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Excessive or Luxury Expenditures Policy for First American International Corporation and First American International Bank (UST # 596)
Summary and Regulatory Background
On June 15, 2009, the United States Department of Treasury (“Treasury”) announced an interim final rule (the “Interim Rule”) that includes standards for executive compensation and corporate governance practices for those entities receiving funding under the Capital Purchase Program (“CPP”). The Interim Rule contains many new standards for CPP recipients, including that CPP recipients adopt an Excessive or Luxury Expenditures Policy. As a CPP participant, First American International Corp. (“Corporation”) and its wholly owned subsidiary, First American International Bank (“Bank”) and subsidiaries of the Bank and the Corporation (“Subsidiaries”) are subject to the requirements of the Interim Rule.
This Excessive and Luxury Expenditures Policy (the “Policy”) is designed to satisfy the requirements of the Interim Rule and will govern expenditures by the Bank, the Corporation, Subsidiaries and all their employees and Directors. This Policy affirms the Bank’s and Corporation’s obligation that any excessive or luxury expenditures (as defined below) must comply with the requirements of the Emergency Economic Stabilization Act of 2008 (“ESSA”) and the Interim Rule, and sets forth procedures to ensure compliance.
Policy applies to all employees and Directors of the Bank, Corporation, and any other subsidiaries of the Corporation or the Bank and will be held accountable for compliance with this Policy
It is the policy of First American International Bank and First American International Corp. that all employees and Directors of the Bank and Corporation and any of its subsidiaries are prohibited from making any excessive or luxury expenditures. The term excessive or luxury expenditures is defined as excessive expenditures in any of the following to the extent such expenditures are not reasonable expenditures for staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the Bank’s or Corporation’s business:
Identification of the types and categories of expenses that are prohibited or that require prior approval
1. Entertainment or events;
2. Office or facility renovations;
3. Aviation or other transportation services; and
4. Other similar items, activities, or events for which the Bank or Corporation may reasonably anticipate incurring expenses, or reimbursing an employee or Director for incurring expenses.
Reasonable expenditures may be incurred for business related activities, events and purposes, including, without limitation, legitimate travel and meeting related costs for attendance at conferences and meetings in appropriate environments for purposes of professional development, education, training, familiarization with the Bank’s or Corporation’s products and services, and/or networking and best practice sharing across banking related industries; however, such expenditures must conform with all applicable Bank and Corporation policies and procedures.
All expenditures by employees or Directors for entertainment must comply with applicable Bank’s or Corporation’s policies and procedures and must have a legitimate business purpose. Requests for reimbursement for such expenditures must be justified and supported by documentation in accordance with applicable Bank or Corporation policies and procedures.
Expenditures for Activities and Events
All expenditures by employees or Directors for activities and events must comply with applicable Bank’s or Corporation’s policies and procedures and must have a legitimate business purpose. Approval prior to incurring this expenditure is required as outlined below for expenditures above $5,000. It is the Policy of the Bank and Corporation that spouse travel and meal expenses to conference or sponsored events shall be paid by the employee or Director. No reimbursement for spouse travel will be made by Bank or Corporation. Expenses incurred by the spouse shall be the responsibility of the employee or Director, as applicable.
Office or Facility Renovations
Employees’ offices, including executive offices, shall be appropriate for the employee’s position but not ostentatious in size, furnishings or decoration. Materials used to construct or renovate offices and facilities shall be selected on the basis of their quality, appearance, cost and durability, considering their intended use and avoiding opulence. All expenditures above $5,000 for constructing, renovating, or furnishing offices must be approved as outlined below prior to incurring the expenditure.
Air travel on Bank or Corporation business shall be by commercial airline. Air travel by first or business class is prohibited. The Bank or Corporation does not own or lease, and does not intend to purchase or lease, any private aircraft for use by Bank or Corporation employees or Directors.
Other Transportation Services
The Bank or Corporation provides a company owned automobile to its President. Such vehicle shall not be labeled nor considered a luxury vehicle and must be approved by the Board of Directors. Other vehicles used by bank employees shall also conform to the non-luxury definition. Rental cars when travelling for Bank or Corporation business shall be limited to standard-sized vehicles and rental of vehicle considered a luxury vehicle is prohibited.
Any expenditure in the above categories that is unreasonably high under the circumstances shall be considered extravagant. No employee or Director shall engage in extravagant spending. Any employee who engages in extravagant spending shall be subject to discipline up to and including termination. Any Director who engages in extravagant spending shall be subject to censure by the Board of Directors up to including being asked to resign from the Board. In addition, the Bank and Corporation reserve the right to not reimburse employees or Directors for expenditures that it considers luxury and extravagant expenditures or demand repayment of any advances or payments already made for such luxury or extravagant expenditures.
Determination of whether a proposed expenditure in any of the above described categories constitutes an “excessive or luxury expenditure” shall be made by Board of Directors, or by the President or Chief Financial Officer, as its designee pursuant to the procedure set forth below.
Procedures for Expenses Requiring Prior Approval
Before incurring expenses in an amount exceeding $5,000 that would fall into any of the above described categories of this Policy, a written request for prior approval of such expenditure (the “Proposed Expense”), including documentation of the business purpose for the Proposed Expense or Expenditure, should be submitted to the President or Chief Financial Officer of the Bank or Corporation.
Upon submission of the Proposed Expense, the President or Chief Financial Officer will make a determination as to whether the Proposed Expense constitutes an “excessive or luxury expenditure”.
1. If the Proposed Expense is determined to be “excessive or luxury expenditure” that is without a justified business purpose, then the request for approval will be denied and the expense will not be incurred.
2. If the Proposed Expense is determined not to be an “excessive or luxury expenditure,” or has a justified business purpose, then the expense will be approved (an “Approved Expense”).
The President or Chief Financial Officer will prepare a report of all Approved Expenses to be submitted to the Board of Directors on a regular basis. For each Approved Expense, the report will include the amount of such expense and a statement justifying this amount in light of the legitimate business purpose to be served. The report will be certified by the Bank’s or Corporation’s President and Chief Financial Officer.
Reporting of Suspected Violation and/or Actual Violation
Any employee and Director should report any suspected violation to the President or Chief Financial Officer, or directly to any Director who is member of the Board of Directors. The reporting may be done by an email, telephone call or anonymous letter to the President, Chief Financial Officer, Director or the Board of Directors. It should indicate the suspected violation of this Policy, amount and date of the expenditure and who incurred the expenditure. The President and Chief Financial Officer have the direct responsibility to review and investigate any suspected violation. The President and Chief Financial Officer will prepare and certify a report of any reported suspected violation and/or actual violation to the Board of Directors. The report should indicate the result of the investigation regarding the suspected violation. In the case or event of an actual violation, the report should also indicate the action taken against the employee including request for reimbursement and any disciplinary action. If the violation is by a Director, the report should indicate a recommendation for action to be taken by the Board of Directors.
Compliance with Policy and Annual Board Review
Compliance with this Policy will be the primary responsibility of the Bank’s or Corporation’s President. Any violation of this Policy should be reported directly to the President, Chief Financial Officer, or directly to the Board of Directors. A review of the Bank’s or Corporation compliance with this Policy shall be incorporated into the Bank’s and Corporation’s regular compliance program, and a report regarding the findings of that compliance review will be made to the Board of Directors on an annual basis. In addition, at least annually, sufficient time will be allocated during one of the regular meetings of the Board of Directors for a general review of this Policy’s requirements in light of the requirements of EESA and the Interim Rule, as they may be amended from time to time. If it is determined that this Policy needs to be revised because of amendments to EESA or to the regulations of Treasury or other relevant regulatory agencies, or because of changes to the policies of Treasury or other regulatory agencies having jurisdiction over the Bank or Corporation, the Board of Directors will make the necessary changes to this Policy.
The President and the Chief Financial Officer shall certify on an annual basis that this Policy is being followed and that the approval of any expenditure requiring prior approval of an executive officer or the Board of Directors was properly obtained with respect to each such expenditure.
Publication of Policy
Upon approval by the Board of Directors, a copy of this Policy, will be promptly submitted to Treasury, the Bank or Corporation primary regulator and will be posted on the Bank’s website. If this Policy is amended, a copy of the revised Board approved Policy will be promptly submitted to Treasury, the Bank or Corporation primary regulator and the Bank’s website will be updated to reflect such amendments. Note that the Corporation does not maintain a separate website.
This Policy will remain in effect so long as Treasury maintains an investment in the Bank and Corporation pursuant to the CPP. When the Bank and Corporation repays in full all funds received from Treasury under the CPP and is no longer subject to the CPP requirements, then this Policy will terminate and will no longer be in force, unless the Board of Directors determines, in its sole discretion to continue this Policy.
This Policy was formally approved and adopted as of June 11, 2010 by the Bank’s and Corporation Board of Directors.