   |  |   | 27   
|Real estate-mortgage                   |  |                           |      |      |   | 36    |  |      | 24    |      |   | 56    |  |   | 12   
|Installment                            |  |                           | 90    |      |   | 98    |  |      | 190   |      |   | 138   |  |   | 116  
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Total                                  |  |                           | 90    |      |   | 1,165 |  |      | 343   |      |   | 328   |  |   | 155  
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Recoveries:                            |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Commercial, financial and agricultural |  |                           | 5     |      |   | 192   |  |      | 21    |      |   | 3     |  |   | 36   
|Real estate-mortgage                   |  |                           | 1     |      |   |      |  |      |      |      |   | 1     |  |   |     
|Installment                            |  |                           | 28    |      |   | 20    |  |      | 8     |      |   | 24    |  |   | 19   
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Total                                  |  |                           | 34    |      |   | 212   |  |      | 29    |      |   | 28    |  |   | 55   
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Net charge offs                        |  |                           | 56    |      |   | 953   |  |      | 314   |      |   | 300   |  |   | 100  
|Provisions for loan losses             |  |                           | 275   |      |   | 935   |  |      | 324   |      |   | 288   |  |   | 347  
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      
|Balance, end of year                   |  | $                         | 1,597 |      | $ | 1,378 |  | $    | 1,396 |      | $ | 1,386 |  | $ | 1,398
|                                       |  |                           |       |      |   |       |  |      |       |      |   |       |  |   |      



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##### Table of Contents

The amount charged to the provision for loan losses and the related balance in the allowance for loan
losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, its analysis of overall loan quality, changes in the mix and size of the loan portfolio,
previous loss experience, general economic conditions and information about specific borrowers.

The ratio of net losses to average loans
outstanding was .04% in 2005, .67% in 2004 and .25% in 2003.

The following tables provide an allocation of the allowance for loan losses
for each of the last five year ends as well as the percent of loans in each category to total loans.



|                                       |  |                                                               |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|-------------------------------------- |  | ------------------------------------------------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                       |  | Allocation of Allowance For Loan Losses December 31,          |      
|                                       |  | 2005                                                          |       |   | 2004 |   |       | 2003 |  |   | 2002  |   |  | 2001 |      
|Commercial, financial and agricultural |  | $                                                             | 901   |   |      | $ | 717   |      |  | $ | 810   |   |  | $    | 918   |   |  | $ | 621   |  
|Real estate-construction               |  |                                                               |      |   |      |   |      |      |  |   |      |   |  |      | 17    |   |  |   | 29    |  
|Real estate-mortgage                   |  |                                                               | 320   |   |      |   | 282   |      |  |   | 103   |   |  |      | 164   |   |  |   | 412   |  
|Installment and other                  |  |                                                               | 151   |   |      |   | 173   |      |  |   | 185   |   |  |      | 103   |   |  |   | 127   |  
|Unallocated                            |  |                                                               | 225   |   |      |   | 206   |      |  |   | 298   |   |  |      | 184   |   |  |   | 209   |  
|                                       |  |                                                               |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total                                  |  | $                                                             | 1,597 |   |      | $ | 1,378 |      |  | $ | 1,396 |   |  | $    | 1,386 |   |  | $ | 1,398 |  
|                                       |  |                                                               |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                       | 
|                                       |  | Percent of Loans in Each Category to Total
Loans December 31, |      
|                                       |  | 2005                                                          |       |   | 2004 |   |       | 2003 |  |   | 2002  |   |  | 2001 |      
|Commercial, financial and agricultural |  |                                                               | 17    | % |      |   | 16    | %    |  |   | 19    | % |  |      | 18    | % |  |   | 15    | %
|Real estate-construction               |  |                                                               | 7     |   |      |   | 6     |      |  |   | 4     |   |  |      | 2     |   |  |   | 4     |  
|Real estate-mortgage                   |  |                                                               | 68    |   |      |   | 69    |      |  |   | 66    |   |  |      | 67    |   |  |   | 65    |  
|Installment and other                  |  |                                                               | 8     |   |      |   | 9     |      |  |   | 11    |   |  |      | 13    |   |  |   | 16    |  
|                                       |  |                                                               |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total                                  |  |                                                               | 100   | % |      |   | 100   | %    |  |   | 100   | % |  |      | 100   | % |  |   | 100   | %
|                                       |  |                                                               |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  

Deposits

The average daily amount of deposits and the rates paid on those deposits for the years ended December 31, 2005, 2004 and 2003 were previously
presented in the Distribution of Assets, Liabilities and Shareholders Equity; Interest Rates and Interest Differential.

A table
summarizing the maturities of time certificates of deposit, including individual retirement accounts, of $100,000 or more as of December 31, 2005 may be found in Note 7 to the accompanying consolidated financial statements. There were no other
time deposits of $100,000 or more at that date.

Return on Equity and Assets

The following table shows consolidated operating and capital ratios for the periods indicated.



|                               |  |                        |   |  |       |   |  |       |  
|------------------------------ |  | ---------------------- | - |  | ----- | - |  | ----- | -
|                               |  | Year Ended December 31 |  
|                               |  | 2005                   |   |  | 2004  |   |  | 2003  |  
|Return on average assets       |  | .90                    | % |  | .78   | % |  | 1.03  | %
|Return on average equity       |  | 10.02                  |   |  | 8.06  |   |  | 9.65  |  
|Dividend payout ratio          |  | 48.49                  |   |  | 58.94 |   |  | 47.77 |  
|Average equity to assets ratio |  | 9.02                   |   |  | 9.71  |   |  | 10.65 |  



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##### Table of Contents

Short-term Borrowing

Information concerning the companys short-term borrowings is presented in Note 11 to the accompanying consolidated financial statements.

Disclosure of Contractual Obligations

The following table provides information regarding the contractual obligations of Citizens Financial Corp. at December 31, 2005:



|                            |  |                                                  |       |                 |   |            |  |            |       |                  |   |     |  |   |      
|--------------------------- |  | ------------------------------------------------ | ----- | --------------- | - | ---------- |  | ---------- | ----- | ---------------- | - | --- |  | - | -----
|                            |  | Payments Due By Period (in thousands of dollars)
|                            |  | Total                                            |       | Less than1 year |   | 1  3years |  | 3 - 5years |       | More than5 years
|Contractual obligations     |  |                                                  |       |                 |   |            |  |            |       |                  |   |     |  |   |      
|                            |  |                                                  |       |                 |  
|Long-term debt              |  | $                                                | 5,145 |                 | $ | 1,565      |  | $          | 1,237 |                  | $ | 804 |  | $ | 1,539
|Capital leases              |  |                                                  |      |                 |   |           |  |            |      |                  |   |    |  |   |     
|Operating leases            |  |                                                  | 50    |                 |   | 27         |  |            | 22    |                  |   | 1   |  |   |     
|Purchase obligations        |  |                                                  |      |                 |   |           |  |            |      |                  |   |    |  |   |     
|Other long-term Liabilities |  |                                                  |      |                 |   |           |  |            |      |                  |   |    |  |   |     
|                            |  |                                                  |       |                 |   |            |  |            |       |                  |   |     |  |   |      
|Total                       |  | $                                                | 5,195 |                 | $ | 1,592      |  | $          | 1,259 |                  | $ | 805 |  | $ | 1,539
|                            |  |                                                  |       |                 |   |            |  |            |       |                  |   |     |  |   |      

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis presents the significant changes in financial condition and results of
operations of Citizens Financial Corp. and our subsidiary, Citizens National Bank of Elkins, for the periods indicated. It should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included
elsewhere in this report.

Description of Business

Citizens Financial Corp. is a $238 million Delaware corporation headquartered in Elkins, West Virginia. From there our wholly-owned subsidiary, Citizens
National Bank of Elkins, provides loan, deposit, trust, brokerage and other banking and banking related services to customers in northcentral and eastern West Virginia and nearby areas through six branch offices. We conduct no business other than
the ownership of our bank subsidiary.

FORWARD LOOKING STATEMENTS

This report contains forward looking statements which reflect our current expectations based on information available to us. These forward looking
statements involve uncertainties related to the general economic conditions in our nation and other broad based issues such as interest rates and regulations as well as to other factors which may be more specific to our own operations. Examples of
such factors may include our ability to attract and retain key personnel, implementing new technological systems, providing new products to meet changing customer and competitive demands, our ability to successfully manage growth strategies,
controlling costs, maintaining our net interest margin, maintaining good credit quality, and others. Forward looking statements can be identified by words such as may, will, expect, anticipate,
believe, estimate, plans, intends, or similar words. We do not attempt to update any forward looking statements. When provided, we intend forward looking information to assist readers in understanding
anticipated future operations and we include them pursuant to applicable safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in our forward looking statements are reasonable,
actual results could differ materially.



17



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##### Table of Contents

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within
the financial services industry. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions, and
judgments are based on information available as of the date of the financial statements and could change as new information becomes available. Consequently, later financial statements could reflect different estimates, assumptions, and judgments.

Some policies rely more heavily on the use of estimates, assumptions, and judgments than others and, therefore, have a greater possibility
of producing results that could be materially different than originally reported. Our most significant accounting policies, including an explanation of how assets and liabilities are valued, may be found in Note 1 to the consolidated financial
statements in our 2005 Annual Report to Shareholders and Form 10-K.

The allowance for loan losses represents our estimate of probable
credit losses inherent in the loan portfolio. Determining the amount of the allowance requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, the estimated amount of
losses in pools of homogeneous loans, and the effect of various economic and business factors, all of which may be subject to significant change. Due to these uncertainties, as well as the sensitivity of our financial statements to the assumptions
and estimates needed to determine the allowance, we have identified the determination of the allowance for loan losses as a critical accounting estimate. As such, it could be subject to revision as new information becomes available. Should this
occur, changes to the provision for loan losses, which may increase or decrease future earnings, may be necessary. A discussion of the methods we use to determine our allowance for loan losses is presented later in this report.

OVERVIEW

The bank
grew significantly in 2005 with total assets rising by approximately $24,407,000 to $238,190,000. This is the result of greater than expected deposit growth of $25,185,000. Included in this amount is approximately $8 million in interest bearing
checking accounts which are believed to be short-term in nature. Absent this, deposit growth of more than $17 million was still more than anticipated.

This increase in deposits was used to fund increases in both our loan and securities portfolios. Our loans increased $7,750,000, or 5.3% to $153,793,000. This was not as much as anticipated because several large loans
unexpectedly paid off early in 2005 and overall loan demand, while strong in the commercial area, was not as strong in the consumer and residential areas as hoped for. Still, we feel good about our loan portfolio in 2005 and we foresee continuing
loan opportunities in the coming year.

Meanwhile, our securities portfolio increased by $12,980,000. The average life of our securities
portfolio remains short due to both the continuing flat yield curve and the short-term nature of some of our deposits. Additional short-term investments in federal funds of $2,003,000 also existed at year-end.

Income also improved significantly in 2005 rising by $391,000, or 23.6%, to $2,047,000. This was made possible by higher net interest income and a
reduction in the provision for loan losses, which was unusually high last year due to the charge-off of a large commercial loan. Our higher earnings supported a 12 basis point improvement in our return on average assets to .90% while earnings per
share rose $.66, or 25.1%, to $3.29. A more detailed discussion of the factors impacting our results of operations and financial condition follows. Amounts and percentages used in that discussion have been rounded.

Results of Operations

Net Interest Income

Net interest income represents the primary component of our earnings. It is the
difference between interest and fee income generated by interest earning assets and interest expense incurred to carry interest bearing liabilities. Net interest income is affected by changes in balance sheet composition and interest rates. We
attempt to maximize net interest income by determining the optimal product mix in light of current and expected yields on assets, cost of funds and economic conditions while maintaining an acceptable degree of risk.

Throughout 2005 short term interest rates rose in response to continuing increases in the fed funds rate by the Federal Reserve. This rate was increased
eight times, or 200 basis points, in 2005. Longer term rates, however, did not move in a similar manner. The result was that the yield curve became increasingly flat and banks found it difficult to improve their net interest margins. In our case,
tax equivalent net interest income increased $543,000 to produce a net interest margin for 2005 of 4.29%, just shy of the most recent peer group average of 4.30% and our 2004 margin of 4.35%.



18



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##### Table of Contents

On a tax equivalent basis, interest income rose $1,526,000 to $13,199,000 in 2005. Growth in our average
earning asset base of $15.3 million generated approximately $754,000 of this additional income. We were also able to increase the yield earned on our earning assets by 29 basis points to 6.19% as loans in particular produced better yields. Those
better yields added another $772,000 to income.

At the same time, however, interest expense was also rising by $983,000. An increase in
our interest bearing liabilities of $13.3 million accounted for approximately $311,000 of this. The rising rate environment also caused the cost of these funds, which are primarily of a short term nature, to increase by 41 basis points to 2.25%.
These higher rates resulted in an additional $672,000 in interest expense.

In contrast to this, in 2004 both the yield on our earning
assets and the cost of our interest bearing liabilities decreased while the size of our earning assets and interest bearing liabilities each increased. The resulting increase in tax equivalent net interest income was just $146,000. The net interest
margin, however, fell 27 basis points.

Provision for Loan Losses

The provision for loan losses is our estimate of the amount which must be charged against current earnings in order to maintain the allowance for loan
losses at a level considered adequate to provide for losses which are inherent in the loan portfolio. This amount is determined through quarterly evaluations of the loan portfolio. Our provision for loan losses totaled $275,000 in 2005 compared to
$935,000 in 2004 and $324,000 in 2003. The increase in 2004 is the result of higher net charge-offs primarily arising from the failure of a commercial loan customer.

This reduction in the provision for loan losses was a significant cost savings to the bank in 2005 and helped support the years higher earnings. Because the amount of the provision for loan losses is a function
of our overall assessment of loan quality and the adequacy of the allowance for loan losses, which itself relies on significant use of judgment and estimates, the provision for loan loss expense may increase or decrease in the future. Please refer
to the Credit Quality and Allowance for Loan Losses section of this report where we further discuss the estimation methods and assumptions we use in analyzing the allowance and the quality of our loan portfolio.

Noninterest Income

Noninterest income,
which includes all revenues other than interest and fees from earning assets, is becoming increasingly important to the success of community banks like Citizens. In 2005, noninterest income was $1,468,000, or 10.2% of total revenues. This is a
$75,000 increase from $1,393,000 in 2004. Absent nonrecurring gains on the sale of securities and repossessed properties, noninterest income would have totaled $1,441,000 in 2005 and $1,319,000 in 2004; a $122,000 improvement. In 2003, noninterest
income was $1,292,000.

Improvements were noted in several areas in 2005. Service fees, which is the largest component of noninterest
income, increased by $71,000, about 10.1%, to $772,000 as a result of increased ATM and overdraft fees. Installing two new ATMs during 2004 gave rise to the increase in ATM fees. By restructuring the revenue sharing agreement with our secondary
market mortgage originator we improved income by nearly $39,000. Our brokerage service benefited from having a full time broker on staff for the entire year with the result that income increased by $29,000 while an increase in assets under
management gave rise to a $7,000 increase in trust income. On the other hand, other noninterest income fell by $49,000. The primary reasons for this include a smaller increase in the cash surrender value of insurance contracts used to fund certain
retirement benefits and a reduction in the amount of gains recognized on the sale of foreclosed properties.

As noted above, absent
nonrecurring items, noninterest income would have been $1,319,000 in 2004. This is not significantly different than the $1,292,000 earned in 2003.

We expect service fees on deposit accounts to continue to be our primary source of noninterest income in the future although the success of our trust, brokerage and mortgage operations are also important income determinants.

Noninterest Expense

Noninterest
expense includes all items of expense other than interest expense, the provision for loan losses and income taxes. Historically our level of noninterest expense has been higher than average, partly due to the relatively smaller branch facilities our
market area can support. Noninterest expenses have also been increasing on a yearly basis. Management is devoting significant efforts to better control this growth in the future, however. Successfully doing so will be one of the keys to improving
our earnings.



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In 2005, total noninterest expense was $7,139,000. This is an increase of $394,000, or 5.9% from
$6,745,000 in 2004. Although this increase remains significant it is less than in recent years. From 2000 to 2004 the average increase in noninterest expense was $541,000, or 10.2%.

Personnel costs are the largest component of noninterest expense and accounted for the largest increase in 2005 rising $132,000, or 3.7%. This is due to
rising benefit costs as salaries actually fell $8,000. Among our benefit plans are medical, life, long term disability and accidental death coverage. The bank pays the cost of these benefits for its employees and, in the case of medical coverage,
for the employees families as well. The cost of providing these benefits rose $107,000 in 2005. With our group medical plan being self funded, the level of claims we incur is a major determinant of cost. For 2006, we have adjusted certain
provisions of our stop loss coverage in an attempt to better control our costs.

We also offer both a pension and 401(k) plan for the
benefit of our employees. The cost of these plans increased by $81,000 in 2005 mostly as a result of higher pension costs as determined under applicable accounting standards. In addition, reduced loan production has limited the deferral of certain
labor costs resulting in an additional $38,000 of expense. Our remaining benefit plans provide retirement income for directors and selected officers. The cost of these plans fell by $97,000 in 2005.

Our data processing activities are performed by an independent third party. The cost of these services is significant and has risen in recent years due
to price increases, expansion of our ATM network, and the need to gather and monitor additional data for both managerial and regulatory purposes. In 2005 fees paid for these services increased by $40,000 to $599,000. We also incur significant costs
to purchase and maintain certain software programs. These costs are also increasing, rising $33,000 to $208,000 in 2005.

In an effort to
control these costs, develop more integrated systems and improve efficiency, we have changed processors in 2006. Although certain conversion costs will be incurred in 2006, we estimate that this change could produce savings approaching $200,000
annually on an ongoing basis.

Professional fees increased significantly in 2005 rising $86,000 to $246,000. This is primarily due to two
factors; costs incurred in early 2005 related to Section 404 of the Sarbanes Oxley Act, and the outsourcing of our internal audit function. With regard to the Sarbanes Oxley Act, our required implementation date for Section 404 has been
set at year-end 2007. This delay has provided us time to reassess our approach to Section 404, however, absent permanent relief we will again incur these costs in the future.

Also during 2005 we incurred higher occupancy expense as a result of higher repairs, property insurance and utility costs, as well as increased director
fees. Other costs such as postage, stationery and other noninterest expenses did not change significantly.

In 2004, noninterest
expense rose by $550,000, or 8.9%, to $6,745,000. Some of the factors causing this increase were similar to those discussed above as impacting 2005. For example, data processing and software costs increased $85,000 and $95,000, respectively, while
legal fees related to a large loan charge-off contributed to a $38,000 rise in professional costs. Occupancy costs also increased as we wrote off $31,000 in leasehold improvements when we closed a temporary branch facility and moved into a permanent
branch in Marlinton. Salaries and benefits also increased by $98,000 in 2004. This was the result of higher pension expense and an increase in salaries.

Income Taxes

Our
provision for income taxes includes both federal and state income taxes. Total taxes were $927,000 in 2005, $427,000 in 2004, and $984,000 in 2003. The drop in our 2004 tax is primarily related to the unusually high level of loan charge-offs we
experienced. With the exception of income earned on loans to and bonds issued by municipalities, and income from certain life insurance policies, all of our income is taxable. We have not been subject to the alternative minimum tax during any of the
periods covered by this report. Note 9 of the accompanying consolidated financial statements provides additional information concerning our income tax expense.

Financial Condition

Loan Portfolio

Our lending activities are generally designed to satisfy the home mortgage, consumer,
and commercial credit needs of customers in our market area. However, due to the limited size of our market area, and the increased competition for home mortgage and auto loans, we also participate in commercial loans in surrounding markets through
a group of community banks similar to ourselves. These loans total $4,535,000, or 2.9% of our total loan portfolio.



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Although we experienced several large loan payoffs early in 2005, our loan portfolio still grew by
$7,750,000, or 5.3%, to end the year at $153,793,000. This represents 64.6% of total assets. As expected, much of this growth occurred in our commercial and commercial mortgage portfolios.

Our commercial portfolio now totals $26,589,000, up $2,758,000 from year-end 2004. This 11.6% increase largely reflects our ability to develop more
complete relationships with existing customers and the positive results of continuing to call on them. These same efforts, along with favorable business conditions in several markets, have also brought about an increase in our commercial real estate
loans. These loans now total $40,852,000, up from $38,160,000. All of these loans, commercial and commercial real estate, typically carry variable interest rates tied to the prime rate. The combined total of these two portfolios of $67,441,000 makes
commercial lending our largest loan portfolio.

Our residential mortgage portfolio remained constant at $55.2 million in 2005. These loans
are mostly adjustable rate mortgages which have remained out of favor when compared to fixed rate mortgage products. For customers desiring fixed rate mortgages we continue to originate them on behalf of other lenders. In 2005, we originated
$12,431,000 of these loans. For doing so we received $102,000 in fee income. These loans may or may not be serviced by us. We also provide home equity loans to qualifying customers. Home equities increased to $8.8 million in 2005.

Our real estate construction lending is reflective of the degree of new home and commercial resort building activity in our area. Construction loans
increased to $10.6 million in 2005; approximately $7.6 million of this is related to commercial development projects at local ski resorts. Sales activity in these areas has been very brisk and we may or may not obtain the permanent financing needed
by the ultimate owners.

Our consumer loan portfolio, which is largely dependent on auto loans, fell by $1,008,000 in 2005 to $9,726,000.
This continues a several year trend as the captive finance companies of auto manufacturers have routinely offered more attractive options to consumers. These deals also tend to shift used car buyers to the new car market. These factors, and even the
use of our own home equity loans, have reduced our auto lending opportunities. In late 2005 we were successful in attracting auto loans by adjusting our loan terms. In 2006 we will consider additional measures to increase this business and improve
our contact with area auto dealers.

Credit Quality and Allowance for Loan Losses

The quality of our loan portfolio during 2005 was much improved from 2004 as indicated by our level of net charge-offs, which fell from $953,000 to just
$56,000. As of December 31, 2005, we had just $58,000 of loans in nonaccrual status. Loans past due 90 days or more and still accruing interest totaled $538,000, which is .35% of our total loans. Loans past due 30 - 89 days did increase from
$3,678,000 at year-end 2004 to $4,645,000 due to the difficulties of several specific customers. We are working closely with those customers and our analysis indicates the risk of loss is being systematically reduced as the customers improve their
business operations. These risks have been appropriately accounted for in our allowance for loan losses.

We maintain our allowance for
loan losses at a level we consider adequate to provide for losses that we believe to be inherent in the loan portfolio. This determination is based on quarterly evaluations in which a specific analysis and a pooled analysis are computed. The
specific analysis is used to individually assign an allowance to larger balance, nonhomogenous loans; typically commercial loans. The pooled analysis is used to quantify the loss on pools of smaller balance, homogenous loans such as residential
mortgages and consumer loans. The pooled analysis considers such factors as historical loss experience, delinquency levels, current and anticipated economic conditions, concentrations of credit and changes in lending policies and staff. Because
these analyses determine the adequacy of the allowance for loan losses they also determine the provision for loans losses that must be charged to earnings.

As of December 31, 2005, our allowance for loan losses was $1,597,000, or 1.04% of gross loans. Based on the results of our analysis, we believe this allowance properly addresses the risk identified in our
portfolio. Within our analysis we specifically analyzed loans totaling $13.4 million. Of these, it was determined that $2.9 million carried losses estimated at $538,000. Losses related to our smaller loan pools were estimated at $435,000 while loan
concentrations in the auto, lumber and hotel/motel industries carried estimated losses of $332,000. Additional reserves were established for trends in the unemployment rate within our market area.

Based on information available to us we believe our analysis is comprehensive and our allowance is adequate as of the report date. However, there can be
no assurance that additional provisions for loan losses will not be required in the future as a result of changes in the assumptions which underlie our estimates and judgments or changes in economic conditions or the conditions of individual
borrowers.



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Securities Portfolio and Federal Funds Sold

Funds which are not needed to satisfy loan demand or operating needs are invested in securities as a means of improving earnings while also providing
liquidity and balancing interest sensitivity concerns. The securities we purchase are limited to U.S. government agency issues, including mortgage backed issues of U.S. agencies, obligations of state and political subdivisions and investment grade
corporate debt. All of our securities are classified as available for sale. The Board of Directors is informed of all securities transactions each month and a series of policy statements limit the amount of credit and interest rate risk we may take.

Our securities portfolio is a major part of our asset base, increasing, $12,980,000 in 2005 to $66,854,000, or 28.1% of total assets. This
increase occurred because our deposit growth exceeded our loan growth. Due to the fact that a portion of our deposit growth is expected to be short term in nature, as well as the flatness of the yield curve, many of the securities purchased in 2005
also had relatively short maturities. As a result, the weighted average life of the portfolio is now just 1.95 years. These same factors have also caused us to keep some funds in the overnight fed funds sold market. Fed funds totaled $2,003,000 at
year-end and averaged $3,807,000 during 2005.

Because our securities portfolio is classified as available for sale it is carried at fair
value. Unrealized losses which are temporary in nature are recognized as an adjustment to equity. Losses determined to be other than temporary are recognized in income. Throughout 2005, as interest rates rose, the fair value of our portfolio
decreased. At year-end the fair value was $967,000 less than the amortized cost of the portfolio. Securities with a fair value of $25,410,000, and unrealized losses of $635,000, have been in a loss position for more than twelve months. As shown in
Note 3, the majority of these securities are U.S. government and agency securities. All of the issuers are of sound financial condition and carry credit ratings of good to exceptional. Based on this, and our ability and intent to hold the securities
for a reasonable period of time sufficient for a recovery of fair value, we do not consider these investments to be other than temporarily impaired at December 31, 2005.

Deposits and Other Funding Sources

Deposit growth in 2005 was very robust. Total
deposits increased $25.2 million, or 15.2%. Noninterest bearing deposits rose by $5,186,000 to $28,648,000. Noninterest bearing deposits, however, do tend to change on a daily basis and this balance is higher than normal. More typical balances
during late 2005 were approximately $27.4 million.

Interest bearing deposits increased by $19,999,000 in 2005. The largest growth was in
interest bearing checking accounts, up $13.4 million. Of this approximately $8 million is believed to be temporary funding which is expected to be withdrawn by mid 2006. Also included in this are newly acquired deposits of a local governmental
agency which average $1.7 million.

Our CD portfolio also grew in 2005. Regular CDs, those with balances under $100,000, increased
$3,960,000 to $52,579,000. Jumbo CDs, those greater than $100,000, similarly increased by $3,931,000. This was achieved by selectively pricing and promoting certain CD terms. In addition, all of our CDs have a unique feature we call step in, step
up, step out which appeals to customers and helps build better customer relationships.

At $32.2 million, our jumbo CD portfolio is an
important source of funding. This portfolio is drawn entirely from our local markets as we do not market these products or accept out of area or brokered deposits

In addition to deposits, we also utilize several types of borrowings to fund our assets. Repurchase agreements with local businesses and municipalities have been an important funding source recently. Some of our repos
are awarded on a competitive bid system so it is possible that we may not be able to retain them indefinitely. However, due to the parameters typically included in the bid requirements, we are well positioned to maintain them verses our competitors.
Overall, despite some seasonal fluctuations, we have found our repos to be a reliable source of funds. Repos totaled $20.5 million at year-end and averaged $21.6 million during 2005.

When appropriate, we also use long term borrowings to fund our activities, usually specific commercial loan projects. These borrowings are structured
such that their cash flow patterns are similar to the corresponding loan to maintain an acceptable net interest spread. At year-end, our long-term borrowings totaled $5.1 million. This includes $3.5 million obtained in 2005 specifically for the
purpose of locking in an interest rate spread. Generally, however, we expect to continue to fund our activities through internal sources.

Capital Resources

Our total capital of $19.6 million has not changed significantly from 2004 when it
was $20.2 million. Because our assets have increased, however, the ratio of capital to assets decreased from 9.5% to 8.2%, which is still an adequate level. A complete analysis of our capital accounts can be found by referring to the Statement of
Changes in Shareholders Equity.



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Banks and bank holding companies are subject to several risk weighted capital measures. As detailed in
Note 13, we continue to maintain capital levels well in excess of the amount needed to be considered well capitalized under the regulations. This should continue to be the case throughout the foreseeable future and we are not aware of any trends or
uncertainties which are expected to materially impair our capital position.

Our stock is traded on the over the counter market under the
symbol CIWV.OB. Trading activity has historically been light with 44,000 shares traded in 2005 including 5,925 shares we purchased as treasury stock. The price of the stock ranged from $45.50 to $51.60 and ended the year at $51.50. Dividends paid in
2005 were increased for the fourteenth consecutive year to $1.60 per share, up $.05 per share from $1.55 in 2004.

Off-Balance-Sheet Obligations

A discussion of our involvement in off-balance-sheet obligations is presented in Note 12 to
the consolidated financial statements contained in this report.

Liquidity

The objective of our liquidity management program is to ensure the continuous availability of funds to meet the withdrawal demands of customers, the
credit needs of borrowers, and to provide for other operational needs. Liquidity is provided by various sources including unpledged investment securities, federal funds sold, loan repayments, a stable and growing deposit base and when necessary,
external borrowings.

We monitor liquidity on a regular basis by preparing projected balance sheets and analyzing our sources and uses of
funds. Historically, we have satisfied our liquidity needs through internal sources of funds with the exception of certain loans which have been funded by borrowing funds from the Federal Home Loan Bank of Pittsburgh. Currently, we have access to
approximately $97,271,000 through various FHLB programs. Depending on loan demand, we may utilize a limited amount of FHLB borrowings to fund asset growth in 2006. We are not aware of any trends, commitments, events or uncertainties which may impair
our ability to satisfy our operating cash needs.

Impact of Inflation

Our financial statements and related data in this report are prepared in conformity with U.S. generally accepted accounting principles which require our
financial position and results of operations to be measured in terms of historical dollars except for the available for sale securities portfolio. Consequently, the relative value of money generally is not considered. Nearly all of our assets and
liabilities are monetary in nature and, as a result, interest rates and competition in the market area tend to have a more significant impact on performance than the effect of inflation.

However, inflation does affect noninterest expenses such as personnel costs and the cost of services and supplies we use. We attempt to offset such
increases by controlling the level of noninterest expenditures and increasing levels of noninterest income. Because inflation rates have generally been low during the time covered by the accompanying consolidated financial statements, the impact of
inflation on our earnings has not been significant.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The primary form of market risk facing
Citizens is interest rate risk. This is the risk that changes in the interest rates earned on loans, securities and other interest earning assets as well as in the interest rates paid on interest bearing liabilities could negatively impact earnings.
Some amount of interest rate risk is inherent and appropriate in banking.

We control interest rate risk through our interest rate
sensitivity management program, also known as asset/liability management. The objective of this program is to maximize net interest income while minimizing the risk of adverse effects from changing interest rates. This is done by controlling the mix
and maturities of interest sensitive assets and liabilities. The bank has established an asset/liability committee, which is comprised of representatives of our lending and deposit functions as well as members of senior management, for this purpose.
Our asset/liability committee reports to the Board of Directors. We use several techniques to monitor and control interest rate risk including gap analysis, interest rate shock testing and other forms of simulation modeling.

Gap analysis measures the amount of interest earning assets and interest bearing liabilities that could reprice in a given time period. When more assets
could reprice the gap is said to be positive. This is normally beneficial when interest rates rise. When more liabilities can reprice, the gap is negative which is usually good as interest rates fall. Normally, the size of the gap is expressed as a
percent of total assets.



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We monitor our gap on a monthly basis. As of December 31, 2005, our one year gap was 1.96% of assets
which indicates we may benefit from rising interest rates.

Gap analysis is a static measure and does not consider future changes in the
volume of rate sensitive assets and liabilities or the possibility that interest rates of various products may not change by the same amount or at the same time. These theoretical weaknesses are partially addressed by our interest rate shock testing
program. In rate shock testing, we project the balances in our various interest sensitive assets and liabilities over the next twelve months. Computations are then done to forecast net interest income assuming an immediate and sustained change in
interest rates.

The following table shows the estimated change in our net interest income under several different interest rate shock
scenarios. All of these results are within our policy limits.



|                                        |  |                                      |  
|--------------------------------------- |  | ------------------------------------ | -
|Change in Interest Rates (basis points) |  | Percent Changein Net Interest Income |  
|+100                                    |  | -0.46                                | %
|-100                                    |  | -2.18                                | %
|+200                                    |  | -0.93                                | %
|-200                                    |  | -3.87                                | %

These tests indicate our net interest income may fall whether rates increase or decrease. However,
due to our current pricing structure, the rates on some of our deposits products, such as savings accounts, cannot fall by as much as 100 basis points. As a result the computed impact in down rate environments is greater than would normally be
expected.

One of the keys to maintaining our net interest income in a rising rate environment is managing the rates paid on some of these
same deposit accounts. We test this using our simulation models. These models indicate that if we can control the rates paid on certain deposits a rising interest rate environment could benefit earnings.

All methods of interest rate risk measurement and management are based on assumptions. Because of this we cannot precisely predict the impact of changes
in interest rates on net interest income. Actual results will differ from the simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the strategies we employ.



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Item 8. Financial Statements and Supplementary Data

CITIZENS FINANCIAL CORP.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004



|                                                                                  |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                  |  | 2005 |             |   | 2004 |  
|ASSETS                                                                            |  |      |             |   |      |   |             |  
|                                                                                  |  |     
|Cash and due from banks                                                           |  | $    | 6,770,128   |   |      | $ | 5,475,798   |  
|Federal funds sold                                                                |  |      | 2,002,608   |   |      |   |            |  
|Securities available for sale, at fair value                                      |  |      | 66,854,339  |   |      |   | 53,874,409  |  
|Loans, less allowance for loan losses of $1,597,006 and $1,378,106, respectively  |  |      | 152,136,327 |   |      |   | 144,586,824 |  
|Bank premises and equipment, net                                                  |  |      | 4,192,060   |   |      |   | 4,223,620   |  
|Accrued interest receivable                                                       |  |      | 1,321,120   |   |      |   | 1,118,499   |  
|Other assets                                                                      |  |      | 4,913,386   |   |      |   | 4,504,223   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Total assets                                                                      |  | $    | 238,189,968 |   |      | $ | 213,783,373 |  
|                                                                                  |  |      |             |   |      |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                              |  |      |             |   |      |   |             |  
|                                                                                  |  |     
|Liabilities                                                                       |  |      |             |   |      |   |             |  
|Deposits:                                                                         |  |      |             |   |      |   |             |  
|Noninterest bearing                                                               |  | $    | 28,647,792  |   |      | $ | 23,461,463  |  
|Interest bearing                                                                  |  |      | 161,837,937 |   |      |   | 141,839,189 |  
|                                                                                  |  |      |             |   |      |   |             |  
|Total deposits                                                                    |  |      | 190,485,729 |   |      |   | 165,300,652 |  
|Short-term borrowings                                                             |  |      | 20,511,399  |   |      |   | 22,510,155  |  
|Long-term borrowings                                                              |  |      | 5,145,328   |   |      |   | 4,146,232   |  
|Other liabilities                                                                 |  |      | 2,434,207   |   |      |   | 1,603,553   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Total liabilities                                                                 |  |      | 218,576,663 |   |      |   | 193,560,592 |  
|                                                                                  |  |      |             |   |      |   |             |  
|Commitments and contingencies                                                     |  |      |             |   |      |   |             |  
|                                                                                  |  |     
|Shareholders equity                                                              |  |      |             |   |      |   |             |  
|Common stock, $2.00 par value, authorized 2,250,000 shares, issued 750,000 shares |  |      | 1,500,000   |   |      |   | 1,500,000   |  
|Additional paid-in capital                                                        |  |      | 2,100,000   |   |      |   | 2,100,000   |  
|Retained earnings                                                                 |  |      | 20,704,572  |   |      |   | 19,650,112  |  
|Accumulated other comprehensive income/(loss)                                     |  |      | (1,315,875  | ) |      |   | 57,987      |  
|Treasury stock at cost, 132,012 and 126,087 shares, respectively                  |  |      | (3,375,392  | ) |      |   | (3,085,318  | )
|                                                                                  |  |      |             |   |      |   |             |  
|Total shareholders equity                                                        |  |      | 19,613,305  |   |      |   | 20,222,781  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Total liabilities and shareholders equity                                        |  | $    | 238,189,968 |   |      | $ | 213,783,373 |  
|                                                                                  |  |      |             |   |      |   |             |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

CITIZENS FINANCIAL CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For The Years Ended December 31, 2005, 2004 and 2003



|                                                          |  |      |            |      |   |            |  |   |           
|--------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                          |  | 2005 |            | 2004 |   | 2003      
|Interest and dividend income                              |  |      |            |      |   |            |  |   |           
|Interest and fees on loans                                |  | $    | 10,744,643 |      | $ | 9,427,403  |  | $ | 8,985,036 
|Interest and dividends on securities:                     |  |      |            |      |   |            |  |   |           
|Taxable                                                   |  |      | 1,780,716  |      |   | 1,636,570  |  |   | 2,023,086 
|Tax-exempt                                                |  |      | 327,325    |      |   | 361,190    |  |   | 391,984   
|Interest on federal funds sold                            |  |      | 123,172    |      |   | 17,914     |  |   | 15,455    
|                                                          |  |      |            |      |   |            |  |   |           
|Total interest and dividend income                        |  |      | 12,975,856 |      |   | 11,443,077 |  |   | 11,415,561
|                                                          |  |      |            |      |   |            |  |   |           
|Interest expense                                          |  |      |            |      |   |            |  |   |           
|Interest on deposits                                      |  |      | 3,376,537  |      |   | 2,645,847  |  |   | 2,826,172 
|Interest on short-term borrowings                         |  |      | 501,698    |      |   | 307,654    |  |   | 254,359   
|Interest on long-term borrowings                          |  |      | 178,078    |      |   | 119,649    |  |   | 112,873   
|                                                          |  |      |            |      |   |            |  |   |           
|Total interest expense                                    |  |      | 4,056,313  |      |   | 3,073,150  |  |   | 3,193,404 
|                                                          |  |      |            |      |   |            |  |   |           
|Net interest income                                       |  |      | 8,919,543  |      |   | 8,369,927  |  |   | 8,222,157 
|Provision for loan losses                                 |  |      | 274,667    |      |   | 934,899    |  |   | 324,000   
|                                                          |  |      |            |      |   |            |  |   |           
|Net interest income after provision for loan losses       |  |      | 8,644,876  |      |   | 7,435,028  |  |   | 7,898,157 
|                                                          |  |      |            |      |   |            |  |   |           
|Noninterest income                                        |  |      |            |      |   |            |  |   |           
|Trust income                                              |  |      | 201,402    |      |   | 194,593    |  |   | 253,313   
|Service fees                                              |  |      | 771,831    |      |   | 700,732    |  |   | 658,766   
|Insurance commissions                                     |  |      | 42,810     |      |   | 41,155     |  |   | 55,594    
|Securities gains, net                                     |  |      |           |      |   | 23,185     |  |   | 276       
|Brokerage fees                                            |  |      | 79,117     |      |   | 50,034     |  |   | 30,160    
|Secondary market loan fees                                |  |      | 101,523    |      |   | 62,691     |  |   | 95,050    
|Other                                                     |  |      | 271,639    |      |   | 320,818    |  |   | 199,027   
|                                                          |  |      |            |      |   |            |  |   |           
|Total noninterest income                                  |  |      | 1,468,322  |      |   | 1,393,208  |  |   | 1,292,186 
|                                                          |  |      |            |      |   |            |  |   |           
|Noninterest expense                                       |  |      |            |      |   |            |  |   |           
|Salaries and employee benefits                            |  |      | 3,723,480  |      |   | 3,591,142  |  |   | 3,493,387 
|Net occupancy expense                                     |  |      | 332,748    |      |   | 265,313    |  |   | 238,243   
|Equipment rentals, depreciation and maintenance           |  |      | 484,001    |      |   | 480,443    |  |   | 417,957   
|Data processing                                           |  |      | 598,824    |      |   | 559,238    |  |   | 474,240   
|Director fees                                             |  |      | 252,483    |      |   | 220,861    |  |   | 222,983   
|Postage expense                                           |  |      | 170,653    |      |   | 166,589    |  |   | 157,186   
|Professional service fees                                 |  |      | 245,714    |      |   | 159,251    |  |   | 121,097   
|Stationery                                                |  |      | 155,923    |      |   | 162,858    |  |   | 137,179   
|Software expense                                          |  |      | 208,231    |      |   | 174,774    |  |   | 79,485    
|Other                                                     |  |      | 966,597    |      |   | 964,490    |  |   | 852,747   
|                                                          |  |      |            |      |   |            |  |   |           
|Total noninterest expense                                 |  |      | 7,138,654  |      |   | 6,744,959  |  |   | 6,194,504 
|                                                          |  |      |            |      |   |            |  |   |           
|Income before income taxes                                |  |      | 2,974,544  |      |   | 2,083,277  |  |   | 2,995,839 
|Income tax expense                                        |  |      | 927,358    |      |   | 426,938    |  |   | 983,890   
|                                                          |  |      |            |      |   |            |  |   |           
|Net income                                                |  | $    | 2,047,186  |      | $ | 1,656,339  |  | $ | 2,011,949 
|                                                          |  |      |            |      |   |            |  |   |           
|Basic and fully diluted earnings per common share         |  | $    | 3.29       |      | $ | 2.63       |  | $ | 3.14      
|                                                          |  |      |            |      |   |            |  |   |           
|Basic and fully diluted average common shares outstanding |  |      | 621,405    |      |   | 628,877    |  |   | 641,298   
|                                                          |  |      |            |      |   |            |  |   |           

See Notes to Consolidated Financial Statements



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CITIZENS FINANCIAL CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For The Years Ended December 31, 2005, 2004 and 2003



|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                             |  | 2005 |            |   | 2004 |   |           | 2003 | 
|Net Income                                                   |  | $    | 2,047,186  |   |      | $ | 1,656,339 |      |  | $ | 2,011,949 |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|Other comprehensive (loss):                                  |  |      |            |   |      |   |           |      |  |   |           |  
|Gross unrealized losses arising during the period            |  |      | (1,060,150 | ) |      |   | (972,022  | )    |  |   | (916,890  | )
|Adjustment for income tax benefit                            |  |      | 402,857    |   |      |   | 369,368   |      |  |   | 348,413   |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|                                                             |  |      | (657,293   | ) |      |   | (602,654  | )    |  |   | (568,477  | )
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|Reclassification adjustment for gains included in net income |  |      |           |   |      |   | (23,185   | )    |  |   | (276      | )
|Adjustment for income tax expense                            |  |      |           |   |      |   | 8,810     |      |  |   | 105       |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|                                                             |  |      |           |   |      |   | (14,375   | )    |  |   | (171      | )
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|Increase in minimum pension liability                        |  |      | (1,155,756 | ) |      |   |          |      |  |   |          |  
|Adjustment for income tax benefit                            |  |      | 439,187    |   |      |   |          |      |  |   |          |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|                                                             |  |      | (716,569   | ) |      |   |          |      |  |   |          |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|Other comprehensive (loss), net of tax                       |  |      | (1,373,862 | ) |      |   | (617,029  | )    |  |   | (568,648  | )
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  
|Comprehensive Income                                         |  | $    | 673,324    |   |      | $ | 1,039,310 |      |  | $ | 1,443,301 |  
|                                                             |  |      |            |   |      |   |           |      |  |   |           |  

See Notes to Consolidated Financial Statements



27



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CITIZENS FINANCIAL CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the Years Ended December 31, 2005, 2004 and 2003



|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --------- | ---------------- | - | --------- | ------------------------------------------- | - | ---------- | ------------- |  | - | -------------------------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                       |  | Common Stock |  | AdditionalPaid-InCapital |           | RetainedEarnings |   |           | AccumulatedOtherCompre-hensiveIncome/(Loss) |   |            | TreasuryStock |  |   | Total Share-holdersEquity |  
|                                                                       |  | Shares       |  | Amount                   |           |                  |   |           |                                            
|Balance, December 31, 2002                                             |  | 750,000      |  | $                        | 1,500,000 |                  | $ | 2,100,000 |                                             | $ | 17,912,258 |               |  | $ | 1,243,664                  |   |  | $ | (2,150,947 | ) |  | $ | 20,604,975 |  
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Net income - 2003                                                      |  |             |  |                          |          |                  |   |          |                                             |   | 2,011,949  |               |  |   |                           |   |  |   |           |   |  |   | 2,011,949  |  
|Cost of 15,145 shares acquired as treasury stock                       |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   |                           |   |  |   | (611,517   | ) |  |   | (611,517   | )
|Cash dividends declared ($1.50 per share)                              |  |             |  |                          |          |                  |   |          |                                             |   | (958,345   | )             |  |   |                           |   |  |   |           |   |  |   | (958,345   | )
|Net change in unrealized gain/(loss) on available for sale securities  |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   | (568,648                   | ) |  |   |           |   |  |   | (568,648   | )
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2003                                             |  | 750,000      |  |                          | 1,500,000 |                  |   | 2,100,000 |                                             |   | 18,965,862 |               |  |   | 675,016                    |   |  |   | (2,762,464 | ) |  |   | 20,478,414 |  
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Net income - 2004                                                      |  |             |  |                          |          |                  |   |          |                                             |   | 1,656,339  |               |  |   |                           |   |  |   |           |   |  |   | 1,656,339  |  
|Cost of 7,465 shares acquired as treasury stock                        |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   |                           |   |  |   | (322,854   | ) |  |   | (322,854   | )
|Cash dividends declared ($1.55 per share)                              |  |             |  |                          |          |                  |   |          |                                             |   | (972,089   | )             |  |   |                           |   |  |   |           |   |  |   | (972,089   | )
|Net change in unrealized gain/(loss) on available for sale securities  |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   | (617,029                   | ) |  |   |           |   |  |   | (617,029   | )
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2004                                             |  | 750,000      |  |                          | 1,500,000 |                  |   | 2,100,000 |                                             |   | 19,650,112 |               |  |   | 57,987                     |   |  |   | (3,085,318 | ) |  |   | 20,222,781 |  
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Net income - 2005                                                      |  |             |  |                          |          |                  |   |          |                                             |   | 2,047,186  |               |  |   |                           |   |  |   |           |   |  |   | 2,047,186  |  
|Cost of 5,925 shares acquired as treasury stock                        |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   |                           |   |  |   | (290,074   | ) |  |   | (290,074   | )
|Cash dividends declared ($1.60 per share)                              |  |             |  |                          |          |                  |   |          |                                             |   | (992,726   | )             |  |   |                           |   |  |   |           |   |  |   | (992,726   | )
|Net change in unrealized gain/(loss) on available for sales securities |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   | (657,293                   | ) |  |   |           |   |  |   | (657,293   | )
|Net change in minimum pension liability                                |  |             |  |                          |          |                  |   |          |                                             |   |           |               |  |   | (716,569                   | ) |  |   |           |   |  |   | (716,569   | )
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2005                                             |  | 750,000      |  | $                        | 1,500,000 |                  | $ | 2,100,000 |                                             | $ | 20,704,572 |               |  | $ | (1,315,875                 | ) |  | $ | (3,375,392 | ) |  | $ | 19,613,305 |  
|                                                                       |  |              |  |                          |           |                  |   |           |                                             |   |            |               |  |   |                            |   |  |   |            |   |  |   |            |  

See Notes to Consolidated Financial Statements



28



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CITIZENS FINANCIAL CORP.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005, 2004 and 2003



|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                  |  | 2005 |             |   | 2004 |   |             | 2003 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |             |   |      |   |             |      |  |   |             |  
|Net income                                                                        |  | $    | 2,047,186   |   |      | $ | 1,656,339   |      |  | $ | 2,011,949   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                                     |  |      | 400,996     |   |      |   | 404,329     |      |  |   | 344,218     |  
|Provision for loan losses                                                         |  |      | 274,667     |   |      |   | 934,899     |      |  |   | 324,000     |  
|Deferred income tax expense                                                       |  |      | (202,424    | ) |      |   | 66,829      |      |  |   | 40,796      |  
|Amortization of security premiums, net of accretion of security discounts         |  |      | 196,484     |   |      |   | 281,443     |      |  |   | 286,743     |  
|Amortization of goodwill                                                          |  |      | 13,399      |   |      |   | 13,399      |      |  |   | 13,399      |  
|Securities gains, net                                                             |  |      |            |   |      |   | (23,185     | )    |  |   | (276        | )
|(Gain)/loss on sale of equipment and other assets                                 |  |      | (16,787     | ) |      |   | (24,053     | )    |  |   | 1,082       |  
|(Increase)/decrease in accrued interest receivable                                |  |      | (202,621    | ) |      |   | (22,013     | )    |  |   | 65,055      |  
|Increase in other assets                                                          |  |      | (257,428    | ) |      |   | (473,268    | )    |  |   | (107,213    | )
|Increase in other liabilities                                                     |  |      | 874,896     |   |      |   | 349,015     |      |  |   | 99,101      |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash provided by operating activities                                         |  |      | 3,128,368   |   |      |   | 3,163,734   |      |  |   | 3,078,854   |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |             |   |      |   |             |      |  |   |             |  
|Proceeds from sales of securities available for sale                              |  |      | 522,200     |   |      |   | 2,382,766   |      |  |   | 1,128,852   |  
|Proceeds from maturities and calls of securities available for sale               |  |      | 9,190,545   |   |      |   | 16,636,865  |      |  |   | 14,060,000  |  
|Principal payments received on securities available for sale                      |  |      | 2,388,713   |   |      |   | 2,914,405   |      |  |   | 5,509,591   |  
|Purchases of securities available for sale                                        |  |      | (26,338,022 | ) |      |   | (16,148,868 | )    |  |   | (27,760,122 | )
|Loans made to customers, net                                                      |  |      | (8,290,615  | ) |      |   | (12,375,235 | )    |  |   | (19,559,618 | )
|Purchases of bank premises and equipment                                          |  |      | (380,311    | ) |      |   | (1,032,823  | )    |  |   | (747,697    | )
|Proceeds from sale of other real estate and other assets                          |  |      | 173,443     |   |      |   | 443,313     |      |  |   | 19,736      |  
|Purchase of real estate                                                           |  |      |            |   |      |   | (105,000    | )    |  |   |            |  
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net cash used in investing activities                                             |  |      | (22,734,047 | ) |      |   | (7,284,577  | )    |  |   | (27,349,258 | )
|                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  

See Notes to Consolidated Financial Statements

(Continued)



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CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

For the Years Ended December 31, 2005, 2004 and 2003



|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                       |  | 2005 |            |   | 2004 |   |            | 2003 | 
|CASH FLOWS FROM FINANCING ACTIVITIES                                   |  |      |            |   |      |   |            |      |  |   |            |  
|Net increase in demand deposit, NOW, money market and savings accounts |  |      | 17,294,294 |   |      |   | 1,438,095  |      |  |   | 8,226,815  |  
|Net increase in time deposits                                          |  |      | 7,890,783  |   |      |   | 2,314,008  |      |  |   | 5,580,743  |  
|Net increase/(decrease) in short-term borrowings                       |  |      | (1,998,756 | ) |      |   | 443,854    |      |  |   | 11,671,556 |  
|Proceeds from long-term borrowings                                     |  |      | 3,500,000  |   |      |   | 3,100,000  |      |  |   | 3,000,000  |  
|Repayments of long-term borrowings                                     |  |      | (2,500,904 | ) |      |   | (2,356,670 | )    |  |   | (1,475,666 | )
|Dividends paid                                                         |  |      | (992,726   | ) |      |   | (972,089   | )    |  |   | (958,345   | )
|Acquisition of treasury stock                                          |  |      | (290,074   | ) |      |   | (322,854   | )    |  |   | (611,517   | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                              |  |      | 22,902,617 |   |      |   | 3,644,344  |      |  |   | 25,433,586 |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Increase/(decrease) in cash and cash equivalents                       |  |      | 3,296,938  |   |      |   | (476,499   | )    |  |   | 1,163,182  |  
|                                                                       |  |      |           
|Cash and cash equivalents:                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Beginning                                                              |  |      | 5,475,798  |   |      |   | 5,952,297  |      |  |   | 4,789,115  |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Ending                                                                 |  | $    | 8,772,736  |   |      | $ | 5,475,798  |      |  | $ | 5,952,297  |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                      |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                       |  |      |           
|Cash payments for:                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|Interest on deposits and on other borrowings                           |  | $    | 3,967,023  |   |      | $ | 3,095,290  |      |  | $ | 3,272,713  |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Income taxes                                                           |  | $    | 940,784    |   |      | $ | 647,834    |      |  | $ | 1,015,938  |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES    |  |      |            |   |      |   |            |      |  |   |            |  
|Other real estate and other assets acquired in settlement of loans     |  | $    | 466,445    |   |      | $ | 329,000    |      |  | $ | 111,127    |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Unrealized loss on securities available for sale                       |  | $    | (1,060,150 | ) |      | $ | (995,207   | )    |  | $ | (917,166   | )
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Minimum pension liability                                              |  | $    | (1,155,756 | ) |      | $ |           |      |  | $ |           |  
|                                                                       |  |      |            |   |      |   |            |      |  |   |            |  

See Notes to Consolidated Financial Statements



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Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies

Nature of Business: Citizens Financial Corp.
(Citizens or the company or we) was incorporated as a bank holding company in 1987. Our wholly-owned bank subsidiary, Citizens National Bank of Elkins (the bank) provides retail and commercial loan,
deposit, trust and brokerage services to customers in Randolph, Tucker, Grant and Pocahontas Counties of West Virginia and nearby areas.

Basis of Financial Statement Presentation:Our accounting and reporting policies conform to U.S. generally accepted accounting principles and to general practices within the banking industry.

Use of Estimates:In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, we are required
to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Citizens Financial Corp. and its
wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Presentation of
Cash Flows: For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, balances due from banks (including cash items in process of clearing) and federal funds sold. Cash flows from demand deposits, NOW accounts and
savings accounts are reported net since their original maturities are less than three months. Cash flows from loans and certificates of deposit and other time deposits are also reported net.

Securities: All of our debt and equity investment securities are classified as available-for-sale and carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of comprehensive income until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Premiums and discounts are
recognized as interest income using the interest method over the period to maturity. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, we consider (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans and Allowance for Loan Losses: The bank makes mortgage, commercial and consumer loans to customers. Loans which management has the intent and ability to hold for the foreseeable future or until maturity
or payoff are generally reported at their outstanding principal balance reduced by unearned income and the allowance for loan losses. Interest income is accrued daily on the outstanding principal balance. Loan origination fees and certain direct
loan origination costs are deferred and amortized as adjustments to the related loans yield over its contractual life.

The accrual
of interest on loans is discontinued when they are 90 days delinquent unless the loan is well secured and in the process of collection. However, loans may be placed on nonaccrual, or charged-off, at an earlier date if the collection of principal and
interest is doubtful. When loans are placed on nonaccrual all interest which has accrued but not been collected is reversed against interest income, unless the income was recognized in prior years in which case it is charged to the allowance for
loan losses. After loans are placed on nonaccrual interest is recognized on the cash basis. Loans may be returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably
assured.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that are inherent in the loan
portfolio. The allowance is established by provisions charged to operating expense and reduced when loans are charged-off. Subsequent recoveries, if any, are credited to the allowance.

Managements evaluation of the adequacy of the allowance for loan losses is based upon quarterly assessments of the loan portfolio. This assessment
is inherently subjective and requires significant estimates that are subject to revisions as more information becomes available. Among the factors we consider are the borrowers ability to repay, the value of the collateral securing the loan,
historical charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, concentrations of credit, and various other factors.



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A loan is considered impaired when, based on current information and events, it is probable that the
company will be unable to collect the scheduled payments when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the
delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for larger, nonhomogeneous loans including commercial and construction
loans. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the bank does not separately identify individual consumer and residential loans for impairment disclosures.

The allowance consists of a specific component which relates to larger loans classified as special mention, substandard or doubtful and are specifically
evaluated for impairment, as well as a general component for the smaller homogeneous loans not specifically evaluated. For specifically evaluated loans considered impaired an allowance is established when the loans discounted cash flows,
collateral value or observable market price is less than its carrying value. For loans which are evaluated but not considered impaired, as well as smaller homogeneous loans, an allowance is established by grouping the loans into pools having similar
risk characteristics and applying historical loan factors, adjusted for current conditions, to each pool.

Bank Premises and
Equipment: Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets. Premises and equipment typically have useful
lives ranging from 5 to 39 years. Repairs and maintenance expenditures are charged to operating expense as incurred. Major improvements and additions to premises and equipment are capitalized.

Other Real Estate: Other real estate consists of real estate held for resale which is acquired through foreclosure on loans secured by such real
estate. At the time of acquisition, these properties are recorded at fair value with any writedown charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and the real estate is carried at the
lower of carrying amount or fair value less cost to sell. Expenses incurred in connection with operating these properties are charged to operating expenses as incurred; depreciation is not recorded on property held for sale. Gains and losses on the
sales of these properties are credited or charged to operating income in the year of the transaction.

Intangible Assets:Intangible
assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in a combination with
a related contract, asset, or liability. Intangible assets are tested at least annually for impairment.

Securities Sold Under
Agreements to Repurchase: We generally account for securities sold under agreements to repurchase as collateralized financing transactions. Securities pledged as collateral under these financing arrangements cannot be sold or repledged by the
secured party.

Pension Benefits:The bank has a noncontributory, defined benefit pension plan covering substantially all employees.
The plan provides benefits that are based on employees five year average final compensation and years of service. Our funding policy is to make the minimum annual contributions required by regulation. Pension costs are actuarially determined
and charged to expense.

Postretirement Benefits: The bank also provides certain health care and life insurance benefits for all
retired employees that meet certain eligibility requirements. The banks share of the estimated costs that will be paid after retirement is generally being accrued by charges to expense over the employees active service periods to the
dates they are fully eligible for benefits, except that the banks unfunded cost at January 1, 1993 is being accrued primarily on a straight-line basis through the year ending 2013.

Income Taxes:Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment. Valuation allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized.



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Basic and Fully Diluted Earnings per Share: Basic and fully diluted earnings per common share is
computed based upon the weighted average shares outstanding. The weighted average shares outstanding were 621,405, 628,877 and 641,298 for the years ended December 31, 2005, 2004 and 2003, respectively. We did not have any potentially dilutive
securities during that time.

Trust Department: Assets held in an agency or fiduciary capacity by the banks trust department
are not assets of the bank and are not included in the accompanying consolidated balance sheets.

Off-Balance-Sheet Credit Related
Financial Instruments. In the ordinary course of business, we may enter into commitments to extend credit, including commercial letters of credit, and standby letters of credit. These financial instruments are recorded when they are funded.

Derivative Instruments and Hedging Activities:The bank recognizes all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value is immediately recognized in
earnings.

Advertising:Advertising costs are expensed as they are incurred.

Reclassifications:Certain accounts in the consolidated financial statements for 2004 and 2003, as previously presented, have been reclassified to
conform to current year classifications.

Significant New Accounting Pronouncements:In November 2005, FASB Staff Position
(FSP) 115-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments was issued. The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than
temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities and APB Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. The FSP applies to investments in debt and equity securities and cost-method investments. The application guidance within the FSP includes items to consider in determining whether an investment is
impaired, in evaluating if an impairment is other than temporary and recognizing impairment losses equal to the difference between the investments cost and its fair value when an impairment is determined. The FSP is required for all reporting
periods beginning after December 15, 2005. Earlier application is permitted. The company does not anticipate the amendment will have a material effect on its financial statements.

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement No. 154, (SFAS No. 154)
Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3. The new standard changes the requirements for the accounting for and reporting of a change in accounting principle. Among
other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS
No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and
(2) correction of errors in previously issued financial statements should be termed a restatement.  The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The company does not anticipate this revision will have a material effect on its financial statements.

In December
2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (Revised 2004) (SFAS No. 123R) Share-Based Payment, which requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. SFAS No. 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
Share-based compensation arrangements include share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123R requires all share-based payments to employees to be
valued using a fair value method on the date of grant and expensed based on that fair value over the applicable vesting period. SFAS No. 123R also amends SFAS No. 95 Statement of Cash Flows requiring the benefits of tax
deductions in excess of recognized compensation cost be reported as financing instead of operating cash flows. The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107), which
expresses the SECs views



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regarding the interaction between SFAS No. 123R and certain SEC rules and regulations. Additionally, SAB
No. 107 provides guidance related to share-based payment transactions for public companies. The company will be required to apply SFAS No. 123R as of the annual reporting period that begins after September 15, 2005. The provisions of
SFAS No. 123R do not have an impact on the companys results of operations at the present time.

In December 2003, the Accounting
Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses
accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least
in part, to credit quality. It includes loans purchased by the company or acquired in business combinations. SOP 03-3 does not apply to loans originated by the company. The company adopted the provisions of SOP 03-3 effective January 1, 2005.
The initial implementation had no material effect on the companys financial statements.

Note 2. Cash Concentrations

At December 31, 2005 we had cash concentrations totaling $4,391,864 with the Federal Reserve Bank of Richmond. These funds, as well as
deposits with other correspondent banks, are generally unsecured and have limited insurance under current banking insurance regulations.

Note 3.
Securities

The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at December 31, 2005
and 2004, are summarized below. All such securities are available for sale.



|                                                                       |  |                |            |            |   |                                    |  |   |           |  |   |           
|---------------------------------------------------------------------- |  | -------------- | ---------- | ---------- | - | ---------------------------------- |  | - | --------- |  | - | ----------
|                                                                       |  | 2005          
|                                                                       |  | Amortized Cost |            | Unrealized |   | CarryingValue(EstimatedFair Value)
|                                                                       |  | Gains          |            | Losses     |  
|U.S. Government agencies and corporations                              |  | $              | 50,560,587 |            | $ | 4,296                              |  | $ | 718,899   |  | $ | 49,845,984
|Mortgage backed securities - U.S. Government agencies and corporations |  |                | 7,005,422  |            |   | 947                                |  |   | 203,662   |  |   | 6,802,707 
|Federal Reserve Bank stock, restricted                                 |  |                | 108,000    |            |   |                                   |  |   |          |  |   | 108,000   
|Federal Home Loan Bank stock, restricted                               |  |                | 596,200    |            |   |                                   |  |   |          |  |   | 596,200   
|Corporate debt securities                                              |  |                | 1,270,501  |            |   |                                   |  |   | 19,476    |  |   | 1,251,025 
|Tax exempt state and political subdivisions                            |  |                | 8,280,250  |            |   | 34,744                             |  |   | 64,571    |  |   | 8,250,423 
|                                                                       |  |                |            |            |   |                                    |  |   |           |  |   |           
|Total securities available for sale                                    |  | $              | 67,820,960 |            | $ | 39,987                             |  | $ | 1,006,608 |  | $ | 66,854,339
|                                                                       |  |                |            |            |   |                                    |  |   |           |  |   |           
|                                                                       | 
|                                                                       |  | 2004          
|                                                                       |  | Amortized Cost |            | Unrealized |   | CarryingValue(EstimatedFair Value)
|                                                                       |  | Gains          |            | Losses     |  
|U.S. Government agencies and corporations                              |  | $              | 34,534,656 |            | $ | 174,092                            |  | $ | 177,476   |  | $ | 34,531,272
|Mortgage backed securities - U.S. Government agencies and corporations |  |                | 6,441,688  |            |   | 10,962                             |  |   | 75,160    |  |   | 6,377,490 
|Federal Reserve Bank stock, restricted                                 |  |                | 108,000    |            |   |                                   |  |   |          |  |   | 108,000   
|Federal Home Loan Bank stock, restricted                               |  |                | 795,300    |            |   |                                   |  |   |          |  |   | 795,300   
|Corporate debt securities                                              |  |                | 3,086,808  |            |   | 5,300                              |  |   | 34,333    |  |   | 3,057,775 
|Tax exempt state and political subdivisions                            |  |                | 8,814,428  |            |   | 203,336                            |  |   | 13,192    |  |   | 9,004,572 
|                                                                       |  |                |            |            |   |                                    |  |   |           |  |   |           
|Total securities available for sale                                    |  | $              | 53,780,880 |            | $ | 393,690                            |  | $ | 300,161   |  | $ | 53,874,409
|                                                                       |  |                |            |            |   |                                    |  |   |           |  |   |           



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The tables which follow provide summaries of securities which were in an unrealized loss position at
December 31, 2005 and 2004, all of which are available for sale. As of December 31, 2005, these securities had a total fair value of $58,795,734 and carried unrealized losses of $1,006,608 or 1.71%. Securities which have been in a
continuous loss position for the past twelve months total $25,409,892. The unrealized loss pertaining to these securities is $635,014 or 2.50%. The majority of these losses are on securities issued by U.S. government agencies and corporations which
carry the implied faith and credit of the U.S. Government. The other losses are on corporate and municipal instruments. With the exception of one municipal which is not rated, all of these instruments carry A ratings from the major credit rating
agencies. We believe that these unrealized losses are the result of changing interest rates and that with our intent and ability to hold these investments to maturity provide strong evidence that we will fully recover our investment. In addition, no
losses have been recognized on the $27,317,619 of securities that carried unrealized losses at December 31, 2004.



|                                                                       |  |                     |            |                   |   |            |  |                  |            |            |   |                  |  |   |            |  |   |          
|---------------------------------------------------------------------- |  | ------------------- | ---------- | ----------------- | - | ---------- |  | ---------------- | ---------- | ---------- | - | ---------------- |  | - | ---------- |  | - | ---------
|                                                                       |  | 2005               
|                                                                       |  | Less Than 12 Months |            | 12 Months or More |   | Total     
|                                                                       |  | Fair Value          |            | UnrealizedLosses  |   | Fair Value |  | UnrealizedLosses |            | Fair Value |   | UnrealizedLosses
|U.S. Government agencies and corporations                              |  | $                   | 26,648,724 |                   | $ | 258,255    |  | $                | 19,810,150 |            | $ | 460,644          |  | $ | 46,458,874 |  | $ | 718,899  
|Mortgage backed securities - U.S. Government agencies and corporations |  |                     | 3,282,560  |                   |   | 71,703     |  |                  | 3,397,060  |            |   | 131,959          |  |   | 6,679,620  |  |   | 203,662  
|Corporate debt securities                                              |  |                     |           |                   |   |           |  |                  | 1,251,025  |            |   | 19,476           |  |   | 1,251,025  |  |   | 19,476   
|Tax exempt state and political subdivisions                            |  |                     | 3,454,558  |                   |   | 41,636     |  |                  | 951,657    |            |   | 22,935           |  |   | 4,406,215  |  |   | 64,571   
|                                                                       |  |                     |            |                   |   |            |  |                  |            |            |   |                  |  |   |            |  |   |          
|Total                                                                  |  | $                   | 33,385,842 |                   | $ | 371,594    |  | $                | 25,409,892 |            | $ | 635,014          |  | $ | 58,795,734 |  | $ | 1,006,608
|                                                                       |  |                     |            |                   |   |            |  |                  |            |            |   |                  |  |   |            |  |   |          
|                                                                       | 
|                                                                       |  | 2004               
|                                                                       |  | Less Than 12 Months |            | 12 Months or More |   | Total     
|                                                                       |  | Fair Value          |            | UnrealizedLosses  |   | Fair Value |  | UnrealizedLosses |            | Fair Value |   | UnrealizedLosses
|U.S. Government agencies and corporations                              |  | $                   | 19,381,025 |                   | $ | 177,476    |  | $                |           |            | $ |                 |  | $ | 19,381,025 |  | $ | 177,476  
|Mortgage backed securities - U.S. Government agencies and corporations |  |                     | 841,384    |                   |   | 3,283      |  |                  | 3,673,258  |            |   | 71,877           |  |   | 4,514,642  |  |   | 75,160   
|Corporate debt securities                                              |  |                     | 2,052,475  |                   |   | 34,333     |  |                  |           |            |   |                 |  |   | 2,052,475  |  |   | 34,333   
|Tax exempt state and political subdivisions                            |  |                     | 1,369,477  |                   |   | 13,192     |  |                  |           |            |   |                 |  |   | 1,369,477  |  |   | 13,192   
|                                                                       |  |                     |            |                   |   |            |  |                  |            |            |   |                  |  |   |            |  |   |          
|Total                                                                  |  | $                   | 23,644,361 |                   | $ | 228,284    |  | $                | 3,673,258  |            | $ | 71,877           |  | $ | 27,317,619 |  | $ | 300,161  
|                                                                       |  |                     |            |                   |   |            |  |                  |            |            |   |                  |  |   |            |  |   |          

The maturities, amortized cost and estimated fair values of securities at December 31, 2005
are summarized as follows:



|                                 |  |               |            |                                    |   |           
|-------------------------------- |  | ------------- | ---------- | ---------------------------------- | - | ----------
|                                 |  | AmortizedCost |            | CarryingValue(EstimatedFair Value)
|Due within one year              |  | $             | 18,781,999 |                                    | $ | 18,658,677
|Due after one through five years |  |               | 47,314,474 |                                    |   | 46,462,837
|Due after five through ten years |  |               | 1,020,287  |                                    |   | 1,028,625 
|Equity securities                |  |               | 704,200    |                                    |   | 704,200   
|                                 |  |               |            |                                    |   |           
|Total                            |  | $             | 67,820,960 |                                    | $ | 66,854,339
|                                 |  |               |            |                                    |   |           

Mortgage backed securities have remaining contractual maturities ranging from 2.5 to 10.5 years
and are reflected in the maturity distribution schedule based on their anticipated average life to maturity, which ranges from 1.71 to 5.41 years. Accordingly, discounts are accreted and premiums are amortized over the anticipated life to maturity
of the specific obligation.



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The proceeds from sales, calls and maturities of securities, including principal payments received on
mortgage backed securities, and the related gross gains and losses realized are as follows:



|                         |  |               |           |                     |   |                   |  |       |           |        |   |        |  |   |       
|------------------------ |  | ------------- | --------- | ------------------- | - | ----------------- |  | ----- | --------- | ------ | - | ------ |  | - | ------
|                         |  | Proceeds From |           | Gross Realized     
|Years Ended December 31, |  | Sales         |           | Calls andMaturities |   | PrincipalPayments |  | Gains |           | Losses
|2005                     |  | $             | 522,200   |                     | $ | 9,190,545         |  | $     | 2,388,713 |        | $ |       |  | $ |      
|                         |  |               |           |                     |   |                   |  |       |           |        |   |        |  |   |       
|2004                     |  | $             | 2,382,766 |                     | $ | 16,636,865        |  | $     | 2,914,405 |        | $ | 36,783 |  | $ | 13,598
|                         |  |               |           |                     |   |                   |  |       |           |        |   |        |  |   |       
|2003                     |  | $             | 1,128,852 |                     | $ | 14,060,000        |  | $     | 5,509,591 |        | $ | 3,421  |  | $ | 3,145 
|                         |  |               |           |                     |   |                   |  |       |           |        |   |        |  |   |       

At December 31, 2005 and 2004 securities with amortized costs of $28,427,321 and $26,557,056,
respectively, and estimated fair values of $27,983,015 and $26,628,824, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

Federal Reserve Bank stock and Federal Home Loan Bank stock are equity securities which are included in securities available for sale in the accompanying
consolidated financial statements. Such securities are carried at cost, since they may only be sold back to the respective issuer or another member at par value.

Note 4. Loans

Loans are summarized as follows:



|                                             |  |              |             |   |      |   |             |  
|-------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                             |  | December 31, |            
|                                             |  | 2005         |             |   | 2004 |  
|Commercial, financial and agricultural       |  | $            | 26,589,047  |   |      | $ | 23,830,943  |  
|Real estate - construction                   |  |              | 10,559,207  |   |      |   | 8,759,576   |  
|Real estate - mortgage                       |  |              | 104,868,333 |   |      |   | 101,083,039 |  
|Installment loans                            |  |              | 9,725,720   |   |      |   | 10,733,860  |  
|Other                                        |  |              | 2,051,144   |   |      |   | 1,635,758   |  
|                                             |  |              |             |   |      |   |             |  
|Total loans                                  |  |              | 153,793,451 |   |      |   | 146,043,176 |  
|                                             |  |             
|Less allowance for loan losses               |  |              | 1,597,006   |   |      |   | 1,378,106   |  
|Net deferred loan origination fees and costs |  |              | (56,142     | ) |      |   | (78,246     | )
|Unearned income                              |  |              | (3,976      | ) |      |   |            |  
|                                             |  |              |             |   |      |   |             |  
|Loans, net                                   |  | $            | 152,136,327 |   |      | $ | 144,586,824 |  
|                                             |  |              |             |   |      |   |             |  

Included in the above balance of net loans are nonaccrual loans of $58,300 and $0 at
December 31, 2005 and 2004, respectively. If interest on those nonaccrual loans had been accrued, such income would have approximated $5,662, $0 and $1,604 for the years ended December 31, 2005, 2004 and 2003, respectively.

The bank makes loans to its directors, executive officers and their related interests in the normal course of business. The following presents the
activity with respect to these loans for the years ended December 31, 2005 and 2004:



|                   |  |      |            |   |      |   |            |  
|------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                   |  | 2005 |            |   | 2004 |  
|Balance, beginning |  | $    | 3,316,463  |   |      | $ | 2,490,673  |  
|Additions          |  |      | 6,824,969  |   |      |   | 2,395,882  |  
|Amounts collected  |  |      | (3,484,516 | ) |      |   | (1,570,092 | )
|                   |  |      |            |   |      |   |            |  
|Balance, ending    |  | $    | 6,656,916  |   |      | $ | 3,316,463  |  
|                   |  |      |            |   |      |   |            |  



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The following represents the maturities and sensitivities of loans to changes in interest rates at
December 31, 2005, without regard to scheduled periodic principal repayments on amortizing loans:



|                                       |  |                 |             |                             |   |                 |  |       |             |  |   |            
|-------------------------------------- |  | --------------- | ----------- | --------------------------- | - | --------------- |  | ----- | ----------- |  | - | -----------
|                                       |  | Due Within 1 Yr |             | Due After 1But Within 5 Yrs |   | Due After 5 Yrs |  | Total
|Commercial, financial and agricultural |  | $               | 2,609,796   |                             | $ | 11,889,250      |  | $     | 12,090,001  |  | $ | 26,589,047 
|Real estate - construction             |  |                 | 7,896,380   |                             |   | 685,416         |  |       | 1,977,411   |  |   | 10,559,207 
|Real estate - mortgage                 |  |                 | 1,436,634   |                             |   | 6,510,020       |  |       | 96,921,679  |  |   | 104,868,333
|Installment loans                      |  |                 | 871,148     |                             |   | 7,849,840       |  |       | 1,004,732   |  |   | 9,725,720  
|Other                                  |  |                 | 763,631     |                             |   | 321,368         |  |       | 966,145     |  |   | 2,051,144  
|                                       |  |                 |             |                             |   |                 |  |       |             |  |   |            
|Total                                  |  | $               | 13,577,589  |                             | $ | 27,255,894      |  | $     | 112,959,968 |  | $ | 153,793,451
|                                       |  |                 |             |                             |   |                 |  |       |             |  |   |            
|Loans due after one year with:         |  |                 |             |                             |   |                 |  |       |             |  |   |            
|                                       |  |                 |             |                            
|Variable rates                         |  | $               | 116,649,067 |                             |   |                 |  |       |             |  |   |            
|Fixed rates                            |  |                 | 23,566,795  |                             |   |                 |  |       |             |  |   |            
|                                       |  |                 |             |                             |   |                 |  |       |             |  |   |            
|Total                                  |  | $               | 140,215,862 |                             |   |                 |  |       |             |  |   |            
|                                       |  |                 |             |                             |   |                 |  |       |             |  |   |            

Concentrations of Credit Risk: The bank grants installment, commercial and residential
loans to customers in central and eastern West Virginia in striving to maintain a diversified loan portfolio. Nonetheless, concentrations of credit, defined as loans to a customer, the customers related parties, or to a number of customers
operating in the same industry, which in the aggregate total 25% or more of capital can occur. At December 31, 2005, we had three such concentrations.

Direct and indirect extensions of credit to automobile dealers, consisting of floor plan loans and other commercial loans which are generally secured by liens on the subject inventories or equipment, totaled
$6,470,483. Extensions of credit to companies operating in the lumber industry and their related parties totaled $7,152,974. These loans are generally made for the purpose of financing logging equipment and are typically secured by liens on the
subject equipment. Extensions of credit to companies in the hotel/motel industry totaled $5,783,391. These loans are usually made to finance the purchase, operation or improvement of hotels and motels and are generally secured by liens on the
subject property. Additional collateral such as pledges of accounts receivable, real estate, or personal guarantees may also be required when granting these credits. The bank evaluates each such customers credit worthiness on a case-by-case
basis. The amount of collateral obtained is based upon these credit evaluations.

Note 5. Allowance for Loan Losses

An analysis of the allowance for loan losses for the years ended December 31, 2005, 2004 and 2003, is as follows:



|                                       |  |      |           |      |   |           |  |   |          
|-------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                       |  | 2005 |           | 2004 |   | 2003     
|Balance, beginning of year             |  | $    | 1,378,106 |      | $ | 1,395,908 |  | $ | 1,385,625
|                                       |  |      |           |      |   |           |  |   |          
|Charge offs:                           |  |      |           |      |   |           |  |   |          
|Commercial, financial and agricultural |  |      |          |      |   | 1,030,651 |  |   | 128,511  
|Real estate - mortgage                 |  |      |          |      |   | 35,597    |  |   | 24,390   
|Installment                            |  |      | 90,212    |      |   | 98,263    |  |   | 189,782  
|                                       |  |      |           |      |   |           |  |   |          
|Total                                  |  |      | 90,212    |      |   | 1,164,511 |  |   | 342,683  
|                                       |  |      |           |      |   |           |  |   |          
|Recoveries:                            |  |      |           |      |   |           |  |   |          
|Commercial, financial and agricultural |  |      | 5,660     |      |   | 191,439   |  |   | 21,200   
|Real estate - mortgage                 |  |      | 1,022     |      |   | 210       |  |   | 208      
|Installment                            |  |      | 27,763    |      |   | 20,161    |  |   | 7,558    
|                                       |  |      |           |      |   |           |  |   |          
|Total                                  |  |      | 34,445    |      |   | 211,810   |  |   | 28,996   
|                                       |  |      |           |      |   |           |  |   |          
|Net charge-offs:                       |  |      | 55,767    |      |   | 952,701   |  |   | 313,717  
|Provision for loan losses              |  |      | 274,667   |      |   | 934,899   |  |   | 324,000  
|                                       |  |      |           |      |   |           |  |   |          
|Balance, end of year                   |  | $    | 1,597,006 |      | $ | 1,378,106 |  | $ | 1,395,908
|                                       |  |      |           |      |   |           |  |   |          



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##### Table of Contents

The following summary provides additional information regarding impaired, nonaccrual and past due loans:



|                                                        |  |              |           |      |   |        
|------------------------------------------------------- |  | ------------ | --------- | ---- | - | -------
|                                                        |  | December 31,
|                                                        |  | 2005         |           | 2004
|Impaired loans without a valuation allowance            |  | $            | 754,609   |      | $ |       
|Impaired loans with a valuation allowance               |  |              | 2,895,466 |      |   | 48,053 
|                                                        |  |              |           |      |   |        
|Total impaired loans                                    |  | $            | 3,650,075 |      | $ | 48,053 
|                                                        |  |              |           |      |   |        
|Valuation allowance related to impaired loans           |  | $            | 537,919   |      | $ | 24,270 
|Total nonaccrual loans                                  |  |              | 58,300    |      |   |       
|Total loans past due ninety days or more still accruing |  |              | 538,167   |      |   | 559,358



|                                                             |  |                         |           |      |   |        |  |   |  
|------------------------------------------------------------ |  | ----------------------- | --------- | ---- | - | ------ |  | - | -
|                                                             |  | Year Ended December 31,
|                                                             |  | 2005                    |           | 2004 |   | 2003  
|Average investment in impaired loans                         |  | $                       | 3,974,629 |      | $ | 49,193 |  | $ | 
|Interest income recognized on impaired loans                 |  |                         | 292,013   |      |   | 2,536  |  |   | 
|Interest income recognized on a cash basis on impaired loans |  |                         | 278,334   |      |   | 2,343  |  |   | 

No additional funds are committed to be advanced in connection with impaired loans.

Note 6. Bank Premises and Equipment

The major
categories of bank premises and equipment and accumulated depreciation and amortization at December 31, 2005 and 2004, are summarized as follows:



|                                               |  |      |           |      |   |          
|---------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                               |  | 2005 |           | 2004
|Land                                           |  | $    | 956,069   |      | $ | 773,103  
|Buildings and improvements                     |  |      | 4,786,825 |      |   | 4,817,385
|Furniture and equipment                        |  |      | 2,636,036 |      |   | 2,714,250
|                                               |  |      |           |      |   |          
|Total bank premises and equipment              |  |      | 8,378,930 |      |   | 8,304,738
|Less accumulated depreciation and amortization |  |      | 4,186,870 |      |   | 4,081,118
|                                               |  |      |           |      |   |          
|Bank premises and equipment, net               |  | $    | 4,192,060 |      | $ | 4,223,620
|                                               |  |      |           |      |   |          

Depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003,
totaled $400,996, $404,329 and $344,218, respectively.

Note 7. Deposits

The following is a summary of interest bearing deposits by type as of December 31, 2005 and 2004:



|                                            |  |      |             |      |   |            
|------------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                            |  | 2005 |             | 2004
|Interest bearing checking accounts          |  | $    | 44,667,563  |      | $ | 31,230,582 
|Money market accounts                       |  |      | 7,645,508   |      |   | 7,000,480  
|Savings accounts                            |  |      | 24,687,908  |      |   | 26,661,952 
|Certificates of deposit under $100,000      |  |      | 52,578,930  |      |   | 48,619,214 
|Certificates of deposit of $100,000 or more |  |      | 32,258,028  |      |   | 28,326,961 
|                                            |  |      |             |      |   |            
|Total                                       |  | $    | 161,837,937 |      | $ | 141,839,189
|                                            |  |      |             |      |   |            

Interest expense on deposits is summarized below:



|                                            |  |      |           |      |   |           |  |   |          
|------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|                                            |  | 2005 |           | 2004 |   | 2003     
|Interest bearing checking accounts          |  | $    | 613,132   |      | $ | 347,520   |  | $ | 328,861  
|Money market accounts                       |  |      | 49,703    |      |   | 37,609    |  |   | 59,686   
|Savings accounts                            |  |      | 129,933   |      |   | 126,818   |  |   | 164,352  
|Certificates of deposit under $100,000      |  |      | 1,490,864 |      |   | 1,262,552 |  |   | 1,491,065
|Certificates of deposit of $100,000 or more |  |      | 1,092,905 |      |   | 871,348   |  |   | 782,208  
|                                            |  |      |           |      |   |           |  |   |          
|Total                                       |  | $    | 3,376,537 |      | $ | 2,645,847 |  | $ | 2,826,172
|                                            |  |      |           |      |   |           |  |   |          



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The following is a summary of the maturity distribution of certificates of deposit in amounts of $100,000
or more as of December 31, 2005 and 2004:



|                          |  |        |            |         |        |   |        |   |            |  |        |  
|------------------------- |  | ------ | ---------- | ------- | ------ | - | ------ | - | ---------- |  | ------ | -
|                          |  | 2005   |            |         | 2004   |  
|                          |  | Amount |            | Percent |        |   | Amount |   | Percent    | 
|Three months or less      |  | $      | 4,709,115  |         | 14.60  | % |        | $ | 1,737,054  |  | 6.13   | %
|Three through six months  |  |        | 4,018,345  |         | 12.46  |   |        |   | 3,160,591  |  | 11.16  |  
|Six through twelve months |  |        | 4,839,600  |         | 15.00  |   |        |   | 9,019,776  |  | 31.84  |  
|Over twelve months        |  |        | 18,690,968 |         | 57.94  |   |        |   | 14,409,540 |  | 50.87  |  
|                          |  |        |            |         |        |   |        |   |            |  |        |  
|Total                     |  | $      | 32,258,028 |         | 100.00 |   |        | $ | 28,326,961 |  | 100.00 |  
|                          |  |        |            |         |        |   |        |   |            |  |        |  

A summary of the maturities for all time deposits as of December 31, 2005,
follows:



|           |  |        |           
|---------- |  | ------ | ----------
|Year       |  | Amount
|2006       |  | $      | 36,014,321
|2007       |  |        | 18,506,509
|2008       |  |        | 9,684,643 
|2009       |  |        | 1,206,676 
|2010       |  |        | 5,648,553 
|After 2010 |  |        | 13,776,256
|           |  |        |           
|Total      |  | $      | 84,836,958
|           |  |        |           

At December 31, 2005, deposits of related parties including directors, executive officers,
and their related interests of Citizens Financial Corp. and subsidiaries approximated $1,788,850.

Note 8. Derivative Instruments

From 2001 to 2004 the bank offered a product known as the Index Powered CD to its customers. This is a five year certificate of deposit which, if held to
maturity, provides the customer with guaranteed return of principal and interest which is linked to the performance of the Standard and Poors 500 Index over the term of the certificate of deposit. As of December 31, 2005 and 2004 the
notional value of these deposits was $904,278 and $909,278, respectively.

The linkage of the interest earned on the certificate of deposit and the return
of the index is considered an equity option and is accounted for as an embedded derivative under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). As required by SFAS 133, the fair value of the embedded derivative is deducted from the certificate of deposit creating a discount that is amortized to interest expense using the effective interest method over the term of the certificate
of deposit. The corresponding equity option is carried as a liability at fair value with changes in the value recognized in current earnings.

To manage
the market risk associated with this product, the bank entered into interest rate swap agreements with the Federal Home Loan Bank of Pittsburgh (FHLB) for the notional amount of the certificate of deposit. Under these agreements the bank
pays either fixed or variable interest to the FHLB quarterly over the term of the certificate of deposit and the FHLB pays the bank the amount of interest due the customer at maturity.

This interest rate swap also represents a derivative contract and is accounted for as a fair value hedge under SFAS 133. As such, it is carried as an asset at fair value with changes in value being recognized in
current earnings. The impact of our derivative activities on pretax income was $(37,865) in 2005, $(34,232) in 2004 and $(28,199) in 2003.



39



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Note 9. Income Taxes

The components of applicable income tax expense/(benefit) for the years ended December 31, 2005, 2004 and 2003, are as follows:



|          |  |      |           |   |      |   |         |      |  |   |        
|--------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | -------
|          |  | 2005 |           |   | 2004 |   |         | 2003
|Current:  |  |      |           |   |      |   |         |      |  |   |        
|Federal   |  | $    | 982,912   |   |      | $ | 439,819 |      |  | $ | 804,169
|State     |  |      | 146,870   |   |      |   | 54,948  |      |  |   | 138,925
|          |  |      |           |   |      |   |         |      |  |   |        
|          |  |      | 1,129,782 |   |      |   | 493,767 |      |  |   | 943,094
|          |  |      |           |   |      |   |         |      |  |   |        
|Deferred: |  |      |           |   |      |   |         |      |  |   |        
|Federal   |  |      | (181,117  | ) |      |   | (59,794 | )    |  |   | 36,502 
|State     |  |      | (21,307   | ) |      |   | (7,035  | )    |  |   | 4,294  
|          |  |      |           |   |      |   |         |      |  |   |        
|          |  |      | (202,424  | ) |      |   | (66,829 | )    |  |   | 40,796 
|          |  |      |           |   |      |   |         |      |  |   |        
|Total     |  | $    | 927,358   |   |      | $ | 426,938 |      |  | $ | 983,890
|          |  |      |           |   |      |   |         |      |  |   |        

Deferred income taxes reflect the impact of temporary differences between amounts of assets and
liabilities for financial reporting purposes and such amounts as measured for tax purposes. Deferred tax assets and liabilities represent the future tax return consequences of temporary differences, which will either be taxable or deductible when
the related assets and liabilities are recovered or settled.

The tax effects of temporary differences which give rise to the
companys deferred tax assets and liabilities as of December 31, 2005 and 2004, are as follows:



|                                    |  |      |           |   |      |   |          |  
|----------------------------------- |  | ---- | --------- | - | ---- | - | -------- | -
|                                    |  | 2005 |           |   | 2004 |  
|Deferred tax assets:                |  |      |           |   |      |   |          |  
|Allowance for loan losses           |  | $    | 457,236   |   |      | $ | 315,757  |  
|Accrued income and expenses         |  |      | 13,028    |   |      |   | 11,391   |  
|Employee benefit plans              |  |      | 226,063   |   |      |   | 138,780  |  
|Net loan origination fees and costs |  |      | 21,335    |   |      |   | 29,733   |  
|Net unrealized loss on securities   |  |      | 367,316   |   |      |   |         |  
|Minimum pension liability           |  |      | 439,187   |   |      |   |         |  
|                                    |  |      |           |   |      |   |          |  
|                                    |  |      | 1,524,165 |   |      |   | 495,661  |  
|                                    |  |      |           |   |      |   |          |  
|Deferred tax liabilities:           |  |      |           |   |      |   |          |  
|Accretion on securities             |  |      | (26,132   | ) |      |   | (10,463  | )
|Depreciation                        |  |      | (146,556  | ) |      |   | (142,647 | )
|Net unrealized gain on securities   |  |      |          |   |      |   | (35,540  | )
|                                    |  |      |           |   |      |   |          |  
|                                    |  |      | (172,688  | ) |      |   | (188,650 | )
|                                    |  |      |           |   |      |   |          |  
|Net deferred tax asset              |  | $    | 1,351,477 |   |      | $ | 307,011  |  
|                                    |  |      |           |   |      |   |          |  

A reconciliation between the amount of reported income tax expense and the amount computed by
multiplying the statutory income tax rate by book pretax income for the years ended December 31, 2005, 2004 and 2003, is as follows:



|                                               |  |        |           |   |         |      |   |        |   |          |         |  |      |        |  |   |           |   |  |      |  
|---------------------------------------------- |  | ------ | --------- | - | ------- | ---- | - | ------ | - | -------- | ------- |  | ---- | ------ |  | - | --------- | - |  | ---- | -
|                                               |  | 2005   |           |   | 2004    |      |   | 2003   |  
|                                               |  | Amount |           |   | Percent |      |   | Amount |   |          | Percent |  |      | Amount |  |   | Percent   |  
|Computed tax at applicable statutory rate      |  | $      | 1,011,345 |   |         | 34.0 | % |        | $ | 708.314  |         |  | 34.0 | %      |  | $ | 1,018,585 |   |  | 34.0 | %
|Increase/(decrease) in taxes resulting from:   |  |        |           |   |         |      |   |        |   |          |         |  |      |        |  |   |           |   |  |      |  
|Tax-exempt interest                            |  |        | (147,527  | ) |         | (5.0 | ) |        |   | (151,826 | )       |  | (7.3 | )      |  |   | (152,867  | ) |  | (5.1 | )
|State income taxes, net of federal tax benefit |  |        | 82,872    |   |         | 2.8  |   |        |   | 30,963   |         |  | 1.5  |        |  |   | 91,691    |   |  | 3.1  |  
|Tax exempt income on retirement plans          |  |        | (27,755   | ) |         | (0.9 | ) |        |   | (41,435  | )       |  | (2.0 | )      |  |   |          |   |  |     |  
|Other                                          |  |        | 8,423     |   |         | 0.3  |   |        |   | (119,078 | )       |  | (5.7 | )      |  |   | 26,481    |   |  | 0.8  |  
|                                               |  |        |           |   |         |      |   |        |   |          |         |  |      |        |  |   |           |   |  |      |  
|Applicable income taxes                        |  | $      | 927,358   |   |         | 31.2 | % |        | $ | 426,938  |         |  | 20.5 | %      |  | $ | 983,890   |   |  | 32.8 | %
|                                               |  |        |           |   |         |      |   |        |   |          |         |  |      |        |  |   |           |   |  |      |  



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Note 10. Employee Benefit Plans

The bank offers a number of benefit plans to its employees and directors. Among them are pension and other postretirement benefit plans which are described below.

Pension Plan:The bank has a defined benefit pension plan covering all employees who meet the eligibility requirements. To be eligible, an
employee must be 21 years of age and have completed one year of continuous service. The plan provides benefits based on the participants years of service and five year average final compensation. Our funding policy is to make the minimum
annual contribution that is required by applicable regulations.

401(k) Plan:A 401(k) profit sharing plan is provided for the
benefit of all employees who have attained the age of 21 and completed one year/1,000 hours of continuous service. The plan allows participating employees to contribute amounts up to the limits set by the Internal Revenue Service and permits the
bank to make discretionary contributions to the plan in such amount as the Board may determine to be appropriate. Contributions made to the plan by the bank for the years ended December 31, 2005, 2004 and 2003, were $77,000, $63,000 and
$79,000, respectively.

Executive Supplemental Income Plan: Subsequent to an amendment to the banks pension benefit formula in
1995, it offered a nonqualified executive supplemental income plan to certain senior officers, some of whom are now retired, as a means of overcoming the reduced pension benefit. The plan provides predetermined fixed monthly income for a period of
180 months to the participants upon retirement. It is funded by life insurance contracts which the bank purchased. The bank has been named the beneficiary of those contracts. The liability accrued under this plan at December 31, 2005 and 2004
was $258,826 and $259,348, respectively. The cash surrender values of the underlying insurance contracts at those same dates were $469,540 and $422,387. Expenses associated with the plan were $11,217 in 2005, $13,806 in 2004, and $17,412 in 2003.

Executive and Director Supplemental Retirement Plan:Effective January 1, 2003, the bank entered into a non-qualified
supplemental executive and director retirement plan with various officers and directors of the bank which provides them with income benefits payable at retirement age or death. In connection with this plan, the bank purchased life insurance
contracts in 2002 for $2,000,000. These contracts are not assets of the plan but are instead owned by the bank and had cash surrender values of $2,108,177 at December 31, 2005 and $2,026,545 at December 31, 2004. Liabilities under the plan
were $526,972 at December 31, 2005 and $412,236 at December 31, 2004. Expenses of the plan, net of income for the increase in the cash surrender value, were $51,992 in 2005, $99,118 in 2004 and $127,000 in 2003.

Postretirement Healthcare and Life Insurance Plan: The bank sponsors a postretirement healthcare plan and a postretirement life insurance plan for
all retired employees that meet certain eligibility requirements. Both plans are contributory with retiree contributions that are adjustable based on various factors, some of which are discretionary. These factors are intended to hold constant the
maximum monthly benefit of $100 payable per eligible retiree for postretirement health care. Accordingly, an assumed 1 percentage point increase or decrease in healthcare cost trend rates would not impact the healthcare plans accumulated
postretirement benefit obligation or the aggregate of the plans service and interest costs. Both the healthcare plan and life insurance plan are unfunded.

Additional information regarding our defined benefit pension and other postretirement benefit obligation plans is provided below. The measurement date used for the pension disclosures is October 31.



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|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|----------------------------------------------------- |  | ---------------- | ---------- | - | -------------- | - | --------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                      |  | Pension Benefits |            |   | Other Benefits |  
|                                                      |  | 2005             |            |   | 2004           |   |           | 2005 |  |   | 2004     |  
|Change in benefit obligation                          |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|                                                      |  |                  |            |  
|Benefit obligation at beginning of year               |  | $                | 4,085,958  |   |                | $ | 3,858,041 |      |  | $ | 571,082  |   |  | $ | 561,114  |  
|Service cost                                          |  |                  | 98,730     |   |                |   | 98,265    |      |  |   | 23,575   |   |  |   | 28,104   |  
|Interest cost                                         |  |                  | 267,484    |   |                |   | 250,813   |      |  |   | 31,084   |   |  |   | 33,021   |  
|Actuarial (gain)/loss                                 |  |                  | 475,590    |   |                |   | 55,522    |      |  |   | 2,640    |   |  |   | (29,697  | )
|Benefits paid                                         |  |                  | (193,163   | ) |                |   | (176,683  | )    |  |   | (15,164  | ) |  |   | (21,460  | )
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Benefit obligation at end of year                     |  | $                | 4,734,599  |   |                | $ | 4,085,958 |      |  | $ | 613,217  |   |  | $ | 571,082  |  
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Change in plan assets                                 |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|                                                      |  |                  |            |  
|Fair value of plan assets at beginning of year        |  | $                | 3,622,722  |   |                | $ | 3,521,702 |      |  | $ |         |   |  | $ |         |  
|Actual return on plan assets                          |  |                  | 326,141    |   |                |   | 309,165   |      |  |   |         |   |  |   |         |  
|Employer contribution                                 |  |                  |           |   |                |   |          |      |  |   | 15,164   |   |  |   | 21,460   |  
|Benefits paid                                         |  |                  | (193,163   | ) |                |   | (208,145  | )    |  |   | (15,164  | ) |  |   | (21,460  | )
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Fair value of plan assets at end of year              |  | $                | 3,755,700  |   |                | $ | 3,622,722 |      |  | $ |         |   |  | $ |         |  
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Funded status                                         |  | $                | (978,899   | ) |                | $ | (436,236  | )    |  | $ | (613,217 | ) |  | $ | (571,082 | )
|Unrecognized net actuarial (gain)/loss                |  |                  | 1,840,198  |   |                |   | 1,396,559 |      |  |   | (136,666 | ) |  |   | (144,588 | )
|Unrecognized prior service cost                       |  |                  | (46,491    | ) |                |   | (63,459   | )    |  |   |         |   |  |   |         |  
|Unrecognized net obligation at transition             |  |                  |           |   |                |   |          |      |  |   | 146,609  |   |  |   | 167,555  |  
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Net amount recognized on consolidated balance sheets  |  | $                | 814,808    |   |                | $ | 869,864   |      |  | $ | (603,274 | ) |  | $ | (548,115 | )
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Amounts recognized on consolidated balance sheets as: |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Prepaid benefit cost                                  |  | $                | 814,808    |   |                | $ | 869,864   |      |  | $ |         |   |  | $ |         |  
|Accrued benefit liability                             |  |                  | (1,155,756 | ) |                |   |          |      |  |   | (603,274 | ) |  |   | (548,115 | )
|Deferred tax asset                                    |  |                  | 439,187    |   |                |   |          |      |  |   |         |   |  |   |         |  
|Accumulated other comprehensive income                |  |                  | 716,569    |   |                |   |          |      |  |   |         |   |  |   |         |  
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  
|Net amount recognized                                 |  | $                | 814,808    |   |                | $ | 869,864   |      |  | $ | (603,274 | ) |  | $ | (548,115 | )
|                                                      |  |                  |            |   |                |   |           |      |  |   |          |   |  |   |          |  



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The accumulated benefit obligation of our pension plan was $4,096,648 at October 31, 2005 and
$3,500,581 at October 31, 2004.



|                                          |  |                  |          |   |                |   |          |      |  |   |          |   |      |   |        |  |   |        |  |   |        |  
|----------------------------------------- |  | ---------------- | -------- | - | -------------- | - | -------- | ---- |  | - | -------- | - | ---- | - | ------ |  | - | ------ |  | - | ------ | -
|                                          |  | Pension Benefits |          |   | Other Benefits |  
|                                          |  | 2005             |          |   | 2004           |   |          | 2003 |  |   | 2005     |   | 2004 |   | 2003   | 
|Components of net periodic (benefit) cost |  |                  |          |   |                |   |          |      |  |   |          |   |      |   |        |  |   |        |  |   |        |  
|                                          |  |                  |          |   |                |  
|Service cost                              |  | $                | 98,730   |   |                | $ | 98,265   |      |  | $ | 86,315   |   |      | $ | 23,575 |  | $ | 28,104 |  | $ | 23,590 |  
|Interest cost                             |  |                  | 267,484  |   |                |   | 250,813  |      |  |   | 243,011  |   |      |   | 31,084 |  |   | 33,021 |  |   | 33,628 |  
|Expected return on plan assets            |  |                  | (341,241 | ) |                |   | (353,823 | )    |  |   | (363,222 | ) |      |   |       |  |   |       |  |   | (4,039 | )
|Net amortization and deferral             |  |                  | (16,968  | ) |                |   | (1,016   | )    |  |   | (40,089  | ) |      |   | 15,664 |  |   | 17,130 |  |   | 20,946 |  
|Recognized net actuarial loss             |  |                  | 47,051   |   |                |   |         |      |  |   |         |   |      |   |       |  |   |       |  |   |       |  
|                                          |  |                  |          |   |                |   |          |      |  |   |          |   |      |   |        |  |   |        |  |   |        |  
|Net periodic (benefit)/cost               |  | $                | 55,056   |   |                | $ | (5,761   | )    |  | $ | (73,985  | ) |      | $ | 70,323 |  | $ | 78,255 |  | $ | 74,125 |  
|                                          |  |                  |          |   |                |   |          |      |  |   |          |   |      |   |        |  |   |        |  |   |        |  

Unrecognized prior service cost is expensed using a straight-line amortization of the cost over
the average future service of employees expected to receive benefits under the plan.



|                                                                         |  |                  |   |  |                |   |  |      |   |  |      |   |  |      |   |  |      |  
|------------------------------------------------------------------------ |  | ---------------- | - |  | -------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                         |  | Pension Benefits |   |  | Other Benefits |  
|                                                                         |  | 2005             |   |  | 2004           |   |  | 2003 |   |  | 2005 |   |  | 2004 |   |  | 2003 |  
|Weighted-average assumptions used to determine net periodic benefit cost |  |                  |   |  |                |   |  |      |   |  |      |   |  |      |   |  |      |  
|                                                                         |  |                  |   |  |                |  
|Discount rate                                                            |  | 6.50             | % |  | 6.50           | % |  | 7.00 | % |  | 5.75 | % |  | 6.25 | % |  | 6.25 | %
|Expected long-term return on plan assets                                 |  | 8.50             | % |  | 8.50           | % |  | 8.50 | % |  | 6.75 | % |  | 6.75 | % |  | 6.75 | %
|Rate of compensation increase                                            |  | 3.50             | % |  | 3.50           | % |  | 4.00 | % |  | N/A  |   |  | N/A  |   |  | N/A  |  



|                                                                   |  |                  |   |  |                |   |  |      |   |  |      |  
|------------------------------------------------------------------ |  | ---------------- | - |  | -------------- | - |  | ---- | - |  | ---- | -
|                                                                   |  | Pension Benefits |   |  | Other Benefits |  
|                                                                   |  | 2005             |   |  | 2004           |   |  | 2005 |   |  | 2004 |  
|Weighted-average assumptions used to determine benefit obligations |  |                  |   |  |                |   |  |      |   |  |      |  
|                                                                   |  |                  |   | 
|Discount rate                                                      |  | 5.75             | % |  | 6.50           | % |  | 5.75 | % |  | 6.25 | %
|Rate of compensation increase                                      |  | 3.00             | % |  | 3.50           | % |  | N/A  |   |  | N/A  |  

The expected long-term rate of return for the pension plan is based on the expected return of each of the
plans asset categories (detailed below), weighted based on the median of the target allocation of each category.



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|                  |  |                      |      |  |                |      |  |                                              |   |  |     |  
|----------------- |  | -------------------- | ---- |  | -------------- | ---- |  | -------------------------------------------- | - |  | --- | -
|                  |  | TargetAllocation2006 |      |  | AllowableRange |      |  | TargetPercentage of PlanAssets at October 31 |  
|                  |  |                      | 2005 |  |                | 2004 | 
|Plan Assets       |  |                      |      |  |                |      |  |                                              |   |  |     |  
|Equity securities |  | 70                   | %    |  | 40-80          | %    |  | 73                                           | % |  | 70  | %
|Debt securities   |  | 25                   | %    |  | 20-40          | %    |  | 22                                           | % |  | 25  | %
|Real estate       |  | 0                    | %    |  | 0              | %    |  | 0                                            | % |  | 0   | %
|Other             |  | 5                    | %    |  | 3-10           | %    |  | 5                                            | % |  | 5   | %
|                  |  |                      |      |  |                |      |  |                                              |   |  |     |  
|Total             |  | 100                  | %    |  |                |      |  | 100                                          | % |  | 100 | %
|                  |  |                      |      |  |                |      |  |                                              |   |  |     |  

Investment Policy and Strategy

The policy, as established by the Pension Committee, is to invest assets per the target allocations stated above. The assets will be reallocated periodically to meet the above target allocations. The investment policy
will be reviewed periodically, under the advisement of a certified investment advisor, to determine if the policy should be changed.

The overall
investment return goal is to achieve a return greater than a blended mix of stated indices tailored to the same asset mix of the plan assets by 0.5% after fees over a rolling 5-year moving average basis.

Allowable assets include cash equivalents, fixed income securities, equity securities, exchange traded index funds and GICs. Prohibited investments include, but are not
limited to, commodities and future contracts, private placements, options, limited partnerships, venture capital investments, real estate and IO, PO, and residual tranche CMOs. Unless a specific derivative security is allowed per the plan document
permission must be sought from the Pension Committee to include such investments.

In order to achieve a prudent level of portfolio diversification, the
securities of any one company should not exceed more that 10% of the total plan assets, and no more that the 25% of total plan assets should be invested in any one industry (other than securities of U.S. Government or Agencies). Additionally, no
more than 20% of the plan assets shall be invested in foreign securities (both equity and fixed).

Cash Flows

Contributions:We expect to contribute approximately $70,172 to our pension plan in 2006. No contributions are expected to be made to our other
postretirement plans, however.

Estimated Future Benefits Payments: The following benefit payments, which reflect future service,
are expected to be paid:



|          |  |                  |           |                |   |        
|--------- |  | ---------------- | --------- | -------------- | - | -------
|          |  | Pension Benefits |           | Other Benefits
|2006      |  | $                | 233,379   |                | $ | 31,013 
|2007      |  |                  | 241,633   |                |   | 29,654 
|2008      |  |                  | 261,840   |                |   | 33,875 
|2009      |  |                  | 272,756   |                |   | 36,867 
|2010      |  |                  | 284,251   |                |   | 37,492 
|2011-2015 |  |                  | 1,508,556 |                |   | 204,960

Note 11. Other Borrowings

Short-Term Borrowings: During 2005 and 2004, our short-term borrowings consisted of securities sold under agreements to repurchase (repurchase agreements), advances under a line of credit with the Federal Home
Loan Bank of Pittsburgh (FHLB) and federal funds purchased. Interest is paid on the repurchase agreements based on either fixed or variable rates as determined upon origination. At December 31, 2005 and 2004, securities with an amortized cost
of $17,097,069 and $17,427,348 respectively, and estimated fair values of $16,767,119 and $17,395,887, respectively, were pledged to secure the repurchase agreements.



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As a member of the FHLB, the bank has access to various lines of credit under programs administered by
the FHLB. Borrowings under these arrangements bear interest at the interest rate posted by the FHLB on the day of the borrowing and are subject to change daily. The lines of credit are secured by a blanket lien on all unpledged and unencumbered
assets.

The following information is provided relative to our short-term borrowing obligations:



|                                              |  |                     |            |   |               |   |           |                       |  |   |                     |   |  |               |            |   |                       |   |           |   |  |   |         |  
|--------------------------------------------- |  | ------------------- | ---------- | - | ------------- | - | --------- | --------------------- |  | - | ------------------- | - |  | ------------- | ---------- | - | --------------------- | - | --------- | - |  | - | ------- | -
|                                              |  | 2005                |            |   | 2004          |  
|                                              |  | RepurchaseAgreement |            |   | Line ofCredit |   |           | FederalFundsPurchased |  |   | RepurchaseAgreement |   |  | Line ofCredit |            |   | FederalFundsPurchased |  
|Amount outstanding at December 31             |  | $                   | 20,511,399 |   |               | $ |          |                       |  | $ |                    |   |  | $             | 19,080,155 |   |                       | $ | 3,130,000 |   |  | $ | 300,000 |  
|Weighted average interest rate at December 31 |  |                     | 2.50       | % |               |   |          |                       |  |   |                    |   |  |               | 1.54       | % |                       |   | 2.21      | % |  |   | 2.50    | %
|Maximum month-end amount outstanding          |  | $                   | 24,983,307 |   |               | $ | 1,389,500 |                       |  | $ |                    |   |  | $             | 20,090,632 |   |                       | $ | 3,130,000 |   |  | $ | 300,000 |  
|Average daily amount outstanding              |  | $                   | 21,635,619 |   |               | $ | 108,678   |                       |  | $ | 14,178              |   |  | $             | 18,487,333 |   |                       | $ | 667,135   |   |  | $ | 822     |  
|Weighted average interest rate for the year   |  |                     | 2.30       | % |               |   | 3.60      | %                     |  |   | 3.55                | % |  |               | 1.62       | % |                       |   | 1.35      | % |  |   | 2.50    | %

Long-Term Borrowings:Long-term borrowings of $5,145,328 and $4,146,232 at
December 31, 2005 and 2004, respectively, consist of advances from the FHLB which are used to finance specific lending activities. These advances carry fixed interest rates ranging from 1.00% to 5.00% while the weighted average interest rate at
December 31, 2005 was 3.80%. The weighted average interest rate for the year ending December 31, 2005 was 3.44%.

A summary of
the maturities of the long-term borrowings for the next five years is as follows:



|                    |  |        |          
|------------------- |  | ------ | ---------
|Year                |  | Amount
|2006                |  | $      | 1,565,097
|2007                |  |        | 861,366  
|2008                |  |        | 375,518  
|2009                |  |        | 392,916  
|2010                |  |        | 411,119  
|2011 and thereafter |  |        | 1,809,312
|                    |  |        |          
|Total               |  | $      | 5,415,328
|                    |  |        |          

Note 12. Commitments and Contingencies

At December 31, 2005 and 2004, the bank maintained required reserve balances with the Federal Reserve Bank of Richmond approximating $1,384,000 and
$1,842,000, respectively. The bank does not earn interest on such reserve balances.

Litigation: We are involved in various legal
actions arising in the ordinary course of business. In the opinion of counsel, the outcome of these matters will not have a significant adverse effect on our financial condition or results of operations.

Financial Instruments With Off-Balance-Sheet Risk: The bank is a party to financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the bank has in particular classes of financial instruments.



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|                                                                   |      |                 |            |  |   |           
|------------------------------------------------------------------ | ---- | --------------- | ---------- |  | - | ----------
|Financial instruments whose contract amounts represent credit risk |      | Contract Amount
|                                                                   | 2005 |                 | 2004      
|Commitments to extend credit                                       |      | $               | 26,919,444 |  | $ | 22,967,098
|Standby letters of credit                                          |      |                 | 559,244    |  |   | 468,372   
|                                                                   |      |                 |            |  |   |           
|Total                                                              |      | $               | 27,478,688 |  | $ | 23,435,470
|                                                                   |      |                 |            |  |   |           

The banks exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The bank uses the same credit policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The bank evaluates each customers credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on managements credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.

Standby letters of credit are conditional commitments issued by the bank to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans. These letters of credit are generally uncollateralized.

Note 13. Shareholders Equity and Restrictions on Dividends

The primary source of funds for the dividends paid by Citizens Financial Corp. is dividends received from Citizens National Bank. Dividends paid by the bank are subject to restrictions by banking regulations. The most
restrictive provision requires approval by the Office of the Comptroller of the Currency if dividends declared in any year exceed the years net income, as defined, plus the retained net profits of the two preceding years. At December 31,
2005, the net retained profits available for distribution to Citizens Financial Corp. as dividends without regulatory approval approximate $1,572,008 or 8.0% of consolidated net assets.

The company and bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the company and bank must meet specific capital guidelines that involve quantitative measures of the companys and banks assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The company and banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other
factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation
to ensure capital adequacy require the company and bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. We believe, as of December 31, 2005, that the company
and bank meet all capital adequacy requirements to which they are subject.

The most recent notification from the Office of the Comptroller
of the Currency categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table below. There are no conditions or events since that notification that we believe have changed the banks category.



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The banks actual capital amounts and ratios, which are the same as those for the holding company on
a consolidated basis, are presented in the following table (in thousands).



|                                         |  |        |        |       |                              |   |        |                                                                |        |  |      |        |  |       |        |  |       |  
|---------------------------------------- |  | ------ | ------ | ----- | ---------------------------- | - | ------ | -------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                         |  | Actual |        |       | For CapitalAdequacy Purposes |   |        | To Be Well CapitalizedUnder Prompt CorrectiveAction Provisions |       
|                                         |  | Amount |        | Ratio |                              |   | Amount |                                                                | Ratio  |  |      | Amount |  | Ratio |       
|As of December 31, 2005:                 |  |        |        |       |                              |   |        |                                                                |        |  |      |        |  |       |        |  |       |  
|Total Capital (to Risk Weighted Assets)  |  | $      | 21,681 |       | 13.30                        | % |        | $                                                              | 13,041 |  | 8.00 | %      |  | $     | 16,302 |  | 10.00 | %
|Tier I Capital (to Risk Weighted Assets) |  |        | 20,084 |       | 12.32                        |   |        |                                                                | 6,521  |  | 4.00 |        |  |       | 9,781  |  | 6.00  |  
|Tier I Capital (to Average Assets)       |  |        | 20,084 |       | 8.46                         |   |        |                                                                | 9,496  |  | 4.00 |        |  |       | 11,870 |  | 5.00  |  
|                                         |  |        |        |       |                              |  
|As of December 31, 2004:                 |  |        |        |       |                              |   |        |                                                                |        |  |      |        |  |       |        |  |       |  
|Total Capital (to Risk Weighted Assets)  |  | $      | 21,400 |       | 14.18                        | % |        | $                                                              | 12,073 |  | 8.00 | %      |  | $     | 15,092 |  | 10.00 | %
|Tier I Capital (to Risk Weighted Assets) |  |        | 20,022 |       | 13.27                        |   |        |                                                                | 6,037  |  | 4.00 |        |  |       | 9,055  |  | 6.00  |  
|Tier I Capital (to Average Assets)       |  |        | 20,022 |       | 9.37                         |   |        |                                                                | 8,547  |  | 4.00 |        |  |       | 12,821 |  | 5.00  |  

Note 14. Fair Value of Financial Instruments and Interest Rate Risk

The following summarizes the methods and significant assumptions used in estimating fair value disclosures for financial instruments.

Cash and Due From Banks: The carrying values of cash and due from banks approximate their estimated fair values.

Federal Funds Sold: The carrying values of federal funds sold approximate their estimated fair values.

Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available,
estimated fair values are based on quoted market prices of comparable securities.

Loans: The estimated fair values for loans are
computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.

Accrued Interest Receivable and Payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values.

Deposits: The estimated fair values of demand deposits (i.e. noninterest bearing and interest bearing checking), money market,
savings and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any
intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

Short-Term
Borrowings: The carrying values of short-term borrowings approximate their estimated fair values.

Long-Term Borrowings: The
fair values of long-term borrowings are estimated by discounting scheduled future payments of principal and interest at current rates available on borrowings with similar terms.



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Off-Balance-Sheet Instruments: The fair values of commitments to extend credit and standby letters
of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The amounts of fees currently charged on
commitments and standby letters of credit are deemed insignificant, and therefore, the estimated fair values and carrying values are not shown below.

Derivative Financial Instruments: The fair values of the interest rate swaps are based on quoted market prices of like products.

The carrying values and estimated fair values of the companys financial instruments are summarized below:



|                                     |  |                   |             |                      |   |                |  |                      |             |  |   |            
|------------------------------------ |  | ----------------- | ----------- | -------------------- | - | -------------- |  | -------------------- | ----------- |  | - | -----------
|                                     |  | December 31, 2005 |             | December 31, 2004   
|                                     |  | Carrying Value    |             | Estimated Fair Value |   | Carrying Value |  | Estimated Fair Value
|Financial assets:                    |  |                   |             |                      |   |                |  |                      |             |  |   |            
|Cash and due from banks              |  | $                 | 6,770,128   |                      | $ | 6,770,128      |  | $                    | 5,475,798   |  | $ | 5,475,798  
|Federal funds sold                   |  |                   | 2,002,608   |                      |   | 2,002,608      |  |                      |            |  |   |           
|Securities available for sale        |  |                   | 66,854,339  |                      |   | 66,854,339     |  |                      | 53,874,409  |  |   | 53,874,409 
|Loans, net                           |  |                   | 152,136,327 |                      |   | 142,877,836    |  |                      | 144,586,824 |  |   | 140,825,132
|Accrued interest receivable          |  |                   | 1,321,120   |                      |   | 1,321,120      |  |                      | 1,118,499   |  |   | 1,118,499  
|                                     |  |                   |             |                     
|Financial liabilities:               |  |                   |             |                      |   |                |  |                      |             |  |   |            
|Deposits                             |  | $                 | 190,485,729 |                      | $ | 190,482,623    |  | $                    | 165,300,652 |  | $ | 164,955,655
|Short-term borrowings                |  |                   | 20,511,399  |                      |   | 20,511,399     |  |                      | 22,510,155  |  |   | 22,510,155 
|Long-term borrowings                 |  |                   | 5,145,328   |                      |   | 5,043,043      |  |                      | 4,146,232   |  |   | 4,091,244  
|Accrued interest payable             |  |                   | 333,198     |                      |   | 333,198        |  |                      | 243,908     |  |   | 243,908    
|                                     |  |                   |             |                     
|Financial instruments:               |  |                   |             |                      |   |                |  |                      |             |  |   |            
|Interest rate swaps and call options |  | $                 | 53,271      |                      | $ | 53,271         |  | $                    | 82,459      |  | $ | 82,459     

The company assumes interest rate risk (the risk that general interest rate levels will change) as
a result of its normal operations. As a result, the fair values of the companys financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the company. Management attempts to
match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling
rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of
assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the companys overall interest rate risk.

Note 15. Condensed Financial Statements of Parent Company

Information relative to the parent companys balance sheets at December 31, 2005 and 2004, and the related statements of income and cash flows for the years ended December 31, 2005, 2004 and 2003, are presented below.



|                                                                                  |  |              |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | December 31, |           
|Balance Sheets                                                                    |  | 2005         |            |   | 2004 |  
|Assets                                                                            |  |              |            |   |      |   |            |  
|Cash                                                                              |  | $            | 2,136      |   |      | $ | 2,654      |  
|Investment in subsidiaries                                                        |  |              | 19,611,169 |   |      |   | 20,220,127 |  
|                                                                                  |  |              |            |   |      |   |            |  
|Total assets                                                                      |  | $            | 19,613,305 |   |      | $ | 20,222,781 |  
|                                                                                  |  |              |            |   |      |   |            |  
|Shareholders equity                                                              |  |              |            |   |      |   |            |  
|Common stock, $2.00 par value, 2,250,000 shares authorized, issued 750,000 shares |  | $            | 1,500,000  |   |      | $ | 1,500,000  |  
|Additional paid-in capital                                                        |  |              | 2,100,000  |   |      |   | 2,100,000  |  
|Retained earnings                                                                 |  |              | 20,704,572 |   |      |   | 19,650,112 |  
|Accumulated other comprehensive income/(loss)                                     |  |              | (1,315,875 | ) |      |   | 57,987     |  
|Treasury stock at cost, 132,012 and 126,087 shares, respectively                  |  |              | (3,375,392 | ) |      |   | (3,085,318 | )
|                                                                                  |  |              |            |   |      |   |            |  
|Total shareholders equity                                                        |  | $            | 19,613,305 |   |      | $ | 20,222,781 |  
|                                                                                  |  |              |            |   |      |   |            |  



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|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                  |  | For the Years Ended December 31, |           
|Statements of Income                                                              |  | 2005                             |            |   | 2004 |   |            | 2003 | 
|Income - dividends from subsidiary bank                                           |  | $                                | 1,288,485  |   |      | $ | 1,298,650  |      |  | $ | 1,571,515  |  
|Expenses - operating                                                              |  |                                  | 6,203      |   |      |   | 3,300      |      |  |   | 5,681      |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Income before equity in undistributed income of subsidiaries                      |  |                                  | 1,282,282  |   |      |   | 1,295,350  |      |  |   | 1,565,834  |  
|Equity in undistributed income of subsidiaries                                    |  |                                  | 764,904    |   |      |   | 360,989    |      |  |   | 446,115    |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $                                | 2,047,186  |   |      | $ | 1,656,339  |      |  | $ | 2,011,949  |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|                                                                                  | 
|                                                                                  |  | For the Years Ended December 31, |           
|Statements of Cash Flows                                                          |  | 2005                             |            |   | 2004 |   |            | 2003 | 
|Cash Flows from Operating Activities                                              |  |                                  |            |   |      |   |            |      |  |   |            |  
|Net income                                                                        |  | $                                | 2,047,186  |   |      | $ | 1,656,339  |      |  | $ | 2,011,949  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                  |            |   |      |   |            |      |  |   |            |  
|Equity in undistributed income of subsidiaries                                    |  |                                  | (764,904   | ) |      |   | (360,989   | )    |  |   | (446,115   | )
|Decrease in amount due from subsidiary                                            |  |                                  |           |   |      |   |           |      |  |   | 3,299      |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash provided by Operating activities                                             |  |                                  | 1,282,282  |   |      |   | 1,295,350  |      |  |   | 1,569,133  |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Investing Activities                                              |  |                                  |           |   |      |   |           |      |  |   |           |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash Flows from Financing Activities                                              |  |                                  |            |   |      |   |            |      |  |   |            |  
|Dividends paid to shareholders                                                    |  |                                  | (992,726   | ) |      |   | (972,089   | )    |  |   | (958,345   | )
|Acquisition of treasury stock                                                     |  |                                  | (290,074   | ) |      |   | (322,854   | )    |  |   | (611,517   | )
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Cash used in financing activities                                                 |  |                                  | (1,282,800 | ) |      |   | (1,294,943 | )    |  |   | (1,569,862 | )
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Increase/(decrease) in cash                                                       |  |                                  | (518       | ) |      |   | 407        |      |  |   | (729       | )
|                                                                                  |  |                                  |           
|Cash:                                                                             |  |                                  |            |   |      |   |            |      |  |   |            |  
|Beginning                                                                         |  |                                  | 2,654      |   |      |   | 2,247      |      |  |   | 2,976      |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  
|Ending                                                                            |  | $                                | 2,136      |   |      | $ | 2,654      |      |  | $ | 2,247      |  
|                                                                                  |  |                                  |            |   |      |   |            |      |  |   |            |  



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Report of Independent Registered Public Accounting Firm

To the Board of Directors

Citizens Financial Corp. and Subsidiary

Elkins, West Virginia

We have audited the consolidated balance sheets of Citizens Financial Corp. and Subsidiary as of December 31, 2005 and 2004, and the related consolidated statements
of income, comprehensive income, changes in shareholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Citizens Financial Corp. and Subsidiary for the year ended December 31, 2003 were audited by other auditors whose report, dated January 9, 2004, expressed an unqualified
opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citizens Financial Corp. and Subsidiary as of December 31, 2005 and
2004, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Yount, Hyde & Barbour, P.C.

Winchester, Virginia

January 6, 2006



50



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Citizens Financial Corp. and Subsidiaries

Elkins, West Virginia

We have audited the
accompanying consolidated statements of income, stockholders equity, and cash flows for the year ended December 31, 2003 of Citizens Financial Corp and Subsidiaries. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations of Citizens Financial Corp. and Subsidiaries and their cash flows for the year ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.

ARNETT & FOSTER, P.L.L.C.

Charleston, West Virginia

January 9, 2004



51



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##### Table of Contents

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No
reportable items.

Item 9A. Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K,
the company, under the supervision and with the participation of management, including the chief executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of the companys
disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-4. Based upon that evaluation, the chief executive officer and principal financial officer concluded that the companys disclosure controls and procedures are
effective in timely alerting them to material information relating to the company which is required to be included in the companys periodic SEC filings. Subsequent to the date of that evaluation, there have been no significant changes in the
companys internal controls or in other factors that could significantly offset internal controls, nor were any corrective actions required with regard to significant deficiencies or material weaknesses.

Item 9B. Other Information

No reportable items.

PART III

Item 10. Directors and Executive Officers of the Registrant

The number of directors of the company may consist of not less than five nor more than 25 persons in accordance with the companys Articles of
Incorporation. The number of directors is fixed by resolution of a majority vote of shareholders and currently stands at ten. Among them, Mr. John A. Yeager, CPA, serves as the companys audit committee financial expert.
Mr. Yeager received his bachelors degree in accounting from West Virginia University in 1980 and has six years experience in public accounting. During that time Mr. Yeager gained experience in the audit of banks whose characteristics
and complexity are similar to Citizens. Mr. Yeager also has served as controller for two nonbanking companies for approximately eighteen years. He has served on the board of directors of Citizens National Bank since April, 1999 and of Citizens
Financial Corp. since April, 2003. His current term on the holding company board expires in April, 2006 and he has been nominated to stand for reelection to an additional three year term expiring in April, 2009. The following table sets forth the
names of all of the persons who have served as directors of Citizens Financial Corp. for the year ended December 31, 2005, their ages and principal occupations, their length of service to the company and the expiration of their present terms.



|                      |  |                                                                                                          |  |                    |  |                     
|--------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ------------------ |  | --------------------
|Name and Age          |  | Principal Occupation During PastFive Years                                                               |  | Director Since (1) |  | Present Term Expires
|                      |  |                                                                                                          | 
|Robert N. Alday 90    |  | President, Phil Williams Coal Company                                                                    |  | September, 1986    |  | April, 2006 (2)     
|                      |  |                                                                                                          | 
|Max L. Armentrout 68  |  | President, and Chairman of the Board Laurel Lands Corp.; Chairman of the Board, Citizens Financial Corp. |  | September, 1986    |  | April, 2008         
|                      |  |                                                                                                          | 
|William J. Brown 59   |  | President, Hess Oil Co., Inc.;                                                                           |  | February, 2000     |  | April, 2007         
|                      |  |                                                                                                          | 
|Edward L. Campbell 66 |  | Co-Owner, Retired, Campbells Market                                                                     |  | February, 2000     |  | April, 2007         



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##### Table of Contents

|                           |  |                                                                                            |  |                    |  |                     
|-------------------------- |  | ------------------------------------------------------------------------------------------ |  | ------------------ |  | --------------------
|Name and Age               |  | Principal Occupation During PastFive Years                                                 |  | Director Since (1) |  | Present Term Expires
|John F. Harris 78          |  | Retired, Transportation Industry; Senior Vice President, Citizens National Bank            |  | September, 1986    |  | April, 2008         
|                           |  |                                                                                            | 
|William T. Johnson, Jr. 62 |  | President and Chief Executive Officer and Executive Vice President, Citizens National Bank |  | April, 2005        |  | April, 2008         
|                           |  |                                                                                            | 
|Cyrus K. Kump 59           |  | President, Kump Enterprises; Kerr Real Estate                                              |  | June, 1992         |  | April, 2006 (2)     
|                           |  |                                                                                            | 
|Robert J. Schoonover 66    |  | President and Chief Executive Officer, Citizens Financial Corp. and Citizens National Bank |  | April, 1998        |  | April, 2007         
|                           |  |                                                                                            | 
|L. T. Williams 75          |  | Consultant, Retired, Elkins Builders Supply                                                |  | September, 1986    |  | April, 2008         
|                           |  |                                                                                            | 
|John A. Yeager, CPA 47     |  | Controller, Newlons International Sales, LLC                                              |  | April, 2003        |  | April, 2006 (2)     

---

|(1) | All of the above named directors, with the exception of Mr. Alday, have also served as directors of Citizens National Bank for the past five years on a continuous basis.
Mr. Alday has not served Citizens National Bank in any official capacity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Messrs. Alday, Kump and Yeager have been nominated to stand for reelection to an additional 3 year term expiring in April, 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Set forth below are the executive officers of Citizens Financial Corp., their age, present position and relations that have existed with affiliates and
others during the past five years.



|                           |  |                                       |  |                                                                                                         
|-------------------------- |  | ------------------------------------- |  | --------------------------------------------------------------------------------------------------------
|Name and Age               |  | Present Position                      |  | Principal Occupation and Banking ExperienceDuring the Last Five
Years                                   
|Max L. Armentrout 68       |  | Chairman of the Board                 |  | President and Chairman of the Board, Laurel Lands Corp.; Chairman of the Board, Citizens Financial Corp.
|                           |  |                                      
|Robert J. Schoonover 66    |  | President and Chief Executive Officer |  | President and Chief Executive Officer, Citizens Financial Corp. and Citizens National Bank              
|                           |  |                                      
|William T. Johnson, Jr. 62 |  | Vice President                        |  | President and Chief Executive Officer and Executive Vice President, Citizens National Bank              



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##### Table of Contents

|                        |  |                          |  |                                                                                                               
|----------------------- |  | ------------------------ |  | --------------------------------------------------------------------------------------------------------------
|Name and Age            |  | Present Position         |  | Principal Occupation and Banking ExperienceDuring the Last Five
Years                                         
|Thomas K. Derbyshire 47 |  | Vice President Treasurer |  | Executive Vice President, Senior Vice President and Chief Financial Officer, Citizens National Bank           
|                        |  |                         
|Leesa M. Harris 42      |  | Secretary                |  | Senior Vice President and Trust Officer, Citizens National Bank; Executive Secretary, Citizens Financial Corp.

Citizens has adopted a Code of Ethics that applies to all employees, including its executive
officers. In the event that Citizens makes any amendment to, or grants any waivers of, a provision of the Code of Ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires
disclosure under applicable SEC rules, the company intends to disclose such amendment or waiver and the reasons therefore, and Citizens will disclose the nature of such amendment or waiver in a report on Form 8-K. Citizens Code of Ethics may
be viewed by accessing our website at www.cnbelkins.com.

Item 11. Executive Compensation

The executive officers of Citizens Financial Corp. serve without
compensation from the company. They are, however, compensated by Citizens National Bank for serving as bank officers with the exception of Mr. Armentrout who is not employed by the bank. The following table sets forth the compensation of the
companys CEO for the years 2005, 2004 and 2003 as well as that of other officers who received total annual salary and bonus exceeding $100,000 during those years.

SUMMARY COMPENSATION TABLE



|                                                    |  |      |  |        |         |       |   |                                  |  |   |       
|--------------------------------------------------- |  | ---- |  | ------ | ------- | ----- | - | -------------------------------- |  | - | ------
|Name and Principal Position                         |  | Year |  | Salary |         | Bonus |   | Other AnnualCompensation (1) (2)
|Robert J. Schoonover,                               |  | 2005 |  | $      | 56,748  |       | $ |                                 |  | $ | 55,669
|President & CEO                                     |  | 2004 |  |        | 129,732 |       |   |                                 |  |   | 19,223
|Citizens Financial Corp. and Citizens National Bank |  | 2003 |  |        | 122,538 |       |   |                                 |  |   | 18,022
|                                                    |  |      |  |       
|William T. Johnson, Jr.                             |  | 2005 |  | $      | 115,960 |       | $ |                                 |  | $ | 14,021
|VP, Citizens Financial Corp.                        |  |      |  |        |         |       |   |                                  |  |   |       
|President & CEO, Citizens National Bank             |  |      |  |        |         |       |   |                                  |  |   |       
|                                                    |  |      |  |       
|Thomas K. Derbyshire                                |  | 2005 |  | $      | 102,255 |       | $ |                                 |  | $ | 7,585 
|VP & Treasurer,                                     |  | 2004 |  | $      | 106,539 |       | $ |                                 |  | $ | 4,172 
|Citizens Financial Corp.                            |  |      |  |        |         |       |   |                                  |  |   |       
|EVP, SVP & CFO, Citizens National Bank              |  |      |  |        |         |       |   |                                  |  |   |       

---

|(1) | The banks group life and health insurance program, which is paid for by the bank, is made available to all full-time employees and does not discriminate in favor of directors
or officers; however, in accordance with IRS Code Section 79, the cost of group term life insurance coverage for an individual in excess of $50,000 is added to the individuals earnings and is included in this figure. Also included in this
figure, are board fees earned, the companys contributions to the individuals 401(k) retirement savings program to which the individual has a vested interest and taxable income resulting from participation in a bank sponsored executive
and director supplemental retirement plans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The banks contributions to the pension plan, a defined benefit plan, are not and cannot be calculated separately for specific participants. No contributions were made by the
bank in the years presented. The banks executive supplemental income as well as its executive and director supplemental retirement plan provides retirement benefits conditioned upon continued employment until retirement or the satisfaction of
early retirement criteria. Participants are deemed to receive no compensation until such conditions are satisfied.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Neither the company nor the bank, maintain any form of stock option, stock appreciation rights, or other
long-term compensation plans. Directors of the registrant are compensated for meetings attended in the amount of $110 per meeting. Directors of the bank receive $643 per meeting. Under normal circumstances, the Board of Citizens Financial Corp.
meets quarterly while the Citizens National Bank Board meets monthly. Directors who are members of the banks loan committee, which meets weekly, receive $750 per month. In addition, the chairman of Citizens Financial Corp. is paid $2,167 per
month by the bank, the president of Citizens Financial Corp. is paid $1,667 per month by the bank, and the senior vice-president of the bank receives $1,820 monthly for his services. No employment contracts or change in control arrangements exist
between any executive officer and the registrant, or its subsidiaries.

Compensation of the banks executive officers, including
its president, is determined by the personnel committee. The committee is comprised of five independent directors. Compensation levels are determined after consideration is given to net income objectives and cost of living factors. This process is
consistent with that used to determine the compensation levels of all other employees. No specific criteria exist which relates executive compensation to corporate performance and executives receive no preferential consideration in the establishment
of compensation.

Pension Benefits

Citizens Financial Corp., having no employees, has no retirement program, but Citizens National Bank has a pension program for its eligible employees. This pension plan is a qualified retirement plan and is available
to all employees, including officers, who meet the eligibility requirements. Directors do not participate in this plan. Pensions for all participants are based on five-year average final compensation. Annual compensation for the pension plan
includes overtime pay and bonuses. Credits are received for each year of participation at the following rates: 1 percent of the first $9,600 of the 5-year average final compensation and 1.5 percent of such average final compensation in excess of
$9,600, all multiplied by years of service up to a 25-year maximum. The pension benefits are payable to participants on a monthly basis in the form of a joint and 50 percent survivor annuity for all married participants who do not elect otherwise,
or in the form of a single life annuity for all other participants or survivors. Joint and 100 percent survivorship, single life annuity or 120 payments guaranteed are other optional forms of distribution.

The following table represents the normal pension, beginning at age sixty-five, based upon assumed final pay and years of credited services:



|                     |         |                        |   |                        |  |                        |        |  |   |       
|-------------------- | ------- | ---------------------- | - | ---------------------- |  | ---------------------- | ------ |  | - | ------
|                     |         | Annual Benefits       
|Assumed Remuneration |         | 15 yrs.CreditedService |   | 20 yrs.CreditedService |  | 25 yrs.CreditedService
|$                    | 20,000  |                        | $ | 3,780                  |  | $                      | 5,040  |  | $ | 6,300 
|                     | 40,000  |                        |   | 8,280                  |  |                        | 11,040 |  |   | 13,800
|                     | 60,000  |                        |   | 12,780                 |  |                        | 17,040 |  |   | 21,300
|                     | 80,000  |                        |   | 17,280                 |  |                        | 23,040 |  |   | 28,800
|                     | 100,000 |                        |   | 21,780                 |  |                        | 29,040 |  |   | 36,300
|                     | 120,000 |                        |   | 26,280                 |  |                        | 35,040 |  |   | 43,800

The estimated credited years of service for the executive officers of Citizens Financial Corp. in
the pension plan of Citizens National Bank are as follows:



|                        |  |                           
|----------------------- |  | --------------------------
|                        |  | Years of Credited Service*
|Robert J. Schoonover    |  | 32                        
|William T. Johnson, Jr. |  | 45                        
|Thomas K. Derbyshire    |  | 14                        

---

|* | Max L. Armentrout is not a participant in the pension plan of Citizens National Bank.
|- | -------------------------------------------------------------------------------------

401-(k) Plan

The bank has established a 401-(k) plan for the benefit of all employees who meet eligibility requirements. A description of the Plan, the eligibility requirements and the contributions made to the Plan by the bank for the years ended
December 31, 2005, 2004 and 2003 may be found in Note 10 to the accompanying consolidated financial statements.

Executive Supplemental Income Plan

The bank has entered into a nonqualified supplemental income plan with certain senior
officers as described in Note 10 to the accompanying consolidated financial statements. A copy of the plan, and the amendments thereto, are incorporated herein by reference to the exhibits contained in the companys Forms 10-K dated
December 31, 1997 and 1996.



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##### Table of Contents

Executive and Director Supplemental Retirement Plan

As explained in Note 10, effective January 1, 2003, the bank entered into a nonqualified executive and director supplemental retirement plan with its
directors and those officers who qualified. A copy of the plan is incorporated herein by reference to Exhibit 10 contained in the companys Form 10-K dated December 31, 2003.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The company has no shareholder
who is the beneficial owner of more than 5% of the companys common stock, the only class of stock outstanding, as of February 28, 2006.

The following table sets forth the amount and percentage of stock of Citizens Financial Corp. beneficially owned by each director and executive officer of the company, and by all directors and executive officers as a group, as of
February 28, 2006.



|                                                |  |                                    |  |          |                      |  |        |     |  |       |  
|----------------------------------------------- |  | ---------------------------------- |  | -------- | -------------------- |  | ------ | --- |  | ----- | -
|                                                |  | Shares of Stock Beneficially Owned |  |          | Percent of Ownership | 
|Name                                            |  | Direct                             |  | Indirect |                      |  | Total  |     | 
|Robert N. Alday                                 |  | 500                                |  | 20,200   | (1)                  |  | 20,700 |     |  | 3.35  | %
|Max L. Armentrout                               |  | 25,775                             |  | 4,725    | (2)                  |  | 30,500 |     |  | 4.94  | %
|William J. Brown                                |  | 750                                |  | 750      | (3)                  |  | 1,500  |     |  | .24   | %
|Edward L. Campbell                              |  | 500                                |  | 150      | (4)                  |  | 650    |     |  | .11   | %
|John F. Harris                                  |  | 2,525                              |  | 5,500    | (5)                  |  | 8,025  |     |  | 1.30  | %
|William T. Johnson, Jr.                         |  | 118                                |  | 3,200    | (6)                  |  | 3,318  |     |  | .54   | %
|Cyrus K. Kump                                   |  | 500                                |  | 2,700    | (7)                  |  | 3,200  |     |  | .52   | %
|Robert J. Schoonover                            |  | 500                                |  | 100      | (8)                  |  | 600    |     |  | .10   | %
|L. T. Williams                                  |  | 1,750                              |  | 0        |                      |  | 1,750  |     |  | .28   | %
|John A. Yeager                                  |  | 1,675                              |  | 0        |                      |  | 1,675  |     |  | .27   | %
|Thomas K. Derbyshire                            |  | 70                                 |  | 0        |                      |  | 70     |     |  | .01   | %
|Directors and executive officers of the Bank    |  | 4,580                              |  | 4,008    |                      |  | 8,588  | (9) |  | 1.39  | %
|All Directors and executive officers as a group |  | 39,125                             |  | 38,133   |                      |  | 77,258 |     |  | 12.50 | %

---

|(1) | Mr. Aldays indirect ownership includes 6,800 shares owned by his wife and 13,400 shares which he votes for the Phil Williams Coal Company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(2) | These 4,725 shares are owned by Mr. Armentrouts wife.
|--- | ------------------------------------------------------

|(3) | Includes 250 shares owned jointly with his wife and 500 shares held in custody for their children.
|--- | --------------------------------------------------------------------------------------------------

|(4) | Includes 100 shares owned jointly with his wife and 50 shares owned by his wife.
|--- | --------------------------------------------------------------------------------

|(5) | These 5,500 shares are owned jointly with his wife.
|--- | ---------------------------------------------------

|(6) | Includes 2,260 shares owned jointly with his wife and 940 shares owned by his wife.
|--- | -----------------------------------------------------------------------------------

|(7) | Includes 1,700 shares owned by his wife and 1,000 shares held in custody for their children.
|--- | --------------------------------------------------------------------------------------------

|(8) | These 100 shares are owned jointly with his wife.
|--- | -------------------------------------------------

|(9) | This figure represents the ownership of persons who are directors or officers (vice president or higher) of the subsidiary bank but not of the company. Such persons number fourteen.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 13. Certain Relationships and Related Transactions

Management personnel of Citizens Financial Corp.
have had and expect to continue to have banking transactions with Citizens National Bank in the ordinary course of business. Extensions of credit to such persons are made in the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. It is the opinion of management that these transactions do not involve more than a normal risk of collectibility or present other
unfavorable features.

As of December 31, 2005, outstanding loan balances to related parties totaled $6,657,000 or 33.94 percent of
equity capital with unused lines of credit of $1,838,000 or 9.37 percent of the equity capital of Citizens Financial Corp. outstanding to these parties.

Other than loans originated in the normal course of business by the Bank, none of the directors, executive officers, 5 percent or more beneficial stockholders or their immediate family members have an interest or are
involved in any transactions with Citizens Financial Corp. or Citizens National Bank in which the amount involved exceeds $60,000, or was not subject to the usual terms or conditions, or was not determined by competitive bids. Information related to
loans granted to related parties in excess of $60,000 is contained in Note 4 to the accompanying consolidated financial statements. Similarly, no director, executive officer or 5 percent or more beneficial stockholder has an equity interest in
excess of 10 percent in a business or professional entity that has made payments to or received payments from Citizens Financial Corp. or Citizens National Bank in 2005 which exceeds 5 percent of either partys gross revenue.

Item 14. Principal Accounting Fees and Services

As disclosed in our Form 8-K filing dated
November 26, 2003, we changed principal accountants in 2004 with the engagement of Yount, Hyde and Barbour. Arnett and Foster, P.C., acted as our principal accountants prior to 2004. Fees for services provided by our principal accountants are
provided below:



|                   |  |      |        |      |   |       
|------------------ |  | ---- | ------ | ---- | - | ------
|                   |  | 2005 |        | 2004
|Audit Fees         |  | $    | 37,775 |      | $ | 36,500
|Audit-Related Fees |  |      | 6,222  |      |   | 100   
|Tax Fees           |  |      | 4,800  |      |   | 3,200 
|All Other Fees     |  |      |       |      |   | 2,040 

Audit fees consist of fees for professional services rendered for the audit of the Companys
financial statements and review of financial statements included in the Companys quarterly reports. Audit-related fees are primarily related to consultations concerning financial accounting and reporting standards. Tax fees consist of
compliance fees for the preparation of original tax returns and fees for tax consulting services. All other fees incurred in 2004 were for expenses related to the change in accountants and for one educational seminar sponsored by Yount, Hyde and
Barbour and presented by a third party educational service company.

The Audit Committee Charter requires that the audit committee
pre-approve all audit and non-audit services to be provided to Citizens by the independent accountants; provided, however, that the audit committee may specifically authorize its chairman to pre-approve the provision of any non-audit service to the
company. Further, the foregoing pre-approved policies may be waived, with respect to the provision of any non-audit services consistent with the exceptions for federal securities law. All of the audit, audit related, and tax services described above
were pre-approved by the audit committee.

Part IV

Item 15. Exhibits and Financial Statements Schedules



|(a) | (1) and (2) Financial Statements and Financial Statement Schedules.
|--- | -------------------------------------------------------------------

All financial statements and financial statement schedules required to be filed by Item 8 of this Form or by Regulation S-X which are applicable to the registrant have been presented in the financial statements,
notes thereto, in managements discussion and analysis of financial condition and results of operations or elsewhere where appropriate.



57



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|(3) | The following is a list of all exhibits filed as part of this report:
|--- | ---------------------------------------------------------------------

INDEX TO EXHIBITS



|       |  |                                                                                                                                                                                                                                                                                                                
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|3 (i)  |  | The companys Articles of Incorporation, which were previously filed as amended on pages 66-70 of its Form 10-K dated December 31, 1999, are incorporated herein by
reference.                                                                                                                                
|       | 
|3 (ii) |  | The companys Bylaws, which were previously filed as amended on pages 64-71 of its Form 10-K dated December 31, 1998, are incorporated herein by reference.                                                                                                                                                   
|       | 
|4      |  | The rights of security holders are defined in the Articles of Incorporation which were previously filed as amended on pages 66-70 of our Form 10-K dated December 31, 1999 which is
incorporated herein by reference.                                                                                          
|       | 
|10     |  | The following material contracts are incorporated by reference into this filing:                                                                                                                                                                                                                               
|       | 
|       |  | 1) The banks Executive Supplemental Income Agreement as previously filed on pages 74-80 of the companys Form 10-K dated December 31, 1995 and thereafter amended and filed on page
62 of the companys Form 10-K dated December 31, 1996.                                                                    
|       | 
|       |  | 2) The banks Purchase and Assumption Agreement with South Branch Valley National Bank for the purchase of its banking facilities, assets and liabilities located in Petersburg,
West Virginia dated December 17, 1999 and filed on pages 71-113 of the companys Form 10-K dated December 31, 1999.          
|       | 
|       |  | 3) The banks Supplemental Retirement and Split Dollar Life Insurance plans for executives and directors dated January 1, 2003 and previously filed on pages 75-110 of its Form 10-K
dated December 31, 2003.                                                                                                 
|       | 
|11     |  | The computation of per share earnings may be clearly determined by the material contained in this filing.                                                                                                                                                                                                      
|       | 
|12     |  | The computation of minimum standard capital ratios, as contained in this report, was done as specified in applicable regulatory guidelines. All other ratios presented may be clearly
determined from the material contained in this filing.                                                                   
|       | 
|13     |  | As a Section 15(d) filer, four complete copies of the annual report to security holders and related proxy materials have been furnished to the Commission in paper format concurrent with the
filing of this report. These four copies are not deemed filed, however.                                        
|       | 
|14     |  | The companys Code of Ethics, which is applicable to all employees of the company and its subsidiary, including the principal executive officer and principal accounting officer,
has been made available on the companys website, www.cnbelkins.com, and is, therefore, not filed as part of this Form 10-K.
|       | 
|16     |  | Letters regarding a change in certifying accountants as filed in the companys Form 8-K dated November 26, 2003 and its Form 8-K/A dated December 3, 2003, are incorporated herein
by reference.                                                                                                              
|       | 
|21     |  | List of subsidiaries of the registrant (filed herewith).                                                                                                                                                                                                                                                       
|       | 
|22     |  | Published report regarding matters submitted to vote of security holders (filed herewith).                                                                                                                                                                                                                     
|       | 
|23     |  | Consents of Yount, Hyde and Barbour, P.C. and Arnett and Foster, P.L.L.C. (filed herewith).                                                                                                                                                                                                                    
|       | 
|31.01  |  | Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                     
|       | 
|31.02  |  | Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).                                                                                                                     
|       | 
|32.01  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith).                                                                                                                                                                                              
|       | 
|32.02  |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith).                                                                                                                                                                                              
|       | 
|(b)    |  | Exhibits required by item 601 of Regulation S-K-all applicable exhibits have been filed as detailed in the Index to Exhibits. Exhibits contained in item 601 of Regulation S-K but not
contained in the Index are not applicable or are not required in Form 10-K.                                             



58



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Signatures

Pursuant to the requirements of Section 15(d) 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 Financial Corp.By

/s/ Robert J. SchoonoverRobert J. SchoonoverPresident and Chief Executive OfficerDate:

3/14/06By

/s/ Thomas K. DerbyshireThomas K. DerbyshireTreasurer and Principal Financial OfficerDate:

3/14/06


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.



|                                                    |  |                                    |  |           
|--------------------------------------------------- |  | ---------------------------------- |  | ----------
|Signature                                           |  | Title                              |  | Date      
|                                                    |  |                                   
|/s/ Max L. Armentrout Max L.
Armentrout             |  | Chairman of the Board and Director |  | 3/22/06   
|                                                    |  |                                   
|Robert N. Alday                                     |  | Director                           |  | __________
|                                                    |  |                                   
|/s/ William J. Brown William J.
Brown               |  | Director                           |  | 3/22/06   
|                                                    |  |                                   
|/s/ Edward L. Campbell Edward L.
Campbell           |  | Director                           |  | 3/22/06   
|                                                    |  |                                   
|John F. Harris                                      |  | Director                           |  | __________
|                                                    |  |                                   
|/s/ William T. Johnson, Jr. William T.
Johnson, Jr. |  | Director                           |  | 3/22/06   
|                                                    |  |                                   
|/s/ Cyrus K. Kump Cyrus K.
Kump                     |  | Director                           |  | 3/22/06   
|                                                    |  |                                   
|/s/ Robert J. Schoonover Robert J.
Schoonover       |  | Director                           |  | 3/14/06   
|                                                    |  |                                   
|/s/ L. T. Williams L. T.
Williams                   |  | Director                           |  | 3/22/06   
|                                                    |  |                                   
|/s/ John A. Yeager John A.
Yeager                   |  | Director                           |  | 3/22/06   



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