Page
Introduction – General Policy and Guidelines
I.	Scope	2
II.	Consequences of Violating Insider Trading Proscriptions and this Policy	3
III.	Summary of Policies and Procedures	3
IV.	Policy Prohibiting the Misuse of Material Non-Public Information	5
V.	Procedures for and Restrictions on Trading in Securities	6
VI.	Section 16(a) of the 1934 Act – Ownership Reporting Requirements	8
VII.	Section 16(b) of the 1934 Act – Short-Swing Profits	11
VIII.	Section 16(c) of the 1934 Act – Short Selling	12
IX.	Rules 144 and 145 of the 1933 Act – Sales of Stock by Affiliates	12
X.	Section 13 of the 1934 Act – Beneficial Ownership Reporting Requirements for 5% Shareholders	14
XI.	Miscellaneous Provisions of the 1933 Act and the 1934 Act	14
XII.	Gifts	15
XIII.	Distributions and Tender Offers	15
XIV.	Conclusion	17

Appendix A – Acknowledgment and Agreement of Compliance.

Appendix B – Certification of Non-Disclosure of Material Non-Public Information

Appendix C – Affirmative Statement re: Compliance with Reporting Requirements of Section 16

Appendix D – Checklist for Short-Swing Profits

Appendix E – Covenant of Non-Disclosure by a Quasi-Insider or Temporary Insider

Appendix F – Request for Clearance to Trade

Appendix G – Glossary

A.

Directors, director emeritus, officers and employees must not

1.

Buy or sell our securities while in possession of material non‑public information;

2.

Recommend or suggest that anyone else buy, sell or retain our securities while in possession of material non‑public information; or

3.

“Tip” or otherwise disclose material non‑public information about the Company.

B.

Trading in the Company’s securities is prohibited during certain “black‑out periods” for all directors, director emeritus, officers and employees.

C.

Directors, director emeritus, officers and employees must obtain clearance from the President/CEO immediately prior to (i) trading securities of the Company in any “Personal” or “Related” securities accounts and (ii) engaging in any bona fide gifts of securities of the Company1. Directors and officers must receive prior approval from the President/CEO before implementing, amending or terminating a Rule 10b5-1 Plan (as such term is defined below).2

D.

Directors and specified officers must comply with the provisions of Section 16 of the 1934 Act, including, but not limited to, the provisions relating to:

E.

Directors and specified officers who are “affiliates” of the Company must comply with the provisions of Rules 144 and 145 of the 1934 Act, relating to restrictions on the sale of the Company’s securities.

F.

Directors, director emeritus, officers and employees, as in the case of any other person, must comply with the provisions of Section 13 of the 1934 Act, relating to beneficial ownership reporting requirements for persons beneficially owning 5% or more of the Company’s stock.

G.

Directors, director emeritus, officers and employees must comply with all other provisions of the federal securities laws to the extent applicable to them.

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1.

Directors, director emeritus, officers and employees of the Company must not buy or sell the Company’s securities, or securities of any other company (including specifically a merger target), while in possession of material non‑public information obtained in the course of employment with the Company or otherwise.

2.

Directors, director emeritus, officers and employees of the Company must not recommend or suggest that anyone else (including family or household members or friends or a broker or dealer) buy, sell or retain the Company’s securities  or securities of any other company while in possession of material non‑public information obtained in the course of employment with the Company or otherwise.

3.

Directors, director emeritus, officers and employees of the Company must not disclose (“tip”) material non‑public information obtained through employment with the Company or otherwise, including proprietary information about the Company or information that could effect the Company’s securities, as well as information about customers or merger or acquisition targets of the Company, to anyone inside or outside the Company, except when disclosure to other Company employees and representatives of the Company is necessary to enable the employees or representatives to carry out their duties properly and effectively (in which case the person disclosing this information should make it clear that the information is confidential).  Directors, director emeritus, officers and employees of the Company must be particularly careful in connection with communications with brokers and/or dealers or others involved directly or indirectly with the investment or securities industries and, in general, should avoid communications to these persons involving the Company.

A.

Trading Restrictions With Respect to Securities.

1.

“Black Out Periods” during which Trading in our Securities is Prohibited.

⁴  Note to Company: See footnote 1 above regarding changes to reporting of gifts.

B.	Rule 10b5-1 Plans and Similar Trading Plans.

•

trades under the Rule 10b5-1 Plan may not commence until expiration of the “cooling-off period” set forth in Rule 10b5-1;6

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•

the Rule 10b5-1 Plan must include representations that (i) the person is not aware of any material non-public information about the Company or its securities7 and (ii) the person is adopting, or in certain cases, amending, the Rule 10b5-1 Plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5;8

•

no person may have more than one Rule 10b5-1 Plan outstanding at any given time, unless otherwise permitted by the limited exceptions of Rule 10b5-1 (such as plans relating to “sell to cover” arrangements intended to satisfy tax withholding obligations upon the vesting of equity awards); and9

•

no person may have more than one single-trade Rule 10b5-1 Plan (a plan designed to effect the open-market purchase or sale of the total amount of securities covered by the plan in a single transaction) within any consecutive 12-month period, unless otherwise permitted by the limited exceptions of Rule 10b5-1.10

•

President;

•

Principal financial officer;

•

Principal accounting officer;

•

Any vice president in charge of a principal business unit, division or function (e.g.,  sales, administration or finance);

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•

Any person identified by the Board of Directors as subject to Section 16 of the 1934 Act; and

•

Any other person who performs significant policy‑making functions for the Company, which may include any director, officer or employee of a subsidiary.

A.

Initial Reports.

B.

Reports of Change in Status of Equity Securities Owned.

1.

Insiders must file Form 5 to disclose transactions exempt from prior reporting, if these transactions were not reported earlier on Form 4.  Insiders must also file Form 5 to disclose any transaction that should have been reported previously but was not.  Form 5 must be filed before February 15 each year.  At the request of the Insider, the President/CEO will assist in the preparation, review and filing of the form with the appropriate regulatory agencies.  Questions should be directed to the President/CEO or counsel to the Insider.

2.

No Form 5 need be filed if the Insider acknowledges in writing that there are no transactions to report.  In this case, the Insider should file an executed Affirmative Statement, attached as Appendix C to this Policy, with the President/CEO, or his designee, prior to February 10th of each calendar year.

•

Cease‑and‑Desist Orders,

•

Civil Monetary Penalties,

•

Injunctions and Orders, and

•

Contempt.

1.

For example, if an officer subject to Section 16 buys 1,000 shares of the Company’s common stock on August 20 at $14 per share and, within six months, sells the shares for $17 per share he or she will be liable to the Company for the total profit of $3,000.

2.

Application of the prohibition on short‑swing profits is strictly mechanical.  All transactions occurring within any six‑month period are matched.  Transactions are matched in the manner resulting in the maximum forfeiture.  Possession of material non‑public information is not a prerequisite for liability under this section.

3.

The applicable six‑month period begins to run on the date of the first transaction after the person becomes an Insider.  The six‑month period may continue for up to six months after a person ceases to be an Insider.

4.

The prohibition applies to all purchases and sales.  This includes shares held directly and shares held in “street name” accounts.  In addition, purchases and sales of equity securities by immediate family members and, in certain cases, equity securities held by corporations, partnerships, trusts and IRAs may also be matched with sales and purchases by a director, officer or 10% shareholder subject to Section 16.

5.

The term “purchase” is deemed to include writing a “put option” with respect to the Company’s securities and the expiration of the unexercised option is deemed to constitute a “sale.”  Conversely, the term “sale” includes the writing of a “call” option and the expiration of the option unexercised is deemed to constitute a purchase.  We do not recommend writing put or call options, however, before writing put or call options with respect to the Company’s equity securities, directors and officers must consult with the President/CEO and complete the Checklist for Short‑Swing Profits, attached as Appendix D to this Policy.

A.

Insiders cannot “sell short” or “sell short against the box” any Company equity security.

1.

“Selling short” occurs when you sell a security you do not own.  Selling short typically takes place when there is an expectation that the price of the shares will go down.

2.

“Selling short against the box” occurs when you have sufficient shares to cover any sales but, nevertheless, choose to borrow the shares delivered at settlement.  The effect of “selling short against the box” on the market price of stock will be the same as a short sale.

3.

This rule applies to all sales, whether of shares held directly or shares held in street name accounts through a broker or dealer.

A.

Rule 144.  All sales of the Company’s securities by “affiliates” of the Company, including sales by a spouse or a relative living in the same home as the affiliate, must be made in compliance with Rule 144.  Under Rule 144 an “affiliate” is a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Company.  Whether or not a person or entity is an “affiliate” is a question of fact, dependent on all of the facts and circumstances.  Directors, executive officers of the Company and 10% shareholders of the Company’s securities  fall within the definition of “affiliate.”  A director or executive officer only of a subsidiary of the Company, absent unusual circumstances, should not be subject to Rule 144.  Rule 144 provides the following restrictions on sales of stock by affiliates:

1.

Limitations on the Volume of Sales.  The shares sold within any three month period cannot exceed the greater of:

i.

1% of the Company’s total outstanding shares, or

ii.

the average weekly trading volume during the four calendar weeks preceding the sale.

2.

Current Public Information.  There must be current public information available  about the Company.  (This requirement should pose no obstacle, provided the Company is current in the filing of its periodic reports, e.g., 10‑Qs under the 1934 Act.)

3.

Manner of Sale.  All sales must be made through a broker or directly with a market maker.

4.

Form 144.  A person selling in reliance on Rule 144 will, under most circumstances, be required to file with the SEC a notice of sale on Form 144, if the aggregate shares sold during any three‑month period exceed 500 shares or $10,000 aggregate sales price.  If required, the Form 144 must be filed at the time of placing the order to sell.

5.

Subject Securities.  This rule applies to all shares of the Company’s securities held by affiliates, whether acquired in the market, privately, or from the Company pursuant to a benefit plan.

6.

Restricted Stock.  If securities are acquired from the Company or from an affiliate in a transaction not registered with the SEC (a so‑called “private placement”), the shares are deemed “restricted securities” and must, in addition to the requirements of subparagraphs 1 through 4 of this paragraph A, be held for at least one year before they can be sold as described above.

B.

Rule 145.  In the event the Company is acquired, affiliates of the Company are subject to restrictions with respect to any securities of the acquiring entity received in the transaction similar to those imposed by Rule 144 for a specified period of time after the transaction.  In addition, affiliates of a business acquired by the Company who receive the Company’s securities in the acquisition transaction, may only sell those securities pursuant to the terms of Rule 145.

C.

Violations.  Violations of Rules 144 and 145 may trigger violations of various provisions of the 1933 Act, which, among other things, may give a purchaser the right to rescind his purchase of common stock and/or sue for damages.

A.

Under Section 13 of the 1934 Act, any person (or group of persons acting together) who acquires, directly or indirectly, beneficial ownership of more than 5% of the Company’s common stock must, within ten days, file a report with the SEC, the NASD and the Company.

B.

The required report will, in most cases, be in the form of Schedule 13D.  Schedule 13D requires disclosure of, among other things, the identity of and information relating to the shareholder involved, the source of funds used to acquire the stock, and the purpose of the acquisition.  Any material change in the facts, as reported on Schedule 13D, must be reported in an amendment filed promptly after the change occurs.

C.

A “group” consists of any persons who, directly or indirectly, have any agreement or understanding to act together with respect to the voting, purchase, or sale of any security.  This includes the use of a proxy, power of attorney, voting trust or pooling arrangement.  Certain persons may be a “group” for purposes of Section 13 despite the absence of a formal agreement among the parties.

D.

The obligation to file Schedule 13D is the responsibility of the person or group that acquires more than 5% of the common stock and, therefore, is not the Company’s obligation.

A.

Section 11 of the 1933 Act.

B.

Section 18 of the 1934 Act.

C.

Section 14(a) of the 1934 Act.

D.

Sections 15 of the 1933 Act and 20(a) of the 1934 Act.

XII.

GIFTS

XIII.

DISTRIBUTIONS AND TENDER OFFERS

A.

General.

1.

To prevent the manipulation of stock prices during a public offering, the SEC restricts purchases during distributions.  To ensure the integrity of the market as a pricing mechanism, Rule 10b‑6 of the 1934 Act prohibits executive officers, directors, and certain affiliates of the Company from purchasing shares for certain periods preceding and during a “distribution.”

a.

An offering of a substantial amount of the Company’s common stock.  An offering is distinguished from ordinary trading transactions by the magnitude of the sales and the presence of special selling efforts and methods.  The sale of as little as 1% of outstanding stock has been treated as a distribution.  The rule does not apply, however, to offerings of nonconvertible debt securities and preferred stock, provided that they have been rated investment grade by at least one nationally recognized statistical rating organization.

b.

A merger or an exchange offer.

i.

A merger involving the issuance of stock of the acquiring company is considered a distribution of that stock.  A merger in which the Company will issue the Company’s common stock as consideration will, therefore, prohibit purchase of the Company’s common stock by affiliates of the Company during specified periods.

ii.

In a merger, shareholders of the acquired company will exchange their shares for stock of the Company.  As a result, the SEC treats the shares of the acquired company as shares convertible into the Company’s common stock.   The restriction on purchases during the pendency of a merger, therefore, applies to shares of both the Company and the  acquired company.

a.

Generally, executive officers, directors and certain affiliates of the Company must cease purchasing shares two business days before commencement of any distribution of the Company’s common stock.  The prohibition on purchases continues until the distribution is completed.

b.

For a merger, however, purchases need not stop for the entire merger period.  Instead the SEC prohibits purchases for two business days before proxy solicitation materials  are mailed, with the restriction continuing until abandonment of the merger or approval by shareholders of the target company.  In addition, purchases must cease at least two business days prior to any valuation period or election period (e.g., a cash‑stock election period) and cannot recommence until the valuation or election period terminates.

c.

In a “shelf” offering, purchases must cease at least two business days prior to the sale of the registered securities covered by the shelf registration statement and cannot recommence until the distribution is completed.

1.

The securities laws also impose restrictions on purchases during a tender offer.  If the Company makes a tender offer for another company, the Company’s officers and directors cannot purchase shares in the company subject to the offer as long as the offer is in effect.  If the Company makes a tender offer for its own shares, officers and directors of the Company cannot buy common stock until the offer has terminated.  The restriction applies from the time a tender offer is announced through completion or abandonment of the offer.

2.

The restrictions do not apply to options issued under a stock option plan, the Employee Stock Purchase Plan or the DRIP.

•

the President/CEO, or his designee, has been informed of the transaction and the Insider has delivered an executed Certification of Non-Disclosure of Material Non-Public Information, attached as Appendix B and an executed Request for Clearance to Trade, attached as Appendix F to this Policy, to the President/CEO, or his designee, or

•

the Insider has a valid, executed Rule 10b5-1 Plan under which securities are to be purchased or sold.

Date		Signature of Director, Officer or Employee

Date		Signature of Director, Officer or Employee

Date:
			Signature of Person Making
			Certification
			Print Name

President/CEO

Date Received

1.

Have you or your family members purchased or otherwise acquired Citizens Financial Services, Inc. securities within the past six months? ____ Yes ____ No

2.

Have there been any option grants within the past six months? ____ Yes ____ No

3.

Do you anticipate any purchases (or option grants) within the next six months (e.g., expiration of an option)? ____ Yes ____ No

4.

Have you notified the President/CEO of the pending transaction and completed a Form 4, if required? ____ Yes ____ No

5.

If you are an “affiliate,” as the term is defined under the Federal securities laws, have you completed a Form 144 and notified the broker to sell pursuant to Rule 144?  ____ Yes ____ No

1.

Have you (or family members) sold or transferred any securities of Citizens Financial Services, Inc. within the past six months? ____ Yes ____ No

2.

Do you anticipate any sales or other dispositions within the next six months (e.g. tax-related or year-end transactions)? ____ Yes ____ No

3.

Have you notified the President/CEO of the pending transaction and completed a Form 4, if required? ____ Yes ____ No

4.

What is the proposed manner of purchase or acquisition? ____ Broker ____ Private

Signature of Insider		Print Name of Person Signing
		This Checklist
(SSN or TIN of Insider)
Signature of President/CEO

Date			Signature of Covenantor
			Print Name of Person

President/CEO			Print Person’s Employer or
			Trade Name

Date		Signature

Approved by:
President/CEO		Date

A.

“Beneficial Owner.”  A beneficial owner of a security is any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the relevant class of equity securities, subject to the following:

1.

The term “pecuniary interest” in any class of equity securities means opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.

2.

The term “indirect pecuniary interest” in any class of equity securities includes, but is not limited to:

a.

Securities held by members of a person’s immediate family sharing the same household; provided, however, that the presumption of beneficial ownership may be rebutted;

b.

A general partner’s proportionate interest in the portfolio securities held by a general or limited partnership.  The general partner’s proportionate interest, as evidenced by the partnership in effect at the time of the transaction and the partnership’s most recent financial statements is the greater of:

i.

The general partner’s share of the partnership’s profits, including profits attributed to any limited partnership interest held by the general partner and any other interests in profits that arise from the purchase and sale of the partnership’s portfolio securities; or

ii.

The general partner’s share of the partnership capital account, including the share attributable to any limited partnership interest held by the general partner.

c.

A performance‑related fee, other than an asset‑based fee, received by any broker, dealer, bank, insurance company, investment company, investment advisor, investment manager, trustee or person or entity performing a similar function; provided, however, that no pecuniary interest shall be present where:

i.

The performance‑related fee, regardless of when payable, is calculated based on net capital gains and/or net capital appreciation generated from the portfolio or from the fiduciaries overall performance over a period of one year or more; and

ii.

Equity securities of the issuer do not account for more than 10% of the market value of the portfolio.  A right to a nonperformance‑related fee alone is not a pecuniary interest in the securities.

d.

A person’s right to dividends that are separated or separable from the underlying securities.  Otherwise, a right to dividends alone does not represent a pecuniary interest in the securities;

e.

A person’s interest in securities held by a trust; and

f.

A person’s right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable.

3.

A shareholder is not deemed to have a pecuniary interest in portfolio securities held by a corporation or similar entity in which the person owns securities, if the shareholder is not a controlling shareholder of the entity and does not have or share investment control over the entity’s portfolio.

1.

The Company’s Directors, including Advisory, Emeritus and Honorary Directors, to the extent they have access to inside information,  and the Company’s senior executive officers;

2.

A subsidiary bank’s Directors, President and Chief Executive Officer, and  Senior Vice President, Cashier, Secretary, President/CEO, Auditor, and certain Vice Presidents (which shall include any officers of the subsidiary banks who may have access to material inside information about the Company), as designated at least annually by resolution of the Company’s Board of Directors;

3.

Other employees of the Company who may have access to material inside information about the Company; or

4.

10% Holders (persons holding ten percent (10%) or more of the Company’s outstanding securities).

C.

“Inside Information.”  For purposes of this Policy, Inside Information means information that emanates from within the Company, and is intended for a corporate purpose, such as data concerning corporate or subsidiary operations, finances or expansion and acquisition plans.  This information may relate to the Company or to one or more third party entities.  Knowledge of a potential takeover is an obvious form of Inside Information.  This term includes all material non-public information which affects the Company or the market for our securities.

D.

“Quasi-insider.”  A person, such as an attorney, accountant, consultant, investment banker and any other person temporarily employed by the Company or its subsidiaries who gains access to material non-public information is a Quasi‑insider.

E.

“Temporary Insider.”  A person who gains access to material non-public information, even if he or she has no relationship with the Company is a Temporary Insider.

F.

“Ten Percent Beneficial Owners.”  Beneficial ownership, as defined by  Section 13(d) of the 1934 Act, is used to determine when a person owns more than 10% of a class of equity securities for Section 16 purposes, with some modifications.  The Section 13(d) definition of beneficial ownership is used to determine when status as a 10% holder is reached.  Once insider status is attained, the reporting and short-swing provisions of Section 16 apply only to securities in which the insider has a reportable interest, as defined under Section 16.

G.

“Equity Securities.”  An equity security is defined broadly and includes any stock or derivative securities including stock options, warrants, convertible securities, stock appreciation rights, or similar rights with an exercise or conversion privilege at a price related to, or similar securities (including “put” and “call” options) with a value derived from, the value of the Company’s stock.

H.

“Material Information.”  Information is “material” if it is likely to affect the market price of a specific security and there is a substantial likelihood that a reasonable investor would attach importance to it in deciding whether to buy, sell or hold the security.  Information may be material even if it relates to speculative or contingent events. Whether the information is obtained or generated from inside or outside the Company is not relevant.  Depending on the circumstances, examples could include:

•

information about contemplated mergers or acquisitions tender offers or exchange offers;

•

proposed recapitalization;

•

pending material litigation;

•

Company and various customer business and capital expenditure plans;

•

proposed divestitures;

•

sales or purchases of assets;

•

plans for issuance or redemption of securities;

•

forthcoming research reports;

•

changes in dividend policy;

•

earnings or earnings estimates or changes in previously released earnings or earnings estimates;

•

changes in management;

•

financial liquidity problems;

•

other information about customers, suppliers, improprieties within a company; and

•

government investigations, inquiries and/or enforcement actions.

I.

“Non‑public Information.”  Information is nonpublic until it has been widely disclosed to the general public.  Unless information has been publicly disclosed (by means of a press release carried over a major news service, in a major news publication, in a public filing made with the SEC, or in materials sent to shareholders) and the market has had sufficient time to absorb and react to the information, we presume that the information is nonpublic. Officers, directors, director emeritus, and other insiders should wait some period of time after a major disclosure before trading. As a general rule, we avoid trading for two full days following a major news announcement.  If circumstances (e.g., a complex transaction) indicate that a longer period for public dissemination may be necessary, avoid trading until a longer time period has passed.  Our President/CEO is available to advise you.

J.

“Personal and Related Accounts.”  A Personal Account is any securities account held by you or any account in which you have a direct or indirect beneficial interest and ability to influence transactions (e.g., joint accounts, co‑trustee accounts, partnerships, investment clubs, etc.)  A Related Account means any securities account of the director’s, officer’s or employee’s:

1.

Spouse;

2.

Minor children;

3.

Other household members; and

4.

Any other account subject to a director’s, officer’s or employee’s discretion or control (e.g., custodial and trust accounts, etc.).