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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

          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.

          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.

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

        The aggregate market value of Citizens Financial Corp. common stock, representing all of its voting stock that was held by nonaffiliates on the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2002), was approximately $18,452,000.

          As of February 28, 2003, Citizens Financial Corp. had 750,000 shares of common stock outstanding with a par value of $2.00.

          This report contains 74 pages.

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CITIZENS FINANCIAL CORP.
FORM 10-K INDEX

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Citizens Financial Corp.
Form 10-K, Part I

Organizational History and Subsidiaries

          Citizens Financial Corp., (“Citizens” or “the company”), is a $182 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”) and Citizens Financial Services, LLC.

          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.

          Citizens Financial Services was organized in West Virginia in 2000 for the purpose of investing in ProServ Insurance Agency, LLC.  ProServ is a general insurance agency selling primarily property and casualty insurance and whose members are member banks of the West Virginia Bankers Association.  Citizens Financial Services’ ownership in ProServ is less than 5%.

Business of Citizens and Subsidiaries

          As a bank holding company, Citizens’ operations have been limited to the ownership of its subsidiaries.  To date it has not sought to conduct any other form of permitted business activity, nor are there any current plans to do so. Similarly, Citizens Financial Services’ operations have been, and will continue to be, limited to its ownership in ProServ.  The financial impact of this venture on Citizens has been extremely minor.

          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 and telebanking 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 5 of its 6 offices.  In this regard, the bank has developed three

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primary loan portfolios:  real estate, commercial, and consumer. Real estate loans consist of both residential and nonresidential loans. Residential real estate 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 mortgage loans are made within the banks’ 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 the directors loan committee.  Historically, Citizens has 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 officer.

          Commercial real estate loans consist of commercial mortgages which are generally secured by nonresidential and multifamily (5 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 as well as periodic review by the bank’s loan review officer.

          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 borrowers 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 the largest loans made by the bank and are considered to carry a higher level of risk than other types of loans.  Underwriting standards require a comprehensive credit analysis, and the appraisal of real property and significant machinery, such as lumbering equipment, held as collateral.  Citizens attempts to limit risk by diversifying its commercial loan portfolio within the constraints of its economic market and closely monitors any concentrations of credit. Periodic credit reviews of commercial loans are performed by the loan review officer.

          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 officer.  As a result, risk is closely tied to adherence to proper underwriting procedures and the state of the local economy.

          Citizens’ credit policies and procedures, some of which were previously referred to, 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 Citizens serves.

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Adherence to policies is ensured by testing by both the internal auditor and compliance officer.  Further information on the company’s 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.  Citizens’ 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 5 years; bank qualified, investment grade municipal obligations maturing in less than 10 years; investment grade corporate bonds with maturities of 5 years or less; and mortgage backed obligations of the federal government having a weighted average life of under 10 years.  All purchases and sales 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. No such concentrations or credit quality issues existed at December 31, 2002.

          The investment portfolio is managed by the company’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

          Citizens’ primary source of funding is provided by its deposit base.  The company offers a variety of deposit products including demand deposit, savings, and time deposits to customers in its market area to satisfy their saving, investing, and retirement needs.  The company does not solicit or accept out of market or wholesale deposits, nor does it utilize the services of any deposit brokers.  As is the case with its 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.

Banking Operations

          Operationally, Citizens has 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 administration and review, compliance, internal audit, marketing, training and development, human resources, and information technology support.  Data processing, while administered through the main office, is provided through a third party processing company.

Employees

          As of February 28, 2003, Citizens National Bank had a staff of 96.5 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.  Neither Citizens Financial Corp. or Citizens Financial Services, LLC have any paid employees.

Competition

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          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, security brokers, financial planners, mortgage brokers, credit card companies, and some governmental agencies.  The company believes its focus on providing superior, personalized services, as well as its ability to offer trust, brokerage, and fixed rate mortgage products, help it prosper within this environment. 

          Citizens maintains 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, 2002, the most recent date data is available, Citizens held 19.4% share of the $736,077,000 deposit base in those counties. 

          Among the newer forms of competition is the use of the internet to provide banking and financial services.  Offered by many mutual funds, brokers and banks, including several in Citizens’ market areas, Citizens has identified internet banking as a long-term objective but does not expect to enter this market in the near future due to considerations of cost, security, and demand within the local marketplace.  Instead, Citizens believes its current focus on superior, personalized service is most appropriate at this time.

Economic Characteristics of Citizens’ Marketplace

          Citizens serves an area of northcentral and northeastern 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 26,350.

          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, 2002, the unemployment rate in this market was 7.7% compared to 5.5% for West Virginia and 6.0% nationwide.  Unemployment within the banks’ marketplace worsened in 2002 due to the closure of a chicken processing facility in Grant County which resulted in the loss of approximately 480 jobs.  The bank has recognized the risk this poses for its loan portfolio and has adjusted its policies and objectives accordingly. The closed facility is expected to reopen in 2003 with initial employment of 150 to 175 persons while eventual full production is expected to employ approximately 400.  Average annual wages in the area approximate $23,337 which are 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

General

Bank Holding Company Regulation

          Citizens, as a bank holding company, is subject to the restrictions of the Bank Holding Company Act of 1956 (“BHCA”) and is registered pursuant to its provisions.  As such, Citizens is subject to the reporting requirements of, and examination by, the Board of Governors of the Federal Reserve System (“FRB”).

          The BHCA prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the FRB.  With certain

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exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks.

          The FRB, in its Regulation Y, does permit bank holding companies to engage in non-banking activities closely related to banking or managing or controlling banks.  Some examples of such activities include servicing loans and other extensions of credit; acting as an investment or financial advisor; leasing real or personal property; providing bookkeeping or financially oriented data processing services; acting as an insurance agent or broker for insurance directly related to an extension of credit; acting as an underwriter for credit life insurance which is directly related to an extension of credit; providing courier services; providing management consulting services to nonaffiliated banks; providing securities brokerage services related to securities credit activities; underwriting and dealing in government obligations and money market instruments; and providing foreign exchange advisory and transactional services. Approval of the FRB is necessary to engage in these activities or to make acquisitions of corporations engaging in these activities as the FRB determines whether these acquisitions or activities are in the public interest.  In addition, by order, and on a case by case basis, the FRB may approve other non-banking activities. 

          The BHCA also permits Citizens to purchase or redeem its own securities.  However, Regulation Y provides that prior notice must be given to the FRB 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 bank holding company is well-managed and (iii) the bank holding company is not the subject of any unresolved supervisory issues.

          Federal law restricts subsidiary banks of a bank holding company from making certain extensions of credit to the parent bank holding company or to any of its subsidiaries, from investing in the holding company stock, and limits the ability of a subsidiary bank to take its parent company stock as collateral for the loans of any borrower.  Additionally, federal law prohibits a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in conjunction with the extension of credit or furnishing of services.

          As a bank holding company doing business in West Virginia, Citizens is also subject to regulation and examination by the West Virginia Division of Banking and must submit annual reports to the department.  Further, any acquisition application which Citizens must submit to the Board of Governors must also be submitted to the West Virginia Board of Banking and Financial Institutions for approval.

          Under West Virginia banking law, an acquisition or merger is not permitted if the resulting depository institution or its holding company, including any depository institutions affiliated therewith, would assume additional deposits to cause it to control deposits in the State of West Virginia in excess of twenty five percent (25%) of such total amount of all deposits held by insured depository institutions in West Virginia.  This limitation may be waived by the Commissioner of Banking for good cause shown.

          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

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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.  The specific effects of the enactment of the Financial Services Modernization Act on the banking industry in general and on Citizens in particular have yet to be determined because of that Act’s relatively recent adoption.

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.

Credit and Monetary Policies and Related Matters

          The bank subsidiaries are affected by the fiscal and monetary policies of the federal government and its agencies, including the FRB.  The FRB regulates money and credit conditions through open market operations in an effort to manage economic growth and inflation.  This can result in changes to interest rates which can have a significant influence on the growth and distribution of loans, investments and deposits, as well as interest rates charged on loans, or paid for deposits and yields on investments.  The FRB has had a significant effect on the operating results of commercial banks in the past and is expected to continue to do so in the future.

Capital Requirements

          As a bank holding company Citizens is subject to FRB 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

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National Bank is subject to substantially similar capital requirements adopted by its applicable regulatory agencies.

          In 1995, the FRB and other banking agencies issued final rules to implement the portion of Section 305 of the Federal Deposit Insurance Corporation Act of 1991 that requires banking agencies to revise their risk-based capital standards to ensure that those standards take adequate account of interest rate risk.  This final rule amends the capital standards to specify that the banking agencies will include in their evaluations of a bank’s capital adequacy an assessment of the exposure to declines in the economic value of the bank’s capital due to changes in interest rates.  Citizens satisfies all applicable capital requirements as detailed in Note 13 to the accompanying consolidated financial statements.

Community Reinvestment Act

          Bank holding companies and their subsidiary banks are subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”).  Under the CRA, the Federal Reserve Board or other appropriate bank regulatory agency is required, in connection with its examination of a bank, to assess such bank’s record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods.  In the case of a holding company applying for approval to acquire or charter a bank or other holding company, establish a new branch office or relocate an office, the FRB will assess the record of each subsidiary of the applicant financial holding company, and such records may be the basis for denying the applications or imposing conditions in connection with approval of the application.  In its most recent CRA examination, Citizens National Bank received a satisfactory rating.

Financial Institutions Reform, Recovery and Enforcement Act

          In 1989, the United States Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”).  Under FIRREA depository institutions insured by the FDIC may now be liable for any losses incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of an FDIC-insured depository institution, or any assistance provided by the FDIC to an FDIC-insured depository institution in danger of default.  “Default” is defined generally as the appointment of a conservator or receiver and “in danger of default” is defined generally as the existence of certain conditions indicating that a “default” is likely to occur in the absence of regulatory assistance.  Citizens, as the sole stockholder of its subsidiary bank, is subject to these provisions.

          Under federal law, the OCC may also order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in bank’s capital stock.  This statute also provides for the enforcement of any such pro rata assessment of shareholders of a national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock of any assessed shareholder failing to pay the assessment.

Federal Deposit Insurance Corporation Improvement Act of 1991

          In December, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Corporation Act and made revisions to several other banking statues.

          FDICIA establishes a new 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 authorizes regulatory authorities to take “prompt corrective action” with respect to depository

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institutions that do not meet minimum capital requirements.  FDICIA establishes five capital tiers:  well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.  Citizens is well capitalized as detailed in Note 13 to the accompanying consolidated financial statements.

          Another requirement of FDICIA is that federal banking agencies must prescribe regulations relating to various operational areas of banks and bank holding companies.  These include standards for internal audit systems, loan documentation, information systems, internal controls, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and such other standards as the agency deems appropriate.

Reigle-Neal Interstate Banking Bill

          In 1994, Congress passed the Reigle-Neal Interstate Banking Bill (the “Interstate Bill”).  The Interstate Bill permits certain interstate banking activities through a holding company structure.  States may elect to permit de novo branching by specific legislative election.  In March, 1996, West Virginia adopted changes to its banking laws so as to permit interstate banking and branching to the fullest extent permitted by Interstate Bill.

Graham-Leach-Bliley Act of 1999

          The enactment of the Graham-Leach-Bliley Act of 1999 (“GLB”) represents a pivotal point in the history of the financial services industry.  GLB sweeps away large parts of a regulatory framework that had its origins in the Depression Era of the 1930s.  Effective March 11, 2000, new opportunities were available for banks, other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services.  Under GLB banks and bank holding companies must have CRA ratings of satisfactory or higher to engage in these new activities.  GLB also requires banks to maintain the privacy of customers nonpublic personal information.

Consumer Laws and Regulations

          In addition to the banking laws and regulations discussed above, Citizens National Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks.  Among the more prominent of such laws and regulations are the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Fair Housing Act.  These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers.  Citizens complies with the applicable provisions of these consumer protection laws and regulations as part of their ongoing customer relations.

Effect of Environmental Regulation

          The 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 nonresidential

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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.

          Citizens anticipates no material effect on anticipated 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 terror 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 may include any of all 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.

     Citizens provides its 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, however, are not provided at the Beverly branch. During 2000 the bank acquired and opened a full service facility in Petersburg, West Virginia containing 2,280 square feet and also constructed another full service facility in Slatyfork, West Virginia containing 3,200 square feet.  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 another full-service branch located in leased space within a supermarket in Marlinton, West Virginia.  In 2003, the bank plans to construct a 3,500 square foot free-standing branch in Marlinton and to expand its existing Petersburg branch by 700 square feet.

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          In 2002 the bank purchased two buildings which adjoin its main office property for future expansion.  One such building is scheduled for demolition in 2003 while the other will be leased to the current tenants until such time as expansion plans are finalized.

          Neither Citizens Financial Corp. or Citizens Financial Services, LLC, owns or leases any property.  To date they have utilized the bank’s facilities and have not occupied more than a minimal amount of space.  Neither company compensates the bank in any way for such usage as it is deemed to be insignificant.

          As of December 31, 2002 Citizens Financial Corp. was not involved in any material legal proceedings.  The bank is currently involved in various legal proceedings which occur in the normal course of business.  After consultation with legal counsel, management believes 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.

          No matters were submitted to a vote of security holders of Citizens  Financial Corp. during the fourth quarter of 2002.

Part II

          Historically, the stock of Citizens Financial Corp. and, prior to its formation, the stock of Citizens National Bank, has traded only sporadically. The stock is not listed on any securities exchange, however, 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 exchange 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 28, 2003 shareholders of record numbered 489.  The company has no plans to issue any other forms of capital.

          Citizens maintains a policy under which it may purchase shares of its own stock for treasury, 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 December 31, 2001 and 2002 the number of treasury shares was 101,127 and 103,477, respectively.  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.

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          The following table presents the high and low market prices for Citizens’ common stock for the periods indicated.

          The prices listed above are based upon information available to Citizens’ 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. 

          Citizens shareholders are entitled to receive dividends when and as declared by its Board of Directors.  Dividends are typically paid quarterly.  Aggregate dividends were $1.40 per share in 2002 and $1.30 per share in 2001.  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 13 to the accompanying consolidated financial statements.

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          Selected financial data for the five years ended December 31, 2002 is presented in the following table.  This summary should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this report.

Citizens Financial Corp.

Selected Financial Data Five Year Summary
(in thousands of dollars, except per share data)

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

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Distribution of Assets, Liabilities & Shareholders’ Equity;
Interest Rates and Interest Differential

(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.

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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.

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Securities Portfolio

          Presentation of the amortized cost of securities as of December 31, 2002 and 2001 may be found in Note 3 to the accompanying consolidated financial statements.

          The following table sets forth the maturities of securities as of December 31, 2002 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).

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

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Loan Portfolio

Types of Loans

          The distribution of loans by major category as of December 31, 2002 and 2001 may be found in Note 4 to the accompanying consolidated financial statements.  All loans in the portfolio are domestic in nature.

Loan Maturities and Interest Rate Sensitivity

          Note 4 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, 2002.  Also provided are the amounts due after one year classified as fixed rate and variable rate loans.

Risk Elements

Nonperforming Loans

          Nonperforming loans consist of loans in nonaccrual status, loans which are past due 90 days or more and still accruing interest and restructured loans.  A table detailing the amounts of these loans as of December 31, 2002 and 2001 is presented as part of the management’s discussion and analysis section of this report.

          Loans are generally placed on nonaccrual status when they are past due 90 days as to principal or interest unless they are both well secured and in the process of collection.  Disclosure of the amount of such loans, as well as the amount of income which would have been recognized under their original terms, may be found in Note 5 to the accompanying consolidated financial statements.  No income was recorded on these loans in 2002.

Potential Problem Loans

          As stated in Note 5 to the accompanying consolidated financial statements, the company identified no loans which it classified as impaired due to doubts about the borrowers ability to repay as called for in the loan documents at December 31, 2002.

Loan Concentrations

          Information concerning loan concentrations is provided in Note 4 to the accompanying consolidated financial statements.

Summary of Loan Loss Experience

          Note 5 to the accompanying consolidated financial statements presents an analysis of the allowance for loan losses for the years ended December 31, 2002, 2001 and 2000.

          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

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quality, changes in the mix and size of the loan portfolio, previous loss experience, general economic conditions and information about specific borrowers.

          The ratio of net losses to average loans outstanding was .27% in 2002, .09% in 2001 and .13% in 2000.

          The following table shows an allocation of the allowance for loan losses for the two years ended December 31, 2002 and 2001.