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1. General: The reputation of any financial institution depends on the conduct and values of its staff. Our bank's reputation for honesty and integrity is our most important asset. The standards outlined in this policy -- a code of ethics -- pertain to, and are to be followed by, all bank employees, officers and directors. 2. References: Federal Reserve Board Regulations O and Y; 12 CFR Parts 31 and 215; 12 U.S.C. 375; 12 U.S.C. 84; OCC Comptroller's Handbook, Insider Activities, March 1995.
3. Conflicts of Interest: All employees, officers and directors must manage their personal and business affairs so as to avoid situations that might lead to a conflict or even a suspected conflict between their self-interest and their duty to the bank, its customers, and its shareholders. Should such a conflict surface, resolution must be immediate and in favor of the bank.
(b) Board Directorships: Officers and employees are encouraged to participate in appropriate professional and/or charitable groups and responsible civic organizations if such service does not interfere with their duties in the bank, provided such relationships would not be prohibited or limited because of statutory or administrative requirements regarding conflicts of interest. When participation as a director or officer of a major outside organization serves the best interest of the bank, the bank's chairman will designate the appropriate employee for the assignment. All other participation requires approval of senior management. An employee may be asked by an organization to participate both because of individual talents and because the employee represents the bank. Employees who are approached directly by an outside organization to join its board of directors should first obtain the approval of their immediate supervisory officer or the bank president. The types of organizations covered by this policy are both profit and non-profit. This does not apply to participation in religious and political organizations. Employees should seek guidance from senior management regarding interpretations or applicability of this policy prior to making any commitment to the outside organization.
4. Personal Borrowings/Loans to Insiders: Extensions of credit by the bank to executive officers, directors, principal shareholders, a company controlled by such persons or a political or campaign fund that benefits or is controlled by such persons is governed by Federal Reserve Board Regulation O and other applicable banking regulations. These regulations apply if the affected person is affiliated with the bank itself, a holding company of which the bank is a subsidiary or any other subsidiary of the holding company.
(b) The bank's regulatory compliance coordinator (officer) shall review all insider transactions prior to initial disbursements or any extensions of credit. (c) An insider means an executive officer, director, or principal shareholder, and includes any related interest of such a person. An executive officer means a person who participates or has the authority to participate in major policymaking functions of the bank, or a company of which the bank is a subsidiary, whether or not the officer has a title or receives compensation. (The chairman of the board, the president, every vice president, the cashier, the secretary and treasurer are considered executive officers unless excluded by resolution of the board of directors.) A director of the bank includes any director of a company of which the bank is a subsidiary. A principal shareholder means a person that directly or indirectly owns, controls, or has the power to vote more than 10 percent of any class of stock of the bank or a company of which the bank is a subsidiary. (d) Lending to insiders must follow credit standards and underwriting procedures that are "not less stringent" than those applicable to comparable transactions for non-insiders. Basically, the bank may engage in business transactions with insiders if the transactions:
(2) benefit both the insider, as a customer, and the bank (3) pose no ethical questions or conflicts of interest. (e) All loans to insiders must be approved in advance by a majority of the board of directors with the interested party abstaining from participating directly or indirectly in the voting. (f) Loans to an insider are subject to the loans-to-one- borrower limit of 15 percent of unimpaired capital and unimpaired surplus (12 U.S.C. 84), provided, however, that at no time may an insider or their related interests have an aggregate amount of credit which exceeds $900,000. The aggregate limit of all loans made to all insiders as a group may not exceed the bank's unimpaired capital and unimpaired surplus. (g) Loans to executive officers may not exceed the higher of two and one-half percent (2.5%) of unimpaired capital and unimpaired surplus or $25,000, but in no event may such loans exceed $100,000. The $100,000 limit does not apply to loans financing executive officers' children's education, or the purchase, construction, maintenance, or improvement of an executive officers' principal residence secured by a first lien on the property. Any extension of credit shall be promptly reported to the board of directors, be preceded by submission of a detailed current financial statement of the executive officer and made subject to the condition in writing that the extension of credit will become due and payable, at the option of the bank, if the aggregate amount of the officers' indebtedness to any other bank or banks exceeds the limits of this provision. (h) An officer or director shall resign from the bank and/or the holding company Board of Directors if they voluntarily file bankruptcy, if they are indicted for dishonesty (i.e., fraud, embezzlement, conversion, etc.); or for sexual or immoral misconduct or if their loans at this bank are classified by regulatory authorities. If their loans are classified, they will be given thirty days to correct creditworthiness issues. (i) The bank may not pay any overdrafts by executive officers or directors, except in a "written, preauthorized interest-bearing extension of credit specifying a method of repayment" or "a written preauthorized transfer of funds from another account of the executive officer or director at the bank." This prohibition does not apply to principal shareholders unless also a director or executive officer, and does not apply to related interests of executive officers or directors. This prohibition does not pertain to inadvertent overdrafts as described in Regulation O. (j) Insiders may not receive, or allow "related interests" to receive, extensions of credit violating Regulation O limits and provisions of this policy. Further, insiders may not "knowingly receive" unauthorized extensions of credit. (k) Executive officers and directors must report annually to the board of directors the amount of credit they received that was secured by the bank's or a subsidiary company's stock. (l) Each executive officer who becomes indebted to any other bank or banks shall, within 10 days of such indebtedness, make a written report to the board of directors. The report shall state the lender's name, date and amount of credit, collateral, and the purposes for which the loan was made.
5. Insider Restrictions: All transactions with insiders or insider-related organizations and vendors who are also bank customers require arm's-length treatment. In addition, insiders should:
(b) Not solicit anything of value from anyone in return for any business service or confidential information of the bank; (c) Never accept anything of value other than bona fide salary, wages, fees or other compensation paid in the usual course of business from anyone in connection with the business of the bank, either before or after a transaction is discussed and consummated; (d) Avoid the appearance of impropriety by closely monitoring the bank's relationships with family members; and (e) Never use inside information in securities transactions.
6. Investments: The investment of personal funds as a way to participate in the growth of the economy and to provide for the future is both proper and worthwhile. However, officers, employees and directors must be aware that personal financial affairs reflect to the public the character of the organization. Therefore, the following standards are guides to minimize the risks that may arise from the way investments are selected and financed:
(b) In-and-out trading and speculative trading involve a degree of risk that may embarrass both the individual and the organization. Such trading is not consistent with the personal conduct expected of bank officers and employees. (c) The selection of a brokerage firm is a personal decision. However, for officers and employees, contact with brokers during business hours should be kept to a minimum and must not interfere with one's normal duties. (d) Officers and employees of the bank shall not maintain brokerage margin accounts, directly or indirectly. (e) Information provided by customers in the normal course of business that is not available to the general public is strictly confidential and must be held inviolate. Such information must never be used as a basis for personal investment decisions. (f) Commissions paid to brokers to purchase or sell securities for customers must never be used to obtain special concessions from brokerage firms. (g) Officers and employees who are directly involved in securities transactions for the bank are discouraged from conducting any of their personal investment business with the same securities dealers/brokers used by the bank. However, if officers or employees use the same securities dealers/brokers for their personal investment transactions, the complete details of each and every transaction shall be reported in writing to the Board of Directors at their next regularly scheduled meeting. 7. Receipt of Gifts: Because no officer or employee should take advantage of his or her position as a banker, arm's-length transactions with customers and suppliers must be the normal practice. Gifts to officers and employees from customers and/or suppliers generally are intended as sincere expressions of friendship and appreciation based on the personal relationships that often develop in the normal conduct of business. However, substantial gifts of any kind, whether in the form of food, merchandise, unusual discounts, entertainment or the undue use of customer or supplier facilities should be courteously declined as contrary to policy. It is neither practical nor desirable to have an inflexible rule against gifts of any specific kind, or to precisely define a "substantial gift." Any doubt about the proper course of action should be discussed with the bank's senior management. 8. Confidentiality of Corporate Records: All relationships between the bank and/or the holding company and its customers is strictly confidential. No information about a bank customer's deposit, loan, investment or any other business shall be disclosed to anyone at anytime except as authorized in writing by the customer, or as required by statute or a court of competent jurisdiction. All directors, officers and employees should use care not to discuss corporate business in any place or manner that risks violation of such confidentiality or that would in any way impair the bank's competitive position. Financial information about the bank or any of its subsidiaries is not to be given to persons outside the bank unless it has been reported to the shareholders or otherwise made available to the public. Disclosure of financial information to regulatory authorities, accountants, attorneys and other individuals or agencies employed by the bank or its subsidiaries is authorized if in the conduct of official business.
9. Outside Employment: Officers and employees working full-time for the bank, or a company of which the bank is a subsidiary, are authorized to have employment outside of the bank provided such work is approved by senior management and is not:
(b) As an auditor/accountant doing business, directly or indirectly, with the bank or a company of which the bank is a subsidiary; (c) As an appraiser, investment advisor, insurance/real estate agent or broker doing business, directly or indirectly, with the bank or a company of which the bank is a subsidiary; (d) With a business or an individual which might reflect negatively on the bank and its image in the community. 10. Political Contributions/Corporate Payments: Federal law prohibits National Banks from contributing corporate funds or property in support of a political party or a candidate for public office. Similarly, the bank may not compensate employees or officers for time so dedicated (i.e., normal working hours). Questions as to the propriety of any action that may involve a political candidate or campaign should be discussed with the bank's senior management before any steps are taken that may involve any employee or the bank in possible violation of the law. It must be understood that no action is to be undertaken for the perceived benefit of the bank if the bank could not legally take such action directly. There should be sensitivity to possible criticism of the bank or staff members on the grounds of self-dealing for personal advantage. For this reason, no director, officer or employee may purchase any property directly or indirectly from the bank or its subsidiaries. This includes bank premises and equipment, collateral disposed of in settlement of an obligation or property held as a fiduciary. It is contrary to the bank's policy and intent to encourage or permit either directly or indirectly the payment of bank funds or use of bank property to secure favored business treatment for the bank or its subsidiaries. Customary nominal gratuities for services received are permitted if lawful, as are gifts, favors of nominal value or entertainment to the extent they meet the standards of ethical business as explained in paragraph 7 above. Each such payment, gift or expense must be appropriately disclosed on the financial records of the bank. Expenses for travel and entertainment incurred on behalf of the bank or its subsidiaries should be ordinary and necessary to accomplish a business purpose and be documented in conformity with the established requirements for reimbursement. Other than as an approved signature authority, no officer, employee or third party acting for the bank shall control disbursements from the bank or its subsidiaries. Further, disbursements from such bank accounts shall be only for legitimate bank purposes, and each shall be clearly disclosed in the financial records. 11. Establishment of Interest Rates, Terms on Loans, Service Charges and Other Fees: Interest rates on loans and deposits, loan terms, service charges and other fees are established by senior management based upon market and other competitive factors, and are applicable to all customers. Employees, officers and directors are permitted one personal checking account free of normal service charges, and checks are provided at no charge for this account. All other normal bank charges and fees are assessed employees, officers and directors of the bank. 12. Making Stock Recommendations: While in the conduct of official business for the bank, officers and employees are prohibited from making recommendations to customers to buy, sell or trade stock for customers. 13. Serving as Administrator or Executor of Estates: Bank officers and employees may be designated to serve as an administrator or an executor of estates for their relatives or other individuals. Such service is not prohibited so long as any estate funds deposited in the bank are properly identified and not co-mingled with the accounts of the bank officer/employee.
14. Noncompliance: The consequences of breaches of fiduciary duty and/or unethical conduct shall be addressed by bank senior management and the board of directors on a case-by-case basis.
(b) Failure of directors and other insiders to comply with applicable provisions of this policy shall cause the bank to take whatever legal steps are necessary to ensure compliance. 15. Disclosure: All bank officials who are offered or receive something of value beyond that which is authorized or deemed appropriate shall disclose that fact to senior management. In addition, bank officials must disclose all potential conflicts of interest, including inadvertent ones that arise because of business or personal relationships with customers, suppliers, business associates or competitors of the bank. The bank shall maintain written reports of such disclosures and bank management shall review all reports received for reasonableness. 16. Acknowledgement: All employees, officers and directors and outside principal shareholders shall annually acknowledge receiving and reading this policy and abiding by its terms. 17. Approval and Revision: This policy shall be approved by the board of directors and reviewed/revised annually.
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