**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





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


EXCHANGE
      ACT OF 1934


For
      the
      quarterly period ended **June
      30, 2006**





or





_  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934


For
      the
      transition period from __________ to __________





**Commission
      file number 0-20148**




**CITIZENS
      FINANCIAL CORPORATION**


(Exact
      name of registrant as specified in its charter)




**Kentucky**
            **61-1187135**(State
                of Incorporation)
            (I.R.S.
                Employer Identification No.)





**12910
      Shelbyville Road, Louisville, Kentucky 40243**


(Address
      of principal executive offices)





**(502)
      244-2420**


(Registrant’s
      telephone number)





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer ___ Accelerated filer ___ Non-accelerated filer X
      .




Indicate
      by check mark whether the registrant is a shell company (as determined in Rule
      12b-2 of the Securities Exchange Act of 1934). Yes  No X


**APPLICABLE
      ONLY TO CORPORATE ISSUERS:**





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date: Class A Stock 1,658,471 as
      of August
      11 ,
      2006.





The
      date
      of this Report is June
      30,
      2006 .




1


Part
      I
      - Financial Information ; Item 1 -
      Financial Statements





**Citizens
      Financial Corporation and Subsidiaries**


**Condensed
      Consolidated Statements of Operations**


*(Unaudited)*




Six
                  Months Ended June 30
              
              2006
              
              2005Revenues:Premiums
                  and other considerations
              
              $
              11,958,017
              
              $
              13,727,966Premiums
                  ceded
              
              
              (363,106
              )
              
              (488,865
              )Net
                  premiums earned
              
              
              11,594,911
              
              
              13,239,101Net
                  investment income
              
              
              3,394,019
              
              
              3,494,483Net
                  realized investment gains
              
              
              342,265
              
              
              382,103Other
                  income
              
              
              117,802
              
              
              95,298Total
                  Revenues
              
              
              15,448,997
              
              
              17,210,985Policy
                  Benefits and Expenses:Policyholder
                  benefits
              
              
              10,076,582
              
              
              10,956,797Policyholder
                  benefits ceded
              
              
              (455,268
              )
              
              (548,987
              )Net
                  benefits
              
              
              9,621,314
              
              
              10,407,810Increase
                  (decrease) in net benefit reserves
              
              
              (860,415
              )
              
              354,344Interest
                  credited on policyholder deposits
              
              
              288,383
              
              
              303,690Commissions
              
              
              2,345,118
              
              
              2,343,867General
                  expenses
              
              
              3,574,260
              
              
              3,365,061Interest
                  expense
              
              
              229,564
              
              
              185,204Policy
                  acquisition costs deferred
              
              
              (607,027
              )
              
              (571,575
              )Amortization
                  expense:Deferred
                  policy acquisition costs
              
              
              351,876
              
              
              534,266Value
                  of insurance acquired
              
              
              177,880
              
              
              209,677Depreciation
                  expense
              
              
              186,245
              
              
              163,488Total
                  Policy Benefits and Expenses
              
              
              15,307,198
              
              
              17,295,832Income
                  (loss) before income taxes
              
              
              141,799
              
              
              (84,847
              )Income
                  taxes (benefit)
              
              
              362,176
              
              
              (98,512
              )Net
                  income (loss)
              
              $
              (220,377
              )
              $
              13,665Net
                  income (loss) per Common Share, basic and diluted
              
              $
              (0.13
              )
              $
              0.01Weighted
                  average number of shares
              
              
              1,667,977
              
              
              1,671,628





*See
      Notes to Condensed Consolidated Financial Statements.*


2


Part
      I; Item 1 (continued)








**Citizens
      Financial Corporation and Subsidiaries**


**Condensed
      Consolidated Statements of Operations**


*(Unaudited)*




Three
                  Months Ended June 30
              
              2006
              
              2005Revenues:Premiums
                  and other considerations
              
              $
              5,924,096
              
              $
              7,039,189Premiums
                  ceded
              
              
              (160,794
              )
              
              (254,166
              )Net
                  premiums earned
              
              
              5,763,302
              
              
              6,785,023Net
                  investment income
              
              
              1,713,483
              
              
              1,743,923Net
                  realized investment gains (losses)
              
              
              (103,348
              )
              
              326,783Other
                  income
              
              
              34,738
              
              
              33,035Total
                  Revenues
              
              
              7,408,175
              
              
              8,888,764Policy
                  Benefits and Expenses:Policyholder
                  benefits
              
              
              4,884,012
              
              
              5,304,065Policyholder
                  benefits ceded
              
              
              (172,225
              )
              
              (253,663
              )Net
                  benefits
              
              
              4,711,787
              
              
              5,050,402Increase
                  (decrease) in net benefit reserves
              
              
              (301,261
              )
              
              693,384Interest
                  credited on policyholder deposits
              
              
              154,125
              
              
              141,973Commissions
              
              
              1,149,751
              
              
              1,190,646General
                  expenses
              
              
              1,795,281
              
              
              1,700,201Interest
                  expense
              
              
              119,143
              
              
              99,091Policy
                  acquisition costs deferred
              
              
              (247,009
              )
              
              (256,206
              )Amortization
                  expense:Deferred
                  policy acquisition costs
              
              
              107,112
              
              
              234,022Value
                  of insurance acquired
              
              
              91,177
              
              
              96,903Depreciation
                  expense
              
              
              98,848
              
              
              82,667Total
                  Policy Benefits and Expenses
              
              
              7,678,954
              
              
              9,033,083Loss
                  before income taxes
              
              
              (270,779
              )
              
              (144,319
              )Income
                  taxes (benefit)
              
              
              269,053
              
              
              (46,981
              )Net
                  Loss
              
              $
              (539,832
              )
              $
              (97,338
              )Net
                  Loss per Common Share, basic and diluted
              
              $
              (0.32
              )
              $
              (0.06
              )Weighted
                  average number of shares
              
              
              1,664,471
              
              
              1,671,628





3


Part
      I;
      Item 1 (continued)








**Citizens
      Financial Corporation and Subsidiaries**


**Condensed
      Consolidated Statements of Financial Condition**







June
                  30, 2006
              
              December
                  31, 2005**ASSETS**
              
              *(Unaudited)*Investments:Securities
                  available for sale, at fair value:Fixed
                  maturities (amortized cost of $104,627,660and
                  $112,087,958 in 2006 and 2005, respectively)
              
              $
              100,248,883
              
              $
              112,924,772Equity
                  securities (cost of $8,902,330 and$8,292,389
                  in 2006 and 2005, respectively)
              
              
              9,018,513
              
              
              8,580,035Investment
                  real estate
              
              
              3,009,737
              
              
              3,034,094Policy
                  loans
              
              
              4,445,982
              
              
              4,495,291Short-term
                  investments
              
              
              40,000
              
              
              40,000Total
                  Investments
              
              
              116,763,115
              
              
              129,074,192Cash
                  and cash equivalents
              
              
              7,810,561
              
              
              3,552,969Accrued
                  investment income
              
              
              1,585,479
              
              
              1,683,486Reinsurance
                  recoverable
              
              
              2,652,491
              
              
              2,749,655Premiums
                  receivable
              
              
              295,640
              
              
              266,368Property
                  and equipment
              
              
              1,991,658
              
              
              1,870,848Deferred
                  policy acquisition costs
              
              
              10,619,475
              
              
              10,226,741Value
                  of insurance acquired
              
              
              2,106,294
              
              
              2,284,174Goodwill
              
              
              755,782
              
              
              755,782Income
                  taxes receivable
              
              
              27,185
              
              
              63,174Net
                  deferred income tax asset
              
              
              292,998
              
              
              282,905Other
                  assets
              
              
              641,255
              
              
              470,439Total
                  Assets
              
              $
              145,541,933
              
              $
              153,280,733










*See
      Notes to Condensed Consolidated Financial Statements.*


4


Part
      I; Item 1 (continued)











**Citizens
      Financial Corporation and Subsidiaries**


**Condensed
      Consolidated Statements of Financial Condition**





June
                  30, 2006
              
              December
                  31, 2005**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**
              
              *(Unaudited)*Liabilities:Policy
                  Liabilities:Future
                  policy benefits
              
              $
              110,230,468
              
              $
              111,021,027Policyholder
                  deposits
              
              
              14,548,995
              
              
              14,716,369Policy
                  and contract claims
              
              
              1,377,644
              
              
              1,888,050Unearned
                  premiums
              
              
              128,921
              
              
              128,584Other
              
              
              235,505
              
              
              715,822Total
                  Policy Liabilities
              
              
              126,521,533
              
              
              128,469,852Note
                  payable – bank
              
              
              666,670
              
              
              1,375,003Note
                  payable – related party
              
              
              4,360,000
              
              
              4,000,000Accrued
                  expenses and other liabilities
              
              
              1,783,582
              
              
              1,999,327Total
                  Liabilities
              
              
              133,331,785
              
              
              135,844,182Commitments
                  and Contingencies (Note 7 and 8)Shareholders’
                  Equity:Common
                  stock, 6,000,000 shares authorized;1,658,471
                  and 1,671,628 shares issued andoutstanding
                  in 2006 and 2005, respectively
              
              
              1,658,471
              
              
              1,671,628Additional
                  paid-in capital
              
              
              7,008,448
              
              
              7,081,921Accumulated
                  other comprehensive income (loss)
              
              
              (4,198,706
              )
              
              720,690Retained
                  earnings
              
              
              7,741,935
              
              
              7,962,312Total
                  Shareholders’ Equity
              
              
              12,210,148
              
              
              17,436,551Total
                  Liabilities and Shareholders’ Equity
              
              $
              145,541,933
              
              $
              153,280,733











*See
      Notes to Condensed Consolidated Financial Statements.*


5


Part
      I; Item 1 (continued)


**Citizens
      Financial Corporation and Subsidiaries**


**Condensed
      Consolidated Statements of Cash Flows**


*(Unaudited)*




Six
                Months Ended June 30
            
            2006
            
            2005**Cash
                Flows from Operating Activities:**Net
                income (loss)
            
            $
            (220,377
            )
            $
            13,665Adjustments
                reconciling net income (loss) tonet
                cash provided by (used in) operating activities:Interest
                credited on policyholder deposits
            
            
            288,383
            
            
            303,690Provision
                for amortization and depreciation,net
                of deferrals
            
            
            108,974
            
            
            335,920Amortization
                of premium and accretionof
                discount on securities purchased, net
            
            
            30,166
            
            
            9,840Net
                realized investment gains
            
            
            (342,265
            )
            
            (382,103
            )Changes
                in operating assets and liabilities:Benefit
                reserves
            
            
            (860,415
            )
            
            354,344Claim
                liabilities
            
            
            (510,406
            )
            
            (530,183
            )Other
                policy liabilities
            
            
            (480,316
            )
            
            168,541Reinsurance
                recoverable
            
            
            97,164
            
            
            485,052Accrued
                investment income
            
            
            98,007
            
            
            28,800Changes
                in other operating assets and liabilities
            
            
            (483,884
            )
            
            (845,948
            )Deferred
                income tax expense (benefit)
            
            
            360,111
            
            
            (324,196
            )Income
                taxes payable / receivable
            
            
            35,989
            
            
            436,896Net
                Cash (used in) provided by Operating Activities
            
            
            (1,878,869
            )
            
            54,318**Cash
                Flows from Investing Activities:**Securities
                available-for-sale:Purchases
                – fixed maturities
            
            
            (5,490,073
            )
            
            (12,951,456
            )Purchases
                – equity securities
            
            
            (8,562,592
            )
            
            (4,616,287
            )Sales
                and maturities – fixed maturities
            
            
            13,505,788
            
            
            18,457,512


Sales
                – equity securities
            
            
            7,612,607
            
            
            5,735,944Additions
                to real estate
            
            
            (41,353
            )
            
            -Additions
                to property and equipment, net
            
            
            (193,110
            )
            
            (164,853
            )Other
                investing activities, net
            
            
            49,309
            
            
            (608
            )Net
                Cash provided by Investing Activities
            
            
            6,880,576
            
            
            6,460,252


**Cash
                Flows from Financing Activities:**Policyholder
                deposits
            
            
            220,452
            
            
            338,289Policyholder
                withdrawals
            
            
            (529,603
            )
            
            (1,012,656
            )Proceeds
                from additional borrowings- related party
            
            
            360,000
            
            
            -Payments
                on note payable – bank
            
            
            (708,333
            )
            
            (708,333
            )Repurchases
                of common stock
            
            
            (86,631
            )
            
            -Net
                Cash used in Financing Activities
            
            
            (744,115
            )
            
            (1,382,700
            )Net
                Increase in Cash and Cash Equivalents
            
            
            4,257,592
            
            
            5,131,870Cash
                and Cash Equivalents at Beginning of Period
            
            
            3,552,969
            
            
            4,691,611Cash
                and Cash Equivalents at End of Period
            
            $
            7,810,561
            
            $
            9,823,481




*See
      Notes to Condensed Consolidated Financial Statements.*


6


Part
      I; Item 1 (continued)





**Citizens
      Financial Corporation and Subsidiaries**


**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2006** **** *(Unaudited)*





**Note
      1 - BASIS OF PRESENTATION**




The
      accompanying unaudited condensed consolidated financial statements include
      the
      accounts of Citizens Financial Corporation and its wholly-owned subsidiaries:
      Citizens Security Life Insurance Company (“Citizens Security”), United Liberty
      Life Insurance Company (“United Liberty”), Citizens Insurance Company (“Citizens
      Insurance”), Citizens Security Benefit Services, Inc. (“Citizens Benefits”), and
      Corporate Realty Services, Inc. (“Corporate Realty”). The accompanying unaudited
      condensed consolidated financial statements have been prepared in accordance
      with the instructions to Form 10-Q and in conformity with U.S. generally
      accepted accounting principles.





The
      accompanying unaudited condensed consolidated financial statements reflect
      all
      adjustments that are, in the opinion of management, necessary to a fair
      presentation of the results for the interim periods. All such adjustments are
      of
      a normal recurring nature. Certain 2005 amounts reported previously have been
      reclassified to conform with the 2006 presentation. Second quarter results
      may
      not be indicative of results for the full year.


For
      further information, refer to the December
      31, 2005 consolidated financial statements and footnotes included in the Company’s annual
      report on Form 10-K.





Use
      of
      Estimates. The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles (“GAAP”) requires management to make estimates and
      assumptions that affect the amounts reported in the financial statements and
      accompanying notes. Actual results could differ from those
      estimates.




**Note
      2 - COMPREHENSIVE** **INCOME
      (** **LOSS** **)**




The
      components of comprehensive income (loss), net of related income taxes, for
      the three
      and
      six-month periods ended  June
      30,
      2006 and 2005 ,
      are as
      follows:




Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**COMPREHENSIVE
                  INCOME ( LOSS):**
              
              2006
              
              2005
              
              2006
              
              2005Net
                  income (loss)
              
              $
              (539,832
              )
              $
              (97,338
              )
              $
              (220,377
              )
              $
              13,665Net
                  unrealized gains (losses) on securities
              
              
              (2,364,617
              )
              
              1,955,281
              
              
              (4,919,396
              )
              
              238,810Comprehensive
                  income (loss)
              
              $
              (2,904,449
              )
              $
              1,857,943
              
              $
              (5,139,773
              )
              $
              252,475




Unrealized
      losses, net of related deferred income taxes, are the result of the net change
      in the excess or deficit of market values over book values of the investment
      portfolios. Therefore, comprehensive loss is impacted by the volatility of
      the
      equities and fixed maturities markets





**Note
      3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**




The
      Company’s derivatives outstanding at June
      30,
      2006 include
      approximately $51,000 of embedded options on convertible bonds and $(7,000)
      of
      other open option positions. Hedge accounting is not used for these securities
      and changes in market value are reported currently as realized investment gains
      or losses.




7





Part
      I; Item 1 (continued)





**Note
      4 - NET REALIZED INVESTMENT GAINS**




The
      Company recorded pretax reductions to the carrying amount of available for
      sale
      securities totaling $475,000 for the six
      months ended June
      30,
      2006 ( first q uarter ;
      $218,000, second
      quarter ;
      $ 257 ,000) relating
      to declines in value which were considered by management to be other than
      temporary (none for the six months ended June 30, 2005). This amount is included
      in net realized investment gains.




**Note
      5 - INCOME TAXES**




Income
      taxes are provided based on estimates of the projected annual effective tax
      rate. Deferred income taxes reflect the net effects of temporary differences
      between the carrying amounts of assets and liabilities for financial reporting
      purposes and the amounts used for income tax purposes. Income before income
      taxes differs from taxable income principally due to the small life insurance
      company tax deduction, operating loss carry forwards and capital loss carry
      forwards. The Company has generally not been currently taxable, accumulating
      operating and capital loss carryovers for tax purposes that create uncertainties
      as to future realization of related tax benefits and ultimate effective rates.
      This significantly impacts the Company’s determination of its deferred income
      tax accounts. During the first and
      second quarter s of 2005,
      the Company made revisions to its deferred income tax estimates made in prior
      periods, including related estimates of its required valuation allowance for
      the
      realization of deferred tax assets, resulting in a tax benefit of $(51,531) and
      $(46,981) being
      recognized in the first
      and second quarter s,
      respectively .
      No such
      revisions were required in March
      31, 2006,
      giving rise to an increase in the effective rate over that of the prior
      corresponding period. During the six-month period ended June 30, 2006, the
      Company experienced significant unrealized losses on its fixed income investment
      portfolio.  Management has determined that realization of deferred taxes
      attributable to the increase in unrealized losses is not likely to occur, and
      accordingly, a valuation allowance of $1,854,000 has been established against
      the related tax asset as a charge through other comprehensive income.





The
      Company continues to generate net operating losses for tax purposes, giving
      rise
      to uncertainty as to the recoverability of its remaining deferred tax assets.
      As
      a result of a change in judgment regarding the realization of these assets,
      management increased the valuation allowance by $314,000 at June 30, 2006.
       The increase in the valuation allowance has been recorded as a charge to
      income tax expense. No such revisions were required in 2006,
      giving rise to an increase in the effective rate over that of the prior
      corresponding period.




**Note
      6 - SEGMENT INFORMATION**





The
      Company’s operations are managed along five principal insurance product lines:
      Home Service Life, Broker Life, Pre-need Life, Dental, and Other Health.
      Products in all five lines are sold through independent agency operations.
      Home
      Service Life consists primarily of traditional life insurance coverage sold
      in
      amounts of $10,000 and less to middle and lower income individuals. This
      distribution channel is characterized by a significant amount of agent contact
      with customers throughout the year. Broker Life product sales consist primarily
      of simplified issue and graded-benefit policies in amounts of $10,000 and less
      and final expense policies in amounts of $3,000 to $35,000. Other products
      in
      this segment, which are not aggressively marketed, include: group life,
      universal life, annuities and participating life policies. Pre-need Life
      products are sold to individuals in connection with prearrangement of their
      funeral and include single premium and multi-pay policies with benefits
      generally in amounts of $10,000 and less. These policies are generally sold
      to
      middle aged to elderly individuals. Dental products are term policies generally
      sold to small and intermediate size employer groups. Other Health products
      include various accident and health policies sold to individuals and employer
      groups.






8


Part
      I; Item 1 (continued)





Segment
      information as of June
      30,
      2006 and 2005 ,
      and for
      the periods then ended, is as follows:


Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**REVENUES:**
              
              2006
              
              2005
              
              2006
              
              2005Home
                  Service Life
              
              $
              2,262,413
              
              $
              2,300,222
              
              $
              4,510,204
              
              $
              4,563,362Broker
                  Life
              
              
              1,532,671
              
              
              1,695,110
              
              
              3,143,778
              
              
              3,227,489Preneed
                  Life
              
              
              1,334,432
              
              
              2,169,619
              
              
              2,714,444
              
              
              4,148,517Dental
              
              
              2,144,004
              
              
              2,154,888
              
              
              4,257,170
              
              
              4,396,274Other
                  Health
              
              
              238,003
              
              
              242,142
              
              
              481,136
              
              
              493,240Segment
                  Revenue
              
              
              7,511,523
              
              
              8,561,981
              
              
              15,106,732
              
              
              16,828,882Net
                  realized investment gains (losses)
              
              
              (103,348
              )
              
              326,783
              
              
              342,265
              
              
              382,103Total
                  Revenues
              
              $
              7,408,175
              
              $
              8,888,764
              
              $
              15,448,997
              
              $
              17,210,985


Below
        are
        the net investment income amounts, which are included in the revenue totals
        above.


Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**NET
                  INVESTMENT INCOME:**
              
              2006
              
              2005
              
              2006
              
              2005Home
                  Service Life
              
              $
              547,181
              
              $
              483,541
              
              $
              1,048,808
              
              $
              968,163Broker
                  Life
              
              
              542,141
              
              
              644,514
              
              
              1,086,842
              
              
              1,249,734Preneed
                  Life
              
              
              596,111
              
              
              585,572
              
              
              1,201,804
              
              
              1,214,242Dental
              
              
              9,137
              
              
              9,548
              
              
              18,506
              
              
              20,876Other
                  Health
              
              
              18,913
              
              
              20,748
              
              
              38,059
              
              
              41,468Segment
                  Totals
              
              $
              1,713,483
              
              $
              1,743,923
              
              $
              3,394,019
              
              $
              3,494,483





The
      Company evaluates performance based on several factors, of which the primary
      financial measure is segment profit (loss). Segment profit (loss) represents
      pretax income, except that net realized investment gains and interest expense
      are excluded. A significant portion of the Company’s realized investment gains
      are generated from investments in equity securities. The equities portfolio
      averaged (on a cost basis) approximately $8,034,000 and $8,070,000 during the six
      months ended June 30, 2006 and 2005 ,
      respectively.


Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**SEGMENT
                  PROFIT (LOSS):**
              
              2006
              
              2005
              
              2006
              
              2005Home
                  Service Life
              
              $
              33,268
              
              $
              (87,382
              )
              $
              (199,006
              )
              $
              (100,015
              )Broker
                  Life
              
              
              42,708
              
              
              (12,004
              )
              
              (21,446
              )
              
              (145,070
              )Preneed
                  Life
              
              
              (117,344
              )
              
              (58,695
              )
              
              340,457
              
              
              85,524Dental
              
              
              50,285
              
              
              (117,697
              )
              
              (7,147
              )
              
              (31,358
              )Other
                  Health
              
              
              (57,205
              )
              
              (96,233
              )
              
              (83,760
              )
              
              (90,827
              )Net
                  segment profit (loss)
              
              
              (48,288
              )
              
              (372,011
              )
              
              29,098
              
              
              (281,746
              )Net
                  realized investment gains (losses)
              
              
              (103,348
              )
              
              326,783
              
              
              342,265
              
              
              382,103Interest
                  expense
              
              
              (119,143
              )
              
              (99,091
              )
              
              (229,564
              )
              
              (185,204
              )Income
                  (loss) before income taxes
              
              $
              (270,779
              )
              $
              (144,319
              )
              $
              141,799
              
              $
              (84,847
              )




9


Part
      I; Item 1 (continued)





Depreciation
      and amortization amounts below consist of depreciation expense along with
      amortization of the value of insurance acquired and deferred policy acquisition
      costs.




Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**DEPRECIATION
                  AND AMORTIZATION:**
              
              2006
              
              2005
              
              2006
              
              2005Home
                  Service Life
              
              $
              69,546
              
              $
              112,464
              
              $
              290,380
              
              $
              257,721Broker
                  Life
              
              
              81,687
              
              
              96,036
              
              
              192,926
              
              
              222,468Preneed
                  Life
              
              
              117,706
              
              
              180,794
              
              
              168,748
              
              
              372,583Dental
              
              
              22,612
              
              
              16,732
              
              
              51,174
              
              
              35,804Other
                  Health
              
              
              5,586
              
              
              7,566
              
              
              12,773
              
              
              18,855Segment
                  Totals
              
              $
              297,137
              
              $
              413,592
              
              $
              716,001
              
              $
              907,431 Segment
        asset totals, determined based on policy liabilities outstanding in each
        segment, are as shown below.




**ASSETS:**
              
              June
                  30, 2006
              
              December
                  31, 2005Home
                  Service Life
              
              $
              47,028,747
              
              $
              41,620,007Broker
                  Life
              
              
              44,525,769
              
              
              51,361,714Preneed
                  Life
              
              
              51,699,873
              
              
              57,603,193Dental
              
              
              741,594
              
              
              913,764Other
                  Health
              
              
              1,545,950
              
              
              1,782,055Segment
                  Totals
              
              $
              145,541,933
              
              $
              153,280,733





**Note
      7 - CONTINGENCIES**




The
      Company is party to various lawsuits in the normal course of business.
      Management believes that recorded claim liabilities are adequate to ensure
      that
      these suits will be resolved without material financial impact to the
      Company.




**Note
      8 - DEBT**





Debt
      consists of the following notes payable:




June
                  30, 2006
              
              December
                  31, 2005Commercial
                  bank, due 2007
              
              $
              666,670
              
              $
              1,375,003Related
                  party, due 2007
              
              
              4,360,000
              
              
              4,000,000Total
              
              $
              5,026,670
              
              $
              5,375,003




The
      Company’s outstanding commercial bank borrowings relate primarily to various
      insurance company acquisitions. Interest is payable quarterly at the lower
      of
      the bank’s prime lending rate or the one-month LIBOR rate plus 2.75% (at
      8. 53 04 %
      at June
      30, 2006). Scheduled principal installments are due as follows: 2006 -
      $ 354,167 ;
      and
      2007 - $312,503. The loan agreement for the bank note contains covenants
      regarding asset acquisitions, shareholders’ equity and dividends, and
      maintenance of a debt to earnings ratio. During the first half of 2005, the
      Company did not comply with a loan covenant (debt to earnings ratio) and did
      not
      comply with another covenant




10


Part
      I; Item 1 (continued)





(borrower’s
      net worth) at June 30, 2006 on this debt and received a waiver from the lender
      of such violation through June 30, 2005. In return for the waiver, the Company’s
      Chairman agreed to personally guarantee the outstanding bank debt. There are
      no
      assurances that the Company will meet this covenant throughout the balance
      of
      2006. Although the Company does not expect the full balance to be called during
      2006, it believes such an obligation could be met through a refinancing
      arrangement or sale of selected assets or a block of insurance business.
      Regarding the currently scheduled debt repayments, the Company believes its
      available resources will be adequate to service the remaining 2006 debt
      obligations. In addition, the Company’s Chairman has expressed potential
      willingness to loan the Company an additional $640,000 if necessary, to service
      bank debt obligations through 2007. The
      Company borrowed an additional $400,000 from its Chairman on July 7, 2006. The
      Company has pledged the issued and outstanding common and preferred stock of
      Citizens Security as collateral for the commercial bank note.





The
      Company borrowed $2,000,000 from its Chairman in December 2002 to strengthen
      the
      statutory capital position of its principal insurance subsidiary. The Company
      borrowed an additional $1,000,000 in 2003, an additional $1,000,000 in 2005
      and
      an additional $360,000 in March 2006 from its Chairman for general operating
      capital, including servicing bank debt. Interest on the debt is payable
      quarterly by the Company at an annual rate equal to the greater of 6.00% or
      the
      prime lending rate plus 1% ( 9.25 %
      at June
      30, 2006). The outstanding principal is callable upon 90 days notice or
      otherwise due on June 30, 2007; except however, under terms of a subordination
      agreement between the Chairman and the Company’s commercial bank, repayment is
      prohibited until all outstanding commercial bank borrowings are
      repaid.





**Note
      9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**





On
      September 15, 2005, the Accounting Standards Executive Committee (“AcSEC”)
      issued Statement of Position (“SOP”) No. 05-1, *Accounting
      by Insurance Enterprises for Deferred Acquisition Costs in Connection With
      Modifications or Exchanges of Insurance Contracts* .
      AcSEC
      defines an internal replacement as a modification in product benefits, features,
      rights, or coverages that occurs by the exchange of a contract for a new
      contract, or by amendment, endorsement, or rider to a contract, or by the
      election of a feature or coverage within a contract. An internal replacement
      that is determined to result in a replacement contract that is substantially
      unchanged from the replaced contract should be accounted for as a continuation
      of the replaced contract. Contract modifications resulting in a replacement
      contract that is substantially changed from the replaced contract should be
      accounted for as an extinguishment of the replaced contract and any unamortized
      deferred policy acquisition costs, unearned revenue liabilities, and deferred
      sales inducement costs from the replaced contract should be written off and
      acquisition costs of the new contract capitalized as appropriate. This SOP
      is
      effective for internal replacements occurring in fiscal years beginning after
      December 15, 2006. Management is still evaluating the impact this guidance
      will
      have on its consolidated financial statements.





In
      June
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes (an interpretation of FASB Statement No. 109)” (“FIN 48”) which is
      effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth
      criteria for recognition and measurement of tax positions taken or expected
      to
      be taken in a tax return. FIN 48 requires that companies recognize the impact
      of
      a tax position if that position is more likely than not of being sustained
      on
      audit, based on the technical merits of the position. FIN 48 also provided
      guidance on the derecognition, classification, interest, penalties, accounting
      in interim periods and disclosure. Management is currently evaluating the impact
      of adopting this interpretation.






11




Part
      I; Item 2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations ****





**EXECUTIVE
      SUMMARY**





The
      Company’s management continuously monitors the performance of and outlook for
      the Company by analyzing several indicators that they judge to be critical.
      The
      key indicators of particular interest to management are (a) the general economic
      environment relative to outlook, (b) trend of premium volume, (c) lapse rates,
      (d) mortality and morbidity rates (e) trend of general expense levels, (f)
      asset
      and capital and surplus growth, (g) general interest rate movements, (h)
      investment yields, (i) diversity (e.g. by industry) and mix (e.g. between fixed
      income securities and equity securities) of our investment portfolios and (j)
      segment performance and trends.





As
      more
      fully outlined in the Management’s Discussion and Analysis in the Company’s Form
      10-K for 2005, Management sees the following as its key challenges for the
      remainder of 2006:




· Financial





(1)
            earning
                an operating profit for all segments





(2)
            continuing
                to solidify the ratings from A.M. Best and setting the stage for
                a future
                rating upgrade (see the section titles “Competition” in Item 1 in the
                Company’s Form 10-K for 2005 for a discussion of the Company’s
                rating)





(3)
            using
                a portion of profits to fund higher sales growth in 2006 and beyond
                without straining capital and
                surplus





(4)
            evaluating
                plans to reduce compliance costs in 2007 and
                beyond




· Operational





(1)
            controlling
                operating expenses





(2)
            updating
                hardware and software technology





· Product
      line





(1)
            for
                Group Dental: creating a plan to offer Preferred Provider networks
                and
                Third Party Administration products in 2006, building on the Company’s
                strength of providing high quality service and exploring plans to
                sell
                other products through the Dental marketing
                channel





(2)
            for
                Final Expense: performing a controlled growth path through select
                Managing
                General Agents who focus on this type of
                product





(3)
            for
                Home Service: improving 13-month persistency, strengthening controls
                over
                field premium collection, recruiting satisfactory agents and controlling
                expenses





(4)
            for
                Preneed: maintaining current distribution relationships and controlling
                costs and expenses




The
      following discussion is presented to provide the reader with a clearer
      understanding of some of the operational elements impacting the financial
      position and results as reported in the accompanying unaudited condensed
      consolidated financial statements.




12





During
      the first six months of 2006, the Company reported a consolidated pretax
      operating loss (which excludes realized investment gains) of $200,000, compared
      to a pretax operating loss of $467,000 for the first six months of 2005 and
      a
      net loss of $220,000 for the first
      six
      months of 2006,
      compared to a net income of $14,000 for the first
      six
      months of
      2005.





The
      Company is subject to various market risks. The most significant risks relate
      to
      fluctuations in interest rates (which impact prices of fixed maturity
      securities) and prices of equity securities. The Company has at times
      experienced negative total returns (defined as investment income and realized
      and unrealized investment gains and losses) on its investment portfolio, and
      the
      total return for the first six months of 2006 was a negative 2.62% (the Company
      recorded pre-tax unrealized losses, of $5,216,000 on debt securities and
      $204,000 on equities) compared to a positive total return of 6.26% during the
      first six months of 2005. Historically these returns have been favorable and
      the
      Company has successfully managed the risk over many years. Company management
      devotes significant attention to the capital markets, and repositions the
      Company’s portfolio upon detection of adverse risk trends associated with
      individual securities or overall markets.





In
      an
      effort to increase levels of risk adjusted statutory surplus at the insurance
      subsidiary level, management repositions the portfolio to take advantage of
      opportunities and accordingly, increased its investment in equity securities
      on
      a market value basis by $4 38 ,000
      or 5.1 %
      and
      decreased fixed maturity securities by $12,676,000 or 11% (principally,
      securities with longer maturity dates resulting in greater risks) during the
      first six months of 2006. Management anticipates that this action will
      negatively impact long-term total returns. The Company will further reposition
      the portfolios, as opportunities become available, in order to increase total
      returns and maintain an acceptable risk-adjusted statutory surplus at the
      insurance subsidiary level.





General
      expenses for the first six months of 2006 were up $209,000 ,
      or
      6.2% compared
      to the first six months of 2005, principally due to the costs of employing
      a
      marketing executive for life insurance products in the second quarter of 2005
      and two marketing executives for the group dental product in the fall of 2005.
      We also placed in service, and therefore began to depreciate, the new group
      administration system in January 2006.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      Company’s discussion and analysis of its financial condition and results of
      operations are based on its unaudited condensed consolidated financial
      statements, which have been prepared in accordance with U.S. generally accepted
      accounting principles. Preparation of these financial statements requires the
      Company to make estimates and judgments that affect the reported amounts of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. On an on-going basis, the Company evaluates its
      estimates, including those related to investments, agent receivables, intangible
      assets, policy liabilities, income taxes, regulatory requirements, contingencies
      and litigation. The Company bases its estimates on historical experience and
      on
      various other assumptions that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying amounts of assets and liabilities that are not readily apparent
      from other sources. Actual results may differ from these estimates under
      different assumptions or conditions. The Company believes the following
      accounting policies, judgments and estimates, which have been discussed with
      the
      Audit Committee of the Board of Directors, critically impact preparation of
      its
      consolidated financial statements.





Investment
      in Debt and Equity Securities .
      The
      Company holds debt and equity interests in a variety of companies, most of
      which
      are publicly traded with volatile market prices. We periodically evaluate
      whether the declines in fair value of our investments are other-than-temporary.
      These evaluations involve significant judgment. Our evaluation consists of
      a
      review of qualitative and quantitative factors, including analysis of the
      Company’s competitive position in its markets, deterioration in the financial
      condition of the issuer, downgrades of the security by a rating agency, and
      other publicly available issuer-specific news or general market conditions.
      Declines in fair values of securities deemed to be temporary are included as
      an
      unrealized loss in shareholders’ equity. Declines in fair values of securities
      deemed to be other-than-temporary are included in net income as realized
      investment losses. Future adverse changes in market conditions or poor operating
      results of underlying investments could result in losses or an inability to
      recover the current carrying amount of the investments, thereby possibly
      requiring an impairment charge in the future.






13


Deferred
      Acquisition Costs (“DAC”). The
      Company defers certain policy acquisition costs and amortizes them over future
      periods. These costs include commissions and certain other expenses that vary
      with and are primarily associated with acquiring new business. The deferred
      costs are recorded as an asset commonly referred to as deferred policy
      acquisition costs. The DAC asset balance is subsequently charged to income
      over
      the lives of the underlying contracts in relation to the anticipated emergence
      of revenues or profits. Actual profits on certain products can vary from Company
      estimates resulting in increases or decreases in the rate of amortization.
      The
      Company regularly evaluates its DAC balances to determine if actual experience
      or other evidence suggests that earlier estimates should be revised. Assumptions
      considered significant include surrender and lapse rates, mortality, expense
      levels, investment performance, and estimated interest spread. Should actual
      experience dictate that the Company change its assumptions regarding the
      emergence of future profits (commonly referred to as “unlocking”), the Company
      would record a charge or credit to bring its DAC balance to the level it would
      have been if using the new assumptions from the inception date of each
      policy.





DAC
      is
      also subject to periodic recoverability and loss recognition testing. These
      tests ensure that the present value of future contract-related cash flows will
      support the capitalized DAC balance to be amortized in the future. The present
      value of these cash flows, less the benefit reserve, is compared with the
      unamortized DAC balance and if the DAC balance is greater, the deficiency is
      charged to expense as a component of amortization and the asset balance is
      reduced to the recoverable amount.





Goodwill
      and Intangible Impairment .
      The
      balance of our goodwill and value of insurance acquired (“VIF”) was $2.86
      million at June 30, 2006. The recovery of this asset is dependent on the fair
      value of the business to which it relates. Pursuant to Statement of Financial
      Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No.
      142”), goodwill is subject to annual impairment tests based on the estimated
      fair value of the respective assets. There are numerous assumptions and
      estimates underlying the determination of the estimated fair value of these
      assets. Different valuation methods and assumptions can produce significantly
      different results that could affect the amount of any potential impairment
      charge that might be required to be recognized. During 2005 the Company
      concluded that no impairment adjustment was necessary for its goodwill or
      VIF.





Policy
      Liabilities .
      Establishing policy liabilities for the Company’s long-duration insurance
      contracts requires making many assumptions, including policyholder persistency,
      mortality rates, investment yields, discretionary benefit increases, new
      business pricing, and operating expense levels. The Company evaluates historical
      experience for these factors when assessing the need for changing current
      assumptions. However, since many of these factors are interdependent and subject
      to short-term volatility during the long-duration contract period, substantial
      estimates and judgment are required. Accordingly, if actual experience emerges
      differently from that assumed, any such difference would be recognized in the
      current year’s consolidated statement of operations.





Deferred
      Income Taxes .
      The
      Company records a valuation allowance to reduce its deferred income tax assets
      to the amount that it believes is more likely than not to be realized. In the
      event the Company were to determine that it would be able to realize its
      deferred tax assets in the future in excess of its net recorded amount, an
      adjustment to deferred tax assets would increase income in the period such
      determination was made. Likewise, should the Company determine that it would
      not
      be able to realize all or part of its net deferred tax assets in the future,
      an
      adjustment to deferred tax assets would be charged to income in the period
      such
      determination was made.





During
      the six-month period ended June 30, 2006, the Company experienced significant
      unrealized losses on its fixed income investment portfolio.  Management has
      determined that realization of deferred taxes attributable to the increase
      in
      unrealized losses is not likely to occur, and accordingly, a valuation allowance
      of $1,854,000 has been established against the related tax asset as a charge
      through other comprehensive income.





The
      Company continues to generate net operating losses for tax purposes, giving
      rise
      to uncertainty as to the recoverability of its remaining deferred tax assets.
      As
      a result of a change in judgment regarding the realization of these assets,
      management increased the valuation allowance by $314,000 at June 30, 2006.
       The increase in the valuation allowance has been recorded as a charge to
      income tax expense.










14







**OPERATIONS.** Net
      premiums earned decreased approximately
      $1,644,000 or 12.4% during the six months ended June 30, 2006 compared to the
      six months ended June 30, 2005. Below is a summary of net premiums earned,
      by
      segment, for the three
      and
      six-month periods ended  June
      30,
      2006 ,
      along
      with the change from the same periods of 2005 :


Three
                  Months Ended June 30
              
              Six
                  Months Ended June 30**NET
                  PREMIUMS EARNED**
              
              Total
              
              Change
              
              Total
              
              ChangeHome
                  Service Life
              
              $
              1,703,622
              
              $
              (103,894
              )
              $
              3,424,992
              
              $
              (143,803
              )Broker
                  Life
              
              
              979,730
              
              
              (82,595
              )
              
              2,019,213
              
              
              75,540Preneed
                  Life
              
              
              726,546
              
              
              (822,463
              )
              
              1,470,927
              
              
              (1,430,234
              )Dental
              
              
              2,134,688
              
              
              (10,486
              )
              
              4,238,022
              
              
              (136,807
              )Other
                  Health
              
              
              218,716
              
              
              (2,284
              )
              
              441,757
              
              
              (8,886
              )Segment
                  Totals
              
              $
              5,763,302
              
              $
              (1,021,722
              )
              $
              11,594,911
              
              $
              (1,644,190
              )








Home
      Service Life premiums decreased approximately 4% during the first six months
      of
      2006 compared to the same period in 2005 due to higher lapse rates. New sales
      began to decline in the fourth quarter of 2005 and have continued to decline
      in
      2006 as a result of producer response to the Company’s introduction of a
      variable first year commission program designed to improve persistency in this
      segment. The Company also lost our regional representative for the Florida
      and
      Georgia region, as well as several producers in that region early in 2005.
      The
      Company continues its efforts to attract successful, experienced Home Service
      agents. In the fourth quarter of 2004, the Company began to geographically
      expand the Home Service market, hiring a new
      regional representative to
      recruit new agents in Ohio and Pennsylvania. Company management considers it
      a
      challenge to increase new sales even modestly, while providing incentive to
      keep
      business in force for longer periods than we have historically experienced
      (i.e.
      improve our persistency rate) in this segment.





Broker
      Life premiums increased 3.9% in the first six months of 2006 compared to the
      same period of 2005 primarily because the Company has been aggressively
      developing relationships with new Managing General Agents to market the new
      final expense product introduced in 2005.





Pre-need
      Life premiums continued to decrease during the first six
      months of 2006 compared
      to the same period in 2005 as the
      result of the Company’s earlier modification of certain policy benefits and
      commissions (which resulted in a loss in the number of producers) and an
      intentional refocusing of marketing efforts toward segments that the Company
      believes offer more positive potential in the current environment.





Dental
      premiums decreased 3.1% during the first six months of 2006 compared to the
      first six months of 2005 because the competition in this market continues to
      intensify and the Company has strengthened renewal underwriting standards in
      an
      effort to improve the loss ratio for this product. The Dental loss ratio for
      the
      first six months of 2006 was 64.6% compared to 71.2% for the same period in
      2005.





Other
      Health premiums declined 2.0% during the first six
      months of 2006 compared
      to the same period in 2005 because
      these products are not being actively marketed as the Company continues to
      redirect the focus of its marketing efforts to the Home Service Life, Broker
      Life and Dental segments in an effort to improve profitability in those
      segments.





Net
      benefits and interest credited on policyholder deposits decreased $802,000,
      or
      7.5% during the first six months of 2006 compared to the first six months of
      2005 due primarily to an improved mortality rate in the Pre-need Life segment.
      The change in net benefit reserves decreased $1,215,000 during the first six
      months of 2006 compared
      to




15


the
      same period in 2005 primarily due to the decrease in Pre-need policies issued and in force during
      the period. Commissions increased $1,300 or 0.05% ,
      even
      though premiums were down 12.4% for the
      first six months of 2006 compared to the same period of 2005 due to
      the higher
      first year commission rate paid on the new final expense premiums written.
      As
      discussed above, General expenses and
      depreciation increased
      $232,000, or 6.6% during the first six months of 2006 compared to the same
      period of 2005 principally due to the costs of employing a marketing executive
      for life insurance products in the second quarter of 2005 and two marketing
      executives for the group dental product in the fall of 2005. We also placed
      in
      service, and therefore began to depreciate, the new group administration system
      in January 2006.





The
      deferral of policy acquisition costs increased $ 35,000
      for the six
      months ended June 30, 2006 compared
      to the same period in 2005 principally due to the costs associated with issuing
      the new final expense product. Amortization of deferred policy acquisition
      costs
      and the value of insurance acquired decreased $ 2 14,000
      in
      the first six months of 2006 compared to the first six months of 2005, primarily
      due to the decreasing amount of Pre-need and acquired Home Service insurance
      in
      force.





Pretax
      income increased approximately $227,000 to $142,000 for the six
      months ended June 30, 2006 compared
      to a pretax loss of $85,000 for the same period in 2005. Net investment income
      decreased $100,000, or 2.9% for the first six months of 2006 compared to the
      same period of 2005, due to a 6.1 %
      decline
      in invested assets and cash and cash equivalents and less dividends received
      from equity investments.





Net
      realized investment gains decreased to $342,000 for the first six months of
      2006
      from net investment gains of $382,000 for the same period in 2005 because the
      Company took advantage of opportunities to realize gains in 2006, while
      restructuring its portfolio to reduce investment in long duration fixed
      maturities. These gains were offset by $475,000 of pretax reductions to the
      carrying amount of securities management judged to be other than temporarily
      impaired.





Pretax
      Segment profit (excluding realized investment gains and interest expense) for
      the first six months of 2006 was approximately $29,000 compared to a Pretax
      Segment loss $(282,000) for the first six
      months of 2005 .
      This is
      attributable to the factors described above.





Following
      are the approximate, annualized pretax investment income and “total return”
yields (defined as yields including net investment income, net realized
      investment gains or losses and net change in the excess or deficit of market
      values over book values of the investment portfolios or unrealized gains
      (losses)) for the six
      months ended June 30, 2006 and 2005 .
      Pretax
      unrealized gains (losses) totaled $(204,000) and $(5,216,000) on equities and
      fixed maturity securities, respectively for the six month period ended June
      30,
      2006 and $(1,196,000) and $ 1,555,000 on
      equities and fixed maturity securities, respectively for the six-month period
      ended June 30, 2005.




Six
                  Months Ended June 30
              
              2006
              
              2005Investment
                  Income
              
              $
              3,394,019
              
              $
              3,494,483Realized
                  and Unrealized Losses
              
              
              (5,077,249
              )
              
              741,581Total
                  Return
              
              $
              (1,683,230
              )
              $
              4,236,064Average
                  Cash and Investments
              
              $
              128,450,363
              
              $
              135,260,318Investment
                  Income Yield – Annualized
              
              
              5.28
              %
              
              5.17
              %Yield-Total
                  Shareholders' Equity Return
              
              
              -2.62
              %
              
              6.26
              %




**FINANCIAL
      POSITION.** Shareholders’ equity totaled approximately $12,210,000 and $17,437,000 at June
      30,
      2006 and December
      31, 2005 ,
      respectively. These balances reflect an approximate 29.98% decrease
      for the six
      months ended June 30, 2006 .
      Comprehensive income
      ( loss ) totaled
      approximately $(5,140,000) and $252,000 for the six
      months ended June 30, 2006 and 2005 ,
      respectively. A significant portion of the comprehensive income
      ( loss ) is
      attributable to changes in the fair value of the Company’s fixed maturity and
      equity portfolios. Equity securities comprised approximately 6.2% and 5.6%
      of the Company’s total assets as of June
      30,
      2006 and December
      31, 2005 ,
      respectively. Accordingly, movements in the equities markets can significantly
      affect the


16




Company’s
      financial position. Equity portfolio positions increased $610,000
      on a cost basis (net of $475,000 in other than temporary impairment write downs)
      and $438,000 on a market value basis, during the first six months of 2006.
      Fixed
      maturity portfolio positions decreased $7,46 0 ,000
      on
      an amortized cost basis and $12,676,000 on a market value basis during the
      same
      period. These decreases result from the disposal of high-yield, long duration
      fixed maturity securities in an effort to increase the risk adjusted capital
      levels of the Company’s insurance subsidiaries ,
      as well
      as the unrealized losses discussed above .
      Cash
      and cash equivalent positions increased, pending investment, approximately
      $4,258,000 during the six months ended June
      30,
      2006 .





The
      fixed
      maturities markets continue to be highly volatile and have been unfavorable
      in 2006 .
      Interest yields on fixed maturity investments held in our portfolio are
      continuing to slowly increase. Low short-term rates continue to adversely impact
      the Company’s investment portfolio yield and operating earnings. The 2006
      environment continues to generate a relatively high level of qualitative
      investment risk. However, measures of quantitative risk per unit of investment
      are not believed to have changed significantly from those previously disclosed
      in the Company’s 2005 Form 10-K.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





The
      Company does not participate in any off-balance sheet arrangements.





**CASH
      FLOWS AND LIQUIDITY**





Net
      cash
      provided by (used in) operating activities totaled $(1,879,000) for the six
      months ended June 30, 2006 compared
      to $55,000 for the same period in the prior year. The increase in the negative
      cash flow is primarily attributable to the decrease in premiums collected in
      the
      period. The $6,886,000 and
      $6,460,000 of
      net
      cash provided by investing activities for the six
      months ended June 30, 2006 and 2005, respectively resulted
      from the net decrease in the investment portfolio on a cost basis. The $744,000
      and $1,383,000 of net cash used in financing activities during the first six
      months of 2006  and
      2005,
      respectively ,
      is
      attributable to bank loan principal repayments, repurchases of Company common
      stock, and net annuity and Universal Life account withdrawals, offset by
      proceeds from additional borrowings from a related party. Regarding the
      currently scheduled bank debt repayments, the Company believes its available
      resources will be adequate to service 2006 debt obligations. The Company’s
      Chairman has expressed potential willingness to loan the Company an additional
      $640,000 if necessary, to service bank debt obligations through
      2007.





A
      summary
      of all known commitments of the Company as of June 30, 2006, including the
      aforementioned borrowings, and an estimate (based on reasonable assumptions
      and
      anticipated trends) of payments to be made for future policy benefits and
      contract claims, is as follows:


Payments
                  Due by PeriodLess
                  than
              
              
              
              
              
              More
                  thanContractual
                  Obligations
              
              Total
              
              1
                  Year
              
              1-3
                  years
              
              3-5
                  years
              
              5
                  yearsFuture
                  Policy Benefits and Contract Claims (a)
              
              $
              126,286,027
              
              $
              9,246,872
              
              $
              14,289,519
              
              $
              11,991,205
              
              $
              90,758,431Note
                  Payable to Bank
              
              
              695,837
              
              
              695,837
              
              
              -
              
              
              -
              
              
              -Note
                  Payable to Related Party
              
              
              4,561,650
              
              
              4,561,650
              
              
              -
              
              
              -
              
              
              -Operating
                  Leases
              
              
              92,982
              
              
              37,872
              
              
              55,110
              
              
              -
              
              
              -




(a)
            anticipated
                cash benefit payments not including any future earnings or additional
                premiums.





Management
      is not aware of any other commitments or unusual events that could materially
      affect the Company’s capital resources.




17




**FORWARD-LOOKING
      INFORMATION** .





All
      statements, trend analyses and other information contained in this report
      relative to markets for the Company’s products and trends in the Company’s
      operations or financial results, as well as other statements including words
      such as “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, and
      other similar expressions, constitute forward-looking statements under the
      Private Securities Litigation Reform Act of 1995. These forward-looking
      statements are subject to known and unknown risks, uncertainties and other
      factors which may cause actual results to be materially different from those
      contemplated by the forward-looking statements. Such factors include, among
      other things:





§
            the
                market value of the Company’s investments, including stock market
                performance and prevailing interest rate
                levels;


§
            customer
                and agent response to new products, distribution channels and marketing
                initiatives, including exposure to unrecoverable advanced
                commissions;


§
            mortality,
                morbidity, lapse rates, and other factors which may affect the
                profitability of the Company’s insurance products;


§
            regulatory
                changes or actions, including those relating to regulation of insurance
                products and insurance companies;


§
            ratings
                assigned to the Company’s insurance subsidiaries by independent rating
                organizations which the Company believes are important to the sale
                of its
                products;


§
            general
                economic conditions and increasing competition which may affect the
                Company’s ability to sell its
                products;


§
            the
                Company’s ability to achieve anticipated levels of operating efficiencies
                and meet cash requirements based upon projected liquidity sources;


§
            unanticipated
                adverse litigation outcomes; and


§
            changes
                in the Federal income tax laws and regulations that may affect the
                relative tax advantages of some of the Company’s products.





There
      can
      be no assurance that other factors not currently anticipated by management
      will
      not also materially and adversely affect the Company’s results of
      operations.





Part
      I; Item 3 - Quantitative and Qualitative Disclosures about Market
      Risk





**Quantitative
      and Qualitative Risk.** Market
      risk is the risk of change in the value of securities held in our portfolio
      as
      the result of changes in interest rates or equity prices. There have been no
      material changes in our market risk exposures from December 31, 2005, a
      description of which may be found in our Annual Report on Form 10-K for the
      year
      ended December 31, 2005, , Item 7, “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” in the section “Cash Flow and
      Liquidity.”




Part
      I; Item 4 - Controls and Procedures





**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES.** Within
      the past 90 days, the Company conducted an evaluation of its disclosure controls
      and procedures, with the supervision and participation of its Chief Executive
      Officer and Chief Financial Officer. The Company does not expect that its
      disclosure controls and procedures will prevent all errors and fraud. Such
      a
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Further, the design of a control system must balance the constraint
      of
      prudent resource expenditure with a judgmental evaluation of risks and benefits.
      Based on this evaluation of disclosure controls and procedures, including
      controls and procedures related to the new group administration system, the
      Company’s Chief Executive Officer and Chief Financial Officer have concluded
      that such controls and procedures provide reasonable assurance that material
      information required to be included in the Company’s periodic SEC reports is
      made known on a timely basis to the Company’s principal executive and financial
      officers.





**CHANGES
      IN INTERNAL CONTROLS.** There
      have been no significant changes in the Company’s internal controls or changes
      in other factors that could significantly affect these controls subsequent
      to
      their evaluation, nor has the Company implemented any corrective actions
      regarding significant deficiencies or material weaknesses in internal
      controls.




18





Part
      II - Other Information





Item
      2.
      Unregistered Sales of Equity Securities and Use of Proceeds.




Issuer
      Purchases of Equity Securities


Period
            Total
                Number of Shares Purchased
            Average
                Price Paid per Share
              (a
                )
            Total
                Number of Shares Purchased as part of Publicly Announced Plans or
                Programs
              (
                b
                )
            Approximate
                Dollar Value of Shares that May Yet be Purchased Under the Plans
                or
                Programs
              (
                b
                )April
                1, 2006 through April 30, 2006
            0
            $0.00
            0
            $99,733May
                1, 2006 through May31,
                2006
            0
            0
            0
            $599,733June
                1, 2006 through June 30, 2006
            6,000
            $6.54
            6,000
            $560,479Total
            6,000
            $6.54
            6,000





(a)
            The
                average price paid per share of stock repurchased under the stock
                repurchase program includes any commissions paid to the
                brokers.


(b)
            Repurchased
                pursuant to the stock repurchase program publicly announced on August
                12,
                1998 under which our Board of Directors authorized the repurchase
                of up to
                an aggregate of $1,200,000 of our common stock,amended
                November 12, 2002 to authorize the repurchase of an additional
                $250,000and further amended May 23, 2006 to authorize repurchase of an additional
                $500,000.
                Under the repurchase program, we may repurchase outstanding shares
                of our
                common stock from time to time in the open market and through privately
                negotiated transactions. Unless terminated earlier by resolution
                of our
                Board of Directors, the repurchase program will expire when we have
                repurchased all shares authorized for repurchase under the repurchase
                program.




Item
      6.
      Exhibits.




a).
      Exhibit 11  Statement
      re: computation of per share earnings.


Exhibit
      31.1  Rule
      13a-14(a)/15d-14(a) Certification --Principal Executive Officer


Exhibit
      31.2  Rule
      13a-14(a)/15d-14(a) Certification --Principal Financial Officer


Exhibit
      32.1  Section
      1350 Certification --Principal Executive Officer


Exhibit
      32.2  Section
      1350 Certification --Principal Financial Office




19











SIGNATURES








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














CITIZENS
                FINANCIAL CORPORATIONBY:
              /s/
                  Darrell R. WellsDarrell
                  R. WellsPresident
                  and Chief Executive OfficerBY:
              /s/
                  Len E. SchweitzerLen
                  E. SchweitzerTreasurer
                  and Chief Financial Officer




Date:
      August 14, 2006


20