UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D. C. 20549


FORM
      10-K





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


for
      the
      fiscal year ended **December
      31, 2006**





or





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





Commission
      File No: **2-96144**





**CITIZENS
      FINANCIAL CORP.**





(exact
      name of registrant as specified in its charter)





**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,
            
            **(304)
                636-4095**Including
                Area Code:





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





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





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
                Filerx




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
      $29,983,000.





As
      of
      March 28, 2007 Citizens Financial Corp. had 1,829,504 shares of common stock
      outstanding with a par value of $2.00.





Documents
      incorporated by reference: **None**







1





**CITIZENS
                FINANCIAL CORP.****FORM
                10-K INDEX**PagePart
                I
            Item
                1
            Business
            3-8Item
                1A
            Risk
                Factors
            8-9Item
                2
            Properties
            10Item
                3
            Legal
                Proceedings
            10Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            10Part
                II
            Item
                5
            Market
                for the Registrant’s Common Equity and Related
                Shareholders Matters
            10-11Item
                6
            Selected
                Financial Data
            11-17Item
                7
            Management’s
                Discussion and Analysis of Financial Condition and
                Results of Operations
            17-23Item
                7A
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            23-25Item
                8
            Financial
                Statements and Supplementary Data
            25-51Item
                9
            Changes
                in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            52Item
                9A
            Controls
                and Procedures
            52Item
                9B
            Other
                Information
            52Part
                III
            Item
                10
            Directors,
                Executive Officers, and Corporate
                Governance
            52-54Item
                11
            Executive
                Compensation
            54-58Item
                12
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            58Item
                13
            Certain
                Relationships and Related Transactions and Director
                Independence
            59Item
                14
            Principal
                Accountant Fees and Services
            59Part
                IV
            Item
                15
            Exhibits
                and Financial Statement Schedules
            59-62




2
 *Index*





**Citizens
      Financial Corp.**


Form
      10-K, Part I





Item
      1. Business




Organizational
      History and Subsidiaries





Citizens
      Financial Corp., ("Citizens" or the “company"), is a $243 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. The real estate
      loan portfolio can be further segmented into four distinct categories:
      construction, home equity, residential mortgage, and commercial mortgage.
      Construction loans are typically made for the construction of residential or
      commercial properties and have short maturity intervals of one year or less.
      These loans are often times converted to permanent financing and transferred
      to
      either the residential or commercial real estate categories. Home equity loans
      are generally lines of credit issued on residential properties that allow
      customers to access funds through check writing privileges. Residential mortgage
      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 real estate 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 function.





3
 *Index*





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 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, 2006, these loans totaled $7,710,503 million,
      or
      4.6% 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 ten years; bank qualified, investment grade
      municipal obligations maturing in less than twenty 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.





4
 *Index*





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 experts in their
      fields.





Employees





As
      of
      February 28, 2007, Citizens National Bank had a staff of 91 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 11 banks are located.
      As of June 30, 2006, the most recent date data is available, Citizens held
      23.0%
      share of the $806 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
      25,610.





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, 2006, the unemployment
      rate in this market was 5.7% compared to 4.6% for West Virginia and 4.3%
      nationwide. Average annual wages in the area approximate $28,268 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.





5
 *Index*





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 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 14 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.





6
 *Index*





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.





7
 *Index*





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. Section 404 of Sarbanes-Oxley will become applicable to Citizens
      in 2007 based on current regulatory guidance. In response to Section 404,
      management will assess the company’s system of internal control over financial
      reporting in order to determine whether the system is effective and that it
      meets the criteria of the Internal Control-Integrated Framework, issued by
      the
      Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
      2008, Section 404 will require that our independent auditors also provide an
      attestation on management’s assertion of internal control over financial
      reporting.





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 1of this report, Citizens faces a high degree of
      competition for its 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.





8
 *Index*





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.





**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.
      In
      2006 a parking lot was constructed on one such property. The other property
      was
      leased by a tenant until April, 2006. Since the tenants vacated the property,
      we
      began using a section of the building for storage and office space. 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.




9
 *Index*




Item
      3. Legal Proceedings





As
      of
      December 31, 2006 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 2006.




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, 2007 shareholders of record numbered approximately
      461. The company has no plans to issue any other forms of capital.





On
      March
      7, 2006 Citizens board of directors declared a stock split which was paid on
      April 14, 2006 in the form of a 200% stock dividend to shareholders of record
      April 3, 2006. The primary reason for doing so was to reduce the share price
      of
      the stock in an effort to improve its liquidity. Citizens stock, which is
      neither widely held nor widely traded, is an over the counter bulletin board
      stock with the symbol CIWV.OB. Distribution of this stock dividend required
      the
      use of all authorized shares. On April 22, 2006 the shareholders authorized
      an
      additional 2,250,000 shares for future use.





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, 2006 and 2005
      the
      number of treasury shares was 420,496 and 132,012, 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. Prices listed below that were prior to the
      stock split on April 14, 2006 have been restated to reflect the
      split.





High
            
            LowFirst
                Quarter throughFebruary
                28, 2007
            
            $
            20.50
            
            $
            19.502006First
                Quarter
            
            $
            19.50
            
            $
            16.47Second
                Quarter
            
            $
            20.47
            
            $
            16.90Third
                Quarter
            
            $
            17.67
            
            $
            16.83Fourth
                Quarter
            
            $
            19.50
            
            $
            17.352005First
                Quarter
            
            $
            16.50
            
            $
            15.17Second
                Quarter
            
            $
            16.67
            
            $
            15.75Third
                Quarter
            
            $
            17.20
            
            $
            16.00Fourth
                Quarter
            
            $
            17.17
            
            $
            16.33





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.





10
 *Index*





Citizens
      shareholders are entitled to receive dividends when and as declared by its
      Board
      of Directors. Dividends are typically paid quarterly. Aggregate dividends were
      $0.57 per share in 2006 and $0.53 per share in 2005. 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 14 to the accompanying
      consolidated financial statements.





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.





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 SECURITIESPeriod
            
            Total
                Number of sharespurchased
            
            Average
                price paidper share
            
            Total
                Number of shares purchased as part of publicly announced plansor
                programs
            
            Maximum
                Number of shares that may yet be purchased under the plans orprogramsOctober
                1-31, 2006
            
            
            -
            
            $
            -
            
            
            N/A
            
            
            N/ANovember
                1-30, 2006
            
            
            6,688
            
            
            18.50
            
            
            N/A
            
            
            N/ADecember
                1-31, 2006
            
            
            -
            
            
            -
            
            
            N/A
            
            
            N/A







Item
      6. Selected Financial Data





Selected
      financial data for the five years ended December 31, 2006 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)





**2006**
            
            2005
            
            2004
            
            2003
            
            2002**BALANCE
                SHEET DATA:**Total
                assets
            
            **$**
            **242,980**
            
            $
            238,190
            
            $
            213,783
            
            $
            209,129
            
            $
            182,400Securities
            
            
            **59,746**
            
            
            66,854
            
            
            53,874
            
            
            60,077
            
            
            54,219Loans,
                net
            
            
            **166,218**
            
            
            152,136
            
            
            144,587
            
            
            134,311
            
            
            115,187Deposits
            
            
            **196,543**
            
            
            190,486
            
            
            165,301
            
            
            161,549
            
            
            147,741Total
                shareholders' equity
            
            
            **20,278**
            
            
            19,613
            
            
            20,223
            
            
            20,478
            
            
            20,605**SUMMARY
                OF OPERATIONS:**Interest
                income
            
            **$**
            **15,351**
            
            $
            12,976
            
            $
            11,443
            
            $
            11,415
            
            $
            11,519Interest
                expense
            
            
            **5,856**
            
            
            4,056
            
            
            3,073
            
            
            3,193
            
            
            3,972Net
                interest income
            
            
            **9,495**
            
            
            8,920
            
            
            8,370
            
            
            8,222
            
            
            7,547Provision
                for loan losses
            
            
            **423**
            
            
            275
            
            
            935
            
            
            324
            
            
            288Net
                interest income after provision for loan losses
            
            
            **9,072**
            
            
            8,645
            
            
            7,435
            
            
            7,898
            
            
            7,259Noninterest
                income
            
            
            **1,630**
            
            
            1,468
            
            
            1,393
            
            
            1,292
            
            
            1,353Noninterest
                expense
            
            
            **7,659**
            
            
            7,139
            
            
            6,745
            
            
            6,194
            
            
            5,692Income
                before income taxes
            
            
            **3,043**
            
            
            2,974
            
            
            2,083
            
            
            2,996
            
            
            2,920Income
                taxes
            
            
            **956**
            
            
            927
            
            
            427
            
            
            984
            
            
            992Net
                income
            
            **$**
            **2,087**
            
            $
            2,047
            
            $
            1,656
            
            $
            2,012
            
            $
            1,928**PER
                SHARE DATA*:**Net
                income
            
            **$**
            **1.13**
            
            $
            1.10
            
            $
            0.88
            
            $
            1.05
            
            $
            0.99Cash
                dividends
            
            **$**
            **0.57**
            
            $
            0.53
            
            $
            0.52
            
            $
            0.50
            
            $
            0.47




*Restated
      to reflect stock split in the form of a 200% stock dividend declared in March
      2006.





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





11
 *Index*





Distribution
      of Assets, Liabilities & Shareholders' Equity;


Interest
      Rates and Interest Differential





2006
            
            2005
            
            2004Avg
                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 and interest bearing deposits with other banks
            
            $
            1,377
            
            $
            68
            
            
            4.94
            %
            $
            3,807
            
            $
            123
            
            
            3.23
            %
            $
            1,506
            
            $
            18
            
            
            1.19
            %Securities:Taxable
            
            
            53,267
            
            
            2,046
            
            
            3.84
            
            
            51,340
            
            
            1,781
            
            
            3.47
            
            
            45,362
            
            
            1,634
            
            
            3.60Tax-exempt
                (1)
            
            
            8,555
            
            
            459
            
            
            5.37
            
            
            8,825
            
            
            496
            
            
            5.62
            
            
            8,721
            
            
            479
            
            
            5.49Loans
                (net of unearned interest) (1) (2)
            
            
            162,252
            
            
            13,004
            
            
            8.01
            
            
            149,177
            
            
            10,799
            
            
            7.24
            
            
            142,296
            
            
            9,542
            
            
            6.71Total
                interest earning assets (1)
            
            
            225,451
            
            
            15,577
            
            
            6.91
            
            
            213,149
            
            
            13,199
            
            
            6.19
            
            
            197,885
            
            
            11,673
            
            
            5.90Nonearning
                assets:Cash
                and due from banks
            
            
            6,258
            
            
            
            
            
            
            
            
            5,981
            
            
            
            
            
            
            
            
            5,417Bank
                premises and equipment, net
            
            
            4,194
            
            
            
            
            
            
            
            
            4,205
            
            
            
            
            
            
            
            
            4,075Other
                assets
            
            
            5,311
            
            
            
            
            
            
            
            
            4,642
            
            
            
            
            
            
            
            
            5,572Allowance
                for loan losses
            
            
            (1,750
            )
            
            
            
            
            
            
            
            (1,512
            )
            
            
            
            
            
            
            
            (1,293
            )Total
                assets
            
            $
            239,464
            
            
            
            
            
            
            
            $
            226,465
            
            
            
            
            
            
            
            $
            211,656Interest
                Bearing Liabilities:Savings
                deposits
            
            $
            23,608
            
            
            121
            
            
            0.51
            
            $
            26,077
            
            
            130
            
            
            0.50
            
            $
            27,604
            
            
            127
            
            
            0.46Time
                deposits
            
            
            89,731
            
            
            3,566
            
            
            3.97
            
            
            82,768
            
            
            2,583
            
            
            3.12
            
            
            76,565
            
            
            2,134
            
            
            2.79NOW
                accounts
            
            
            44,495
            
            
            1,161
            
            
            2.61
            
            
            37,057
            
            
            613
            
            
            1.65
            
            
            31,306
            
            
            347
            
            
            1.11Money
                market accounts
            
            
            6,538
            
            
            33
            
            
            0.50
            
            
            7,165
            
            
            50
            
            
            0.69
            
            
            7,478
            
            
            38
            
            
            0.50Borrowings
            
            
            26,215
            
            
            975
            
            
            3.72
            
            
            26,933
            
            
            680
            
            
            2.52
            
            
            23,719
            
            
            427
            
            
            1.80Total
                interest bearing liabilities
            
            
            190,587
            
            
            5,856
            
            
            3.07
            
            
            180,000
            
            
            4,056
            
            
            2.25
            
            
            166,672
            
            
            3,073
            
            
            1.84Noninterest
                bearing liabilities:Demand
                deposits
            
            
            26,019
            
            
            
            
            
            
            
            
            24,696
            
            
            
            
            
            
            
            
            22,889Other
                liabilities
            
            
            2,574
            
            
            
            
            
            
            
            
            1,348
            
            
            
            
            
            
            
            
            1,535Shareholders'
                equity
            
            
            20,284
            
            
            
            
            
            
            
            
            20,421
            
            
            
            
            
            
            
            
            20,560Total
                liabilities and shareholder's equity
            
            $
            239,464
            
            
            
            
            
            
            
            $
            226,465
            
            
            
            
            
            
            
            $
            211,656Net
                interest income (1)
            
            
            
            
            $
            9,721
            
            
            
            
            
            
            
            $
            9,143
            
            
            
            
            
            
            
            $
            8,600Net
                interest income to average earning assets (1)
            
            
            
            
            
            
            
            
            4.31
            %
            
            
            
            
            
            
            
            4.29
            %
            
            
            
            
            
            
            
            4.35
            %








(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
 *Index*





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.




2006
                Compared to 2005
            
            2005
                Compared to 2004Increase
            
            (Decrease)
            
            Due
                to
            
            Increase
            
            (Decrease)
            
            Due
                to(in
                thousands of dollars)Volume
            
            Rate
            
            Total
            
            Volume
            
            Rate
            
            TotalInterest
                earned on:Federal
                funds sold and interest bearing deposits with other banks
            
            $
            (102
            )
            $
            48
            
            $
            (54
            )
            $
            50
            
            $
            55
            
            $
            105Taxable
                securities
            
            
            69
            
            
            196
            
            
            265
            
            
            209
            
            
            (65
            )
            
            144Tax-exempt
                securities
            
            
            (15
            )
            
            (22
            )
            
            (37
            )
            
            (43
            )
            
            (8
            )
            
            (51
            )Loans
            
            
            996
            
            
            1,208
            
            
            2,204
            
            
            538
            
            
            790
            
            
            1,328Total
                interest earned
            
            
            948
            
            
            1,430
            
            
            2,378
            
            
            754
            
            
            772
            
            
            1,526Interest
                expense on:Savings
                deposits
            
            
            (12
            )
            
            3
            
            
            (9
            )
            
            (7
            )
            
            10
            
            
            3Time
                deposits
            
            
            232
            
            
            750
            
            
            982
            
            
            183
            
            
            267
            
            
            450NOW
                accounts
            
            
            141
            
            
            407
            
            
            548
            
            
            73
            
            
            193
            
            
            266Money
                market accounts
            
            
            (4
            )
            
            (12
            )
            
            (16
            )
            
            (2
            )
            
            14
            
            
            12Other
                borrowing
            
            
            (19
            )
            
            314
            
            
            295
            
            
            64
            
            
            188
            
            
            252Total
                interest expense
            
            
            338
            
            
            1,462
            
            
            1,800
            
            
            311
            
            
            672
            
            
            983Net
                interest income
            
            $
            610
            
            $
            (32
            )
            $
            578
            
            $
            443
            
            $
            100
            
            $
            543





13
 *Index*





Securities
      Portfolio





Presentation
      of the amortized cost of securities as of December 31, 2006 and 2005 may be
      found in Note 4 to the accompanying consolidated financial
      statements.





The
      following table sets forth the maturities of securities as of December 31,
      2006
      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
                OneYear
            
            After
                One butWithin
                Five Years
            
            After
                Five butWithin
                Ten Years
            
            After
                TenYears
            
            TotalAmount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield(in
                thousands of dollars)U.S.
                Treasury and other U.S. government agencies and
                corporations
            
            $
            18,141
            
            
            3.32
            %
            $
            32,154
            
            
            4.41
            %
            $
            -
            
            
            -
            %
            $
            -
            
            
            -
            %
            $
            50,295
            
            
            4.02
            %State
                and political subdivisions (1)
            
            
            1,537
            
            
            4.82
            
            
            6,701
            
            
            5.17
            
            
            945
            
            
            5.27
            
            
            -
            
            
            -
            
            
            9,183
            
            
            5.12Other
                securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            878
            
            
            3.37
            
            
            878
            
            
            3.37Total
            
            $
            19,678
            
            
            3.44
            %
            $
            38,855
            
            
            4.54
            %
            $
            945
            
            
            5.27
            %
            $
            878
            
            
            3.37
            
            $
            60,356
            
            
            4.18
            %





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.





14
 *Index*





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
                312006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands of dollars)Commercial,
                financial and agricultural
            
            $
            26,969
            
            $
            26,589
            
            $
            23,831
            
            $
            25,417
            
            $
            20,819Real
                estate-construction
            
            
            13,964
            
            
            10,559
            
            
            8,759
            
            
            5,963
            
            
            2,689Real
                estate-mortgage
            
            
            114,966
            
            
            104,868
            
            
            101,083
            
            
            89,111
            
            
            77,937Installment
                loans
            
            
            10,635
            
            
            9,726
            
            
            10,734
            
            
            12,396
            
            
            13,657Other
            
            
            1,611
            
            
            2,051
            
            
            1,636
            
            
            2,868
            
            
            1,566Total
                loans
            
            $
            168,145
            
            $
            153,793
            
            $
            146,043
            
            $
            135,755
            
            $
            116,668





Loan
      Maturities and Interest Rate Sensitivity





Note
      5 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,
      2006. 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
                312006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands of dollars)Nonaccrual
                loans
            
            $
            2,208
            
            $
            58
            
            
            -
            
            $
            16
            
            $
            14Loans
                past due 90 days or more still accruing interest
            
            
            -
            
            
            538
            
            
            559
            
            
            352
            
            
            57Troubled
                debt restructurings
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            2,208
            
            $
            596
            
            $
            559
            
            $
            368
            
            $
            71





Potential
      Problem Loans





As
      stated
      in Note 6 to the accompanying consolidated financial statements, impaired loans
      totaled $5,147,663 and $3,650,075 at December 31, 2006 and 2005. These loans
      were classified as impaired due to doubts about the borrower’s ability to repay
      as called for in the loan documents. Additional information regarding these
      loans may also be found in Note 6.





Loan
      Concentrations





Information
      concerning loan concentrations is provided in Note 5 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
                312006
            
            2005
            
            2004
            
            2003
            
            2002(in
                thousands of dollars)Balance,
                beginning of year
            
            $
            1,597
            
            $
            1,378
            
            $
            1,396
            
            $
            1,386
            
            $
            1,398Charge
                offs:Commercial,
                financial and agricultural
            
            
            123
            
            
            -
            
            
            1,031
            
            
            129
            
            
            134Real
                estate-mortgage
            
            
            -
            
            
            -
            
            
            36
            
            
            24
            
            
            56Installment
            
            
            39
            
            
            90
            
            
            98
            
            
            190
            
            
            138Total
            
            
            162
            
            
            90
            
            
            1,165
            
            
            343
            
            
            328Recoveries:Commercial,
                financial and agricultural
            
            
            4
            
            
            5
            
            
            192
            
            
            21
            
            
            3Real
                estate-mortgage
            
            
            -
            
            
            1
            
            
            -
            
            
            -
            
            
            1Installment
            
            
            11
            
            
            28
            
            
            20
            
            
            8
            
            
            24Total
            
            
            15
            
            
            34
            
            
            212
            
            
            29
            
            
            28Net
                charge offs
            
            
            147
            
            
            56
            
            
            953
            
            
            314
            
            
            300Provisions
                for loan losses
            
            
            423
            
            
            275
            
            
            935
            
            
            324
            
            
            288Balance,
                end of year
            
            $
            1,873
            
            $
            1,597
            
            $
            1,378
            
            $
            1,396
            
            $
            1,386




15
 *Index*





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 0.09% in 2006, 0.04% in 2005
      and
      0.67% in 2004.





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 LossesDecember
                31,2006
            
            2005
            
            2004
            
            2003
            
            2002Commercial,
                financial and agricultural
            
            $
            1,077
            
            $
            901
            
            $
            717
            
            $
            810
            
            $
            918Real
                estate-construction
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17Real
                estate-mortgage
            
            
            589
            
            
            320
            
            
            282
            
            
            103
            
            
            164Installment
                and other
            
            
            65
            
            
            151
            
            
            173
            
            
            185
            
            
            103Unallocated
            
            
            142
            
            
            225
            
            
            206
            
            
            298
            
            
            184Total
            
            $
            1,873
            
            $
            1,597
            
            $
            1,378
            
            $
            1,396
            
            $
            1,386





Percent
                of Loans in Each Category to Total LoansDecember
                31,2006
            
            2005
            
            2004
            
            2003
            
            2002Commercial,
                financial and agricultural
            
            
            16
            %
            
            17
            %
            
            16
            %
            
            19
            %
            
            18
            %Real
                estate-construction
            
            
            8
            
            
            7
            
            
            6
            
            
            4
            
            
            2Real
                estate-mortgage
            
            
            68
            
            
            68
            
            
            69
            
            
            66
            
            
            67Installment
                and other
            
            
            8
            
            
            8
            
            
            9
            
            
            11
            
            
            13Total
            
            
            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, 2006, 2005 and 2004 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, 2006 may be found
      in
      Note 8 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 312006
            
            2005
            
            2004Return
                on average assets
            
            
            0.87
            %
            
            .90
            %
            
            .78
            %Return
                on average equity
            
            
            10.29
            
            
            10.02
            
            
            8.06Dividend
                payout ratio
            
            
            50.24
            
            
            48.49
            
            
            58.94Average
                equity to assets ratio
            
            
            8.47
            
            
            9.02
            
            
            9.71




16
 *Index*





Short-term
      Borrowing




Information
      concerning the company's short-term borrowings is presented in Note 12 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, 2006:





Payments
                Due By Period(in
                thousands of dollars)Total
            
            Less
                than
              1
                year
            
            1
                -
                3
              years
            
            3
                -5
              years
            
            More
                than
              5
                yearsContractual
                obligationsLong-term
                debt
            
            $
            3,512
            
            $
            793
            
            $
            769
            
            $
            841
            
            $
            1,109Capital
                leases
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Operating
                leases
            
            
            139
            
            
            43
            
            
            66
            
            
            30
            
            
            -Purchase
                obligations
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                long-term Liabilities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            3,651
            
            $
            836
            
            $
            835
            
            $
            871
            
            $
            1,109





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 $243 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
 *Index*





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
      2006 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
      experienced a year of controlled growth in 2006 with assets rising by
      approximately $4,791,000 to $242,980,000. This reflects better than expected
      deposit levels where we had expected certain balances to decrease but instead
      retained key relationships leading to an overall increase in total deposits
      of
      $6,058,000. This, together with the liquidation of $7,109,000 of securities,
      allowed us to satisfy demand for residential mortgage and commercial real estate
      loan projects. In total, our gross loan portfolio grew by $14,352,000, or 9.3%,
      to $168,145,000 which is consistent with our expectations.





Income
      for the year was $2,087,000, up $40,000 or 1.9% from 2005. This was
      significantly less than anticipated due to a number of nonrecurring items which
      will be detailed later in this report. As a result, our return on average assets
      of .87% was similar to last year’s .90%. Absent the nonrecurring expenses,
      income would have approximated $2,404,000 resulting in a return on average
      assets of 1.00%.





Per
      share
      earnings increased by $.03 to $1.13 while our strong capital position allowed
      us
      to increase the dividend from $.53 to $.57 per share, our fifteenth straight
      year of dividend increases. Each of these per share measures reflects a
      restatement of our 2005 data in order to recognize the effect of a stock split
      in the form of a 200% stock dividend which was declared by the board of
      directors in March and subsequently distributed to shareholders in April, 2006.
      A more detailed discussion of the factors impacting our results of operations
      and financial condition follows. Amounts and percentages used in that
      discussion, as well as in this overview, 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.





Net
      interest income improved in 2006 rising $575,000 to $9,495,000. On a tax
      equivalent basis the net interest income increased to $9,721,000 while our
      net
      interest margin of 4.31% is up slightly from 4.29% last year.





On
      a tax
      equivalent basis interest income rose $2,378,000 to $15,577,000. This reflects
      both higher yields and an increase in our earning asset base, especially with
      respect to loans. The effective yield on our loans increased 77 basis points
      to
      8.01% while our average loan volume was up $13.1 million to $162.3 million.
      These two factors directly produced a tax equivalent increase in interest income
      of $2,204,000. Overall, our yield on earning assets increased 72 basis points
      to
      6.91% while our earning asset base of $225,451,000 was up $12.3
      million.





18
 *Index*





Interest
      expense, the other component of net interest income, was also up in 2006 rising
      $1,800,000 to $5,856,000. Higher rates on CDs, interest bearing checking
      accounts and borrowed funds caused interest expense to increase $1,462,000.
      Higher volumes of interest bearing liabilities were a less significant factor
      as
      they caused a $338,000 increase in expense. Taken as a whole our interest
      bearing liabilities rose $10,587,000 to $190,587,000. The cost of these
      liabilities also went up, rising 82 basis points to 3.07%.





By
      contrast, in 2005 tax-equivalent net interest income increased just $543,000
      with interest income rising $1,526,000 but interest expense also rising
      $983,000. The improvement in interest income was nearly equally the result
      of a
      $15.3 million increase in the earning asset base and a 29 basis point
      improvement in yield. The higher interest expense was primarily due to a 41
      basis point increase in cost.





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 $423,000 in 2006 compared
      to
      $275,000 in 2005 and $935,000 in 2004. The increase in 2006, reflects higher
      levels of credit risk as indicated by several risk measurements and as explained
      later in this report. The high level of charge-offs in 2004 is the result of
      higher net charge-offs primarily arising from the failure of a commercial loan
      customer.





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 as these are critical factors
      in
      the determination of our provision for loan losses.





Noninterest
      Income





Noninterest
      income, which includes all revenues other than interest and fees on earning
      assets, is an important factor in our overall profitability. Total noninterest
      income in 2006 of $1,630,000 compares to $1,468,000 in 2005 and $1,393,000
      in
      2004. Annual increases were $162,000 in 2006 and $75,000 in 2005.





This
      positive trend is the result of several factors, most notably rising levels
      of
      service fees and brokerage fees. Service fees are the largest single component
      of noninterest income and increased $80,000 in 2006 due to higher overdraft
      fees
      and rising ATM fees from an expansion of our ATM network. In 2005 service fees
      rose by $71,000 resulting mainly from the same two factors. Brokerage fees
      increased by $38,000 in 2006 and $29,000 in 2005. Prior to 2005 we had
      difficulty keeping a licensed professional broker on staff. However, since
      September 2004 we have benefited from the consistent service of the same broker
      and have established a successful brokerage effort.




Other
      noninterest income was also a major factor in 2006’s improvement increasing by
      $55,000 to $326,000 largely due to a $32,000 gain on the sale of real estate.
      Trust income, insurance commissions and secondary market loan fees did not
      change significantly in 2006.





We
      did
      recognize losses on the sale of securities approximating $18,000 in 2006. These
      losses were recovered prior to year-end by reinvesting in higher yielding
      securities. No security gains or losses were recognized in 2005 while gains
      of
      $23,000 were recorded in 2004.





We
      plan
      to perform a review of our noninterest income in 2007 to identify areas which
      might produce increased revenue. It is our belief that we may be able to improve
      performance in several areas and that our diverse services, such as trust,
      brokerage and secondary market mortgages, provide us with a competitive
      advantage in several of our markets.




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. It has also been increasing
      annually and is clearly a detriment to earnings.





Despite
      efforts to control noninterest expense in 2006, a number of nonrecurring and
      strategic expenses presented themselves during the year causing yet another
      large increase of $520,000 bringing total annual noninterest expense to
      $7,659,000. Absent these items noninterest expense would have approximated
      $7,208,000, an increase of just $69,000 from 2005. Foremost among these
      nonrecurring items are legal and professional fees of $125,000, expenses related
      to foreclosed properties of $204,000, data processing conversion charges of
      $43,000, and $40,000 incurred to recruit new members of our management team.
      Despite the data processing costs cited above, total data processing costs
      for
      the year decreased by $75,000 as we have switched to a new third party core
      processor.





19
 *Index*





Personnel
      costs, which are the largest component of noninterest expense, increased by
      $203,000, or 5.4%, to $3,926,000 in 2006. Included in this is salary expense
      of
      $2,756,000, up $90,000 due to the hiring of a new chief credit officer, credit
      analyst, and branch coordinator. We believe these three individuals are key
      to
      our future success and ongoing workflow realignment will help offset the
      increased cost. Pension costs, as determined under applicable accounting
      standards, increased by $70,000 in 2006 to $133,000.





Other
      noninterest expense, which totaled $1,246,000 for the year, actually increased
      more than any other item within noninterest expense rising $279,000 or 28.9%.
      Of
      this increase, $195,000 was related to the upkeep and disposition of foreclosed
      properties. Also found here are $40,000 of recruitment costs noted earlier
      and
      $25,000 paid to settle legal claims





Professional
      service fees saw a dramatic increase of $104,000, or 42.2%, to $350,000 in
      2006
      due to the outsourcing of our loan review function and the retention of other
      professionals to assist with our data processing conversion and to implement
      organizational and workflow changes. This follows 2005 when professional
      services increased $86,000 partly due to the outsourcing of our internal audit
      function. Professional fees are expected to be high again in 2007 as we continue
      to outsource internal audit and loan review and become subject to additional
      requirements under the Sarbanes-Oxley Act. Among the other components of
      noninterest expense, data processing dropped by $75,000 as previously noted,
      and
      equipment expense fell $45,000 due to lower depreciation. Net occupancy expense
      increased $51,000 reflecting a loss of rental income. We do not foresee
      regaining this income in 2007. The remaining items such as director fees,
      postage, stationery and software expense all changed by lesser
      amounts.





Noninterest
      expenses also increased in 2005, rising $394,000 to $7,139,000. In addition
      to
      the increase in professional fees noted previously, benefit costs, occupancy
      expenses such as utilities, repairs and property insurance, and the cost to
      purchase and maintain software programs all contributed to the
      increase.




Income
      Taxes





Our
      provision for income taxes includes both federal and state income taxes. Total
      taxes were $956,000 in 2006, $927,000 in 2005, and $427,000 in 2004. 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 10 of the
      accompanying consolidated financial statements provides additional information
      concerning our income tax expense.





Financial
      Condition





Loan
      Portfolio





We
      attempt to satisfy loan demand within our market by offering a variety of
      consumer, home mortgage, and commercial loans. The majority of our loans are
      made to borrowers within our market area although the economic limits of those
      markets cause us to seek out-of-area loans on occasion. These loans are made
      though a group of community banks similar to ourselves. These out-of-area loans
      comprise just 4.6% of our $168,145,000 loan portfolio and our primary focus
      will
      remain on lending opportunities within our markets.




Our
      loan
      portfolio experienced growth of $14,352,000 in 2006. As has been the case in
      recent years, we continued to experience growth in our commercial real estate
      portfolio which increased $4.6 million to $45,579,000 in 2006. These loans
      are
      made to various commercial customers, including those operating at or near
      local
      ski resorts, and usually carry variable rates tied to prime. When combined
      with
      our commercial loan portfolio of $26,969,000, our total loans for commercial
      purposes are $72,548,000 making commercial lending our largest group of
      loans.





Residential
      mortgage lending, which was our largest portfolio until recent years, remains
      a
      very important part of our lending activity. In 2006 we actively sought to
      increase the size of this portfolio as a way to diversify our loans and to
      develop more complete relationships with consumers. To do this we offered
      several fixed rate mortgage products in addition to our typical adjustable
      rate
      mortgages. This effort was successful in increasing the residential mortgage
      portfolio by $6,274,000 to $61,401,000. This was the largest increase among
      any
      of our loan portfolios in 2006.





20
 *Index*





We
      similarly sought to increase our consumer loan portfolio. After several years
      of
      decreasing balances due to attractive financing terms offered by auto
      manufacturers, we successfully increased the portfolio by $909,000 by focusing
      on used auto loans and improving relationships with local dealers. When
      possible, we will continue our efforts to increase our consumer and residential
      mortgage portfolios in 2007.





Among
      our
      other portfolios, construction lending increased as expected while home equity
      lending experienced a slight drop.





Credit
      Quality and Allowance for Loan Losses





The
      nature of the lending process exposes all banks to some level of credit risk.
      Managing that risk to promote a safe and sound institution is a key banking
      objective.





During
      2006 several of our credit risk measures increased. Past due loans at year-end
      of $5,347,000 were up $105,000 from the end of 2005 while loans more than 90
      days past due increased by $490,000 to $1,086,000. Similarly, nonaccrual loans
      increased by $2,150,000 to $2,208,000 while impaired loans of $5,148,000 were
      up
      from $3,650,000. While these data do point to an increase in credit risk, a
      portion of the increases may be attributed to improved monitoring and
      recognition procedures as noted later in this discussion. In most cases we
      are
      well secured which helps limit our risk of loss and in 2006 actual net charge
      offs of $147,000 were within historical norms. We believe we are well equipped
      to manage and resolve the risks in our portfolio and have assigned the
      management of our most crucial credits to one of our senior lenders. We expect
      a
      positive resolution to a number of these situations in the near
      future.





By
      assigning our most crucial credits to one of our senior lenders we have
      developed strategies to manage them. We have also taken a number of other steps
      to improve our credit risk management capabilities. Among them are adopting
      a
      new loan policy and credit grading system, installing improved systems to track
      loan exceptions and requiring loan officers to be more involved in collection
      efforts. In addition to this we retained an experienced chief credit officer
      and
      credit analyst capable of dealing with the more complex commercial credits
      we
      are becoming involved in. We are convinced these improvements have already
      made
      us a better bank.





All
      of
      these steps help us manage the risk in our loan portfolio. The inherent risk
      of
      loss which the portfolio contains is addressed through the allowance for loan
      losses. We
      maintain our allowance for loan losses at a level we consider adequate to
      provide for losses that we believe are 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, 2006, our allowance for loan losses was $1,873,000, or 1.12% of
      gross loans compared to $1,597,000 at year-end 2005 or 1.04% of gross loans.
      Within our analysis we specifically analyzed more than $17.5 million of loans
      finding that $4,892,000 required the establishment of specific reserves. The
      amount of those reserves was $990,000. Estimated losses on our smaller pools
      of
      loans totaled $354,000. Further adjustments to the allowance of $529,000 were
      made after analyzing the economic factors cited in the previous
      paragraph.





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.





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. However, at year-end we held no corporate securities. 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.





Although
      our securities portfolio decreased by $7,109,000 to $59,746,000 in 2006, it
      remains a major part of our asset base. The reduction in the securities
      portfolio was necessary to fund loan growth. However, more securities were
      purchased later in the year as loan demand weakened some. With those purchases
      we sought to lock in current yields and extend our maturity ladder as a means
      of
      protecting ourselves against the negative impact falling interest rates could
      have. Current indications are that rates may remain stable for some time,
      nonetheless, our strategy seems to have been prudent as falling rates still
      appear more likely than rising rates. At year-end the weighted average life
      of
      the portfolio was still short at 1.93 years while the weighted average yield
      was
      4.05%. We expect to extend the life of the portfolio and increase the yield
      by
      altering our security mix as opportunities allow in 2007.





21
 *Index*





Because
      our securities portfolio is classified as available for sale it is carried
      at
      fair value. Unrealized losses that are temporary in nature are recognized as
      an
      adjustment to equity. Losses determined to be other than temporary are
      recognized in income. With interest rates stabilizing in 2006 the amount of
      net
      unrealized losses fell to $611,000. Because rates have stabilized the majority
      of our unrealized losses have been carried for more than twelve months as shown
      in Note 4. With the exception of one local municipal obligation, all of the
      issuers 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 full recovery of our investment, we do not consider these
      investments to be other than temporarily impaired at December 31,
      2006.





Our
      short-term investments include federal funds sold and an interest bearing demand
      account with the Federal Home Loan Bank of Pittsburgh. These accounts are used
      for overnight investing in cases when excess liquidity exists. We attempt to
      limit the amount of these excess funds by staying fully invested in loans or
      securities. For 2006 our average balance in overnight funds was $1,377,000
      and
      produced a yield of 4.99%.





Deposits
      and Other Funding Sources





Total
      deposits increased $6,058,000 to $196,543,000 in 2006. Included in this is
      approximately $4.3 million which was transferred from short-term borrowings.
      We
      also benefited as approximately $8 million of deposits which we expected to
      be
      short-term in nature were retained in the deposit base.





Noninterest
      bearing deposits totaled $27,103,000 at year-end, down from $28,468,000 at
      the
      end of 2005. The 2005 data, however, was higher than typical at that time.
      When
      that is factored in, we can conclude our noninterest bearing deposits were
      quite
      stable in 2006.




We
      experienced a significant amount of rate competition during the rising interest
      rate cycle which ended in June and, since that time, a number of our competitors
      have continued to price aggressively. Still, our interest bearing deposits
      increased by $7,602,000 in 2006 to $169,440,000. Growth totaled $3,302,000
      after
      adjusting for the transfer from short-term borrowings.




This
      growth was centered in certificates of deposit where we, like many others,
      utilized selective pricing to gain market share. Total CDs increased $14,110,000
      to $98,947,000. Other types of interest bearing deposits, such as savings and
      interest bearing checking, decreased in 2006 as customers sought higher yields.
      With interest rates expected to remain generally steady in 2007, these trends
      may continue.





We
      have
      utilized short-term borrowings in the form of repurchase agreements to fund
      operations for a number of years. These agreements typically involve local
      governmental units such as school districts or area businesses seeking higher
      yields. They are usually put out for bid annually and local banks compete
      aggressively for them. We feel that we maintain a competitive advantage by
      meeting the operational requirements that the agreements frequently contain;
      nonetheless, risk of losing these funds does exist. At year-end repurchase
      agreements were $15,970,000.





In
      the
      event this funding source were to be reduced we have several other funding
      options including a line of credit with the Federal Home Loan Bank of Pittsburgh
      and federal funds purchased through our other correspondent banks. Borrowings
      of
      this nature totaled $3,863,000 at year-end and averaged $2,768,000 during the
      year. As a member of the FHLB we have access to a variety of other funding
      products as well. For example, on occasion we match fund certain loans with
      FHLB
      products. Although we did not acquire any such long-term match funding in 2006,
      we do have long-term FHLB borrowings in the amount of $3,512,000. Our total
      borrowing capacity with the FHLB exceeds $105 million. Generally, however,
      we
      expect to continue to fund our activities through internal sources.





Capital
      Resources





Our
      total
      capital of $20.3 million, or 8.3% of assets increased $665,000 in 2006. We
      believe this level of capital, as well as our capital structure, is adequate
      to
      support current and anticipated future operations. A complete analysis of our
      capital accounts is provided in the accompanying Statement of Changes in
      Shareholders’ Equity.





Banks
      and
      bank holding companies are subject to several risk weighted capital measures.
      As
      detailed in Note 14, 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.





22
 *Index*





More
      than
      the amount or adequacy of our capital, the structure of our capital base changed
      in 2006. In April, shareholders received a stock split in the form of a 200%
      stock dividend. Shareholders also approved an increase in the number of
      authorized shares from 2,250,000 to 4,500,000 to accommodate future
      growth.





Trading
      activity in the stock continues to be light with 128,900 shares trading in
      2006,
      including 24,460 treasury shares. The price per share, which was $19.50 at
      year-end, is certainly more affordable than the pre-split levels which
      approximated $54.00. The stock continues to trade on the over the counter market
      under the symbol CIWV.OB.





Off-Balance-Sheet
      Obligations





A
      discussion of our involvement in off-balance-sheet obligations is presented
      in
      Note 13 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. As noted previously, we have access to approximately $105,000,000
      through various FHLB programs. 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 has generally been low during the time
      covered by these financial statements, the impact of inflation on our earnings
      has not been significant. Although inflation could become a more significant
      factor, current Federal Reserve policy and economic conditions do not appear
      to
      indicate that it will be in the foreseeable future.





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.





23
 *Index*





We
      monitor our gap on a monthly basis. As of December 31, 2006, our one year gap
      was 1.05% 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
                Change in Net Interest Income+100
            
            -0.91%-100
            
            -2.04%+200
            
            -0.93%-200
            
            -1.79%+300
            
            -1.02%-300
            
            -0.16%





These
      tests indicate our net interest income may fall whether rates increase or
      decrease. Based on current rate predictions in the marketplace, we expect that
      rates will remain stable for the next six months and then begin a gradual
      decline. 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.
      Therefore, in a falling rate environment we may not be able to lower deposit
      rates as quickly as our loan rates, and as a result the impact may be greater
      than would normally be expected.





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.





24
 *Index*





**Item
      8. Financial Statements and Supplementary
      Data**





**CITIZENS
      FINANCIAL CORP.**


**AND
      SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**


**December
      31, 2006 and 2005**




**ASSETS**
            
            **2006**
            
            **2005**Cash
                and due from banks
            
            $
            6,064,890
            
            $
            6,770,128Interest
                bearing deposits with other banks
            
            
            29,858
            
            
            102,608Federal
                funds sold
            
            
            -
            
            
            1,900,000Securities
                available for sale, at fair value
            
            
            59,745,539
            
            
            66,854,339Loans,
                less allowance for loan losses of $1,873,038 and $1,597,006, respectively
            
            
            166,217,889
            
            
            152,136,327Bank
                premises and equipment, net
            
            
            4,331,313
            
            
            4,192,060Accrued
                interest receivable
            
            
            1,393,468
            
            
            1,321,120Other
                assets
            
            
            5,197,515
            
            
            4,913,386**Total
                assets**
            
            $
            242,980,472
            
            $
            238,189,968**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Liabilities**Deposits:Noninterest
                bearing
            
            $
            27,103,487
            
            $
            28,647,792Interest
                bearing
            
            
            169,439,728
            
            
            161,837,937Total
                deposits
            
            
            196,543,215
            
            
            190,485,729Short-term
                borrowings
            
            
            19,833,434
            
            
            20,511,399Long-term
                borrowings
            
            
            3,511,770
            
            
            5,145,328Other
                liabilities
            
            
            2,814,034
            
            
            2,434,207**Total
                liabilities**
            
            
            222,702,453
            
            
            218,576,663**Commitments
                and contingencies****Shareholders'
                equity**Common
                stock, $2.00 par value, authorized 4,500,000 and 2,250,000 shares,issued
                2,250,000 and 750,000 shares, respectively
            
            
            4,500,000
            
            
            1,500,000Additional
                paid-in capital
            
            
            -
            
            
            2,100,000Retained
                earnings
            
            
            20,842,981
            
            
            20,704,572Accumulated
                other comprehensive income/(loss)
            
            
            (1,233,399
            )
            
            (1,315,875
            )Treasury
                stock at cost, 420,496 and 132,012 shares, respectively
            
            
            (3,831,563
            )
            
            (3,375,392
            )**Total
                shareholders' equity**
            
            
            20,278,019
            
            
            19,613,305**Total
                liabilities and shareholders' equity**
            
            $
            242,980,472
            
            $
            238,189,968





**See
      Notes to Consolidated Financial Statements**





25
 *Index*





**CITIZENS
      FINANCIAL CORP.**


**AND
      SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF INCOME**


**For
      The Years Ended December 31, 2006, 2005 and 2004**





**2006**
            
            **2005**
            
            **2004****Interest
                and dividend income**Interest
                and fees on loans
            
            $
            12,933,850
            
            $
            10,744,643
            
            $
            9,427,403Interest
                and dividends on securities:Taxable
            
            
            2,045,639
            
            
            1,780,716
            
            
            1,636,570Tax-exempt
            
            
            303,154
            
            
            327,325
            
            
            361,190Interest
                on interest bearing deposits with other banks
            
            
            48,150
            
            
            59,679
            
            
            -Interest
                on federal funds sold
            
            
            20,514
            
            
            63,493
            
            
            17,914**Total
                interest and dividend income**
            
            
            15,351,307
            
            
            12,975,856
            
            
            11,443,077**Interest
                expense**Interest
                on deposits
            
            
            4,881,518
            
            
            3,376,537
            
            
            2,645,847Interest
                on short-term borrowings
            
            
            801,402
            
            
            501,698
            
            
            307,654Interest
                on long-term borrowings
            
            
            173,397
            
            
            178,078
            
            
            119,649**Total
                interest expense**
            
            
            5,856,317
            
            
            4,056,313
            
            
            3,073,150**Net
                interest income**
            
            
            9,494,990
            
            
            8,919,543
            
            
            8,369,927Provision
                for loan losses
            
            
            423,385
            
            
            274,667
            
            
            934,899**Net
                interest income after provision for loan losses**
            
            
            9,071,605
            
            
            8,644,876
            
            
            7,435,028**Noninterest
                income**Trust
                income
            
            
            207,178
            
            
            201,402
            
            
            194,593Service
                fees
            
            
            851,526
            
            
            771,831
            
            
            700,732Insurance
                commissions
            
            
            37,069
            
            
            42,810
            
            
            41,155Securities
                gains/(losses), net
            
            
            (17,694
            )
            
            -
            
            
            23,185Brokerage
                fees
            
            
            117,207
            
            
            79,117
            
            
            50,034Secondary
                market loan fees
            
            
            108,382
            
            
            101,523
            
            
            62,691Other
            
            
            326,338
            
            
            271,639
            
            
            320,818**Total
                noninterest income**
            
            
            1,630,006
            
            
            1,468,322
            
            
            1,393,208**Noninterest
                expense**Salaries
                and employee benefits
            
            
            3,925,985
            
            
            3,723,480
            
            
            3,591,142Net
                occupancy expense
            
            
            383,900
            
            
            332,748
            
            
            265,313Equipment
                expense
            
            
            439,193
            
            
            484,001
            
            
            480,443Data
                processing
            
            
            524,304
            
            
            598,824
            
            
            559,238Director
                fees
            
            
            272,880
            
            
            252,483
            
            
            220,861Postage
                expense
            
            
            182,136
            
            
            170,653
            
            
            166,589Professional
                service fees
            
            
            349,574
            
            
            245,714
            
            
            159,251Stationery
            
            
            152,549
            
            
            155,923
            
            
            162,858Software
                expense
            
            
            182,608
            
            
            208,231
            
            
            174,774Other
            
            
            1,245,945
            
            
            966,597
            
            
            964,490**Total
                noninterest expense**
            
            
            7,659,074
            
            
            7,138,654
            
            
            6,744,959**Income
                before income taxes**
            
            
            3,042,537
            
            
            2,974,544
            
            
            2,083,277Income
                tax expense
            
            
            955,646
            
            
            927,358
            
            
            426,938**Net
                income**
            
            $
            2,086,891
            
            $
            2,047,186
            
            $
            1,656,339**Basic
                and fully diluted earnings per common share***
            
            $
            1.13
            
            $
            1.10
            
            $
            0.88**Basic
                and fully diluted average common shares
                outstanding***
            
            
            1,842,662
            
            
            1,864,215
            
            
            1,886,631





***Restated
      to reflect stock split in the form of a 200% stock dividend declared in March
      2006.**





**See
      Notes to Consolidated Financial Statements**





26
 *Index*





**CITIZENS
      FINANCIAL CORP.**


**AND
      SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME**


**For
      The Years Ended December 31, 2006, 2005 and 2004**





**2006**
            
            **2005**
            
            **2004****Net
                Income**
            
            $
            2,086,891
            
            $
            2,047,186
            
            $
            1,656,339Other
                comprehensive income/(loss):Gross
                unrealized gains/(losses) arising during the period
            
            
            338,294
            
            
            (1,060,150
            )
            
            (972,022
            )Adjustment
                for income tax (benefit)/expense
            
            
            (128,552
            )
            
            402,857
            
            
            369,368209,742
            
            
            (657,293
            )
            
            (602,654
            )Reclassification
                adjustment for (gains)/losses included in net income
            
            
            17,694
            
            
            -
            
            
            (23,185
            )Adjustment
                for income tax (benefit)/expense
            
            
            (6,724
            )
            
            -
            
            
            8,81010,970
            
            
            -
            
            
            (14,375
            )Increase
                in minimum pension liability
            
            
            -
            
            
            (1,155,756
            )
            
            -Adjustment
                for income tax benefit
            
            
            -
            
            
            439,187
            
            
            --
            
            
            (716,569
            )
            
            -Adjustment
                to apply statement of financial accounting standard no. 158 to the
                employee pension and other postretirement benefits
            
            
            (222,964
            )
            
            -
            
            
            -Adjustment
                for income tax benefit
            
            
            84,728
            
            
            -
            
            
            -(138,236
            )
            
            -
            
            
            -Other
                comprehensive income/(loss), net of tax
            
            
            82,476
            
            
            (1,373,862
            )
            
            (617,029
            )**Comprehensive
                Income**
            
            $
            2,169,367
            
            $
            673,324
            
            $
            1,039,310





**See
      Notes to Consolidated Financial Statements**





27
 *Index*





**CITIZENS
      FINANCIAL CORP.**


**AND
      SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY**


**For
      the Years Ended December 31, 2006, 2005 and 2004**





**Accumulated****Other**
            
            
            
            **Total****Additional**
            
            
            
            **Compre-**
            
            
            
            **Share-****Common
                Stock**
            
            **Paid-In**
            
            **Retained**
            
            **hensive**
            
            **Treasury**
            
            **holders’****Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Income/(Loss)**
            
            **Stock**
            
            **Equity****Balance,
                December 31, 2003**
            
            
            750,000
            
            $
            1,500,000
            
            $
            2,100,000
            
            $
            18,965,862
            
            $
            675,016
            
            $
            (2,762,464
            )
            $
            20,478,414Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            1,656,339
            
            
            -
            
            
            -
            
            
            1,656,339Cost
                of 7,465 shares acquired as treasury stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (322,854
            )
            
            (322,854
            )Cash
                dividends declared ($0.52 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (972,089
            )
            
            -
            
            
            -
            
            
            (972,089
            )Net
                change other comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (617,029
            )
            
            -
            
            
            (617,029
            )**Balance,
                December 31, 2004**
            
            
            750,000
            
            
            1,500,000
            
            
            2,100,000
            
            
            19,650,112
            
            
            57,987
            
            
            (3,085,318
            )
            
            20,222,781Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            2,047,186
            
            
            -
            
            
            -
            
            
            2,047,186Cost
                of 5,925 shares acquired as treasury stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (290,074
            )
            
            (290,074
            )Cash
                dividends declared ($0.53 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (992,726
            )
            
            -
            
            
            -
            
            
            (992,726
            )Net
                change other comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,373,862
            )
            
            -
            
            
            (1,373,862
            )**Balance,
                December 31, 2005**
            
            
            750,000
            
            
            1,500,000
            
            
            2,100,000
            
            
            20,704,572
            
            
            (1,315,875
            )
            
            (3,375,392
            )
            
            19,613,305Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            2,086,891
            
            
            -
            
            
            -
            
            
            2,086,891Cost
                of 24,460 shares acquired as treasury stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (456,171
            )
            
            (456,171
            )Cash
                dividends declared ($0.57 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,048,482
            )
            
            -
            
            
            -
            
            
            (1,048,482
            )Net
                change other comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            82,476
            
            
            -
            
            
            82,476Stock
                split effected in the form of a 200% stock dividend
            
            
            1,500,000
            
            
            3,000,000
            
            
            (2,100,000
            )
            
            (900,000
            )
            
            -
            
            
            -
            
            
            -**Balance,
                December 31, 2006**
            
            
            2,250,000
            
            $
            4,500,000
            
            $
            -
            
            $
            20,842,981
            
            $
            (1,233,399
            )
            $
            (3,831,563
            )
            $
            20,278,019





**See
      Notes to Consolidated Financial Statements**





28
 *Index*





**CITIZENS
      FINANCIAL CORP.**


**AND
      SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
      the Years Ended December 31, 2006, 2005 and 2004**





**2006**
            
            **2005**
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            2,086,891
            
            $
            2,047,186
            
            $
            1,656,339Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            351,942
            
            
            414,395
            
            
            417,728Provision
                for loan losses
            
            
            423,385
            
            
            274,667
            
            
            934,899Deferred
                income tax expense
            
            
            (122,232
            )
            
            (202,424
            )
            
            66,829Amortization
                of security premiums, net of accretion of security
                discounts
            
            
            68,272
            
            
            196,484
            
            
            281,443Securities
                (gains)/losses, net
            
            
            17,694
            
            
            -
            
            
            (23,185
            )Gain
                on sale of bank premises
            
            
            (31,877
            )
            
            -
            
            
            -(Gain)/loss
                on sale of equipment and other assets
            
            
            80,184
            
            
            (16,787
            )
            
            (24,053
            )Increase
                in accrued interest receivable
            
            
            (72,348
            )
            
            (202,621
            )
            
            (22,013
            )Increase
                in other assets
            
            
            (3,187
            )
            
            (257,428
            )
            
            (473,268
            )Increase
                in other liabilities
            
            
            156,863
            
            
            874,896
            
            
            349,015**Net
                cash provided by operating activities**
            
            
            2,955,587
            
            
            3,128,368
            
            
            3,163,734**CASH
                FLOWS FROM INVESTING ACTIVITIES**Proceeds
                from sales of securities available for sale
            
            
            3,800,409
            
            
            522,200
            
            
            2,382,766Proceeds
                from maturities and calls of securities available for sale
            
            
            14,461,000
            
            
            9,190,545
            
            
            16,636,865Principal
                payments received on securities available for sale
            
            
            1,963,218
            
            
            2,388,713
            
            
            2,914,405Purchases
                of securities available for sale
            
            
            (12,845,805
            )
            
            (26,338,022
            )
            
            (16,148,868
            )Loans
                made to customers, net
            
            
            (15,434,051
            )
            
            (8,290,615
            )
            
            (12,375,235
            )Purchases
                of bank premises and equipment
            
            
            (483,919
            )
            
            (380,311
            )
            
            (1,032,823
            )Proceeds
                from sale of bank premises
            
            
            38,000
            
            
            -
            
            
            -Proceeds
                from sale of other real estate and other assets
            
            
            626,263
            
            
            173,443
            
            
            443,313Purchase
                of real estate
            
            
            -
            
            
            -
            
            
            (105,000
            )**Net
                cash used in investing activities**
            
            
            (7,874,885
            )
            
            (22,734,047
            )
            
            (7,284,577
            )





**See
      Notes to Consolidated Financial Statements**


**(Continued)**





29
 *Index*





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS - Continued**


**For
      the Years Ended December 31, 2006, 2005 and 2004**





**2006**
            
            **2005**
            
            **2004****CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase in demand deposit, NOW, money market and savings
                accounts
            
            
            (8,052,575
            )
            
            17,294,294
            
            
            1,438,095Net
                increase in time deposits
            
            
            14,110,061
            
            
            7,890,783
            
            
            2,314,008Net
                increase/(decrease) in short-term borrowings
            
            
            (677,965
            )
            
            (1,998,756
            )
            
            443,854Proceeds
                from long-term borrowings
            
            
            -
            
            
            3,500,000
            
            
            3,100,000Repayments
                of long-term borrowings
            
            
            (1,633,558
            )
            
            (2,500,904
            )
            
            (2,356,670
            )Dividends
                paid
            
            
            (1,048,482
            )
            
            (992,726
            )
            
            (972,089
            )Acquisition
                of treasury stock
            
            
            (456,171
            )
            
            (290,074
            )
            
            (322,854
            )**Net
                cash provided by financing activities**
            
            
            2,241,310
            
            
            22,902,617
            
            
            3,644,344Increase/(decrease)
                in cash and cash equivalents
            
            
            (2,677,988
            )
            
            3,296,938
            
            
            (476,499
            )**Cash
                and cash equivalents:**Beginning
            
            
            8,772,736
            
            
            5,475,798
            
            
            5,952,297Ending
            
            $
            6,094,748
            
            $
            8,772,736
            
            $
            5,475,798**SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION**Cash
                payments for:Interest
                on deposits and on other borrowings
            
            $
            5,678,421
            
            $
            3,967,023
            
            $
            3,095,290Income
                taxes
            
            $
            1,311,957
            
            $
            940,784
            
            $
            647,834**SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING****AND
                FINANCING ACTIVITIES**Other
                real estate and other assets acquired in settlement of
                loans
            
            $
            929,104
            
            $
            466,445
            
            $
            329,000Unrealized
                gain/(loss) on securities available for sale
            
            $
            355,988
            
            $
            (1,060,150
            )
            $
            (995,207
            )





**See
      Notes to Consolidated Financial Statements**





30
 *Index*





**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 sheets 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.





31
 *Index*





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
      annual contributions as permitted or 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.





**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.





32
 *Index*





**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
      1,842,662, 1,864,215 and 1,886,631 for the years ended December 31, 2006, 2005
      and 2004, respectively, after considering the stock split outlined in Note
      2. 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 2005 and 2004, as
      previously presented, have been reclassified to conform to current year
      classifications.





**Significant
      New Accounting Pronouncements:** In
      September 2006, the Securities and Exchange Commission (SEC) released Staff
      Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC staff’s views
      regarding the process of quantifying financial statement misstatements. SAB
      108
      expresses the SEC staff’s view that a registrant’s materiality evaluation of an
      identified unadjusted error should quantify the effects of the error on each
      financial statement and related financial statement disclosures and that prior
      year misstatements should be considered in quantifying misstatements in current
      year financial statements. SAB 108 also states that correcting prior year
      financial statements for immaterial errors would not require previously filed
      reports to be amended. Such correction may be made the next time the registrant
      files the prior year financial statements. The cumulative effect of the initial
      application should be reported in the carrying amounts of assets and liabilities
      as of the beginning of that fiscal year and the offsetting adjustment should
      be
      made to the opening balance of retained earnings for that year. Registrants
      should disclose the nature and amount of each individual error being corrected
      in the cumulative adjustment. The SEC staff encourages early application of
      the
      guidance in SAB 108 for interim periods of the first fiscal year ending after
      November 15, 2006. The company does not expect the implementation of SAB 108
      to
      have a material impact on its financial condition or results of
      operations.





In
      February 2006, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and 140” (SFAS
      155). SFAS 155 permits fair value measurement of any hybrid financial instrument
      that contains an embedded derivative that otherwise would require bifurcation.
      The Statement also clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of Statement 133. It establishes
      a
      requirement to evaluate interests in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation. SFAS
      155
      also clarifies that concentrations of credit risk in the form of subordination
      are not embedded derivatives. SFAS 155 is effective for all financial
      instruments acquired or issued after the beginning of an entity’s first fiscal
      year that begins after September 15, 2006. The company does not expect the
      implementation of SFAS 155 to have a material impact on its financial condition
      or results of operations.





In
      March
      2006, the FASB issued Statement of Financial Accounting Standards No. 156,
      “Accounting for Servicing of Financial Assets - an amendment of FASB Statement
      No. 140” (SFAS 156). SFAS 156 requires an entity to recognize a servicing asset
      or servicing liability each time it undertakes an obligation to service a
      financial asset by entering into certain servicing contracts. The Statement
      also
      requires all separately recognized servicing assets and servicing liabilities
      to
      be initially measured at fair value, if practicable. SFAS 156 permits an entity
      to choose between the amortization and fair value methods for subsequent
      measurements. At initial adoption, the Statement permits a one-time
      reclassification of available for sale securities to trading securities by
      entities with recognized servicing rights. SFAS 156 also requires separate
      presentation of servicing assets and servicing liabilities subsequently measured
      at fair value in the statement of financial position and additional disclosures
      for all separately recognized servicing assets and servicing liabilities. This
      Statement is effective as of the beginning of an entity’s first fiscal year that
      begins after September 15, 2006. The company does not expect the implementation
      of SFAS 156 to have a material impact on its financial condition or results
      of
      operations.





33
 *Index*





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      SFAS 157 does not require any new fair value measurements but may change current
      practice for some entities. This Statement is effective for financial statements
      issued for fiscal years beginning after November 15, 2007 and interim periods
      within those years. The company does not expect the implementation of SFAS
      157
      to have a material impact on its financial condition or results of
      operations.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158).
      SFAS 158 requires an employer to recognize the overfunded or underfunded status
      of a defined benefit postretirement plan as an asset or liability in its
      statement of financial position and to recognize changes in that funded status
      in the year in which the changes occur through comprehensive income. The funded
      status of a benefit plan will be measured as the difference between plan assets
      at fair value and the benefit obligation. For a pension plan, the benefit
      obligation is the projected benefit obligation. For any other postretirement
      plan, the benefit obligation is the accumulated postretirement benefit
      obligation. SFAS 158 also requires an employer to measure the funded status
      of a
      plan as of the date of its year-end statement of financial position. The
      Statement also requires additional disclosure in the notes to financial
      statements about certain effects on net periodic benefit cost for the next
      fiscal year that arise from delayed recognition of the gains or losses, prior
      service costs or credits, and transition asset or obligation. The company is
      required to initially recognize the funded status of a defined benefit
      postretirement plan and to provide the required disclosures as of the end of
      the
      fiscal year ending after December 15, 2006. The company has included the impact
      of this implementation in the consolidated financial statements contained in
      this report. The requirement to measure plan assets and benefit obligations
      as
      of the date of the employers’ fiscal year-end statement of financial position is
      effective for fiscal years ending after December 15, 2008. This change in the
      measurement date will not have a material impact on the company’s financial
      condition or results of operations.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes: An Interpretation of FASB Statement No. 109” (FIN 48). FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      entity’s financial statements in accordance with SFAS 109. The Interpretation
      prescribes a recognition threshold and measurement principles for the financial
      statement recognition and measurement of tax positions taken or expected to
      be
      taken on a tax return that are not certain to be realized. FIN 48 is effective
      for fiscal years beginning after December 15, 2006. The company does not expect
      the implementation of FIN 48 to have a material impact on its financial
      condition or results of operations.





In
      September 2006, the Emerging Issues Task Force issued EITF 06-4, “Accounting for
      Deferred Compensation and Postretirement Benefit Aspects of Endorsement
      Split-Dollar Life Insurance Arrangements.” This consensus concludes that for a
      split-dollar life insurance arrangement within the scope of this Issue, an
      employer should recognize a liability for future benefits in accordance with
      FASB Statement No. 106 (if, in substance, a postretirement benefit plan exits)
      or APB Opinion No. 12 (if the arrangement is, in substance, an individual
      deferred compensation contract) based on the substantive agreement with the
      employee. The consensus is effective for fiscal years beginning after December
      15, 2007. The company is currently evaluating the effect that EITF No. 06-4
      will
      have on its consolidated financial statements when implemented.





In
      September 2006, The Emerging Issues Task Force issued EITF 06-5, “Accounting for
      Purchases of Life Insurance- Determining the Amount That Could Be Realized
      in
      Accordance with FASB Technical Bulletin No. 85-4.” This consensus concludes that
      a policyholder should consider any additional amounts included in the
      contractual terms of the insurance policy other than the cash surrender value
      in
      determining the amount that could be realized under the insurance contract.
      A
      consensus also was reached that a policyholder should determine the amount
      that
      could be realized under the life insurance contract assuming the surrender
      of an
      individual-life by individual-life policy (or certificate by certificate in
      a
      group policy). The consensuses are effective for fiscal years beginning after
      December 15, 2006. The company is currently evaluating the effect that EITF
      No.
      06-5 will have on its consolidated financial statements when implemented.





**Note
      2. Declaration of Stock Split**





On
      March
      7, 2006 Citizens board of directors declared a stock split which was paid on
      April 14, 2006 in the form of a 200% stock dividend to shareholders of record
      April 3, 2006. The primary reason for doing so was to reduce the share price
      of
      the stock in an effort to improve its liquidity. Citizens stock, which is
      neither widely held nor widely traded, is an over the counter bulletin board
      stock with the symbol CIWV.OB.





34
 *Index*





Distribution
      of this stock dividend required the use of all authorized shares. On April
      22,
      2006 the shareholders authorized an additional 2,250,000 shares for future
      use.





**Note
      3. Restrictions on Cash and Amounts Due from Banks**





At
      December 31, 2006 we had cash concentrations totaling $3,693,080 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
      4.**  **Securities**




The
      amortized cost, unrealized gains, unrealized losses and estimated fair values
      of
      securities at December 31, 2006 and 2005, are summarized below. All such
      securities are available for sale.





**2006****Carrying****Value****(Estimated****Amortized**
            
            **Unrealized**
            
            **Fair****Cost**
            
            **Gains**
            
            **Losses**
            
            **Value)**U.S.
                Government agencies and corporations
            
            $
            41,920,556
            
            $
            5,227
            
            $
            414,829
            
            $
            41,510,954Mortgage
                backed securities - U.S. Government agencies and
                corporations
            
            
            8,374,473
            
            
            299
            
            
            148,911
            
            
            8,225,861Federal
                Reserve Bank stock, restricted
            
            
            108,000
            
            
            -
            
            
            -
            
            
            108,000Federal
                Home Loan Bank stock, restricted
            
            
            770,200
            
            
            -
            
            
            -
            
            
            770,200Tax
                exempt state and political subdivisions
            
            
            9,182,944
            
            
            16,081
            
            
            68,501
            
            
            9,130,524Total
                securities available for sale
            
            $
            60,356,173
            
            $
            21,607
            
            $
            632,241
            
            $
            59,745,539





**2005****Carrying****Value****(Estimated****Amortized**
            
            **Unrealized**
            
            **Fair****Cost**
            
            **Gains**
            
            **Losses**
            
            **Value)**U.S.
                Government agencies and corporations
            
            $
            50,560,587
            
            $
            4,296
            
            $
            718,899
            
            $
            49,845,984Mortgage
                backed securities - U.S. Government agencies and
                corporations
            
            
            7,005,422
            
            
            947
            
            
            203,662
            
            
            6,802,707Federal
                Reserve Bank stock, restricted
            
            
            108,000
            
            
            -
            
            
            -
            
            
            108,000Federal
                Home Loan Bank stock, restricted
            
            
            596,200
            
            
            -
            
            
            -
            
            
            596,200Corporate
                debt securities
            
            
            1,270,501
            
            
            -
            
            
            19,476
            
            
            1,251,025Tax
                exempt state and political subdivisions
            
            
            8,280,250
            
            
            34,744
            
            
            64,571
            
            
            8,250,423Total
                securities available for sale
            
            $
            67,820,960
            
            $
            39,987
            
            $
            1,006,608
            
            $
            66,854,339





The
      tables which follow provide summaries of securities which were in an unrealized
      loss position at December 31, 2006 and 2005, all of which are available for
      sale. As of December 31, 2006, these securities had a total fair value of
      $55,092,401 and carried unrealized losses of $632,241 or 1.15%. Securities
      which
      have been in a continuous loss position for the past twelve months total
      $42,536,662. The unrealized loss pertaining to these securities is $590,749
      or
      1.39%. 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 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, along 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 $58,795,734 of securities that carried unrealized losses at December
      31,
      2005.





35
 *Index*




**2006****Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair**
              **Value**
            
            **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Unrealized**
              **Losses**U.S.
                Government agencies and corporations
            
            $
            5,332,240
            
            $
            13,677
            
            $
            33,264,044
            
            $
            401,152
            
            $
            38,596,284
            
            $
            414,829Mortgage
                backed securities - U.S. Government agencies and corporations
            
            
            2,782,873
            
            
            9,857
            
            
            5,327,723
            
            
            139,054
            
            
            8,110,596
            
            
            148,911Tax
                exempt state and political subdivisions
            
            
            3,440,626
            
            
            17,958
            
            
            3,944,895
            
            
            50,543
            
            
            7,385,521
            
            
            68,501**Total**
            
            $
            11,555,739
            
            $
            41,492
            
            $
            42,536,662
            
            $
            590,749
            
            $
            55,092,401
            
            $
            632,241





**2005****Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair**
              **Value**
            
            **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Unrealized**
              **Losses**U.S.
                Government agencies and corporations
            
            $
            26,648,724
            
            $
            258,255
            
            $
            19,810,150
            
            $
            460,644
            
            $
            46,458,874
            
            $
            718,899Mortgage
                backed securities - U.S. Government agencies and
                corporations
            
            
            3,282,560
            
            
            71,703
            
            
            3,397,060
            
            
            131,959
            
            
            6,679,620
            
            
            203,662Corporate
                debt securities
            
            
            -
            
            
            -
            
            
            1,251,025
            
            
            19,476
            
            
            1,251,025
            
            
            19,476Tax
                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






The
      maturities, amortized cost and estimated fair values of securities at December
      31, 2006 are summarized as follows:





**Amortized****Cost**
            
            **Carrying
                Value (Estimated Fair****Value)**Due
                within one year
            
            $
            19,678,168
            
            $
            19,510,619Due
                after one through five years
            
            
            38,854,752
            
            
            38,420,693Due
                after five through ten years
            
            
            945,053
            
            
            936,027Equity
                securities
            
            
            878,200
            
            
            878,200**Total**
            
            $
            60,356,173
            
            $
            59,745,539




Mortgage
      backed securities have remaining contractual maturities ranging from 1 day
      to
      14.25 years and are reflected in the maturity distribution schedule based on
      their anticipated average life to maturity, which ranges from 0.04 to 5.28
      years. Accordingly, discounts are accreted and premiums are amortized over
      the
      anticipated life to maturity of the specific obligation.





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
                and****Maturities**
            
            **Principal****Payments**
            
            **Gains**
            
            **Losses****2006**
            
            $
            3,800,409
            
            $
            14,461,000
            
            $
            1,963,218
            
            $
            -
            
            $
            17,694**2005**
            
            $
            522,200
            
            $
            9,190,545
            
            $
            2,388,713
            
            $
            -
            
            $
            -**2004**
            
            $
            2,382,766
            
            $
            16,636,865
            
            $
            2,914,405
            
            $
            36,783
            
            $
            13,598




36
 *Index*





At
      December 31, 2006 and 2005 securities with amortized costs of $30,807,634 and
      $28,427,321, respectively, and estimated fair values of $30,448,915 and
      $27,983,015, 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
      5.**  **Loans**


Loans
        are
        summarized as follows:


**December
                31,****2006**
            
            **2005**Commercial,
                financial and agricultural
            
            $
            26,968,995
            
            $
            26,589,047Real
                estate - construction
            
            
            13,964,500
            
            
            10,559,207Real
                estate - home equity
            
            
            7,985,253
            
            
            8,796,427Real
                estate - residential mortgage
            
            
            61,401,473
            
            
            55,127,595Real
                estate - commercial mortgage
            
            
            45,578,979
            
            
            40,944,311Installment
                loans
            
            
            10,634,857
            
            
            9,725,720Other
            
            
            1,611,149
            
            
            2,051,144Total
                loans
            
            
            168,145,206
            
            
            153,793,451Less:Allowance
                for loan losses
            
            
            1,873,038
            
            
            1,597,006Net
                deferred loan origination fees and costs
            
            
            54,279
            
            
            56,142Unearned
                income
            
            
            -
            
            
            3,976Loans,
                net
            
            $
            166,217,889
            
            $
            152,136,327





Included
      in the above balance of net loans are nonaccrual loans of $2,208,400 and $58,300
      at December 31, 2006 and 2005, respectively. If interest on those
      nonaccrual loans had been accrued, such income would have approximated $63,341,
      $5,662 and $0 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





The
      bank
      makes loans to its directors, executive officers and their related interests
      in
      the normal course of business. During the year 2006, the bank’s definition of
      executive officer was amended to be consistent with regulatory guidance.
      Therefore, the prior year’s information has been restated. The activity with
      respect to these loans for the years ended December 31, 2006 and 2005
      follows:





**2006**
            
            **2005**Balance,
                beginning
            
            $
            5,892,713
            
            $
            2,758,611Additions
            
            
            3,801,609
            
            
            6,436,855Amounts
                collected
            
            
            (3,582,597
            )
            
            (3,302,753
            )Balance,
                ending
            
            $
            6,111,725
            
            $
            5,892,713




The
      following represents the maturities and sensitivities of loans to changes in
      interest rates at December 31, 2006, 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
            
            $
            2,507,390
            
            $
            8,766,556
            
            $
            15,695,049
            
            $
            26,968,995Real
                estate - construction
            
            
            9,667,018
            
            
            2,266,383
            
            
            2,031,099
            
            
            13,964,500Real
                estate - home equity
            
            
            39,932
            
            
            75,745
            
            
            7,869,576
            
            
            7,985,253Real
                estate - residential mortgage
            
            
            1,370,462
            
            
            2,547,900
            
            
            57,483,111
            
            
            61,401,473Real
                estate - commercial mortgage
            
            
            2,826,013
            
            
            9,066,782
            
            
            33,686,184
            
            
            45,578,979Installment
                loans
            
            
            828,730
            
            
            8,461,147
            
            
            1,344,980
            
            
            10,634,857Other
            
            
            851,951
            
            
            623,189
            
            
            136,009
            
            
            1,611,149Total
            
            $
            18,091,496
            
            $
            31,807,702
            
            $
            118,246,008
            
            $
            168,145,206




37
 *Index*





Loans
      due
      after one year with:




Variable
                rates
            
            $
            121,306,194Fixed
                rates
            
            
            28,747,516Total
            
            $
            150,053,710





**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, 2006, we had five 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 $7,104,923. Extensions of credit
      to companies operating in the lumber industry and their related parties totaled
      $5,325,262. 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
      $8,543,101. 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. Extensions of credit for out-of-area commercial real estate
      projects totaled $7,710,503. The bank participates in these loans through a
      network of allied banks. Participations in these loans are solely a factor
      of a
      detailed review of credit quality. Also, extensions of credit for ski resort
      related loans totaled $16,122,842. These loans are extended to business,
      residential, and rental properties in and around various West Virginia ski
      resorts. Additional collateral such as pledges of accounts receivable, real
      estate, or personal guarantees may also be required when granting any of 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
      6.**  **Allowance
      for Loan Losses**





An
      analysis of the allowance for loan losses for the years ended December 31,
      2006, 2005 and 2004, is as follows:





**2006**
            
            **2005**
            
            **2004**Balance,
                beginning of year
            
            $
            1,597,006
            
            $
            1,378,106
            
            $
            1,395,908Charge
                offs:Commercial,
                financial and agricultural
            
            
            123,400
            
            
            -
            
            
            1,030,651Real
                estate - residential mortgage
            
            
            -
            
            
            -
            
            
            35,597Installment
            
            
            39,130
            
            
            90,212
            
            
            98,263Total
            
            
            162,530
            
            
            90,212
            
            
            1,164,511Recoveries:Commercial,
                financial and agricultural
            
            
            4,100
            
            
            5,660
            
            
            191,439Real
                estate - residential mortgage
            
            
            -
            
            
            1,022
            
            
            210Installment
            
            
            11,077
            
            
            27,763
            
            
            20,161Total
            
            
            15,177
            
            
            34,445
            
            
            211,810Net
                charge-offs
            
            
            147,353
            
            
            55,767
            
            
            952,701Provision
                for loan losses
            
            
            423,385
            
            
            274,667
            
            
            934,899Balance,
                end of year
            
            $
            1,873,038
            
            $
            1,597,006
            
            $
            1,378,106




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





38
 *Index*




**December
                31,****2006**
            
            **2005**Impaired
                loans without a valuation allowance
            
            $
            155,849
            
            $
            754,609Impaired
                loans with a valuation allowance
            
            
            4,991,814
            
            
            2,895,466Total
                impaired loans
            
            $
            5,147,663
            
            $
            3,650,075Valuation
                allowance related to impaired loans
            
            $
            990,482
            
            $
            537,919Total
                nonaccrual loans
            
            
            2,208,400
            
            
            58,300Total
                loans past due ninety days or more still accruing
            
            
            -
            
            
            538,167








**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Average
                investment in impaired loans
            
            $
            3,846,072
            
            $
            3,974,629
            
            $
            49,193Interest
                income recognized on impaired loans
            
            
            331,872
            
            
            292,013
            
            
            2,536Interest
                income recognized on a cash basis on impaired loans
            
            
            276,007
            
            
            278,334
            
            
            2,343





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




**Note
      7.**  **Bank
      Premises and Equipment**





The
      major
      categories of bank premises and equipment and accumulated depreciation and
      amortization at December 31, 2006 and 2005, are summarized as
      follows:




**2006**
            
            **2005**Land
            
            $
            950,403
            
            $
            956,069Buildings
                and improvements
            
            
            4,870,355
            
            
            4,786,825Furniture
                and equipment
            
            
            2,977,312
            
            
            2,636,036Total
                bank premises and equipment
            
            
            8,798,070
            
            
            8,378,930Less
                accumulated depreciation
            
            
            4,466,757
            
            
            4,186,870Bank
                premises and equipment, net
            
            $
            4,331,313
            
            $
            4,192,060





Depreciation
      expense for the years ended December 31, 2006, 2005 and 2004, totaled $338,543,
      $400,996 and $404,329, respectively.





**Note
      8.**  **Deposits**





The
      following is a summary of interest bearing deposits by type as of December
      31,
      2006 and 2005:





**2006**
            
            **2005**Interest
                bearing checking accounts
            
            $
            41,767,746
            
            $
            44,667,563Money
                market accounts
            
            
            5,979,073
            
            
            7,645,508Savings
                accounts
            
            
            22,745,891
            
            
            24,687,908Certificates
                of deposit under $100,000
            
            
            59,949,884
            
            
            52,578,930Certificates
                of deposit of $100,000 or more
            
            
            38,997,134
            
            
            32,258,028Total
            
            $
            169,439,728
            
            $
            161,837,937





Interest
      expense on deposits is summarized below:





**2006**
            
            **2005**
            
            **2004**Interest
                bearing checking accounts
            
            $
            1,161,291
            
            $
            613,132
            
            $
            347,520Money
                market accounts
            
            
            33,159
            
            
            49,703
            
            
            37,609Savings
                accounts
            
            
            120,996
            
            
            129,933
            
            
            126,818Certificates
                of deposit under $100,000
            
            
            2,072,523
            
            
            1,490,864
            
            
            1,262,552Certificates
                of deposit of $100,000 or more
            
            
            1,493,549
            
            
            1,092,905
            
            
            871,348Total
            
            $
            4,881,518
            
            $
            3,376,537
            
            $
            2,645,847




39
 *Index*





The
      following is a summary of the maturity distribution of certificates of deposit
      in amounts of $100,000 or more as of December 31, 2006 and 2005:




**2006**
            
            **2005****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**Three
                months or less
            
            $
            2,350,997
            
            
            6.03
            %
            $
            4,709,115
            
            
            14.60
            %Three
                through six months
            
            
            4,370,990
            
            
            11.21
            
            
            4,018,345
            
            
            12.46Six
                through twelve months
            
            
            10,680,396
            
            
            27.39
            
            
            4,839,600
            
            
            15.00Over
                twelve months
            
            
            21,594,751
            
            
            55.37
            
            
            18,690,968
            
            
            57.94Total
            
            $
            38,997,134
            
            
            100.00
            %
            $
            32,258,028
            
            
            100.00
            %











A
      summary
      of the maturities for all time deposits as of December 31, 2006,
      follows:





**Year**
            
            **Amount**2007
            
            $
            47,982,2582008
            
            
            20,037,2732009
            
            
            6,317,9442010
            
            
            5,490,3532011
            
            
            13,648,290After
                2011
            
            
            5,470,900Total
            
            $
            98,947,018





At
      December 31, 2006 and 2005, deposits of related parties including directors,
      executive officers, and their related interests of Citizens Financial Corp.
      and
      subsidiary approximated $2,748,807 and 1,636,391, respectively.





**Note
      9.**  **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, 2006 and 2005 the
      notional value of these deposits was $894,278 and $904,278,
      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 $(43,501) in 2006, $(37,865)
      in
      2005 and $(34,232) in 2004.





**Note
      10.**  **Income
      Taxes**





The
      components of applicable income tax expense/(benefit) for the years ended
      December 31, 2006, 2005 and 2004, are as follows:





**2006**
            
            **2005**
            
            **2004**Current:Federal
            
            $
            986,391
            
            $
            982,912
            
            $
            438,819State
            
            
            144,201
            
            
            146,870
            
            
            54,9481,130,592
            
            
            1,129,782
            
            
            493,767Deferred:Federal
            
            
            (162,754
            )
            
            (181,117
            )
            
            (59,794
            )State
            
            
            (12,192
            )
            
            (21,307
            )
            
            (7,035
            )(174,946
            )
            
            (202,424
            )
            
            (66,829
            )Total
            
            $
            955,646
            
            $
            927,358
            
            $
            426,938




40
 *Index*




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, 2006 and 2005, are as
      follows:





**2006**
            
            **2005**Deferred
                tax assets:Allowance
                for loan losses
            
            $
            562,127
            
            $
            457,236Accrued
                income and expenses
            
            
            18,553
            
            
            13,028Employee
                benefit plans
            
            
            832,401
            
            
            665,250Net
                loan origination fees and costs
            
            
            20,624
            
            
            21,335Net
                unrealized loss on securities
            
            
            232,041
            
            
            367,3161,665,746
            
            
            1,524,165Deferred
                tax liabilities:Accretion
                on securities
            
            
            (26,265
            )
            
            (26,132
            )Depreciation
            
            
            (197,141
            )
            
            (146,556
            )(223,406
            )
            
            (172,688
            )Net
                deferred tax asset
            
            $
            1,442,340
            
            $
            1,351,477





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, 2006, 2005 and 2004, is as follows:




**2006**
            
            **2005**
            
            **2004****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**Computed
                tax at applicable statutory rate
            
            $
            1,034,463
            
            
            34.0
            %
            $
            1,011,345
            
            
            %
                34.0
            
            $
            708,314
            
            
            34.0
            %Increase/(decrease)
                in taxes resulting from:Tax-exempt
                interest
            
            
            (149,248
            )
            
            (4.9
            )
            
            (147,527
            )
            
            (5.0
            )
            
            (151,826
            )
            
            (7.3
            )State
                income taxes, net of federal tax benefit
            
            
            87,126
            
            
            2.8
            
            
            82,872
            
            
            2.8
            
            
            30,963
            
            
            1.5Tax
                exempt income on retirement plans
            
            
            (27,772
            )
            
            (0.9
            )
            
            (27,755
            )
            
            (0.9
            )
            
            (41,435
            )
            
            (2.0
            )Other
            
            
            11,077
            
            
            0.4
            
            
            8,423
            
            
            0.3
            
            
            (119,078
            )
            
            (5.7
            )Applicable
                income taxes****
            
            $
            955,646
            
            
            31.4
            %
            $
            927,358
            
            
            31.2
            %
            $
            426,938
            
            
            20.5
            %




**Note
      11.**  **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/1,000 hours 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 annual contributions as permitted
      or
      required by applicable regulations.





41
 *Index*





**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, 2006, 2005 and 2004, were $81,000, $77,000 and $63,000,
      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, 2006 and 2005 was $253,292 and $258,726, respectively. The cash
      surrender values of the underlying insurance contracts at those same dates
      were
      $516,130 and $469,540. Expenses associated with the plan were $8,549 in 2006,
      $11,217 in 2005, and $13,806 in 2004.





**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 $2,189,860 at December 31, 2006
      and
      $2,108,177 at December 31, 2005. Liabilities under the plan were $653,097 at
      December 31, 2006 and $526,972 at December 31, 2005. Expenses of the plan,
      net
      of income for the increase in the cash surrender value, were $66,936 in 2006,
      $51,992 in 2005 and $99,118 in 2004.





**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.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement
      Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158).
      More information regarding SFAS 158 can be reviewed under Significant New
      Accounting Pronouncements in Note 1 of these consolidated financial statements.
      SFAS 158 requires adoption on a prospective basis beginning for the year ended
      December 31, 2006. The following table reflects the incremental effect of
      applying SFAS 158 on individual line items as presented in the consolidated
      balance sheets as of December 31, 2006.




**Before
                Application****of SFAS 158**
            
            **Adjustments
                for Pension****Benefits**
            
            **Adjustments
                for Other****Benefits**
            
            **After
                Application****of SFAS 158**Other
                assets
            
            $
            5,060,073
            
            $
            132,467
            
            $
            (47,739
            )
            $
            5,144,801Total
                assets
            
            
            242,981,749
            
            
            132,467
            
            
            (47,739
            )
            
            243,066,477Other
                liabilities
            
            
            2,591,070
            
            
            348,594
            
            
            (125,630
            )
            
            2,814,034Total
                liabilities
            
            
            222,479,489
            
            
            348,594
            
            
            (125,630
            )
            
            222,702,453Accumulated
                other comprehensive income/(loss)
            
            
            (1,095,163
            )
            
            (216,127
            )
            
            77,891
            
            
            (1,233,399
            )Total
                shareholders’ equity
            
            
            20,502,260
            
            
            (216,127
            )
            
            77,891
            
            
            20,364,024




Additional
      information regarding the company’s pension and other postretirement benefits is
      presented below in accordance with SFAS 158 for 2006. Previous year information
      for 2005 and 2004 is presented in accordance with the previous FASB Statements.
      The measurement date used for the pension disclosures is October 31 for all
      years presented.





42
 *Index*




**Pension
                Benefits**
            
            **Other
                Benefits****2006**
            
            **2005**
            
            **2006**
            
            **2005**Change
                in benefit obligationBenefit
                obligation at beginning of year
            
            $
            4,734,599
            
            $
            4,085,958
            
            $
            613,217
            
            $
            571,082Service
                cost
            
            
            112,312
            
            
            98,730
            
            
            24,242
            
            
            23,575Interest
                cost
            
            
            271,181
            
            
            267,484
            
            
            31,769
            
            
            31,084Actuarial
                (gain)/loss
            
            
            (68,016
            )
            
            475,590
            
            
            (119,255
            )
            
            2,640Benefits
                paid
            
            
            (238,649
            )
            
            (193,163
            )
            
            (27,039
            )
            
            (15,164
            )Benefit
                obligation at end of year
            
            $
            4,811,427
            
            $
            4,734,599
            
            $
            522,934
            
            $
            613,217Change
                in plan assetsFair
                value of plan assets at beginning of year
            
            $
            3,755,700
            
            $
            3,622,722
            
            $
            -
            
            $
            -Actual
                return on plan assets
            
            
            471,946
            
            
            326,141
            
            
            -
            
            
            -Employer
                contribution
            
            
            70,172
            
            
            -
            
            
            27,039
            
            
            15,164Benefits
                paid
            
            
            (238,649
            )
            
            (193,163
            )
            
            (27,039
            )
            
            (15,164
            )Fair
                value of plan assets at end of year
            
            $
            4,059,169
            
            $
            3,755,700
            
            $
            -
            
            $
            -Funded
                status
            
            $
            (752,258
            )
            $
            (978,899
            )
            $
            (522,934
            )
            $
            (613,217
            )Unrecognized
                net actuarial (gain)/loss
            
            
            N/A
            
            
            1,840,198
            
            
            N/A
            
            
            (136,666
            )Unrecognized
                prior service cost
            
            
            N/A
            
            
            (46,491
            )
            
            N/A
            
            
            -Unrecognized
                net obligation at transition
            
            
            N/A
            
            
            -
            
            
            N/A
            
            
            146,609Net
                amount recognized on consolidated balance sheets
            
            $
            (752,258
            )
            $
            814,808
            
            $
            (522,934
            )
            $
            (603,274
            )Amounts
                recognized on consolidated balance sheets as:Prepaid
                benefit cost
            
            $
            -
            
            $
            814,808
            
            $
            -
            
            $
            -Accrued
                benefit liability
            
            
            (752,258
            )
            
            -
            
            
            (522,934
            )
            
            (603,274
            )Net
                amount recognized
            
            $
            (752,258
            )
            $
            814,808
            
            $
            (522,934
            )
            $
            (603,274
            )Amounts
                recognized in accumulated other comprehensive income consist
                of:Net
                loss (gain)
            
            $
            1,533,873
            
            $
            N/A
            
            $
            (251,293
            )
            $
            N/APrior
                service cost (credit)
            
            
            (29,523
            )
            
            N/A
            
            
            -
            
            
            N/ANet
                obligation at transition
            
            
            -
            
            
            N/A
            
            
            125,663
            
            
            N/A$
            1,504,350
            
            $
            N/A
            
            $
            (125,630
            )
            $
            N/A





In
      2005
      the company recorded a minimum pension liability of $716,569 net of the related
      deferred tax asset of $439,187 in accordance with Statement of Financial
      Accounting Standard No. 87 (SFAS 87), Employers' Accounting for Pensions. The
      additional pension liability required under SFAS 87 in 2005 was
      $1,155,756.




43
 *Index*





The
      accumulated benefit obligation of our pension plan was $4,213,134 at October
      31,
      2006 and $4,096,648 at October 31, 2005.




**Pension
                Benefits**
            
            **Other
                Benefits****2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004****Components
                of net periodic benefit cost**Service
                cost
            
            $
            112,312
            
            $
            98,730
            
            $
            98,265
            
            $
            24,242
            
            $
            23,575
            
            $
            28,104Interest
                cost
            
            
            271,181
            
            
            267,484
            
            
            250,813
            
            
            31,769
            
            
            31,084
            
            
            33,021Expected
                return on plan assets
            
            
            (329,317
            )
            
            (341,241
            )
            
            (353,823
            )
            
            -
            
            
            -
            
            
            -Net
                amortization and deferral
            
            
            (16,968
            )
            
            (16,968
            )
            
            (1,016
            )
            
            16,318
            
            
            15,664
            
            
            17,130Recognized
                net actuarial loss
            
            
            95,680
            
            
            47,051
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                periodic benefit cost
            
            
            132,888
            
            
            55,056
            
            
            (5,761
            )
            
            72,329
            
            
            70,323
            
            
            78,255**Other
                changes in plan assets and benefit obligations recognized in other
                comprehensive income:**Net
                (gain)/loss for period
            
            
            (210,645
            )
            
            N/A
            
            
            N/A
            
            
            -
            
            
            N/A
            
            
            N/AAmortization
                of prior service cost
            
            
            16,968
            
            
            N/A
            
            
            N/A
            
            
            -
            
            
            N/A
            
            
            N/AAmortization
                of net loss/(gain)
            
            
            (95,680
            )
            
            N/A
            
            
            N/A
            
            
            -
            
            
            N/A
            
            
            N/ATotal
                recognized in other comprehensive income
            
            
            (289,357
            )
            
            N/A
            
            
            N/A
            
            
            -
            
            
            N/A
            
            
            N/ATotal
                recognized in net periodic benefit cost and other comprehensive
                income
            
            $
            (156,469
            )
            $
            55,056
            
            $
            (5,761
            )
            $
            72,329
            
            $
            70,323
            
            $
            78,255





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.





The
      estimated net loss and prior service cost for the defined benefit pension plans
      that will be amortized from accumulated other comprehensive income into net
      periodic benefit cost over the next fiscal year are $87,670 and $(16,968),
      respectively. The estimated transition obligation for the other defined benefit
      postretirement plans that will be amortized from accumulated other comprehensive
      income into net periodic benefit cost over the next fiscal year is
      $20,946.





**Weighted-average
                assumptions used to determine net periodic benefit
                cost**
            
            **Pension
                Benefits**
            
            **Other
                Benefits****2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004**Discount
                rate
            
            
            5.75
            %
            
            6.50
            %
            
            6.50
            %
            
            5.75
            %
            
            5.75
            %
            
            6.25
            %Expected
                long-term return on plan assets
            
            
            8.50
            %
            
            8.50
            %
            
            8.50
            %
            
            N/A
            
            
            N/A
            
            
            N/ARate
                of compensation increase
            
            
            3.00
            %
            
            3.50
            %
            
            3.50
            %
            
            N/A
            
            
            N/A
            
            
            N/A





**Weighted-average
                assumptions used to determine benefit obligations****Pension
                Benefits**
            
            **Other
                Benefits****2006**
            
            **2005**
            
            **2006**
            
            **2005**Discount
                rate
            
            
            6.00
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %Rate
                of compensation increase
            
            
            3.00
            %
            
            3.00
            %
            
            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.




44
 *Index*





**Target
                Allocation 2007**
            
            **Allowable
                Range**
            
            **Percentage
                of Plan Assets at October 31 2006**
            
            **2005****Plan
                Assets**Equity
                securities
            
            
            75
            %
            
            40-80
            %
            
            74
            %
            
            73
            %Debt
                securities
            
            
            25
            %
            
            20-40
            %
            
            20
            %
            
            22
            %Real
                estate
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Other
            
            
            0
            %
            
            3-10
            %
            
            6
            %
            
            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 $127,774 to our pension plan in 2007. 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**2007
            
            $
            238,675
            
            $
            32,5542008
            
            
            265,176
            
            
            30,9172009
            
            
            277,411
            
            
            31,8262010
            
            
            290,119
            
            
            32,8092011
            
            
            295,524
            
            
            36,6292012-2016
            
            
            1,570,028
            
            
            191,733




**Note
      12. Other Borrowings**





**Short-Term
      Borrowings:** During
      2006 and 2005, 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, 2006 and
      2005,
      securities with an amortized cost of $14,095,926 and $17,097,069, respectively,
      and estimated fair values of $13,900,030 and $16,767,119, respectively, were
      pledged to secure the repurchase agreements.





45
 *Index*





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:





**2006**
            
            **2005****Repurchase****greement**
            
            **Line
                of****Credit**
            
            **Federal
                Funds****Purchased**
            
            **Repurchase****Agreement**
            
            **Line
                of****Credit**
            
            **Federal
                Funds****Purchased**Amount
                outstanding at December 31
            
            $
            15,970,434
            
            $
            3,438,000
            
            $
            425,000
            
            $
            20,511,399
            
            $
            -
            
            $
            -Weighted
                average interest rate at December 31
            
            
            3.99
            %
            
            5.40
            %
            
            5.56
            %
            
            2.50
            %
            
            -
            
            
            -Maximum
                month-end amount outstanding
            
            $
            25,052,293
            
            $
            9,630,000
            
            $
            2,800,000
            
            $
            24,983,307
            
            $
            1,389,500
            
            $
            -Average
                daily amount outstanding
            
            $
            19,204,359
            
            $
            2,699,222
            
            $
            69,521
            
            $
            21,635,619
            
            $
            108,678
            
            $
            14,178Weighted
                average interest rate for the year
            
            
            3.43
            %
            
            5.20
            %
            
            4.79
            %
            
            2.30
            %
            
            3.60
            %
            
            3.55
            %





**Long-Term
      Borrowings:** Long-term
      borrowings of $3,511,770 and $5,145,328 at December 31, 2006 and 2005,
      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,
      2006 was 4.25%. The weighted average interest rate for the year ending December
      31, 2006 was 4.09%.





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





**Year**
            
            **Amount**2007
            
            $
            792,9052008
            
            
            375,5182009
            
            
            392,9162010
            
            
            411,1192011
            
            
            430,1672012
                and thereafter
            
            
            1,109,145Total
            
            $
            3,511,770





**Note
      13. Commitments and Contingencies**





At
      December 31, 2006 and 2005, the bank maintained required reserve balances with
      the Federal Reserve Bank of Richmond approximating $123,000 and $1,384,000,
      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.





46
 *Index*





**Contract
                Amount****Financial
                instruments whose contract****amounts represent credit risk******
            
            **2006**
            
            **2005**Commitments
                to extend credit
            
            $
            22,054,312
            
            $
            26,919,444Standby
                letters of credit
            
            
            461,689
            
            
            559,244Total
            
            $
            22,516,001
            
            $
            27,478,688





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
      14. 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, 2006, the net retained
      profits available for distribution to Citizens Financial Corp. as dividends
      without regulatory approval approximate $1,707,414 or 8.4% 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, 2006, 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.





47
 *Index*





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
                Capital****Adequacy
                Purposes**
            
            **To
                Be Well Capitalized Under Prompt Corrective****Action Provisions****Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio****As
                of December 31, 2006:**Total
                Capital
            
            $
            22,413
            
            
            12.95
            %
            $
            13,846
            
            
            8.00
            %
            $
            17,307
            
            
            10.00
            %(to
                Risk Weighted Assets)Tier
                I Capital
            
            
            20,540
            
            
            11.87
            
            
            6,922
            
            
            4.00
            
            
            10,382
            
            
            6.00(to
                Risk Weighted Assets)Tier
                I Capital
            
            
            20,540
            
            
            8.49
            
            
            9,677
            
            
            4.00
            
            
            12,097
            
            
            5.00(to
                Average Assets)**As
                of December 31, 2005:**Total
                Capital
            
            $
            21,681
            
            
            13.30
            %
            $
            13,041
            
            
            8.00
            %
            $
            16,302
            
            
            10.00
            %(to
                Risk Weighted Assets)Tier
                I Capital
            
            
            20,084
            
            
            12.32
            
            
            6,521
            
            
            4.00
            
            
            9,781
            
            
            6.00(to
                Risk Weighted Assets)Tier
                I Capital
            
            
            20,084
            
            
            8.46
            
            
            9,496
            
            
            4.00
            
            
            11,870
            
            
            5.00(to
                Average Assets)




**Note
      15.**  **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.





48
 *Index*





**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, 2006**
            
            **December
                31, 2005****Carrying****Value**
            
            **Estimated
                Fair****Value**
            
            **Carrying****Value**
            
            **Estimated
                Fair****Value****Financial
                assets:**Cash
                and due from banks
            
            $
            6,064,890
            
            $
            6,064,890
            
            $
            6,770,128
            
            $
            6,770,128Interest
                bearing deposits with other banks
            
            
            29,858
            
            
            28,858
            
            
            102,608
            
            
            102,608Federal
                funds sold
            
            
            -
            
            
            -
            
            
            1,900,000
            
            
            1,900,000Securities
                available for sale
            
            
            59,745,539
            
            
            59,745,539
            
            
            66,854,339
            
            
            66,854,339Loans,
                net
            
            
            166,217,889
            
            
            158,001,485
            
            
            152,136,327
            
            
            142,877,836Accrued
                interest receivable
            
            
            1,393,468
            
            
            1,393,468
            
            
            1,321,120
            
            
            1,321,120**Financial
                liabilities:**Deposits
            
            $
            196,543,215
            
            $
            197,344,439
            
            $
            190,485,729
            
            $
            190,482,623Short-term
                borrowings
            
            
            19,833,434
            
            
            19,833,434
            
            
            20,511,399
            
            
            20,511,399Long-term
                borrowings
            
            
            3,511,770
            
            
            3,426,840
            
            
            5,145,328
            
            
            5,043,043Accrued
                interest payable
            
            
            511,094
            
            
            511,094
            
            
            333,198
            
            
            333,198**Financial
                instruments:**Interest
                rate swaps and call options
            
            $
            21,054
            
            $
            21,054
            
            $
            53,271
            
            $
            53,271




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
      16. Condensed Financial Statements of Parent Company**





Information
      relative to the parent company's balance sheets at December 31, 2006 and 2005,
      and the related statements of income and cash flows for the years ended December
      31, 2006, 2005 and 2004, are presented below.




**December
                31,****Balance
                Sheets**
            
            **2006**
            
            **2005****Assets**Cash
            
            $
            2,853
            
            $
            2,136Investment
                in subsidiary
            
            
            20,275,166
            
            
            19,611,169**Total
                assets**
            
            $
            20,278,019
            
            $
            19,613,305**Shareholders'
                equity**Common
                stock, $2.00 par value, 4,500,000 and 2,250,000 shares authorized,
                issued
                2,250,000 and 750,000 shares, respectively
            
            $
            4,500,000
            
            $
            1,500,000Additional
                paid-in capital
            
            
            -
            
            
            2,100,000Retained
                earnings
            
            
            20,842,981
            
            
            20,704,572Accumulated
                other comprehensive income/(loss)
            
            
            (1,233,399
            )
            
            (1,315,875
            )Treasury
                stock at cost, 420,496 and 132,012 shares, respectively
            
            
            (3,831,563
            )
            
            (3,375,392
            )**Total
                shareholders' equity**
            
            $
            20,278,019
            
            $
            19,613,305




49
 *Index*




**For
                the Years Ended December 31,****Statements
                of Income**
            
            **2006**
            
            **2005**
            
            **2004**Income
                - dividends from subsidiary bank
            
            $
            1,512,770
            
            $
            1,288,485
            
            $
            1,298,650Expenses
                - operating
            
            
            7,400
            
            
            6,203
            
            
            3,300Income
                before equity in undistributed income of subsidiary
            
            
            1,505,370
            
            
            1,282,282
            
            
            1,295,350Equity
                in undistributed income of subsidiary
            
            
            581,521
            
            
            764,904
            
            
            360,989**Net
                income**
            
            $
            2,086,891
            
            $
            2,047,186
            
            $
            1,656,339





**For
                the Years Ended December 31,****Statements
                of Cash Flows**
            
            **2006**
            
            **2005**
            
            **2004****Cash
                Flows from Operating Activities**Net
                income
            
            $
            2,086,891
            
            $
            2,047,186
            
            $
            1,656,339Adjustments
                to reconcile net income to netcash
                provided by operating activities:Equity
                in undistributed income of subsidiary
            
            
            (581,521
            )
            
            (764,904
            )
            
            (360,989
            )**Cash
                provided by operating activities**
            
            
            1,505,370
            
            
            1,282,282
            
            
            1,295,350**Cash
                Flows from Investing Activities**
            
            
            -
            
            
            -
            
            
            -**Cash
                Flows from Financing Activities**Dividends
                paid to shareholders
            
            
            (1,048,482
            )
            
            (992,726
            )
            
            (972,089
            )Acquisition
                of treasury stock
            
            
            (456,171
            )
            
            (290,074
            )
            
            (322,854
            )**Cash
                used in financing activities**
            
            
            (1,504,653
            )
            
            (1,282,800
            )
            
            (1,294,943
            )Increase/(decrease)
                in cash
            
            
            717
            
            
            (518
            )
            
            407**Cash:**Beginning
            
            
            2,136
            
            
            2,654
            
            
            2,247Ending
            
            $
            2,853
            
            $
            2,136
            
            $
            2,654




50
 *Index*





**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, 2006 and 2005, and the related consolidated
      statements of income, comprehensive income, changes in shareholders’ equity and
      cash flows for each of the three years in the period ended December 31, 2006.
      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.





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 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 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, 2006 and 2005, and the results of their operations
      and their cash flows for each of the three years in the period ended December
      31, 2006, in conformity with U.S. generally accepted accounting principles.





As
      described in Note 11 to the consolidated financial statements, on December
      31,
      2006, Citizens Financial Corp. changed its method of accounting for its pension
      plan to adopt FASB Statement No. 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans.*




Yount,
      Hyde & Barbour







Winchester,
      Virginia


March
      9,
      2007





51
 *Index*




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, Executive Officers, and Corporate
      Governance





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
      an
      independent director and 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 nineteen
      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, 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, 2006, 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
            
            DirectorSince (1)
            
            Present
                TermExpiresRobert
                N. Alday
              91
            
            President,
                Phil Williams Coal Company
            
            September,
                1986
            
            April,
                2009Max
                L. Armentrout
              69
            
            President,
                and Chairman of the Board Laurel Lands Corp.; Chairman of the Board,
                Citizens Financial Corp.
            
            September,
                1986
            
            April,
                2008William
                J. Brown
              60
            
            President,
                Hess Oil Co., Inc.
            
            February,
                2000
            
            April,
                2007 (2)Edward
                L. Campbell
              67
            
            Co-Owner,
                Retired, Campbell’s Market
            
            February,
                2000
            
            April,
                2007 (2)




52
 *Index*





Name
                and Age
            
            Principal
                Occupation During PastFive Years
            
            DirectorSince (1)
            
            Present
                TermExpiresJohn
                F. Harris
              79
            
            Retired,
                Transportation Industry; Senior Vice President, Citizens National
                Bank
            
            September,
                1986
            
            April,
                2008William
                T. Johnson, Jr.
              63
            
            President
                and Chief Executive Officer and Executive Vice President, Citizens
                National Bank
            
            April,
                2005
            
            April,
                2008Cyrus
                K. Kump
              60
            
            President,
                Kump Enterprises; Kerr Real Estate
            
            June,
                1992
            
            April,
                2009Robert
                J. Schoonover
              67
            
            President
                and Chief Executive Officer, Citizens Financial Corp. and Citizens
                National Bank
            
            April,
                1998
            
            April,
                2007 (2)L.
                T. Williams
              76
            
            Consultant,
                Retired, Elkins Builders Supply
            
            September,
                1986
            
            April,
                2008John
                A. Yeager, CPA
              48
            
            Controller,
                Newlons International Sales, LLC
            
            April,
                2003
            
            April,
                2009





(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.
                Brown, Campbell, and Schoonover have been nominated to stand for
                reelection to an additional 3 year term expiring in April, 2010.





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





Name
                and Age
            
            PresentPosition
            
            Principal
                Occupation and Banking Experience Duringthe Last Five YearsRobert
                J. Schoonover
              67
            
            President
                & CEO, Citizens Financial Corp.
            
            President
                and Chief Executive Officer, Citizens Financial Corp. and Citizens
                National BankWilliam
                T. Johnson, Jr.
              63
            
            Vice
                President, Citizens Financial Corp. President &CEO, Citizens National
                Bank
            
            President
                and Chief Executive Officer and Executive Vice President, Citizens
                National BankThomas
                K. Derbyshire
              48
            
            Vice
                President, Treasurer, Citizens Financial Corp.
            
            Executive
                Vice President, Senior Vice President and Chief Financial Officer,
                Citizens National BankRudy
                F. Torjak, Jr.
              58
            
            Chief
                Credit Officer, Citizens National Bank
            
            Chief
                Credit Officer, Citizens National
                Bank




53
 *Index*





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





**Compensation
      Discussion and Analysis**





**Executive
      Compensation:** The
      executive officers of Citizens Financial Corp. serve without compensation from
      the company. Those serving as officers of the subsidiary bank are compensated
      by
      the bank for that service, however. The company does not provide any
      performance-based compensation, such as bonuses or equity awards, to any level
      of management. Senior management compensation is comprised of a salary that
      is
      established to be competitive with banks of a comparable asset size and in
      a
      comparable market. The company believes that a comparable asset size ranges
      from
      $100 to $500 million and a comparable market would include banks in West
      Virginia and the contiguous states. Comparative information is derived from
      a
      2004 West Virginia Bankers Association salary survey of banks in West Virginia
      with assets ranging from $100 to $499 million. The company also referenced
      a
      2005 salary survey purchased from Crowe Human Resource Consulting Group; this
      survey includes banks in Ohio with assets ranging from $200 to $500 million.
      In
      addition to the reference material just described, consideration is also given
      cost of living factors. This process is consistent with that used to determine
      the compensation levels of all other employees. Annual salary increases for
      all
      employees become effective after the annual stockholder’s meeting in April each
      year.





The
      principal executive officer of the corporation serves without compensation
      from
      the bank or the company. He is currently retired from the bank and receives
      fees
      for his role as a director of the company, as well as from retirement plan
      distributions.





In
      April,
      2006 the annual salary of the bank’s principal financial officer was set at
      $125,000 through the process described in the paragraph above. In addition,
      the
      annual salary for the bank’s chief executive officer was set at $135,000 in
      April. The bank’s chief executive officer also serves on the board of directors
      and receives board fees for his service in that capacity.





**Board
      Personnel Committee:** Compensation
      of the bank's chief executive officer and the bank’s principal financial officer
      is determined independently by the personnel committee of the board of
      directors. The committee is comprised of five independent directors. The
      committee sets these officers’ salaries subjectively using the process described
      in the preceding paragraphs without any participation by the chief executive
      officer or the principal financial officer. The committee then meets with the
      bank’s chief executive officer and bank’s principal financial officer to set the
      remaining executive officers’ salaries, as well as, the other officers of the
      bank.





**Retirement
      Plans:** 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. Additional information regarding the plan is contained in Note 11
      to
      the accompanying consolidated financial statements.





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, 2006, 2005 and 2004 may be found in Note 11 to the
      accompanying consolidated financial statements.





The
      bank
      entered into a nonqualified supplemental income plan with certain senior
      officers as described in Note 11 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. The plan was originally established for certain
      key
      officers after the employee pension plan benefit calculations were revised
      and
      benefits were reduced. This plan was purchased to recuperate the lost retirement
      income the officers had suffered through the pension modification.





Also
      as
      explained in Note 11, effective January 1, 2003, the bank entered into another
      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. This plan was designed to reward directors and key officers
      for their service on a basis consistent with that of many of our
      competitors.





54
 *Index*





Additional
      details regarding the pension, 401K, and supplemental retirement plans are
      provided below with the Pension Benefits Table and Nonqualified Deferred
      Compensation Table





**Other
      Benefits:** Senior
      management also participates in the bank’s other benefit plans on the same terms
      as other employees. These plans include medical insurance, life insurance,
      and
      discounts on bank products.





**Change
      in Control:** No
      employment contracts exist between any executive officer and the registrant,
      or
      its subsidiary. However, the executive supplemental income plan and the
      executive and director supplemental retirement plan described above both contain
      a change in control clause.





Under
      the
      executive supplemental income plan, if a change in control occurs and the
      executive voluntarily terminates his position, is permanently disabled, or
      is
      discharged without just cause he is entitled to receive full benefits under
      this
      plan up beginning at the early retirement age (62) without satisfying any
      minimum years of service requirement. The monthly retirement benefit for Mr.
      Schoonover, Mr. Johnson, and Mr. Derbyshire is $755, $669, and $1,069,
      respectively.





Under
      the
      executive and director supplemental retirement plan, if there is a change in
      control and the executive is subsequently terminated without cause, the benefits
      to be received under the plan vest as if the executive had worked for the
      company until normal retirement age. The executive will continue to accrue
      benefits based on the original benefit formula and will receive benefits upon
      attaining normal retirement age.





Additional
      information related to the material terms of these two retirement plans are
      included in the discussion after the Pension Benefits Table below.




On
        March
        14, 2007, the board of directors of Citizens Financial Corp. appointed William
        T. Johnson, Jr. Acting President and CEO. This appointment was deemed necessary
        due to the illness of the company’s permanent CEO, Robert J. Schoonover. Mr.
        Schoonover served as President and CEO of the company for the entire 2006
        year,
        and he is expected to return to his normal duties when his health permits.
        In
        this regard, Mr. Schoonover is included in this discussion and the tabular
        presentation below as the President and CEO. Additional information regarding
        Mr. Johnson’s appointment can be found in our Form 8-K filing dated March 14,
        2007.




The
      following table sets forth the compensation of the company's Principal Executive
      Officer and Principal Financial Officer, as well as, that of other officers
      who
      received total annual compensation exceeding $100,000.





**SUMMARY
      COMPENSATION TABLE**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary
                ($)**
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation Earnings
                (1)**
            
            **All
                Other Compensation (2) (3)**
            
            **Total**Robert
                J. Schoonover, President & CEO Citizens Financial Corp and Citizens
                National Bank
            
            
            2006
            
            $
            -
            
            
            N/A
            
            $
            110,458
            
            $
            110,458William
                T. Johnson, Jr. VP, Citizens Financial Corp. President & CEO, Citizens
                National Bank
            
            
            2006
            
            
            126,356
            
            $
            70,050
            
            
            16,927
            
            
            212,333Thomas
                K. Derbyshire VP & Treasurer, Citizens Financial Corp. EVP, SVP &
                CFO, Citizens National Bank
            
            
            2006
            
            
            120,113
            
            
            13,018
            
            
            5,851
            
            
            138,982





(1)
            Since
                Mr. Schoonover is retired from the bank, he receives payments from
                his
                pension and other supplemental plans. The payment of such benefits
                results
                in a decrease in the value of his pension and nonqualified deferred
                compensation plan, therefore it has been excluded from the table
                above. He
                participates in the employee pension plan, executive supplemental
                income
                plan, and the executive and director supplemental retirement plan;
                the
                change in the values of those plans was $(16,248), $(15,516), and
                $(26,711), respectively.


(2)
            Mr.
                Schoonover and Mr. Johnson also serve as members of the board of
                directors. In 2006, for his services as a director, Mr. Schoonover
                received director fees of $22,279 for board and committee meetings,
                as
                well as other compensation totaling $28,228 which included $20,004
                for
                consulting fees and the remainder for insurance premiums paid for
                the
                benefit of the director. In 2006, Mr. Johnson received $9,319 in
                director
                fees for his services on the board.


(3)
            In
                addition to the board fees described in the preceding footnote, this
                column includes 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 plan. 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 also included
                in
                this figure. Since Mr. Schoonover is retired from the bank his figure
                also
                includes $30,466 received from the employee pension, $9,061 received
                from
                the executive supplemental income plan, $20,424 received from the
                executive and director supplemental retirement
                plan.





55
 *Index*





**PENSION
      BENEFITS TABLE**


**Name**
                
                **Plan
                    Name**
                
                **Number
                    of Years Credited Service**
                
                **Present
                    Value of Accumulated Benefit ($)**
                
                **Payments
                    During Last Fiscal Year ($)**Employee
                  Pension
                
                32
                
                $
                394,868
                
                $
                30,466Robert
                    J. Schoonover
                
                Executive
                  Supplemental Income
                
                32
                
                
                83,025
                
                
                9,061Executive & Director Supplemental Retirement
                
                32
                
                
                157,590
                
                
                20,424Total
                
                
                
                
                635,483
                
                
                59,951Employee
                  Pension
                
                46
                
                
                308,001
                
                
                N/AWilliam
                    T. Johnson, Jr.
                
                Executive
                  Supplemental Income
                
                46
                
                
                79,229
                
                
                N/AExecutive & Director Supplemental Retirement
                
                46
                
                
                71,353
                
                
                N/ATotal
                
                
                
                
                458,583
                
                
                N/AEmployee
                  Pension
                
                15
                
                
                50,333
                
                
                N/AThomas
                    K. Derbyshire
                
                Executive
                  Supplemental Income
                
                15
                
                
                36,935
                
                
                N/AExecutive & Director Supplemental Retirement
                
                15
                
                
                4,611
                
                
                N/ATotal
                
                
                
                
                91,879
                
                
                N/A





The
      bank’s defined benefit pension plan covers all employees who meet the
      eligibility requirements. To be eligible, an employee must be 21 years of age
      and have completed one year/1,000 hours of continuous service. Our funding
      policy is to make annual contributions as permitted or required by applicable
      regulations. Pensions
      for all participants are based on five-year average final compensation. 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. Under the plan, the normal retirement age is
      65.
      However, an employee can retire beginning at age 60 and received full benefits
      based on the same formula described above using their current years of service
      and last five years of compensation. Mr. Johnson is eligible to retire under
      the
      early retirement provisions of this plan.





The
      executive supplemental income plan is a nonqualified retirement plan provided
      to
      certain key executives. The plan was written to allow the recuperation of
      retirement income lost by these executives when the pension was modified and
      benefits were reduced. Normal retirement age under the plan is 65. However,
      executives can receive 100% of their retirement benefit if they retire early
      after age 62 and have completed 30 years of service. This deferred compensation
      plan calls for 180 equal monthly payments to be paid beginning after retirement.
      The monthly retirement benefit for Mr. Schoonover, Mr. Johnson, and Mr.
      Derbyshire is $755, $669, and $1,069, respectively. These payment amounts were
      determined at plan inception as a direct result of the benefits lost in the
      pension modification. Mr. Schoonover is currently receiving benefits under
      the
      plan, and Mr. Johnson is currently qualified to retire under the early
      retirement provisions. Additional information related to the plan is contained
      in the Deferred Compensation Table below.





The
      executive and director supplemental retirement plan is a nonqualified retirement
      plan provided to certain key executives and the directors of the bank. Benefits
      paid under the plan (if any) are the result of excess after-tax earnings of
      certain life insurance contracts purchased by the bank over a defined
      opportunity cost. The opportunity cost is defined as a rolling 5 year average
      of
      the 3 year Treasury bill. The excess earnings are used to compute a retirement
      benefit that is recorded in a pre-retirement account as a liability on books of
      the registrant for each plan year. The change in the pre-retirement benefit
      is
      included in the nonqualified deferred compensation table below under the caption *Company
      Contributions in 2006* .
      Upon
      retirement of an executive, the balance in the pre-retirement account is paid
      to
      the executive in 120 monthly installments or until the executive’s death. In
      addition to these payments, the retiree also receives the additional excess
      earnings for each plan year subsequent to his retirement until death. These
      excess earnings are calculated using the same formula as described in this
      paragraph. The plan defines normal retirement age as 65, but an executive can
      retire with 100% of his benefits at age 62 if he has 30 years of service with
      the company. If the executive retires or leaves employment before he is age
      65
      and does not have 30 years of service, he will receive no benefit from the
      plan.
      Mr. Schoonover receives benefits from this plan, and Mr. Johnson is currently
      qualified to retire under this plan with full benefits. The plan also includes
      a
      death benefit for each executive. If an executive dies before retirement, his
      designee will receive a death benefit of two and one half times the executive’s
      final pre-tax gross salary. If the executive dies after retirement, his designee
      will receive a $100,000 death benefit. In either case, the executive’s designee
      also receives any remaining retirement benefit as well. Additional information
      related to the executive and director supplemental retirement plan is provided
      in the table below.





56
 *Index*





**NONQUALIFIED
      DEFERRED COMPENSATION TABLE (1)**





**Name**
            
            **Company
                Contributions in 2006 (2)**
            
            **Aggregate
                Withdrawals/ Distributions (3)**
            
            **Aggregate
                Balance at December 31, 2006 (3)**Robert
                J. Schoonover
            
            
            N/A
            
            $
            29,485
            
            $
            240,615William
                T. Johnson, Jr.
            
            $
            21,572
            
            
            N/A
            
            
            150,582Thomas
                K. Derbyshire
            
            
            5,664
            
            
            N/A
            
            
            41,546





(1)
            This
                table includes the summary information for both the executive supplemental
                income plan and the executive and director supplemental retirement
                plan.


(2)
            Amounts
                reported as company contributions in 2006 were also reported in the
                above
                Summary Compensation Table column titled C*hange
                in Pension Value and Nonqualified Deferred Compensation
                Earnings*.


(3)
            The
                distributions and the aggregate balances reported in these columns
                are
                also reported in the Pension Benefits Table
                above.





**DIRECTOR
      COMPENSATION**





**Name**
            
            **Fees
                Earned or Paid in Cash**
            
            **Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings**
            
            **All
                Other Compensation (1)**
            
            **Total**Robert
                N. Alday
            
            $
            700
            
            $
            -
            
            $
            -
            
            $
            700Max
                L. Armentrout
            
            
            20,899
            
            
            46,537
            
            
            37,694
            
            
            105,130William
                J. Brown
            
            
            19,779
            
            
            2,923
            
            
            11,017
            
            
            33,719Edward
                L. Campbell
            
            
            13,239
            
            
            7,758
            
            
            10,812
            
            
            31,809John
                F. Harris
            
            
            18,819
            
            
            17,575
            
            
            22,127
            
            
            58,521Cyrus
                K. Kump
            
            
            21,649
            
            
            2,573
            
            
            11,017
            
            
            35,239L.T.
                Williams
            
            
            21,239
            
            
            11,194
            
            
            252
            
            
            32,685John
                A. Yeager
            
            
            12,539
            
            
            571
            
            
            594
            
            
            13,704





(1)
            For
                their service, Mr. Armentrout and Mr. Harris received consulting
                fees of
                $26,784 and $21,875, respectively. The bank paid health insurance
                premiums
                for Mr. Armentrout, Mr Brown, Mr. Campbell, and Mr. Kump in the amount
                of
                $10,255 per person.





The
      table
      above includes all directors of Citizens Financial Corp, except for Robert
      J.
      Schoonover and William T. Johnson, Jr. who also serve as executive officers.
      With the exception of Mr. Alday, each director also serves on the board for
      Citizens National Bank. The table includes compensation from the company and
      the
      subsidiary bank. There are four additional directors excluded from the table
      above that only serve on the board for Citizens National Bank. The bank
      directors, Dickson W. Kidwell, Franklin M. Santmyer, Jr., Thomas A. Wamsley,
      and
      C. Curtis Woodford earned total compensation of $26,430, $13,406, $25,015,
      and
      $11,457, respectively.





Directors
      of the registrant are compensated for meetings attended in the amount of $100
      per meeting. Directors of the bank receive $663 per meeting. Under normal
      circumstances, the Board of Citizens Financial Corp. meets quarterly while
      the
      Citizens National Bank Board meets monthly. Directors also receive monthly
      fees
      for serving on and attending the meetings of various committees such as the
      loan
      committee, audit committee, or compliance committee. Directors do not
      participate in the bank’s pension plan. However, they do participate in the
      executive and director supplemental retirement plan. The benefit calculation
      of
      the plan for the directors is substantially the same as the officers, except
      their vesting period to receive benefits is 15 years, normal retirement age
      is
      70 and their death benefit is $100,000 regardless of retirement status. The
      amount of earnings allocated to each director under this plan is included in
      the
      above table.





57
 *Index*





Also
      included in the Other Compensation column above are insurance premiums paid
      by
      the bank for benefit of the directors, as well as consulting fees. The chairman
      of Citizens Financial Corp., Max L. Armentrout was paid a consulting fee of
      $26,784 by the bank and the senior vice-president of the bank, John F. Harris,
      received $21,875 for his services.




Item
      12. Security Ownership of Certain Beneficial Owners and
      Management





The
      company does not have any plan that provides for the issuance of any securities
      under equity compensation plans.





The
      company has one shareholder, Max L. Armentrout, 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, 2007. Mr. Armentrout, who is chairman of the board of
      directors of the company, beneficially owns 92,455 shares or 5.05% of the
      outstanding stock. His direct and indirect ownership is disclosed in the table
      below.




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, 2007.





Shares
                of Stock Beneficially Owned
            
            Percent
                ofName
            
            Direct
            
            Indirect
            
            Total
            
            OwnershipMax
                L. Armentrout
            
            
            77,980
            
            
            14,475
                (1
            )
            
            92,455
            
            
            5.05
            %PO
                Box 1758Elkins,
                WV 26241Robert
                N. Alday
            
            
            1,500
            
            
            60,600
                (2
            )
            
            62,100
            
            
            3.39
            %William
                J. Brown
            
            
            2,250
            
            
            3,150
                (3
            )
            
            5,400
            
            
            0.30
            %Edward
                L. Campbell
            
            
            1,500
            
            
            450
                (4
            )
            
            1,950
            
            
            0.11
            %John
                F. Harris
            
            
            7,575
            
            
            16,500
                (5
            )
            
            24,075
            
            
            1.32
            %William
                T. Johnson, Jr.
            
            
            1,500
            
            
            8,454
                (6
            )
            
            9,954
            
            
            0.54
            %Cyrus
                K. Kump
            
            
            1,500
            
            
            6,850
                (7
            )
            
            8,350
            
            
            0.46
            %Robert
                J. Schoonover
            
            
            1,500
            
            
            300
                (8
            )
            
            1,800
            
            
            0.10
            %L.
                T. Williams
            
            
            5,250
            
            
            0
            
            
            5,250
            
            
            0.29
            %John
                A. Yeager
            
            
            5,025
            
            
            0
            
            
            5,025
            
            
            0.27
            %Thomas
                K. Derbyshire
            
            
            210
            
            
            0
            
            
            210
            
            
            0.01
            %Directors
                and executive officers of the Bank
            
            
            10,935
            
            
            10,740
            
            
            21,675
                (9
            )
            
            1.18
            %All
                Directors and executive officers as a group
            
            
            116,725
            
            
            121,519
            
            
            238,244
            
            
            13.02
            %





(1)
            These
                14,475 shares are owned by Mr. Armentrout's wife.





(2)
            Mr.
                Alday's indirect ownership includes 20,400 shares owned by his wife
                and
                40,200 shares which he votes for the Phil Williams Coal Company.
                The
                40,200 shares he votes for the Phil Williams Coal Company are also
                pledged
                as collateral for a loan made in the normal course of business by
                the
                subsidiary bank.





(3)
            Includes
                750 shares owned jointly with his wife, 1500 shares held in custody
                for
                their children, and 900 shares owned by Mr. Brown’s brother and
                sister-in-law.





(4)
            Includes
                300 shares owned jointly with his wife and 150 shares owned by his
                wife.





(5)
            These
                16,500 shares are owned jointly with his
                wife.





(6)
            Includes
                5,634 shares owned jointly with his wife and 2,820 shares owned by
                his
                wife.





(7)
            Includes
                3,850 shares owned by his wife and 3,000 shares held in custody for
                their
                children.





(8)
            These
                300 shares are owned jointly with his
                wife.





(9)
            This
                figure represents the ownership of persons who are directors of the
                subsidiary bank but not of the company. Such persons number
                four.





58
 *Index*





Item
      13. Certain Relationships and Related Transactions and Director
      Independence





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, 2006, outstanding loan balances to related parties totaled
      $6,111,725 or 30.0% of equity capital with unused lines of credit of $1,617,962
      or 7.9% 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 $120,000, 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 $120,000 is contained in Note
      5 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 2006 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. Fees for
      services provided by our principal accountants are provided below:





2006
            
            2005Audit
                Fees
            
            $
            39,050
            
            $
            37,775Audit-Related
                Fees
            
            
            7,647
            
            
            6,222Tax
                Fees
            
            
            5,600
            
            
            4,800All
                Other Fees
            
            
            -
            
            
            -





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.





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.





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





59
 *Index*





INDEX
      TO
      EXHIBITS





3
                (i)
            The
                company’s Articles of Incorporation, which were previously filed as
                amended on pages 23-35 of it’s Form 10-Q dated March 31, 2006, are
                incorporated herein by reference.





3
                (ii)
            The
                company’s Bylaws, which were previously filed as amended on pages 36-41 of
                it’s Form 10-Q dated March 31, 2006, 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.





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.





21
            List
                of subsidiaries of the registrant (filed
                herewith).





23
            Consent
                of Yount, Hyde and Barbour, P.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).





99
            Notice
                of Annual Meeting of Stockholders and
                Proxy





(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.





60
 *Index*





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/ William T. Johnson, Jr.William
                T. Johnson, Jr.Acting
                President and Chief Executive OfficerDate:
            3/28/07By
                /s/ Thomas K. DerbyshireThomas
                K. DerbyshireTreasurer
                and Principal Financial OfficerDate:
            3/28/07





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
            
            Chairman
                of the Board
            
            3/28/07Max
                L. Armentrout
            
            and
                DirectorDirectorRobert
                N. Alday/s/
                William J. Brown
            
            Director
            
            3/28/07William
                J. Brown/s/
                Edward L. Campbell
            
            Director
            
            3/28/07Edward
                L. Campbell/s/
                John F. Harris
            
            Director
            
            3/28/07John
                F. Harris/s/
                William T. Johnson, Jr.
            
            Director
            
            3/28/07William
                T. Johnson, Jr./s/
                Cyrus K. Kump
            
            Director
            
            3/28/07Cyrus
                K. KumpDirectorRobert
                J. Schoonover/s/
                L. T. Williams
            
            Director
            
            3/28/07L.
                T. Williams/s/
                John A. Yeager
            
            Director
            
            3/28/07John
                A. Yeager




61
 *Index*





**SUPPLEMENTAL
      INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO**


**SECTION
      15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
      SECURITIES**


**PURSUANT
      TO SECTION 12 OF THE ACT**





The
      entire annual report and proxy materials mailed to the company's stockholders
      has been furnished to the Commission for its information under separate cover,
      in paper format, concurrent with submission to stockholders on March 21,
      2007.






62