Corporate ethics have received heightened attention from the public as well as from the regulators. Hometown Bank, N.A. takes pride in a long tradition of public service, high integrity, and trustworthiness.
Background—Relevant Laws and Regulations
There are several laws and regulations that address the need for a code of ethics or corporate governance system. Loans to insiders are regulated by Regulation O (member banks), 12 CFR Part 215; 12 CFR Part 31 (national banks); and 12 CFR 337.3, the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (“FIRA”). The Bank Bribery Act (18 USC § 215) historically made it a crime to bribe a bank officer in order to obtain a loan. OCC 12 CFR Parts 11 and 16 guidance for banks requires compliance with Sarbanes-Oxley Act (“SOX”) Section 406 to prevent conflict of interest. Bank officials should regularly disclose all potential conflicts of interest. Under the Banking Affiliates Act, banks must comply with Sections 23A and 23B of the Federal Reserve Act dealing with transactions with affiliates. By adopting this policy, the Board of Directors seeks to comply with this mandate and acknowledge the seriousness of ethics in banking.
Conflict of Interest
Bankers should also be aware that general concepts of corporate law found in the Texas Organization Code (previously the “Texas Business Corporation Act”) and common law principles relating to fiduciary duty also regulate their conduct. Thus, bank directors, officers, and employees must be aware that they owe a duty of loyalty to the bank. They must not get into businesses and other situations that would result in a conflict of interest between the individual’s personal best interest and the best interest of the institution. For example, a loan officer who is evaluating a potential loan to a business in which he has invested may not exercise completely detached judgment in determining the advisability of the transaction.
In addition, bankers must be aware that they have a responsibility to bring opportunities first to the institution rather than taking advantage of them personally. Otherwise, they may find themselves accused of having usurped a corporate opportunity. In short, the bank should have been allowed the chance to make a profit on a specific transaction rather than the officer, employee, or director personally. In such a situation, the individual must present the opportunity first to the institution. If the bank turns down the transaction after full disclosure, then the individual may engage in the transaction individually.
The nature of the banking industry requires that each employee, officer, director, and agent of the bank meet special, high standards of integrity and ethical conduct. For the most part, these are common sense rules. Some conduct is mandated by law. Each is extremely important and should be reviewed regularly. Remember that the following are guidelines only. If you have a question concerning a specific proposed transaction, discuss it first with senior management.
This policy applies to all officers, employees, directors, attorneys, and agents of this bank.
Each officer, director, employee, or agent is expected to maintain the highest ethical standards in dealing with customers, other officers and employees, as well as the general public. When in doubt, ask yourself this simple question, “Would I be embarrassed to read of my actions on the front page of the local daily paper?”
Remember that this bank is required by the Federal Deposit Insurance Act to consider ineligible for initial employment or continued employment any individual who is convicted of an act constituting breach of trust or dishonesty (e.g. theft, fraud, or falsification of bank records). In addition, the bank will consider ineligible for continued employment, any individual who fails to fulfill his or her legal and ethical duties and obligations. The bank will thoroughly investigate the occurrence of any major infraction and discipline appropriately any responsible employee(s), up to and including termination. Major infractions include, but are not limited to the following:
- Any action that renders an officer, employee, director, attorney, or agent an unacceptable security risk, adversely affects the bank’s public image, or causes embarrassment to the bank or its customers.
- Release of confidential information or use of confidential information for personal gain.
- Unauthorized possession, distribution, or use of any illegal narcotic.
- Inability to perform work due to consumption of alcohol or any other controlled chemical substance.
- Removal or borrowing bank property without permission.
- Persistent financial irresponsibility.
- Willful failure to follow instructions; insubordination.
- Unauthorized possession of weapon.
- Willful destruction or waste of property belonging to the bank, fellow employees, or customers.
- Failure to report to work without proper notification to management or leaving the bank without proper authority.
Each officer, director, and employee should maintain his or her personal finances in a prudent, businesslike manner. Checking accounts for officers, employees, and directors are to be handled in a professional manner. Savings accounts may not bear a greater rate of interest than that paid to the general public. Overdrafts are not permitted for directors and executive officers unless there is a prearranged, written, interest-bearing extension of credit plan for such overdrafts. An inadvertent overdraft to such insiders of up to $1,000 may be paid provided the executive officer or director repays it within five business days and the usual charges and fees are imposed.
The following activities are prohibited:
- Borrowing from other staff members.
- Borrowing from customers other than those that are lending institutions (if you are executive officer or director, remember to prepare your annual correspondent report on or before January 31 of each year).
- Borrowing at preferential rates from our bank because of your position (remember that all loans to executive officers, directors, and principal shareholders must be on the same terms and conditions as those offered to the general public).
In addition, employees should use bank credit cards, expense account reimbursements, equipment, and supplies (including bank letterhead) only for official bank purposes. Employees should avoid salary advances even if allowed by bank policy.
Officers, employees, directors, attorneys, and agents have been and are encouraged to be active and involved participants in the community. Such activities should be limited by the person’s own interest and reasonable time requirements. We believe that employment with the bank is a fulltime career. Thus, your undivided interest and loyalty is important to the continued success of the bank. Thus, major outside commitments and employment with outside firms is permitted only if it:
- Will not interfere with work assignments or performance.
- Will not involve the possibility of adverse publicity to the bank.
- Is not with a competitor, supplier, or customer.
- Does not imply sponsorship by the bank.
- Does not involve serving as a director, officer, management, or consultant (does not apply to Directors).
- Is approved in advance by executive management.
The bank, as a responsible citizen, encourages contributions to worthy charitable, social, and educational causes. However, due to the requirements of the working environment, employee contributions to political or charitable organizations may not be solicited on bank premises or during working hours without prior management approval. In addition, corporate contributions of money, time, or facilities to government officials or political candidates are prohibited. This means that the bank will not contribute money, property, or services to any government official, political party, or candidate, whether local, state, or federal. The bank may not offer or allow the use of its facilities, equipment, or personnel in connection with any federal, state, or local election or campaign.
Customers expect—and deserve—confidentiality with regard to the information they provide to the bank. Awareness of privacy has been heightened by disclosures under the Gramm-Leach-Bliley Act. Concerns about identity theft have been brought into sharp focus by the media. Thus, it is imperative that each officer, director, employee, agent, and third party vendors assure that customer information is appropriately protected.
Although federal law has focused on consumer privacy, commercial customers are no less entitled to assurances that their information is kept confidential. This can include data obtained in the course of evaluating a loan application, servicing a loan, and other information, including financial data, personal information, business plans, forecasts, capabilities, intentions, contingencies, and timing of actions by individual and company clients of the bank.
Under no circumstances will confidential information be used for one’s own benefit or any one else’s personal benefit. To do so violates both statutes and the policy of this bank. The general rule is that confidential information will not be divulged to any person outside the bank, including a family member or associate of any officer, employees, director, attorney, or agent.
No financial or other information regarding the bank itself or any of its activities that could reasonably be expected to affect the bank’s position in the general community is to be related to any person not employed by the bank. Information such as the price of any of the bank’s publicly held securities or any other bank matter are not to be related to any person not an officer, employee, director, attorney, or agent of the bank, until it has been published in reports to stockholders or otherwise made available to the general public in accordance with applicable disclosures regulations. Examination results, including CAMELS rating, will not be divulged except to the bank’s attorney. In addition, you may not take advantage of special information, such as current earnings, proposed major reorganizations, or other transactions, that would significantly affect the value of the bank’s stock in either buying or selling bank stock. If you are in doubt as to the propriety of your conduct, it is advisable to consult your own attorney before entering into a stock transaction. Similarly, remember that you may not divulge such information to others whether family, friends, business associates, or others.
Receipt of Gratuities
There are certain circumstances in which you may be offered or wish to give a gratuity or some other thing of value to a person who happens to be a customer or supplier of the bank or is in some other way related to the bank. Typical examples include situations in which the other individual is a family member or the proposed gift or service properly furthers the interest of the bank by facilitating business discussions in a normal and usual fashion, such as a business luncheon. However, as a general rule, neither you nor your family may solicit or accept gifts, fees, services, or entertainment from customers, suppliers, or prospective customers. In order to guide your conduct, make sure that you are familiar with the Bank Bribery Act, 18 USC § 215. This statute is intended to prevent payment or receipt of anything of value in support of a transaction with a bank or other financial institution. Thus, where a benefit is given or received relating to a banking transaction, there is a possibility of violating the statute. A banking transaction includes not only loans but also account relationships as well as purchases of goods or services for the bank itself. In short, you may not solicit for yourself or for a third party, other than the bank itself, anything of value from anyone in return for any business, service, or confidential information of the bank nor may you accept anything of value (other bona fide salary, wages, and certain fees) from anyone in connection with the business of the bank, either before or after a transaction is discussed or consummated.
The following are intended to guide your conduct.
- Benefits of a nominal value, that is $100.00 or under, which are clearly unconnected with any transaction with the bank, may be accepted from customers, suppliers, or prospective customers by bank officers, employees, or directors.
- Tangible gifts, services, or anything of value from customers, suppliers, or prospective customers shall not be solicited or accepted by any bank officer, employee, or director as a gift or condition in connection with any bank transaction. Included in this category is the receipt of weekend hunting or fishing trips, scarce or expensive tickets to athletic or theatric events, or any other benefits that serve no demonstrable business purpose.
- You may receive the normal amenities that facilitate the discussion of bank business, such as a business luncheon, from a customer, supplier, or prospective customer. However, even these should be of nominal value.
- You may receive a gift, service, or other thing of value from a bank customer, supplier, or prospective customer when that individual is a close family relative, such as a parent, child, spouse, grandparent, or grandchild, and such item relates to your relationship and not to a bank product or service.
- You may not be named as a recipient of a bequest under a customer’s will or as a personal representative of a customer’s estate unless the customer is a family member or the transaction has been disclosed to and approved by senior management.
- You may accept a loan from another bank or financial institution on customary terms to finance proper and usual activities, such as your own home mortgage loan, except where prohibited by law.
- You may accept advertising or promotional material of a reasonable value, such as pens, pencils, notepads, key chains, calendars, and similar items.
- You may accept discounts or rebates on merchandise or services that do not exceed those that are available to other customers.
- You may accept gifts of a reasonable value that are related to commonly recognized events or occasions, such as a promotion, new job, wedding, retirement, holiday, or birthday, provided that such gifts do not exceed $100.00.
- You may accept civic, charitable, educational, or religious organization awards for recognition of service and accomplishment. Such awards should be within the scope of normal awards within the community.
If you are offered or receive something of value from a customer outside the scope of what is authorized above, you must disclose that fact to the bank’s ethics officer. The ethics officer will keep contemporaneous written reports of such disclosures. Management [ethics committee consisting of cashier, chief compliance officer, and head of personnel, for example] shall regularly review such disclosures to determine whether there is any prohibited self-dealing. Decisions taken will be reduced to writing.
Conflicts of Interest
Conflicts of interest between officers, employees, directors, attorneys, and agents of the bank and customers of the bank (or their related interests) shall be avoided at all times. In other words, you may not use your position, influence, confidential information, or company assets for your personal gain. Conflicts of interest include, but are not limited to, compensation from, directorships with, or investments in or with bank customers or their related interests or the use of privileged information. No lending officer or employee should loan, review a loan, or make any decision regarding a loan of any customer, syndicate, or corporation in which he or she has a present or prospective financial interest. Other examples of conflicts of interest include selling or leasing goods or services to the bank without prior disclosure and approval by a majority of disinterested directors. In addition, the terms and conditions of such transaction must be not less favorable than those offered to others. A director, or his firm, who sells securities to the bank, should disclose to the board his commissions or profits resulting from the sale. The following activities are prohibited:
- A direct or indirect financial interest, including joint ventures or directorship in or with a supplier, customer, or prospective customer without disclosure and approval by senior management.
- Personal investment in a customer’s or a supplier’s business, unless the stock is traded on a recognized stock exchange.
- Receiving preferential treatment from customers, suppliers, or prospective customers because of your position with the bank.
- Receiving discounts on personal purchases from customers or suppliers because of business relationships with the bank.
- Giving preferential treatment to a customer, supplier, or prospective customer because of any favor, gratuity, or outside business relationship with such customer, supplier, or prospective customer.
An officer, employee, or director contemplating a transaction that does or may involve a conflict of interest must obtain the prior approval of the chief executive officer.
Officers and directors owe a duty of loyalty to the bank. If a business opportunity is presented to you that could be a reasonable business opportunity for the institution, your first duty is to report that opportunity to management [Board of Directors]. If the bank does not choose to pursue the business opportunity, such decision should be appropriately documented in writing. At that time, you may pursue the opportunity yourself if it does not reflect poorly upon the bank or interfere with your duties. No officer, employee, director, attorney, or agent shall serve as a director of a board, except of a church or well-known non-profit organization, without the prior approval of management.
Ensuring the Integrity of Records
Banks and their stakeholders, including shareholders, customers, regulators, and others, rely on the integrity of records maintained by the bank. This is true whether the stakeholder is a customer relying on the accuracy of their checking account or loan information or an examiner reviewing the call report. Thus, records and accounting information must be accurate and maintained with reliability. All transactions must be reflected in an accurate and timely manner. Not only are false entries prohibited under this policy but also any activity that could result in a false entry is prohibited. To illustrate, it would be a violation of this policy to obtain an appraisal that was not independent and fairly representative of the value of collateral offered to the bank on a loan transaction. Similarly, it would be a violation of this policy to reflect an inaccurate deposit or down payment on a transaction financed by this bank. Call reports, of course, must always be accurate and prepared in accordance with generally accepted accounting principles.
Reporting and Disclosure
Each quarter, you shall make a report to the Board of Directors, or a designated committee, of any gifts, services, or other things of value either received from or given to customers, suppliers, or prospective customers of the bank. In addition, as a specific transaction arises as discussed above, in which there is some doubt as to appropriate behavior, a full report with disclosure of all pertinent facts shall be made to your immediate supervisor or senior management. Finally, if you are aware of situations among your fellow employees or officers that appear to violate your understanding of this Code of Ethics, you should report those events to your supervisor or senior management. Such unethical conduct can have significant repercussions for the institution and may violate state or federal law.
The Board of Directors has established a peer review committee to review any instance of or the appearance of misconduct or impropriety on the part of an officer, employee, director, or agent. Anyone observing conduct that violates this Code of Ethics should refer that conduct to a member of the peer review committee. The referral will remain anonymous. The peer review committee will meet on call, review the matter fully, and present its findings to the Board of Directors at the next regularly scheduled board meeting. All officers, employees, directors, and agents are encouraged to use candor in dealing with both internal and external auditors, examiners, and the bank’s legal counsel. There will be no retribution for providing factually correct information to any of these parties or the peer review committee.
Penalties for Breach of Code of Ethics
Compliance with this policy shall be monitored in accordance with the reporting and disclosure section described above. After a thorough review, any violators shall be subject to appropriate personnel actions with the objective of promoting accountability for adherence to this policy. For employees and officers, a breach of this policy shall be subject to sanctions depending on the severity of the breach. Sanctions for minor violations may involve a reprimand and notation in the employee’s personnel file. Violations that are more serious may result in a 90-day probationary period. Serious violations may result in suspension while further investigation is carried out.
For agents of the bank, a violation of this ethics policy may result in termination of any contractual relationship with the institution.
Any violation by a director shall be reported to the chair of the board for appropriate action.
Compliance with this policy shall be reviewed by the bank’s internal auditor, who shall monitor for reporting, disclosure, and need for updating of the policy. In addition, the auditor or other appropriate person shall provide periodic training for all employees, officers, and directors.
Hometown Bank, N.A. requires directors, officers, and employees to observe high standards of business and personal ethics in the conduct of their duties and responsibilities. As employees and representatives of the Bank, we must practice honesty and integrity in fulfilling our responsibilities and comply with all applicable laws and regulations. This Whistleblower Policy shall be considered a part of the Bank’s Code of Ethics Policy.
It is the responsibility of all directors, officers, and employees to comply with the Code of Ethics Policy, and to report violations or suspected violations in accordance with this Whistleblower Policy.
No director, officer or employee who in good faith reports a violation of the Code of Ethics Policy shall suffer harassment, retaliation or adverse employment consequence. An employee who retaliates against someone who has reported a violation in good faith is subject to discipline up to and including termination of employment. This Whistle-Blower Policy is intended to encourage and enable employees and others to raise serious concerns within the Bank rather than seeking resolution outside the Bank.
Bank management suggests that employees share their questions, concerns, suggestions or complaints with someone who can address them properly. In most cases, an employee’s supervisor is in the best position to address an area of concern. However, if you are not comfortable speaking with your supervisor or you are not satisfied with your supervisor’s response, you are encouraged to speak with anyone in management whom you are comfortable in approaching. Supervisors and managers are required to report suspected violations of the Code of Ethics Policy to the Bank’s Compliance Officer, who has specific and exclusive responsibility to investigate all reported violations. For suspected fraud or securities law violations, or when you are not satisfied or uncomfortable speaking with a Bank manager, individuals should contact the Bank’s Compliance Officer directly.
The Bank’s Compliance Officer is responsible for investigation and resolving all reported complaints and allegations concerning violations of the Code of Ethics Policy and, at her discretion, shall advise the President and CEO and/or Audit Committee. She has direct access to the Audit Committee of the Board of Directors and is required to report to the Committee at least annually on her compliance activity. The Bank’s Compliance Officer is Jill Fredo and her phone number is 409-763-1271 Ext. 1986. If you are not comfortable speaking with Jill Fredo, or if she is unavailable and the matter is urgent, you may contact Lighthouse Services, Inc. for anonymous reporting in any of the following ways:
- Website: www.lighthouse-services.com/htbna
- Toll-Free Telephone:
- English speaking USA and Canada: 1-833-290-0001
- Spanish speaking USA and Canada: 1-800-216-1288
- Email: email@example.com (must include company name with report)
- Fax: (215) 689-3885
ACCOUNTING AND AUDITING MATTERS
The Audit Committee of the Board of Directors shall address all reported concerns or complaints regarding bank accounting practices, internal controls or auditing. The Compliance Officer shall immediately notify the audit committee of any such complaint and work with the Audit Committee until the matter is resolved.
ACTING IN GOOD FAITH
Anyone filing a complaint concerning a violation or suspected violation of the Code of Ethics Policy must be acting in good faith and have reasonable grounds for believing the information disclosed indicates a violation of the policy. Any allegations that prove not to be substantiated and which prove to have been made maliciously or knowingly to be false will be viewed as a serious disciplinary offense.
Violations or suspected violations may be submitted on a confidential basis by the complainant or may be submitted anonymously. Reports of violations or suspected violations will be kept confidential to the extent possible, consistent with the need to conduct an adequate investigation.
HANDLING OF REPORTED VIOLATIONS
The Compliance Officer will notify the sender and acknowledge receipt of the reported violation or suspected violation within five business days. All reports will be promptly investigated and appropriate corrective action will be taken if warranted by the investigation.
Annual Declaration of Personal Circumstances
Each officer, director, employee, or agent of this Bank accepts a responsibility to the institution and its shareholders and customers. The confidence entrusted to us will not be subjected to personal conflicts of interest.
This year, each of us, by reading and signing this “Code,” signify that we acknowledge to the Board of Directors that we accept our individual position of the trust responsibility.
Inquire if you have any questions. Be sure to explain any condition or fact that could be construed as a conflict with any statement contained in the Code of Ethics policy.
General Statement of Policy
It is the established policy of this Bank to expect from its directors, officers, and employees their undivided loyalty and standards of behavior that are consistent with the highest ethical principles. Among other things, this means that each officer, director, and employee should avoid any investment, any interest, any association, or service that interferes, might interfere, or might be thought to interfere with the independent exercise of his judgment in the best interest of the Bank.
The Board of Directors has determined that this policy shall be implemented by requiring annually from each officer and each employee whose duties involve responsible judgment in the interest of the Bank, a complete disclosure of all interests, activities, and associations of himself or any member of his immediate family (spouse, father, mother, brother, sister, child of either employee or spouse) that might give rise or be thought to give rise to any conflict with the Bank policy outlined above. This obviously involves, at a very minimum, the disclosure by any such officer, director, or employee of any activity participated in by himself or any member of his immediate family, whether alone or with others, by which he or such family member receives a pecuniary advantage that he or such family member would not receive but for his position with the Bank.
The disclosure requirement is not intended unfairly or unduly to restrict the activities of the person affected and in no way attempts to interfere with an individual’s privacy. Very few serious problems can exist when the Bank has full knowledge of all pertinent facts. Where problems do exist, solutions generally can be worked out. But for the ultimate good of all, full disclosure of any conflict or potential conflict must be made to the Board of Directors each year.
For the guidance of persons affected, the following examples are cited. They obviously cannot cover all possible situations, and are to be considered only as representative. Where doubt or questions exist, it is suggested that it be resolved in favor of full disclosure.
Examples illustrating, but not limiting, areas of possible conflict that shall be disclosed:
- Receiving anything of substantial value (a value in excess of $100.00) from persons or firms negotiating or contracting with the Bank or likely to have dealings or borrowings with the Bank.
- Participating in any negotiations or dealings on behalf of the Bank with any firm in which such officer, director or employee directly or indirectly has an interest through stockholding or otherwise, except a normal investment not significant in amount and where the transaction between the Bank and such firm would not tend to affect the value of such interest or stockholding. This same principle should apply to negotiations or dealings with any person.
- Rendering services, with or without compensation, as a director, officer, employee, or consultant to any person, firm, or corporation competing, dealing or seeking to deal with the Bank.
- Using or divulging to others for his personal profit, or that of an immediate family member, any data, plans, decisions, or other confidential information to which he/she has access by reason of his/her position with the Bank.
It is important to realize that the impartial judgment of even the most well meaning person may tend to be swayed (or may be believed by others to be swayed) if his/her personal economic interests, or those of his immediate family, are affected in any way by the business he/she transacts on behalf of the Bank. Therefore, the above examples, as well as other possible conflict situations, should be carefully considered with respect not only to the officer, director, or employee himself, but also with respect to any member of his immediate family.
It shall continue to be a practice (1) to apprise the Board of Directors, as well as all the officers concerned, of the general backgrounds and the specific assignments of persons who join the Bank at the higher levels of trust, and (2) to hold senior officers responsible for knowing the quality of the character and the work of their subordinates and for taking the appropriate action to direct or remove deviants from either acceptable character or performance standards.