**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**








QUARTERLY  REPORT  PURSUANT  TO
      SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE


ACT
      OF
      1934





For the quarterly period ended
            September 30, 2007





Commission
      file number 2-96144








CITIZENS
      FINANCIAL CORP.


(Exact
      name of registrant as specified in its charter)








Delaware
            55-0666598(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)








213
                Third Street, Elkins, West Virginia
            26241(Address
                of principal executive offices)
            (Zip
                Code)








(304)
      636-4095


(Registrant's
      telephone number, including area code)








Not
      Applicable


(Former
      name, former address and former fiscal year, if
      changed since last report.)








Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Sections 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 o





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 o
            Accelerated
                filer o
            Non-accelerated
                filer x





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





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





Outstanding
                atClass
            
            November
                14, 2007Common
                Stock ($2 par value)
            
            1,829,504







1





**FORM
      10-Q**


**CITIZENS
      FINANCIAL CORP.**


**Quarter
      Ended September 30, 2007**





INDEX





Page
                NoPart
                I.  Financial InformationItem
                1.  Financial StatementsCondensed
                Consolidated Balance Sheets September 30, 2007 and
                December 31, 2006
            3Condensed
                Consolidated Statements of Income Three Months
                Ended September 30, 2007 and September 30, 2006 and Nine Months Ended
                September 30, 2007 and September 30, 2006
            4Statements
                of Comprehensive Income/Loss Three Months Ended
                September 30, 2007 and September 30, 2006 and Nine Months Ended September
                30, 2007 and Sept. 30, 2006
            5Condensed
                Consolidated Statements of Changes in
                Shareholders' Equity Nine Months Ended September 30, 2007 and September
                30, 2005
            6Condensed
                Consolidated Statements of Cash Flows Nine Months
                September 30, 2007 and September 30, 2006
            7Notes
                to Condensed Consolidated Financial
                Statements
            8-14Item
                2.  Management's Discussion and Analysis of
                Financial Condition and Results of Operations
            14-22Item
                3.  Quantitative and Qualitative Disclosures
                About Market Risk
            23Item
                4.  Controls and
                Procedures
            23Part
                II.  Other Information and Index to ExhibitsItems
                1 through 6
            24Signatures
            25Certification
                by Executive Officers Pursuant to Sections 302 and 906 of the
                Sarbanes-Oxley Act of 2002
            26-29




2
 ***Index***





PART
      I
      ITEM I - FINANCIAL INFORMATION


CITIZENS
      FINANCIAL CORP.


CONDENSED
      CONSOLIDATED BALANCE SHEETS


(In
      thousands of dollars)





Sept. 30,
            
            
            Dec. 31,2007
            
            
            2006(Unaudited)
            
            
            
            *ASSETSCash
                and due from banks
            
            $
            5,171
            
            
            $
            6,065Interest
                bearing deposits with other banks
            
            
            2,311
            
            
            
            30Federal
                funds sold
            
            
            600
            
            
            
            -Securities
                available for sale, at fair value
            
            
            56,674
            
            
            
            59,745Loans,
                less allowance for loan losses of $2,098 and $1,873,
                respectively
            
            
            171,377
            
            
            
            166,218Premises
                and equipment, net
            
            
            4,179
            
            
            
            4,331Accrued
                interest receivable
            
            
            1,418
            
            
            
            1,393Other
                real estate
            
            
            55
            
            
            
            446Other
                assets
            
            
            4,622
            
            
            
            4,752Total
                Assets
            
            $
            246,407
            
            
            $
            242,980LIABILITIES
                AND SHAREHOLDERS' EQUITYDeposits:Noninterest
                bearing
            
            $
            26,330
            
            
            $
            27,103Interest
                bearing
            
            
            175,720
            
            
            
            169,440Total
                deposits
            
            
            202,050
            
            
            
            196,543Short-term
                borrowings
            
            
            17,915
            
            
            
            19,833Long-term
                borrowings
            
            
            2,810
            
            
            
            3,512Other
                liabilities
            
            
            2,627
            
            
            
            2,814Total
                liabilities
            
            
            225,402
            
            
            
            222,702Commitments
                and contingencies
            
            
            -
            
            
            
            -SHAREHOLDERS'
                EQUITYCommon
                stock, $2.00 par value, authorized 4,500,000 issued
                2,250,000
            
            
            4,500
            
            
            
            4,500Retained
                earnings
            
            
            21,340
            
            
            
            20,843Accumulated
                other comprehensive income/(loss)
            
            
            (1,003
            )
            
            
            (1,233
            )Treasury
                stock at cost, 420,496 shares
            
            
            (3,832
            )
            
            
            (3,832
            )Total
                shareholders' equity
            
            
            21,005
            
            
            
            20,278Total
                Liabilities and Shareholders' Equity
            
            $
            246,407
            
            
            $
            242,980








*From
      audited financial statements.





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





3
 ***Index***





CITIZENS
      FINANCIAL CORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME


(In
      thousands of dollars, except per share data)





Three Months Ended
            
            
            Nine Months EndedSept. 30,
            
            
            Sept. 30,2007
            
            
            2006
            
            
            2007
            
            
            2006(Unaudited)
            
            
            (Unaudited)INTEREST
                INCOMEInterest
                and fees on loans
            
            $
            3,491
            
            
            $
            3,406
            
            
            $
            10,178
            
            
            $
            9,571Interest
                and dividends onsecurities:Taxable
            
            
            453
            
            
            
            472
            
            
            
            1,419
            
            
            
            1,530Tax-exempt
            
            
            155
            
            
            
            75
            
            
            
            387
            
            
            
            226Interest
                   on interest bearing deposits with other banks
            
            
            33
            
            
            
            20
            
            
            
            79
            
            
            
            25Interest
                on federal funds sold
            
            
            3
            
            
            
            2
            
            
            
            12
            
            
            
            20Total
                interest income
            
            
            4,135
            
            
            
            3,975
            
            
            
            12,075
            
            
            
            11,372INTEREST
                EXPENSEInterest
                on deposits
            
            
            1,532
            
            
            
            1,308
            
            
            
            4,417
            
            
            
            3,477Interest
                on short-term borrowings
            
            
            187
            
            
            
            227
            
            
            
            520
            
            
            
            620Interest
                on long-term borrowings
            
            
            33
            
            
            
            42
            
            
            
            104
            
            
            
            134Total
                interest expense
            
            
            1,752
            
            
            
            1,577
            
            
            
            5,041
            
            
            
            4,231Net
                interest income
            
            
            2,383
            
            
            
            2,398
            
            
            
            7,034
            
            
            
            7,141Provision
                for loan losses
            
            
            149
            
            
            
            69
            
            
            
            805
            
            
            
            275Net
                interest income after provision for loan losses
            
            
            2,234
            
            
            
            2,329
            
            
            
            6,229
            
            
            
            6,866NONINTEREST
                INCOMETrust
                department income
            
            
            56
            
            
            
            53
            
            
            
            167
            
            
            
            149Brokerage
                fees
            
            
            35
            
            
            
            26
            
            
            
            112
            
            
            
            90Service
                fees
            
            
            267
            
            
            
            216
            
            
            
            769
            
            
            
            625Insurance
                commissions
            
            
            8
            
            
            
            9
            
            
            
            17
            
            
            
            20Security
                gains/(losses)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (18
            )Secondary
                market loan fees
            
            
            17
            
            
            
            22
            
            
            
            83
            
            
            
            87Other
            
            
            64
            
            
            
            60
            
            
            
            215
            
            
            
            210Total
                noninterest income
            
            
            447
            
            
            
            386
            
            
            
            1,363
            
            
            
            1,163NONINTEREST
                EXPENSESalaries
                and employee benefits
            
            
            927
            
            
            
            965
            
            
            
            2,895
            
            
            
            2,850Net
                occupancy expense
            
            
            119
            
            
            
            99
            
            
            
            329
            
            
            
            280Equipment
                expense
            
            
            80
            
            
            
            102
            
            
            
            293
            
            
            
            339Data
                processing
            
            
            126
            
            
            
            105
            
            
            
            391
            
            
            
            411Director
                fees
            
            
            58
            
            
            
            74
            
            
            
            193
            
            
            
            204Postage
            
            
            47
            
            
            
            41
            
            
            
            131
            
            
            
            130Professional
                service fees
            
            
            103
            
            
            
            61
            
            
            
            243
            
            
            
            267Stationery
            
            
            44
            
            
            
            35
            
            
            
            119
            
            
            
            109Software
                expense
            
            
            58
            
            
            
            46
            
            
            
            142
            
            
            
            135Net
                cost of operation of other real estate
            
            
            269
            
            
            
            77
            
            
            
            451
            
            
            
            133Other
            
            
            258
            
            
            
            292
            
            
            
            810
            
            
            
            740Total
                noninterest expense
            
            
            2,089
            
            
            
            1,897
            
            
            
            5,997
            
            
            
            5,598Income
                before income taxes
            
            
            592
            
            
            
            818
            
            
            
            1,595
            
            
            
            2,431Income
                tax expense
            
            
            160
            
            
            
            268
            
            
            
            439
            
            
            
            777Net
                income
            
            $
            432
            
            
            $
            550
            
            
            $
            1,156
            
            
            $
            1,654Basic
                and fully diluted earnings per common share
            
            $
            0.23
            
            
            $
            0.30
            
            
            $
            0.63
            
            
            $
            0.90Weighted
                average shares outstanding
            
            
            1,829,504
            
            
            
            1,837,959
            
            
            
            1,829,504
            
            
            
            1,846,391Dividends
                per common share
            
            $
            0.12
            
            
            $
            0.12
            
            
            $
            0.36
            
            
            $
            0.36





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





4
 ***Index***





CITIZENS
      FINANCIAL CORP.


STATEMENTS
      OF COMPREHENSIVE INCOME/LOSS


(In
      thousands of dollars)





Three Months Ended
            
            
            Nine Months EndedSept. 30
            
            
            Sept. 302007
            
            
            2006
            
            
            2007
            
            
            2006(Unaudited)
            
            
            (Unaudited)Net
                income
            
            $
            432
            
            
            $
            550
            
            
            $
            1,156
            
            
            $
            1,654Other
                comprehensive income:Gross
                unrealized gains/(losses) arising during the period
            
            
            555
            
            
            
            555
            
            
            
            371
            
            
            
            187Adjustment
                for income tax benefit
            
            
            (211
            )
            
            
            (211
            )
            
            
            (141
            )
            
            
            (71
            )344
            
            
            
            344
            
            
            
            230
            
            
            
            116Add:  Reclassification
                adjustment for (gains)/losses included in net income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            18Adjustment
                for income tax expense/(benefit)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (7
            )-
            
            
            
            -
            
            
            
            -
            
            
            
            11Other
                comprehensive income/(loss), net of tax
            
            
            344
            
            
            
            344
            
            
            
            230
            
            
            
            127Comprehensive
                income/(loss)
            
            $
            776
            
            
            $
            894
            
            
            $
            1,386
            
            
            $
            1,781





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





5
 ***Index***





CITIZENS
      FINANCIAL CORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


(In
      thousands of dollars)





Nine Months Ended September 30, 2007 and 2006(unaudited)Accumulated
            
            
            
            
            
            TotalAdditional
            
            
            
            
            
            Other
            
            
            
            
            
            Share-Common Stock
            
            
            Paid-in
            
            
            Retained
            
            
            Comprehensive
            
            
            Treasury
            
            
            holders'Shares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            Income/(Loss)
            
            
            Stock
            
            
            EquityBalance,
                January 1, 2007
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            -
            
            
            $
            20,843
            
            
            $
            (1,233
            )
            
            $
            (3,832
            )
            
            $
            20,278Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,156
            
            
            
            -
            
            
            
            -
            
            
            
            1,156Net
                change in unrealized gain/loss on securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            230
            
            
            
            -
            
            
            
            230Cash
                dividends declared($0.36 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (659
            )
            
            
            -
            
            
            
            -
            
            
            
            (659
            )Balance
                September 30, 2007
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            -
            
            
            $
            21,340
            
            
            $
            (1,003
            )
            
            $
            (3,832
            )
            
            $
            21,005Balance,
                January 1, 2006
            
            
            750,000
            
            
            $
            1,500
            
            
            $
            2,100
            
            
            $
            20,704
            
            
            $
            (1,316
            )
            
            $
            (3,375
            )
            
            $
            19,613Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,654
            
            
            
            -
            
            
            
            -
            
            
            
            1,654Net
                change in unrealized gain/loss on securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            127
            
            
            
            -
            
            
            
            127Cash
                dividends declared ($0.36 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (664
            )
            
            
            -
            
            
            
            -
            
            
            
            (664
            )Purchase
                of 17,772 treasury stock
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (333
            )
            
            
            (333
            )Stock
                split effected in the form of a 200% stock dividend
            
            
            1,500,000
            
            
            
            3,000
            
            
            
            (2,100
            )
            
            
            (900
            )
            
            
            -
            
            
            
            -
            
            
            
            -Balance
                September 30, 2006
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            -
            
            
            $
            20,794
            
            
            $
            (1,189
            )
            
            $
            (3,708
            )
            
            $
            20,397








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





6
 ***Index***





CITIZENS
      FINANCIAL CORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
      thousands of dollars)




Nine Months EndedSeptember 30,2007
            
            
            2006Cash
                flows from operating activities:
            
            (Unaudited)Net
                Income
            
            $
            1,156
            
            
            $
            1,654Adjustments
                to reconcile net income to cash provided by operating
                activities:Provision
                for loan losses
            
            
            805
            
            
            
            275Depreciation
                and amortization
            
            
            241
            
            
            
            272Amortization
                on securities
            
            
            23
            
            
            
            55Loss
                on sale of securities
            
            
            -
            
            
            
            18Loss
                on sale of other real estate
            
            
            284
            
            
            
            89Provision
                for loss on other real estate
            
            
            113
            
            
            
            -Increase
                in accrued interest receivable
            
            
            (25
            )
            
            
            (12
            )Decrease
                in other assets
            
            
            124
            
            
            
            150(Decrease)/increase
                in other liabilities
            
            
            (187
            )
            
            
            29Cash
                provided by operating activities
            
            
            2,534
            
            
            
            2,530Cash
                flows from investing activities:Principal
                payments, available for sale securities
            
            
            1,395
            
            
            
            1,510Proceeds
                from sales of available for sale securities
            
            
            296
            
            
            
            3,694Proceeds
                from maturities and calls, available for sale securities
            
            
            13,655
            
            
            
            11,500Purchases
                of available for sale securities
            
            
            (11,927
            )
            
            
            (7,590
            )Purchases
                of premises and equipment
            
            
            (79
            )
            
            
            (270
            )Proceeds
                from sale of other real estate
            
            
            1,106
            
            
            
            158Increase
                in loans
            
            
            (7,221
            )
            
            
            (12,445
            )Cash
                used in investing activities
            
            
            (2,775
            )
            
            
            (3,443
            )Cash
                flows from financing activities:Cash
                dividends paid
            
            
            (659
            )
            
            
            (664
            )Acquisition
                of treasury stock
            
            
            -
            
            
            
            (333
            )Decrease
                in short-term borrowing
            
            
            (1,918
            )
            
            
            (2,233
            )Repayment
                of long-term borrowing
            
            
            (702
            )
            
            
            (1,281
            )Increase
                in time deposits
            
            
            933
            
            
            
            8,747Increase/(decrease)
                in other deposits
            
            
            4,574
            
            
            
            (3,599
            )Cash
                provided by financing activities
            
            
            2,228
            
            
            
            639Net
                increase/(decrease) in cash and cash equivalents
            
            
            1,987
            
            
            
            (274
            )Cash
                and cash equivalents at beginning of period
            
            
            6,095
            
            
            
            8,773Cash
                and cash equivalents at end of period
            
            $
            8,082
            
            
            $
            8,499Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            5,006
            
            
            $
            4,081Income
                taxes
            
            
            738
            
            
            
            971Supplemental
                Schedule of Noncash Investing andFinancing
                Activities:Other
                real estate and other assets acquired in settlement of
                loans
            
            $
            1,257
            
            
            $
            559





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





7
 ***Index***





CITIZENS
      FINANCIAL CORP. AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1 -
BASIS OF PRESENTATION





The
      accounting and reporting policies
      of Citizens Financial Corp. and Subsidiary ("Citizens", "the company" or “we”)
      conform to U.S. generally accepted accounting principles and to general policies
      within the financial services industry.  The preparation of financial
      statements in conformity with U.S. generally accepted accounting principles
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the period.  Actual results could differ
      from those estimates.





The
      condensed consolidated statements
      contained herein include the accounts of Citizens Financial Corp. and its
      wholly-owned subsidiary Citizens National Bank ("the bank").  All
      significant intercompany balances and transactions have been eliminated. The
      information contained in the financial statements is unaudited except where
      indicated.  In the opinion of management, all adjustments for a fair
      presentation of the results of the interim periods have been
      made.  All such adjustments were of a normal, recurring
      nature.  The results of operations for the nine months ended September
      30, 2007 are not necessarily indicative of the results to be expected for the
      full year.  The financial statements and notes included herein should
      be read in conjunction with those included in Citizens' 2006 Annual Report
      to
      Shareholders and Form 10-K.








NOTE
      2 –
RECLASSIFICATIONS





Certain
      accounts in the condensed
      consolidated financial statements for 2006, as previously presented, have been
      reclassified to conform with current year classifications.








NOTE
      3 -
SECURITIES





The
      amortized cost, unrealized gains,
      unrealized losses and estimated fair values of securities at September 30,
      2007
      and December 31, 2006 are summarized as follows (in thousands):





September
                30, 2007CarryingValue(EstimatedAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value)(Unaudited)**Available
                for sale:**U.S.
                Government agencies and corporations
            
            $
            32,078
            
            
            $
            86
            
            
            $
            85
            
            
            $
            32,079Mortgage
                backed securities-U.S.
                Government agencies and corporations
            
            
            7,049
            
            
            
            -
            
            
            
            102
            
            
            
            6,947Tax
                exempt state and political subdivisions
            
            
            16,853
            
            
            
            12
            
            
            
            151
            
            
            
            16,714Federal
                Reserve Bank stock
            
            
            108
            
            
            
            -
            
            
            
            -
            
            
            
            108Federal
                Home Loan Bank stock
            
            
            663
            
            
            
            -
            
            
            
            -
            
            
            
            663Community
                Financial Services Inc. stock
            
            
            163
            
            
            
            -
            
            
            
            -
            
            
            
            163Total
                securities available for sale
            
            $
            56,914
            
            
            $
            98
            
            
            $
            338
            
            
            $
            56,674




8
 ***Index***





December, 31, 2006*CarryingValue(EstimatedAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value)**Available
                for sale:**U.S.
                Government agencies and corporations
            
            $
            41,921
            
            
            $
            5
            
            
            $
            415
            
            
            $
            41,511Mortgage
                backed securities-U.S.
                Government agencies and corporations
            
            
            8,374
            
            
            
            -
            
            
            
            149
            
            
            
            8,225Tax
                exempt state and political subdivisions
            
            
            9,183
            
            
            
            16
            
            
            
            68
            
            
            
            9,131Federal
                Reserve Bank stock
            
            
            108
            
            
            
            -
            
            
            
            -
            
            
            
            108Federal
                Home Loan Bank stock
            
            
            770
            
            
            
            -
            
            
            
            -
            
            
            
            770Total
                securities available for sale
            
            $
            60,356
            
            
            $
            21
            
            
            $
            632
            
            
            $
            59,745




*
      From
      audited financial statements





The
      tables below provide summaries of
      securities available for sale which were in an unrealized loss position at
      September 30, 2007 and December 31, 2006.  As of September 30, 2007,
      these securities had a total fair value of $41,369,000 and carried unrealized
      losses of $338,000 or 0.8%.  Securities which have been in a
      continuous loss position for the past twelve months total
      $30,650,000.  The unrealized loss pertaining to these securities is
      $234,000 or 0.8%.  Many 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 $54,092,000 of securities that carried unrealized losses at December
      31,
      2006.





September 30, 2007Securities Available for SaleLess Than 12 Months
            
            
            12 Months or More
            
            
            TotalFair
            
            
            Unrealized
            
            
            Fair
            
            
            Unrealized
            
            
            Fair
            
            
            UnrealizedValue
            
            
            Losses
            
            
            Value
            
            
            Losses
            
            
            Value
            
            
            LossesU.S.
                Government agencies and corporations
            
            $
            -
            
            
            $
            -
            
            
            $
            19,652
            
            
            $
            85
            
            
            $
            19,652
            
            
            $
            85Mortgage
                backed securities-U.S.
                Government agencies and corporations
            
            
            844
            
            
            
            3
            
            
            
            6,024
            
            
            
            99
            
            
            
            6,868
            
            
            
            102Tax
                exempt state and political subdivisions
            
            
            9,875
            
            
            
            101
            
            
            
            4,974
            
            
            
            50
            
            
            
            14,849
            
            
            
            151Total
                securities available for sale
            
            $
            10,719
            
            
            $
            104
            
            
            $
            30,650
            
            
            $
            234
            
            
            $
            41,369
            
            
            $
            338





9
 ***Index***


December 31, 2006*Securities Available for SaleLess Than 12 Months
              
              
              12 Months or More
              
              
              TotalFair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedValue
              
              
              Losses
              
              
              Value
              
              
              Losses
              
              
              Value
              
              
              LossesU.S.
                  Government agencies and corporations
              
              $
              5,332
              
              
              $
              13
              
              
              $
              33,264
              
              
              $
              401
              
              
              $
              38,596
              
              
              $
              414Mortgage
                  backed securities-U.S.
                  Government agencies and corporations
              
              
              2,783
              
              
              
              10
              
              
              
              5,327
              
              
              
              139
              
              
              
              8,110
              
              
              
              149Tax
                  exempt state and political subdivisions
              
              
              3,441
              
              
              
              18
              
              
              
              3,945
              
              
              
              51
              
              
              
              7,386
              
              
              
              69Total
                  securities available for sale
              
              $
              11,556
              
              
              $
              41
              
              
              $
              42,536
              
              
              $
              591
              
              
              $
              54,092
              
              
              $
              632
  *From
        audited financial statements.


The
      maturities, amortized cost and estimated fair values of the bank's securities
      at
      September 30, 2007 are summarized as follows (in thousands):





Available for saleAmortized
            
            
            EstimatedCost
            
            
            Fair ValueDue
                within 1 year
            
            $
            19,874
            
            
            $
            19,803Due
                after 1 but within 5 years
            
            
            27,778
            
            
            
            27,698Due
                after 5 but within 10 years
            
            
            7,338
            
            
            
            7,262Due
                after 10 years
            
            
            990
            
            
            
            977Equity
                securities
            
            
            934
            
            
            
            934$
            56,914
            
            
            $
            56,674





Mortgage
      backed securities have
      remaining contractual maturities ranging from 1 month to 13.42 years and are
      reflected in the maturity distribution schedule shown above based on their
      anticipated average life to maturity, which ranges from 0.12 to 4.51
      years.  The company’s equity securities are required to be held for
      membership in the Federal Reserve and Federal Home Loan Bank and are shown
      at
      cost since they may only be sold to the respective issuer or another member
      at
      par.  Similarly, the company purchased a $163,000 investment in equity
      securities of Community Financial Services Inc. in the second
      quarter.  Community Financial Services Inc. is the holding company of
      one of our correspondent banks, the Bankers Bank.  Like the other
      equity securities we hold, this stock can only be traded between member
      organizations.





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 for the
      nine
      month periods ended September 30, 2007 and 2006 are as follows (in
      thousands):


Proceeds From
            
            
            Gross RealizedCalls and
            
            
            PrincipalSales
            
            
            Maturities
            
            
            Payments
            
            
            Gains
            
            
            Losses**September
                30, 2007:**Securities
                available for sale
            
            $
            296
            
            
            $
            13,655
            
            
            $
            1,395
            
            
            $
            -
            
            
            $
            -**September
                30, 2006:**Securities
                available for sale
            
            $
            3,694
            
            
            $
            11,500
            
            
            $
            1,510
            
            
            $
            -
            
            
            $
            18





At
      September 30, 2007 and December 31,
      2006 securities with an amortized cost of $32,252,000 and $30,808,000,
      respectively, with estimated fair values of $32,143,000 and $30,449,000,
      respectively, were pledged to secure public deposits, securities sold under
      agreements to repurchase, and for other purposes required or permitted by
      law.





At
      September 30, 2007 and December 31,
      2006 our securities portfolio contained no concentrations within any specific
      industry or issuer.







10
 ***Index***





NOTE
      4 -
LOANS




Total
      loans are summarized as follows
      (in thousands):





September 30, 2007
            
            
            December 31, 2006(Unaudited)
            
            
            
            *Commercial,
                financial and agricultural
            
            $
            25,912
            
            
            $
            26,969Real
                estate - construction
            
            
            11,084
            
            
            
            13,965Real
                estate – home equity
            
            
            7,163
            
            
            
            7,985Real
                estate – residential mortgage
            
            
            61,811
            
            
            
            61,401Real
                estate – commercial mortgage
            
            
            54,917
            
            
            
            45,579Installment
                loans
            
            
            10,708
            
            
            
            10,635Other
            
            
            2,029
            
            
            
            1,611Total
                loans
            
            
            173,624
            
            
            
            168,145Net
                deferred loan origination fees and costs
            
            
            (148
            )
            
            
            (54
            )Unearned
                income
            
            
            (1
            )
            
            
            -Total
            
            
            173,475
            
            
            
            168,091Allowance
                for loan losses
            
            
            (2,098
            )
            
            
            (1,873
            )Loans,
                net
            
            $
            171,377
            
            
            $
            166,218





*
      From
      audited financial statements





Loans
      in a nonaccrual status were
      $4,581,000 and $2,208,000 at September 30, 2007 and December 31, 2006,
      respectively.





Many
      of our loans in a nonaccrual
      status are also considered impaired.  At September 30, 2007 our
      recorded investment in impaired loans was $4,160,000.  The valuation
      allowance assigned to these loans totaled $1,194,000. Our average investment
      in
      the impaired loans was $3,817,000 during the quarter.  The amount of
      interest income recorded on them in the third quarter was $80,000 while the
      amount of interest collected was $70,000.  Impaired loans at December
      31, 2006 were $5,148,000.








NOTE
      5 -
ALLOWANCE FOR LOAN LOSSES





Analyses
      of the allowance for loan losses are presented below (in


thousands):


Three Months Ended
            
            
            Nine Months EndedSeptember 30,
            
            
            September 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Balance
                at beginning of period
            
            $
            2,103
            
            
            $
            1,778
            
            
            $
            1,873
            
            
            $
            1,597Loans
                charged off:Commercial
                and industrial
            
            
            149
            
            
            
            2
            
            
            
            334
            
            
            
            26Real
                estate – res. mortgage
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
                estate – comm. mortgage
            
            
            -
            
            
            
            -
            
            
            
            242
            
            
            
            -Consumer
                and other
            
            
            6
            
            
            
            14
            
            
            
            30
            
            
            
            21Total
            
            
            155
            
            
            
            16
            
            
            
            606
            
            
            
            47Recoveries:Commercial
                and industrial
            
            
            -
            
            
            
            2
            
            
            
            -
            
            
            
            2Real
                estate - mortgage
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer
                and other
            
            
            1
            
            
            
            3
            
            
            
            26
            
            
            
            9Total
                recoveries
            
            
            1
            
            
            
            5
            
            
            
            26
            
            
            
            11Net
                losses
            
            
            154
            
            
            
            11
            
            
            
            580
            
            
            
            36Provision
                for loan losses
            
            
            149
            
            
            
            69
            
            
            
            805
            
            
            
            275Balance
                at end of period
            
            $
            2,098
            
            
            $
            1,836
            
            
            $
            2,098
            
            
            $
            1,836




11
 ***Index***





NOTE
      6 -
DEPOSITS





The
      following is a summary of interest
      bearing deposits by type (in thousands):


Sept. 30, 2007
            
            
            December 31, 2006(Unaudited)
            
            
            *Interest
                bearing checking
            
            $
            48,593
            
            
            $
            41,768Money
                market accounts
            
            
            5,598
            
            
            
            5,979Savings
                accounts
            
            
            21,649
            
            
            
            22,746Certificates
                of deposit under $100,000
            
            
            60,001
            
            
            
            59,950Certificates
                of deposit of $100,000 or more
            
            
            39,879
            
            
            
            38,997Total
            
            $
            175,720
            
            
            $
            169,440





*
      From
      audited financial statements








NOTE
      7 -
BORROWINGS





The
      following table summarizes our
      borrowings by type (in thousands):





Sept. 30, 2007
            
            
            December 31, 2006(Unaudited)
            
            
            *Short-term
                borrowings:Securities
                sold under agreements to repurchase
            
            $
            17,915
            
            
            $
            15,970Federal
                funds purchased
            
            
            -
            
            
            
            425Overnight
                advances from Federal Home Loan Bank of Pittsburgh (FHLB) line of
                credit
            
            
            -
            
            
            
            3,438Total
            
            $
            17,915
            
            
            $
            19,833Long-term
                borrowings:Advances
                from FHLB
            
            $
            2,810
            
            
            $
            3,512





*
      From
      audited financial statements





Long-term
      borrowings are obtained
      from FHLB and are used to finance specific lending activities.








NOTE
      8 -
EMPLOYEE BENEFIT PLANS





The
      components of net periodic benefit
      cost of our pension and other benefit plans are presented below (in
      thousands):





Nine Months Ended September 30,Pension Benefits
            
            
            Other Benefits2007
            
            
            2006
            
            
            2007
            
            
            2006Service
                cost
            
            $
            87
            
            
            $
            84
            
            
            $
            15
            
            
            $
            18Interest
                cost
            
            
            217
            
            
            
            204
            
            
            
            21
            
            
            
            24Expected
                return on plan assets
            
            
            (248
            )
            
            
            (247
            )
            
            
            -
            
            
            
            -Net
                amortization and deferral
            
            
            59
            
            
            
            59
            
            
            
            7
            
            
            
            12Net
                periodic cost
            
            $
            115
            
            
            $
            100
            
            
            $
            43
            
            
            $
            54





In
      the first nine months of 2007 we
      contributed $112,000 to our pension plan. A payment of $70,000 was made to
      the
      pension plan in 2006.








NOTE
      9 -
COMMITMENTS AND CONTINGENCIES





The
      company is not aware of any
      commitments or contingencies which may reasonably be expected to have a material
      impact on operating results, liquidity or capital resources.  Known
      commitments and contingencies include the maintenance of reserve balances with
      the Federal Reserve, various legal actions arising in the normal course of
      business and commitments to extend credit.





12
 ***Index***





NOTE
      10 -
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK





The
      subsidiary 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.





Financial
                instruments whose contract
            
            Sept. 30, 2007
            
            
            December 31, 2006amounts
                represent credit risk
            
            (unaudited)
            
            
            *(in
                thousands)Commitments
                to extend credit
            
            $
            26,299
            
            
            $
            22,054Standby
                letters of credit`
            
            
            344
            
            
            
            462Total
            
            $
            26,643
            
            
            $
            22,516





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.





*
      From
      audited financial statements.








NOTE
      11 -
EARNINGS PER SHARE





Basic
      earnings per share is based on
      the weighted average number of shares outstanding during the
      period.  For the nine months ended September 30, 2007 and 2006 the
      weighted average number of shares outstanding were, 1,829,504 and 1,846,391,
      respectively.  During the periods ended September 30, 2007 and 2006
      the company did not have any dilutive securities.








NOTE
      12 –
SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the Financial
      Accounting Standards Board (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 consolidated financial statements.





In
      February 2007, the FASB issued
      Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159).  This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. The objective of this Statement is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The fair value option established by this Statement permits all
      entities to choose to measure eligible items at fair value at specified election
      dates. A business entity shall report unrealized gains and losses on items
      for
      which the fair value option has been elected in earnings at each subsequent
      reporting date. The fair value option may be applied instrument by instrument
      and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s
      first fiscal year that begins after November 15, 2007.  The company is
      in the process of evaluating the impact SFAS 159 may have on its consolidated
      financial statements.





13
 ***Index***





Part
      1 Item 2


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 its 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 document.  Readers are
      also encouraged to obtain our Annual Report on Form 10-K for additional
      information.  You may obtain our Form 10-K through various internet
      sites including www.cnbelkins.com.





Description
      of Business





Citizens
      Financial Corp. is a $246
      million Delaware corporation headquartered in Elkins, WV.  From there
      our wholly-owned subsidiary, Citizens National Bank of Elkins, provides loan,
      deposit, trust, brokerage and other banking and 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
      subsidiary bank.





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.  When considering forward
      looking statements, you should keep in mind the cautionary statements in this
      document and in our other SEC filings, including the “Risk Factors” section in
      Item 1A of our 2006 Annual Report on Form 10-K.  Although we believe
      the expectations reflected in our forward looking statements are reasonable,
      actual results could differ materially.





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.





14
 ***Index***





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
      economic climate in the rural area
      in which we operate does not always have the same degree of growth or
      contraction that a more urban area may experience relative to national trends;
      however, during 2007 our economic climate has been somewhat
      subdued.  A slowdown in our local housing market has impacted our
      mortgage loan demand, while the national slowdown in the housing market along
      with rising fuel costs have prompted reduced activity in our local lumber,
      trucking, and tourism industries.  Also, the increase in the federal
      minimum wage may strain some of the small businesses in our markets, where
      a
      significant number of the employed earn wages well-below the national
      median.  These economic conditions have contributed to our limited
      loan growth during 2007 and allowed us to have more than ample
      liquidity.  We have responded to these factors by reducing our
      competitive stance on deposit products in order to limit the influx of
      additional liquidity in the form of certificates of deposit.





Asset
      growth over the first nine months
      of 2007 has been conservative with an increase of $3.4 million to $246.4
      million.  Net loans have increased by $5.2 million to $171.4 million
      with most of that growth being in commercial credits, and most of that growth
      occurring in the third quarter of 2007.  Similarly, deposit growth was
      $5.5 million and was centered in interest bearing checking.





The
      first nine months of 2007 resulted
      in net income of $1,156,000 which was $498,000 or 30.1% less than the same
      period last year.  The decrease in earnings was largely attributable
      to an increase in our provision for loan losses of $530,000 which primarily
      reflects the risk in one particular credit, as well as $318,000 of increased
      costs associated with the operation, valuation, and disposition of other real
      estate acquired in satisfaction of loans.





15
 ***Index***





A
      more detailed discussion of the
      factors impacting our financial condition and results of operations
      follows.  Amounts and percentages used in that discussion have been
      rounded.








RESULTS
      OF OPERATIONS





NET
      INTEREST INCOME





Net
      interest income is 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 margin for the first three
      quarters of 2007 is 4.21%, slightly higher than our peer banks’ average margin
      of 4.14%, however this is 14 basis points lower than our margin for the same
      period last year.  The margin compression we have experienced over the
      last year is primarily the result of our efforts to remain competitive in our
      markets with certificate of deposit rates.  During the first quarter
      of 2007 we implemented a strategy to help limit further compression in the
      short-term by reducing our offering rates on some of our certificates of
      deposit.  We have been successful at maintaining a 4.21% margin
      consistently throughout the first nine months of 2007.





The
      increase in interest expense on
      interest bearing liabilities was maintained at $810,000 in the first nine months
      of 2007, and was largely the result of the competitive interest rate pressures
      described above.  Along with this strategy, higher interest rates and
      growth in the average balance of interest earning assets produced an increase
      in
      interest income of $703,000, resulting in a net interest income decrease of
      only
      $107,000.  Furthermore, net interest income only decreased $15,000 in
      the third quarter as we continued to closely monitor rates on our certificates
      of deposit to control interest expense.





With
      the recent rate reductions in the
      federal funds target rate, we have experienced some reduction in the competitive
      pressure to price our deposit products higher.  However, this rate
      reduction will also affect interest income on our variable rate loan
      portfolio.  We will continue to employ strategies to minimize our
      margin compression.





PROVISION
      FOR LOAN LOSSES





The
      provision for loan losses is
      management’s 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.  Because of this, the amount of the provision is subject to
      the estimation techniques and judgments involved in assessing the allowance
      which may cause the provision to increase or decrease in the
      future.  We determine the amount of the provision, as well as the
      adequacy of the allowance for loan losses, quarterly.





16
 ***Index***





Through
      the first nine months of the
      year the provision for loan losses has increased $530,000 to $805,000, including
      a third quarter increase of $80,000.  The primary reason for the
      increase lies with one particular commercial credit.  Additional
      information on this credit can be found in the “Credit Quality and Allowance for
      Loan Losses” section of this report.





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 a
        significant use of judgment and estimates, therefore, the provision for loan
        losses expense may increase or decrease in the future.  Please refer
        to the “Credit Quality and Allowance for Loan Losses” section of this report for
        more information on the quality of our loan portfolio and for further discussion
        of the estimation methods and assumptions we use in analyzing the
        allowance.


NONINTEREST
      INCOME





Noninterest
      income includes all
      revenues other than those related to earning assets.  Through
      September 30 noninterest income totaled $1,363,000, up 17.2% from $1,163,000
      at
      the same point last year.  The third quarter total of $447,000 was
      15.8% higher than last year as well.





The
      largest component of noninterest
      income is service fees where increases in overdraft and ATM and debit card
      program fees have contributed to a $144,000 improvement so far this
      year.  Our brokerage and trust programs continue to be major
      contributors to noninterest income, collectively accounting for a $40,000
      increase in 2007. However, our secondary market loan program which is also
      a
      major contributor to noninterest income remained flat.  The reasons
      for the third quarter improvement are very similar to year-to-date
      performance.








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
      we
      operate.  Therefore, controlling noninterest expense is a key factor
      to achieving higher earnings.





For
      the first nine months of 2007
      noninterest expense has increased $399,000 or 7.1% to $5,997,000 over the same
      period last year.  Likewise, third quarter noninterest expense has
      increased $192,000 or 10.1% to $2,089,000.  Both the quarterly
      increase, as well as the year-to-date increase are largely attributable to
      costs
      associated with the operation, valuation, and disposition of other real estate
      acquired in satisfaction of loans.  These costs totaled $451,000 for
      2007 and account for $318,000 of the increase in total noninterest
      expense.  At June 30, the bank had remaining foreclosed properties
      valued at $1.2 million.  During the third quarter the bank disposed of
      all remaining foreclosed properties with the exception of two properties with
      a
      total value of $55,000.  Three properties were sold at public auction
      resulting in a $269,000 loss on sale for the third quarter.





Salaries
      and employee benefits have
      increased by only $45,000 or 1.6% to $2,895,000 during the first nine months
      of
      2007 despite the addition of a chief credit officer, retail banking manager,
      and
      credit analyst.  The salaries for all of these professionals were not
      present in the first half of 2006.  With management’s continued effort
      to become more efficient and realign workflow, salaries and benefits expense
      improved by $38,000 or 3.9% in the third quarter compared to last
      year.





17
 ***Index***





Other
      noninterest expense accounts for
      $70,000 of the increase in total noninterest expense for the first three
      quarters of 2007 primarily related to additional Delaware franchise tax and
      increased expenses due to regulatory requirements.  On a quarterly
      basis, other noninterest expense actually improved by $34,000 to $258,000 as
      we
      had made a normal contribution to a local educational institution in the second
      quarter rather than the typical third quarter contribution.








INCOME
      TAXES





Our
      provision for income taxes for the
      first nine months of 2007 of $439,000 includes both federal and state income
      taxes.  At this level taxes were 27.5% of pretax
      income.  Quarterly taxes were $160,000.  Through nine months
      of 2006 income tax expense totaled $777,000 or 32.0% of pretax
      income.  Except for income earned on loans to and bonds issued by
      municipalities and earnings on certain life insurance policies, all of our
      income is taxable.  The decrease in the tax rate in 2007 is primarily
      attributable to higher earnings from our increasing investment in municipal
      bonds.  We are not subject to the alternative minimum tax,
      however.








FINANCIAL
      CONDITION





LOAN
      PORTFOLIO





As
      mentioned earlier in this report, we
      have experienced a slower economic climate in 2007 resulting in limited loan
      growth.  While growth has been slower than what we normally
      experience, we have been careful not to accept loans of lower quality in
      exchange for higher loan volumes.  Instead, we remain committed to
      increasing our loan portfolio with proper attention to credit
      quality.





Loan
      growth for the third quarter was
      $3.7 million while year-to-date growth was $5.2 million or 3.1%.  The
      increase is primarily centered in commercial lending as has been the case for
      Citizens for several years.  Commercial real estate loans have
      increased $9.3 million in 2007 despite the overall reduced loan demand we have
      experienced.  This is mainly a result of a $5 million transfer of
      construction to permanent financing, as well as our partnering with another
      community bank outside our marketing area in order to provide funding for two
      separate commercial real estate projects.  Other commercial loans not
      secured by real estate have decreased by $1 million since
      year-end.  The majority of our commercial loans are secured by real
      property, regardless of whether repayment is linked to cash generated by the
      use
      or sale of the real estate.  In cases where repayment is linked to
      such use, the timing and stability of the cash flow, secondary sources of
      repayment, loan guarantees, and collateral valuations are all important
      considerations in granting the loan.





Retail
      lending or lending to consumers
      for autos, homes, or other purposes has been difficult for Citizens over the
      past several years.  Auto manufacturers and specialized mortgage
      lenders have become very aggressive in attracting consumers away from
      traditional banking institutions.  The residential mortgage portfolio
      has remained relatively level since year-end at $61 million.  Citizens
      has been successful in stabilizing our installment loan portfolio by adopting
      an
      automobile loan promotion in the latter part of 2006 and converting this
      promotion into a regular product offering in 2007.  Prior to this
      initiative, installment loans had been declining for several
      years.  Citizens will continue to actively seek strategies to increase
      retail loans.  These efforts aimed at portfolio diversification will
      not only open up new lending opportunities and reduce loan risk, they will
      also
      reduce the risk that falling interest rates may pose.





18
 ***Index***





CREDIT
      QUALITY AND ALLOWANCE FOR LOAN LOSSES





After
      recognizing an increase in the
      level of our credit risk in 2006 we took aggressive actions to improve our
      ability to manage that risk.  Among them were the hiring of a chief
      credit officer and credit analyst, assigning our most crucial credits to one
      of
      our senior lenders, adopting a new loan policy and grading system, improving
      our
      exception tracking, and outsourcing our loan review function.  We have
      also centralized our loan processing to improve efficiency and maintain
      underwriting consistency in all of our branches.  All of these
      improvements enable us to increase the quality of our loan portfolio and our
      ability to control the associated risks.





We
      continue to closely monitor loans
      which carry the greatest risk and develop detailed strategies to manage those
      credits.  Over the last nine months we have improved our position with
      regard to several such loans.  In some cases this involved foreclosing
      on the collateral securing the loans.  We have had foreclosures in
      2007 approximating $1.2 million, but currently only two properties valued at
      $55,000 remain.  For the first nine months of 2007 our costs
      associated with these properties totals $451,000 and includes net losses,
      valuation adjustments, and other expenses related to the maintenance or
      disposition of the properties.  Despite the added charges we have
      incurred by engaging in the foreclosure process, we believe that gaining control
      of these assets was ultimately the most financially sound process for seeking
      a
      return on our investment and securing our interest in these assets.





At
      September 30, 2007 past due loans
      totaled $2.8 million or 1.6% of gross loans.  At this level past dues
      have improved by $2.5 million since year-end 2006 when past due loans totaled
      $5.3 million or 3.2%.  Also, within the improvement in overall past
      dues, loans past due more than ninety days has also decreased by $730,000 to
      $346,000.  These improvements are due to both the foreclosure process
      mentioned above, as well as increased collection efforts and enhanced monitoring
      processes.





Despite
      the improvement in past dues,
      loans in a nonaccrual status have increased by $2.4 million to $4.6 million
      since year-end.  The majority of this increase is related to one
      particular commercial credit carrying a balance of $2.7 million.  This
      loan has remained and continues to remain current without becoming past due,
      however, the business continues to have significant risk and we continue to
      monitor this situation closely.





Our
      current credit risk remains higher
      than desired, however, we believe we are continuing to take appropriate actions
      and that our portfolio risk is being systematically
      reduced.  Attention to credit quality will continue to be our primary
      focus for the remainder of 2007.





Our
      allowance for loan losses is
      determined quarterly by evaluating specific larger loans as well as pools of
      similar homogeneous loans.  Adjustments to pooled factors for various
      trends, economic conditions, changes in our credit management practices and
      abilities, and other factors may also be made.  By employing a
      disciplined methodology we arrive at an allowance for loan losses that we
      estimate is adequate to provide for the inherent losses in our loan
      portfolio.





19
 ***Index***





At
      the end of the third quarter, our
      allowance for loan losses was $2,098,000 or 1.21% of gross loans, compared
      to
      $1,873,000 or 1.11% at year-end.  Despite improving past due trends
      and our continued attention to credit quality, we found it necessary to increase
      the allowance estimate during the second quarter due to an increased specific
      reserve associated with the $2.7 million nonaccrual credit described
      above.  Despite this loan’s continued trend of timely payment, our
      analysis and monitoring has revealed that the business risk associated with
      this
      credit continues to be greater than we would like.  Therefore, we
      recognize the greater inherent risk and continue to carry a large specific
      reserve on this credit at September 30.





Even
      though we are experiencing a
      period of increased risks in our loan portfolio, in many cases our collateral
      position helps limit our exposure to losses.  We believe we are
      well-equipped to manage and resolve the risks contained in our
      portfolio.  Based on the information available to us, we believe that
      our analyses are comprehensive and our allowance is adequate as of the report
      date.  However, there can be no assurance that changes to our
      allowance for loan losses will not be required in the future as a result of
      changes in the assumptions which underlie our estimations or changes in economic
      conditions or the business 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.  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.





During
      the first nine months of 2007
      our securities portfolio decreased by $3 million to $56.7 million, while federal
      funds sold and interest bearing deposits with other banks increased from $30,000
      to $2.9 million.  Maturing securities totaled $13.7 million for the
      first nine months of 2007. Of this amount, $12.8 million were federal agency
      bonds.  The limited loan growth we have experienced in 2007 coupled
      with the relatively flat nature of the yield curve have prompted Citizens to
      reinvest much of the funds from these maturities in municipal instruments with
      higher yields and longer maturities.  This strategy will help to
      extend the duration of the portfolio, improve the portfolio yield, and also
      provide some shielding to the declining interest rates we have recently
      experienced.  Of the $11.9 million in security purchases, $8.6 million
      were municipal instruments.  The average duration of our securities
      portfolio has increased from 1.9 to 2.5 years since year-end, while we have
      also
      increased the portfolio yield by 47 basis points on a fully tax equivalent
      basis.





As
      illustrated in Note 3 to the
      condensed consolidated financial statements, a number of our securities have
      fair values which are less than their amortized book value as a result of
      changing interest rates.  All of the issuers carry good to exceptional
      credit rating and are of sound financial condition.  The quality of
      the issuer, as well as our intent and ability to hold these investments until
      maturity, support that we do not consider these investments to be other than
      temporarily impaired.  As a result, we do not have nor do we expect
      any negative income consequences in the future related to our securities
      portfolio.





20
 ***Index***





DEPOSITS
      AND OTHER FUNDING SOURCES





Total
      deposits increased by $5.5
      million to $202 million during 2007.  Nearly all of this increase is
      in interest bearing checking as we have seen a seasonal increase in deposits
      from local taxing authorities as well as some of our larger commercial
      clients.





The
      level of our noninterest bearing as
      well as other interest bearing deposits has experienced little fluctuation
      throughout 2007.  We usually experience the most deposit growth in
      certificates of deposit.  However, in 2007 we have successfully
      employed strategies to limit that growth and control the increasing costs of
      these products, as our loan demand and loan growth has been somewhat subdued
      compared to recent years.  By limiting the influx of deposits, we are
      successfully managing our liquidity needs and preventing further net interest
      margin compression.  Recent Federal Reserve reductions in the federal
      funds target rate may prompt us to take a different approach to our pricing
      strategy as we see competitive pressure on deposit pricing easing in our
      markets.





Historically
      our borrowings have
      consisted of repurchase agreements, Federal Home Loan Bank borrowings, and,
      when
      necessary, overnight borrowings such as federal funds purchased.  At
      September 30, 2007, we had total borrowings of $20.7 million compared to $23.3
      million at year-end.  The $2.6 million decrease is mainly attributable
      to the limited loan demand we have experienced and the excess liquidity in
      the
      form of overnight funds that have prevented us from being in an overnight
      borrowing position at September 30.  Our level and type of future
      borrowings will depend on the need to fund additional asset growth and the
      availability and cost of alternative funds, including deposits as described
      above.  Should a need arise, we have ample sources of funding
      available to us as explained later in this report.





CAPITAL
      RESOURCES





Our
      total capital of $21,005,000, or
      8.5% of assets has increased by $727,000 since December 31, 2006 when capital
      was $20,278,000 or 8.3%.  We believe this level of capital, as well as
      our capital structure, is appropriate to support current and anticipated future
      operations.  Banking regulations have established other capital
      measures based on the general risk characteristics of the bank’s asset
      base.  We continue to exceed all such regulatory capital measures and
      know of no events or trends which are likely to materially impair future capital
      levels.





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.





21
 ***Index***





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 with the exception of certain loans which have been funded
      by
      borrowing funds from the Federal Home Loan Bank of Pittsburgh and the use of
      overnight borrowings for short-term needs.  Currently, we have access
      to approximately $101 million through various FHLB programs in addition to
      available borrowing facilities with other correspondent banks.





During
      2007 our limited loan growth has
      resulted in ample liquidity.  We expect to continue to satisfy our
      liquidity needs primarily through internal sources of funds.  Should a
      liquidity need arise, we may increase the competitiveness of certificate of
      deposit rates or use funds from maturing securities.





IMPACT
      OF INFLATION





The
      consolidated financial statements
      and related data included in this report were prepared in accordance with
      accounting principles generally accepted in the United States of America, 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 our 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 increasing costs by controlling
      the level of noninterest expenditures and increasing levels of noninterest
      income.  Because inflation rates have generally been low during the
      time covered by the accompanying consolidated financial statements, the impact
      of inflation on our earnings has not been significant.  Based on
      current Federal Reserve policy and economic conditions, we do not expect
      inflation to significantly impact our financial position or results of
      operations in the foreseeable future.





22
 ***Index***





**Part
      I Item 3**


**Quantitative
      and Qualitative Disclosures About Market Risk**





Market
      risk is the risk of loss arising from adverse changes in the fair value of
      financial instruments due to changes in interest rates, exchange rates and
      equity prices.  Our primary market risk is interest rate risk which
      results from timing differences in the repricing of assets, liabilities and
      off-balance-sheet instruments.  We attempt to control interest rate
      risk through our asset/liability committee which is comprised of members of
      senior management and other management personnel.  Some amount of
      interest rate risk is inherent and appropriate in banking.





Several
      techniques are used to manage our interest rate risk.  On a bi-weekly
      basis we examine our loan and deposit rates relative to those of our competitors
      and to our goals.  We compute our repricing gap monthly to provide
      general guidance as to the impact rising or falling interest rates may have
      on
      earnings.  However, interest rate shock testing and simulation
      modeling, which are prepared quarterly, are our primary interest rate risk
      management tools.





At
      September 30, 2007, we measured the
      impact an immediate and sustained change in interest rates of 100, 200 and
      300
      basis points, applied to all of our earning assets and interest bearing
      liabilities, would have on our net interest income over the next twelve
      months.  These tests indicate that net interest income can be expected
      to change by no more than 2.8% for each 100 basis point change in interest
      rates.








**Part
      I Item 4**


**Controls
      and Procedures**





As
      of the end of the period covered by
      this Quarterly Report on Form 10-Q, 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 our disclosure controls and procedures pursuant
      to
      Exchange Act Rule 13a-14.  Based upon that evaluation, the chief
      executive officer and principal financial officer concluded that our disclosure
      controls and procedures are effective in timely alerting them to material
      information relating to the company which is required to be included in our
      periodic SEC filings.  Subsequent to the date of that evaluation,
      there have been no significant changes in our 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.





23
 ***Index***





**PART
      II -  OTHER INFORMATION**








Item
                1.
            Legal
                Proceedings:





As
      of
      September 30, 2007 Citizens Financial Corp. was involved in various legal
      proceedings which occur in the normal course of business. We believe all such
      litigation will be resolved without materially affecting our financial position
      or results of operations.  There are no other material proceedings
      known to be threatened or contemplated against either Citizens Financial Corp.
      or Citizens National Bank.





Item
                1A.
            Risk
                Factors:  There have been no material changes in the Risk
                factors discussed in Item 1A of our December 31, 2006 Form
                10-K.





Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds:
                None.





Item
                3.
            Defaults
                upon Senior
                Securities:  None.





Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders:  None.





Item
                5.
            Other
                Information:  None.





Item
                6.
            Exhibits:





The
      following exhibits are filed with this report:


Exhibit
                No.
            Description
                of Exhibit





31.1
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350





31.2
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350




32.1
            Certification
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
              Section 1350




32.2
            Certification
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
              Section 1350




24
 ***Index***





SIGNATURES








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







CITIZENS
                FINANCIAL CORP.Date:
            11/13/07
            
            
            /s/
                Robert J. SchoonoverRobert
                J. SchoonoverPresidentChief
                Executive Officer








Date:
            11/13/07
            
            
            /s/
                Thomas K. DerbyshireThomas
                K. DerbyshireVice
                President, Treasurer andPrincipal
                Financial Officer






25