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
            
            March 31,
      2008




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, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large
      accelerated filer   o
            
            Accelerated
      filer   oNon-accelerated
      filer   o
            
            Smaller
      reporting company   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.





Class
            
            Outstanding
      at May 14, 2008Common
      Stock ($2 par value)
            
            1,829,504


1


FORM 10-Q


CITIZENS
FINANCIAL CORP.


Quarter
Ended March 31, 2008








INDEX








Page No.Part
      I.      Financial InformationItem
      1.  Financial StatementsCondensed Consolidated Balance Sheets March 31, 2008 and
      December 31, 2007
            3Condensed Consolidated Statements of Income Three Months Ended
      March 31, 2008 and March 31, 2007
            4Statements of Comprehensive Income/Loss Three Months Ended March
      31, 2008 and March 31, 2007
            5Condensed Consolidated Statements of Changes in Shareholders'
      Equity Three Months Ended March 31, 2008 and March 31,
      2007
            6Condensed Consolidated Statements of Cash Flows Three Months
      Ended March 31, 2008 and March 31, 2007
            7Notes to Condensed Consolidated Financial
      Statements.
            8-15Item 2.  Management's Discussion and Analysis of
      Financial Condition and Results of Operations
            15-21Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
            Not
      ApplicableItem 4.  Controls and Procedures
            22Part
      II.    Other Information and Index to
      ExhibitsItems 1 through 6.
            221Signatures
            23Certification
      by Executive Officers Pursuant to Sections 302 and 906 of the
      Sarbanes-Oxley Act of 2002
            24-27


2
 Index


PART I ITEM I - FINANCIAL INFORMATION


CITIZENS
FINANCIAL CORP.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands of dollars)





March
      31,
            
            
            December
      31,2008
            
            
            2007(Unaudited)
            
            
            
            *ASSETSCash
      and due from banks
            
            $
            5,855
            
            
            $
            7,050Interest
      bearing deposits with other banks
            
            
            68
            
            
            
            12Securities
      available for sale, at fair value
            
            
            64,642
            
            
            
            58,559Loans,
      less allowance for loan losses of $1,921 and $1,763,
      respectively
            
            
            172,346
            
            
            
            170,939Premises
      and equipment, net
            
            
            4,233
            
            
            
            4,260Accrued
      interest receivable
            
            
            583
            
            
            
            1,385Other
      assets
            
            
            5,212
            
            
            
            4,390Total
      Assets
            
            $
            252,939
            
            
            $
            246,595LIABILITIES AND
      SHAREHOLDERS' EQUITYDeposits:Noninterest
      bearing
            
            $
            26,926
            
            
            $
            27,920Interest
      bearing
            
            
            180,746
            
            
            
            173,376Total
      deposits
            
            
            207,672
            
            
            
            201,296Short-term
      borrowings
            
            
            18,243
            
            
            
            19,656Long-term
      borrowings
            
            
            2,626
            
            
            
            2,719Other
      liabilities
            
            
            2,755
            
            
            
            1,843Total
      liabilities
            
            
            231,296
            
            
            
            225,514Commitments
      and contingencies
            
            
            -
            
            
            
            -SHAREHOLDERS'EQUITYCommon
      stock, $2.00 par value, authorized4,500,000 issued
      2,250,000
            
            
            4,500
            
            
            
            4,500Retained
      earnings
            
            
            21,156
            
            
            
            20,999Accumulated
      other comprehensive income/(loss)
            
            
            (181
            )
            
            
            (586
            )Treasury
      stock at cost, 420,496 shares
            
            
            (3,832
            )
            
            
            (3,832
            )Total
      shareholders' equity
            
            
            21,643
            
            
            
            21,081Total
      Liabilities and Shareholders' Equity
            
            $
            252,939
            
            
            $
            246,595





*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 EndedMarch 31,2008
            
            
            2007(Unaudited)INTEREST
      INCOMEInterest
      and fees on loans
            
            $
            3,123
            
            
            $
            3,300Interest
      and dividends on securities:Taxable
            
            
            393
            
            
            
            495Tax-exempt
            
            
            211
            
            
            
            104Interest
      on interest bearing deposits with other banks
            
            
            24
            
            
            
            21Interest
      on federal funds sold
            
            
            2
            
            
            
            5Total
      interest income
            
            
            3,753
            
            
            
            3,925INTEREST
      EXPENSEInterest
      on deposits
            
            
            1,514
            
            
            
            1,414Interest
      on short-term borrowing
            
            
            126
            
            
            
            166Interest
      on long-term borrowing
            
            
            31
            
            
            
            37Total
      interest expense
            
            
            1,671
            
            
            
            1,617Net
      interest income
            
            
            2,082
            
            
            
            2,308Provision
      for loan losses
            
            
            126
            
            
            
            207Net
      interest income after provision for loan losses
            
            
            1,956
            
            
            
            2,101NONINTEREST
      INCOMETrust
      department income
            
            
            84
            
            
            
            54Brokerage
      fees
            
            
            48
            
            
            
            37Service
      fees
            
            
            241
            
            
            
            236Insurance
      commissions
            
            
            2
            
            
            
            -Secondary
      market loan fees
            
            
            13
            
            
            
            26Other
            
            
            66
            
            
            
            88Total
      noninterest income
            
            
            454
            
            
            
            441NONINTEREST
      EXPENSESalaries
      and employee benefits
            
            
            902
            
            
            
            970Net
      occupancy expense
            
            
            116
            
            
            
            108Equipment
      expense
            
            
            99
            
            
            
            109Data
      processing
            
            
            147
            
            
            
            137Director
      fees
            
            
            60
            
            
            
            63Postage
            
            
            53
            
            
            
            42Professional
      service fees
            
            
            76
            
            
            
            66Stationery
            
            
            29
            
            
            
            44Software
      expense
            
            
            65
            
            
            
            36Other
            
            
            253
            
            
            
            320Total
      noninterest expenses
            
            
            1,800
            
            
            
            1,895Income
      before income taxes
            
            
            610
            
            
            
            647Income
      tax expense
            
            
            148
            
            
            
            194Net
      income
            
            $
            462
            
            
            $
            453Basic
      and fully diluted earnings per common share
            
            $
            0.25
            
            
            $
            0.25Weighted
      average shares outstanding
            
            
            1,829,504
            
            
            
            1,829,504Dividends
      per common share
            
            $
            0.12
            
            
            $
            0.12





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 EndedMarch 312008
            
            
            2007(Unaudited)Net
      income
            
            $
            462
            
            
            $
            453Other
      comprehensive income:Gross
      unrealized gains arising during the period
            
            
            653
            
            
            
            185Adjustment
      for income tax expense
            
            
            (248
            )
            
            
            (71
            )405
            
            
            
            114Other
      comprehensive income, net of tax
            
            
            405
            
            
            
            114Comprehensive
      income
            
            $
            867
            
            
            $
            567




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)





Three Months Ended March 31, 2008 and
      2007(unaudited)Accumulated
            
            
            
            
            
            TotalOther
            
            
            
            
            
            Share-CommonStock
            
            
            Retained
            
            
            Comprehensive
            
            
            Treasury
            
            
            holders'Shares
            
            
            Amount
            
            
            Earnings
            
            
            Income/(Loss)
            
            
            Stock
            
            
            EquityBalance,
      January 1, 2008
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            20,999
            
            
            $
            (586
            )
            
            $
            (3,832
            )
            
            $
            21,081Net
      income
            
            
            -
            
            
            
            -
            
            
            
            462
            
            
            
            -
            
            
            
            -
            
            
            
            462Net
      change in unrealized gain/loss on securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            405
            
            
            
            -
            
            
            
            405Cash
      dividends declared ($0.12 per share)
            
            
            -
            
            
            
            -
            
            
            
            (219
            )
            
            
            -
            
            
            
            -
            
            
            
            (219
            )Adjustment
      to initially apply emerging issues task force issue No. 06-4, net of
      tax
            
            
            -
            
            
            
            -
            
            
            
            (86
            )
            
            
            -
            
            
            
            -
            
            
            
            (86
            )Balance
      March 31, 2008
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            21,156
            
            
            $
            (181
            )
            
            $
            (3,832
            )
            
            $
            21,643Balance,
      January 1, 2007
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            20,843
            
            
            $
            (1,233
            )
            
            $
            (3,832
            )
            
            $
            20,278Net
      income
            
            
            -
            
            
            
            -
            
            
            
            453
            
            
            
            -
            
            
            
            -
            
            
            
            453Net
      change in unrealized gain/loss on securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            114
            
            
            
            -
            
            
            
            114Cash
      dividends declared ($0.12 per share)
            
            
            -
            
            
            
            -
            
            
            
            (219
            )
            
            
            -
            
            
            
            -
            
            
            
            (219
            )Balance
      March 31, 2007
            
            
            2,250,000
            
            
            $
            4,500
            
            
            $
            21,077
            
            
            $
            (1,119
            )
            
            $
            (3,832
            )
            
            $
            20,626





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)





Three
      Months EndedMarch 31,2008
            
            
            2007(Unaudited)Cash
      flows from operating activities:Net
      Income
            
            $
            462
            
            
            $
            453Adjustments
      to reconcile net income to cash provided by operating
      activities:Provision
      for loan losses
            
            
            126
            
            
            
            207Depreciation
      and amortization
            
            
            80
            
            
            
            82Amortization/(accretion)
      on securities
            
            
            (1
            )
            
            
            11Loss
      on disposal of equipment
            
            
            1
            
            
            
            -Decrease
      in accrued interest receivable
            
            
            802
            
            
            
            62(Increase)/decrease
      in other assets
            
            
            (1,030
            )
            
            
            88Increase
      in other liabilities
            
            
            827
            
            
            
            433Cash
      provided by operating activities
            
            
            1,267
            
            
            
            1,336Cash
      flows from investing activities:Principal
      payments on available for sale securities
            
            
            584
            
            
            
            362Proceeds
      from sales of available for sale securities
            
            
            326
            
            
            
            155Proceeds
      from maturities and calls, available for sale securities
            
            
            5,740
            
            
            
            4,820Purchases
      of available for sale securities
            
            
            (12,079
            )
            
            
            (3,600
            )Purchases
      of premises and equipment
            
            
            (51
            )
            
            
            (39
            )Increase
      in loans
            
            
            (1,577
            )
            
            
            (2,132
            )Cash
      used by investing activities
            
            
            (7,057
            )
            
            
            (434
            )Cash
      flows from financing activities:Cash
      dividends paid
            
            
            (219
            )
            
            
            (219
            )Decrease
      in short-term borrowing
            
            
            (1,412
            )
            
            
            (1,797
            )Repayment
      of long-term borrowing
            
            
            (93
            )
            
            
            (355
            )Increase
      in time deposits
            
            
            3,250
            
            
            
            119Increase
      in other deposits
            
            
            3,126
            
            
            
            1,232Cash
      provided/(used) by financing activities
            
            
            4,651
            
            
            
            (1,020
            )Net
      decrease in cash and cash equivalents
            
            
            (1,139
            )
            
            
            (118
            )Cash
      and cash equivalents at beginning of period
            
            
            7,062
            
            
            
            6,095Cash
      and cash equivalents at end of period
            
            $
            5,923
            
            
            $
            5,977Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
            
            $
            1,643
            
            
            $
            1,612Income
      taxes
            
            $
            -
            
            
            $
            38Supplemental
      disclosure of noncash investing and Financing activities:Other
      real estate and other assets acquired in settlement of
    loans
            
            $
            44
            
            
            $
            1,224




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 Subsidiaries ("Citizens", "the company" or “we”)
conform to accounting principles generally accepted in the United States of
America and to general policies within the financial services
industry.  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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 three months ended March
31, 2008 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' 2007 Annual Report to
Shareholders and Form 10-K.








NOTE 2 –
Split-Dollar Life
Insurance Arrangement





In September 2006, the Emerging Issues
Task Force (EITF) issued EITF 06-4, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements.”  This consensus concludes that for a split-dollar life
insurance arrangement within the scope of this Issue, an employer should
recognize a liability for future benefits in accordance with SFAS 106 (if, in
substance, a postretirement benefit plan exists) or APB Opinion No. 12 (if the
arrangement is, in substance, an individual deferred compensation contract)
based on the substantive agreement with the employee.  The consensus
is effective for fiscal years beginning after December 15,
2007.  Accordingly the company must record a liability for the post
retirement cost of the insurance policies carried by the bank to fund the
directors and executive officers supplemental retirement
plan.  Additional information related to this plan can be found in our
Note 11 of our 2007 Annual Report to Shareholders and Form 10-K.





The company adopted this issue in the
first quarter 2008 as a change in accounting principle through a
cumulative-effect adjustment to retained earnings of approximately
$86,000.  This adjustment is presented on our condensed consolidated
statements of changes in shareholders’ equity in this report.








NOTE 3 –
RECLASSIFICATIONS





Certain accounts in the condensed
consolidated financial statements for 2007, as previously presented, have been
reclassified to conform with current year classifications.


8
 Index


NOTE 4 -
SECURITIES





The amortized cost, unrealized gains,
unrealized losses and estimated fair values of securities at March 31, 2008 and
December 31, 2007 are summarized as follows (in thousands):




March 31, 2008CarryingValue(EstimatedAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value)(Unaudited)Available
      for sale:U.S.
      Government agencies and corporations
            
            $
            26,828
            
            
            $
            533
            
            
            $
            0
            
            
            $
            27,361Mortgage
      backed securities-U.S.
      Government agencies and corporations
            
            
            12,878
            
            
            
            69
            
            
            
            5
            
            
            
            12,942Tax
      exempt state and political subdivisions
            
            
            23,350
            
            
            
            192
            
            
            
            78
            
            
            
            23,464Federal
      Reserve Bank stock
            
            
            108
            
            
            
            -
            
            
            
            -
            
            
            
            108Federal
      Home Loan Bank stock
            
            
            604
            
            
            
            -
            
            
            
            -
            
            
            
            604Community
      Financial Services Inc. Stock
            
            
            163
            
            
            
            -
            
            
            
            -
            
            
            
            163Total
      securities available for sale
            
            $
            63,931
            
            
            $
            794
            
            
            $
            83
            
            
            $
            64,642







December, 31, 2007*CarryingValue(EstimatedAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            FairCost
            
            
            Gains
            
            
            Losses
            
            
            Value)(Unaudited)Available
      for sale:U.S.
      Government agencies and corporations
            
            $
            28,084
            
            
            $
            227
            
            
            $
            19
            
            
            $
            28,291Mortgage
      backed securities-U.S.
      Government agencies and corporations
            
            
            6,587
            
            
            
            14
            
            
            
            41
            
            
            
            6,561Tax
      exempt state and political subdivisions
            
            
            22,717
            
            
            
            91
            
            
            
            215
            
            
            
            22,594Federal
      Reserve Bank stock
            
            
            108
            
            
            
            -
            
            
            
            -
            
            
            
            108Federal
      Home Loan Bank stock
            
            
            842
            
            
            
            -
            
            
            
            -
            
            
            
            842Community
      Financial Services Inc. Stock
            
            
            163
            
            
            
            -
            
            
            
            -
            
            
            
            163Total
      securities available for sale
            
            $
            58,501
            
            
            $
            333
            
            
            $
            275
            
            
            $
            58,559




* From
audited financial statements





The tables below provide summaries of
securities available for sale which were in an unrealized loss position at March
31, 2008 and December 31, 2007.  As of March 31, 2008, these
securities had a total fair value of $8,420,000 and carried unrealized losses of
$83,000, or 0.99%.  Securities which have been in a continuous loss
position for the past twelve months total $2,645,000.  The unrealized
loss pertaining to these securities is $14,000 or 0.53%.  The majority
of these 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.  The other losses are on securities
issued by U.S. government agencies and corporations which carry the implied
faith and credit of the U.S. Government.  With the excellent credit
quality in our portfolio, we believe these unrealized losses are the result of
changing interest rates, and we will be able to fully recover our
investment.  In addition, no losses have been recognized on the
$29,020,000 of securities that carried unrealized losses at December 31,
2007.





9
 Index


March 31, 2008Securities 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
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Mortgage
      backed securities-U.S.
      Government agencies and corporations
            
            
            -
            
            
            
            -
            
            
            
            1,064
            
            
            
            5
            
            
            
            1,064
            
            
            
            5Tax
      exempt state and political subdivisions
            
            
            5,775
            
            
            
            69
            
            
            
            1,581
            
            
            
            9
            
            
            
            7,356
            
            
            
            78Total
      securities available for sale
            
            $
            5,775
            
            
            $
            69
            
            
            $
            2,645
            
            
            $
            14
            
            
            $
            8,420
            
            
            $
            83








December 31, 2007*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
            
            $
            -
            
            
            $
            -
            
            
            $
            10,973
            
            
            $
            19
            
            
            $
            10,973
            
            
            $
            19Mortgage
      backed securities-U.S.
      Government agencies and corporations
            
            
            -
            
            
            
            -
            
            
            
            4,887
            
            
            
            40
            
            
            
            4,887
            
            
            
            41Tax
      exempt state and political subdivisions
            
            
            11,243
            
            
            
            193
            
            
            
            1,917
            
            
            
            23
            
            
            
            13,160
            
            
            
            215Total
      securities available  for sale
            
            $
            11,243
            
            
            $
            193
            
            
            $
            17,777
            
            
            $
            82
            
            
            $
            29,020
            
            
            $
            275




*From
audited financial statements.





The
maturities, amortized cost and estimated fair values of the bank's securities at
March 31, 2008 are summarized as follows (in thousands):





Available for saleAmortized
            
            
            EstimatedCost
            
            
            Fair ValueDue
      within 1 year
            
            $
            15,844
            
            
            $
            15,982Due
      after 1 but within 5 years
            
            
            32,846
            
            
            
            33,417Due
      after 5 but within 10 years
            
            
            13,719
            
            
            
            13,721Due
      after 10 years
            
            
            647
            
            
            
            647Equity
      securities
            
            
            875
            
            
            
            875$
            63,931
            
            
            $
            64,642





Mortgage backed securities have
remaining contractual maturities ranging from 1 day to 14.58 years and are
reflected in the maturity distribution schedule shown above based on their
anticipated average life to maturity, which ranges from 0.04 to 4.82
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.




10
 Index




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 three month periods ended March 31, 2008 and 2007 are as
follows (in thousands):





Proceeds From
            
            
            Gross RealizedCalls
      and
            
            
            PrincipalSales
            
            
            Maturities
            
            
            Payments
            
            
            Gains
            
            
            LossesMarch
      31, 2008:Securities
      available for sale
            
            $
            326
            
            
            $
            5,740
            
            
            $
            584
            
            
            $
            -
            
            
            $
            -March
      31, 2007:Securities
      available for sale
            
            $
            155
            
            
            $
            4,820
            
            
            $
            362
            
            
            $
            -
            
            
            $
            -





At March 31, 2008 and December 31, 2007
securities with an amortized cost of $31,080,000 and $32,208,000, respectively,
with estimated fair values of $31,616,000 and $32,358,000, respectively, were
pledged to secure public deposits, securities sold under agreements to
repurchase, and for other purposes required or permitted by law.





At March 31, 2008 and December 31, 2007
our securities portfolio contained no concentrations within any specific
industry or issuer.








NOTE 5 -
LOANS





Total loans are summarized as follows
(in thousands):





March 31, 2008
            
            
            December 31, 2007(Unaudited)
            
            
            
            *Commercial,
      financial and agricultural
            
            $
            21,055
            
            
            $
            21,015Real
      estate - construction
            
            
            11,978
            
            
            
            12,497Real
      estate – home equity
            
            
            6,678
            
            
            
            6,798Real
      estate – residential mortgage
            
            
            61,137
            
            
            
            61,726Real
      estate – commercial mortgage
            
            
            59,131
            
            
            
            57,921Installment
      loans
            
            
            11,029
            
            
            
            10,903Other
            
            
            3,408
            
            
            
            2,012Total
      loans
            
            
            174,416
            
            
            
            172,872Less:Allowance
      for loan losses
            
            
            1,921
            
            
            
            1,763Net
      deferred loan origination fees and costs
            
            
            149
            
            
            
            170Loans,
      net
            
            $
            172,346
            
            
            $
            170,939




* From
audited financial statements





Loans in a nonaccrual status were
$4,147,000 and $4,487,000 at March 31, 2008 and December 31, 2007,
respectively.





Many of our loans in a nonaccrual
status are also considered impaired.  At March 31, 2008 our recorded
investment in impaired loans was $3,875,000.  The valuation allowance
assigned to these loans totaled $578,000. Our average investment in the impaired
loans was $3,904,000 during the quarter.  The amount of interest
income recorded on them in the first quarter was $13,000 while the amount of
interest collected was $64,000.  Impaired loans at December 31, 2007
were $4,038,000.




11
 Index




NOTE 6 -
ALLOWANCE FOR LOAN
LOSSES





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





Three
      Months EndedMarch 31,2008
            
            
            2007Balance
      at beginning of period
            
            $
            1,763
            
            
            $
            1,873Loans
      charged off:Commercial
      and industrial
            
            
            -
            
            
            
            85Real
      estate – residential mortgage
            
            
            11
            
            
            
            47Real
      estate – commercial mortgage
            
            
            -
            
            
            
            120Consumer
      and other
            
            
            -
            
            
            
            19Total
            
            
            11
            
            
            
            271Recoveries:Commercial
      and industrial
            
            
            42
            
            
            
            -Real
      estate – residential mortgage
            
            
            1
            
            
            
            -Real
      estate – commercial mortgage
            
            
            -
            
            
            
            -Consumer
      and other
            
            
            -
            
            
            
            13Total
      recoveries
            
            
            43
            
            
            
            13Net
      losses/(recoveries)
            
            
            (32
            )
            
            
            258Provision
      for loan losses
            
            
            126
            
            
            
            207Balance
      at end of period
            
            $
            1,921
            
            
            $
            1,822








NOTE 7 -
DEPOSITS





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





March 31, 2008
            
            
            December 31, 2007(Unaudited)
            
            
            
            *Interest
      bearing checking
            
            $
            50,706
            
            
            $
            45,698Money
      market accounts
            
            
            5,059
            
            
            
            5,406Savings
      accounts
            
            
            21,048
            
            
            
            21,589Certificates
      of deposit under $100,000
            
            
            60,590
            
            
            
            59,984Certificates
      of deposit of $100,000 or more
            
            
            43,343
            
            
            
            40,699Total
            
            $
            180,746
            
            
            $
            173,376





* From
audited financial statements








NOTE 8 -
BORROWINGS





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





March 31, 2008
            
            
            December 31, 2007(Unaudited)
            
            
            
            *Short-term
      borrowings:Securities
      sold under agreements to repurchase
            
            $
            15,743
            
            
            $
            14,258Federal
      funds purchased
            
            
            2,500
            
            
            
            1,400Overnight
      advances from Federal Home Loan Bankof Pittsburgh (FHLB) line of
      credit
            
            
            -
            
            
            
            3,998Total
            
            $
            18,243
            
            
            $
            19,656Long-term
      borrowings:Advances
      from FHLB
            
            $
            2,626
            
            
            $
            2,719





* From
audited financial statements





12
 Index





NOTE 9 -
EMPLOYEE BENEFIT
PLANS





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





Three Months Ended March
31,Pension Benefits
            
            
            Other Benefits2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      cost
            
            $
            29
            
            
            $
            29
            
            
            $
            4
            
            
            $
            5Interest
      cost
            
            
            74
            
            
            
            72
            
            
            
            8
            
            
            
            7Expected
      return on plan assets
            
            
            (88
            )
            
            
            (83
            )
            
            
            -
            
            
            
            -Net
      amortization and deferral
            
            
            14
            
            
            
            20
            
            
            
            3
            
            
            
            2Net
      periodic cost
            
            $
            29
            
            
            $
            38
            
            
            $
            15
            
            
            $
            14





In the
first quarter of 2008 we contributed $35,000 to our pension plan.  Our
pension plan calls for a minimum contribution of approximately $181,000 for the
remainder of 2008.  Payments totaling $128,000 were contributed to the
plan during 2007.






NOTE 10 -
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.








NOTE 11 -
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 amounts represent credit risk
            
            March
      31, 2008
              (unaudited)
            
            
            December
      31, 2007
              *(in thousands)Commitments
      to extend credit
            
            $
            22,361
            
            
            $
            24,603Standby
      letters of credit
            
            
            301
            
            
            
            301Total
            
            $
            22,662
            
            
            $
            24,904





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 12 -
EARNINGS PER
SHARE





Basic earnings per share is based on
the weighted average number of shares outstanding during the
period.  For the three months ended March 31, 2008 and 2007 the
weighted average number of shares outstanding were 1,829,504.  During
the periods ended March 31, 2008 and 2007 the company did not have any
dilutive securities.




13
 Index




NOTE 13 –
FAIR VALUE
MEASUREMENTS





SFAS No. 157, Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value,
establishes a three-level valuation hierarchy for disclosure of fair value
measurement and enhances disclosure requirements for fair value measurements.
The valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. The three levels
are defined as follow:





Level
      1
            Inputs
      to the valuation methodology are quoted prices (unadjusted) for identical
      assets or liabilities in active
markets.





Level
      2
            Inputs
      to the valuation methodology include quoted prices for similar assets and
      liabilities in active markets, and inputs that are observable for the
      asset or liability, either directly or indirectly, for substantially the
      full term of the financial
instrument.





Level
      3
            Inputs
      to the valuation methodology are unobservable and significant to the fair
      value measurement.





Following is a description of the
valuation methodologies used for instruments measured at fair value, as well as
the general classification of such instruments pursuant to the valuation
hierarchy:





Securities





Where quoted prices are available in an
active market, securities are classified within level 1 of the valuation
hierarchy. Level 1 securities would include highly liquid government bonds,
mortgage products and exchange traded equities. If quoted market prices are not
available, then fair values are estimated by using pricing models, quoted prices
of securities with similar characteristics, or discounted cash flow. Level 2
securities would include U.S. agency securities, mortgage-backed agency
securities, obligations of states and political subdivisions and certain
corporate, asset backed and other securities. In certain cases where there is
limited activity or less transparency around inputs to the valuation, securities
are classified within level 3 of the valuation hierarchy.  Currently,
all of the Company’s securities are considered to be Level 1 or Level 2
securities.





Impaired
loans





SFAS No. 157 applies to loans measured
for impairment using the practical expedients permitted by SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, including impaired loans
measured at an observable market price (if available), or at the fair value of
the loan’s collateral (if the loan is collateral dependent). Fair value of the
loan’s collateral, when the loan is dependent on collateral, is determined by
appraisals or independent valuation which is then adjusted for the cost related
to liquidation of the collateral.





Other Real Estate
Owned





Certain assets such as other real
estate owned (OREO) are measured at fair value less cost to sell. We believe
that the fair value component in its valuation follows the provisions of SFAS
No. 157.






NOTE 14 –
SIGNIFICANT NEW
ACCOUNTING PRONOUNCEMENTS





In December 2007, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 141(R), “Business Combinations” (SFAS 141(R)).  The
Standard will significantly change the financial accounting and reporting of
business combination transactions.  SFAS 141(R) establishes the
criteria for how an acquiring entity in a business combination recognizes the
assets acquired and liabilities assumed in the transaction; establishes the
acquisition date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the
nature and financial effect of the business combination.  Acquisition
related costs including finder's fees, advisory, legal, accounting valuation and
other professional and consulting fees are required to be expensed as
incurred.  SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008 and early implementation is not permitted. The company does
not expect the implementation to have a material impact on its consolidated
financial statements.




14
 Index




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No.160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS
160). SFAS 160 requires the company to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  This Statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is prohibited.   The
company does not expect the implementation of SFAS 160 to have a material impact
on its consolidated financial statements.





In March 2008, the FASB issued
Statement of Financial Accounting Standards  No. 161, “Disclosures
about Derivative Instruments and Hedging Activities – an amendment of FASB
Statement No. 133” (SFAS 161).  SFAS 161 changes the disclosure
requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows.  SFAS 161 is effective for fiscal years and interim
periods beginning after November 15, 2008, with early application permitted. The
company does not expect the implementation of SFAS 161 to have a material impact
on its consolidated financial statements.








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 $253
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 banking related services to
customers in northcentral and eastern West Virginia and nearby areas through six
branch offices.  We conduct no business other than the ownership of
our bank subsidiary.





FORWARD LOOKING
STATEMENTS





This report contains forward looking
statements which reflect our current expectations based on information available
to us.  These forward looking statements involve uncertainties related
to the general economic conditions in our nation and other broad based issues
such as interest rates and regulations as well as to other factors which may be
more specific to our own operations including factors set forth in the “Risk
Factors” section of our Form 10-K for the fiscal year ended December 31,
2007.  Examples of such factors may include our ability to attract and
retain key personnel, implementing new technological systems, providing new
products to meet changing customer and competitive demands, our ability to
successfully manage growth strategies, controlling costs, maintaining our net
interest margin, maintaining good credit quality, and others.  Forward
looking statements can be identified by words such as “may”, “will”, “expect”,
“anticipate”, “believe”, “estimate”, “plans”, “intends”, or similar
words.  We do not attempt to update any forward looking
statements.  When provided, we intend forward looking information to
assist readers in understanding anticipated future operations and we include
them pursuant to applicable safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.  Although we believe the expectations
reflected in our forward looking statements are reasonable, actual results could
differ materially.




15
 Index




CRITICAL ACCOUNTING
POLICIES





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





Some policies rely more heavily on the
use of estimates, assumptions, and judgments than others and, therefore, have a
greater possibility of producing results that could be materially different than
originally reported.  Our most significant accounting policies,
including an explanation of how assets and liabilities are valued, may be found
in Note 1 to the consolidated financial statements in our 2007 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





As national economic indicators
continue to signal recession, our local economy has also exhibited signs of a
slowdown. Increasingly higher fuel prices have affected both the lumber and
trucking industry in our area.  Furthermore, the national housing
slowdown has softened demand for logging and lumber
production.  Consumer households in our market have also seen
increasing strain from rising fuel prices and increasing food costs as our area
has a median household income well below the national average.  As
these trends continue, demand for our products remains lower than we would like;
in the first quarter total loans grew by $1.5 million to $174.4
million.  Loan quality continues to be of utmost importance, as we are
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.





In spite of the softened loan demand we
have experienced, total assets increased approximately $6 million to $253
million at quarter-end, which included investment securities growth of $6.1
million.  At March 31, 2008, securities available for sale totaled
$64.6 million.  Our asset growth was funded by a $6.4 million increase
in deposits with total deposits totaling $207.7 million at
quarter-end.




16
 Index




Net income for the first quarter of
2008 was $462,000 compared to $453,000 for the first quarter of
2007.  During the first quarter of 2008 we
experienced  lower levels of overhead and a lower level of provision
for loan losses when compared to the same period in 2007.  However, we
also experienced lower levels of net interest income as interest rates have
declined by 300 basis points since last year.





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








RESULTS OF
OPERATIONS








NET INTEREST
INCOME





Net interest income 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.





Like many financial institutions across
the country, Citizens has experienced net interest margin compression during the
first quarter of 2008, as the Federal Reserve has reduced target rates by 200
basis points since December 31, 2007.  In addition, rates declined
another 100 basis points in 2007.  Our net interest margin for the
first quarter of 3.76% is 43 basis points lower than our margin for the first
quarter of 2007.  This compression is primarily the result of
decreasing loan rates on our variable rate products combined with competitive
pressures to continue to price certificates of deposit higher than we would
like.





As reflected in our income statement,
net interest income decreased by $226,000 to $2,082,000 for the
quarter.  On a tax equivalent basis, net interest income decreased by
the lesser amount of $167,000 to $2,207,000 as Citizens increased its investment
in tax-exempt municipal bonds in the latter part of 2007. Overall, interest
income decreased $172,000 to $3,753,000 due mainly to a 42 basis point decline
in yield.  This was partially offset by a $5.9 million increase in the
average earning asset base.  Interest expense increased by $54,000 to
$1,671,000 during the quarter reflecting a $4.8 million increase in our average
interest bearing liabilities.





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 that can be reasonably anticipated
based on quarterly evaluations of the loan portfolio.  Our provision
for loan losses was $126,000 and $207,000 in the first quarter of 2008 and 2007,
respectively.





The
amount of the provision for loan losses is a function of our overall assessment
of loan quality and the adequacy of the allowance for loan losses, which itself
relies on significant use of judgment and estimates, the provision for loan
losses expense may increase or decrease in the future.  Please refer
to the Credit Quality and Allowance for Loan Losses section of this report where
we further discuss the estimation methods and assumptions we use in analyzing
the allowance and the quality of our loan portfolio.




17
 Index




NONINTEREST
INCOME





Noninterest income for the quarter of
$454,000 increased $13,000, or 2.9%, from the first quarter of 2007. The largest
component of noninterest income is service fees which totaled $241,000 for the
quarter.  Service fees increased by $5,000 due to an increase in ATM
and debit card fee income.  Our trust services increased by $30,000
and our brokerage services supplied an additional $11,000.





These increases were partially offset
by a decrease of $13,000 in secondary market loan program fees. Other
noninterest income declined by $22,000 with the largest decrease arising from
$10,000 less fee income from cashing non-customer checks.





In the first quarter of 2008,
management assessed our fee structure and expects to implement changes to that
structure which should enhance earnings.  After disclosure to our
customers is complete, these changes will be effective June 1,
2008.





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.





Noninterest expense decreased 5% or
$95,000 to $1,800,000 for the first quarter of 2008.  The largest
component of noninterest expense is salaries and employee
benefits.  These personnel costs decreased 7% or $68,000 to $902,000
as we experienced lower medical insurance costs.  Equipment expense
declined $10,000 for the quarter, and stationery costs also decreased by
$15,000.  Unlike the first quarter of 2007 in which expenses
associated with foreclosed properties totaled $51,000, we have incurred no such
expenses in the first quarter of 2008.





These savings were partially offset by
a $29,000 increase in software costs primarily related to the implementation of
new lending software that we believe will improve the efficiency of our lending
function.  In addition, data processing, occupancy, and postage
expenses have increased by $10,000, $8,000, and $11,000,
respectively.





There are a number of factors which
could negatively impact noninterest expense in the future.  For
example, salaries and benefits could rise if medical claims under our partially
self-insured group medical plan increase.  Also, we may incur
additional costs related to compliance with the Sarbanes-Oxley
Act.  Currently we are required to comply with Section 404a of the Act
and issue a conclusion about management’s assessment of internal control over
financial reporting.  Possibly in 2008 or 2009 we may be required to
have our independent accountants attest to our conclusions.





INCOME
TAXES





Our provision for income taxes for the
first quarter of 2008 of $148,000 includes both federal and state income
taxes.  At this level taxes were 24.3% of pretax
income.  The effective tax rate for the first quarter of 2007 was
30.0% at $194,000.  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 2008 is
primarily attributable to higher earnings from our increasing investment in
municipal bonds.




FINANCIAL
CONDITION




18
 Index




LOAN
PORTFOLIO





Throughout the first quarter of 2008
economic activity in our markets has been reserved as both industry and
consumers face higher fuel prices and ripple effects of the housing
slowdown.  The lumber, trucking, and tourism industries have
experienced reduced activity.  The unsteadiness of our economy, as
well as higher fuel and grocery costs, have influenced many consumers to limit
spending.  All of these factors have contributed to limiting our
growth during the first quarter with total loans increasing $1.5 million to
$174.4 million.





Within the major loan categories,
commercial real estate lending has increased by $1.2 million to $59.1
million.  Other commercial loans, not secured by real estate, remained
stable during the first quarter.  Most of our commercial loans are
secured by real estate whether or not repayment is linked to cash generated by
the use or sale of the real property.  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 for other purposes, has been difficult for Citizens over
the past several years.  The major auto manufacturers and mortgage
companies have launched aggressive campaigns to entice consumers away from
traditional banking institutions.  Residential mortgage and
construction lending each declined approximately $0.5 million in the first
quarter, while installment loans remained relatively stable, up $126,000 during
the same period.  Citizens recognizes the importance of retail lending
as the cornerstone of who we are as a community bank.  We will
continue to actively seek new strategies to increase this segment of our
business in order to enhance portfolio diversification and reduce the inherent
risk in our portfolio.





Finally,
other loans primarily made to tax-exempt entities increased by $1.4 million as
we helped fund a local project.  We expect to disburse an additional
$1.5 million on this project through year-end.





CREDIT QUALITY AND ALLOWANCE
FOR LOAN LOSSES





Despite the economic woes impacting the
nation and our local markets as mentioned above, we believe Citizens continues
to take appropriate action to systematically reduce the risk in our credit
portfolio by relying on the improvements we have made with respect to our
personnel, monitoring processes, and loan grading
processes.  Additional information related to our improvements can be
found in our 2007 annual report to shareholders on Form 10-K.





During the first quarter of 2008, we
began the liquidation process of the commercial customer that accounted for the
majority of our loan charge-offs last year.  We continue to believe,
based on the information we currently possess, that our loss estimate for this
loan is still reliable.  In spite of the major charge-offs we recorded
last year, the first quarter has resulted in net recoveries of
$32,000.  Also, impaired loans have decreased by $163,000 to $3.9
million.  We continue to develop detailed strategies to manage these
loans which carry the greatest risk and monitor them continuously.





Past due
loans have increased $0.5 million or 17.2% to $3.4 million at
quarter-end.  However, approximately $900,000 is related to the
commercial credit referred to above which had maintained a record of timely
payments until the business ceased operation.  Absent this credit,
loan past dues would have approximated $2.5 million which indicates a decrease
of $400,000 or 13.4% at quarter end.





Our inherent risk of loss in our
portfolio is addressed through our allowance for loan losses.  We
determine the amount of our allowance 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 believe is adequate to provide for losses that
are inherent in the loan portfolio.




19
 Index




As of March 31, our allowance was
$1,921,000, or 1.10% of gross loans, compared to $1,763,000, or 1.02% of gross
loans at year-end.  This increase in the allowance is primarily
attributable to the increased uncertainty in the economy as previously mentioned
in this report.  In many cases our security position helps limit our
risk of loss and we believe we are well equipped to manage and resolve the risks
contained in our portfolio.  Based on information available to us, we
believe our analyses are comprehensive and our allowance is adequate as of the
report date. However, there can be no assurance that additional provisions for
loan losses will not be required in the future as a result of changes in the
assumptions which underlie our estimations or changes in economic conditions or
the conditions of individual borrowers.





SECURITIES PORTFOLIO AND
FEDERAL FUNDS SOLD





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





Our securities portfolio grew $6.1
million to $64.6 million during the first quarter as we experienced relaxed loan
demand and increased deposit funding.  Our investment strategies in
this area have led us to invest the majority of our available funding in
mortgage-backed securities issued by government agencies.  These
securities provide a good source of cash flow with average lives of less than 5
years, while providing a reasonable return on investment in today’s
market.  We have not and will not invest in mortgage-backed securities
with sub-prime exposure. All of our mortgage-backed securities carry the implied
faith and credit of the U.S. government.  We purchased a total of $6.9
million in mortgage-backed securities, as well as $4.0 million of U.S.
government agency bonds and $1.2 million in municipal instruments during the
first quarter of 2008.





Overall our portfolio is made up of
$27.4 million in agency securities, $12.9 million in mortgage-backed securities,
$23.5 million in municipals, and $875,000 in correspondent and Federal Reserve
Bank stock.  We monitor credit ratings on our investments on a monthly
basis and currently do not have any credit concerns with any particular
obligation.  With the exception of one municipal bond which is not
rated, all of these instruments carry good to exceptional credit ratings and are
of sound financial condition.





Our short-term investments including
federal funds sold and interest bearing deposits with other banks has remained
substantially unchanged since year-end.




DEPOSITS AND OTHER FUNDING
SOURCES





Deposits grew $6.4 million to $207.7
million in the first quarter of 2008 with this growth centered in interest
bearing deposits which grew by $7.4 million to $180.7 million, while noninterest
bearing checking deposits decreased by $1.0 million to $26.9
million.  Within the major categories of interest bearing deposits,
interest bearing checking and certificates of deposit grew by $5 million and
$3.2 million, respectively.




20
 Index




Historically our borrowings have
consisted of repurchase agreements, Federal Home Loan Bank borrowings, and, when
necessary, overnight borrowings such as fed funds purchased.  Total
borrowings of $20,869,000 at March 31, 2008 were $1.5 million less than at
year-end as our overnight borrowings have decreased by $2.9 million and
repurchase agreements increased by $1.5 million.





CAPITAL
RESOURCES





Our total capital of $21,643,000 is
8.6% of assets and similar to our position at year-end when capital was
$21,081,000 or 8.5% of assets.  The increase is a product of our
earnings for the first quarter less the payment of dividends to our
shareholders.  Our risk based capital measures, which are established
for all banks through the regulatory process, continue to easily exceed required
levels.  We have no knowledge of any items or trends which are likely
to materially impair our capital position.





LIQUIDITY





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





We monitor liquidity on a regular basis
by preparing projected balance sheets and analyzing our sources and uses of
funds.  Historically, we have satisfied our liquidity needs through
internal sources of funds with the exception of certain loans which have been
funded by borrowing funds from the Federal Home Loan Bank of
Pittsburgh.  Currently, we have access to approximately $95 million
through various FHLB programs.  Borrowings through the programs at
FHLB are secured by a blanket security interest in all unencumbered assets of
the bank.





Our liquidity demands were low during
the first quarter as we experienced reduced loan demand.  We expect to
continue to satisfy our liquidity needs primarily through internal
sources.





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.  As previously
noted in this report we have recently experienced increasing fuel and food
prices impacting our economy.  However, based on current Federal
Reserve policy we do not expect inflation to materially impact our financial
position or results of operations in the foreseeable future.


21
 Index




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, evaluated the company’s disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934), as amended (the “Exchange Act”).  Based on this evaluation, the
chief executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective to ensure that the information
required to be disclosed by the company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms.  There were no
significant changes in the company’s internal control over financial reporting
that occurred during the quarter that have materially affected or are reasonably
likely to materially affect the company’s internal control over financial
reporting.








PART
II -  OTHER INFORMATION








Item
      1.
            Legal
      Proceedings:  As of March 31, 2008 Citizens Financial
      Corp. is 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
      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 and Reports
      on Form 8-K:





(a)
      Exhibits:
            The
      following exhibits are filed with this report:Exhibit
      No.
            
            Description of
      Exhibit31.1
            
            Certification
      Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, 18 U.S.C.
      Section 135031.2
            
            Certification
      Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002, 18 U.S.C.
      Section 135032.1
            
            Certification
      Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, 18 U.S.C.
      Section 135032.2
            
            Certification
      Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, 18 U.S.C.
      Section 1350


22
 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:
            5/14/08
            
            /s/Robert J. SchoonoverRobert
      J. SchoonoverPresident
      andChief
      Executive OfficerDate:
            5/14/08
            
            /s/Thomas
      K. DerbyshireThomas
      K. DerbyshireVice
      President, Treasurer andPrincipal
      Financial Officer






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