**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 
 QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934
 
 For
                  the quarterly period ended
              March
                  31, 2007
  Commission
        file number 2-96144
 
 
 CITIZENS
                  FINANCIAL CORP.(Exact
                  name of registrant as specified in its
                  charter)
 
 
 Delaware
              
              55-0666598(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 
 213
                  Third Street, Elkins, West Virginia
              
              26241(Address
                  of principal executive offices)
              
              (Zip
                  Code)
 
 
 (304)
                  636-4095(Registrant's
                  telephone number, including area
                  code)
 
 
 Not
                  Applicable(Former
                  name, former address and former fiscal year, if changed since last
                  report.)
 
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated 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 May 9, 2007Common
                  Stock ($2 par value)
              
              1,829,504
 
 
 1
  **FORM
        10-Q**
 **CITIZENS
        FINANCIAL CORP.**
 **Quarter
        Ended March 31, 2007**
  INDEX
 
 Page
                  No.Part
                  I.
              
              Financial
                  InformationItem
                  1. Financial StatementsCondensed
                  Consolidated Balance Sheets
                March
                  31, 2007 and December 31, 2006
              
              3Condensed
                  Consolidated Statements of Income
                Three
                  Months Ended March 31, 2007 and March 31,
                  2006
              
              4Statements
                  of Comprehensive Income/Loss
                Three
                  Months Ended March 31, 2007 and March 31,
                  2006
              
              5Condensed
                  Consolidated Statements of Changes in Shareholders'
                  Equity
                Three
                  Months Ended March 31, 2007 and March 31,
                  2006
              
              6Condensed
                  Consolidated Statements of Cash Flows
                Three
                  Months Ended March 31, 2007 and March 31,
                  2006
              
              7Notes
                  to Condensed Consolidated Financial
                  Statements
              
              8
                  -
                  14Item
                  2. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations
              
              14
                  - 20Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              
              21Item
                  4. Controls and Procedures
              
              21Part
                  II.
              
              Other
                  Information and Index to ExhibitsItems
                  1 through 6
              
              22Signatures
              
              23Certification
                  by Executive Officers Pursuant to Sections 302 and 906 of the
                  Sarbanes-Oxley Act of 2002
              
              24
                  - 27
  2
 *Index*
  PARTI
        ITEM I - FINANCIAL INFORMATION
 CITIZENS
        FINANCIAL CORP.
 CONDENSED
        CONSOLIDATED BALANCE SHEETS
 (In
        thousands of dollars)
 
 March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)
              
              *ASSETSCash
                  and due from banks
              
              $
              5,367
              
              $
              6,065Interest
                  bearing deposits with other banks
              
              
              110
              
              
              30Federal
                  funds sold
              
              
              500
              
              
              -Securities
                  available for sale, at fair value
              
              
              58,182
              
              
              59,745Loans,
                  less allowance for loan losses of $1,822 and $1,873,
                  respectively
              
              
              166,918
              
              
              166,218Premises
                  and equipment, net
              
              
              4,292
              
              
              4,331Accrued
                  interest receivable
              
              
              1,331
              
              
              1,393Other
                  assets
              
              
              6,260
              
              
              5,198Total
                  Assets
              
              $
              242,960
              
              $
              242,980LIABILITIES
                  AND SHAREHOLDERS' EQUITYDeposits:Noninterest
                  bearing
              
              $
              26,658
              
              $
              27,103Interest
                  bearing
              
              
              171,236
              
              
              169,440Total
                  deposits
              
              
              197,894
              
              
              196,543Short-term
                  borrowings
              
              
              18,036
              
              
              19,833Long-term
                  borrowings
              
              
              3,157
              
              
              3,512Other
                  liabilities
              
              
              3,247
              
              
              2,814Total
                  liabilities
              
              
              222,334
              
              
              222,702Commitments
                  and contingenciesSHAREHOLDERS'
                  EQUITYCommon
                  stock, $2.00 par value, authorized 4,500,000 issued
                  2,250,000
              
              
              4,500
              
              
              4,500Retained
                  earnings
              
              
              21,077
              
              
              20,843Accumulated
                  other comprehensive income/(loss)
              
              
              (1,119
              )
              
              (1,233
              )Treasury
                  stock at cost, 420,496 shares
              
              
              (3,832
              )
              
              (3,832
              )Total
                  shareholders' equity
              
              
              20,626
              
              
              20,278Total
                  Liabilities and Shareholders' Equity
              
              $
              242,960
              
              $
              242,980
 
 *From
        audited financial statements.
 
 The
        accompanying notes are an integral part of these financial
        statements.
  3
 *Index*
  CITIZENS
        FINANCIAL CORP.
 CONDENSED
        CONSOLIDATED STATEMENTS OF INCOME
 (In
        thousands of dollars, except per share data)
  Three
                  Months EndedMarch
                  31,2007
              
              2006(Unaudited)INTEREST
                  INCOMEInterest
                  and fees on loans
              
              $
              3,300
              
              $
              3,014Interest
                  and dividends on securities:Taxable
              
              
              495
              
              
              546Tax-exempt
              
              
              104
              
              
              75Interest
                  on interest bearing deposits with other banks
              
              
              21
              
              
              5Interest
                  on federal funds sold
              
              
              5
              
              
              17Total
                  interest income
              
              
              3,925
              
              
              3,657INTEREST
                  EXPENSEInterest
                  on deposits
              
              
              1,414
              
              
              1,033Interest
                  on short-term borrowing
              
              
              166
              
              
              146Interest
                  on long-term borrowing
              
              
              37
              
              
              48Total
                  interest expense
              
              
              1,617
              
              
              1,227Net
                  interest income
              
              
              2,308
              
              
              2,430Provision
                  for loan losses
              
              
              207
              
              
              103Net
                  interest income after provision for loan losses
              
              
              2,101
              
              
              2,327NONINTEREST
                  INCOMETrust
                  department income
              
              
              54
              
              
              47Brokerage
                  fees
              
              
              37
              
              
              31Service
                  fees
              
              
              236
              
              
              190Insurance
                  commissions
              
              
              -
              
              
              4Security
                  losses
              
              
              -
              
              
              (18
              )Secondary
                  market loan fees
              
              
              26
              
              
              33Other
              
              
              88
              
              
              92Total
                  noninterest income
              
              
              441
              
              
              379NONINTEREST
                  EXPENSESalaries
                  and employee benefits
              
              
              970
              
              
              937Net
                  occupancy expense
              
              
              108
              
              
              90Equipment
                  expense
              
              
              109
              
              
              121Data
                  processing
              
              
              137
              
              
              224Director
                  fees
              
              
              63
              
              
              64Postage
              
              
              42
              
              
              46Professional
                  service fees
              
              
              66
              
              
              64Stationery
              
              
              44
              
              
              38Software
                  expense
              
              
              36
              
              
              46Other
              
              
              320
              
              
              247Total
                  noninterest expenses
              
              
              1,895
              
              
              1,877Income
                  before income taxes
              
              
              647
              
              
              829Income
                  tax expense
              
              
              194
              
              
              259Net
                  income
              
              $
              453
              
              $
              570Basic
                  and fully diluted earnings per common share*
              
              $
              0.25
              
              $
              0.31Weighted
                  average shares outstanding*
              
              
              1,829,504
              
              
              1,853,964Dividends
                  per common share*
              
              $
              0.12
              
              $
              0.12
 
 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 EndedMarch
                  312007
              
              2006(Unaudited)Net
                  income
              
              $
              453
              
              $
              570Other
                  comprehensive income:Gross
                  unrealized gains/(losses) arising during the period
              
              
              185
              
              
              (66
              )Adjustment
                  for income tax (expense)/benefit
              
              
              (71
              )
              
              25114
              
              
              (41
              )Less:
                  Reclassification adjustment for losses included in net
                  income
              
              
              -
              
              
              18Adjustment
                  for income tax benefit
              
              
              -
              
              
              (7
              )-
              
              
              11Other
                  comprehensive income/(loss), net of tax
              
              
              114
              
              
              (30
              )Comprehensive
                  income
              
              $
              567
              
              $
              540
  The
        accompanying notes are an integral part of these financial
        statements.
  5
 *Index*
  CITIZENS
        FINANCIAL CORP.
 CONDENSED
        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 (In
        thousands of dollars)
 
 Three
                  Months Ended March 31, 2007 and 2006(unaudited)Common
                  Stock
              
              Additional
                  Paid-in
              
              Retained
              
              Accumulated
                  Other Comprehensive
              
              Treasury
              
              Total
                  Shareholders'Shares
              
              Amount
              
              Capital
              
              Earnings
              
              Income/(Loss)
              
              Stock
              
              EquityBalance,
                  January 1, 2007
              
              
              2,250,000
              
              $
              4,500
              
              $
              -
              
              $
              20,843
              
              $
              (1,233
              )
              $
              (3,832
              )
              $
              20,278Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              453
              
              
              -
              
              
              -
              
              
              453Net
                  change in unrealized gain/loss on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              114
              
              
              -
              
              
              114Cash
                  dividends declared ($0.12 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (219
              )
              
              -
              
              
              -
              
              
              (219
              )Balance
                  March 31, 2007
              
              
              2,250,000
              
              $
              4,500
              
              $
              -
              
              $
              21,077
              
              $
              (1,119
              )
              $
              (3,832
              )
              $
              20,626Balance,
                  January 1, 2006
              
              
              750,000
              
              $
              1,500
              
              $
              2,100
              
              $
              20,704
              
              $
              (1,316
              )
              $
              (3,375
              )
              $
              19,613Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              570
              
              
              -
              
              
              -
              
              
              570Net
                  change in unrealized gain/loss on securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (30
              )
              
              -
              
              
              (30
              )Cash
                  dividends declared ($0.12 per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              (222
              )
              
              -
              
              
              -
              
              
              (222
              )Stock
                  split effected in the form of a 200% stock dividend
              
              
              1,500,000
              
              
              3,000
              
              
              (2,100
              )
              
              (900
              )
              
              -
              
              
              -
              
              
              -Balance
                  March 31, 2006
              
              
              2,250,000
              
              $
              4,500
              
              $
              -
              
              $
              20,152
              
              $
              (1,346
              )
              $
              (3,375
              )
              $
              19,931
 
 The
        accompanying notes are an integral part of these financial
        statements.
  6
 *Index*
 
 CITIZENS
        FINANCIAL CORP.
 CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
        thousands of dollars)
 
 Three
                  Months EndedMarch
                  31,2007
              
              2006(Unaudited)Cash
                  flows from operating activities:Net
                  Income
              
              $
              453
              
              $
              570Adjustments
                  to reconcile net income to cash provided by operating
                  activities:Provision
                  for loan losses
              
              
              207
              
              
              103Depreciation
                  and amortization
              
              
              82
              
              
              101Amortization
                  on securities
              
              
              11
              
              
              22Loss
                  on sale of securities
              
              
              -
              
              
              18Loss
                  on sale of OREO
              
              
              -
              
              
              4(Increase)/decrease
                  in accrued interest receivable
              
              
              62
              
              
              (98
              )Decrease
                  in other assets
              
              
              88
              
              
              142Increase
                  in other liabilities
              
              
              433
              
              
              353Cash
                  provided by operating activities
              
              
              1,336
              
              
              1,215Cash
                  flows from investing activities:Principal
                  payments on available for sale securities
              
              
              362
              
              
              385Proceeds
                  from sales of available for sale securities
              
              
              155
              
              
              2,493Proceeds
                  from maturities and calls, available for sale securities
              
              
              4,820
              
              
              2,500Purchases
                  of available for sale securities
              
              
              (3,600
              )
              
              (3,045
              )Purchases
                  of premises and equipment
              
              
              (39
              )
              
              (71
              )Proceeds
                  from sale of other real estate owned
              
              
              -
              
              
              64Increase
                  in loans
              
              
              (2,132
              )
              
              (4,620
              )Cash
                  used in investing activities
              
              
              (434
              )
              
              (2,294
              )Cash
                  flows from financing activities:Cash
                  dividends paid
              
              
              (219
              )
              
              (222
              )Increase/(decrease)
                  in short-term borrowing
              
              
              (1,797
              )
              
              3,675Repayment
                  of long-term borrowing
              
              
              (355
              )
              
              (516
              )Increase
                  in time deposits
              
              
              119
              
              
              973Increase/(decrease)
                  in other deposits
              
              
              1,232
              
              
              (5,780
              )Cash
                  used in financing activities
              
              
              (1,020
              )
              
              (1,870
              )Net
                  decrease in cash and cash equivalents
              
              
              (118
              )
              
              (2,949
              )Cash
                  and cash equivalents at beginning of period
              
              
              6,095
              
              
              8,773Cash
                  and cash equivalents at end of period
              
              $
              5,977
              
              $
              5,824Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              1,612
              
              $
              1,220Income
                  taxes
              
              $
              38
              
              $
              112Supplemental
                  disclosure of noncash investing and Financing activities:Other
                  real estate and other assets acquired in settlement of
                  loans
              
              $
              1,224
              
              $
              -
  The
        accompanying notes are an integral part of these financial
        statements.
  7
 *Index*
 
 CITIZENS
        FINANCIAL CORP. AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE
        1 - BASIS
        OF PRESENTATION
 
 The
        accounting and reporting policies of Citizens Financial Corp. and Subsidiaries
        ("Citizens", "the company" or “we”) conform to accounting principles generally
        accepted in the United States of America and to general policies within the
        financial services industry. The preparation of financial statements in
        conformity with accounting principles generally accepted in the United States
        of
        America requires management to make estimates and assumptions that affect
        the
        reported amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the financial statements and the reported
        amounts
        of revenues and expenses during the period. Actual results could differ from
        those estimates.
 
 The
        condensed consolidated statements contained herein include the accounts of
        Citizens Financial Corp. and its wholly-owned subsidiary Citizens National
        Bank
        ("the bank"). All significant intercompany balances and transactions have
        been
        eliminated. The information contained in the financial statements is unaudited
        except where indicated. In the opinion of management, all adjustments for
        a fair
        presentation of the results of the interim periods have been made. All such
        adjustments were of a normal, recurring nature. The results of operations
        for
        the three months ended March 31, 2007 are not necessarily indicative of the
        results to be expected for the full year. The financial statements and notes
        included herein should be read in conjunction with those included in Citizens'
        2006 Annual Report to Shareholders and Form 10-K.
  NOTE
        2 - 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 2006, 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 March 31, 2007 and December 31, 2006 are summarized as follows
        (in
        thousands):
  8
 *Index*
 
 March
                  31, 2007AmortizedCost
              
              UnrealizedGains
              
              UnrealizedLosses
              
              CarryingValue(EstimatedFairValue)(Unaudited)**Available
                  for sale:**U.S.
                  Government agencies and corporations
              
              $
              37,096
              
              $
              24
              
              $
              273
              
              $
              36,847Mortgage
                  backed securities- U.S. Government agencies and
                  corporations
              
              
              8,009
              
              
              5
              
              
              118
              
              
              7,896Tax
                  exempt state and political subdivisions
              
              
              12,720
              
              
              21
              
              
              85
              
              
              12,656Federal
                  Reserve Bank stock
              
              
              108
              
              
              -
              
              
              -
              
              
              108Federal
                  Home Loan Bank stock
              
              
              675
              
              
              -
              
              
              -
              
              
              675Total
                  securities available for sale
              
              $
              58,608
              
              $
              50
              
              $
              476
              
              $
              58,182
 
 
 
 December,
                  31, 2006*AmortizedCost
              
              UnrealizedGains
              
              UnrealizedLosses
              
              CarryingValue(EstimatedFairValue)(Unaudited)**Available
                  for sale:**U.S.
                  Government agencies and corporations
              
              $
              41,921
              
              $
              5
              
              $
              415
              
              $
              41,511Mortgage
                  backed securities- U.S. Government agencies and
                  corporations
              
              
              8,374
              
              
              -
              
              
              149
              
              
              8,225Tax
                  exempt state and political subdivisions
              
              
              9,183
              
              
              16
              
              
              68
              
              
              9,131Federal
                  Reserve Bank stock
              
              
              108
              
              
              -
              
              
              -
              
              
              108Federal
                  Home Loan Bank stock
              
              
              770
              
              
              -
              
              
              -
              
              
              770Total
                  securities available for sale
              
              $
              60,356
              
              $
              21
              
              $
              632
              
              $
              59,745
  *
        From
        audited financial statements
 
 The
        tables below provide summaries of securities available for sale which were
        in an
        unrealized loss position at March 31, 2007 and December 31, 2006. As of March
        31, 2007, these securities had a total fair value of $48,160,000 and carried
        unrealized losses of $476,000, or 0.99%. Securities which have been in a
        continuous loss position for the past twelve months total $41,302,000. The
        unrealized loss pertaining to these securities is $443,000 or 1.07%. The
        majority of these losses are on securities issued by U.S. government agencies
        and corporations which carry the implied faith and credit of the U.S.
        Government. The other losses are on municipal instruments. With the exception
        of
        one municipal which is not rated, all of these instruments carry A ratings
        from
        the major credit rating agencies. We believe that these unrealized losses
        are
        the result of changing interest rates and that, along with our intent and
        ability to hold these investments to maturity, provide strong evidence that
        we
        will fully recover our investment. In addition, no losses have been recognized
        on the $54,092,000 of securities that carried unrealized losses at December
        31,
        2006.
  9
 *Index*
 
 March
                  31, 2007Securities
                  Available for SaleLess
                  Than 12 Months
              
              12
                  Months or More
              
              TotalFair
              
              Unrealized
              
              Fair
              
              Unrealized
              
              Fair
              
              UnrealizedValue
              
              Losses
              
              Value
              
              Losses
              
              Value
              
              LossesU.S.
                  Government agencies and corporations
              
              $
              2,349
              
              $
              4
              
              $
              28,972
              
              $
              269
              
              $
              31,321
              
              $
              273Mortgage
                  backed securities- U.S. Government agencies and
                  corporations
              
              
              -
              
              
              -
              
              
              6,871
              
              
              118
              
              
              6,871
              
              
              118Tax
                  exempt state and political subdivisions
              
              
              4,509
              
              
              29
              
              
              5,459
              
              
              56
              
              
              9,968
              
              
              85Total
                  securities available for sale
              
              $
              6,858
              
              $
              33
              
              $
              41,302
              
              $
              443
              
              $
              48,160
              
              $
              476
  December
                  31, 2006*Securities
                  Available for SaleLess
                  Than 12 Months
              
              12
                  Months or More
              
              TotalFair
              
              Unrealized
              
              Fair
              
              Unrealized
              
              Fair
              
              UnrealizedValue
              
              Losses
              
              Value
              
              Losses
              
              Value
              
              LossesU.S.
                  Government agencies and corporations
              
              $
              5,332
              
              $
              13
              
              $
              33,264
              
              $
              401
              
              $
              38,596
              
              $
              414Mortgage
                  backed securities- U.S. Government agencies and
                  corporations
              
              
              2,783
              
              
              10
              
              
              5,327
              
              
              139
              
              
              8,110
              
              
              149Tax
                  exempt state and political subdivisions
              
              
              3,441
              
              
              18
              
              
              3,945
              
              
              51
              
              
              7,386
              
              
              69Total
                  securities available for sale
              
              $
              11,556
              
              $
              41
              
              $
              42,536
              
              $
              591
              
              $
              54,092
              
              $
              632
  *From
        audited financial statements.
 
 The
        maturities, amortized cost and estimated fair values of the bank's securities
        at
        March 31, 2007 are summarized as follows (in thousands):
 
 Available
                  for saleAmortized
              
              EstimatedCost
              
              Fair
                  ValueDue
                  within 1 year
              
              $
              19,154
              
              $
              19,001Due
                  after 1 but within 5 years
              
              
              34,715
              
              
              34,461Due
                  after 5 but within 10 years
              
              
              2,966
              
              
              2,942Equity
                  securities
              
              
              1,773
              
              
              1,778$
              58,608
              
              $
              58,182
 
 Mortgage
        backed securities have remaining contractual maturities ranging from 4 months
        to
        14 years 11 months and are reflected in the maturity distribution schedule
        shown
        above based on their anticipated average life to maturity, which ranges from
        0.36 to 4.67 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 three month periods ended March 31, 2006 and 2005
        are as
        follows (in thousands):
 Proceeds
                  From
              
              Gross
                  RealizedSales
              
              Calls
                  and
                Maturities
              
              Principal
                Payments
              
              Gains
              
              Losses**March
                  31, 2007:**Securities
                  available for sale
              
              $
              155
              
              $
              4,820
              
              $
              362
              
              $
              -
              
              $
              -**March
                  31, 2006:**Securities
                  available for sale
              
              $
              2,493
              
              $
              2,500
              
              $
              385
              
              $
              -
              
              $
              18
 
 10
 *Index*
 
 At
        March
        31, 2007 and December 31, 2006 securities with an amortized cost of $30,775,074
        and $30,807,634, respectively, with estimated fair values of $30,509,839
        and
        $30,448,915, respectively, were pledged to secure public deposits, securities
        sold under agreements to repurchase, and for other purposes required or
        permitted by law.
 
 At
        March
        31, 2007 and December 31, 2006 our securities portfolio contained no
        concentrations within any specific industry or issuer.
  NOTE
        5 - LOANS
 
 Total
        loans are summarized as follows (in thousands):
 
 March 31, 2007
              
              December 31, 2006(Unaudited)
              
              *Commercial,
                  financial and agricultural
              
              $
              24,946
              
              $
              26,969Real
                  estate - construction
              
              
              8,135
              
              
              13,965Real
                  estate - home equity
              
              
              7,862
              
              
              7,985Real
                  estate - residential mortgage
              
              
              60,058
              
              
              61,401Real
                  estate - commercial mortgage
              
              
              55,796
              
              
              45,579Installment
                  loans
              
              
              10,333
              
              
              10,635Other
              
              
              1,702
              
              
              1,611Total
                  loans
              
              
              168,832
              
              
              168,145Net
                  deferred loan origination fees and costs
              
              
              (92
              )
              
              (54
              )Total
              
              
              168,740
              
              
              168,091Less
                  allowance for loan losses
              
              
              1,822
              
              
              1,873Loans,
                  net
              
              $
              166,918
              
              $
              166,218
 
 *
        From
        audited financial statements
 
 At
        March
        31, 2007 our recorded investment in impaired loans was $3,905,883. The valuation
        allowance assigned to these loans totaled $1,004,590. Our average investment
        in
        the impaired loans was $4,033,171 during the quarter. The amount of interest
        income recorded on them in the first quarter was $84,821 while the amount
        of
        interest collected was $67,083.
 
 Impaired
        loans at December 31, 2006 were $5,147,663.
 
 Loans
        in
        a nonaccrual status were $3,804,646 and $2,208,400 at March 31, 2007 and
        December 31, 2006, respectively.
  NOTE
        6 - ALLOWANCE
        FOR LOAN LOSSES
 
 Analyses
        of the allowance for loan losses are presented below (in
 thousands):
 
 Three
                  Months EndedMarch
                  31,2007
              
              2006Balance
                  at beginning of period
              
              $
              1,873
              
              $
              1,597Loans
                  charged off:Commercial
                  and industrial
              
              
              85
              
              
              -Real
                  estate - residential mortgage
              
              
              47
              
              
              -Real
                  estate - commercial mortgage
              
              
              120
              
              
              -Consumer
                  and other
              
              
              19
              
              
              2Total
              
              
              271
              
              
              2Recoveries:Commercial
                  and industrial
              
              
              -
              
              
              -Real
                  estate - residential mortgage
              
              
              -
              
              
              -Real
                  estate - commercial mortgage
              
              
              -
              
              
              -Consumer
                  and other
              
              
              13
              
              
              4Total
                  recoveries
              
              
              13
              
              
              4Net
                  losses/(recoveries)
              
              
              258
              
              
              (2
              )Provision
                  for loan losses
              
              
              207
              
              
              103Balance
                  at end of period
              
              $
              1,822
              
              $
              1,702
  11
 *Index*
  NOTE
        7 - DEPOSITS
 
 The
        following is a summary of interest bearing deposits by type (in
        thousands):
 
 March 31, 2007
              
              December 31, 2006(Unaudited)
              
              *Interest
                  bearing checking
              
              $
              44,270
              
              $
              41,768Money
                  market accounts
              
              
              5,640
              
              
              5,979Savings
                  accounts
              
              
              22,260
              
              
              22,746Certificates
                  of deposit under $100,000
              
              
              60,885
              
              
              59,950Certificates
                  of deposit of $100,000 or more
              
              
              38,181
              
              
              38,997Total
              
              $
              171,236
              
              $
              169,440
 
 *
        From
        audited financial statements
  NOTE
        8 - BORROWINGS
 
 The
        following table summarizes our borrowings by type (in thousands):
 
 March 31, 2007
              
              December 31, 2006(Unaudited)
              
              *Short-term
                  borrowings:Securities
                  sold under agreements to repurchase
              
              $
              18,036
              
              $
              15,970Federal
                  funds purchased
              
              
              -
              
              
              425Overnight
                  advances from Federal Home Loan Bank of Pittsburgh (FHLB) line
                  of
                  credit
              
              
              -
              
              
              3,438Total
              
              $
              18,036
              
              $
              19,833Long-term
                  borrowings:Advances
                  from FHLB
              
              $
              3,157
              
              $
              3,512
 
 *
        From
        audited financial statements
  NOTE
        9 - EMPLOYEE
        BENEFIT PLANS
 
 The
        components of net periodic benefit cost of our pension and other benefit
        plans
        are presented below (in thousands):
 
 Three
                  Months Ended March 31,Pension
                  Benefits
              
              Other
                  Benefits2007
              
              2006
              
              2007
              
              2006Service
                  cost
              
              $
              29
              
              $
              29
              
              $
              5
              
              $
              6Interest
                  cost
              
              
              72
              
              
              66
              
              
              7
              
              
              8Expected
                  return on plan assets
              
              
              (83
              )
              
              (82
              )
              
              -
              
              
              -Net
                  amortization and deferral
              
              
              20
              
              
              18
              
              
              2
              
              
              4Net
                  periodic cost
              
              $
              38
              
              $
              31
              
              $
              14
              
              $
              18
  12
 *Index*
  A
        payment
        of $70,000 was made to the pension plan in 2006 for the 2004 plan year. In
        the
        first quarter of 2007 we contributed $16,000 for plan year 2006. During the
        remainder of 2007 we expect to contribute an additional $96,000 and $64,000
        for
        plan years 2006 and 2005, respectively.
 
 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
              
              March 31, 2007
              
              December 31, 2006amounts
                  represent credit risk
              
              (unaudited)
              
              *(in
                  thousands)Commitments
                  to extend credit
              
              $
              22,224
              
              $
              22,054Standby
                  letters of credit
              
              
              662
              
              
              462Total
              
              $
              22,886
              
              $
              22,516
 
 The
        bank’s exposure to credit loss in the event of nonperformance by the other party
        to the financial instrument for commitments to extend credit and standby
        letters
        of credit is represented by the contractual amount of those instruments.
        The
        bank uses the same credit policies in making commitments and conditional
        obligations as it does for on-balance sheet instruments.
 
 *
        From
        audited financial statements.
 
 NOTE
        12 - EARNINGS
        PER SHARE
 
 Basic
        earnings per share is based on the weighted average number of shares outstanding
        during the period. For the three months ended March 31, 2007 and 2006 the
        weighted average number of shares outstanding were, 1,829,504 and 1,853,964,
        respectively, after adjusting for the stock split effected in the form of
        a 200%
        stock dividend. During the periods ended March 31, 2007 and 2006 the company
        did
        not have any dilutive securities.
 
 NOTE
        13 - SIGNIFICANT
        NEW ACCOUNTING PRONOUNCEMENTS
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value,
        establishes a framework for measuring fair value in generally accepted
        accounting principles, and expands disclosures about fair value measurements.
        SFAS 157 does not require any new fair value measurements but may change
        current
        practice for some entities. This Statement is effective for financial statements
        issued for fiscal years beginning after November 15, 2007 and interim periods
        within those years. The company does not expect the implementation of SFAS
        157
        to have a material impact on its consolidated financial statements.
  13
 *Index*
  In
        February 2007, The FASB issued Statement of Financial Accounting Standards
        No.
        159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159). This statement permits entities to choose to measure many financial
        instruments and certain other items at fair value. The objective is to improve
        financial reporting by providing entities with the opportunity to mitigate
        volatility in reported earnings caused by measuring related assets and
        liabilities differently without having to apply complex hedge accounting
        provisions. The fair value option established by this Statement permits all
        entities to choose to measure eligible items at fair value at specified election
        dates. A business entity shall report unrealized gains and losses on items
        for
        which the fair value option has been elected in earnings at each subsequent
        reporting date. The fair value option may be applied instrument by instrument
        and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s
        first fiscal year that begins after November 15, 2007. Early adoption is
        permitted as of the beginning of a fiscal year that begins on or before November
        15, 2007, provided the entity also elects to apply the provisions of SFAS
        157,
“Fair Value Measurements”. The company is in the process of evaluating the
        impact this statement may have on its consolidated financial statements but
        does
        not intend to adopt early.
 
 
 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 $243 million Delaware corporation headquartered in Elkins,
        WV. From there our wholly-owned subsidiary, Citizens National Bank of Elkins,
        provides loan, deposit, trust, brokerage and other banking and banking related
        services to customers in northcentral and eastern West Virginia and nearby
        areas
        through six branch offices. We conduct no business other than the ownership
        of
        our bank subsidiary.
 
 FORWARD
        LOOKING STATEMENTS
 
 This
        report contains forward looking statements which reflect our current
        expectations based on information available to us. These forward looking
        statements involve uncertainties related to the general economic conditions
        in
        our nation and other broad based issues such as interest rates and regulations
        as well as to other factors which may be more specific to our own operations.
        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.
  14
 *Index*
  CRITICAL
        ACCOUNTING POLICIES
 
 Our
        consolidated financial statements are prepared in accordance with U.S. generally
        accepted accounting principals and follow general practices within the financial
        services industry. Application of these principles requires us to make
        estimates, assumptions, and judgments that affect the amounts reported in
        our
        financial statements and accompanying notes. These estimates, assumptions,
        and
        judgments are based on information available as of the date of the financial
        statements and could change as new information becomes available. Consequently,
        later financial statements could reflect different estimates, assumptions,
        and
        judgments.
 
 Some
        policies rely more heavily on the use of estimates, assumptions, and judgments
        than others and, therefore, have a greater possibility of producing results
        that
        could be materially different than originally reported. Our most significant
        accounting policies, including an explanation of how assets and liabilities
        are
        valued, may be found in Note 1 to the consolidated financial statements in
        our
        2006 Annual Report to Shareholders and Form 10-K.
 
 The
        allowance for loan losses represents our estimate of probable credit losses
        inherent in the loan portfolio. Determining the amount of the allowance requires
        significant judgment and the use of estimates related to the amount and timing
        of expected future cash flows on impaired loans, the estimated amount of
        losses
        in pools of homogeneous loans, and the effect of various economic and business
        factors, all of which may be subject to significant change. Due to these
        uncertainties, as well as the sensitivity of our financial statements to
        the
        assumptions and estimates needed to determine the allowance, we have identified
        the determination of the allowance for loan losses as a critical accounting
        estimate. As such, it could be subject to revision as new information becomes
        available. Should this occur, changes to the provision for loan losses, which
        may increase or decrease future earnings, may be necessary. A discussion
        of the
        methods we use to determine our allowance for loan losses is presented later
        in
        this report.
  OVERVIEW
  Net
        income for the first quarter was $117,000 or 20.5% less than first quarter
        income last year. The decrease was primarily attributable to higher levels
        of
        interest expense as the cost to retain certificates of deposits has risen
        over
        the last twelve months and an increase in our provision for loan losses of
        $104,000 made necessary by higher charge-offs.
 
 Total
        assets remained constant this quarter at $243 million, while loans increased
        slightly by $687,000 to $168.8 million from year end. Deposits increased
        by
        $1,351,000 to $197.9 million as expected. With the lower loan demand that
        we
        have experienced in the first quarter, we reduced our certificate of deposit
        offering rates in order to slow deposit growth and control increasing deposit
        costs.
 
 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.
  15
 *Index*
  The
        first
        quarter net interest margin of 4.19% is similar to our peer banks’ average
        margin of 4.23%, however, it is 31 basis points lower than our margin for
        the
        first quarter of 2005. The margin compression we have experienced in the
        last
        year is primarily the result of our efforts to remain competitive in our
        markets
        with certificate of deposit rates. We have recently reduced the rates on
        some of
        our certificates of deposits in order to curb further compression in the
        short-term.
 
 As
        reflected on our income statement, net interest income decreased by $122,000
        to
        $2,308,000 for the quarter, closely approximating our projections. On a tax
        equivalent basis, net interest income for the quarter totaled $2,374,000.
        Interest income increased $268,000 to $3,925,000 due to both a $5.1 million
        increase in our earning asset base and a 34 basis point improvement in our
        yield
        to 7.05%. Interest expense also increased by $390,000 to $1,617,000 during
        the
        quarter reflecting a $4.4 million rise in our interest bearing liabilities
        and a
        76 basis point increase in their cost to 3.40%.
 
 While
        the
        direction of future interest rates cannot be known with certainty, many
        economists believe we are at the peak in the current rate cycle. Whether
        rates
        continue to rise, plateau, or fall will have an impact on our future earnings.
        A
        discussion of what those effects may be is presented later in this report.
 
 PROVISION
        FOR LOAN LOSSES
 
 The
        provision for loan losses is management’s estimate of the amount which must be
        charged against current earnings in order to maintain the allowance for loan
        losses at a level considered adequate to provide for losses that can be
        reasonably anticipated based on quarterly evaluations of the loan portfolio.
        Our
        provision for loan losses was $207,000 and $103,000 in the first quarter
        of 2007
        and 2006, respectively.
 
 The
        higher provision was made necessary by an increase in charge-offs. Specifically
        nonresidential real estate charge-offs totaled $167,000 largely due to the
        failure of a motel. That property has been taken into OREO and we are in
        the
        process of disposing of it. It is carried at the expected net realizable
        value.
        Because the amount of the provision for loan losses is a function of our
        overall
        assessment of loan quality and the adequacy of the allowance for loan losses,
        which itself relies on significant use of judgment and estimates, the provision
        for loan losses expense may increase or decrease in the future. Please refer
        to
        the Credit Quality and Allowance for Loan Losses section of this report where
        we
        further discuss the estimation methods and assumptions we use in analyzing
        the
        allowance and the quality of our loan portfolio.
 
 NONINTEREST
        INCOME
 
 Noninterest
        income for the quarter of $441,000 increased $62,000, or 16.4%, from the
        first
        quarter of 2006. This increase is generally consistent with that of the previous
        year. Income for the quarter exceeded our expectations by approximately
        $33,000.
 
 The
        largest component of noninterest income is service fees which totaled $236,000
        for the quarter. Services fees increased by $46,000 due to $17,000 increase
        in
        overdraft fees, as well as an additional $29,000 in ATM fees. The increase
        in
        ATM fees is attributable to our recent expansion of our ATM network with
        the
        addition of three machines that became operational in January 2007. In addition,
        our brokerage program and trust department added a combined $13,000 to the
        increase.
  16
 *Index*
  These
        increases were partially offset by a decrease of $7,000 in secondary market
        loan
        program fees and a decrease in check cashing fees of $6,000 compared to last
        year.
 
 Noninterest
        income in the first quarter of 2006 would have been $397,000 absent an $18,000
        loss on the sale of securities. This loss was incurred in order to move out
        on
        the yield curve to lock in favorable yields and protect against falling interest
        rates. The higher yields allowed us to recover the loss incurred by the end
        of
        the third quarter 2006 and provided income in excess of what the old bonds
        would
        have provided. In 2007 our only security sales have involved the sale of
        Federal
        Home Loan Bank of Pittsburgh (FHLB) stock at par as required by FHLB
        regulation.
  NONINTEREST
        EXPENSE
 
 Noninterest
        expense includes all items of expense other than interest expense, the provision
        for loan losses, and income taxes. Historically our level of noninterest
        expense
        has been higher than average, partly due to the relatively smaller branch
        facilities we operate. Therefore, controlling noninterest expense is a key
        factor to achieving higher earnings.
 
 Noninterest
        expense for the first quarter of 2007 was $1,895,000, up $18,000 or 1.0%
        from
        last year and approximately $13,000 lower than expected for the first quarter.
        We continue to see higher levels of expense as we have improved our internal
        audit function and loan review function by outsourcing these to experienced
        firms. We are also continuing to use the services of a management consultant
        to
        help us improve our operational structure and gain additional efficiency
        in our
        operations. We believe these improvements will continue to make us a stronger
        bank and will dovetail into our cost control objectives.
 
 The
        largest component of noninterest expense is salaries and employee benefits.
        These personnel costs increased 3.5% or $33,000 to $970,000 over 2006 as
        a
        result of the addition of experienced professionals to our team. Occupancy
        expense increased by $18,000 to $108,000 as a tenant in one of our facilities
        terminated their lease agreement in the second quarter of 2006. We have also
        experienced higher than expected costs associated with the foreclosed properties
        in 2007. Expenses associated with these properties increased $42,000 over
        last
        year to $51,000. Delaware Franchise Tax, which is based on the number of
        authorized shares, has increased over the first quarter of last year by
        approximately $13,000 as the company declared a stock dividend in 2006 and
        increased the number of authorized shares.
 
 These
        increases were significantly offset by a reduction in data processing expense
        of
        $87,000 to $137,000. The reduction was largely due to nonrecurring conversion
        expenses of $81,000 incurred in 2006 when the bank changed data processors.
 
 There
        are
        a number of factors which could negatively impact noninterest expense in
        the
        future. For example, salaries and benefits could rise if medical claims under
        our partially self-insured group medical plan increase. Also, we may again
        incur
        costs related to compliance with the Sarbanes Oxley Act. Currently we will
        be
        required to comply with Section 404 of the Act as of year-end 2007.
 
 INCOME
        TAXES
 
 Our
        provision for income taxes during the first quarter of $194,000 includes
        both
        federal and state income taxes and is $65,000 less than in the first quarter
        of
        2006. The effective tax rate for the first quarter of 2007 was 30.0%, and
        31.2%
        in the first quarter 2006. Except for income earned on loans to and bonds
        issued
        by municipalities and the income on certain life insurance policies, all
        of our
        income is taxable. The exclusions have not made us subject to alternative
        minimum tax provision, however.
  17
 *Index*
  FINANCIAL
        CONDITION
  LOAN
        PORTFOLIO
 
 Throughout
        the first quarter of 2007 our economic climate has been relatively calm and
        somewhat subdued. A slowdown in the housing market and rising fuel prices
        have
        combined to reduce activity in our local lumber, trucking, and tourism
        industries. The continuing stock market rebound has also taken funds away
        from
        the banking system. All of these factors contributed to limiting our growth
        during the first quarter with total loans only increasing $687,000 to $168.8
        million.
 
 Despite
        the lower loan demand we were able gain commercial real estate loans which
        increased $10.2 million during the first quarter as $5 million was transferred
        from construction to permanent financing and we added three large commercial
        loans totaling approximately $4.5 million. Other commercial loans were reduced
        by $2 million. Most of our commercial loans are secured by real estate whether
        or not repayment is linked to cash generated by the use or sale of the real
        property. In cases where repayment is linked to such use, the timing and
        stability of the cash flow, secondary sources of repayment, loan guarantees
        and
        collateral valuations are all important considerations in granting the loan.
 
 Lending
        to consumers for autos, homes, or for other purposes, has been difficult
        for
        Citizens over the past several years as auto manufacturers and certain mortgage
        lending concerns became very aggressive. Residential mortgage lending decreased
        by $1.3 million to $60 million in the first quarter, while recent auto loan
        promotions have helped to stabilize our installment loan portfolio which
        had a
        slight dip of $302,000 to $10.3 million. Consumer lending is an important
        aspect
        of who we are as a community bank. We recognize the value of diversifying
        our
        portfolio with additional consumer lending, and we will continue to evaluate
        opportunities to increase this segment of our business.
 
 CREDIT
        QUALITY AND ALLOWANCE FOR LOAN LOSSES
 
 After
        recognizing an increase in the level of our credit risk in 2006 we took
        aggressive actions to improve our ability to manage that risk. Among them
        were
        the hiring of an experienced chief credit officer and credit analyst, assigning
        our most crucial credits to one of our senior lenders, adopting a new loan
        policy and grading system, improving our exception tracking, and outsourcing
        our
        loan review function. Collectively and individually, these steps are and
        will
        continue to allow us to improve the quality of our loan portfolio.
 
 We
        have
        developed detailed strategies to manage those loans which carry the greatest
        risk and monitor them continuously. During the first quarter we improved
        our
        position with regard to several such loans. In some cases this involved
        foreclosing on the collateral securing the loan. Such foreclosures approximated
        $1.2 million during the quarter with the largest being some $920,000. We
        are now
        actively seeking purchasers for these properties. All of our foreclosed
        properties are carried at their expected net realizable value. In the event
        this
        value was less than the loans’ carrying value, charge-offs were recorded. For
        this reason our net charge-offs increased to $258,000 during the quarter
        compared to net recoveries of $2,000 in the first quarter of 2006.
 
 By
        engaging in the foreclosure process we gained control of those assets which
        will
        ultimately provide a return of our investment. It also reduced our levels
        of
        past due and impaired loans. Past due loans fell from $5.3 million at year-end
        to $2.8 million at the end of the quarter which closely approximates our
        peer
        group averages. Impaired loans likewise fell from $5.1 million to $3.9
        million.
 
 Unfortunately,
        we found it necessary to add one particular loan of $2.4 million to our
        nonaccrual list raising that total to $3.8 million. At the present time this
        loan is not past due. The borrower appears to be taking prudent steps to
        improve
        its financial condition and has developed a number of potential sales
        opportunities. We continue to monitor this situation closely.
  18
 *Index*
  Although
        our credit risk remains higher than desired, we believe the actions we are
        taking are appropriate and that the risk in our portfolio is being
        systematically reduced. Attention to credit quality will continue to be our
        primary focus in 2007.
 
 In
        computing our allowance for loan losses we give each of these factors, as
        well
        as others, serious consideration. We determine the amount of our allowance
        quarterly by evaluating specific larger loans as well as pools of similar
        homogeneous loans. Adjustments to pooled factors for various trends, economic
        conditions, changes in our credit management practices and abilities, and
        other
        factors may also be made. By employing a disciplined methodology we arrive
        at an
        allowance for loan losses that we believe is adequate to provide for losses
        that
        are inherent in the loan portfolio.
 
 As
        of
        March 31, our allowance was $1,822,000, or 1.08% of gross loans, compared
        to
        $1,873,000 at year-end. In many cases our security position helps limit our
        risk
        of loss and we believe we are well equipped to manage and resolve the risks
        contained in our portfolio. Based on information available to us, we believe
        our
        analyses are comprehensive and our allowance is adequate as of the report
        date.
        However, there can be no assurance that additional provisions for loan losses
        will not be required in the future as a result of changes in the assumptions
        which underlie our estimations or changes in economic conditions or the
        conditions of individual borrowers.
 
 SECURITIES
        PORTFOLIO AND FEDERAL FUNDS SOLD
 
 Funds
        which are not needed to satisfy loan demand or operating needs are invested
        in
        securities as a means of improving earnings while also providing liquidity
        and
        balancing interest sensitivity concerns. The securities we purchase are limited
        to U.S. government agency issues, including mortgage backed issues of U.S.
        agencies, obligations of state and political subdivisions and investment
        grade
        corporate debt. All of our securities are classified as available for sale.
        The
        Board of Directors is informed of all securities transactions each month
        and a
        series of policy statements limit the amount of credit and interest rate
        risk we
        may take.
 
 During
        the first quarter our securities portfolio decreased $1,563,000 to $58,182,000,
        while federal funds sold and interest bearing deposits with other banks
        increased from $30,000 to $610,000. During the first quarter, $4.8 million
        in
        agency bonds matured. With the relatively flat nature of the current yield
        curve, the bank sought to reinvest these funds into municipal instruments.
        These
        instruments are currently providing the higher yields and longer maturities
        that
        will help to extend the duration of the portfolio and protect against the
        possibility of falling rates. During the first three months of 2007, the
        bank
        purchased $3.5 million in municipal instruments. The overall maturity and
        repricing characteristics of our balance sheet remain short, however, and
        the
        weighted average life of the securities portfolio is 2.28 years.
 
 DEPOSITS
        AND OTHER FUNDING SOURCES
 
 Deposit
        growth for the first quarter of 2007 was slightly more than $1.3 million
        to
        $197.9 million. With the increasing costs of acquiring and retaining deposits
        combined with lower than normal loan demand, the bank strategically lowered
        its
        offering rates on certificates of deposit in January 2007 in order to help
        control rising costs, as well as limit the influx of funding.
 
 Noninterest
        bearing deposits were relatively stable dipping slightly down $445,000 to
        $26.7
        million. Interest bearing deposits increased approximately $1.8 million to
        $171.2 million, mostly in interest bearing checking accounts.
 
 Historically
        our borrowings have consisted of repurchase agreements, Federal Home Loan
        Bank
        borrowings, and, when necessary, overnight borrowings such as fed funds
        purchased. Total borrowings of $21,193,000 at March 31, 2007 were $2,152,000
        less than at year-end as we were in an overnight borrowing position at December
        31, 2006. Slower loan demand combined with the slight increase in deposits
        and
        reduction in securities have placed us in a fed funds sold position at March
        31.
  19
 *Index*
  CAPITAL
        RESOURCES
 
 Our
        total
        capital of $20,626,000 is 8.5% of assets and similar to our position at year-end
        when capital was $20,278,000 or 8.3% of assets. The increase is a product
        of our
        earnings for the first quarter less the payment of dividends to our
        shareholders. Our risk based capital measures, which are established for
        all
        banks through the regulatory process, continue to easily exceed required
        levels.
        We have no knowledge of any items or trends which are likely to materially
        impair our capital position.
 
 On
        March
        7, 2006, we declared a stock split in the form of a 200% stock dividend.
        This
        dividend was distributed to shareholders on April 14, 2006 and has been
        reflected in the accompanying financial statements. You may refer to Note
        2 for
        more information on this dividend.
 
 LIQUIDITY
 
 The
        objective of our liquidity management program is to ensure the continuous
        availability of funds to meet the withdrawal demands of customers, the credit
        needs of borrowers, and to provide for other operational needs. Liquidity
        is
        provided by various sources including unpledged investment securities, federal
        funds sold, loan repayments, a stable and growing deposit base and, when
        necessary, external borrowings.
 
 We
        monitor liquidity on a regular basis by preparing projected balance sheets
        and
        analyzing our sources and uses of funds. Historically, we have satisfied
        our
        liquidity needs through internal sources of funds with the exception of certain
        loans which have been funded by borrowing funds from the Federal Home Loan
        Bank
        of Pittsburgh. Currently, we have access to approximately $109 million through
        various FHLB programs.
 
 Our
        liquidity demands were low during the first quarter as we experienced reduced
        loan demand. We expect to continue to satisfy our liquidity needs primarily
        through internal sources.
  IMPACT
        OF INFLATION
 
 The
        consolidated financial statements and related data included in this report
        were
        prepared in accordance with accounting principles generally accepted in the
        United States of America, which require our financial position and results
        of
        operations to be measured in terms of historical dollars except for the
        available for sale securities portfolio. Consequently, the relative value
        of
        money generally is not considered. Nearly all of our assets and liabilities
        are
        monetary in nature and, as a result, interest rates and competition in the
        market area tend to have a more significant impact on our performance than
        the
        effect of inflation.
 
 However,
        inflation does affect noninterest expenses such as personnel costs and the
        cost
        of services and supplies we use. We attempt to offset increasing costs by
        controlling the level of noninterest expenditures and increasing levels of
        noninterest income. Because inflation rates have generally been low during
        the
        time covered by the accompanying consolidated financial statements, the impact
        of inflation on our earnings has not been significant. Based on current Federal
        Reserve policy and economic conditions, we do not expect inflation to
        significantly impact our financial position or results of operations in the
        foreseeable future.
  20
 *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 biweekly 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
        March
        31, 2007, we measured the impact an immediate and sustained change in interest
        rates of 100, 200 and 300 basis points, applied to all of our earning assets
        and
        interest bearing liabilities, would have on our net interest income over
        the
        next twelve months. These tests indicate that net interest income can be
        expected to change by no more than 1.72% 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.
  21
 *Index*
  **PART
        II - OTHER INFORMATION**
 
 Item
                  1.
              Legal
                  Proceedings:
                  As of March 31, 2007 Citizens Financial Corp. is involved in various
                  legal
                  proceedings which occur in the normal course of business. We believe
                  all
                  such litigation will be resolved without materially affecting our
                  financial position or results of operations. There are no other
                  material
                  proceedings known to be threatened or contemplated against either
                  Citizens
                  Financial Corp. or Citizens National
                  Bank.
 
 Item
                  1A.
              Risk
                  Factors:
                  There have been no material changes in the risk factors discussed
                  in Item
                  1A of our December 31, 2006 Form 10-K.
 
 Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds:
                  None.
 
 Item
                  3.
              Defaults
                  upon Senior Securities:
                  None.
 
 Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders:
                  None.
 
 Item
                  5.
              Other
                  Information:
                  None.
 
 Item
                  6.
              Exhibits
                  and Reports on Form 8-K:
 
 (a)
              Exhibits:
              The
                  following exhibits are filed with this
                  report:
 Exhibit
                  No.
              Description
                  of Exhibit
 
 31.1
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                  Section 1350
 
 31.2
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,18 U.S.C.
                  Section 1350
 
 32.1
              Certification
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                  Section 1350
 
 32.2
              Certification
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C.
                  Section 1350
  22
 *Index*
  SIGNATURES
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  
 CITIZENS
                  FINANCIAL CORP.Date:
              5/9/07
              
              /s/Robert
                  J. SchoonoverRobert
                  J. SchoonoverPresident
                  Chief Executive OfficerDate:
              5/9/07
              
              /s/Thomas
                  K. DerbyshireThomas
                  K. DerbyshireVice
                  President, Treasurer and Principal Financial Officer






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