**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
              June
                  30, 2006





Commission
      file number 2-96144








CITIZENS
      FINANCIAL CORP.











**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**







**Not
      Applicable**











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 filero
              Accelerated
                  filero
              Non-accelerated
                  filerx




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 August 4, 2006Common
                Stock ($2 par value)
            1,836,192












**FORM
      10-Q**


**CITIZENS
      FINANCIAL CORP.**


**Quarter
      Ended June 30, 2006**





INDEX




Page
                  No.Part
                  I.
              Financial
                  InformationItem
                  1. Financial StatementsCondensed
                    Consolidated Balance Sheets June 30, 2006 and December
                    31, 2005
              3Condensed
                    Consolidated Statements of Income Three Months Ended
                    June 30, 2006 and June 30, 2005 and Six Months Ended June 30,
                    2006and June
                    30, 2005
              4Statements
                    of Comprehensive Income/Loss Three Months Ended June
                    30, 2006 and June 30, 2005 and Six Months Ended June 30, 2006
                    and
                    June30, 2005
              5Condensed
                    Consolidated Statements of Changes in Shareholders'
                    Equity Six Months Ended June 30, 2006 and June 30,
                    2005
              6Condensed
                    Consolidated Statements of  Cash Flows Six Months
                    Ended June 30, 2006 and June 30, 2005
              7Notes
                    to Condensed Consolidated Financial
                    Statements
              8-13Item
                  2. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations
              14-21Item
                  3. Quantitative and Qualitative Disclosures About
                  Market Risk
              22Item
                  4. Controls and Procedures
              22Part
                  II.
              Other
                  Information and Index to ExhibitsItems
                  1 through 6
              23Signatures
              24Certification
                  by Executive Officers Pursuant to Sections302 and 906 of the
                  Sarbanes-Oxley Act of 2002
              25-28


2
 *Index*




PART
      I ITEMI - FINANCIAL INFORMATION


CITIZENS
      FINANCIAL CORP.


CONDENSED
      CONSOLIDATED BALANCE SHEETS


(In
      thousands of dollars)





June
                30,
            
            Dec.
                31,2006
            
            2005(Unaudited)
            
            *ASSETSCash
                and due from banks
            
            $
            5,852
            
            $
            6,770Federal
                funds sold
            
            
            39
            
            
            2,003Securities
                available for sale, at fair value
            
            
            58,841
            
            
            66,854Loans,
                  less allowance for loan losses of  $1,778 and $1,597,
                  respectively
            
            
            163,842
            
            
            152,136Premises
                and equipment, net
            
            
            4,107
            
            
            4,192Accrued
                interest receivable
            
            
            1,272
            
            
            1,321Other
                assets
            
            
            4,794
            
            
            4,914Total
                Assets
            
            $
            238,747
            
            $
            238,190LIABILITIES
                AND SHAREHOLDERS' EQUITYDeposits:Noninterest
                bearing
            
            $
            25,148
            
            $
            28,648Interest
                bearing
            
            
            160,116
            
            
            161,838Total
                deposits
            
            
            185,264
            
            
            190,486Short-term
                borrowings
            
            
            26,978
            
            
            20,512Long-term
                borrowings
            
            
            4,282
            
            
            5,145Other
                liabilities
            
            
            2,330
            
            
            2,434Total
                liabilities
            
            
            218,854
            
            
            218,577Commitments
                and contingenciesSHAREHOLDERS'
                EQUITYCommon
                stock, $2.00 par value, authorized 4,500,000 and 2,250,000 shares,
                issued
                2,250,000 and 750,000 shares, respectively
            
            
            4,500
            
            
            1,500Additional
                paid in capital
            
            
            -
            
            
            2,100Retained
                earnings
            
            
            20,465
            
            
            20,704Accumulated
                other comprehensive income/(loss)
            
            
            (1,533
            )
            
            (1,316
            )Treasury
                stock at cost, 404,438 and 312,012 shares, respectively
            
            
            (3,539
            )
            
            (3,375
            )Total
                shareholders' equity
            
            
            19,893
            
            
            19,613Total
                Liabilities and Shareholders' Equity
            
            $
            238,747
            
            $
            238,190





*From
      audited financial statements.





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


3
 *Index*




CITIZENS
      FINANCIALCORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME


(In
      thousands of dollars, except per share data)




Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2006
            
            2005
            
            2006
            
            2005(Unaudited)
            
            (Unaudited)INTEREST
                INCOMEInterest
                and fees on loans
            
            $
            3,151
            
            $
            2,595
            
            $
            6,165
            
            $
            5,060Interest
                and dividends on securities:Taxable
            
            
            512
            
            
            409
            
            
            1,058
            
            
            801Tax-exempt
            
            
            76
            
            
            81
            
            
            151
            
            
            163Interest
                on federal funds sold
            
            
            1
            
            
            15
            
            
            23
            
            
            41Total
                interest income
            
            
            3,740
            
            
            3,100
            
            
            7,397
            
            
            6,065INTEREST
                EXPENSEInterest
                on deposits
            
            
            1,136
            
            
            788
            
            
            2,169
            
            
            1,479Interest
                on short-term borrowings
            
            
            247
            
            
            106
            
            
            393
            
            
            196Interest
                on long-term borrowings
            
            
            44
            
            
            46
            
            
            92
            
            
            71Total
                interest expense
            
            
            1,427
            
            
            940
            
            
            2,654
            
            
            1,746Net
                interest income
            
            
            2,313
            
            
            2,160
            
            
            4,743
            
            
            4,319Provision
                for loan losses
            
            
            103
            
            
            103
            
            
            206
            
            
            206Net
                interest income after provision for loan losses
            
            
            2,210
            
            
            2,057
            
            
            4,537
            
            
            4,113NONINTEREST
                INCOMETrust
                department income
            
            
            49
            
            
            42
            
            
            96
            
            
            93Brokerage
                fees
            
            
            33
            
            
            14
            
            
            64
            
            
            36Service
                fees
            
            
            219
            
            
            190
            
            
            409
            
            
            361Insurance
                commissions
            
            
            7
            
            
            9
            
            
            11
            
            
            10Security
                gains/(losses)
            
            
            -
            
            
            -
            
            
            (18
            )
            
            -Secondary
                market loan fees
            
            
            32
            
            
            44
            
            
            65
            
            
            58Other
            
            
            58
            
            
            56
            
            
            150
            
            
            120Total
                noninterest income
            
            
            398
            
            
            355
            
            
            777
            
            
            678NONINTEREST
                EXPENSESalaries
                and employee benefits
            
            
            948
            
            
            876
            
            
            1,885
            
            
            1,844Net
                occupancy expense
            
            
            91
            
            
            101
            
            
            181
            
            
            186Equipment
                expense
            
            
            116
            
            
            120
            
            
            237
            
            
            238Data
                processing
            
            
            82
            
            
            146
            
            
            306
            
            
            312Director
                fees
            
            
            66
            
            
            62
            
            
            130
            
            
            118Postage
            
            
            43
            
            
            41
            
            
            89
            
            
            85Professional
                service fees
            
            
            142
            
            
            85
            
            
            206
            
            
            144Stationery
            
            
            36
            
            
            39
            
            
            74
            
            
            79Software
                expense
            
            
            43
            
            
            58
            
            
            89
            
            
            124Other
            
            
            257
            
            
            259
            
            
            504
            
            
            488Total
                noninterest expense
            
            
            1,824
            
            
            1,787
            
            
            3,701
            
            
            3,618Income
                before income taxes
            
            
            784
            
            
            625
            
            
            1,613
            
            
            1,173Income
                tax expense
            
            
            250
            
            
            187
            
            
            509
            
            
            360Net
                income
            
            $
            534
            
            $
            438
            
            $
            1,104
            
            $
            813Basic
                and fully diluted earnings per common share*
            
            $
            0.29
            
            $
            0.23
            
            $
            0.60
            
            $
            0.44Weighted
                average shares outstanding*
            
            
            1,847,693
            
            
            1,864,995
            
            
            1,850,677
            
            
            1,868,379Dividends
                per common share*
            
            $
            0.12
            
            $
            0.10
            
            $
            0.24
            
            $
            0.20




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





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





4
 *Index*




CITIZENS
      FINANCIAL CORP.


STATEMENTS
      OF COMPREHENSIVE INCOME/LOSS


(In
      thousands of dollars)





Three
                Months Ended
            
            Six
                Months EndedJune
                30
            
            June
                302006
            
            2005
            
            2006
            
            2005(Unaudited)
            
            (Unaudited)Net
                income
            
            $
            534
            
            $
            438
            
            $
            1,104
            
            $
            813Other
                comprehensive income:Gross
                unrealized gains/(losses)arising during the period
            
            
            (302
            )
            
            (1,094
            )
            
            (368
            )
            
            (398
            )Adjustment
                for income tax (expense)/benefit
            
            
            115
            
            
            415
            
            
            140
            
            
            151(187
            )
            
            (679
            )
            
            (228
            )
            
            (247
            )Less:
                Reclassification adjustment for (gains)/losses included in net
                income
            
            
            -
            
            
            -
            
            
            18
            
            
            -Adjustment
                for income tax expense/(benefit)
            
            
            -
            
            
            -
            
            
            (7
            )
            
            --
            
            
            -
            
            
            11
            
            
            -Other
                comprehensive income/(loss), net of tax
            
            
            (187
            )
            
            (679
            )
            
            (217
            )
            
            (247
            )Comprehensive
                income/(loss)
            
            $
            347
            
            $
            (241
            )
            $
            887
            
            $
            566




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





5
 *Index*




CITIZENS
      FINANCIALCORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


(In
      thousands of dollars)


Six
                  Months Ended June 30, 2006 and 2005(unaudited)Accumulated
              
              
              
              TotalAdditional
              
              
              
              Other
              
              
              
              Share-CommonStock
              
              Paid-in
              
              Retained
              
              Comprehensive
              
              Treasury
              
              holders'Shares
              
              Amount
              
              Capital
              
              Earnings
              
              Income/(Loss)
              
              Stock
              
              EquityBalance,
                  January 1, 2006
              
              
              750,000
              
              $
              1,500
              
              $
              2,100
              
              $
              20,704
              
              $
              (1,316
              )
              $
              (3,375
              )
              $
              19,613Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              1,104
              
              
              -
              
              
              -
              
              
              1,104Net
                    change in unrealized  gain/loss on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (217
              )
              
              -
              
              
              (217
              )Cash
                    dividends declared ($0.24 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (443
              )
              
              -
              
              
              -
              
              
              (443
              )Purchase
                  of Treasury Stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (164
              )
              
              (164
              )Stock
                      split effected in the form of a 200% stock
                      dividend
              
              
              1,500,000
              
              
              3,000
              
              
              (2,100
              )
              
              (900
              )
              
              -
              
              
              -
              
              
              -Balance
                  June 30, 2006
              
              
              2,250,000
              
              $
              4,500
              
              $
              -
              
              $
              20,465
              
              $
              (1,533
              )
              $
              (3,539
              )
              $
              19,893Balance,
                  January 1, 2005
              
              
              750,000
              
              $
              1,500
              
              $
              2,100
              
              $
              19,650
              
              $
              58
              
              $
              (3,085
              )
              $
              20,223Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              813
              
              
              -
              
              
              -
              
              
              813Net
                    change in unrealized gain/loss on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (247
              )
              
              -
              
              
              (247
              )Cash
                    dividends declared ($0.20 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (373
              )
              
              -
              
              
              -
              
              
              (373
              )Purchase
                  of treasury stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (148
              )
              
              148
              )Balance
                  June 30, 2005
              
              
              750,000
              
              $
              1,500
              
              $
              2,100
              
              $
              20,090
              
              $
              (189
              )
              $
              (3,233
              )
              $
              20,268
  The
        accompanying notes are an integral part of these financial
        statements.


6
 *Index*




CITIZENS
      FINANCIALCORP.


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
      thousands of dollars)


Six
                Months EndedJune
                30,2006
            
            2005Cash
                flows from operating activities:
            
            (Unaudited)Net
                Income
            
            $
            1,104
            
            $
            813Adjustments
                to reconcile net income to cash provided by operating
                activities:Provision
                for loan losses
            
            
            206
            
            
            206Depreciation
                and amortization
            
            
            192
            
            
            204Amortization
                on securities
            
            
            38
            
            
            123Loss
                on disposal of equipment
            
            
            -
            
            
            1Loss
                on sale of securities
            
            
            18
            
            
            -Loss
                on sale of OREO
            
            
            17
            
            
            -(Increase)/decrease
                in accrued interest receivable
            
            
            49
            
            
            (24
            )Decrease
                in other assets
            
            
            19
            
            
            29Increase
                in other liabilities
            
            
            29
            
            
            305Cash
                provided by operating activities
            
            
            1,672
            
            
            1,657Cash
                flows from investing activities:Principal
                payments, available for sale securities
            
            
            1,003
            
            
            1,105Proceeds
                from sales of available for sale securities
            
            
            2,843
            
            
            440Proceeds
                from maturities and calls, available for sale securities
            
            
            7,500
            
            
            4,576Purchases
                of available for sale securities
            
            
            (3,738
            )
            
            (12,442
            )Purchases
                of premises and equipment
            
            
            (100
            )
            
            (161
            )Proceeds
                from sale of other real estate owned
            
            
            134
            
            
            -Increase
                in loans
            
            
            (11,970
            )
            
            (3,325
            )Cash
                used in investing activities
            
            
            (4,328
            )
            
            (9,807
            )Cash
                flows from financing activities:Cash
                dividends paid
            
            
            (443
            )
            
            (373
            )Acquisition
                of treasury stock
            
            
            (164
            )
            
            (148
            )Increase/(decrease)
                in short-term borrowing
            
            
            6,466
            
            
            (3,975
            )Acquisition
                of long-term borrowing
            
            
            -
            
            
            3,500Repayment
                of long-term borrowing
            
            
            (863
            )
            
            (1,307
            )Increase
                in time deposits
            
            
            3,039
            
            
            7,876Increase/(decrease)
                in other deposits
            
            
            (8,261
            )
            
            4,676Cash
                provided/(used)financing activities
            
            
            (226
            )
            
            10,249Net
                increase/(decrease) in cash and cash equivalents
            
            
            (2,882
            )
            
            2,099Cash
                and cash equivalents at beginning of period
            
            
            8,773
            
            
            5,476Cash
                and cash equivalents at end of period
            
            $
            5,891
            
            $
            7,575Supplemental
                disclosure of cash flow information:Cash
                paid during the period for:Interest
            
            $
            2,607
            
            $
            1,686Income
                taxes
            
            
            721
            
            
            347Supplemental
                Schedule of Noncash Investing andFinancing
                Activities:Other
                real estate and other assets acquired in settlement of
                loans
            
            $
            58
            
            $
            170





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 six months ended June 30, 2006 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'
      2005 Annual Report to Shareholders and Form 10-K.








NOTE
      2 - DECLARATION
      OF STOCK SPLIT





On
      March
      7, 2006 Citizens board of directors declared a stock split which was paid on
      April 14, 2006 in the form of a 200% stock dividend to shareholders of record
      April 3, 2006. The primary reason for doing so was to reduce the share price
      of
      the stock in an effort to improve its liquidity. Citizens stock, which is
      neither widely held or widely traded, is an over the counter bulletin board
      stock with the symbol CIWV.OB.





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








NOTE
      3 - RECLASSIFICATIONS





Certain
      accounts in the condensed consolidated financial statements for 2005, as
      previously presented, have been reclassified to conform with current year
      classifications.








NOTE
      4 - SECURITIES





The
      amortized cost, unrealized gains, unrealized losses and estimated fair values
      of
      securities at June 30, 2006 and December 31, 2005 are summarized as follows
      (in
      thousands):





8
 *Index*




June
                30, 2006AmortizedCost
            
            UnrealizedGains
            
            UnrealizedLosses
            
            CarryingValue(EstimatedFairValue)(Unaudited)**Available
                for sale:**U.S.
                Government agencies
            
            $
            41,552
            
            $
            -
            
            $
            910
            
            $
            40,642Mortgage
                backed securities-U.S. Government agencies and
                corporations
            
            
            8,240
            
            
            -
            
            
            306
            
            
            7,934Corporate
                debt securities
            
            
            757
            
            
            -
            
            
            9
            
            
            748Tax
                exempt state and political subdivisions
            
            
            8,501
            
            
            14
            
            
            106
            
            
            8,409Federal
                Reserve Bank stock
            
            
            108
            
            
            -
            
            
            -
            
            
            108Federal
                Home Loan Bank stock
            
            
            1,000
            
            
            -
            
            
            -
            
            
            1,000Total
                securities available for sale
            
            $
            60,158
            
            $
            14
            
            $
            1,331
            
            $
            58,841







December
                31, 2005*AmortizedCost
            
            UnrealizedGains
            
            Unrealized
                Losses
            
            CarryingValue(EstimatedFairValue)***Available
                for sale:**U.S.
                Government agencies and corporations.
            
            $
            50,561
            
            $
            4
            
            $
            719
            
            $
            49,846Mortgage
                backed securities- U.S. Government agencies and
                corporations
            
            
            7,005
            
            
            1
            
            
            203
            
            
            6,803Corporate
                debt securities
            
            
            1,271
            
            
            -
            
            
            20
            
            
            1,251Tax
                exempt state and political subdivisions
            
            
            8,280
            
            
            35
            
            
            65
            
            
            8,250Federal
                Reserve Bank stock
            
            
            108
            
            
            -
            
            
            -
            
            
            108Federal
                Home Loan Bank stock
            
            
            596
            
            
            -
            
            
            -
            
            
            596Total
                securities available for sale
            
            $
            67,821
            
            $
            40
            
            $
            1,007
            
            $
            66,854





*
      From
      audited financial statements





The
      tables below provide summaries of securities available for sale which were
      in an
      unrealized loss position at June 30, 2006 and December 31, 2005. As of June
      30,
      2006, these securities had a total fair value of $56,353,000 and carried
      unrealized losses of $1,331,000, or 2.4%. Securities which have been in a
      continuous loss position for the past twelve months total $33,715,000. The
      unrealized loss pertaining to these securities is $955,000 or 2.8%. The majority
      of these losses are on securities issued by U.S. government agencies and
      corporations which carry the implied faith and credit of the U.S. Government.
      The other losses are on corporate and municipal instruments. With the exception
      of one municipal which is not rated, all of these instruments carry A ratings
      from the major credit rating agencies. We believe that these unrealized
      losses are the result of changing interest rates and that with our intent and
      ability to hold these investments to maturity provide strong evidence that
      we
      will fully recover our investment. In addition, no losses have been recognized
      on the $58,796,000 of securities that carried unrealized losses at December
      31,
      2005.





9
 *Index*




June
                  30, 2006Securities
                  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
              
              $
              14,631
              
              $
              241
              
              $
              26,011
              
              $
              669
              
              $
              40,642
              
              $
              910Mortgage
                  backed securities-U.S. Government agencies and corporations
              
              
              3,069
              
              
              80
              
              
              4,865
              
              
              226
              
              
              7,934
              
              
              306Corporate
                  debt securities
              
              
              -
              
              
              -
              
              
              748
              
              
              9
              
              
              748
              
              
              9Tax
                  exempt state and political subdivisions
              
              
              4,938
              
              
              55
              
              
              2,091
              
              
              51
              
              
              7,029
              
              
              106Total
                  securities available for sale
              
              $
              22,638
              
              $
              376
              
              $
              33,715
              
              $
              955
              
              $
              56,353
              
              $
              1,331








December
                31, 2005*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
            
            $
            26,649
            
            $
            258
            
            $
            19,810
            
            $
            461
            
            $
            46,459
            
            $
            719Mortgage
                backed securities-U.S. Government agencies and corporations
            
            
            3,283
            
            
            72
            
            
            3,397
            
            
            132
            
            
            6,680
            
            
            204Corporate
                debt securities
            
            
            -
            
            
            -
            
            
            1,251
            
            
            19
            
            
            1,251
            
            
            19Tax
                exempt state and political subdivisions
            
            
            3,454
            
            
            42
            
            
            952
            
            
            23
            
            
            4,406
            
            
            65Total
                securities available for sale
            
            $
            33,386
            
            $
            372
            
            $
            25,410
            
            $
            635
            
            $
            58,796
            
            $
            1,007





*From
      audited financial statements.





The
      maturities, amortized cost and estimated fair values of the bank's securities
      at
      June 30, 2006 are summarized as follows (in thousands):





Available
                for saleAmortized
            
            EstimatedCost
            
            Fair
                ValueDue
                within 1 year
            
            $
            17,939
            
            $
            17,740Due
                after 1 but within 5 years
            
            
            40,589
            
            
            39,485Due
                after 5 but within 10 years
            
            
            522
            
            
            508Equity
                securities
            
            
            1,108
            
            
            1,108$
            60,158
            
            $
            58,841





Mortgage
      backed securities have remaining contractual maturities ranging from 6 months
      to
      14.75 years and are reflected in the maturity distribution schedule shown above
      based on their anticipated average life to maturity, which ranges from 0.49
      to
      5.18 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.





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 six month periods ended June 30, 2006 and 2005 are
      as
      follows (in thousands):


Proceeds
                From
            
            Gross
                RealizedCalls
                and
            
            PrincipalSales
            
            Maturities
            
            Payments
            
            Gains
            
            Losses**June
                30, 2006:**Securities
                available for sale
            
            $
            2,843
            
            $
            7,500
            
            $
            1,003
            
            $
            -
            
            $
            18**June
                30, 2005:**Securities
                available for sale
            
            $
            440
            
            $
            4,576
            
            $
            1,105
            
            $
            -
            
            $
            -





At
      June
      30, 2006 and December 31, 2005 securities with an amortized cost of $28,609,000
      and $28,427,000, respectively, with estimated fair values of $27,980,000 and
      $27,983,000, respectively, were pledged to secure public deposits,securities
      sold under agreements to repurchase, and for other purposes required or
      permitted by law.





10
 *Index*




At
      June
      30, 2006 and December 31, 2005 our securities portfolio contained no
      concentrations within any specific industry or issuer.








NOTE
      5 - LOANS





Total
      loans are summarized as follows (in thousands):





June
                30, 2006
            
            December
                31, 2005(Unaudited)
            
            *Commercial,
                financial and agricultural
            
            $
            26,759
            
            $
            26,589Real
                estate - construction
            
            
            13,430
            
            
            10,559Real
                estate - home equity
            
            
            8,545
            
            
            8,796Real
                estate - residential mortgage
            
            
            58,293
            
            
            55,128Real
                estate - commercial mortgage
            
            
            46,607
            
            
            40,944Installment
                loans
            
            
            10,230
            
            
            9,726Other
            
            
            1,797
            
            
            2,051Total
                loans
            
            
            165,661
            
            
            153,793Net
                deferred loan origination fees and costs
            
            
            (41
            )
            
            (56
            )Unearned
                income
            
            
            -
            
            
            (4
            )Total
            
            
            165,620
            
            
            153,733Less
                allowance for loan losses
            
            
            1,778
            
            
            1,597Loans,
                net
            
            $
            163,842
            
            $
            152,136





*
      From
      audited financial statements





At
      June
      30, 2006 our recorded investment in impaired loans was $2,663,000. The valuation
      allowance assigned to these loans totaled $279,000. Our average investment
      in
      the impaired loans was $3,095,000 during the quarter. The amount of interest
      income recorded on them in the second quarter was $65,000 while the amount
      of
      interest collected was $96,000.





Impaired
      loans at December 31, 2005 were $3,650,000.





Loans
      in
      a nonaccrual status were $2,382,000 and $58,000 at June 30, 2006 and December
      31, 2005, respectively.








NOTE
      6 - ALLOWANCE
      FOR LOAN LOSSES





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


Three
                  Months Ended
              
              Six
                  Months EndedJune
                  30,
              
              June
                  30,2006
              
              2005
              
              2006
              
              2005Balance
                  at beginning of period
              
              $
              1,702
              
              $
              1,447
              
              $
              1,597
              
              $
              1,378Loans
                  charged off:Commercial
                  and industrial
              
              
              24
              
              
              -
              
              
              24
              
              
              -Real
                  estate - mortgage
              
              
              -
              
              
              -
              
              
              -
              
              
              -Consumer
                  and other
              
              
              5
              
              
              21
              
              
              7
              
              
              64Total
              
              
              29
              
              
              21
              
              
              31
              
              
              64Recoveries:Commercial
                  and industrial
              
              
              -
              
              
              5
              
              
              -
              
              
              5Real
                  estate - mortgage
              
              
              -
              
              
              -
              
              
              -
              
              
              1Consumer
                  and other
              
              
              2
              
              
              8
              
              
              6
              
              
              16Total
                  recoveries
              
              
              2
              
              
              13
              
              
              6
              
              
              22Net
                  losses
              
              
              27
              
              
              8
              
              
              25
              
              
              42Provision
                  for loan losses
              
              
              103
              
              
              103
              
              
              206
              
              
              206Balance
                  at end of period
              
              $
              1,778
              
              $
              1,542
              
              $
              1,778
              
              $
              1,542
 11
 *Index*


NOTE
      7 - DEPOSITS





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




June
                30, 2006
            
            December
                31, 2005(Unaudited)
            
            *Interest
                bearing checking
            
            $
            41,924
            
            $
            44,668Money
                market accounts
            
            
            6,728
            
            
            7,645Savings
                accounts
            
            
            23,587
            
            
            24,688Certificates
                of deposit under $100,000
            
            
            54,347
            
            
            52,579Certificates
                of deposit of $100,000 or more
            
            
            33,530
            
            
            32,258Total
            
            $
            160,116
            
            $
            161,838





*
      From
      audited financial statements








NOTE
      8 - BORROWINGS





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





June
                30, 2006
            
            December
                31, 2005(Unaudited)
            
            *Short-term
                borrowings:Securities
                sold under agreements to repurchase
            
            $
            18,878
            
            $
            20,512Overnight
                advances from Federal Home Loan Bank of Pittsburgh (FHLB)
            
            
            8,100
            
            
            -Total
            
            $
            26,978
            
            $
            20,512Long-term
                borrowings:Advances
                from FHLB
            
            $
            4,282
            
            $
            5,145





*
      From
      audited financial statements





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








NOTE
      9 - EMPLOYEE
      BENEFIT PLANS





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




Six
                    Months Ended June 30,Pension
                    Benefits
                
                Other
                    Benefits2006
                
                2005
                
                2006
                
                2005Service
                    cost
                
                $
                56
                
                $
                49
                
                $
                12
                
                $
                12Interest
                    cost
                
                
                136
                
                
                134
                
                
                16
                
                
                15Expected
                    return on plan assets
                
                
                (165
                )
                
                (171
                )
                
                -
                
                
                -Net
                    amortization and deferral
                
                
                39
                
                
                16
                
                
                8
                
                
                8Net
                    periodic cost
                
                $
                66
                
                $
                28
                
                $
                36
                
                $
                35





A
      payment
      of $70,000 was made to the pension plan in the second quarter of 2006 for the
      2004 plan year.




12
 *Index*


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
            
            June
                30, 2006
            
            December
                31, 2005amounts
                represent credit risk
            
            (unaudited)
            
            *(in
                thousands)Commitments
                to extend credit
            
            $
            22,514
            
            $
            26,920Standby
                letters of credit
            
            
            321
            
            
            559Total
            
            $
            22,835
            
            $
            27,479





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 six months ended June 30, 2006 and 2005 the weighted
      average number of shares outstanding were, 1,850,677 and 1,868,379,
      respectively, after adjusting for the stock split effected in the form of a
      200%
      stock dividend. During the periods ended June 30, 2006 and 2005 the company
      did
      not have any dilutive securities.








NOTE
      13 - SIGNIFICANT
      NEW ACCOUNTING PRONOUNCEMENTS





While
      there were no significant new accounting pronouncements issued in the second
      quarter, in March 2006, the Financial Accounting Standards Board issued
      Statement of Financial Accounting Standards No. 156, "Accounting for Servicing
      of Financial Assets an amendment of FASB Statement 140" (Statement 156).
      Statement 156 amends Statement 140 with respect to separately recognized
      servicing assets and liabilities. Statement 156 requires an entity to recognize
      a servicing asset or liability each time it undertakes an obligation to service
      a financial asset by entering into a servicing contract and requires all
      servicing assets and liabilities to be initially measured at fair value, if
      practicable. Statement 156 also permits entities to subsequently measure
      servicing assets and liabilities using an amortization method or fair value
      measurement method. Under the amortization method, servicing assets and
      liabilities are amortized in proportion to and over the estimated period of
      servicing. Under the fair value measurement method, servicing assets are
      measured at fair value at each reporting date and changes in fair value are
      reported in net income for the period the change occurs.




Adoption
      of Statement 156 is required as of the beginning of fiscal years beginning
      subsequent to September 15, 2006. Earlier adoption is permitted as of the beginning
      of an entity's fiscal year, provided the entity has not yet issued financial
      statements, including interim financial statements.




The
      company does not expect the adoption of Statement 156 at the beginning of 2007
      to have a material impact on our financial condition or results of
      operations.


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 $239 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 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. 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.





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





14
 *Index*




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





Assets
      have remained flat at $239 million through the first half of 2006 but income
      improved 35.8% from $813,000 to $1,104,000 due to higher net interest income
      and
      a slight decrease in net overhead. Our higher income allowed our return on
      average assets to rise from .75% in the first half of 2005 to .94% in the first
      half of 2006 while earnings per share improved $.16 to $.60. 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.





Our
      net
      interest income for the first half of 2006 of $4,743,000 is up 9.8% from last
      year’s $4,319,000. We also experienced an increase in the second quarter with
      net interest income rising to $2,313,000, up 7.1% from last year’s
      $2,160,000.




As
      noted
      above, net interest income is comprised of two components, interest income
      and
      interest expense. Both have risen significantly in 2006. Higher interest rates
      have had an impact on both components pushing the yield on our earning assets
      up
      72 basis points to 6.76% while the cost of our interest bearing liabilities
      has
      risen 80 basis points to $2.83%. At the same
      time, growth in our earning assets and interest bearing liabilities has also
      caused interest income and expense to rise; earning assets of $224,249,000
      are
      up $18.2 million while interest bearing liabilities are up $15.5 million to
      $189,302,000.





15
 *Index*




While
      the
      direction of future interest rates cannot be known with certainty, many
      economists believe we are now approaching the end of a rising rate cycle.
      Rising, falling and even stable rates will all impact our future earnings.
      A
      discussion of what those effects may be is presented later in this
      report.





Short-term
      interest rates continued to rise during the first half of 2006. Four rate
      increases by the Federal Reserve this year have brought the federal funds rate
      to 5.25% and the prime rate to 8.25%. Throughout this time the yield curve
      has
      been relatively flat making it difficult for many banks to improve their net
      interest margins. Our net interest margin has been relatively stable rising
      from
      4.33% in the first half of 2005 to 4.37% in the first half this
      year.





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.





With
      the
      increasing size of our loan portfolio the corresponding risk contained within
      has also likely risen. Our analysis shows that this is the case and our
      allowance has, in fact, increased over the past year. However, because our
      charge offs have been low, we have not had to increase our provision. For the
      first half of the year our provision was $206,000, the same as in the first
      half
      of last year. By making this provision the allowance for loan losses is
      appropriately stated as of the report date based on our analysis. Changes in
      the
      amount of future provisions are likely, however.





NONINTEREST
      INCOME





Noninterest
      income includes all revenues other than those related to earning assets and
      is
      becoming increasingly important to community banks like Citizens. Through June
      30 total noninterest income of $777,000 was up $99,000, or 14.6%,from the first
      half of last year. The largest component of noninterest income continues to
      be
      service fees which increased $48,000 to $409,000 as a result of higher overdraft
      and ATM fees. Other noninterest income rose by $30,000 reflecting an increase
      in
      fees collected for cashing noncustomer checks. Our involvement in trust,
      brokerage and secondary market loan services all continue to be major
      contributors to noninterest income. Fees generated in each of these areas have
      increased, especially our brokerage fees which saw a $28,000 increase, more
      than
      77%,due to the additional experience and stability our broker has brought to
      the
      program. Also included in noninterest income is an $18,000 security loss taken
      during the first quarter when we attempted to move out the yield curve and
      lock
      in higher rates as protection against falling interest rates. Those higher
      yields will allow us to recover that loss before the end of the third
      quarter.





16
 *Index*




During
      the second quarter noninterest income improved by $43,000 to $398,000. With
      the
      exception of a decrease in secondary market loan fees, the quarterly results
      are
      similar to the year-to-date performances. While some slowdown in mortgage
      activity has been observed, we cannot determine if the lower secondary market
      loan fees indicate a drop in future income is likely at this time.





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 and has become a major objective of
      management in 2006.





Over
      the
      last five years increases in our noninterest expense have averaged 9.3%. Through
      the first half of 2006 the increase has been just 2.3% as total noninterest
      expense went up $83,000 to $3,701,000. This increase is primarily centered
      in a
      $41,000 rise in salaries and benefits and a $62,000 increase in professional
      fees. In contrast, software expense has fallen $35,000.




The
      increase in our salaries and benefits is due to higher costs of our retirement
      plans, including our pension. Salary expense has actually dropped by $24,000
      due
      to staff reductions. However, as reported in Part II, Item 5 of this filing,
      subsequent to quarter end we added a chief credit officer to our staff in order
      to strengthen our lending function.  We are also continuing to search for a
      credit analyst. The engagement of several consultants to help improve our
      operations, including loans, is responsible for the rise in professional fees,
      during the second quarter.





As
      reported in our last quarterly filing, we changed data processors in the first
      quarter and incurred significant conversion charges as a result. Adjustments
      to
      those charges made during the second quarter, as well as recurring monthly
      savings, greatly reduced data processing costs during the second quarter and
      year-to-date data processing costs show a slight reduction. We continue to
      believe that, on an ongoing basis, this change could generate as much as
      $200,000 in annual savings.





In
      addition to these items we have recorded several other one-time items, including
      legal expenses and costs related to repossessed properties, which approximate
      $115,000. In total, nonrecurring fees for the first half of the year
      approximated $215,000. Absent these items our noninterest expense would have
      fallen by $132,000 over the six month period.





INCOME
      TAXES





Our
      provision for income taxes for the first half of 2006 of $509,000 includes
      both
      federal and state income taxes. At this level taxes were 31.6% of pretax income.
      Quarterly taxes were $250,000. Through six months of 2005 income tax expense
      totaled $360,000 or 30.7% 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. We are not subject to the alternative
      minimum tax, however.




17
 *Index*




FINANCIAL
      CONDITION




LOAN
      PORTFOLIO




Our
      loan
      portfolio increased an additional $7,317,000 to $165,661,000 in the second
      quarter, bringing our year-to-date increase up to $11.9 million or 7.7%. As
      has
      been the case, a significant portion of this growth is related to commercial
      lending.





In
      the
      first quarter we saw approximately a $3.1 million increase in commercial real
      estate lending. The second quarter brought additional commercial real estate
      lending of $5 million, including $2.4 million in commercial real estate
      construction. Rates on our commercial and commercial real estate loans are
      typically tied to the prime rate. Despite the fact that the prime rate continues
      to increase, we have been able to sustain growth in this loan category. 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.





In
      the
      second quarter, residential mortgage lending increased by $2.5 million. The
      majority of this increase is attributed to a relatively large residential
      mortgage of $1.8 million. Absent this loan, residential mortgages only increased
      $700,000. Our variable rate mortgage loans continue to face tough competition
      as
      fixed rate mortgage lenders continue to offer attractive financing arrangements
      to consumers.





Even
      though auto manufacturers maintain aggressive financing incentives to entice
      consumers, a recent auto loan promotion has helped us recapture some of this
      market. Consumer installment loans have increased by $800,000 in the second
      quarter and $500,000 for the first half of the year.





CREDIT
      QUALITY AND ALLOWANCE FOR LOAN LOSSES





The
      quality of our loan portfolio has improved during the last quarter largely
      as a
      result of changes involving two specific borrowers. Past due loans have dropped
      from $6,304,000 at March 31, 2006 to $3,103,000, including $1,132,000 more
      than
      90 days past due, which places past due loans at 1.87% at the report date.
      Impaired loans now total $2,663,000 compared to $4,579,000 a quarter ago. Of
      these impaired loans $378,000 were assigned specific reserves for loss which
      totaled $279,000. Net charge-offs through June 30 were minimal at
      $25,000.




As
      noted,
      much of this improvement may be traced to two specific borrowers. Both have
      sold
      significant assets and otherwise restructured their operations to reduce their
      debt. Any remaining indebtedness to these borrowers is expected to perform
      as
      called for by the loan documents.




Our
      allowance for loan losses at June 30 was $1,778,000, or 1.07% of gross loans.
      In
      addition to $279,000 of reserve assigned to specific impaired loans, the
      allowance includes reserves for pools of smaller, homogeneous loans of $415,000,
      as well as $247,000 allocated for local market characteristics and changes
      to
      our own loan staff.





A
      significant portion of our allowance may be traced to loan concentrations in
      several industries which are prominent in our market area including automobile
      dealers, lumber and related industries, and hotel/motel and resort businesses.
      These industries make up a significant portion of the region’s economy and our
      loan exposure to them has increased as we have expanded our commercial lending
      efforts. Concentrations such as these can subject us to risks in the event
      these
      industries suffer a downturn for any reason. For example, high-fuel prices
      can
      greatly impact the hotel/motel and resort industries as well as the trucking
      operations used by lumbering concerns and even the success of auto dealers
      who
      may not offer fuel efficient vehicles to customers. Other factors such as rising
      interest rates and the demand for lumber products may also impact significant
      groups of borrowers. As of June 30, concentrations in these areas approximated
      $31.5 million. Due to these risks additional reserves of $698,000 were
      considered necessary.





18
 *Index*




Because
      the economy of our market area is characterized by these concentrations we
      have
      made attempts to diversify by seeking loans in other nearby markets. Some of
      these markets have provided loan opportunities, primarily in commercial real
      estate. While we believe this is a sound strategy for increasing loan volumes,
      we also recognize that out of area lending carries certain risks and intend
      to
      limit our exposure to it. Our out of area loans now total $7.0 million. The
      risks associated with this portion of our portfolio required us to provide
      an
      additional $140,000 in loan loss reserves.





All
      of
      these factors are included in our quarterly analysis of our allowance for loan
      losses. While we believe our analysis is comprehensive and our allowance is
      reasonably stated, there can be no assurance that changes to our provision
      for
      loan losses will not be required in the future as a result of changes in the
      assumptions which underlie our estimate and judgments, in economic conditions,
      or to the circumstances of particular 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.




Throughout
      the first half of 2006 we have allowed our securities portfolio to decrease
      from
      $66,854,000 to $58,841,000 in order to generate liquidity for the purpose of
      funding loan growth. Overnight balances in fed funds sold have similarly been
      reduced. Based on anticipated loan demand, funding sources, and interest rates,
      it is likely that securities maturing during the remainder of the year will
      also
      be utilized as a funding source.





Because
      interest rates have been rising a number of our securities have fair values
      which are less than their amortized book value, as illustrated in Note 4. All
      of
      the issuers are of sound financial condition and carry good to exceptional
      credit ratings. Based on this, as well as our ability and intent to hold the
      securities to maturity, we do not consider these investments to be other than
      temporarily impaired and no negative income consequences are foreseen as a
      result.




19
 *Index*


DEPOSITS
        AND OTHER FUNDING SOURCES


Deposit
      levels remained generally stable during the second quarter with total deposits
      as of June 30, 2006 being $185,264,000, nearly level with the previous quarter
      end. Year-to-date deposits have fallen by $5.2 million including $3.5 million
      in
      noninterest bearing accounts. However, the year end 2005 balance was
      approximately $1.2 million in excess of typical levels at the time. Adjusting
      for this, the year-to-date drop in total deposits would approximate $4.0 million
      including $2.3 million in noninterest bearing accounts. Interest bearing
      accounts are down $1.7 million.





As
      expected it has been difficult to attract new deposits in 2006. Rate competition
      has been more intense, especially over the last six months. The rising interest
      rate environment has added to this situation. We believe our deposit accounts
      include several very competitive rate offerings in addition to customer friendly
      product features. Despite these advantages we do not foresee significant deposit
      growth in the next six months. Instead, we feel deposit levels should remain
      generally stable.





Because
      of the reduction in our deposit portfolio we have had to increase borrowings
      in
      order to fund our asset base. These borrowings have come in the form of
      overnight borrowings as we believe we are nearing the end of the rising interest
      rate cycle. Using this type of funding strategy will allow us to benefit from
      the expected decreases in future rates. Our overnight borrowings totaled $8.1
      million at June 30 compared to $4.9 million at March 31 and $0 at year-end
      2005.
      Also included in short-term borrowings are $18.9 million in repurchase
      agreements. These balances are subject to some seasonality with higher balances
      typically being observed during the winter months.





We
      have
      also utilized long-term debt acquired from the Federal Home Loan Bank of
      Pittsburgh for the purpose of match funding certain larger loan projects and
      locking in an interest rate spread. As of June 30 these debts totaled
      $4,282,000. No long-term borrowings were acquired in the first half of the
      year.





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.
      In any event, ample sources of funding are available to us as explained later
      in
      this report.





CAPITAL
      RESOURCES





Our
      total
      capital of $19,893,000, or 8.3% of assets has not changed materially since
      year-end 2005 where it was $19,613,000. 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 easily exceed all such regulatory capital measures and know of no events
      or
      trends which are likely to materially impair future capital levels.





Changes
      to our capital base, including a stock split in the form of a 200% stock
      dividend which was paid to shareholders on April 14, 2006, are detailed in
      the
      Statement of Changes in Shareholder’s Equity. A further description of that
      transaction was provided in our March 31, 2006 Form 10-Q.





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.





20
 *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 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 $100 million through
      various FHLB programs in addition to available borrowing facilities with other
      correspondent banks.





For
      the
      remainder of this year we expect to continue to utilize maturing investment
      securities to fund loan growth, or, alternatively, to reduce short-term debt.
      As
      noted previously, our level and type of future borrowings will depend on several
      factors.





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. In addition, in light
      of
      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.


21
 *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. Some amount of interest rate risk is inherent and appropriate
      in
      banking. We attempt to control interest rate risk through our asset/liability
      committee which is comprised of members of senior management and other
      management personnel.





Several
      techniques are used to manage our interest rate risk. On a 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
      June
      30, 2006, 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 2.1% 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.


22
 *Index*
  **PART
        II- OTHER INFORMATION**
 
 
 Item
                  1.
              Legal
                  Proceedings:
 
 As
        of
        June 30, 2006 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. During the second quarter of 2006 we reached an agreement
        in
        another case in which we, as defendant, were accused of being negligent in
        the
        handling of a deposit account. As part of that agreement, we incurred expense
        in
        the form of payments to the plaintiff and legal fees totaling $50,000. Pursuant
        to the agreement, that case has been dismissed and we anticipate no further
        consequences from the case.
  Item
                    1A.
                Risk
                    Factors:
                    There have been no material changes in the Risk factors discussed
                    in Item
                    1A of our December 31, 2005 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:
                  The annual meeting of shareholders of Citizens Financial Corp.
                  was held on
                  April 22, 2006. The shareholders determined that the maximum number
                  of
                  directors would be fixed at ten and that directors Alday, Kump,
                  and Yeager
                  will serve three year terms ending in April 2009. Each of these
                  directors
                  was unopposed.
 
 In
        addition to the foregoing nominees, the following seven (7) persons presently
        are serving as members of the Board of Directors for terms to expire in the
        year
        indicated for each member: Max L. Armentrout (2008); William J. Brown (2007);
        Edward L. Campbell (2007); John F. Harris (2008); William T. Johnson Jr.
        (2008);
        Robert J. Schoonover (2007); and L.T. Williams (2008).
 
 Also
        at
        the meeting of shareholders, the shareholders increased the number of authorized
        $2 par value common stock shares from 2,250,000 to 4,500,000.
 
 Item
                  5.
              Other
                  Information:
  Mr.
          Rudy
          F. Torjak, Jr. joined Citizens National Bank on July 19, 2006 as Senior
          Vice
          President and Chief Credit Officer. Mr. Torjak is 58 years of age and has
          not
          previously been employed by Citizens National Bank nor does he have any
          family
          relationship with any director, officer or five percent shareholder of
          the bank.
          Neither has Mr. Torjak engaged in any transactions with the directors,
          officers
          or five percent shareholders of the bank or members of their immediate
          families.
 
 Mr.
          Torjak has been involved in all phases of lending and lending opportunities
          for
          30 years. He has particular expertise in the commercial lending markets
          of
          northcentral West Virginia, and portfolio risk management strategies. Prior
          to
          becoming a lender he was a national bank examiner for four years. Mr. Torjak
          holds a bachelor’s degree from West Virginia University.
 Item
                  6.
              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
  23
 *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:
              8/8/06
              
              /s/
                  Robert J. SchoonoverRobert
                  J. SchoonoverPresidentChief
                  Executive OfficerDate:
              8/8/06
              
              /s/
                  Thomas K. DerbyshireThomas
                  K. DerbyshireVice
                  President, Treasurer andPrincipal
                  Financial Officer






24