Citizens Financial Corp/DE/ - Annual Report (10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON , D. C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No: 2-96144

CITIZENS FINANCIAL CORP.

(exact name of registrant as specified in its charter)

Delaware		55-0666598
(State of Incorporation)		(I.R.S. Employer Identification Number)

213 Third St.
Elkins, West Virginia		26241
(Address of Principal		(Zip Code)
Executive Offices)

Registrant's Telephone Number,		(304) 636-4095
Including Area Code:

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes x No o

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

The aggregate market value of Citizens Financial Corp. common stock, representing all of its voting stock that was held by nonaffiliates as of the last business day of Citizens most recently completed second fiscal quarter, approximated $27,354,000.

As of March 12, 2008 Citizens Financial Corp. had 1,829,504 shares of common stock outstanding with a par value of $2.00.

Documents incorporated by reference: None

C IT IZENS FINANCIAL CORP.

FORM 10-K INDEX

			Page

Part I	Item 1	Business	4-9

	Item 1A	Risk Factors	9-10

	Item 2	Properties	10

	Item 3	Legal Proceedings	10-11

	Item 4	Submission of Matters to a Vote of Security Holders	11


Part II	Item 5	Market for the Registrant’s Common Equity and Related Shareholders Matters	11-18

	Item 6	Selected Financial Data	Not applicable

	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-25

	Item 7A	Quantitative and Qualitative Disclosures Amount Market Risk	Not applicable

	Item 8	Financial Statements and Supplementary Data	26-51

	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	52

	Item 9A	Controls and Procedures	52

	Item 9B	Other Information	52


Part III	Item 10	Directors, Executive Officers, and Corporate Governance	53-54

	Item 11	Executive Compensation	54-57

	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57-58

	Item 13	Certain Relationships and Related Transactions and Director Independence	58

	Item 14	Principal Accountant Fees and Services	58-59


Part IV	Item 15	Exhibits and Financial Statement Schedules	59-70

Index

Citizens Financial Corp.

Form 10-K, Part I

I te m 1. Business

Organizational History and Subsidiaries

Citizens Financial Corp., ("Citizens" or the “company"), is a $247 million bank holding company providing retail and commercial banking services primarily in central and eastern West Virginia. Citizens was incorporated in the State of Delaware in 1986 and is the parent company and sole owner of Citizens National Bank of Elkins (the “bank”).

The bank was organized in West Virginia in 1923, received approval of the Comptroller of the Currency in 1924, and has continuously operated as a national bank headquartered in Elkins, West Virginia since that time. In 1987 the stockholders of the bank approved an Agreement and Plan of Reorganization whereby the bank became a wholly-owned subsidiary of Citizens Financial Corp. Since its formation, the bank has expanded to a six branch network by acquiring the Tucker County Bank in Parsons, West Virginia in 1984 and the Petersburg, West Virginia office of South Branch Valley National Bank in 2000. It also opened branch offices in Beverly, West Virginia in 1992, in Slatyfork, West Virginia in 2000, and in Marlinton, West Virginia in 2002.

Business of Citizens and Subsidiary

As a bank holding company, Citizens’ operations have been limited to the ownership of its subsidiary. To date, it has not sought to conduct any other form of permitted business activity, nor are there any current plans to do so.

Citizens National Bank, however, provides a wide range of retail and commercial banking services including demand, savings and time deposits; residential, consumer and commercial loans; letters of credit; safe deposit and wire transfer services; and ATM, telebanking and internet banking services. In addition, the bank operates a trust department and has formed relationships which allow it to provide brokerage and financial planning services as well as fixed rate residential mortgages.

In competing with other financial service providers, the bank utilizes selective pricing and marketing strategies but primarily relies on developing personal relationships with customers and providing superior customer service. The bank is heavily involved in local charitable, civic, educational and community development efforts and prides itself on being a responsible corporate citizen.

Lending Activities

One of the objectives held by the bank’s founders is the granting of loans to creditworthy individuals and businesses, and the bank now provides such services from each of its six offices. In this regard, the bank has developed three primary loan portfolios: real estate, commercial, and consumer. The real estate loan portfolio can be further segmented into four distinct categories: construction, home equity, residential mortgage, and commercial mortgage. Construction loans are typically made for the construction of residential or commercial properties and have short maturity intervals of one year or less. These loans are often times converted to permanent financing and transferred to either the residential or commercial real estate categories. Home equity loans are generally lines of credit issued on residential properties that allow customers to access funds through check writing privileges. Residential mortgage loans are typically made for the purchase or refinancing of single family homes and are usually secured by a first lien deed of trust. In general, these loans do not exceed an 80% loan to value ratio as determined by the use of independent appraisals or evaluations and carry a variable interest rate. Nearly all residential real estate loans are made within the bank’s primary market area, and they tend to be in amounts of under $100,000. Loans, be they for residential real estate or other purposes, which exceed the established lending limit of the loan officer require approval of a superior officer or the directors loan committee. Historically, we have not experienced significant losses in this area, and these loans are viewed among the least risky made by the bank. Nonetheless, these loans, particularly those with larger balances, are subject to periodic review by the bank’s loan review function.

Commercial real estate loans consist of commercial mortgages which are generally secured by nonresidential and multifamily (five or more) residential properties. These loans are typically made to local businesses and are subject to many of the same criteria and controls as residential real estate loans. These loans do tend to be larger than residential real estate loans and usually require approval of the directors’ loan committee as a result. Because of their size and higher degree of risk, these loans are usually subject to more extensive credit analysis prior to being made, require the appraisal of the real property collateral, and are subject to periodic reviews by the bank’s loan review function.

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The commercial loan portfolio consists of loans to local businesses and are secured by liens on accounts receivable, inventory, machinery and equipment, or other business assets. If necessary, personal guarantees of the business owners, key man life insurance, and other forms of collateral are also required although business cash flow represents the primary source of repayment. These loans are subject to the risks of the borrower’s industry. Such industries include auto dealerships, lumbering and lumber related businesses, various tourism and hospitality businesses, and retail and wholesale merchants. Commercial loans are typically among the largest loans made by the bank and are considered to carry a higher level of risk than smaller loans. Underwriting standards require a comprehensive credit analysis, and the appraisal of real property and significant machinery, such as lumbering equipment, held as collateral. We attempt to limit risk by diversifying the commercial loan portfolio within the constraints of our economic market and closely monitoring any concentrations of credit. Periodic credit reviews of commercial loans are performed by the loan review function.

Due to the limited size of our market area as well as the increased competition for home mortgage and auto loans, we also participate in commercial loans in surrounding markets through other community banks similar to ourselves. These loans may be secured by commercial real estate or other business property although the primary source of repayment is from business operations. Because these loans may be outside our primary market area they are subject to extensive analysis including the business and credit history of the borrowers and any guarantors, cash flow and payment abilities, collateral valuations and other pertinent factors. Additional security such as the assignment of life insurance and various loan covenants designed to limit risk are also obtained when necessary. As of December 31, 2007, these loans totaled $25.6 million, or 14.8% of our total loan portfolio.

Consumer loans are made to individuals for the financing of household and personal needs, often the purchase of a car. In such cases, the car is typically held as collateral although the bank does grant unsecured consumer loans usually for small amounts and with significantly higher interest rates than otherwise offered. Cash flow analysis and knowledge of the financial strength and character traits of the borrower are important considerations in granting many consumer loans. When securing consumer loans with cars, the value of the car relative to the loan is a key factor and is determined by auto industry guides. Loan terms on consumer loans are typically three to six years, depending on the type of collateral. Unlike real estate and commercial loans, few consumer loans require loan committee approval or are subject to review by the loan review function. As a result, risk is closely tied to adherence to proper underwriting procedures and the condition of the local economy.

Our credit policies and procedures are updated periodically and approved by the board of directors annually. These policies and procedures are applied uniformly throughout Citizens’ banking network and are designed to ensure credit quality is maintained while meeting the legitimate credit needs of the communities we serve. Adherence to policies is ensured through testing performed by both the internal audit function and compliance officer. Further information on our lending activities may be found in the Management’s Discussion and Analysis portion of this report as well as in the Notes to the accompanying consolidated financial statements.

Investment Activities

Funds not needed to satisfy loan demand or other operational needs are invested in a portfolio of securities designed to improve earnings, provide liquidity, and balance interest sensitivity concerns. Our investment policy is updated periodically and approved by the board of directors annually. This policy limits securities which may be held to those of the U.S. government or its agencies having maturities of less than ten years; bank qualified, investment grade municipal obligations maturing in less than twenty years; investment grade corporate bonds with maturities of five years or less; and mortgage backed obligations of the federal government having a weighted average life of under 10 years. All purchases, sales and calls of securities, together with municipal and corporate holdings of any single issuer which exceed 10% of capital and any holdings with a credit quality below investment grade, are reported to the board of directors monthly.

The investment portfolio is managed by the bank’s chief financial officer who meets with the president on a quarterly basis to discuss investment strategies and related liquidity and interest sensitivity issues. Additional information about the company’s investing activities is contained in the Management’s Discussion and Analysis and in the Notes to the accompanying consolidated financial statements.

Deposit Functions

Our primary source of funding is provided by our deposit base. We offer a variety of deposit products including demand deposits, savings, and time deposits to customers in our market area to satisfy their saving, investing, and retirement needs. We do not solicit or accept out of market or wholesale deposits, nor do we utilize the services of any deposit brokers. As is the case with our lending activities, some selective pricing and marketing strategies are utilized in an effort to attract and retain deposits, but developing strong customer relationships and providing superior customer service remain central to the bank’s success.

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Banking Operations

Operationally, we have centralized administrative and support functions in an attempt to achieve consistency and efficiency. The bank’s main office provides services such as bookkeeping, accounting, loan processing and administration, compliance, marketing, training and development, human resources, and information technology support. Data processing, internal audit, and loan review, while administered through the main office, are provided through third parties who are experts in their fields.

Employees

As of February 29, 2008, Citizens National Bank had a staff of 88 full-time equivalent employees. The bank’s employees are not represented by any union or other collective bargaining agreement and employee relations are believed to be good. Citizens Financial Corp. does not have any paid employees.

Competition

Despite having a generally rural marketplace, Citizens faces a high degree of competition for its services from other banks, savings institutions, credit unions, insurance companies, mutual funds, securities brokers, financial planners, mortgage brokers, credit card companies, and some governmental agencies. We believe our focus on providing superior, personalized services, as well as the ability to offer trust, brokerage, and fixed rate mortgage products, help us prosper within this environment.

We maintain offices in Randolph, Tucker, Grant and Pocahontas Counties, West Virginia where a total of 27 banking offices representing 12 banks are located. As of June 30, 2007, the most recent date data is available, Citizens held a 23.2% share of the $852 million deposit base in those counties.

Technological advances have created new ways to serve customers and new forms of competition. In 2004 we began offering internet banking as a way of reaching customers and meeting competitive demands. Internet banking thus joins our other delivery channels which include telebanking, ATMs and in-person branch delivery.

Economic Characteristics of Citizens’ Marketplace

Citizens serves an area of West Virginia including the counties of Randolph, Tucker, Grant and Pocahontas. This market is a largely rural, mountainous region covering approximately 2,876 square miles with a civilian labor force of 25,520.

The economy of this area typically does not experience highs or lows to the same degree as the national economy and is generally less prosperous than the nation as a whole. Major industries in the area include lumber and wood products, tourism, and poultry operations. Other major sources of employment include public schools, hospitals and other health care providers and various forms of local and state governmental services. As of December, 2007, the unemployment rate in this market was 5.9% compared to 4.4% for West Virginia and 4.8% nationwide. Average annual wages in the area approximate $28,869 which is below both state and national levels. Ongoing roadway improvements are helping to improve access to and transportation within the area and are expected to provide long-term economic benefits. However, the local economy is not expected to undergo significant changes in the short-term.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting Citizens and its subsidiary and is qualified in its entirety by reference to such statutes and regulations:

Bank Holding Company Regulation

Citizens is a bank holding company under the Bank Holding Company Act of 1956 (“BHCA”), which restricts its activities as well as any acquisition by it of voting stock or assets of any bank, savings association or other company. The holding company is subject to the reporting requirements of, and examination and regulation by, the Federal Reserve Board. The subsidiary bank is subject to restrictions imposed by the Federal Reserve Act on transactions with affiliates, including any loans or extensions of credit to the holding company or its subsidiaries, investments in the stock or other securities thereof and the taking of such stock or securities as collateral for loans to any borrower; the issuance of guarantees, acceptances or letters of credit on behalf of the holding company and its subsidiaries; purchases or sales of securities or other assets; and the payment of money or furnishing of services to the holding company and other subsidiaries. The bank is prohibited from acquiring direct or indirect control of more than 5% of any class of voting stock or substantially all of the assets of any bank holding company without the prior approval of the Federal Reserve Board. Citizens and its subsidiary is prohibited from engaging in certain tying arrangements in connection with extensions of credit and/or the provision of other property or services to a customer by the holding company or its subsidiaries.

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The BHCA also permits Citizens to purchase or redeem its own securities. However, Regulation Y provides that prior notice must be given to the Federal Reserve Board if the gross consideration for such purchase or consideration, when aggregated with the net consideration paid by the company for all such purchases or redemptions during the preceding 12 months, is equal to 10 percent or more of the company’s consolidated net worth. Prior notice is not required if (i) both before and immediately after the redemption, the bank holding company is well-capitalized; (ii) the financial holding company is well-managed and (iii) the bank holding company is not the subject of any unresolved supervisory issues.

The Gramm-Leach-Bliley Act (also known as the Financial Services Modernization Act of 1999) permits bank holding companies to become financial holding companies. This allows them to affiliate with securities firms and insurance companies and to engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Financial Services Modernization Act defines "financial in nature" to include: securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory Community Reinvestment Act rating.

Bank Subsidiary Regulation

Citizens National Bank, as a national banking association, is subject to supervision, examination and regulation by the Office of the Comptroller of the Currency (“OCC”). It is also a member of the Federal Reserve System, and as such is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder.

The deposits of the bank are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. Accordingly, the bank is also subject to regulation by the FDIC. The FDIC may terminate a bank’s deposit insurance upon finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the bank’s regulatory agency.

Capital Requirements

As a bank holding company, Citizens is subject to the Federal Reserve Board’s risk-based capital guidelines. The guidelines establish a systematic framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into account and minimizes disincentives to holding liquid, low-risk assets. Under the guidelines, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance-sheet commitments into four weighted categories, with higher levels of capital being required for categories perceived as representing greater risk.

Citizens National Bank is subject to substantially similar capital requirements adopted by its applicable regulatory agencies. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) established a regulatory framework which ties the level of supervisory intervention by bank regulatory authorities primarily to a depository institution’s capital category. Among other things, FDICIA authorized regulatory authorities to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Citizens is well capitalized as detailed in Note 14 to the accompanying consolidated financial statements.

Federal and State Laws

Citizens National Bank is subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosure, equal credit opportunity, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of a bank to open a new branch or engage in a merger transaction. Community reinvestment regulations evaluate how well and to what extent a bank lends and invests in its designated service area, with particular emphasis on low-to-moderate income communities and borrowers in such areas.

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Monetary Policy and Economic Conditions

The business of financial institutions is affected not only by general economic conditions, but also by the policies of various governmental regulatory agencies, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit conditions and interest rates to influence general economic conditions primarily through open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in the reserve requirements against depository institutions' deposits. These policies and regulations significantly affect the overall growth and distribution of loans, investments and deposits, and the interest rates charged on loans, as well as the interest rates paid on deposits.

The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and the money markets and the activities of monetary and fiscal authorities, we cannot definitely predict future changes in interest rates, credit availability or deposit levels.

Effect of Environmental Regulation

Citizens National Bank’s primary exposure to environmental risk is through its lending activities. In cases when management believes environmental risk potentially exists, the bank mitigates its environmental risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. Environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.

With regard to residential real estate lending, management reviews those loans with inherent environmental risk on an individual basis and makes decisions based on the dollar amount of the loan and the materiality of the specific credit.

We anticipate no material effect on capital expenditures, earnings or competitive position as a result of compliance with federal, state or local environmental protection laws or regulations.

International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (USA Patriot Act)

The International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (the “Patriot Act”) was adopted in response to the September 11, 2001 terrorist attacks. The Patriot Act provides law enforcement with greater powers to investigate terrorism and prevent future terrorist acts. Among the broad-reaching provisions contained in the Patriot Act are several designed to deter terrorists’ ability to launder money in the United States and provide law enforcement with additional powers to investigate how terrorists and terrorist organizations are financed. The Patriot Act creates additional requirements for banks, which were already subject to similar regulations. The Patriot Act authorizes the Secretary of the Treasury to require financial institutions to take certain “special measures” when the Secretary suspects that certain transactions or accounts are related to money laundering. These special measures may be ordered when the Secretary suspects that a jurisdiction outside of the United States, a financial institution operating outside of the United States, a class of transactions involving a jurisdiction outside of the United States or certain types of accounts are of “primary money laundering concern.” The special measures include the following: (a) require financial institutions to keep records and report on the transactions or accounts at issue; (b) require financial institutions to obtain and retain information related to the beneficial ownership of any account opened or maintained by foreign persons; (c) require financial institutions to identify each customer who is permitted to use a payable-through or correspondent account and obtain certain information from each customer permitted to use the account; and (d) prohibit or impose conditions on the opening or maintaining of correspondent or payable-through accounts.

Sarbanes-Oxley

On July 30, 2002, the Senate and the House of Representatives of the United States enacted the Sarbanes-Oxley Act of 2002, a law that addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information.

Index

Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley, Citizens’ chief executive officer and chief financial officer are each required to certify that Citizens’ Quarterly and Annual Reports do not contain any untruestatement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of Citizens’ internal controls; they have made certain disclosures to Citizens’ auditors and the audit committee of the Board of Directors about Citizens’ internal controls; and they have included information in Citizens’ Quarterly and Annual Reports about their evaluation and whether there have been significant changes in Citizens’ internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation. In 2007 additional regulations under Section 404 of Sarbanes-Oxley became applicable to Citizens. In response to Section 404, management assesses the company’s system of internal control over financial reporting in order to determine whether the system is effective and that it meets the criteria of the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on current information, we expect that in 2008 or 2009, Section 404 will require that our independent auditors also provide an attestation on management’s assertion of internal control over financial reporting.

I te m 1.A. Risk Factors

You should consider the risks described below as well as the other information included or incorporated by reference in this Annual Report on Form 10-K, before making an investment in Citizens common stock. The risks described below are not the only ones we face in our business. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. If any of the following risks occur, our business, financial condition or operation results could be materially harmed. In such an event, our common stock could decline in price, and you may lose all or part of your investment.

The Banking Business is Very Competitive

As explained under Item 1 of this report, Citizens faces a high degree of competition for its services.

In particular, our competitors include national and regional financial and banking companies whose greater resources may afford them a marketplace advantage by enabling them to mount extensive promotional and advertising campaigns. Additionally, other banks and other financial institutions may have products and services not offered by Citizens, or may have greater lending capabilities due to their larger legal lending limits, which may cause current and potential customers to choose those institutions. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits and range and quality of services provided. If we are unable to attract new and retain current customers, loan and deposit growth could decrease causing our results of operations and financial condition to be negatively impacted.

A Deterioration in Economic Conditions Could Negatively Impact Earnings

A downturn in local, regional or national economic conditions could negatively impact our earnings. The markets we serve in West Virginia do not have a large or diverse economic base and many customers rely on the lumber, tourism and poultry industries. A general economic slowdown, or one involving these specific industries, could have the following consequences.

Loan delinquencies may increase;

Problem assets and foreclosures may increase;

Loan charge-offs and provisions for loan losses may increase;

Demand for the products and services of the company may decline;

Collateral (including real estate) for loans made by the company may decline in value, in turn reducing customers’ borrowing power and making existing loans less secure; and

Customers may need to withdraw existing deposits to satisfy current living expenses causing reduced liquidity.

Customers May Default on the Repayment of Loans

Our customers may default on the repayment of loans, which may negatively impact our earnings due to loss of principal and interest income. Increased operating expenses may result from the allocation of management time and resources to the collection and work-out of the loan. Collection efforts may or may not be successful causing us to write off the loan or repossess the collateral securing the loan, which may or may not exceed the balance of the loan.

Management evaluates the adequacy of the allowance for loan losses at least quarterly, which includes testing certain individual loans as well as collective pools of loans for impairment. This evaluation includes an assessment of actual loss experience within each category of the portfolio, individual commercial and commercial real estate loans that exhibit credit weakness; current economic events, including employment statistics, trends in bankruptcy filings, and other pertinent factors; industry or geographic concentrations, and regulatory guidance. Additions to the allowance for loan loss result in an expense for the period.

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Our regulatory agencies periodically review the allowance for loan losses. Based on their assessment the regulatory agencies could require us to adjust the allowance for loan losses. Any such adjustments could negatively impact the results of operations or financial position.

Increased Commercial Lending Could Result in Increased Risk

Much of our loan growth has centered on commercial loans including those in the lumber, tourism and lodging industries. Commercial loans are typically larger and more complex than residential and consumer lending and now represent our largest type of loan. Our ability to properly identify, measure and manage the risks involved in commercial lending, including our ability to attract and retain qualified staff, may impact the degree to which loans are realized.

Current Market Interest Rates and Cost of Funds may Negatively Impact Earnings

Fluctuations in interest rates may negatively impact the business of the bank. The bank’s main source of income from operations is net interest income, which is equal to the difference between the interest income received on interest-bearing assets and the interest expense incurred in connection with interest-bearing liabilities. These rates are highly sensitive to many factors beyond our control, including general economic conditions, both domestic and foreign and the monetary and fiscal policies of various governmental and regulatory authorities. The bank’s net interest income can be affected significantly by changes in market interest rates. Changes in relative interest rates may reduce the bank’s net interest income as the difference between interest income and interest expense decreases. As a result, the bank has adopted asset and liability management policies to minimize the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments and funding sources. However, even with these policies in place, we cannot assure you that a decrease in interest rates will not negatively impact its results from operations or financial position.

There is an Illiquid Market for the Company’s Shares.

Because a very limited market exists for the company’s common stock, a shareholder may have difficulty selling his or her shares in the secondary market. We cannot predict when, if ever, we could meet the listing qualifications of the Nasdaq Stock Market’s National Tier or any exchange. We cannot assure you that there will be a more active public market for the shares in the near future.

I te m 2. Properties

We provide services from offices owned by the bank including its approximately 16,940 square foot main office located at 213 Third Street, Elkins, West Virginia. In addition, the bank owns a drive-in facility directly across from its main office on Third Street and it has owned and operated a 5,000 square foot full service branch in Parsons, West Virginia since 1984. In 1992 a branch facility was opened in Beverly, West Virginia which contains approximately 1,840 square feet. This facility, which is also owned, provides drive-in and ATM service in addition to traditional deposit and teller services. Loan services were recently established at this location in November 2007. During 2000 the bank acquired and opened a full service facility in Petersburg, West Virginia. That facility was expanded in 2004 to 2,980 square feet. We also constructed a full service facility in Slatyfork, West Virginia containing 3,200 square feet in 2000. All of these facilities are fully utilized for banking purposes except the Parsons branch which leases approximately 800 square feet to a cable television company.

In January 2002, the bank opened a full-service branch located in leased space within a supermarket in Marlinton, West Virginia. In 2004, we completed the construction of a 3,500 square foot free-standing branch in Marlinton and which allowed us to exit the supermarket facility.

The bank also owns two properties which adjoin its main office for future expansion. In 2006 a parking lot was constructed on one such property. The other property was leased by a tenant until April, 2006. Since the tenants vacated the property, we began using a section of the building for storage and office space. In 2004 we purchased a property adjacent to our Beverly branch as a means of both maintaining our own property value and providing for expansion needs. This facility is currently occupied by a tenant under a lease agreement which expires in 2008.

Citizens Financial Corp. does not own or lease any property. To date Citizens has utilized the bank's facilities and has not occupied more than a minimal amount of space. No compensation is paid to the bank in any way for such usage as it is deemed to be insignificant.

I te m 3. Legal Proceedings

As of December 31, 2007 Citizens Financial Corp. was not involved in any material legal proceedings. The bank is involved in various legal proceedings which occur in the normal course of business, however. After consultation with legal counsel, we believe that all such litigation will be resolved without materially affecting the company’s financial position or results of operations. In addition, there are no material proceedings known to be threatened or contemplated against the company or its subsidiaries.

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I te m 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of Citizens Financial Corp. during the fourth quarter of 2007.

Part II

I te m 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Historically, the stock of Citizens Financial Corp. has traded only sporadically. The stock is traded on the over the counter bulletin board system, and a number of brokerage firms provide an efficient and orderly market for transactions involving its shares. There are no further plans, understandings, arrangements or agreements to list the stock on any larger exchanges at this time.

Citizens has only one class of stock, that being common stock, and all voting rights are vested in its holders. The shareholders of Citizens are entitled to one vote for each share of common stock owned on all matters subject to a vote of shareholders. At February 29, 2008 shareholders of record numbered approximately 458. The company has no plans to issue any other forms of capital.

On March 7, 2006 Citizens board of directors declared a stock split which was paid on April 14, 2006 in the form of a 200% stock dividend to shareholders of record April 3, 2006. The primary reason for doing so was to reduce the share price of the stock in an effort to improve its liquidity. Citizens stock, which is neither widely held nor widely traded, is an over the counter bulletin board stock with the symbol CIWV.OB. Distribution of this stock dividend required the use of all authorized shares. On April 22, 2006 the shareholders authorized an additional 2,250,000 shares for future use.

Citizens maintains a policy under which it may repurchase shares of its own stock, subject to certain limitations, when the Board of Directors determines it is in the best interest of the company to do so. Such shares are purchased on the open market through independent brokers. At both December 31, 2007 and 2006 the company had repurchased 420,496 shares. The purchase of these shares has not had a material impact on either capital or liquidity. No plans currently exist regarding their use and there are no plans regarding future purchases.

The following table presents the high and low market prices for Citizens' common stock for the periods indicated. Prices listed below that were prior to the stock split on April 14, 2006 have been restated to reflect the split.

	High		Low
First Quarter through
February 29, 2008	$	11.25	$	10.45

2007
First Quarter	$	19.89	$	18.92
Second Quarter$19.28	$	17.19
Third Quarter	$	17.68	$	13.28
Fourth Quarter	$	14.85	$	11.25

2006
First Quarter	$	19.50	$	16.47
Second Quarter	$	20.47	$	16.90
Third Quarter	$	17.67	$	16.83
Fourth Quarter	$	19.50	$	17.35

The prices listed above are based upon information available to management through those brokers which deal in the company’s stock as well as through certain internet quotation services and are believed to accurately represent the amount at which its stock was traded during the periods indicated. Prices reflect amounts paid by purchasers of the stock and, therefore, may include commissions or fees paid to brokers. The amounts of such commissions or fees, if any, are not known to management. No attempt was made by management to ascertain the prices for every sale made during these periods.

Index

Citizens shareholders are entitled to receive dividends when and as declared by its Board of Directors. Dividends are typically paid quarterly. Aggregate dividends were $0.48 per share in 2007 and $0.57 per share in 2006. Payment of dividends by Citizens is dependent upon payment of dividends to it by the subsidiary bank. The ability of the bank to pay dividends is subject to certain limitations imposed by national banking laws as outlined in Note 14 to the accompanying consolidated financial statements.

No shares of Citizens stock have been authorized for issuance under any type of equity compensation plan. In addition, at no time during the last three years have we sold any Citizens stock which was not registered under the Securities Act of 1933.

The following table provides information with respect to Citizens’ purchases of its own common stock during the fourth quarter of the fiscal year. All such purchases were made under a general policy, noted earlier, permitting the Board of Directors to make such purchases when it is believed to be in the best interest of the company to do so and not as part of any publicly announced plan or program.

ISSUER PURCHASES OF EQUITY SECURITIES

Total Number

Maximum Number

of shares

of shares that

purchased as

may yet be

Total Number

Average

part of publicly

purchased under

of shares

price paid

announced plans

the plans or

Period

purchased

per share

or programs

programs

October 1-31, 2007

N/A

November 1-30, 2007

N/A

December 1-31, 2007

N/A

Additional information required under Securities Act Industry Guide 3 for Bank Holding Companies follows:

Index

Distribution of Assets, Liabilities & Shareholders' Equity;

Interest Rates and Interest Differential

				2007									2006								2005
	Avg Bal			Interest			Yield/Rate			Avg Bal			Interest		Yield/Rate			Avg Bal			Interest		Yield/Rate
	(in thousands of dollars)									(in thousands of dollars)								(in thousands of dollars)
Interest Earning Assets:
Federal funds sold and interest bearing deposits with other banks	$	2,166		$	110			5.08	%	$	1,377		$	68		4.94	%	$	3,807		$	123		3.23	%
Securities:
Taxable		43,295			1,844			4.26			53,267			2,046		3.84			51,340			1,781		3.47
Tax-exempt (1)		15,835			883			5.58			8,555			459		5.37			8,825			496		5.62
Loans (net of unearned interest) (1) (2)		170,263			13,474			7.91			162,252			13,004		8.01			149,177			10,799		7.24
Total interest earning assets (1)		231,559			16,311			7.04			225,451			15,577		6.91			213,149			13,199		6.19

Nonearning assets:
Cash and due from banks		4,951									6,258								5,981
Bank premises and equipment, net		4,260									4,194								4,205
Other assets		6,677									5,311								4,642
Allowance for loan losses		(1,920	)								(1,750	)							(1,512	)
Total assets	$	245,527								$	239,464							$	226,465

Interest Bearing Liabilities:
Savings deposits	$	21,867			121			0.55		$	23,608			121		0.51		$	26,077			130		0.50
Time deposits		99,855			4,536			4.54			89,731			3,566		3.97			82,768			2,583		3.12
NOW accounts		44,999			1,277			2.84			44,495			1,161		2.61			37,057			613		1.65
Money market accounts		5,603			28			0.50			6,538			33		0.50			7,165			50		0.69
Borrowings		22,294			819			3.67			26,215			975		2.72			26,933			680		2.52
Total interest bearing liabilities		194,618			6,781			3.48			190,587			5,856		3.07			180,000			4,056		2.25

Noninterest bearing liabilities:
Demand deposits		26,623									26,019								24,696
Other liabilities		3,373									2,574								1,348
Shareholders' equity		20,913									20,284								20,421
Total liabilities and shareholder's equity	$	245,527								$	239,464							$	226,465


Net interest income (1)				$	9,530								$	9,721							$	9,143

Net interest income to average earning assets (1)					4.12	%										4.31	%							4.29	%

(1) Yields on tax-exempt holdings are expressed on a tax equivalent basis using a 34% tax rate.

(2) For the purpose of these computations, nonaccruing loans are included in the amounts of average loans outstanding.

Index

Rate Volume Analysis

The following table sets forth a summary on the changes in interest earned and interest expense detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year's average rate), (ii) changes in rate (change in the average rate times the prior year's average volume). The changes in rate/volume (change in the average volume times the change in the average rate), has been allocated to the changes in volume and changes in rate in proportion to the relationship of the absolute dollar amounts of the change in each.

	2007 Compared to 2006									2006 Compared to 2005
	Increase			(Decrease)			Due to			Increase			(Decrease)			Due to
	(in thousands of dollars)
	Volume			Rate			Total			Volume			Rate			Total
Interest earned on:
Federal funds sold and interest bearing deposits with other banks	$	40		$	1		$	41		$	(102	)	$	48		$	(54	)
Taxable securities		(410	)		208			(202	)		69			196			265
Tax-exempt securities		405			18			423			(15	)		(22	)		(37	)
Loans		635			(164	)		471			996			1,208			2,204
Total interest earned		670			63			733			948			1,430			2,378

Interest expense on:
Savings deposits		(9	)		9			0			(12	)		3			(9	)
Time deposits		427			543			970			232			750			982
NOW accounts		13			103			116			141			407			548
Money market accounts		(5	)		(1	)		(6	)		(4	)		(12	)		(16	)
Other borrowing		(143	)		(13	)		(156	)		(19	)		314			295
Total interest expense		283			641			924			338			1,462			1,800

Net interest income	$	387		$	(578	)	$	(191	)	$	610		$	(32	)	$	578

Index

Securities Portfolio

Presentation of the amortized cost of securities as of December 31, 2007 and 2006 may be found in Note 4 to the accompanying consolidated financial statements.

The following table sets forth the maturities of securities as of December 31, 2007 and the weighted average yields of such securities (calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security).

	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
(in thousands of dollars)
U.S. Treasury and other U.S. government agencies and corporations	$	15,258		4.05	%	$	19,413		4.88	%	$	-		-	%	$	-		-	%	$	34,671		4.51	%
State and political subdivisions (1)		1,701		5.27			6,612		5.20			14,404		5.47			-		-			22,717		5.38
Other securities		-		-			-		-			-		-			1,113		3.29			1,113		3 .29

Total	$	16,959		4.17	%	$	26,025		4.96	%	$	14,404		5.47	%	$	1,113		3.29	%	$	58,501		4.82	%

The portfolio contains no securities of any single issuer in which the aggregate amortized cost of such securities exceeds ten percent of shareholders' equity.

(1) Tax-equivalent adjustments, using a rate of 34%, have been made in calculating yields on obligations of state and political subdivisions.

Index

Loan Portfolio

Types of Loans

The distribution of loans by major category for each of the last five fiscal year ends are provided below. All loans in the portfolio are domestic in nature.

	December 31
	2007		2006		2005		2004		2003
	(in thousands of dollars)
Commercial, financial and agricultural	$	21,016	$	26,969	$	26,589	$	23,831	$	25,417
Real estate-construction		12,497		13,964		10,559		8,759		5,963
Real estate-mortgage		126,445		114,966		104,868		101,083		89,111
Installment loans		10,903		10,635		9,726		10,734		12,396
Other		2,012		1,611		2,051		1,636		2,868
Total loans	$	172,873	$	168,145	$	153,793	$	146,043	$	135,755

Loan Maturities and Interest Rate Sensitivity

Note 5 to the accompanying consolidated financial statements also provides data concerning the contractual maturities of loans, including commercial, financial and agricultural loans as well as real estate construction loans, as of December 31, 2007. Also provided are the amounts due after one year classified as fixed rate and variable rate loans.

Risk Elements

Nonperforming Loans

The table below presents our nonperforming loan data for each of the last five fiscal year ends:

	December 31
	2007		2006		2005		2004		2003
	(in thousands of dollars)
Nonaccrual loans	$	4,487	$	2,208		58	$	-	$	16
Loans past due 90 days or more still accruing interest		206		-		538		559		352
Troubled debt restructurings	-			-		-		-		-
Total	$	4,693	$	2,208	$	596	$	559	$	368

Potential Problem Loans

As stated in Note 6 to the accompanying consolidated financial statements, impaired loans totaled $4,037,521 and $5,147,663 at December 31, 2007 and 2006. These loans were classified as impaired due to doubts about the borrower’s ability to repay as called for in the loan documents. Additional information regarding these loans may also be found in Note 6.

Loan Concentrations

Information concerning loan concentrations is provided in Note 5 to the accompanying consolidated financial statements.

Summary of Loan Loss Experience

The following table provides an analysis of our allowance for loan losses for each of the last five fiscal year ends.

	December 31
	2007			2006			2005			2004			2003
	(in thousands of dollars)
Balance, beginning of year	$	1,873		$	1,597		$	1,378		$	1,396		$	1,386
Charge offs:
Commercial, financial and agricultural		1,538			123			-			1,031			129
Real estate-mortgage		348			-			-			36			24
Installment		49			39			90			98			190
Total		1,935			162			90			1,165			343

Recoveries:
Commercial, financial and agricultural		8			4			5			192			21
Real estate-mortgage		-			-			1			-			-
Installment		34			11			28			20			8
Total		42			15			34			212			29

Net charge offs		1,893			147			56			953			314
Provisions for loan losses		1,783			423			275			935			324
Balance, end of year	$	1,763		$	1,873		$	1,597		$	1,378		$	1,396

Ratio of net charge-offs during the period to average loans outstanding during the period		1.11	%		0.09	%		0.04	%		0.67	%		0.25	%

Index

The amount charged to the provision for loan losses and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, its analysis of overall loan quality, changes in the mix and size of the loan portfolio, previous loss experience, general economic conditions and information about specific borrowers.

The following tables provide an allocation of the allowance for loan losses for each of the last five year ends as well as the percent of loans in each category to total loans.

	Allocation of Allowance For Loan Losses
	December 31,
	2007			2006			2005			2004			2003

Commercial, financial and agricultural	$	552		$	1,077		$	901		$	717		$	810
Real estate-construction		-			-			-			-			-
Real estate-mortgage		879			589			320			282			103
Installment and other		132			65			151			173			185
Unallocated		200			142			225			206			298
Total	$	1,763		$	1,873		$	1,597		$	1,378		$	1,396

	Percent of Loans in Each Category to Total Loans
	December 31,
	2007			2006			2005			2004			2003

Commercial, financial and agricultural		12	%		16	%		17	%		16	%		19	%
Real estate-construction		7			8			7			6			4
Real estate-mortgage		73			68			68			69			66
Installment and other		8			8			8			9			11
Total		100	%		100	%		100	%		100	%		100	%

Deposits

The average daily amount of deposits and the rates paid on those deposits for the years ended December 31, 2007, 2006 and 2005 were previously presented in the Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential.

A table summarizing the maturities of time certificates of deposit, including individual retirement accounts, of $100,000 or more as of December 31, 2007 may be found in Note 8 to the accompanying consolidated financial statements. There were no other time deposits of $100,000 or more at that date.

Index

Return on Equity and Assets

The following table shows consolidated operating and capital ratios for the periods indicated.

	Year Ended December 31
	2007			2006			2005
Return on average assets		0.42	%		0.87	%		0.90	%
Return on average equity		4.94			10.29			10.02
Dividend payout ratio		84.94			50.24			48.49
Average equity to assets ratio		8.52			8.47			9.02

Short-term Borrowing

Information concerning the company's short-term borrowings is presented in Note 12 to the accompanying consolidated financial statements.

Disclosure of Contractual Obligations

The following table provides information regarding the contractual obligations of Citizens Financial Corp. at December 31, 2007:

	Payments Due By Period
	(in thousands of dollars)
			Less than		1 – 3		3 -5		More than
	Total		1 year		years		years		5 years

Contractual obligations

Long-term debt	$	2,719	$	375	$	804	$	768	$	772
Capital leases		-		-		-		-		-
Operating leases		115		43		64		8		-
Purchase obligations		-		-		-		-		-
Other long-term liabilities		-		-		-		-		-
Total	$	2,834	$	418	$	868	$	776	$	772

I te m 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis present the significant changes in financial condition and results of operations of Citizens Financial Corp. and our 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 report.

Description of Business

Citizens Financial Corp. is a $247 million Delaware corporation headquartered in Elkins, West Virginia. From there our wholly-owned subsidiary, Citizens National Bank of Elkins, provides loan, deposit, trust, brokerage and other banking and related services to customers in northcentral and eastern West Virginia and nearby areas through six branch offices. We conduct no business other than the ownership of our bank subsidiary.

FORWARD LOOKING STATEMENTS

This report contains forward looking statements which reflect our current expectations based on information available to us. These forward looking statements involve uncertainties related to the general economic conditions in our nation and other broad based issues such as interest rates and regulations, as well as to other factors which may be more specific to our own operations. Examples of such factors may include our ability to attract and retain key personnel, implementing new technological systems, providing new products to meet changing customer and competitive demands, our ability to successfully manage growth strategies, controlling costs, maintaining our net interest margin, maintaining good credit quality, and others including those set forth in the risk factor section of this report. 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 principles and follow general practices within the financial services industry. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in our financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements and could change as new information becomes available. Consequently, later financial statements could reflect different estimates, assumptions, and judgments.

Some policies rely more heavily on the use of estimates, assumptions, and judgments than others and, therefore, have a greater possibility of producing results that could be materially different than originally reported. Our most significant accounting policies, including an explanation of how assets and liabilities are valued, may be found in Note 1 to the consolidated financial statements in our 2007 Annual Report to Shareholders and Form 10-K.

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

OVERVIEW

In 2007 Citizens faced many difficult challenges. We had the failure of one large commercial customer resulting in a loan charge-off of $1.2 million, while total net charge-offs approximated $1.9 million. We were also faced with $1.3 million in foreclosures, mostly of a commercial nature. These foreclosures resulted in $441,000 of additional costs associated with the valuation, operation, and disposition of the associated real estate. Fortunately, these credit issues centered on specific conditions associated with each borrower, rather than a reflection of a broad-based weakening in our credit portfolio which many financial institutions are facing in the wake of the sub-prime exposures from recent years. Citizens has not participated in sub-prime lending and does not expect this activity to have a material impact on our loan portfolio.

The company earned $1,034,000 in 2007 compared to $2,087,000 in 2006. As mentioned previously, the depressed earnings we experienced were mainly the result of a commercial business failure, as well as certain commercial foreclosures. Likewise, earnings per share declined from $1.13 in 2006 to $0.57 in 2007. Management has taken prudent steps to improve our infrastructure with regard to management of the risk in our loan portfolio over the last eighteen months. We expect that these changes will improve our ability to identify and systematically reduce our risk in the future. More information regarding those improvements is contained within this report.

The national economy continues to struggle with the slowdown in the housing market, rising foreclosures, and credit tightening. Consumers have become apprehensive with talk of a recession and have begun to modify spending patterns as a result. In our local economy we have experienced neither the same level of contraction in the local housing market nor an increasing level of foreclosures on residential mortgages. However, we remain cognizant of the economic conditions surrounding our borrowers. The national housing slowdown and rising fuel prices have impacted our local lumber, trucking, and tourism industries. These economic trends have also contributed to lower than expected loan demand and increasing liquidity for the majority of 2007. Total loans grew by a modest 2.8% or $4.7 million to $172.9 million in 2007, while total assets grew by $3.6 million or 1.5% to $246.6 million.

The relatively flat yield curve present in most of 2007 combined with increasing liquidity prompted Citizens to reduce our competitive stance on deposit products in order to limit the influx of additional liquidity in the form of certificates of deposit. This helped Citizens to limit the margin compression we experienced in 2007 as we maintained a net interest margin of 4.12% for the year. Total deposits grew by $4.8 million or 2.4% to $201.3 million during 2007. As we entered 2008, we have seen some dramatic downward shifts in short-term interest rates. We expect that these will help to steepen the yield curve to our benefit; however, we must continue to employ strategies to limit further margin compression as we move forward in this somewhat uncertain environment.

Index

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 represents 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.

In 2007 net interest income decreased by $309,000 to $9,186,000 mainly as a result of competitive pressure to price certificate of deposit products higher. On a tax equivalent basis, net interest income decreased by only $191,000 to $9,530,000 as the bank invested excess funding in tax exempt municipal bonds to garner higher yields and combat further margin compression. Despite the decrease in net interest income, our net interest margin of 4.12% for 2007 remains comparable to our peer banks’ average of 4.15%.

On a tax equivalent basis interest income rose $733,000 to $16,311,000. Our average loan volume increased $8.0 million resulting in additional interest income, while maturing taxable agency investments were reinvested in higher-yielding tax-exempt municipal bonds. These investments increased our average tax-exempt portfolio by $7.3 million to $15.8 million. Overall, increased volumes of earning assets accounted for $670,000 of the total increase in interest income, while our yield on these assets increased by 13 basis points to 7.04% and accounted for the remaining $63,000.

Interest expense also increased in 2007, rising $925,000 to $6,781,000 on a tax equivalent basis. Higher rates on certificates of deposit (CDs) and interest bearing checking accounts contributed $646,000 to the increase. Overall, the cost of our liabilities increased 41 basis points to 3.48%. The remainder of the increase is primarily attributable to a $10.1 million increase in average certificate of deposit volume between 2006 and 2007. With loan demand lower than expected in 2007, the bank worked to minimize the effect of increasing CD costs by reducing some of our CD interest rates, thereby limiting the influx of excess funding. From December 31, 2006 through December 31, 2007 total CDs increased only $1.7 million to $100.7 million. This strategy helped manage both liquidity needs and net interest margin compression.

By contrast, in 2006 tax-equivalent net interest income increased by $578,000 with interest income rising $2,378,000 but interest expense also rising $1,800,000. The increase in interest income was largely the result of changes in our loan portfolio with $13.1 million more volume and a 77 basis point improvement in yield accounting for $2.2 million of the overall increase. The higher interest expense was primarily the result of a 82 basis point increase in cost.

Provision for Loan Losses

The provision for loan losses is our estimate of the amount which must be charged against current earnings in order to maintain the allowance for loan losses at a level considered adequate to provide for losses which are inherent in the loan portfolio. This amount is determined through quarterly evaluations of the loan portfolio. Our provision for loan losses totaled $1,783,000 in 2007 compared to $423,000 in 2006 and $275,000 in 2005. The dramatic increase in 2007 is largely related to one particular commercial credit. Additional information related to this credit can be found in the “Credit Quality and Allowance for Loan Loss” section of this report.

Because the amount of the provision for loan losses is a function of our overall assessment of loan quality and the adequacy of the allowance for loan losses, which itself relies on significant use of judgment and estimates, the provision for loan loss 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 as these are critical factors in the determination of our provision for loan losses.

Noninterest Income

Noninterest income, which includes all revenues other than interest and fees on earning assets, is an important factor in our overall profitability. Total noninterest income in 2007 of $1,839,000 compares to $1,630,000 in 2006 and $1,468,000 in 2005. Annual increases were $209,000 in 2007 and $162,000 in 2006.

Index

This positive trend is the result of several factors, most notably rising levels of service fees and brokerage fees. Service fees are the largest single component of noninterest income and increased $166,000 in 2007 due to higher overdraft fees and increasing fees from our debit cards and ATM network. In 2006 service fees rose by $80,000 resulting mainly from the same two factors. Brokerage fees increased by $43,000 in 2007 and $38,000 in 2006. We have benefited from the retention of a licensed broker on our staff since September 2004 that provides consistent service to our customers. Our broker continues to improve existing customer relationships and garner additional ones resulting in this increasing trend in fee income.

Trust income increased by $24,000 in 2007 and $6,000 in 2006, as we continue to increase the funds under management in this area. Insurance commissions and secondary market loan fees did not change significantly in 2007 or 2006. Other noninterest income decreased by $33,000 in 2007 due mainly to a $32,000 gain on the sale of real estate we received in 2006.

We recorded a gain on the call of an agency bond of $2,000 in 2007, while in 2006 we recognized an $18,000 loss on the sale of securities. There were no gains or losses on securities in 2005. Securities are typically held until maturity, unless they are called. However, we may sell certain securities from time to time in order to satisfy asset/liability management needs.

We plan to perform a review of our noninterest income in 2008 to identify areas which might produce increased revenue. We believe we may be able to improve performance in several areas and that our diverse services, such as trust, brokerage and secondary market mortgages, provide us with a competitive advantage in several of our markets.

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 our market area can support.

In 2007, noninterest expense increased $314,000 or 4.1% to $7,973,000. This increase was primarily related to costs associated with the valuation, operation, and disposition of real estate acquired in satisfaction of loans. These costs increased $237,000 to $441,000 in 2007 and were largely the result of commercial real estate loan foreclosures. The bank acquired $1.3 million in real estate in satisfaction of loans in 2007. All such real estate was sold in 2007 with three particular properties being sold at auction in the third quarter resulting in a $269,000 loss on the sale.

Legal and professional fees increased $72,000 to $421,000 in 2007. As we continue to outsource our internal audit function and loan review function, these fees will remain higher than we previously experienced. Much of the increase can be attributed to service fees incurred to help us comply with the Sarbanes-Oxley Act as we became subject to more provisions of the Act in 2007. The remainder of the increase is related to professionals we hired to help implement some of the organizational and workflow changes we made in 2007.

In addition to these costs, net occupancy costs increased by $42,000 when compared to 2006 due to increased depreciation expenses and lower rental income as a commercial tenant vacated one of our properties in mid 2006. Other noninterest expense also increased by $75,000 mainly due to additional franchise tax and increased expenses due to regulatory requirements.

Personnel costs, which are the largest component of noninterest expense, decreased by $43,000 or 1.1% to $3,883,000 in 2007. Throughout 2007 management continued to realign the workflow in an effort to improve the use of technology, as well as control increases in salary and benefit costs. At December 31, the bank employed 85.5 full-time equivalent employees, which is 7.5 less than year-end 2006. This improved efficiency helped the bank limit its increase in salary expense to $110,000 or 4.0% as total salaries for 2007 were $2,866,000. The increase was due to the addition of a chief credit officer, retail banking manager, and credit analyst to our staff in the second half of 2006, as well as the need to reward employees who accepted additional responsibilities as part of our staff reduction. Benefit costs were reduced by $153,000 as the bank experienced lower health insurance and retirement costs.

Aside from the savings in personnel costs, the bank also experienced a decrease of $53,000 in equipment costs due mainly to decreased depreciation expense. Data processing costs were $7,000 lower than 2006 despite the implementation of several new software modules. These modules were designed to improve our efficiency with respect to image statements, wire transfers, and regulatory compliance. In 2006, we had incurred $43,000 of data processing costs related to our conversion to a new third party core processor that were not present in 2007.

In 2006, noninterest expense increased by $520,000 or 7.3% to $7,659,000 due to several of the same items discussed above. For example, the bank had increased expenses related to foreclosed properties of $195,000 and increased personnel costs of $203,000. Legal and professional fees increased $104,000 as we outsourced our loan review and internal audit functions and hired professionals to help with our core processing conversion. Other noninterest expense increased as we incurred recruitment costs of $40,000 to bring new members of management to our team, and we incurred $25,000 paid to settle legal claims.

Index

Income Taxes

Our provision for income taxes includes both federal and state income taxes. Total taxes were $235,000 in 2007, $956,000 in 2006, and $927,000 in 2005. The drop in our 2007 tax is primarily related to the high level of loan charge-offs we experienced. Our increasing investments in tax-exempt municipal bonds also contributed to the lower rate. With the exception of income earned on loans to and bonds issued by municipalities, and income from certain life insurance policies, all of our income is taxable. We have not been subject to the alternative minimum tax during any of the periods covered by this report. Note 10 of the accompanying consolidated financial statements provides additional information concerning our income tax expense.

FINANCIAL CONDITION

Loan Portfolio

As noted previously, the housing slowdown and sub-prime lending exposures are having a significant impact on the financial services industry. Many financial institutions that were invested in the sub-prime area have incurred significant losses and have an increasing number of residential foreclosures. Citizens has not participated in sub-prime lending. We offer our clients traditional mortgage options to fit their current income levels comfortably and focus on adding quality consumer credits to our portfolio. As such, we do not expect the sub-prime lending crisis to have a material impact on our institution. The demand for our products was modest in 2007 and our loan portfolio grew by $4,728,000 or 2.8% to $172,873,000, as we experienced a somewhat subdued economic climate. Although our loan demand and loan growth has been slower than what we normally experience, we have been careful not to accept loans of lower quality in exchange for increasing our portfolio size. Instead, we remain committed to increasing our loan portfolio with proper attention to credit quality.

As has been the case in recent years, we experienced significant growth in our commercial real estate portfolio, which grew by $12.3 million to $57.9 million in 2007. This included a $5 million transfer from construction to permanent financing, as well as our partnering with another community bank outside our market area in order to provide funding for two separate commercial real estate projects. Other commercial loans not secured by real estate decreased by $6.0 million to $21.0 million. The majority of our commercial loans are secured by real estate, regardless of whether repayment is linked to cash generated by the use or sale of the real estate. In cases where repayment of a loan 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. We believe using real property as collateral on the majority of our loans contributes to reducing the inherent risk in the portfolio as the values associated with most of the real estate in the markets in which we operate do not experience the same degree of appreciation or depreciation that a more urban area may experience.

Retail lending or lending to consumers for autos, homes, or other purposes has been difficult for Citizens over the past several years. Auto manufacturers and specialized mortgage lenders have become very aggressive in attracting consumers away from traditional banking institutions. Our residential mortgage portfolio has remained relatively level since December 2006 increasing only $325,000 to $61.7 million, while our home equity portfolio declined by $1.2 million to $6.8 million. Similarly, our installment loan portfolio has remained steady for 2007, increasing only $268,000 to $10.9 million. This stability in installment loans has not been a characteristic of our portfolio in recent years, however, in the latter part of 2006 management introduced a new auto lending promotion to improve our standing in this area. The promotion proved successful and in 2007 we made this promotion part of our regular product offering. As we move into 2008 management will continue to evaluate strategies to increase retail lending. These efforts aimed at portfolio diversification will enhance our loan opportunities, as well as contribute to reducing our overall loan risk.

Credit Quality and Allowance for Loan Losses

As many financial institutions are facing major losses from sub-prime exposure and there is more uncertainty in the economy, Citizens has taken aggressive action over the last eighteen months to improve our ability to manage the risk in our loan portfolio. Those actions included hiring a chief credit officer and credit analyst, assigning our most crucial credits to one of our senior lenders, developing detailed action plans for problem loans and closely monitoring credits with the greatest risk, adopting a new loan policy and loan grading system, improving exception tracking and reporting, and outsourcing our loan review function. We centralized our loan processing to improve efficiency and maintain underwriting consistency in all of our branches. We believe that each of these actions will help us to manage the quality of our portfolio and reduce the systematic risk.

Index

Despite the major steps we have implemented, in 2007 the bank had net charge-offs totaling $1,893,000, mainly of a commercial nature with $1,205,000 being related to one particular commercial enterprise. We maintained a large specific reserve on this credit throughout 2007 and monitored the business risk associated with the firm. Despite a record of timely payments, management of the firm decided to cease operations, and Citizens recorded a charge-off on the loan as of December 31, 2007. As we move into 2008 we will begin the liquidation process for assets of this borrower. However, based on the information we currently possess, we believe the estimate of loss associated with this borrower to be included within the charge-off we recorded in December.

Also in 2007 we acquired certain pieces of real estate in satisfaction of loans through the foreclosure process in order to improve our position with regard to such loans. Most of these foreclosures were of a commercial nature and approximated $1.3 million. During the year, all such properties were sold; the net cost associated with the valuation, operation, and disposition of these properties totaled $441,000 in 2007. Despite the additional expenses we have incurred by engaging in the foreclosure process, we believe that gaining control of these assets was ultimately the most financially sound process for seeking a return of our investment and securing our interest in these assets.

Aside from the large charge-offs and foreclosure information presented above, our portfolio has seen an improvement in several factors since December 31, 2006. Impaired loans at December 31, 2007 totaled $4,038,000 which is $1,110,000 or 21.6% less than 2006. Our level of nonaccrual loans, excluding impaired loans previously mentioned, was $450,000 in December, 2007 compared to $506,000 in December, 2006, indicating a decrease of 11.1%. Past due loan trends have improved with the level of loans past due 30 days or more declining $2.4 million or 45.3% to $2.9 million. More specifically, loans past due more than 90 days have declined by $572,000 or 52.7% to $514,000. These trends indicate that we are reducing the risk in the portfolio. We believe that the some of this improvement is a direct result of the improvements we have made to our infrastructure, and we should continue to see benefits from these improvements into the future.

The inherent risk of loss in our portfolio is addressed through the allowance for loan losses. We maintain our allowance for loan losses at a level we consider adequate to provide for losses that we believe are inherent in the loan portfolio. This determination is based on quarterly evaluations in which a specific analysis and a pooled analysis are computed. The specific analysis is used to individually assign an allowance to larger balance, nonhomogenous loans—typically commercial loans. The pooled analysis is used to quantify the loss on pools of smaller balance, homogenous loans such as residential mortgages and consumer loans. The pooled analysis considers such factors as historical loss experience, changes in lending policies and staff, current and anticipated economic conditions, changes in the nature and volume of the portfolio, past due loan trends, changes in our loan review system, and levels of concentrations of credit. Because these analyses determine the adequacy of the allowance for loan losses, they also determine the provision for loans losses that must be charged to earnings.

Despite the $1.9 million of net charge-offs in 2007, our allowance for loan losses decreased by only $110,000 to $1,763,000, or 1.02% of gross loans compared to $1,873,000 or 1.11% at year-end 2006. Within our analysis we specifically analyzed approximately $9.4 million of loans finding that $2,570,000 required the establishment of specific reserves totaling $624,000. Estimated losses on our smaller pools of loans totaled $308,000. Further adjustments to the allowance of $631,000 were made after analyzing the various adjustment factors cited in the previous paragraph. Due to the increasing uncertainty in the economy and many economic indicators pointing toward a recession, we felt it necessary to also include an unallocated reserve of $200,000 or 11.3% of the total allowance for loan losses.

Based on information available to us we believe our analysis is 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 estimates and judgments 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. However, at year-end we held no corporate securities. 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.

Due to softened loan demand, maturing securities were generally reinvested in 2007 with our portfolio totaling $58,559,000 at year end. During the year, $19.3 million in securities matured or were called; of this amount, $18.3 million were government agency issues. The relatively flat yield curve we experienced in 2007, combined with the expectation of decreasing rates in the latter part of the year, prompted Citizens to reinvest much of these funds in municipal instruments with higher yields and longer maturities. This strategy has helped to extend the duration of the portfolio, improve the overall yield, and provide protection against the declining interest rates we have experienced in recent months. Of the $19.7 million in security purchases, $14.7 million were municipal instruments. We have successfully extended the duration of the portfolio from 1.9 years at the end of 2006 to 2.7 years at the end of 2007. We have also increased our tax equivalent yield by 56 basis points to 4.61% since December 31, 2006.

Index

Generally, the municipal bonds in which we invest carry good to exceptional credit ratings and are generally insured by one of the major municipal bond insurance companies. These insurers provide an important service to the municipal bond market by enhancing the credit of the underlying bond, which in turn increases the liquidity of the bond in the marketplace. Recent media reports have indicated that there is concern regarding credit ratings of the major municipal bond insurers because many of these companies have exposure to the sub-prime market. We will continue to monitor the situation with the municipal insurers, as well as the credit ratings of our municipal bonds, in order to respond appropriately to any changes.

Because our securities portfolio is classified as available for sale, it is carried at fair value. Unrealized losses that are temporary in nature are recognized as an adjustment to equity. Losses determined to be other than temporary are recognized in income. With interest rates beginning to decline in the latter part of 2007, unrealized losses have decreased from $632,000 to $274,000 at year end. The majority of our unrealized losses have been carried for less than twelve months as shown in Note 4. We do not consider these investments to be other than temporarily impaired at December 31, 2007. Further, we monitor credit ratings on our investments on a monthly basis and currently do not have any credit concerns with any particular obligation. With the exception of one local municipal obligation which is not rated, all of the issuers carry credit ratings of good to exceptional. Securities are typically held until maturity in order for us to fully recover our investment. However, we may sell certain securities from time to time in order to satisfy asset/liability management needs.

Our short-term investments include federal funds sold and an interest bearing demand account with the Federal Home Loan Bank of Pittsburgh. These accounts are used for overnight investing in cases when excess liquidity exists. We attempt to limit the amount of these excess funds by staying fully invested in loans or securities. For 2007 our average balance in overnight funds was $419,000 and produced a yield of 4.85%.

Deposits and Other Funding Sources

Total deposits increased $4,753,000 to $201,296,000 in 2007. The level of loan demand we experienced in 2007 relaxed our need to generate funding through deposits; therefore, we offered interest rates on our certificates of deposits that were sometimes lower than our competitors in an effort to control our net interest margin and maintain an acceptable level of liquidity. Since the Fed’s first rate decrease in August 2007, we have seen competitive pricing pressures lessen. For the year, certificates of deposit increased $1,736,000 to $100,684,000. We expect to adjust our pricing strategy in the future in order to respond to liquidity needs, and manage our net interest margin expectations.

Similarly, we continue to maintain a moderate approach to our interest bearing checking pricing. However, the majority of the increase in deposits is centered in these accounts which increased $3,930,000 to $45,698,000. This is largely the result of one local businessperson who continues to maintain a significant group of accounts with us.

We have utilized short-term borrowings in the form of repurchase agreements to fund operations for a number of years. These agreements typically involve local governmental units, such as school districts or area businesses, seeking higher yields. They are usually put out for bid annually and local banks compete aggressively for them. We feel that we maintain a competitive advantage by meeting the operational requirements that the agreements frequently contain; nonetheless, risk of losing these funds does exist. At year-end repurchase agreements were $14,258,000 compared to $15,970,000 at the end of 2006.

We expect to continue to fund our activities through internal sources. However, in the event internal sources were to be reduced we have several other funding options including a line of credit with the Federal Home Loan Bank of Pittsburgh and federal funds purchased through our other correspondent banks. For most of the year we maintained a minimal balance on these types of borrowings averaging $407,000 for 2007; however at year end our borrowings peaked at $5,398,000. As a member of the FHLB we have access to a variety of other funding products as well. For example, on occasion we match fund certain loans with FHLB products. Although we did not acquire any such long-term match funding in 2007, we do have long-term FHLB borrowings in the amount of $2,719,000. Our total borrowing capacity with the FHLB exceeds $100 million.

Capital Resources

Our total capital of $21.1 million, or 8.5% of assets increased $803,000 in 2007. For the year, we reduced our annual dividend from $0.57 per share in 2006 to $0.48. We felt this was a prudent measure in response to the increasing level of uncertainty we experienced with regard to one particular commercial credit in the fourth quarter. We believe this level of capital, as well as our capital structure, is adequate to support current and anticipated future operations. A complete analysis of our capital accounts is provided in the accompanying Statement of Changes in Shareholders’ Equity.

Index

Banks and bank holding companies are subject to several risk-weighted capital measures. As detailed in Note 14, we continue to maintain capital levels well in excess of the amount needed to be considered well capitalized under the regulations. This should continue to be the case throughout the foreseeable future, and we are not aware of any trends or uncertainties which are expected to materially impair our capital position.

Trading activity in the stock continues to be light with 27,200 shares trading in 2007, none of which were treasury shares. Similar to many other financial institutions across the country that have experienced depressed earnings, our performance pushed our stock value downward in 2007. The price at year-end was $11.25, which is $8.25 less than December 31, 2006. The stock continues to trade on the over the counter market under the symbol CIWV.OB.

Off-Balance-Sheet Obligations

A discussion of our involvement in off-balance-sheet obligations is presented in Note 13 to the consolidated financial statements contained in this report.

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. As noted previously, we have access to approximately $100,000,000 through various FHLB programs. In the current economic environment, loan demand has fallen and liquidity needs have lessened as a result. We are not aware of any other trends, commitments, events or uncertainties which may impair our ability to satisfy our operating cash needs.

Impact of Inflation

Our financial statements and related data in this report are prepared in conformity with U.S. generally accepted accounting principles 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 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 such increases by controlling the level of noninterest expenditures and increasing levels of noninterest income. Because inflation has generally been low during the time covered by these financial statements, the impact of inflation on our earnings has not been significant. Although inflation could become a more significant factor, current Federal Reserve policy does not appear to indicate that it will be in the foreseeable future.

Index

Item 8 . Financial Statements and Supplementary Data

CITIZENS FINANCIAL CORP.

AND SUBSIDIARY

C ON SOLIDATED BALANCE SHEETS

December 31, 2007 and 2006

ASSETS	2007			2006

Cash and due from banks	$	7,049,699		$	6,064,890
Interest bearing deposits with other banks		12,421			29,858
Securities available for sale, at fair value		58,559,453			59,745,539
Loans, less allowance for loan losses of $1,763,300 and $1,873,038, respectively		170,939,264			166,217,889
Bank premises and equipment, net		4,259,664			4,331,313
Accrued interest receivable		1,384,943			1,393,468
Other assets		4,389,441			5,197,515

Total assets	$	246,594,885		$	242,980,472

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
Deposits:
Noninterest bearing	$	27,919,859		$	27,103,487
Interest bearing		173,376,611			169,439,728
Total deposits		201,296,470			196,543,215
Short-term borrowings		19,655,942			19,833,434
Long-term borrowings		2,718,865			3,511,770
Other liabilities		1,842,680			2,814,034

Total liabilities		225,513,957			222,702,453

Commitments and contingencies		-			-

Shareholders' equity
Common stock, $2.00 par value, authorized 4,500,000 shares,issued 2,250,000 shares		4,500,000			4,500,000
Retained earnings		20,998,645			20,842,981
Accumulated other comprehensive income/(loss)		(586,154	)		(1,233,399	)
Treasury stock at cost, 420,496 shares		(3,831,563	)		(3,831,563	)

Total shareholders' equity		21,080,928			20,278,019

Total liabilities and shareholders' equity	$	246,594,885		$	242,980,472

See Notes to Consolidated Financial Statements

Index

CITIZENS FINANCIAL CORP.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For The Years Ended December 31, 2007, 2006 and 2005

	2007		2006			2005
Interest and dividend income
Interest and fees on loans	$	13,430,613	$	12,933,850		$	10,744,643
Interest and dividends on securities:
Taxable		1,844,104		2,045,639			1,780,716
Tax-exempt		582,457		303,154			327,325
Interest on interest bearing deposits with other banks		95,655		48,150			59,679
Interest on federal funds sold		13,888		20,514			63,493
Total interest and dividend income		15,966,717		15,351,307			12,975,856

Interest expense
Interest on deposits		5,961,553		4,881,518			3,376,537
Interest on short-term borrowings		683,957		801,402			501,698
Interest on long-term borrowings		135,263		173,397			178,078
Total interest expense		6,780,773		5,856,317			4,056,313

Net interest income		9,185,944		9,494,990			8,919,543
Provision for loan losses		1,783,155		423,385			274,667
Net interest income after provision for loan losses		7,402,789		9,071,605			8,644,876

Noninterest income
Trust income		230,683		207,178			201,402
Service fees		1,017,516		851,526			771,831
Insurance commissions		34,275		37,069			42,810
Securities gains/(losses), net		2,399		(17,694	)		-
Brokerage fees		159,927		117,207			79,117
Secondary market loan fees		100,379		108,382			101,523
Other		293,562		326,338			271,639
Total noninterest income		1,838,741		1,630,006			1,468,322

Noninterest expense
Salaries and employee benefits		3,883,356		3,925,985			3,723,480
Net occupancy expense		426,039		383,900			332,748
Equipment expense		386,476		439,193			484,001
Data processing		517,265		524,304			598,824
Director fees		256,220		272,880			252,483
Postage expense		170,812		182,136			170,653
Professional service fees		421,406		349,574			245,714
Stationery		149,128		152,549			155,923
Software expense		204,418		182,608			208,231
Net cost of operation of other real estate		440,881		204,280			9,778
Other		1,116,616		1,041,665			956,819
Total noninterest expense		7,972,617		7,659,074			7,138,654
Income before income taxes		1,268,913		3,042,537			2,974,544
Income tax expense		235,087		955,646			927,358
Net income	$	1,033,826	$	2,086,891		$	2,047,186

Basic and fully diluted earnings per common share *	$	0.57	$	1.13		$	1.10

Basic and fully diluted average common shares outstanding*		1,829,504		1,842,662			1,864,215

*Restated to reflect stock split in the form of a 200% stock dividend declared in March 2006.

See Notes to Consolidated Financial Statements

Index

CITIZENS FINANCIAL CORP.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For The Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005

Net Income	$	1,033,826		$	2,086,891		$	2,047,186

Other comprehensive income/(loss):
Gross unrealized gains/(losses) arising during the period		671,673			338,294			(1,060,150	)
Adjustment for income tax (benefit)/expense		(255,237	)		(128,552	)		402,857
		416,436			209,742			(657,293	)

Reclassification adjustment for (gains)/losses included in net income		(2,399	)		17,694			-
Adjustment for income tax (benefit)/expense		913			(6,724	)		-
		(1,486	)		10,970			-

Increase in minimum pension liability		-			-			(1,155,756	)
Adjustment for income tax benefit		-			-			439,187
		-			-			(716,569	)

Change in pension and other post-retirement plan assets and benefit obligations		374,670			-			-
Adjustment for income tax benefit		(142,375	)		-			-
		232,295			-			-


Other comprehensive income/(loss), net of tax		647,245			220,712			(1,373,862	)

Comprehensive Income	$	1,681,071		$	2,307,603		$	673,324

See Notes to Consolidated Financial Statements

Index

CITIZENS FINANCIAL CORP.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2007, 2006 and 2005


											Accumulated
					Additional						Other						Total
	Common Stock				Paid-In			Retained			Comprehensive			Treasury			Shareholders’
	Shares		Amount		Capital			Earnings			Income/(Loss)			Stock			Equity

Balance, December 31, 2004		750,000	$	1,500,000	$	2,100,000		$	19,650,112		$	57,987		$	(3,085,318	)	$	20,222,781

Net income		-		-		-			2,047,186			-			-			2,047,186

Cost of 5,925 shares acquired as treasury stock		-		-		-			-			-			(290,074	)		(290,074	)

Cash dividends declared ($0.53 per share)		-		-		-			(992,726	)		-			-			(992,726	)

Other comprehensive income/(loss), net of tax		-		-		-			-			(1,373,862	)		-			(1,373,862	)

Balance, December 31, 2005		750,000		1,500,000		2,100,000			20,704,572			(1,315,875	)		(3,375,392	)		19,613,305

Net income		-		-		-			2,086,891			-			-			2,086,891

Cost of 24,460 shares acquired as treasury stock		-		-		-			-			-			(456,171	)		(456,171	)

Cash dividends declared ($0.57 per share)		-		-		-			(1,048,482	)		-			-			(1,048,482	)

Other comprehensive income, net of tax		-		-		-			-			220,712			-			220,712

Adjustment to initially apply statement of financial accounting standard no. 158,net of tax		-		-		-			-			(138,236	)		-			(138,236	)

Stock split effected in the form of a 200% stock dividend		1,500,000		3,000,000		(2,100,000	)		(900,000	)		-			-			-

Balance, December 31, 2006		2,250,000		4,500,000		-			20,842,981			(1,233,399	)		(3,831,563	)		20,278,019

Net income		-		-		-			1,033,826			-			-			1,033,826

Cash dividends declared ($0.48 per share)		-		-		-			(878,162	)		-			-			(878,162	)

Other comprehensive income, net of tax		-		-		-			-			647,245			-			647,245

Balance, December 31, 2007		2,250,000	$	4,500,000	$	-		$	20,998,645		$	(586,154	)	$	(3,831,563	)	$	21,080,928

Index

CITIZENS FINANCIAL CORP.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,033,826		$	2,086,891		$	2,047,186
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		320,082			351,942			414,395
Provision for loan losses		1,783,155			423,385			274,667
Deferred income tax expense/(benefit)		59,753			(174,946	)		(202,424	)
Amortization of security premiums, net of accretion of security discounts		24,057			68,272			196,484
Securities (gains)/losses, net		(2,399	)		17,694			-
Provision for loss on other real estate owned		112,493			-			-
Loss on sale of other real estate		273,140			80,184			-
Gain on sale of bank premises		-			(31,877	)
Gain on sale of equipment and other assets		(11,917	)		-			(16,787	)
(Increase)/decrease in accrued interest receivable		8,525			(72,348	)		(202,621	)
(Increase)/decrease in other assets		51,532			49,527			(257,428	)
Increase/(decrease) in other liabilities		(596,684	)		156,863			874,896
Net cash provided by operating activities		3,055,563			2,955,587			3,128,368

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale		345,900			3,800,409			522,200
Proceeds from maturities and calls of securities available for sale		19,365,000			14,461,000			9,190,545
Principal payments received on securities available for sale		1,854,838			1,963,218			2,388,713
Purchases of securities available for sale		(19,732,036	)		(12,845,805	)		(26,338,022	)
Loans made to customers, net		(7,761,908	)		(15,434,051	)		(8,290,615	)
Purchases of bank premises and equipment		(235,331	)		(483,919	)		(380,311	)
Proceeds from sale of bank premises		-			38,000			-
Proceeds from sale of other real estate		1,170,650			626,263			173,443
Net cash used in investing activities		(4,992,887	)		(7,874,885	)		(22,734,047	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposit, NOW, money market and
savings accounts		3,016,517			(8,052,575	)		17,294,294
Net increase in time deposits		1,736,738			14,110,061			7,890,783
Net decrease in short-term borrowings		(177,492	)		(677,965	)		(1,998,756	)
Proceeds from long-term borrowings		-			-			3,500,000
Repayments of long-term borrowings		(792,905	)		(1,633,558	)		(2,500,904	)
Dividends paid		(878,162	)		(1,048,482	)		(992,726	)
Acquisition of treasury stock		-			(456,171	)		(290,074	)
Net cash provided by financing activities		2,904,696			2,241,310			22,902,617
Increase/(decrease) in cash and cash equivalents		967,372			(2,677,988	)		3,296,938
Cash and cash equivalents:
Beginning		6,094,748			8,772,736			5,475,798
Ending	$	7,062,120		$	6,094,748		$	8,772,736

See Notes to Consolidated Financial Statements

(Continued)

Index

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

For the Years Ended December 31, 2007, 2006 and 2005

	2007		2006		2005
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:
Interest on deposits and on other borrowings	$	6,768,464	$	5,678,421	$	3,967,023
Income taxes	$	924,352	$	1,311,957	$	940,784

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Other real estate and other assets acquired in settlement of loans	$	1,257,378	$	929,104	$	466,445
Unrealized gain/(loss) on securities available for sale	$	669,274	$	355,988	$	(1,060,150	)

See Notes to Consolidated Financial Statements

Index

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies

Nature of Business: Citizens Financial Corp. (“Citizens” or “the company” or “we”) was incorporated as a bank holding company in 1987. Our wholly-owned bank subsidiary, Citizens National Bank of Elkins (“the bank”) provides retail and commercial loan, deposit, trust and brokerage services to customers in Randolph, Tucker, Grant and Pocahontas Counties of West Virginia and nearby areas.

Basis of Financial Statement Presentation: Our accounting and reporting policies conform to U.S. generally accepted accounting principles and to general practices within the banking industry.

Use of Estimates: In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheets and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of deferred tax assets.

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Citizens Financial Corp. and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Presentation of Cash Flows: For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, balances due from banks (including cash items in process of clearing) and federal funds sold. Cash flows from demand deposits, NOW accounts and savings accounts are reported net since their original maturities are less than three months. Cash flows from loans and certificates of deposit and other time deposits are also reported net.

Securities : All of our debt and equity investment securities are classified as available-for-sale and carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of comprehensive income until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Premiums and discounts are recognized as interest income using the interest method over the period to maturity. Declines in the fair value of available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, we consider (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans and Allowance for Loan Losses: The bank makes mortgage, commercial and consumer loans to customers. Loans which management has the intent and ability to hold for the foreseeable future or until maturity or payoff are generally reported at their outstanding principal balance reduced by unearned income and the allowance for loan losses. Interest income is accrued daily on the outstanding principal balance. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments to the related loan’s yield over its contractual life.

The accrual of interest on loans is discontinued when they are 90 days delinquent unless the loan is well secured and in the process of collection. However, loans may be placed on nonaccrual, or charged-off, at an earlier date if the collection of principal and interest is doubtful. When loans are placed on nonaccrual all interest which has accrued but not been collected is reversed against interest income, unless the income was recognized in prior years in which case it is charged to the allowance for loan losses. Interest income during the period when a loan is on nonaccrual is recorded on a cash basis after recovery of principal is reasonably assured. If recovery of principal is not reasonably assured, payments received on nonaccrual loans are typically applied directly against the outstanding principal balance until the loan is fully repaid. Loans are generally restored to an accrual status when the obligation is brought current, has performed in accordance with the terms of the note for a reasonable period of time, and interest is no longer in doubt.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that are inherent in the loan portfolio. The allowance is established by provisions charged to operating expense and reduced when loans are charged-off. Subsequent recoveries, if any, are credited to the allowance.

Management’s evaluation of the adequacy of the allowance for loan losses is based upon quarterly assessments of the loan portfolio. This assessment is inherently subjective and requires significant estimates that are subject to revisions as more information becomes available. Among the factors we consider are the borrower’s ability to repay, the value of the collateral securing the loan, historical charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, concentrations of credit, and various other factors.

Index

A loan is considered impaired when, based on current information and events, it is probable that the company will be unable to collect the scheduled payments when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for larger, nonhomogeneous loans including commercial and construction loans. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the bank does not separately identify individual consumer and residential loans for impairment disclosures.

The allowance consists of a specific component which relates to larger loans classified as special mention, substandard or doubtful and are specifically evaluated for impairment, as well as a general component for the smaller homogeneous loans not specifically evaluated. For specifically evaluated loans considered impaired an allowance is established when the loans’ discounted cash flows, collateral value or observable market price is less than its carrying value. For loans which are evaluated but not considered impaired, as well as smaller homogeneous loans, an allowance is established by grouping the loans into pools having similar risk characteristics and applying historical loan factors, adjusted for current conditions, to each pool.

Bank Premises and Equipment: Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the assets. Premises and equipment typically have useful lives ranging from 5 to 39 years. Repairs and maintenance expenditures are charged to operating expense as incurred. Major improvements and additions to premises and equipment are capitalized.

Other Real Estate: Other real estate consists of real estate held for resale which is acquired through foreclosure on loans secured by such real estate. At the time of acquisition, these properties are recorded at fair value with any writedown charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Expenses incurred in connection with operating these properties are charged to operating expenses as incurred; depreciation is not recorded on property held for sale. Gains and losses on the sales of these properties are credited or charged to operating income in the year of the transaction.

Intangible Assets: Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in a combination with a related contract, asset, or liability. Intangible assets are tested at least annually for impairment.

Securities Sold Under Agreements to Repurchase: We generally account for securities sold under agreements to repurchase as collateralized financing transactions. Securities pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party.

Pension and Other Postretirement Benefits: The bank has a noncontributory, defined benefit pension plan covering substantially all employees. The plan provides benefits that are based on employees’ five year average final compensation and years of service. Our funding policy is to make annual contributions as permitted or required by regulation. Pension costs are actuarially determined and charged to expense.

The bank also provides certain health care and life insurance benefits for all retired employees that meet certain eligibility requirements. The bank's share of the estimated costs that will be paid after retirement is generally being accrued by charges to expense over the employees' active service periods to the dates they are fully eligible for benefits.

The company adopted Statement of Financial Accounting Standard No. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) as of December 31, 2006. The company had previously reported the adjustment to initially apply SFAS 158 as a component of comprehensive income on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Changes in Shareholders’ Equity on our Form 10-K filed for the year ended December 31, 2006. The reporting of this adjustment has been subsequently changed to conform to the implementation guidance in SFAS 158 and is separately presented herein as an adjustment to the ending balance of accumulated other comprehensive income, net of tax, on our Consolidated Statement of Changes in Shareholders’ Equity for the year ended December 31, 2006.

Index

Income Taxes: Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Valuation allowances are established when deemed necessary to reduce deferred tax assets to the amount expected to be realized.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the consolidated statements of income.

Basic and Fully Diluted Earnings per Share: Basic and fully diluted earnings per common share is computed based upon the weighted average shares outstanding. The weighted average shares outstanding were 1,829,504, 1,842,662 and 1,864,215 for the years ended December 31, 2007, 2006 and 2005, respectively, after considering the stock split outlined in Note 2. We did not have any potentially dilutive securities during that time.

Trust Department: Assets held in an agency or fiduciary capacity by the bank's trust department are not assets of the bank and are not included in the accompanying consolidated balance sheets.

Off-Balance-Sheet Credit Related Financial Instruments . In the ordinary course of business, we may enter into commitments to extend credit, including commercial letters of credit, and standby letters of credit. These financial instruments are recorded when they are funded.

Derivative Instruments and Hedging Activities: The bank recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.

Advertising: Advertising costs are expensed as they are incurred.

Reclassifications: Certain accounts in the consolidated financial statements for 2006 and 2005, as previously presented, have been reclassified to conform to current year classifications.

Significant New Accounting Pronouncements: In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but rather, provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. As of December 1, 2007, the FASB has proposed a one-year deferral for the implementation of the Statement for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). This Statement requires that employers measure plan assets and obligations as of the balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. The other provisions of SFAS 158 were implemented by the company as of December 31, 2006. The company does not expect the implementation of the measurement date provisions of SFAS 158 to have a material impact on its consolidated financial statements.

Index

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, with early adoption available in certain circumstances. The company does not expect the implementation of SFAS 159 to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)). The Standard will significantly change the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes 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.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51” (SFAS 160). The Standard will significantly change the financial accounting and reporting of noncontrolling (or minority) interests in consolidated financial statements. SFAS 160 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008, with early adoption prohibited. The company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements.

In September 2006, the Emerging Issues Task Force (EITF) issued EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” This consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits in accordance with SFAS 106 (if, in substance, a postretirement benefit plan exists) or APB Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007, with early application permitted. The company is evaluating the effect that EITF 06-4 will have on its consolidated financial statements when implemented.

In November 2006, the EITF issued “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (EITF 06-10). In this Issue, a consensus was reached that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement in accordance with either SFAS 106 or APB Opinion No. 12, as appropriate, if the employer has agreed to maintain a life insurance policy during the employee's retirement or provide the employee with a death benefit based on the substantive agreement with the employee. A consensus also was reached that an employer should recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The consensuses are effective for fiscal years beginning after December 15, 2007, including interim periods within those fiscal years, with early application permitted. The company is evaluating the effect that EITF 06-10 will have on its consolidated financial statements when implemented.

In February 2007, the FASB issued FSP No. FAS 158-1, “Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88 and No. 106 and to the Related Staff Implementation Guides.” This FSP provides conforming amendments to the illustrations in SFAS 87, 88, and 106 and to related staff implementation guides as a result of the issuance of SFAS 158. The conforming amendments made by this FSP are effective as of the effective dates of SFAS 158. The unaffected guidance that this FSP codifies into SFAS 87, 88, and 106 does not contain new requirements and therefore does not require a separate effective date or transition method. The company does not expect the implementation of FSP No. FAS 158-1 to have a material impact on its consolidated financial statements.

In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (SAB 109). SAB 109 expresses the current view of the staff that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SEC registrants are expected to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The company does not expect the implementation of SAB 109 to have a material impact on its consolidated financial statements.

Index

In December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of Share Options” (SAB 110). SAB 110 expresses the current view of the staff that it will accept a company’s election to use the simplified method discussed in SAB 107 for estimating the expected term of “plain vanilla” share options regardless of whether the company has sufficient information to make more refined estimates. The staff noted that it understands that detailed information about employee exercise patterns may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The company does not expect the implementation of SAB 110 to have a material impact on its consolidated financial statements as the company does not have a stock option plan.

Note 2. Declaration of Stock Split

On March 7, 2006 Citizens’ board of directors declared a stock split which was paid on April 14, 2006 in the form of a 200% stock dividend to shareholders of record April 3, 2006. The primary reason for doing so was to reduce the share price of the stock in an effort to improve its liquidity. Citizens stock, which is neither widely held nor widely traded, is an over-the-counter bulletin board stock with the symbol CIWV.OB.

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

Note 3. Restrictions on Cash and Amounts Due from Banks

At December 31, 2007 we had cash concentrations totaling $4,151,285 with the Federal Reserve Bank of Richmond. These funds, as well as deposits with other correspondent banks, are generally unsecured and have limited insurance under current banking insurance regulations.

Note 4. Securities

The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at December 31, 2007 and 2006, are summarized below. All such securities are available for sale.

	2007
							Carrying
							Value
							(Estimated
	Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value)

U.S. Government agencies and corporations	$	28,083,464	$	227,154	$	19,073	$	28,291,545
Mortgage backed securities - U.S. Government agencies and corporations		6,587,411		14,238		40,667		6,560,982
Federal Reserve Bank stock, restricted		108,000		-		-		108,000
Federal Home Loan Bank stock, restricted		842,400		-		-		842,400
Community Financial Services Inc. stock		162,714		-		-		162,714
Tax exempt state and political subdivisions		22,716,824		91,692		214,704		22,593,812

Total securities available for sale	$	58,500,813	$	333,084	$	274,444	$	58,559,453


	2006
							Carrying
							Value
							(Estimated
	Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value)

U.S. Government agencies and corporations	$	41,920,556	$	5,227	$	414,829	$	41,510,954
Mortgage backed securities - U.S. Government agencies and corporations		8,374,473		299		148,911		8,225,861
Federal Reserve Bank stock, restricted		108,000		-		-		108,000
Federal Home Loan Bank stock, restricted		770,200		-		-		770,200
Tax exempt state and political subdivisions		9,182,944		16,081		68,501		9,130,524

Total securities available for sale	$	60,356,173	$	21,607	$	632,241	$	59,745,539

Index

The tables which follow provide summaries of securities which were in an unrealized loss position at December 31, 2007 and 2006, all of which are available for sale. As of December 31, 2007, these securities had a total fair value of $29,020,029 and carried unrealized losses of $274,444 or 0.95%. Securities which have been in a continuous loss position for the past twelve months total $17,776,631. The unrealized loss pertaining to these securities is $82,499 or 0.46%. The majority of these losses are on municipal instruments. With the exception of one municipal which is not rated, all of these instruments carry A ratings from the major credit rating agencies. The remaining losses are on securities issued by U.S. government agencies and corporations which carry the implied faith and credit of the U.S. Government. With the excellent credit quality in our portfolio, we believe these unrealized losses are the result of changing interest rates, and we will be able to fully recover our investment. In addition, no losses have been recognized on the $55,092,401 of securities that carried unrealized losses at December 31, 2006.

	2007
	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	$	-	$	-	$	10,973,400	$	19,073	$	10,973,400	$	19,073
Mortgage backed securities – U.S.
Government agencies and corporations		-		-		4,886,591		40,667		4,886,591		40,667
Tax-exempt state and political subdivisions		11,243,398		191,945		1,916,640		22,759		13,160,038		214,704
Total	$	11,248,398	$	191,945	$	17,776,631	$	82,499	$	29,020,029	$	274,444


	2006
	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	$	5,332,240	$	13,677	$	33,264,044	$	401,152	$	38,596,284	$	414,829
Mortgage backed securities – U.S.
Government agencies and corporations		2,782,873		9,857		5,327,723		139,054		8,110,596		148,911
Tax-exempt state and political subdivisions		3,440,626		17,958		3,944,895		50,543		7,385,521		68,501
Total	$	11,555,739	$	41,492	$	42,536,662	$	590,749	$	55,092,401	$	632,241

The maturities, amortized cost and estimated fair values of securities at December 31, 2007 are summarized as follows:

			Carrying
			Value
			(Estimated
	Amortized		Fair
	Cost		Value)
Due within one year	$	16,959,364	$	16,953,101
Due after one through five years		26,024,601		26,268,237
Due after five through ten years		14,403,734		14,225,000
Equity securities		1,113,114		1,113,114

Total	$	58,500,813	$	58,559,453

Mortgage backed securities have remaining contractual maturities ranging from 2 months to 14.17 years and are reflected in the maturity distribution schedule based on their anticipated average life to maturity, which ranges from 0.20 to 4.55 years. Accordingly, discounts are accreted and premiums are amortized over the anticipated life to maturity of the specific obligation.

Index

The proceeds from sales, calls and maturities of securities, including principal payments received on mortgage backed securities, and the related gross gains and losses realized are as follows:

	Proceeds From						Gross Realized
Years Ended			Calls and		Principal
December 31,	Sales		Maturities		Payments		Gains		Losses

2007	$	345,900	$	19,365,000	$	1,854,838	$	2,399	$	-

2006	$	3,800,409	$	14,461,000	$	1,963,218	$	-	$	17,694

2005	$	522,200	$	9,190,545	$	2,388,713	$	-	$	-

At December 31, 2007 and 2006 securities with amortized costs of $32,207,744 and $30,807,634, respectively, and estimated fair values of $32,357,657 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.

Federal Reserve Bank stock and Federal Home Loan Bank stock are equity securities which are included in securities available for sale in the accompanying consolidated financial statements. Such securities are carried at cost, since they may only be sold back to the respective issuer or another member at par value.

Note 5. Loans

Loans are summarized as follows:

	December 31,
	2007		2006
Commercial, financial and agricultural	$	21,015,554	$	26,968,995
Real estate – construction		12,497,098		13,964,500
Real estate – home equity		6,797,712		7,985,253
Real estate – residential mortgage		61,726,209		61,401,473
Real estate – commercial mortgage		57,921,473		45,578,979
Installment loans		10,902,926		10,634,857
Other		2,011,614		1,611,149
Total loans		172,872,576		168,145,206

Less:
Allowance for loan losses		1,763,300		1,873,038
Net deferred loan origination fees and costs		170,012		54,279

Loans, net	$	170,939,264	$	166,217,889

Included in the above balance of net loans are nonaccrual loans of $4,487,291 and $2,208,400 at December 31, 2007 and 2006, respectively. If interest on those nonaccrual loans had been accrued, such income would have approximated $233,744, $63,341 and $5,662 for the years ended December 31, 2007, 2006 and 2005, respectively.

The bank makes loans to its directors, executive officers and their related interests in the normal course of business. The activity with respect to these loans for the years ended December 31, 2007 and 2006 follows:

	2007			2006
Balance, beginning	$	6,111,725		$	5,892,713
Additions		1,095,224			3,801,609
Amounts collected		(895,513	)		(3,582,597	)

Balance, ending	$	6,311,436		$	6,111,725

The following represents the maturities and sensitivities of loans to changes in interest rates at December 31, 2007, without regard to scheduled periodic principal repayments on amortizing loans:

			Due After 1
	Due		But Within		Due
	Within 1 Yr		5 Yrs		After 5 Yrs		Total
Commercial, financial and agricultural	$	4,660,233	$	5,274,029	$	11,081,282	$	21,015,554
Real estate – construction		7,418,959		4,815,597		262,542		12,497,098
Real estate – home equity		4,517		1,730,362		5,062,833		6,797,712
Real estate – residential mortgage		837,145		4,176,214		56,712,850		61,726,209
Real estate – commercial mortgage		4,546,009		13,026,493		40,348,971		57,921,473
Installment loans		696,450		8,090,003		2,116,473		10,902,926
Other		621,654		642,574		747,386		2,011,614

Total	$	18,784,967	$	37,755,272	$	116,332,337	$	172,872,576


Loans due after one year with:

Variable rates	$	124,768,403
Fixed rates		29,319,206

Total	$	154,087,609

Index

Concentrations of Credit Risk: The bank grants installment, commercial and residential loans to customers in central and eastern West Virginia in striving to maintain a diversified loan portfolio. Nonetheless, concentrations of credit, defined as loans to a customer, the customers’ related parties, or to a number of customers operating in the same industry, which in the aggregate total 25% or more of capital can occur. At December 31, 2007, we had seven such concentrations.

Direct and indirect extensions of credit to automobile dealers, consisting of floor plan loans and other commercial loans which are generally secured by liens on the subject inventories or equipment, totaled $6,963,526. Extensions of credit to companies in the lodging, restaurant and bar industry totaled $12,159,763. These loans are usually made to finance the purchase, operation or improvement of these establishments and are generally secured by liens on the subject property. Extensions of credit for the purchase of rental real estate totaled $16,746,410. These loans are usually made to purchase or improve the subject property and are secured by the rental unit(s). Retail stores and wholesalers have extensions of credit totaling $6,184,262 and $7,800,260, respectively. Credit is extended to these entities primarily to finance the purchase, make capital improvements, or satisfy working capital needs. These loans are generally secured by the company’s real estate, equipment, inventory, and/or accounts receivable. Also, extensions of credit for ski resort related loans totaled $12,960,995. These loans are extended to business and residential properties in and around various West Virginia ski resorts. Additional collateral such as pledges of accounts receivable, real estate, or personal guarantees may also be required when granting any of these credits. The bank evaluates each such customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained is based upon these credit evaluations.

Note 6. Allowance for Loan Losses

An analysis of the allowance for loan losses for the years ended December 31, 2007, 2006 and 2005, is as follows:

	2007		2006		2005

Balance, beginning of year	$	1,873,038	$	1,597,006	$	1,378,106

Charge offs:
Commercial, financial and agricultural		1,538,565		123,400		-
Real estate – commercial mortgage		347,695		-		-
Real estate – residential mortgage		78		-		-
Installment		48,839		39,130		90,212
Total		1,935,177		162,530		90,212

Recoveries:
Commercial, financial and agricultural		8,055		4,100		5,660
Real estate – residential mortgage		-		-		1,022
Installment		34,229		11,077		27,763
Total		42,284		15,177		34,445

Net charge-offs		1,892,893		147,353		55,767
Provision for loan losses		1,783,155		423,385		274,667

Balance, end of year	$	1,763,300	$	1,873,038	$	1,597,006

Index

The following summary provides additional information regarding impaired, nonaccrual and past due loans:

	December 31,
	2007		2006
Impaired loans without a valuation allowance	$	1,467,156	$	155,849
Impaired loans with a valuation allowance		2,570,365		4,991,814
Total impaired loans	$	4,037,521	$	5,147,663

Valuation allowance related to impaired loans	$	623,839	$	990,482

Total nonaccrual loans excluded from impaired loan disclosure	$	449,770	$	506,468
Total loans past due ninety days or more still accruing		206,230		-

	Year Ended December 31,
	2007		2006		2005
Average investment in impaired loans	$	4,244,525	$	3,846,072	$	3,974,629
Interest income recognized on impaired loans		351,874		331,872		292,013
Interest income recognized on a cash basis on impaired loans		124,985		276,007		278,334
Interest income recognized on nonaccrual loans excluded from impaired loan disclosure	$	34,206	$	4,626	$	386

No additional funds are committed to be advanced in connection with impaired loans.

Note 7. Bank Premises and Equipment

The major categories of bank premises and equipment and accumulated depreciation and amortization at December 31, 2007 and 2006, are summarized as follows:

	2007		2006
Land	$	950,403	$	950,403
Buildings and improvements		5,280,882		4,870,355
Furniture and equipment		2,552,090		2,977,312
Total bank premises and equipment		8,783,375		8,798,070

Less accumulated depreciation		4,523,711		4,466,757

Bank premises and equipment, net	$	4,259,664	$	4,331,313

Depreciation expense for the years ended December 31, 2007, 2006 and 2005, totaled $306,684, $338,543 and $400,996 respectively.

Note 8. Deposits

The following is a summary of interest bearing deposits by type as of December 31, 2007 and 2006:

	2007		2006
Interest bearing checking accounts	$	45,697,691	$	41,767,746
Money market accounts		5,405,844		5,979,073
Savings accounts		21,589,320		22,745,891
Certificates of deposit under $100,000		59,984,442		59,949,884
Certificates of deposit of $100,000 or more		40,699,314		38,997,134

Total	$	173,376,611	$	169,439,728

Interest expense on deposits is summarized below:

	2007		2006		2005
Interest bearing checking accounts	$	1,277,151	$	1,161,291	$	613,132
Money market accounts		27,625		33,159		49,703
Savings accounts		120,762		120,996		129,933
Certificates of deposit under $100,000		2,636,307		2,072,523		1,490,864
Certificates of deposit of $100,000 or more		1,899,708		1,493,549		1,092,905

Total	$	5,961,553	$	4,881,518	$	3,376,537

Index

The following is a summary of the maturity distribution of certificates of deposit in amounts of $100,000 or more as of December 31, 2007 and 2006:

	2007					2006
	Amount		Percent			Amount		Percent
Three months or less	$	3,588,278		8.82	%	$	2,350,997		6.03	%
Three through six months		6,447,653		15.84			4,370,990		11.21
Six through twelve months		14,167,482		34.81			10,680,396		27.39
Over twelve months		16,495,901		40.53			21,594,751		55.37
Total	$	40,699,314		100.00	%	$	38,997,134		100.00	%

A summary of the maturities for all time deposits as of December 31, 2007, follows:

Year	Amount
2008	$	60,633,390
2009		10,801,795
2010		7,899,979
2011		14,190,113
2012		7,013,574
After 2012		144,905
Total	$	100,683,756

At December 31, 2007 and 2006, deposits of related parties including directors, executive officers, and their related interests of Citizens Financial Corp. and subsidiary approximated $7,190,207 and 2,748,807, respectively.

Note 9. Derivative Instruments

From 2001 to 2004, the bank offered a product known as the Index Powered CD to its customers. This is a five year certificate of deposit which, if held to maturity, provides the customer with guaranteed return of principal and interest which is linked to the performance of the Standard and Poor’s 500 Index over the term of the certificate of deposit. As of December 31, 2007 and 2006 the notional value of these deposits was $203,373 and $894,278, respectively.

The linkage of the interest earned on the certificate of deposit and the return of the index is considered an equity option and is accounted for as an embedded derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). As required by SFAS 133, the fair value of the embedded derivative is deducted from the certificate of deposit creating a discount that is amortized to interest expense using the effective interest method over the term of the certificate of deposit. The corresponding equity option is carried as a liability at fair value with changes in the value recognized in current earnings.

To manage the market risk associated with this product, the bank entered into interest rate swap agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”) for the notional amount of the certificate of deposit. Under these agreements the bank pays either fixed or variable interest to the FHLB quarterly over the term of the certificate of deposit and the FHLB pays the bank the amount of interest due the customer at maturity.

This interest rate swap also represents a derivative contract and is accounted for as a fair value hedge under SFAS 133. As such, it is carried as an asset at fair value with changes in value being recognized in current earnings. The impact of our derivative activities on pretax income was $(19,639) in 2007, $(43,501) in 2006 and $(37,865) in 2005.

Note 10. Income Taxes

The company files income tax returns in the U.S. federal jurisdiction and the state of West Virginia. With few exceptions, the company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2004. The company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007 with no impact on the financial statements.

The components of applicable income tax expense/(benefit) for the years ended December 31, 2007, 2006 and 2005, are as follows:

	2007		2006			2005
Current:
Federal	$	135,605	$	986,391		$	982,912
State		39,729		144,201			146,870
		175,334		1,130,592			1,129,782
Deferred:
Federal		53,463		(162,754	)		(181,117	)
State		6,290		(12,192	)		(21,307	)
		59,753		(174,946	)		(202,424	)

Total	$	235,087	$	955,646		$	927,358

Index

Deferred income taxes reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured for tax purposes. Deferred tax assets and liabilities represent the future tax return consequences of temporary differences, which will either be taxable or deductible when the related assets and liabilities are recovered or settled.

The tax effects of temporary differences which give rise to the company's deferred tax assets and liabilities as of December 31, 2007 and 2006, are as follows:

	2007			2006
Deferred tax assets:
Allowance for loan losses	$	404,264		$	562,127
Accrued income and expenses		18,060			18,553
Employee benefit plans		733,905			832,401
Net loan origination fees and costs		64,652			20,624
Interest on nonaccrual loans		8,422			-
Deferred gain on sale of other real estate		18,303			-
Net unrealized loss on securities		-			232,041
		1,247,606			1,665,746

Deferred tax liabilities:
Accretion on securities		(31,895	)		(26,265	)
Net unrealized gains on securities		(22,283	)		-
Depreciation		(207,536	)		(197,141	)
		(261,714	)		(223,406	)
Net deferred tax asset	$	985,892		$	1,442,340

A reconciliation between the amount of reported income tax expense and the amount computed by multiplying the statutory income tax rate by book pretax income for the years ended December 31, 2007, 2006 and 2005, is as follows:

	2007						2006						2005
	Amount			Percent			Amount			Percent			Amount			Percent
Computed tax at applicable statutory rate	$	431,430			34.0	%	$	1,034,463			34.0	%	$	1,011,345			34.0	%
Increase/(decrease) in taxes resulting from:
Tax-exempt interest		(226,911	)		(17.9	)		(149,248	)		(4.9	)		(147,527	)		(5.0	)
State income taxes, net of federal tax benefit		30,373			2.4			87,126			2.8			82,872			2.8
Tax exempt income on retirement plans		(28,485	)		(2.2	)		(27,772	)		(0.9	)		(27,755	)		(0.9	)
Other		28,680			2.2			11,077			0.4			8,423			0.3
Applicable income taxes	$	235,087			18.5	%	$	955,646			31.4	%	$	927,358			31.2	%

Note 11. Employee Benefit Plans

The bank offers a number of benefit plans to its employees and directors. Among them are pension and other postretirement benefit plans which are described below.

Pension Plan: The bank has a defined benefit pension plan covering all employees who meet the eligibility requirements. To be eligible, an employee must be 21 years of age and have completed one year/1,000 hours of continuous service. The plan provides benefits based on the participant’s years of service and five year average final compensation. Our funding policy is to make annual contributions as permitted or required by applicable regulations.

Index

401(k) Plan: A 401(k) profit sharing plan is provided for the benefit of all employees who have attained the age of 21 and completed one year/1,000 hours of continuous service. The plan allows participating employees to contribute amounts up to the limits set by the Internal Revenue Service and permits the bank to make discretionary contributions to the plan in such amount as the Board may determine to be appropriate. Contributions made to the plan by the bank for the years ended December 31, 2007, 2006 and 2005, were $49,000, $81,000 and $77,000, respectively.

Executive Supplemental Income Plan: Subsequent to an amendment to the bank’s pension benefit formula in 1995, it offered a nonqualified executive supplemental income plan to certain senior officers, some of whom are now retired, as a means of overcoming the reduced pension benefit. The plan provides predetermined fixed monthly income for a period of 180 months to the participants upon retirement. It is funded by life insurance contracts which the bank purchased. The bank has been named the beneficiary of those contracts. The liability accrued under this plan at December 31, 2007 and 2006 was $247,417 and $253,292, respectively. The cash surrender values of the underlying insurance contracts at those same dates were $561,602 and $516,130. Expenses associated with the plan were $10,566 in 2007, $8,549 in 2006, and $11,217 in 2005.

Executive and Director Supplemental Retirement Plan: Effective January 1, 2003, the bank entered into a non-qualified supplemental executive and director retirement plan with various officers and directors of the bank which provides them with income benefits payable at retirement age or death. In connection with this plan, the bank purchased life insurance contracts in 2002 for $2,000,000. These contracts are not assets of the plan but are instead owned by the bank and had cash surrender values of $2,273,638 at December 31, 2007 and $2,189,860 at December 31, 2006. Liabilities under the plan were $742,566 at December 31, 2007 and $653,097 at December 31, 2006. Expenses of the plan, net of income for the increase in the cash surrender value, were $40,081 in 2007, $66,936 in 2006 and $51,992 in 2005.

Postretirement Healthcare and Life Insurance Plan: The bank sponsors a postretirement healthcare plan and a postretirement life insurance plan for all retired employees that meet certain eligibility requirements. Both plans are contributory with retiree contributions that are adjustable based on various factors, some of which are discretionary. These factors are intended to hold constant the maximum monthly benefit of $100 payable per eligible retiree for postretirement health care. Accordingly, an assumed 1 percentage point increase or decrease in healthcare cost trend rates would not impact the healthcare plan’s accumulated postretirement benefit obligation or the aggregate of the plans service and interest costs. Both the healthcare plan and life insurance plan are unfunded.

Index

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). The company adopted SFAS 158 on a prospective basis beginning with the year ended December 31, 2006. Additional information regarding the company’s pension and other postretirement benefits is presented below in accordance with SFAS 158 for 2007 and 2006. Previous year information for 2005 is presented in accordance with the previous FASB Statements. The measurement date used for the pension disclosures is October 31 for all years presented.

Obligations and Funded Status

	Pension Benefits						Other Benefits
	2007			2006			2007			2006

Change in benefit obligation
Benefit obligation at beginning of year	$	4,811,427		$	4,734,599		$	522,934		$	613,217
Service cost		116,060			112,312			20,070			24,242
Interest cost		288,608			271,181			27,945			31,769
Actuarial (gain)/loss		(46,451	)		(68,016	)		30,421			(119,255	)
Benefits paid		(269,319	)		(238,649	)		(41,486	)		(27,039	)
Benefit obligation at end of year	$	4,900,325		$	4,811,427		$	559,884		$	522,934

Change in plan assets
Fair value of plan assets at beginning of year	$	4,059,169		$	3,755,700		$	-		$	-
Actual return on plan assets		601,238			471,946			-			-
Employer contribution		111,802			70,172			41,486			27,039
Benefits paid		(269,319	)		(238,649	)		(41,486	)		(27,039	)
Fair value of plan assets at end of year	$	4,502,890		$	4,059,169		$	-		$	-

Funded status	$	(397,435	)	$	(752,258	)	$	(559,884	)	$	(522,934	)

Amounts recognized on consolidated balance sheets as:
Accrued benefit liability	$	(397,435	)	$	(752,258	)	$	(559,884	)	$	(522,934	)

Amounts recognized in accumulated other comprehensive income consist of:
Net (loss)/gain	$	(1,120,633	)	$	(1,533,873	)	$	208,745		$	251,293
Prior service (cost)/credit		12,555			29,523			-			-
Net obligation at transition		-			-			(104,717	)		(125,663	)
Deferred tax benefit/(expense)		421,070			571,653			(39,531	)		(47,739	)
	$	(687,008	)	$	(932,697	)	$	64,497		$	77,891

The accumulated benefit obligation of our pension plan was $4,315,444 at October 31, 2007 and $4,213,134 at October 31, 2006.

Index

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

	Pension Benefits									Other Benefits
	2007			2006			2005			2007			2006		2005
Net periodic benefit cost:
Service cost	$	116,060		$	112,312		$	98,730		$	20,070		$	24,242	$	23,575
Interest cost		288,608			271,181			267,484			27,945			31,769		31,084
Expected return on plan assets		(330,584	)		(329,317	)		(341,241	)		-			-		-
Net amortization and deferral		(16,968	)		(16,968	)		(16,968	)		8,819			16,318		15,664
Recognized net actuarial loss		96,135			95,680			47,051			-			-		-
Net periodic benefit cost		153,251			132,888			55,056			56,834			72,329		70,323

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain)/loss for period	$	(317,105	)	$	N/A		$	N/A		$	30,421		$	N/A	$	N/A
Amortization of prior service cost		16,968			N/A			N/A			-			N/A		N/A
Amortization of transition obligation		-			N/A			N/A			(20,946	)		N/A		N/A
Amortization of net loss/(gain)		(96,135	)		N/A			N/A			12,127			N/A		N/A
Total recognized in other comprehensive income		(396,272	)		N/A			N/A			21,602			N/A		N/A

Total recognized in net periodic benefit cost and other comprehensive income	$	(243,021	)	$	132,888		$	55,056		$	78,436		$	72,329	$	70,323

Unrecognized prior service cost is expensed using a straight-line amortization of the cost over the average future service of employees expected to receive benefits under the plan.

The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $70,123 and $(12,555), respectively. The estimated transition obligation for the other defined benefit postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $20,946.

Assumptions

	Pension Benefits									Other Benefits
	2007			2006			2005			2007			2006			2005

Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate		6.00	%		5.75	%		6.50	%		6.00	%		5.75	%		5.75	%
Expected long-term return on plan assets		8.50	%		8.50	%		8.50	%		N/A			N/A			N/A
Rate of compensation increase		3.00	%		3.00	%		3.50	%		N/A			N/A			N/A

Weighted-average assumptions used to determine benefit obligations
Discount rate		6.25	%		6.00	%					6.00	%		5.75	%
Rate of compensation increase		3.00	%		3.00	%					N/A			N/A

The expected long-term rate of return for the pension plan is based on the expected return of each of the plan’s asset categories (detailed below), weighted based on the median of the target allocation of each category.

Plan Assets

	Pension Benefits
	Target						Percentage of Plan
	Allocation			Allowable			Assets at October 31,
	2008			Range			2007			2006
Asset category:
Equity securities		70	%		40-80	%		68	%		74	%
Debt securities		25	%		20-40	%		27	%		20	%
Real estate		0	%		0	%		0	%		0	%
Other		5	%		3-10	%		5	%		6	%
Total		100	%					100	%		100	%

Index

Investment Policy and Strategy

The policy, as established by the Pension Committee, is to invest assets per the target allocations stated above. The assets will be reallocated periodically to meet the above target allocations. The investment policy will be reviewed periodically, under the advisement of a certified investment advisor, to determine if the policy should be changed.

The overall investment return goal is to achieve a return greater than a blended mix of stated indices tailored to the same asset mix of the plan assets by 0.5% after fees over a rolling 5-year moving average basis.

Allowable assets include cash equivalents, fixed income securities, equity securities, exchange traded index funds and GICs. Prohibited investments include, but are not limited to, commodities and future contracts, private placements, options, limited partnerships, venture capital investments, real estate and IO, PO, and residual tranche CMOs. Unless a specific derivative security is allowed per the plan document, permission must be sought from the Pension Committee to include such investments.

In order to achieve a prudent level of portfolio diversification, the securities of any one company should not exceed more that 10% of the total plan assets, and no more that the 25% of total plan assets should be invested in any one industry (other than securities of U.S. Government or Agencies). Additionally, no more than 20% of the plan assets shall be invested in foreign securities (both equity and fixed).

Cash Flows

Contributions: Our pension plan calls for a minimum contribution of approximately $216,082 in 2008. No contributions are expected to be made to our other postretirement plans, however.

Estimated Future Benefits Payments : The following benefit payments, which reflect future service, are expected to be paid:

	Pension Benefits		Other Benefits
2008	$	278,047	$	38,885
2009		280,573		37,410
2010		292,125		37,791
2011		293,673		39,823
2012		296,795		38,225
2013 - 2017		1,566,090		195,989

Note 12. Other Borrowings

Short-Term Borrowings: During 2007 and 2006, our short-term borrowings consisted of securities sold under agreements to repurchase (repurchase agreements), advances under a line of credit with the Federal Home Loan Bank of Pittsburgh (FHLB) and federal funds purchased. Interest is paid on the repurchase agreements based on either fixed or variable rates as determined upon origination. At December 31, 2007 and 2006, securities with an amortized cost of $14,611,458 and $14,095,926, respectively, and estimated fair values of $14,750,799 and $13,900,030, respectively, were pledged to secure the repurchase agreements.

As a member of the FHLB, the bank has access to various lines of credit under programs administered by the FHLB. Borrowings under these arrangements bear interest at the interest rate posted by the FHLB on the day of the borrowing and are subject to change daily. The lines of credit are secured by a blanket lien on all unpledged and unencumbered assets.

The following information is provided relative to our short-term borrowing obligations:

	Repurchase			Line of			Federal Funds
	Agreement			Credit			Purchased
2007
Amount outstanding at December 31	$	14,258,042		$	3,997,900		$	1,400,000
Weighted average interest rate at December 31		3.51	%		4.32	%		4.25	%
Maximum month-end amount outstanding	$	21,888,322		$	3,997,900		$	1,400,000
Average daily amount outstanding	$	18,868,254		$	406,537		$	618
Weighted average interest rate for the year		3.52	%		4.85	%		4.78	%

2006
Amount outstanding at December 31	$	15,970,434		$	3,438,000		$	425,000
Weighted average interest rate at December 31		3.99	%		5.40	%		5.56	%
Maximum month-end amount outstanding	$	25,052,293		$	9,630,000		$	2,800,000
Average daily amount outstanding	$	19,204,359		$	2,699,222		$	69,521
Weighted average interest rate for the year		3.43	%		5.20	%		4.79	%

2005
Amount outstanding at December 31	$	20,511,399		$	-		$	-
Weighted average interest rate at December 31		2.50	%		-			-
Maximum month-end amount outstanding	$	24,983,307		$	1,389,500		$	-
Average daily amount outstanding	$	21,635,619		$	108,678		$	14,178
Weighted average interest rate for the year		2.30	%		3.60	%		3.55	%

Index

Long-Term Borrowings: Long-term borrowings of $2,718,865 and $3,511,770 at December 31, 2007 and 2006, respectively, consist of advances from the FHLB which are used to finance specific lending activities. These advances carry fixed interest rates ranging from 4.46% to 5.00% while the weighted average interest rate at December 31, 2007 was 4.56%. The weighted average interest rate for the year ending December 31, 2007 was 4.50%.

A summary of the maturities of the long-term borrowings for the next five years is as follows:

Year	Amount
2008	$	375,518
2009		392,915
2010		411,119
2011		430,167
2012		337,590
2013 and thereafter		771,556

Total	$	2,718,865

Note 13. Commitments and Contingencies

At December 31, 2007 and 2006, the bank maintained required reserve balances with the Federal Reserve Bank of Richmond approximating $338,000 and $123,000, respectively. The bank does not earn interest on such reserve balances.

Litigation: We are involved in various legal actions arising in the ordinary course of business. In the opinion of counsel, the outcome of these matters will not have a significant adverse effect on our financial condition or results of operations.

Financial Instruments With Off-Balance-Sheet Risk: The 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. These 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 these instruments reflect the extent of involvement the bank has in particular classes of financial instruments.

	Contract Amount
Fi nancial instruments whose contract amounts represent credit risk	2007		2006
Commitments to extend credit	$	24,602,947	$	22,054,312
Standby letters of credit		301,223		461,689

Total	$	24,904,170	$	22,516,001

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 these instruments. The bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Index

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inventory, equipment or real estate.

Standby letters of credit are conditional commitments issued by the bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans. These letters of credit are generally uncollateralized.

Note 14. Shareholders’ Equity and Restrictions on Dividends

The primary source of funds for the dividends paid by Citizens Financial Corp. is dividends received from Citizens National Bank. Dividends paid by the bank are subject to restrictions by banking regulations. The most restrictive provision requires approval by the Office of the Comptroller of the Currency if dividends declared in any year exceed the year's net income, as defined, plus the retained net profits of the two preceding years. At December 31, 2007, the net retained profits available for distribution to Citizens Financial Corp. as dividends without regulatory approval approximate $1,875,098 or 8.8% of consolidated net assets.

The company and bank are subject to various regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the company and bank must meet specific capital guidelines that involve quantitative measures of the company’s and bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The company and bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the company and bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. We believe, as of December 31, 2007, that the company and bank meet all capital adequacy requirements to which they are subject.

The most recent notification from the Office of the Comptroller of the Currency categorized the bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. There are no conditions or events since that notification that we believe have changed the bank's category.

The bank’s actual capital amounts and ratios, which are the same as those for the holding company on a consolidated basis, are presented in the following table (in thousands).

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio

As of December 31, 2007:
Total Capital:Risk Weighted Assets	$	23,328		12.52	%	$	14,906		8.00	%	$	18,633		10.00	%
Tier I Capital:Risk Weighted Assets		21,565		11.57			7,455		4.00			11,183		6.00
Tier I Capital:Average Assets		21,565		8.75			9,858		4.00			12,323		5.00

As of December 31, 2006:
Total Capital:Risk Weighted Assets	$	22,413		12.95	%	$	13,846		8.00	%	$	17,307		10.00	%
Tier I Capital:Risk Weighted Assets		20,540		11.87			6,922		4.00			10,382		6.00
Tier I Capital:Average Assets		20,540		8.49			9,677		4.00			12,097		5.00

Note 15. Fair Value of Financial Instruments and Interest Rate Risk

The following summarizes the methods and significant assumptions used in estimating fair value disclosures for financial instruments.

Index

Cash and Due From Banks: The carrying values of cash and due from banks approximate their estimated fair values.

Federal Funds Sold: The carrying values of federal funds sold approximate their estimated fair values.

Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. No prepayments of principal are assumed.

Accrued Interest Receivable and Payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values.

Deposits: The estimated fair values of demand deposits (i.e. noninterest bearing and interest bearing checking), money market, savings and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

Short-Term Borrowings: The carrying values of short-term borrowings approximate their estimated fair values.

Long-Term Borrowings: The fair values of long-term borrowings are estimated by discounting scheduled future payments of principal and interest at current rates available on borrowings with similar terms.

Off-Balance-Sheet Instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit standing of the counterparties. The amounts of fees currently charged on commitments and standby letters of credit are deemed insignificant, and therefore, the estimated fair values and carrying values are not shown below.

Derivative Financial Instruments: The fair values of the interest rate swaps are based on quoted market prices of like products.

The carrying values and estimated fair values of the company's financial instruments are summarized below:

	December 31, 2007				December 31, 2006
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	7,049,699	$	7,049,699	$	6,064,890	$	6,064,890
Interest bearing deposits with other banks		12,421		12,421		29,858		28,858
Federal funds sold		-		-		-		-
Securities available for sale		58,559,453		58,559,453		59,745,539		59,745,539
Loans, net		170,939,264		166,266,520		166,217,889		158,001,485
Accrued interest receivable		1,384,943		1,384,943		1,393,468		1,393,468

Financial liabilities:
Deposits	$	201,296,470	$	202,239,030	$	196,543,215	$	197,344,439
Short-term borrowings		19,655,942		19,655,942		19,833,434		19,833,434
Long-term borrowings		2,718,865		2,720,621		3,511,770		3,426,840
Accrued interest payable		523,403		523,403		511,094		511,094


Financial instruments:
Interest rate swaps and call options	$	2,957	$	2,957	$	21,054	$	21,054

The company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the company’s overall interest rate risk.

Index

Note 16. Condensed Financial Statements of Parent Company

Information relative to the parent company's balance sheets at December 31, 2007 and 2006, and the related statements of income and cash flows for the years ended December 31, 2007, 2006 and 2005, are presented below.

				December 31,
Balance Sheets				2007			2006
Assets
Cash				$	2,992		$	2,853
Investment in subsidiary					21,077,936			20,275,166
Total assets				$	21,080,928		$	20,278,019


Shareholders' equity
Common stock, $2.00 par value, 4,500,000 shares authorized, issued 2,250,000 shares				$	4,500,000		$	4,500,000
Retained earnings					20,998,645			20,842,981
Accumulated other comprehensive income/(loss)					( 586,154	)		(1,233,399	)
Treasury stock at cost, 420,496 shares					(3,831,563	)		(3,831,563	)
Total shareholders' equity				$	21,080,928		$	20,278,019

	For the Years Ended December 31,
Statements of Income	2007			2006			2005
Income - dividends from subsidiary bank	$	883,801		$	1,512,770		$	1,288,485
Expenses - operating		5,500			7,400			6,203
Income before equity in undistributed income of subsidiary		878,301			1,505,370			1,282,282
Equity in undistributed income of subsidiary		155,525			581,521			764,904
Net income	$	1,033,826		$	2,086,891		$	2,047,186

	For the Years Ended December 31,
Statements of Cash Flows	2007			2006			2005
Cash flows from operating activities
Net income	$	1,033,826		$	2,086,891		$	2,047,186
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiary		(155,525	)		(581,521	)		(764,904	)
Cash provided by operating activities		878,301			1,505,370			1,282,282

Cash flows from investing activities		-			-			-

Cash flows from financing activities
Dividends paid to shareholders		(878,162	)		(1,048,482	)		(992,726	)
Acquisition of treasury stock		-			(456,171	)		(290,074	)
Cash used in financing activities		(878,162	)		(1,504,653	)		(1,282,800	)

Increase/(decrease) in cash		139			717			(518	)
Cash:
Beginning		2,853			2,136			2,654
Ending	$	2,992		$	2,853		$	2,136

Index

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Citizens Financial Corp. and Subsidiary

Elkins, West Virginia

We have audited the consolidated balance sheets of Citizens Financial Corp. and Subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citizens Financial Corp. and Subsidiary as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management's assertion about the effectiveness of Citizens Financial Corp. and Subsidiary’s internal control over financial reporting as of December 31, 2007 included in the accompanying Report of Management’s Assessment of Internal Control Over Financial Reporting and, accordingly, we do not express an opinion thereon.

Yount, Hyde & Barbour, P.C.

Winchester, Virginia

March 12, 2008

Index

It e m 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No reportable items.

I te m 9A(T). Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, 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 the company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-4. Based upon that evaluation, the chief executive officer and principal financial officer concluded that the company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the company which is required to be included in the company’s periodic SEC filings. The company did not have any changes in internal control over financial reporting during its fourth quarter for the year ending December 31, 2007, that materially effected, or were reasonably likely to effect the company’s internal control over financial reporting.

Report of Management’s Assessment of Internal Control Over Financial Reporting

Citizens Financial Corp. is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily include some amounts that are based on management’s estimates and judgments.

The management of Citizens Financial Corp. is responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

The Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s actions taken in discharging responsibilities for accounting, financial reporting, and internal control. Yount, Hyde & Barbour, P.C., independent registered public accounting firm, and the internal auditors have direct and confidential access to the Audit Committee at all times to discuss the results of their examinations.

Management assessed the company’s system of internal control over financial reporting as of December 31, 2007. In making this assessment, we used the criteria for effective internal control over financial reporting set forth in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concludes that, as of December 31, 2007, its system of internal control over financial reporting is effective and meets the criteria of the Internal Control-Integrated Framework. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

I te m 9B. Other Information

No reportable items.

Index

PART III

I te m 10. Directors, Executive Officers, and Corporate Governance

The number of directors of the company may consist of not less than five nor more than 25 persons in accordance with the company’s Articles of Incorporation. The number of directors is fixed by resolution of a majority vote of shareholders and currently stands at ten. Among them, Mr. John A. Yeager, CPA, serves as an independent director and as the company’s audit committee financial expert. Mr. Yeager received his bachelor’s degree in accounting from West Virginia University in 1980 and has six years experience in public accounting. During that time Mr. Yeager gained experience in the audit of banks whose characteristics and complexity are similar to Citizens. Mr. Yeager also has served as controller for two nonbanking companies for approximately nineteen years. He has served on the board of directors of Citizens National Bank since April, 1999 and of Citizens Financial Corp. since April, 2003. His current term on the holding company board expires in April, 2009. The following table sets forth the names of all of the persons who have served as directors of Citizens Financial Corp. for the year ended December 31, 2007, their ages and principal occupations, their length of service to the company and the expiration of their present terms.

Name and Age	Principal Occupation During Past Five Years	Director Since (1)	Present Term Expires

Robert N. Alday 92	President, Phil Williams Coal Company	September, 1986	April, 2009

Max L. Armentrout 70	President, and Chairman of the Board, Laurel Lands Corp.; Chairman of the Board, Citizens Financial Corp.	September, 1986	April, 2008 (2)

William J. Brown 61	President, Hess Oil Co., Inc.	February, 2000	April, 2010

Edward L. Campbell 68	Co-Owner, Retired, Campbell’s Market	February, 2000	April, 2010

William T. Johnson, Jr. 64	President and Chief Executive Officer and Executive Vice President, Citizens National Bank	April, 2005	April, 2008 (2)

Cyrus K. Kump 61	President, Kump Enterprises; Kerr Real Estate	June, 1992	April, 2009

Robert J. Schoonover 68	President and Chief Executive Officer, Citizens Financial Corp. and Citizens National Bank	April, 1998	April, 2010

L. T. Williams 77	Consultant, Retired, Elkins Builders Supply	September, 1986	April, 2008 (2)

John A. Yeager, CPA 49	Controller, Newlons International Sales, LLC	April, 2003	April, 2009

(1)	All of the above named directors, with the exception of Mr. Alday, have also served as directors of Citizens National Bank for the past five years on a continuous basis. Mr. Alday has not served Citizens National Bank in any official capacity.

(2)	Mr. Armentrout, Mr. Johnson, and Mr. Williams have been nominated to stand for reelection to an additional 3 year term expiring in April, 2011.

Index

Set forth below are the executive officers of Citizens Financial Corp. and subsidiary, their age, present position and relations that have existed with affiliates and others during the past five years.

Name and Age	Present Position	Principal Occupation and Banking Experience During the Last Five Years

Robert J. Schoonover 68	President & CEO, Citizens Financial Corp.	President and Chief Executive Officer, Citizens Financial Corp. and Citizens National Bank

William T. Johnson, Jr. 64	Vice President, Citizens Financial Corp. President &CEO, Citizens National Bank	President and Chief Executive Officer and Executive Vice President, Citizens National Bank

Thomas K. Derbyshire 49	Vice President & Treasurer, Citizens Financial Corp. Executive Vice President, Citizens National Bank	Executive Vice President, Senior Vice President and Chief Financial Officer, Citizens National Bank

Rudy F. Torjak, Jr. 59	Senior Vice President and Chief Credit Officer, Citizens National Bank	Senior Vice President and Chief Credit Officer, Citizens National Bank; Senior Vice President-Commercial Loans, Wesbanco, Inc.

Nathaniel S. Bonnell 26	Vice President and Chief Financial Officer, Citizens National Bank	Vice President and Chief Financial Officer, and Financial Reporting Manager Citizens National Bank

Citizens has adopted a Code of Ethics that applies to all employees, including its executive officers. In the event that Citizens makes any amendment to, or grants any waivers of, a provision of the Code of Ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, the company intends to disclose such amendment or waiver and the reasons therefore, and Citizens will disclose the nature of such amendment or waiver in a report on Form 8-K. Citizens’ Code of Ethics may be viewed by accessing our website at www.cnbelkins.com.

I te m 11. Executive Compensation

Executive Compensation: The executive officers of Citizens Financial Corp. serve without compensation from the company. Those serving as officers of the subsidiary bank are compensated by the bank for that service, however. The principal executive officer of the corporation serves without compensation from the bank or the company. He is currently retired from the bank and receives fees for his role as a director of the company, as well as from retirement plan distributions. None of the company’s executive officers serve under an employment agreement with the company. Compensation is primarily comprised of a base salary that is adjusted by the Board’s personnel committee annually. The company currently does not provide equity or incentive based compensation to executive officers.

The following table sets forth the compensation of the company's Principal Executive Officer (PEO), as well as the two most highly compensated executive officers, other than the PEO, who were serving as executive officers at the end of the last completed fiscal and have total annual compensation exceeding $100,000.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary ($)		Nonqualified Deferred Compensation Earnings (1)		All Other Compensation (2) (3)		Total
Robert J. Schoonover,
President & CEO	2007	$	-		N/A	$	83,991	$	83,991
Citizens Financial Corp	2006		-		N/A		79,992		79,992
(Principal Executive Officer)

William T. Johnson, Jr.
VP, Citizens Financial Corp.	2007		145,906	$	12,753		17,113		175,772
President & CEO,	2006		126,356		21,572		16,927		164,855
Citizens National Bank

Thomas K. Derbyshire
VP & Treasurer,	2007		136,090		4,533		3,880		144,503
Citizens Financial Corp.	2006		120,113		5,664		5,851		131,628
Executive Vice President, Citizens National Bank

Index

(1)

Mr. Schoonover is retired from the bank and receives payments from supplemental retirement plans. The payment of such benefits results in a decrease in the value of each nonqualified deferred compensation plan, therefore these have been excluded from the table above. He participates in the executive supplemental income plan and the executive and director supplemental retirement plan; the change in the values of those plans was $(33,091) in 2007 and $(42,227) in 2006.

(2)

Mr. Schoonover and Mr. Johnson also serve as members of the board of directors. In 2007, for his services as a director, Mr. Schoonover received director fees of $26,519 for board and committee meetings, as well as other compensation totaling $27,859 which included $20,004 for consulting fees and the remainder for insurance premiums paid for the benefit of the director. In 2006, Mr. Schoonover received director fees of $22,279 for board and committee meetings, as well as other compensation totaling $28,228. Mr. Johnson received $9,219 and $9,319 in director fees for his services on the board for 2007 and 2006, respectively.

(3)

In addition to the board fees described in the preceding footnote, this column includes the company’s contributions to the individual’s 401(k) retirement savings program to which the individual has a vested interest and taxable income resulting from participation in a bank sponsored executive and director supplemental retirement plan. The bank's group life and health insurance program, which is paid for by the bank, is made available to all full-time employees and does not discriminate in favor of directors or officers; however, in accordance with IRS Code Section 79, the cost of group term life insurance coverage for an individual in excess of $50,000 is added to the individual's earnings and is also included in this figure. Since Mr. Schoonover is retired from the bank his figure also includes, $9,061 received from the executive supplemental income plan, $20,424 received from the executive and director supplemental retirement plan for each of the years presented.

Retirement Plans: Citizens Financial Corp., having no employees, has no retirement program, but Citizens National Bank has a pension program for its eligible employees. This pension plan is a qualified retirement plan and is available to all employees, including officers, who meet the eligibility requirements. Directors do not participate in this plan. The bank’s defined benefit pension plan covers all employees who meet the eligibility requirements. To be eligible, an employee must be 21 years of age and have completed one year/1,000 hours of continuous service. Our funding policy is to make annual contributions as permitted or required by applicable regulations. Pensions for all participants are based on five-year average final compensation. Credits are received for each year of participation at the following rates: 1 percent of the first $9,600 of the 5-year average final compensation and 1.5 percent of such average final compensation in excess of $9,600, all multiplied by years of service up to a 25-year maximum. The pension benefits are payable to participants on a monthly basis in the form of a joint and 50 percent survivor annuity for all married participants who do not elect otherwise, or in the form of a single life annuity for all other participants or survivors. Joint and 100 percent survivorship, single life annuity or 120 payments guaranteed are other optional forms of distribution. Under the plan, the normal retirement age is 65. However, an employee can retire beginning at age 60 and received full benefits based on the same formula described above using their current years of service and last five years of compensation. Mr. Schoonover, who is retired from the bank, is currently receiving an annual benefit of $30,467 under this plan. Mr. Johnson is eligible to retire under the early retirement provisions of this plan. Additional information regarding the plan is contained in Note 11 to the accompanying consolidated financial statements.

The bank has established a 401(k) plan for the benefit of all employees who meet eligibility requirements. A description of the Plan, the eligibility requirements and the contributions made to the Plan by the bank for the years ended December 31, 2007, 2006 and 2005 may be found in Note 11 to the accompanying consolidated financial statements.

The bank entered into a nonqualified supplemental income plan with certain senior officers as described in Note 11 to the accompanying consolidated financial statements. A copy of the plan, and the amendments thereto, are incorporated herein by reference to the exhibits contained in the company’s Forms 10-K dated December 31, 1997 and 1996. The plan was originally established for certain key officers after the employee pension plan benefit calculations were revised and benefits were reduced. This plan was purchased to replace the lost retirement income the officers had suffered through the pension modification. Normal retirement age under the plan is 65. However, executives can receive 100% of their retirement benefit if they retire early after age 62 and have completed 30 years of service. This deferred compensation plan calls for 180 equal monthly payments to be paid beginning after retirement. The monthly retirement benefit for Mr. Schoonover, Mr. Johnson, and Mr. Derbyshire is $755, $669, and $1,069, respectively. These payment amounts were determined at plan inception as a direct result of the benefits lost in the pension modification. Mr. Schoonover is currently receiving benefits under the plan, and Mr. Johnson is currently qualified to retire under the early retirement provisions.

Index

Also as explained in Note 11, effective January 1, 2003, the bank entered into another nonqualified executive and director supplemental retirement plan with its directors and those officers who qualified. A copy of the plan is incorporated herein by reference to Exhibit 10 contained in the company’s Form 10-K dated December 31, 2003. This plan was designed to reward directors and key officers for their service on a basis consistent with that of many of our competitors. Benefits paid under the plan (if any) are the result of excess after-tax earnings of certain life insurance contracts purchased by the bank over a defined opportunity cost. The opportunity cost is defined as a rolling 5 year average of the 3 year Treasury bill. The excess earnings are used to compute a retirement benefit that is recorded in a pre-retirement account as a liability on books of the registrant for each plan year. The change in the pre-retirement benefit is included in the summary compensation table above under the caption Nonqualified Deferred Compensation Earnings . Upon retirement of an executive, the balance in the pre-retirement account is paid to the executive in 120 monthly installments or until the executive’s death. In addition to these payments, the retiree also receives the additional excess earnings for each plan year subsequent to his retirement until death. These excess earnings are calculated using the same formula as described in this paragraph. The plan defines normal retirement age as 65, but an executive can retire with 100% of his benefits at age 62 if he has 30 years of service with the company. If the executive retires or leaves employment before he is age 65 and does not have 30 years of service, he will receive no benefit from the plan. Mr. Schoonover receives benefits from this plan, and Mr. Johnson is currently qualified to retire under this plan with full benefits. The plan also includes a death benefit for each executive. If an executive dies before retirement, his designee will receive a death benefit of two and one half times the executive’s final pre-tax gross salary. If the executive dies after retirement, his designee will receive a $100,000 death benefit. In either case, the executive’s designee also receives any remaining retirement benefit as well.

Other Benefits: Senior management also participates in the bank’s other benefit plans on the same terms as other employees. These plans include medical insurance, life insurance, and discounts on bank products.

Change in Control: No employment contracts exist between any executive officer and the registrant, or its subsidiary. However, the executive supplemental income plan and the executive and director supplemental retirement plan described above both contain a change in control clause.

Under the executive supplemental income plan, if a change in control occurs and the executive voluntarily terminates his position, is permanently disabled, or is discharged without just cause he is entitled to receive full benefits under this plan up beginning at the early retirement age (62) without satisfying any minimum years of service requirement. The monthly retirement benefit for Mr. Schoonover, Mr. Johnson, and Mr. Derbyshire is $755, $669, and $1,069, respectively.

Under the executive and director supplemental retirement plan, if there is a change in control and the executive is subsequently terminated without cause, the benefits to be received under the plan vest as if the executive had worked for the company until normal retirement age. The executive will continue to accrue benefits based on the original benefit formula and will receive benefits upon attaining normal retirement age.

Director Compensation: The following table presents the compensation of the directors of the company for the year ended December 31, 2007:

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash		Nonqualified Deferred Compensation Earnings		All Other Compensation (1)		Total
Robert N. Alday	$	600	$	-	$	-	$	600
Max L. Armentrout		20,859		20,511		37,751		79,121
William J. Brown		20,359		7,837		11,017		39,213
Edward L. Campbell		14,209		11,985		10,812		37,006
John F. Harris (2)		11,434		3,937		252		15,623
Cyrus K. Kump		24,219		8,308		11,017		43,544
L.T. Williams		21,319		15,626		252		37,197
John A. Yeager		18,569		-		594		19,163

Index

(1)

For his service as chairman of the board, Mr. Armentrout received consulting fees of $26,784. The bank paid health insurance premiums for Mr. Armentrout, Mr Brown, Mr. Campbell, and Mr. Kump in the amount of $10,255 per person.

(2)

Mr. Harris retired from the board of directors July 20, 2007 at age 79. Mr. Harris’ retirement was not the result of any disagreement or conflict with the company’s directors or executive officers. Mr. Harris had served as a director of Citizens Financial Corp. since its inception in 1986.

The table above includes all directors of Citizens Financial Corp, except for Robert J. Schoonover and William T. Johnson, Jr. who also serve as executive officers. With the exception of Mr. Alday, each director also serves on the board for Citizens National Bank. The table includes compensation from the company and the subsidiary bank. There are four additional directors excluded from the table above that only serve on the board for Citizens National Bank. The bank directors, Dickson W. Kidwell, Franklin M. Santmyer, Jr., Thomas A. Wamsley, and C. Curtis Woodford earned total compensation of $34,886, $13,291, $23,859, and $10,171, respectively.

Directors of the registrant are compensated for meetings attended in the amount of $100 per meeting. Directors of the bank receive $663 per meeting. Under normal circumstances, the Board of Citizens Financial Corp. meets quarterly while the Citizens National Bank Board meets monthly. Directors also receive monthly fees for serving on and attending the meetings of various committees such as the loan committee, audit committee, or compliance committee. Directors do not participate in the bank’s pension plan. However, they do participate in the executive and director supplemental retirement plan. The benefit calculation of the plan for the directors is substantially the same as the officers, except their vesting period to receive benefits is 15 years, normal retirement age is 70 and their death benefit is $100,000 regardless of retirement status. The amount of earnings allocated to each director under this plan is included in the above table.

Also included in the Other Compensation column above are insurance premiums paid by the bank for benefit of the directors, as well as a consulting fee paid to chairman of Citizens Financial Corp., Max L. Armentrout in the amount of $26,784.

I te m 12. Security Ownership of Certain Beneficial Owners and Management

The company does not have any plan that provides for the issuance of any securities under equity compensation plans.

The company has one shareholder, Max L. Armentrout, who is the beneficial owner of more than 5% of the company's common stock, the only class of stock outstanding, as of February 28, 2008. Mr. Armentrout, who is chairman of the board of directors of the company, beneficially owns 94,220 shares or 5.15% of the outstanding stock. His direct and indirect ownership is disclosed in the table below.

The following table sets forth the amount and percentage of stock of Citizens Financial Corp. beneficially owned by each director and executive officer of the company, and by all directors and executive officers as a group, as of February 28, 2008.

	Shares of Stock Beneficially Owned								Percent of
Name	Direct		Indirect			Total			Ownership

Max L. Armentrout		79,005		15,215	(1)		94,220			5.15	%
PO Box 1758
Elkins, WV 26241
Robert N. Alday		1,500		60,600	(2)		62,100			3.39	%
William J. Brown		2,250		3,250	(3)		5,500			0.30	%
Edward L. Campbell		1,500		450	(4)		1,950			0.11	%
William T. Johnson, Jr.		1,500		8,554	(5)		10,054			0.55	%
Cyrus K. Kump		1,500		11,550	(6)		13,050			0.71	%
Robert J. Schoonover		1,500		300	(7)		1,800			0.10	%
L. T. Williams		5,250		0			5,250			0.29	%
John A. Yeager		5,025		475	(8)		5,500			0.30	%
Thomas K. Derbyshire		210		0			210			0.01	%

Directors and executive officers of the Bank		11,420		10,740			22,160	(9)		1.21	%
All Directors and executive officers as a group		110,660		111,134			221,794			12.12	%

Index

(1)	These 15,215 shares are owned by Mr. Armentrout's wife.

(2)

Mr. Alday's indirect ownership includes 20,400 shares owned by his wife and 40,200 shares which he votes for the Phil Williams Coal Company. The 40,200 shares he votes for the Phil Williams Coal Company are also pledged as collateral for a loan made in the normal course of business by the subsidiary bank.

(3)	Includes 1,750 shares owned jointly with his wife and 1500 shares held in custody for their children.

(4)	Includes 300 shares owned jointly with his wife and 150 shares owned by his wife.

(5)	Includes 5,734 shares owned jointly with his wife and 2,820 shares owned by his wife.

(6)	Includes 6,050 shares owned by his wife and 5,500 shares held in custody for their children.

(7)	These 300 shares are owned jointly with his wife.

(8)	These 475 shares are owned jointly with his wife.

(9)	This figure represents the ownership of persons who are directors of the subsidiary bank but not of the company. Such persons number four.

I te m 13. Certain Relationships and Related Transactions and Director Independence

Management personnel of Citizens Financial Corp. have had and expect to continue to have banking transactions with Citizens National Bank in the ordinary course of business. Extensions of credit to such persons are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. It is the opinion of management that these transactions do not involve more than a normal risk of collectibility or present other unfavorable features.

As of December 31, 2007, outstanding loan balances to related parties totaled $6,311,436 or 29.9% of equity capital with unused lines of credit of $1,427,620 or 6.8% of the equity capital of Citizens Financial Corp. outstanding to these parties.

Other than loans originated in the normal course of business by the Bank, none of the directors, executive officers, 5 percent or more beneficial stockholders or their immediate family members have an interest or are involved in any transactions with Citizens Financial Corp. or Citizens National Bank in which the amount involved exceeds $120,000, or was not subject to the usual terms or conditions, or was not determined by competitive bids. Information related to loans granted to related parties in excess of $120,000 is contained in Note 5 to the accompanying consolidated financial statements. Similarly, no director, executive officer or 5 percent or more beneficial stockholder has an equity interest in excess of 10 percent in a business or professional entity that has made payments to or received payments from Citizens Financial Corp. or Citizens National Bank in 2007 which exceeds 5 percent of either party's gross revenue.

I te m 14. Principal Accounting Fees and Services

Fees for services provided by our principal accountants are provided below:

	2007		2006


Audit Fees	$	58,900	$	39,050
Audit-Related Fees		22,277		7,647
Tax Fees		5,100		5,600
All Other Fees		-		-

Audit fees consist of fees for professional services rendered for the audit of the Company’s financial statements and review of financial statements included in the Company’s quarterly reports. Audit-related fees are primarily related to consultations concerning financial accounting and reporting standards. The increase in 2007 audit-related fees is primarily attributable to assurance services on the methodology used in developing the company’s allowance for loan losses. Tax fees consist of compliance fees for the preparation of original tax returns and fees for tax consulting services.

Index

The Audit Committee Charter requires that the audit committee pre-approve all audit and non-audit services to be provided to Citizens by the independent accountants; provided, however, that the audit committee may specifically authorize its chairman to pre-approve the provision of any non-audit service to the company. Further, the foregoing pre-approved policies may be waived, with respect to the provision of any non-audit services consistent with the exceptions for federal securities law. All of the audit, audit related, and tax services described above were pre-approved by the audit committee.

Part IV

I te m 15. Exhibits and Financial Statements Schedules

(a)	(1) and (2) Financial Statements and Financial Statement Schedules.

All financial statements and financial statement schedules required to be filed by Item 8 of this Form or by Regulation S-X which are applicable to the registrant have been presented in the financial statements, notes thereto, in management's discussion and analysis of financial condition and results of operations or elsewhere where appropriate.

(3) The following is a list of all exhibits filed as part of this report:

Index

INDEX TO EXHIBITS

3 (i)		The company’s Articles of Incorporation, which were previously filed as amended on pages 23-35 of it’s Form 10-Q dated March 31, 2006, are incorporated herein by reference.

3 (ii)		The company’s Bylaws, which were previously filed as amended on pages 36-41 of it’s Form 10-Q dated March 31, 2006, are incorporated herein by reference.

4		The rights of security holders are defined in the Articles of Incorporation which were previously filed as amended on pages 66-70 of our Form 10-K dated December 31, 1999 which is incorporated herein by reference.

10		The following material contracts are incorporated by reference into this filing:

		1) The bank’s Executive Supplemental Income Agreement as previously filed on pages 74-80 of the company’s Form 10-K dated December 31, 1995 and thereafter amended and filed on page 62 of the company’s Form 10-K dated December 31, 1996.

		2) The bank’s Purchase and Assumption Agreement with South Branch Valley National Bank for the purchase of it’s banking facilities, assets and liabilities located in Petersburg, West Virginia dated December 17, 1999 and filed on pages 71-113 of the company’s Form 10-K dated December 31, 1999.

		3) The bank’s Supplemental Retirement and Split Dollar Life Insurance plans for executives and directors dated January 1, 2003 and previously filed on pages 75-110 of it’s Form 10-K dated December 31, 2003.

11		The computation of per share earnings may be clearly determined by the material contained in this filing.

12		The computation of minimum standard capital ratios, as contained in this report, was done as specified in applicable regulatory guidelines. All other ratios presented may be clearly determined from the material contained in this filing

14		The company’s Code of Ethics, which is applicable to all employees of the company and it’s subsidiary, including the principal executive officer and principal accounting officer, has been made available on the company’s website, www.cnbelkins.com , and is, therefore, not filed as part of this Form 10-K.

21		List of subsidiaries of the registrant (filed herewith).

23		Consent of Yount, Hyde and Barbour, P.C. (filed herewith).

31.01		Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.02		Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.01		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith).

32.02		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith).

99		Notice of Annual Meeting of Stockholders and Proxy

(b)		Exhibits required by item 601 of Regulation S-K-all applicable exhibits have been filed as detailed in the Index to Exhibits. Exhibits contained in item 601 of Regulation S-K but not contained in the Index are not applicable or are not required in Form 10-K.

Index

Signatures

Pursuant to the requirements of Section 15(d) 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.

	By /s/ Robert J. Schoonover
	Robert J. Schoonover
	President and Chief Executive Officer

	Date:	3/12/08


	By /s/ Thomas K. Derbyshire
	Thomas K. Derbyshire
	Treasurer and Principal Financial Officer

	Date:	3/12/08

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature	Title	Date


/s/ Max L. Armentrout	Chairman of the Board	3/12/08
Max L. Armentrout	and Director

	Director
Robert N. Alday


/s/ William J. Brown	Director	3/12/08
William J. Brown


/s/ Edward L. Campbell	Director	3/12/08
Edward L. Campbell

/s/ William T. Johnson, Jr.	Director	3/12/08
William T. Johnson, Jr.


/s/ Cyrus K. Kump	Director	3/12/08
Cyrus K. Kump


/s/ Robert J. Schoonover	Director	3/12/08
Robert J. Schoonover


/s/ L. T. Williams	Director	3/12/08
L. T. Williams


	Director
John A. Yeager

Index

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO

SECTION 15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES

PURSUANT TO SECTION 12 OF THE ACT

The entire annual report and proxy materials mailed to the company's stockholders has been furnished to the Commission for its information under separate cover, in paper format, concurrent with submission to stockholders on March 21, 2008.

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