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~~2009

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 T No o £

Indicate by check mark whether the registrant ishas asubmitted ~~large~~electronically ~~accelerated~~and ~~filer~~posted on its corporate Web site, ~~an accelerated~~if ~~filer~~any, orevery aInteractive ~~non-accelerated~~Data ~~filer.~~File ~~See~~required ~~definition~~to ofbe ~~“accelerated filer~~submitted and ~~large~~posted ~~accelerated~~pursuant ~~filer”~~to in Rule ~~12b~~405 of Regulation S-2T (Section 232.405 of this chapter) during the ~~Exchange~~preceding ~~Act.~~12 months (~~Check~~or for such shorter period that the registrant was ~~one~~required to submit and post such files):. Yes £ No £

~~Large~~Indicate by check mark whether the registrant is a large accelerated filer, oan ~~Accelerated~~accelerated filer, oa ~~Non~~non-accelerated filer, xor a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

~~Indicate by~~Large ~~check~~accelerated ~~mark~~filer ~~whether~~£ ~~the~~Accelerated ~~registrant~~filer is£ ~~a shell company (as defined in Rule 12b~~Non-2accelerated offiler ~~the~~£ ~~Exchange~~Smaller ~~Act).~~reporting ~~Yes~~company ~~o No x~~T

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

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

~~Class~~	Class	Outstanding at May 912, ~~2007~~2009
~~Common Stock ($2 par value)~~	Common Stock ($2 par value)	1,829,504

FORM 10-Q

CITIZENS FINANCIAL CORP.

Quarter Ended March 31, ~~2007~~2009

INDEX

		Page No.		~~Page No.~~
Part I.	Financial Information	~~Financial Information~~
	Item 1. Financial Statements	~~Item 1. Financial Statements~~
		Condensed Consolidated Balance Sheets March 31, 2007 and December 31, 2006		3
	Condensed Consolidated Balance Sheets March 31, 2009 and December 31, 2008		3
		Condensed Consolidated Statements of Income Three Months Ended March 31, 2007 and March 31, 2006		4
	Condensed Consolidated Statements of Income Three Months Ended March 31, 2009 and March 31, 2008		4
		Statements of Comprehensive Income/Loss Three Months Ended March 31, 2007 and March 31, 2006		5
	Consolidated Statements of Comprehensive Income/Loss Three Months Ended March 31, 2009 and March 31, 2008		5
		Condensed Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 2007 and March 31, 2006		6
	Condensed Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 2009 and March 31, 2008		6
		Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2007 and March 31, 2006		7
	Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2009 and March 31, 2008		7
	Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~	8-15	~~8 - 14~~
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~	16-22	~~14 - 20~~
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~Item~~Not ~~3. Quantitative and Qualitative Disclosures About Market Risk~~Applicable		21
	Item 4. Controls and Procedures	~~Item 4. Controls and Procedures~~	23	21
Part II.	Other Information and Index to Exhibits	~~Other Information and Index to Exhibits~~
	Items 1 through 6	~~Items 1 through 6~~	23	22
	Signatures	~~Signatures~~	24	23
	Certification by Executive Officers Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002	~~Certification by Executive Officers Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002~~	25-28	~~24 - 27~~

Index

PART I ITEM I - FINANCIAL INFORMATION

CITIZENS FINANCIAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	March 31,			December 31,
	March 31, 2009				December 31, 2008
	2007			2006
	(Unaudited)					*
	(Unaudited)			*
ASSETS
ASSETS
Cash and due from banks	$	4,623			$	3,943
Cash and due from banks	$	5,367		$	6,065
Interest bearing deposits with other banks		361				9,438
Interest bearing deposits with other banks		110			30
Securities available for sale, at fair value		70,342				80,859
Federal funds sold		500			-
Restricted Investments		1,924				1,192
Securities available for sale, at fair value		58,182			59,745
Loans, less allowance for loan losses of $2,225 and $2,232, respectively		173,971				175,721
Loans, less allowance for loan losses of $1,822 and $1,873, respectively		166,918			166,218
Premises and equipment, net		4,076				4,106
Premises and equipment, net		4,292			4,331
Accrued interest receivable		1,221				1,410
Accrued interest receivable		1,331			1,393
Other assets		5,295				5,865
Other assets		6,260			5,198
Total Assets	$	261,813			$	282,534
Total Assets	$	242,960		$	242,980
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Deposits:
Noninterest bearing	$	28,922			$	29,553
Noninterest bearing	$	26,658		$	27,103
Interest bearing		174,091				187,876
Interest bearing		171,236			169,440
Total deposits		203,013				217,429
Total deposits		197,894			196,543
Short-term borrowings		24,452				31,526
Short-term borrowings		18,036			19,833
Long-term borrowings		7,765				7,865
Long-term borrowings		3,157			3,512
Other liabilities		5,061				4,873
Other liabilities		3,247			2,814
Total liabilities		240,291				261,693
Total liabilities		222,334			222,702
Commitments and contingencies						-
Commitments and contingencies
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common stock, $2.00 par value, authorized 4,500,000 issued 2,250,000		4,500				4,500
Common stock, $2.00 par value, authorized 4,500,000 issued 2,250,000		4,500			4,500
Retained earnings		21,628				21,110
Retained earnings		21,077			20,843
Accumulated other comprehensive income/(loss)		(774	)			(937	)
Accumulated other comprehensive income/(loss)		(1,119	)		(1,233	)
Treasury stock at cost, 420,496 shares		(3,832	)			(3,832	)
Treasury stock at cost, 420,496 shares		(3,832	)		(3,832	)
Total shareholders' equity		21,522				20,841
Total shareholders' equity		20,626			20,278
Total Liabilities and Shareholders' Equity	$	261,813			$	282,534
Total Liabilities and Shareholders' Equity	$	242,960		$	242,980

*From audited financial statements.

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

Index

CITIZENS FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of dollars, except per share data)

	Three Months Ended
	Three Months Ended March 31,
	March 31,
	2009			2008
	2007		2006
	(Unaudited)
	(Unaudited)
INTEREST INCOME
INTEREST INCOME
Interest and fees on loans	$	2,656		$	3,123
Interest and fees on loans	$	3,300	$	3,014
Interest and dividends on securities:
Interest and dividends on securities:
Taxable		602			393
Taxable		495		546
Tax-exempt		208			211
Tax-exempt		104		75
Interest on interest bearing deposits with other banks		39			24
Interest on interest bearing deposits with other banks		21		5
Interest on federal funds sold		-			2
Interest on federal funds sold		5		17
Total interest income		3,505			3,753
Total interest income		3,925		3,657
INTEREST EXPENSE
INTEREST EXPENSE
Interest on deposits		1,040			1,514
Interest on deposits		1,414		1,033
Interest on short-term borrowings		117			126
Interest on short-term borrowing		166		146
Interest on long-term borrowings		74			31
Interest on long-term borrowing		37		48
Total interest expense		1,231			1,671
Total interest expense		1,617		1,227
Net interest income		2,274			2,082
Net interest income		2,308		2,430
Provision for loan losses		109			126
Provision for loan losses		207		103
Net interest income after provision for loan losses		2,165			1,956
Net interest income after provision for loan losses		2,101		2,327
NONINTEREST INCOME
NONINTEREST INCOME
Trust department income		66			84
Trust department income		54		47
Brokerage fees		20			48
Brokerage fees		37		31
Service fees		264			241
Service fees		236		190
Insurance commissions		11			2
Insurance commissions		-		4
Secondary market loan fees		39			13
Security losses		-		(18	)
Other		58			66
Secondary market loan fees		26		33
Total noninterest income		458			454
Other		88		92
NONINTEREST EXPENSE
Total noninterest income		441		379
Salaries and employee benefits		968			902
NONINTEREST EXPENSE
Net occupancy expense		116			116
Salaries and employee benefits		970		937
Equipment expense		91			99
Net occupancy expense		108		90
Data processing		160			147
Equipment expense		109		121
Director fees		70			60
Data processing		137		224
Postage		37			53
Director fees		63		64
Professional service fees		63			76
Postage		42		46
Stationery		37			29
Professional service fees		66		64
Software expense		69			65
Stationery		44		38
Other		359			253
Software expense		36		46
Total noninterest expenses		1,970			1,800
Other		320		247
Income before income taxes		653			610
Total noninterest expenses		1,895		1,877
Income tax expense		135			148
Income before income taxes		647		829
Net income	$	518		$	462
Income tax expense		194		259
Basic and fully diluted earnings per common share	$	0.28		$	0.25
Net income	$	453	$	570
Weighted average shares outstanding		1,829,504			1,829,504
Basic and fully diluted earnings per common share*	$	0.25	$	0.31
Dividends per common share	$	-		$	0.12
Weighted average shares outstanding*		1,829,504		1,853,964
Dividends 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.

Index

CITIZENS FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(In thousands of dollars)

	Three Months Ended
	Three Months Ended March 31
	March 31
	2009				2008
	2007			2006
	(Unaudited)
	(Unaudited)
Net income	$	518			$	462
Net income	$	453		$	570
Other comprehensive income:
Other comprehensive income:
Gross unrealized gains arising during the period		262				653
Gross unrealized gains/(losses) arising during the period		185			(66	)
Adjustment for income tax expense		(99	)			(248	)
Adjustment for income tax (expense)/benefit		(71	)		25
		163				405
		114			(41	)
Other comprehensive income, net of tax		163				405
Less: Reclassification adjustment for losses included in net income		-			18
Comprehensive income	$	681			$	867
Adjustment for income tax benefit		-			(7	)
		-			11
Other comprehensive income/(loss), net of tax		114			(30	)
Comprehensive income	$	567		$	540

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

Index

CITIZENS FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In thousands of dollars)

			Three Months Ended March 31, 2007 and 2006
				Three Months Ended March 31, 2009 and 2008
			~~(unaudited)~~	(unaudited)
	Common Stock					~~Additional Paid-in~~		Retained	~~Retained~~			Accumulated Other Comprehensive			~~Treasury~~	Treasury		~~Total Shareholders'~~		Total Share- holders'
	Shares		~~Amount~~	Amount		~~Capital~~		Earnings	~~Earnings~~			Income/(Loss)			~~Stock~~	Stock		~~Equity~~		Equity
Balance, January 1, 2007		2,250,000	$	4,500		$	-		$	20,843		$	(1,233	)	$	(3,832	)	$	20,278
Balance, January 1, 2009		2,250,000		$	4,500			$	21,110			$	(937	)		$	(3,832	)		$	20,841
Net income		-		-	-		-		518	~~453~~			-			-	-		~~453~~		518
Net change in unrealized gain/loss on securities		-		-	-		-		-	-			~~114~~163			-	-		~~114~~		163
Cash dividends declared ($0.12 per share)		-		-			-			(219	)		-			-			(219	)
Balance March 31, 2009		2,250,000		$	4,500			$	21,628			$	(774	)		$	(3,832	)		$	21,522
Balance March 31, 2007		2,250,000	$	4,500		$	-		$	21,077		$	(1,119	)	$	(3,832	)	$	20,626
Balance, January 1, 2008		2,250,000		$	4,500			$	20,999			$	(586	)		$	(3,832	)		$	21,081
Balance, January 1, 2006		750,000	$	1,500		$	2,100		$	20,704		$	(1,316	)	$	(3,375	)	$	19,613
Net income		-			-				462				-				-				462
Net income		-		-			-			570			-			-			570
Net change in unrealized gain/loss on securities		-			-				-				405				-				405
Net change in unrealized gain/loss on securities		-		-			-			-			(30	)		-			(30	)
Cash dividends declared ($0.12 per share)		-			-				(219	)			-				-				(219	)
Cash dividends declared ($0.12 per share)		-		-			-			(222	)		-			-			(222	)
Adjustment to initially apply emerging issues task force issue No. 06-4, net of tax		-			-				(86	)			-				-				(86	)
Stock split effected in the form of a 200% stock dividend		1,500,000		3,000			(2,100	)		(900	)		-			-			-
Balance March 31, 2008		2,250,000		$	4,500			$	21,156			$	(181	)		$	(3,832	)		$	21,643
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.

Index

CITIZENS FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

	Three Months Ended
	Three Months Ended March 31,
	March 31,
	2009				2008
	2007			2006
	(Unaudited)
	(Unaudited)
Cash flows from operating activities:
Cash flows from operating activities:
Net Income	$	518			$	462
Net Income	$	453		$	570
Adjustments to reconcile net income to cash provided by operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses		109				126
Provision for loan losses		207			103
Depreciation and amortization		77				80
Depreciation and amortization		82			101
Amortization/(accretion) on securities		(2	)			(1	)
Amortization on securities		11			22
Loss on disposal of equipment		-				1
Loss on sale of securities		-			18
Loss on sale of other real estate		4				-
Loss on sale of OREO		-			4
Decrease in accrued interest receivable		189				802
(Increase)/decrease in accrued interest receivable		62			(98	)
(Increase)/decrease in other assets		351				(1,030	)
Decrease in other assets		88			142
Increase in other liabilities		188				827
Increase in other liabilities		433			353
Cash provided by operating activities		1,434				1,267
Cash provided by operating activities		1,336			1,215
Cash flows from investing activities:
Cash flows from investing activities:
Principal payments on available for sale securities		1,572				584
Principal payments on available for sale securities		362			385
Proceeds from sales of available for sale securities		-				326
Proceeds from sales of available for sale securities		155			2,493
Proceeds from maturities and calls, available for sale securities		9,210				5,740
Proceeds from maturities and calls, available for sale securities		4,820			2,500
Purchases of available for sale securities		(733	)			(12,079	)
Purchases of available for sale securities		(3,600	)		(3,045	)
Proceeds from sale of other real estate		125				-
Purchases of premises and equipment		(3943	)		~~(71~~	)(51	)
Proceeds from sale of other real estate owned		-			64
(Increase)/decrease in loans		1,628				(1,577	)
Increase in loans		(2,132	)		(4,620	)
Cash provided/(used) by investing activities		11,759				(7,057	)
Cash used in investing activities		(434	)		(2,294	)
Cash flows from financing activities:
Cash flows from financing activities:
Cash dividends paid		-				(219	)
Cash dividends paid		(219	)		(222	)
Decrease in short-term borrowing		(7,074	)			(1,412	)
Increase/(decrease) in short-term borrowing		(1,797	)		3,675
Repayment of long-term borrowing		(100	)			(93	)
Repayment of long-term borrowing		(355	)		(516	)
Increase/(decrease) in time deposits		(13,624	)			3,250
Increase in time deposits		119			973
Increase/(decrease) in other deposits		(792	)			3,126
Increase/(decrease) in other deposits		1,232			(5,780	)
Cash provided/(used) by financing activities		(21,590	)			4,651
Cash used in financing activities		(1,020	)		(1,870	)
Net decrease in cash and cash equivalents		(8,397	)			(1,139	)
Net decrease in cash and cash equivalents		(118	)		(2,949	)
Cash and cash equivalents at beginning of period		13,381				7,062
Cash and cash equivalents at beginning of period		6,095			8,773
Cash and cash equivalents at end of period	$	4,984			$	5,923
Cash and cash equivalents at end of period	$	5,977		$	5,824
Supplemental disclosure of cash flow information:
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Cash paid during the period for:
Interest	$	1,178			$	1,643
Interest	$	1,612		$	1,220
Income taxes	$	26			$	-
Income taxes	$	38		$	112
Supplemental disclosure of noncash investing and Financing activities:
Supplemental disclosure of noncash investing and Financing activities:
Other real estate and other assets acquired in settlement of loans	$	13			$	44
Other real estate and other assets acquired in settlement of loans	$	1,224		$	-
Unrealized gain on securities available for sale	$	262			$	653

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

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 financial 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~~ 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~~2009 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~~2008 Annual Report to Shareholders and Form 10-K.

NOTE 2 ~~- DECLARATION OF~~– ~~STOCK SPLIT~~RECLASSIFICATIONS

~~On March 7,~~Certain ~~2006~~accounts ~~Citizens board of directors declared a stock split which was paid on April 14, 2006~~ in the ~~form~~condensed ofconsolidated afinancial ~~200%~~statements ~~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~~2008, ~~which~~as ~~is neither~~previously ~~widely held or widely traded~~presented, ishave anbeen ~~over~~reclassified ~~the~~to ~~counter~~conform ~~bulletin board stock~~ with ~~the~~current ~~symbol~~year ~~CIWV~~classifications.~~OB.~~

~~Distribution of~~NOTE ~~this~~3 ~~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.~~ SECURITIES

~~NOTE 3~~The ~~- RECLASSIFICATIONS~~amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at March 31, 2009 and December 31, 2008 are summarized as follows (in thousands):

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

	March 31, 2009
	Amortized Cost		Unrealized Gains		Unrealized Losses		Carrying Value (Estimated Fair Value)
	(Unaudited)
Available for sale:
U.S. Government agencies and corporations	$	23,452	$	681	$	-	$	24,133
Mortgage backed securities- U.S. Government agencies and corporations		19,707		632		7		20,332
Corporate debt securities		2,996		9		143		2,862

Tax exempt state and political subdivisions		22,371		646		2		23,015

Total securities available for sale	$	68,526	$	1,968	$	152	$	70,342

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):

Index

	March 31, 2007
	December, 31, 2008*
	Amortized Cost		~~Unrealized Gains~~	Unrealized Gains		~~Unrealized Losses~~		Unrealized Losses	~~Carrying Value (Estimated Fair Value)~~		Carrying Value (Estimated Fair Value)
	(Unaudited)
Available for sale:
U.S. Government agencies and corporations	$	3730,~~096~~192	$	24$	726	$	~~273~~	$	$-	~~36,847~~	$	30,918
Mortgage backed securities- U.S. Government agencies and corporations		821,~~009~~032		5	554		~~118~~		11	~~7,896~~		21,575
Tax exempt state and political subdivisions		12,720		21			85			12,656
Corporate debt securities		5,133			1				59			5,075
Federal Reserve Bank stock		108		-			-			108
Tax exempt state and political subdivisions		22,948			391				49			23,291
Federal Home Loan Bank stock		675		-			-			675
Total securities available for sale	$	79,305		$	1,672			$	119		$	80,859
Total securities available for sale	$	58,608	$	50		$	476		$	58,182

	December, 31, 2006*
	Amortized Cost		Unrealized Gains		Unrealized Losses		Carrying Value (Estimated Fair Value)
	(Unaudited)
Available for sale:
U.S. Government agencies and corporations	$	41,921	$	5	$	415	$	41,511
Mortgage backed securities- U.S. Government agencies and corporations		8,374		-		149		8,225
Tax exempt state and political subdivisions		9,183		16		68		9,131
Federal Reserve Bank stock		108		-		-		108
Federal Home Loan Bank stock		770		-		-		770
Total 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~~2009 and December 31, ~~2006~~2008. As of March 31, ~~2007~~2009, these securities had a total fair value of $484,~~160~~172,000 and carried unrealized losses of $~~476~~152,000, or 03.996%. Securities which have been in a ~~continuous~~ continuous loss position for the past twelve months total $411,~~302~~557,000. The unrealized loss pertaining to these securities is $~~443~~8,000 or 10.075%. Securities ~~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. All ~~The~~of ~~other~~the ~~losses~~corporate ~~are~~and on municipal instruments. ~~With the exception of one municipal which is not rated, all of these instruments~~ carry Ainvestment grade ratings from the major credit rating agencies. The Wequality ~~believe~~of ~~that these unrealized losses are~~ the ~~result of changing interest rates and that~~issuer, ~~along~~as ~~with~~well as 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 $546,~~092~~184,000 of securities that carried unrealized losses at December 31, ~~2006~~ 2008.

	March 31, 2009
	Securities Available for Sale
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	-	$	-	$	-	$	-	$	-	$	-
Mortgage backed securities-
U.S. Government agencies and corporations		263		1		388		6		651		7
Corporate debt securities		2,352		143		-		-		2,352		143
Tax exempt state and political subdivisions		-		-		1,169		2		1,169		2
Total securities available for sale	$	2,615	$	144	$	1,557	$	8	$	4,172	$	152

Index

	March 31, 2007
	December 31, 2008*
	Securities Available for Sale
	Less Than 12 Months					~~12 Months or More~~		12 Months or More			~~Total~~			Total
	Fair		Unrealized			Fair			Unrealized		Fair		Unrealized
	Fair Value			Unrealized Losses				Fair Value			Unrealized Losses			Fair Value		Unrealized Losses
	Value		Losses			Value			Losses		Value		Losses
U.S. Government agencies and corporations	$	-		$	-			$	-		$	-		$	-	$	-
U.S. Government agencies and corporations	$	2,349	$	4		$	28,972		$	269	$	31,321	$	273
Mortgage backed securities- U.S. Government agencies and corporations		-			-				660			11			660		11
Mortgage backed securities- U.S. Government agencies and corporations		-		-			6,871			118		6,871		118
Corporate debt securities		3,436			59				-			-			3,436		59
Tax exempt state and political subdivisions		~~4,509~~639		29	9		~~5,459~~		1,449	56		~~9,968~~41		85	2,088		49
Total securities available for sale	$	64,~~858~~075	$	33$	68	$	~~41,302~~	$	$2,109	~~443~~	$	~~48,160~~52	$	~~476~~$	6,184	$	119

	December 31, 2006*
	Securities Available for Sale
	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
U.S. Government agencies and corporations	$	5,332	$	13	$	33,264	$	401	$	38,596	$	414
Mortgage backed securities- U.S. Government agencies and corporations		2,783		10		5,327		139		8,110		149
Tax exempt state and political subdivisions		3,441		18		3,945		51		7,386		69
Total 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~~2009 are summarized as follows (in thousands):

	Available for sale
	Amortized		Estimated
	Amortized Cost			Estimated Fair Value
	Cost		Fair Value
Due within 1 year	$	13,038		$	13,191
Due within 1 year	$	19,154	$	19,001
Due after 1 but within 5 years		35,858			36,787
Due after 1 but within 5 years		34,715		34,461
Due after 5 but within 10 years		19,630			20,364
Due after 5 but within 10 years		2,966		2,942
	$	68,526		$	70,342
Equity securities		1,773		1,778
	$	58,608	$	58,182

Mortgage backed securities have remaining contractual maturities ranging from 4 months to 14 19 years ~~11 months~~ and are reflected in the maturity distribution schedule shown above based on their anticipated average life to maturity, which ranges from 0.3619 to 4.6784 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~~2009 and ~~2005~~ 2008 are as follows (in thousands):

	Proceeds From								~~Gross Realized~~		Gross Realized
	Sales		Calls and Maturities			Principal Payments			Gains		Losses
				Calls and				Principal
March 31, 2007:
	Sales			Maturities				Payments			Gains		Losses
Securities available for sale	$	155	$	4,820		$	362		$	-	$	-
March 31, 2009:
March 31, 2006:
Securities available for sale	$	-		$	9,210			$	1,572		$	-	$	-
Securities available for sale	$	2,493	$	2,500		$	385		$	-	$	18
March 31, 2008:
Securities available for sale	$	326		$	5,740			$	584		$	-	$	-

At March 31, 2009 and December 31, 2008 securities with an amortized cost of $46,145,000 and $44,446,000, respectively, with estimated fair values of $47,475,000 and $45,375,000, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

At March 31, 2009 and December 31, 2008 our securities portfolio contained no concentrations within any specific industry or issuer.

The company’s restricted investments totaled $1,924,000 and $1,192,000 at March 31, 2009 and December 31, 2008, respectively. These include equity investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, and Silverton Financial Services Inc. stock. Such securities are carried at cost, since they may only be sold back to the respective issuer or another member.

Silverton Financial Services Inc. is the holding company of Silverton Bank, NA. Silverton Bank was taken into receivership by the FDIC on May 1, 2009. It is probable that this investment will be impaired. However, we are currently uncertain of the extent of the impairment as Silverton Financial Services Inc. has several business units that performed various services such as capital markets, bond accounting, insurance services, advisory, and consulting services. Over the next several weeks we will learn more about our equity position in the company. Once this information becomes available we will record the proper adjustment to our investment which currently totals $163,000.

Index

~~At March 31,~~NOTE ~~2007~~4 ~~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.LOANS

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
	March 31, 2009				December 31, 2008
	(Unaudited)			*		*
Commercial, financial and agricultural	$	2421,~~946~~408		$	~~26,969~~$	20,262
Real estate - construction		813,~~135~~129			~~13,965~~	13,832
Real estate - home equity		7,862			7,985
Real estate – home equity		6,225				6,411
Real estate - residential mortgage		60,058			61,401
Real estate – residential mortgage		62,643				62,695
Real estate - commercial mortgage		55,796			45,579
Real estate – commercial mortgage		58,236				59,806
Installment loans		10,~~333~~909			~~10,635~~	11,424
Other		13,~~702~~736			~~1,611~~	3,624
Total loans		~~168~~176,~~832~~286			~~168,145~~	178,054
Net deferred loan origination fees and costs		(92	)		(54	)
Less:
Total		168,740			168,091
Allowance for loan losses		2,225				2,232
Less allowance for loan losses		1,822			1,873
Net deferred loan origination fees and costs		90				101
Loans, net	$	~~166~~173,~~918~~971		$	~~166,218~~$	175,721

* From audited financial statements

~~At March 31,~~Loans ~~2007 our recorded investment~~ in ~~impaired~~a ~~loans~~nonaccrual ~~was~~status were $35,~~905~~629,~~883.~~000 ~~The~~and ~~valuation allowance assigned to these loans totaled~~ $15,~~004~~472,~~590.~~000 ~~Our~~at ~~average~~March ~~investment in the impaired loans was $4~~31,~~033,171~~ ~~during~~2009 ~~the~~and ~~quarter.~~December ~~The amount of interest income recorded on them in the first quarter was $84~~31,~~821~~ ~~while the amount of interest collected was $67~~2008,~~083.~~ respectively.

~~Impaired~~Many of our loans in a nonaccrual status are also considered impaired. At March 31, 2009, our recorded investment in impaired loans was $5,299,000. The valuation allowance assigned to these loans totaled $489,000. Our average investment in the impaired loans was $5,303,000 during the quarter. The amount of interest income recorded on them in the first quarter was $5,000 while the amount of interest collected was $22,000. Impaired loans at December 31, ~~2006~~2008 were $54,~~147~~997,~~663~~000.

~~Loans in a~~NOTE ~~nonaccrual~~5 ~~status~~- ~~were~~ALLOWANCE ~~$3,804,646~~FOR ~~and~~LOAN ~~$2,208,400 at March 31, 2007 and December 31, 2006, respectively.~~LOSSES

~~NOTE 6~~Analyses ~~- ALLOWANCE FOR~~of ~~LOAN~~the ~~LOSSES~~allowance for loan losses are presented below (in thousands):

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

	Three Months Ended March 31,
	2009		2008

Balance at beginning of period	$	2,232	$	1,763

Loans charged off:
Commercial and industrial		3		-
Real estate – residential mortgage		-		11
Real estate – commercial mortgage		115		-
Consumer and other		7		-
Total		125		11

Recoveries:
Commercial and industrial		-		42
Real estate – residential mortgage		-		1
Real estate – commercial mortgage		2		-
Consumer and other		7		-
Total recoveries		9		43

Net losses/(recoveries)		116		(32	)

Provision for loan losses		109		126
Balance at end of period	$	2,225	$	1,921

thousands):

	Three Months Ended
	March 31,
	2007		2006
Balance at beginning of period	$	1,873	$	1,597
Loans charged off:
Commercial and industrial		85		-
Real estate - residential mortgage		47		-
Real estate - commercial mortgage		120		-
Consumer and other		19		2
Total		271		2
Recoveries:
Commercial and industrial		-		-
Real estate - residential mortgage		-		-
Real estate - commercial mortgage		-		-
Consumer and other		13		4
Total recoveries		13		4
Net losses/(recoveries)		258		(2	)
Provision for loan losses		207		103
Balance at end of period	$	1,822	$	1,702

Index

NOTE 7 6 - DEPOSITS

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

	March 31, 2007		December 31, 2006
	March 31, 2009			December 31, 2008
	(Unaudited)		*		*
Interest bearing checking	$	4434,~~270~~856	$	~~41,768~~$	35,106
Money market accounts		5,~~640~~684		~~5,979~~	5,719
Savings accounts		22,~~260~~221		~~22,746~~	22,097
Certificates of deposit under $100,000		6068,~~885~~874		~~59,950~~	73,692
Certificates of deposit of $100,000 or more		3842,~~181~~456		~~38,997~~	51,262
Total	$	~~171~~174,~~236~~091	$	~~169,440~~$	187,876

* From audited financial statements

NOTE 8 7 - BORROWINGS

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

	March 31, 2007		December 31, 2006
	March 31, 2009			December 31, 2008
	(Unaudited)		*		*
Short-term borrowings:
Securities sold under agreements to repurchase	$	1822,~~036~~552	$	~~15,970~~$	28,786
Federal funds purchased		-		~~425~~	1,500
Overnight advances from Federal Home Loan Bank of Pittsburgh (FHLB) line of credit		-1,900		~~3,438~~	1,240
Total	$	1824,~~036~~452	$	~~19,833~~$	31,526
Long-term borrowings:
Advances from FHLB	$	37,~~157~~765	$	~~3,512~~$	7,865

* From audited financial statements

NOTE 9 8 - 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 Benefits~~		Other Benefits
	2007			2006			2007			2006
	2009				2008				2009			2008
Service cost	$	2934		$	29$	29	$	5	$	$4	6	$	4
Interest cost		7285			66	74		7		8	8		8
Expected return on plan assets		(8389	)		~~(82~~	)(88	)	-		-	-		-
Net amortization and deferral		2028			18	14		2		3	4		3
Net periodic cost	$	3858		$	31$	29	$	14	$	$15	18	$	15

Index

~~A payment of~~In ~~$70,000~~the ~~was~~first ~~made~~quarter toof ~~the~~2009 ~~pension~~we ~~plan~~contributed in$29,000 ~~2006~~to ~~for~~our ~~the~~pension ~~2004~~ plan ~~year~~. ~~In the first~~Payments ~~quarter~~totaling of$209,000 ~~2007~~were we contributed ~~$16,000~~to ~~for~~the plan ~~year~~during ~~2006~~2008. During ~~the remainder~~2009 ~~of 2007~~ we expect to ~~contribute~~make an additional ~~$96,000~~contributions ~~and~~totaling $64701,000 ~~for plan years 2006 and 2005, respectively~~.

NOTE 10 9 - COMMITMENTS AND CONTINGENCIES

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

NOTE 11 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The subsidiary bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the bank has in particular classes of financial instruments.

Financial instruments whose contract	March 31, ~~2007~~2009		~~December 31, 2006~~	December 31, 2008
amounts represent credit risk	(unaudited)		*		*
(in thousands)
Commitments to extend credit	$	2223,~~224~~086	$	~~22,054~~$	25,319
Standby letters of credit		~~662~~802		~~462~~	751
Total	$	2223,~~886~~888	$	~~22,516~~$	26,070

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 11 - 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~~2009 and ~~2006~~2008 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~~2009 and ~~2006~~2008 the company did not have any dilutive securities.

NOTE 13 ~~- SIGNIFICANT NEW~~12 ~~ACCOUNTING~~– ~~PRONOUNCEMENTS~~FAIR VALUE MEASUREMENTS

~~In September~~SFAS ~~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, inestablishes ~~generally~~a ~~accepted accounting~~three-level ~~principles,~~valuation ~~and~~hierarchy ~~expands~~for ~~disclosures~~disclosure ~~about~~of fair value ~~measurements. SFAS~~measurement ~~157~~and ~~does~~enhances ~~not~~disclosure ~~require~~requirements ~~any~~for ~~new~~ fair value measurements. ~~but~~The ~~may~~valuation ~~change current practice~~hierarchy ~~for~~is ~~some~~based ~~entities.~~upon ~~This~~the ~~Statement~~transparency isof ~~effective~~inputs ~~for~~to ~~financial~~the ~~statements~~valuation ~~issued~~of ~~for~~an ~~fiscal~~asset ~~years~~or ~~beginning~~liability ~~after~~as ~~November~~of ~~15,~~the ~~2007~~measurement ~~and interim periods within those years~~date. The ~~company~~three ~~does~~levels ~~not~~are ~~expect~~defined ~~the~~as ~~implementation of SFAS 157 to have a material impact on its consolidated financial statements.~~follow:

Level 1

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

Level 2

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

Index

~~In February~~Level ~~2007,~~3 ~~The~~Inputs ~~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~~valuation tomethodology ~~mitigate volatility~~are inunobservable ~~reported earnings caused by measuring related assets~~ and ~~liabilities~~ ~~differently~~significant ~~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~~measurement. 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.

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

Securities

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

Impaired loans

SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral. At March 31, 2009, impaired loans totaled $5,299,000. Additional information related to impaired loans can be found in Note 4.

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of SFAS No. 157. At March 31, 2009 OREO totaled $78,000.

NOTE 13 – SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)). The Standard significantly changed the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements, at this time.

In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The company does not expect the adoption of FSP FAS 141(R)-1 to have a material impact on its consolidated financial statements.

Index

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier adoption is permitted for periods ending after March 15, 2009. The company does not expect the adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. The FSP is effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The company does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The company does not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a material impact on its consolidated financial statements.

In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB Series entitled “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities.” SAB 111 maintains the SEC Staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The company does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.

NOTE 14 – SALE OF TWO BRANCHES

On January 13, 2009, Citizens entered into an agreement to sell two of its branches to Pendleton Community Bank. The agreement was filed on Form 8-K dated January 15, 2009. This transaction closed on April 17, 2009, and the results of this transaction will be included in our Form 10-Q for June 30, 2009.

Index

Part 1 Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following discussion and analysis presents the significant changes in financial condition and results of operations of Citizens Financial Corp. and its subsidiary, Citizens National Bank of Elkins for the periods indicated. It should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document. Readers are also encouraged to obtain our Annual Report on Form 10-K for additional information. You may obtain our Form 10-K through various internet sites including www.cnbelkins.com.

Description of Business

Citizens Financial Corp. is a $~~243~~262 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~~ 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, changing regulation and ~~others~~government policies affecting bank holding companies and their subsidiaries, including changes in monetary policies negatively impacting our operating results, dealing with the current economic environment which poses significant challenges, our ability to absorb events arising out of a continued deterioration in the financial condition of the U.S. banking system resulting in actual losses or other than temporary impairment on the valuations of investments we have made in the securities of other financial institutions, 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.

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~~ 2008 Annual Report to Shareholders and Form 10-K.

Index

The allowance for loan losses represents our estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, the estimated amount of losses in pools of homogeneous loans, and the effect of various economic and business factors, all of which may be subject to significant change. Due to these uncertainties, as well as the sensitivity of our financial statements to the assumptions and estimates needed to determine the allowance, we have identified the determination of the allowance for loan losses as a critical accounting estimate. As such, it could be subject to revision as new information becomes available. Should this occur, changes to the provision for loan losses, which may increase or decrease future earnings, may be necessary. A discussion of the methods we use to determine our allowance for loan losses is presented later in this report.

OVERVIEW

~~Net income~~The ~~for~~current recession continues to have a significant impact on the ~~first~~banking ~~quarter~~industry ~~was~~and ~~$117,000~~our ornational 20economy.5% The ~~less~~recession ~~than~~has ~~first~~driven ~~quarter income~~consumers ~~last~~to ~~year.~~reduce ~~The~~spending ~~decrease~~and ~~was~~in-turn ~~primarily~~prompted ~~attributable~~companies to ~~higher~~respond ~~levels~~by cutting expenses through significant reductions in labor force. While our local economy does not usually experience the same level of ~~interest~~ ~~expense~~contraction as the ~~cost~~national toeconomy, ~~retain~~local ~~certificates~~industries ofsuch ~~deposits~~as ~~has~~lumber, ~~risen over the~~trucking, ~~last~~and ~~twelve~~tourism ~~months~~are ~~and~~seeing anreduced ~~increase~~demand. This inhas ~~our~~prompted ~~provision~~local ~~for~~layoffs ~~loan~~and ~~losses~~reductions in consumer spending. With all of ~~$104~~ the uncertainty in the economy,~~000~~ ~~made~~local ~~necessary~~loan bydemand ~~higher~~continues ~~charge-offs~~to be depressed.

~~Total assets~~In ~~remained~~the ~~constant~~first ~~this~~ quarter, atwe transferred $~~243~~14.6 million, ~~while~~in ~~loans~~deposits ~~increased slightly~~of byone ~~$687,000~~customer toout ~~$168.8~~of ~~million~~the ~~from~~bank ~~year~~and ~~end.~~into ~~Deposits~~the ~~increased by $1~~CDARS network. In addition,~~351,000~~ tothere was a $~~197~~7.91 million asdecrease ~~expected.~~in ~~With~~our ~~the~~borrowings ~~lower~~as ~~loan~~our ~~demand~~repurchase ~~that we have~~agreements experienced ina ~~the~~seasonal ~~first~~decline. In ~~quarter~~order to fund these liability reductions, we reduced our ~~certificate~~short-term CD ofinvestments ~~deposit offering~~and ~~rates~~securities portfolio. Therefore, at March 31, 2009, Citizens had $261.8 million in ~~order~~total toassets, ~~slow~~which ~~deposit~~is ~~growth~~down ~~and~~$20.7 ~~control~~million ~~increasing~~from ~~deposit costs~~year-end.

~~A more detailed~~During ~~discussion~~the first three months of ~~the~~2009, ~~factors~~Citizens ~~impacting~~earned ~~our~~$518,000, ~~results~~which ofis ~~operations~~$56,000 ~~and financial~~or ~~condition~~12% ~~follows.~~more ~~Amounts~~than ~~and~~the ~~percentages~~first ~~used~~quarter of 2008. The increase in ~~that~~earnings ~~discussion have~~is ~~been~~primarily ~~rounded.~~driven by an increase in net interest income.

A more detailed discussion of the factors impacting our results of operations and financial condition follows. Amounts and percentages used in that discussion, as well as in this overview, 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.

15With the Federal funds rate effectively reduced to zero in 2008, maintaining a solid net interest margin has become increasingly important as downward pressure continues on our earning asset bases. Citizens continues to take steps to maintain our net interest margin. The margin for the first quarter of 2009 was 3.77%, which is similar to the first quarter of 2008 at 3.76%. Net interest income has increased by $192,000 to $2,274,000 for the first quarter of 2009 compared to first quarter of 2008. These positive results are a reflection of our ability to reduce the cost of interest bearing liabilities by 110 basis points, while the yield on earning assets declined by the lesser amount of 93 basis points when comparing the first quarter of 2009 to 2008. Our reduction in the cost of interest bearing liabilities was accomplished by lowering certificate of deposit offering rates and transferring the large deposit, mentioned in the Overview, out of the bank.

Index

~~The first quarter~~As ~~net~~the ~~interest~~economic ~~margin~~recession ofcontinues ~~4.19%~~with isrates ~~similar~~at tohistorically ~~our~~low ~~peer banks’ average margin of 4.23%~~levels, ~~however,~~Citizens itwill iscontinue 31to ~~basis~~seek ~~points~~ways ~~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~~lower ~~competitive in~~ our ~~markets with~~ ~~certificate~~cost of ~~deposit~~interest ~~rates.~~bearing Weliabilities ~~have recently reduced the rates on some of our certificates of deposits~~ in order to ~~curb~~maintain ~~further~~a ~~compression~~strong innet ~~the short-term~~interest margin.

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~~ provision for loan losses was $~~207~~109,000 and $~~103~~126,000 in the first quarter of ~~2007~~ 2009 and ~~2006~~2008, 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 ~~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 first quarter of 2009 of $~~441~~458,000 ~~increased~~is similar to the $62454,000, orwe ~~16.4%,~~earned ~~from~~in the first quarter of ~~2006~~2008. The ~~This~~largest ~~increase~~component isof ~~generally~~noninterest ~~consistent~~income ~~with~~is ~~that~~service offees ~~the~~which ~~previous year.~~totaled ~~Income~~$264,000 for the first quarter ~~exceeded~~of ~~our~~2009. Service ~~expectations~~fees increased by ~~approximately~~$23,000 due to additional overdraft fee income. Fees from our secondary market loan program have increased by $3326,000 to $39,000 as customers have chosen to take advantage of refinancing mortgages at historically low rates. In addition, insurance commissions increased $9,000 to $11,000 as we began processing through a new title insurance company and improved the profitability of this service in the latter part of 2008.

~~The largest~~Our ~~component~~trust ofservices ~~noninterest~~ income isdecreased ~~service~~$18,000 ~~fees~~to ~~which totaled~~ $~~236~~66,000 for the quarter. ~~Services~~compared ~~fees~~to ~~increased~~the bysame quarter last year. Similarly, brokerage income decreased $4628,000 ~~due~~ to $1720,000 ~~increase in overdraft~~over ~~fees,~~the assame ~~well~~periods. We asbelieve anthese ~~additional~~declines ~~$29,000~~are inmarket ~~ATM~~related ~~fees.~~and ~~The~~expect ~~increase in ATM~~income ~~fees~~from isthese ~~attributable~~services to ~~our~~improve ~~recent~~as ~~expansion~~the ofeconomy ~~our ATM network with~~recovers. Both ~~the addition~~ of ~~three~~these ~~machines~~services ~~that~~continue ~~became~~to ~~operational~~make inimportant ~~January~~contributions ~~2007.~~to Innoninterest ~~addition, our~~income ~~brokerage program~~ and ~~trust~~strengthening ~~department~~customer ~~added a combined $13,000 to the increase~~relationships.

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. As ~~Therefore~~previously reported on Form 8-K filed on January 15, 2009, Citizens entered into an agreement to sell two of its branches to Pendleton Community Bank. This transaction closed on April 17, 2009, and we expect this sale to improve our noninterest expenses. Nonetheless, controlling noninterest expense is a key factor to achieving higher earnings.

Noninterest expense increased 9% or $170,000 to $1,970,000 for the first quarter of ~~2007~~2009. The ~~was~~largest component of noninterest expense is salaries and employee benefits. These personnel costs increased $166,~~895,~~000, upto $18968,000 oras ~~1.0% from last~~we ~~year~~experienced higher medical insurance and ~~approximately~~pension ~~$13~~costs. In addition,~~000~~ ~~lower~~other ~~than~~noninterest expense ~~expected~~increased ~~for~~by ~~the~~$106,000 ~~first~~to ~~quarter~~$359,000. We The ~~continue~~primary toreasons ~~see~~for ~~higher~~this ~~levels~~increase ofwas ~~expense~~an asincrease wein ~~have~~FDIC ~~improved~~insurance ~~our~~costs ~~internal audit~~of ~~function~~$30,000 and ~~loan~~$33,000 ~~review~~of ~~function~~costs byassociated ~~outsourcing~~with ~~these~~improper todebit ~~experienced firms.~~card Wetransactions ~~are~~resulting ~~also~~from ~~continuing to use~~ the ~~services~~Heartland ofPayment aSystems ~~management~~security ~~consultant to help~~breach. Heartland usPayment ~~improve~~Systems ~~our~~has ~~operational~~no ~~structure~~affiliation ~~and~~with ~~gain~~Citizens; ~~additional~~however, ~~efficiency in~~they ~~our operations.~~are Wea ~~believe~~card ~~these~~processor ~~improvements~~for ~~will~~thousands ~~continue~~of tomerchants ~~make~~across usthe acountry ~~stronger bank~~ and ~~will~~their ~~dovetail~~breach ~~into~~impacted ~~our~~a ~~cost~~number ~~control~~of ~~objectives~~our cardholders.

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.

Index

There are a number of factors which could negatively impact noninterest expense in the future. For example, costs associated with foreclosed properties could increase if foreclosure activity increases. Medical claims under our partially self-insured group medical plan may increase. Also, we may incur additional costs related to compliance with the Sarbanes-Oxley Act. Currently we are required to comply with Section 404(a) of the Act and issue a conclusion about management’s assessment of internal control over financial reporting. We expect that we will become subject to Section 404(b) in 2009, and will be required to have our independent auditors attest to our conclusions. This will likely increase our legal and professional expenses. In addition, the cost of FDIC insurance may increase as the FDIC continues to assist failing banks in the current economic environment.

INCOME TAXES

Our provision for income taxes for the first quarter of 2009 of $135,000 includes both federal and state income taxes. At this level taxes were 20.7% of pretax income. The effective tax rate for the first quarter of 2008 was 24.3% at $148,000. Except for income earned on loans to and bonds issued by municipalities and earnings on certain life insurance policies, all of our income is taxable.

FINANCIAL CONDITION

LOAN PORTFOLIO

~~Throughout the~~Our ~~first~~lending ~~quarter~~activity ofcontinues ~~2007~~to ~~our~~be effected by the economic ~~climate~~recession ~~has~~that ~~been~~our ~~relatively~~nation ~~calm~~is ~~and somewhat~~currently ~~subdued~~facing. The Ahousing ~~slowdown~~crisis inhas affected the ~~housing~~local ~~market~~lumber and ~~rising~~trucking ~~fuel~~industries, ~~prices have combined~~while togeneral ~~reduce~~economic uncertainty has reduced tourism activity. Consumers incontinue ~~our~~to ~~local~~limit ~~lumber,~~spending ~~trucking,~~due ~~and~~to ~~tourism industries.~~economic ~~The~~uncertainty, ~~continuing~~increased price ~~stock~~levels ~~market~~on ~~rebound~~fuel ~~has~~and ~~also~~food, ~~taken~~and ~~funds~~some ~~away from the~~local ~~banking~~job ~~system~~losses. All of these factors have contributed to ~~limiting~~reduced ~~our~~lending ~~growth during~~activity for Citizens. In the first quarter ~~with~~of ~~total~~2009, loans ~~only~~declined ~~increasing~~by $~~687,000~~1.8 million or 1.0% to $~~168~~176.8 3 million.

~~Despite the~~Commercial ~~lower~~loans ~~loan~~declined ~~demand~~slightly weby ~~were~~$424,000 ~~able~~to ~~gain commercial real estate loans which increased~~ $1079.26 million ~~during~~at ~~the first~~ quarter-end. Of asthis $5amount, ~~million~~commercial ~~was~~loans ~~transferred from~~secured ~~construction~~by toreal ~~permanent~~estate ~~financing~~declined ~~and~~by we$1.6 ~~added~~million ~~three~~to ~~large commercial loans totaling approximately~~ $458.52 million., ~~Other~~while other commercial loans ~~were~~increased ~~reduced~~ by $1.2 million to $21.4 million. Most of our commercial ~~loans~~loan ~~are~~portfolio is 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~~ Retail lending, or lending to consumers for autos, homes, or for other purposes, ~~has~~continues ~~been~~to ~~difficult for Citizens~~result ~~over~~in ~~the~~reduced ~~past~~activity ~~several~~as ~~years~~well. Residential asreal ~~auto~~estate ~~manufacturers~~loans, including mortgage, construction, and ~~certain~~home ~~mortgage lending~~equity ~~concerns~~loans, ~~became~~declined ~~very~~by ~~aggressive~~$941,000 to $82.0 ~~Residential~~million ~~mortgage~~in ~~lending~~the first quarter. In addition, installment loans decreased by $~~1.3~~515,000 ~~million~~ to $6010.9 million. As mentioned previously, we believe much of these reductions in consumer loans are related to the ~~first~~consumers ~~quarter,~~limiting ~~while~~spending ~~recent~~in ~~auto~~the ~~loan promotions~~current economic environment. We have ~~helped~~seen toa ~~stabilize~~reduction ~~our~~in ~~installment~~the number of loan ~~portfolio~~requests ~~which had~~on a ~~slight~~ ~~dip~~daily ~~of $302~~basis,~~000~~ and look forward to ~~$10.3~~the ~~million~~economic recovery to help stimulate additional loan demand. Citizens ~~Consumer~~recognizes the importance of retail lending isas anthe ~~important aspect~~ cornerstone of who we are as a community bank. We ~~recognize~~will ~~the~~continue to ~~value~~actively ofseek ~~diversifying our portfolio~~new ~~with~~strategies ~~additional~~to ~~consumer~~increase ~~lending,~~this ~~and~~segment weof ~~will~~our ~~continue~~business toin ~~evaluate opportunities~~order to ~~increase~~enhance ~~this~~portfolio ~~segment~~diversification ofand reduce the inherent risk in our ~~business~~portfolio.

CREDIT QUALITY AND ALLOWANCE FOR LOAN LOSSES

~~After recognizing~~As anthe ~~increase~~economic inrecession ~~the~~continues ~~level~~to ofdominate ~~our~~on ~~credit~~the ~~risk~~national instage, ~~2006~~financial weinstitutions ~~took aggressive~~across ~~actions~~the tocountry ~~improve~~are ~~our~~facing ~~ability~~major tolosses ~~manage~~from ~~that~~the ~~risk.~~housing ~~Among~~crisis ~~them were~~ and the ~~hiring~~problems ofcaused anby ~~experienced~~sub-prime ~~chief~~lending. Reduced ~~credit~~consumer ~~officer~~spending and ~~credit~~economic ~~analyst,~~uncertainty ~~assigning our~~have ~~most~~resulted ~~crucial~~in ~~credits~~significantly tohigher ~~one~~levels of ~~our~~unemployment ~~senior~~than ~~lenders,~~seen in ~~adopting~~recent ayears ~~new~~and ~~loan policy~~higher ~~and~~levels ~~grading~~of ~~system,~~business ~~improving~~failures. On ~~our~~the ~~exception~~national ~~tracking~~level, credit has tightened and ~~outsourcing our loan~~markets ~~review~~have ~~function.~~experienced ~~Collectively~~liquidity issues amid fears of “toxic” housing assets and ~~individually~~business failures. The credit needs of large corporations, ~~these~~such ~~steps~~as ~~are~~the Detroit automobile manufacturers, have gone unmet by the private sector, and ~~will continue~~ tothe ~~allow~~Federal usgovernment has had to ~~improve~~step ~~the~~in ~~quality~~to ofprevent ~~our~~these ~~loan~~giants ~~portfolio~~from collapsing.

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 2006.19

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.

Index

Although our ~~credit~~local ~~risk~~economy ~~remains~~does ~~higher~~not ~~than~~usually ~~desired,~~see wethe ~~believe~~same level of contraction or growth as the ~~actions~~national economy, we ~~are taking~~have ~~are~~certainly ~~appropriate~~seen ~~and~~a ~~that~~significant ~~the~~impact ~~risk~~from inrecent ~~our~~economic ~~portfolio~~events. In isrecent ~~being systematically~~months ~~reduced.~~local ~~Attention~~businesses tohave ~~credit~~announced ~~quality~~job ~~will~~cuts ~~continue~~or toceased beoperations, ~~our primary~~while ~~focus~~consumers inhave ~~2007.~~significantly reduced spending.

~~In computing~~Net ~~our~~charge-offs ~~allowance~~ for ~~loan~~the ~~losses~~first wequarter ~~give~~totaled ~~each~~$116,000. Of ofthis ~~these~~amount, ~~factors~~$115,000 ~~as well as~~was ~~others,~~an ~~serious~~additional ~~consideration.~~charge Weoff ~~determine~~on ~~the~~a ~~amount~~loan ofto ~~our~~a ~~allowance quarterly~~local byauto ~~evaluating~~dealership ~~specific~~which ~~larger~~closed ~~loans~~its asdoors ~~well~~at asthe ~~pools~~end of ~~similar homogeneous loans~~2008. This ~~Adjustments~~dealership toaccounted ~~pooled~~for ~~factors~~the ~~for~~majority ~~various~~of ~~trends,~~our ~~economic conditions,~~2008 ~~changes~~loan incharge-offs. In ~~our~~April ~~credit~~2009, ~~management~~the ~~practices~~property ~~and~~was ~~abilities,~~sold ~~and~~to another ~~other factors~~local ~~may~~dealer ~~also~~prior beto ~~made~~planned foreclosure proceedings. The Byremaining ~~employing~~loan abalance ~~disciplined~~was ~~methodology~~satisfied weand ~~arrive at~~the ~~an allowance~~new ~~for~~owner, ~~loan~~who ~~losses~~is ~~that~~also weour ~~believe~~customer, is ~~adequate~~expected to ~~provide~~move ~~for~~his ~~losses that are~~current ~~inherent~~enterprise into ~~the~~this ~~loan portfolio~~facility.

~~As of March~~The ~~31,~~economic uncertainty continues to affect our ~~allowance~~loan ~~was~~portfolio ~~$1,822,000,~~as orwe ~~1.08%~~have ofexperienced ~~gross~~higher ~~loans,~~levels ~~compared to $1,873,000~~of atpast ~~year-end~~dues. At InMarch ~~many~~31, ~~cases~~2009 ~~our~~loans ~~security~~past ~~position~~due ~~helps~~totaled ~~limit~~$6.9 ~~our risk of~~million ~~loss~~compared ~~and~~to we$7.6 ~~believe~~million weat ~~are~~year-end. In ~~well~~addition, ~~equipped~~impaired toloans ~~manage~~at ~~and~~March ~~resolve~~31 ~~the~~were ~~risks contained~~$5.3 inmillion ~~our~~compared ~~portfolio~~to $5.0 ~~Based~~million onat ~~information~~year-end. We ~~available~~ continue to ~~us,~~monitor wetwo ~~believe our analyses~~particular ~~are~~land ~~comprehensive~~development ~~and~~loans ~~our~~that ~~allowance~~have become delinquent. Management is ~~adequate~~working asto ofdevelop ~~the~~detailed ~~report date. However,~~action ~~there~~plans ~~can~~to bemanage nothe ~~assurance~~credits that ~~additional~~present ~~provisions~~the ~~for~~greatest ~~loan~~risk ~~losses will~~within ~~not~~our beportfolio. We ~~required~~monitor in the ~~future~~situation aswith athese ~~result~~credits ofcontinuously ~~changes~~and keep in ~~the~~close ~~assumptions which~~contact ~~underlie~~with ~~our~~borrowers ~~estimations or changes~~ in ~~economic~~order ~~conditions~~to orassess ~~the conditions~~our ofposition ~~individual~~and ~~borrowers~~respond appropriately.

Our inherent risk of loss in our portfolio is addressed through our allowance for loan losses. We determine the amount of our allowance quarterly by evaluating specific larger loans as well as pools of similar homogeneous loans. Adjustments to pooled factors for various trends, economic conditions, changes in our credit management practices and abilities, and other factors may also be made. By employing a disciplined methodology we arrive at an allowance for loan losses that we believe is adequate to provide for losses that are inherent in the loan portfolio. As of March 31, 2009, our allowance was $2,225,000, or 1.26% of gross loans, which is similar to year-end when the allowance was $2,232,000, or 1.25% of gross loans.

In many cases our security position helps limit our risk of loss and we believe we are 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. 20

Index

During the first quarter of 2009, our securities portfolio has been reduced by $10.5 million to $70.3 million. Proceeds from matured and called securities were used to fund a deposit transfer out of the bank through a one-way sell transaction with the CDARS network. As explained in our most recent Form 10-K, the bank had been holding a large deposit that we believed to be temporary. Additional information regarding this transaction can be found below in the Deposit and Other Funding Sources of this report.

Overall our portfolio is made up of $24.1 million in agency securities, $20.3 million in mortgage-backed securities, $23.0 million in municipals, and $2.9 million in corporate debt securities. We monitor credit ratings on our investments on a monthly basis. We continue to maintain what we believe is a conservative investment portfolio strategy. We typically invest in securities with relatively short durations, fixed rates, and good credit ratings. We do not invest in any mortgage backed securities or collateralized mortgage obligations, other than those that carry the implied faith and credit of the U.S. government. All of our securities are performing adequately, and all of them carry at least investment grade credit ratings from the major credit rating agencies, with the exception of one local municipal which is not rated.

In addition, to the securities mentioned above, Citizens also maintains restricted investments in correspondent banks. Such investments are carried at cost and totaled $1,924,000 and $1,192,000 at March 31, 2009 and December 31, 2008, respectively. These include equity investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, and Silverton Financial Services Inc. stock. Silverton Financial Services Inc. is the holding company of Silverton Bank, NA that was taken into receivership by the FDIC on May 1, 2009. It is probable that this investment will be impaired. However, we are currently uncertain of the extent of the impairment as Silverton had several business units that performed capital market, bond accounting, insurance, advisory, and consulting services. Over the next several weeks we will learn more about our equity position in the company. Our investment in Silverton totals $163,000.

Our short-term investments including Federal funds sold and interest bearing deposits with other banks totaled $361,000 at March 31, 2009 compared to $9.4 million at year end. The reduction in our short-term investments has been used to help fund the transfer of one customer’s temporary deposit into the CDARS network.

DEPOSITS AND OTHER FUNDING SOURCES

~~Deposit growth~~Deposits ~~for~~decreased by $14.4 million to $ 203 million during the first quarter. This ofdecrease ~~2007~~is ~~was~~primarily ~~slightly~~related ~~more~~to ~~than~~one ~~$1.3~~customer ~~million to~~ who transferred $~~197~~14.96 million. ~~With~~into the ~~increasing~~CDARS ~~costs~~network through a one-way sell transaction. This deposit was originally placed in Citizens in 2008 with the intention of ~~acquiring~~being ~~and~~temporary ~~retaining~~in ~~deposits~~nature. Once ~~combined~~the ~~with~~customer ~~lower~~informed ~~than~~us ~~normal~~that ~~loan~~it ~~demand~~may not be temporary, we decided to sell the ~~bank~~excess ~~strategically~~funds ~~lowered its offering~~through ~~rates~~the CDARS network. This transaction allows the depositor to maintain a relationship with Citizens, while having FDIC insurance on ~~certificates~~the entire balance of ~~deposit~~the inaccount. In ~~January~~the ~~2007~~current environment in ~~order~~which toloan ~~help control~~demand ~~rising~~remains ~~costs~~soft, asmoving ~~well~~this ashigher-priced ~~limit~~deposit ~~the~~off ~~influx~~ of ~~funding~~our balance sheet has helped maintain our net interest margin.

~~Noninterest bearing~~During ~~deposits~~the ~~were~~quarter, ~~relatively~~noninterest ~~stable~~bearing ~~dipping~~deposits ~~slightly~~decreased ~~down~~by $~~445~~631,000 to $2628.7 9 million. ~~Interest~~and interest bearing deposits ~~increased~~decreased ~~approximately~~by $113.8 million to $~~171~~174.21 million,. Absent ~~mostly~~the in$14.6 million transaction mentioned above, interest bearing ~~checking~~deposits ~~accounts.~~increased by $815,000 primarily in certificates of deposit.

Historically our borrowings have consisted of repurchase agreements, Federal Home Loan Bank borrowings, and, when necessary, overnight borrowings such as ~~fed~~Federal funds purchased. Total borrowings of $~~21,193,000~~32.2 million at March 31, ~~2007~~2009 were $7.2~~,152,000~~ million less than at year-end asprimarily wedue ~~were~~to ina anseasonal ~~overnight~~decrease ~~borrowing position at December 31, 2006. Slower loan demand combined with the slight increase~~ in ~~deposits and reduction~~our inrepurchase ~~securities have placed us in a fed funds sold position at March 31~~agreements.

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CAPITAL RESOURCES

Our total capital of $~~20,626,000~~21.5 million is 8.52% of assets and similar to our position at year-end when capital was $20~~,278,000~~.8 million or 87.34% of assets. The increase isin aour ~~product of~~capital-to-assets ~~our earnings~~ratio ~~for~~is primarily related to the ~~first~~overall ~~quarter~~decrease ~~less~~in ~~the~~assets ~~payment~~as ofwe ~~dividends~~reduced our investment portfolio to ~~our~~transfer the temporary deposit out of the bank ~~shareholders.~~as mentioned previously. 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~~91 million through various FHLB programs. Borrowings through the programs at FHLB are secured by a blanket security interest in all unencumbered assets of the bank.

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

IMPACT OF INFLATION

The consolidated financial statements and related data included in this report were prepared in accordance with accounting principles generally accepted in the United States of America, which require our financial position and results of operations to be measured in terms of historical dollars except for the available for sale securities portfolio. Consequently, the relative value of money generally is not considered. Nearly all of our assets and liabilities are monetary in nature and, as a result, interest rates and competition in the market area tend to have a more significant impact on our performance than the effect of inflation.

However, inflation does affect noninterest expenses such as personnel costs and the cost of services and supplies we use. We attempt to offset increasing costs by controlling the level of noninterest expenditures and increasing levels of noninterest income. Because inflation rates have generally been low during the ~~time~~ time covered by the accompanying consolidated financial statements, the impact of inflation on our earnings has not been significant. Although ~~Based~~inflation oncould ~~current~~become ~~Federal Reserve~~a ~~policy~~significant ~~and~~factor, ~~economic~~current ~~conditions,~~Federal weReserve dopolicy does not ~~expect~~appear ~~inflation~~ to ~~significantly~~ ~~impact~~indicate ~~our~~that ~~financial~~it ~~position~~will orbe ~~results of operations~~ in the foreseeable future.

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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. There ~~Subsequent~~was tono change in the ~~date~~company’s ofinternal ~~that evaluation,~~control ~~there~~over ~~have~~financial ~~been~~reporting nothat ~~significant~~occurred ~~changes~~during inthe ~~our~~period ~~internal~~covered ~~controls or in~~by ~~other~~this ~~factors~~report that ~~could~~has ~~significantly~~materially ~~offset~~affected, or ~~internal~~is ~~controls,~~reasonably ~~nor~~likely ~~were any corrective~~to ~~actions~~materially ~~required~~affect, ~~with~~the ~~regard~~company’s tointernal ~~significant~~control ~~deficiencies~~over orfinancial ~~material weaknesses~~reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings: As of March 31, ~~2007~~2009 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

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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.	~~CITIZENS FINANCIAL CORP.~~
Date:	5/9/07	/s/Robert J. Schoonover
Date: 5/12/09	/s/Robert J. Schoonover
	Robert J. Schoonover	~~Robert J. Schoonover~~
		President Chief Executive Officer
	President and
Date:	5/9/07	/s/Thomas K. Derbyshire
	Chief Executive Officer
		Thomas K. Derbyshire
Date: 5/12/09	/s/Thomas K. Derbyshire
		Vice President, Treasurer and Principal Financial Officer
	Thomas K. Derbyshire
	Vice President, Treasurer and
	Principal Financial Officer

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