Excessive or Luxury Expenditures Policy

SUMMARY OF SIGNIFICANT CHANGES

This is a proposed new policy intended to conform to the requirements of the Department of the Treasury’s Emergency Capital Investment Program (ECIP). It closely follows the model policy provided by the Department of Treasury.

This proposed policy was presented to the Board in July, 2021 but was tabled at that time due to uncertainty over whether or not ECIP capital would be invested in the Bank.

Specific dollar amounts have been updated throughout the document to reflect limits used by comparable institutions that have published similar policies.

APPROVAL:

I. Overview

The purpose of this Policy is to establish parameters and internal controls governing the expenditures of Community Bank of the Bay (CBB or the Bank). Expenditures of the Bank should be customary, prudent, consistent with applicable laws and regulations, and reasonably related to the Bank’s business objectives and needs. This Policy identifies expenditures that are excessive or luxury expenditures, and establishes accountability for compliance. Routine operating expenses, capital expenditures, and other reasonable expenses are not prohibited by this Policy.

II. Authorization and Responsibility

The Bank has the authority to provide compensation and benefits that are reasonable. This Policy establishes a prohibition on expenditures that are excessive or luxury expenditures as required by the Department of the Treasury’s Emergency Capital Investment Program regulations (31 CFR Part 35).

This Policy is the responsibility of the Bank’s Board of Directors (the Board). The Board has approved this Policy and will review compliance with this Policy no less than annually. Summary data on excessive or luxury expenditures will be reported to the Board as part of the compliance review.

III. Scope

This Policy applies to all employees, officers, and directors of the Bank with regard to any expenditure of the Bank. In making any expenditure on behalf of the Bank, employees, officers, and directors should consider whether the expenditure is an excessive or luxury expenditure that is prohibited under this Policy.

IV. Excessive or Luxury Expenditures

Excessive or luxury expenditures means excessive expenditures on any of the following to the extent not reasonable or appropriate for the purposes of business development, staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the Bank’s operations:

A. Entertainment or events. This category includes fees, dues, ticket cost related to social, athletic, artistic, and dining clubs, activities, celebrations or other events, and similar expenditures. Expenditures for charitable contributions and charitable events are not prohibited under this Policy. Entertainment or events expenditures in an amount less than $25,000 per instance, and $125,000 on an annual aggregate basis per individual, are exempt from this Policy.

B. Office and facility renovations. This category includes costs and allowances for office renovation, including expenditures related to furniture, art, office personalization, interior finishing, design, and decoration, and similar expenditures. Office and facility renovations expenditures in an amount less than $15,000 per instance, and $75,000 on an annual aggregate basis per individual, are exempt from this Policy.

C. Aviation or other transportation services. This category includes charter fees, tickets, slip or docking fees, vehicle installment payments, reservation and travel agent expenses, and similar expenditures associated with transportation services (e.g., airline, train, rental cars, or vans). Mileage reimbursable according to current Internal Revenue Service mileage rates is exempt from this Policy. Transportation services in an amount less than $25,000 per instance, and $125,000 on an annual aggregate basis per individual, are exempt from this Policy.

Processes for the reimbursement of reasonable travel expenses are detailed in and governed by the Bank’s Travel Policy, which is incorporated herein by reference. It is reviewed by executive management and the Board on an annual basis.

D. Tax gross-ups. This category includes any reimbursement of taxes owed with respect to any compensation. This category does not apply to tax equalization agreements for employees subject to tax from a non-U.S. jurisdiction.

E. Other similar items, activities, or events for which the Bank may reasonably anticipate incurring expenses or reimbursing an employee for incurring expenses. Expenditures related to other items not listed in the preceding categories are exempt from this Policy in an amount less than $25,000 per instance, and together with all expenditures permitted under this Policy may not exceed $125,000 on an annual aggregate basis per individual.

For the avoidance of doubt, reasonable capital investments in technology, equipment, and similar items that expand the long-term capability of the Bank to provide products and services to its customers and community are not excessive or luxury expenditures.

The Chief Executive Officer may establish, or delegate to an appropriate executive officer the authority to establish, processes for the evaluation and approval of expenditures in the preceding categories that are not excessive or luxury or expenditures and that are not otherwise exempt from this Policy. These processes must be reviewed by executive management no less frequently than annually, as well as any additional threshold expenditure amounts per item, activity, or event, or a threshold expenditure amount per employee receiving the item or participating in the activity or event under this Policy. Such approvals must be reported to the Board (which may be in an appropriate summary form) no less frequently than annually.

The Bank’s Accounts Payable and Expense Authorization Policy is intended to provide for such processes and is incorporated herein by reference. It is reviewed by executive management and the Board on an annual basis.

V. Exceptions or Violations

Any exception to or violation of this Policy must be promptly reported to the Bank’s (i) Chief Executive Officer, (ii) Chief Risk Officer, or (iii) Chief Financial Officer. The Chief Financial Officer is designated with primary responsibility for overseeing the administration, monitoring, and compliance with this Policy. Exceptions and violations must be reported to the Board no less frequently than annually, or more frequently as the nature and severity of violation may warrant. All employees, officers, and directors of the Bank must adhere to this Policy and will be held accountable for compliance. Any employee or officer who violates this Policy may be subject to disciplinary action up to and including termination of employment.

Any employee or officer who is aware of any circumstance that may indicate a violation of this Policy is required to report such circumstance to their supervisor or the Bank’s Chief Risk Officer. The Bank prohibits retaliation against any employee or officer for making a good faith report of actual or suspected violations of the Bank’s Code of Business Conduct and Ethics, laws, regulations, or other Bank policies, including this Policy. A finding of retaliation against such an employee or officer may result in disciplinary action up to and including termination. Failure to report promptly known violations by other may also be deemed a violation of the Bank’s Code of Business Conduct and Ethics.

Employees and officers may ask questions, raise concerns, or report instances of non-compliance with this Policy and/or any of the existing relevant policies by contacting our Chief Risk Officer, laerni@bankcbb.com.

VI. Certification

On an annual basis, the Bank will deliver to the Department of the Treasury a certification, executed by two senior executive officers (one of which must be either the Bank’s principal executive officer or principal financial officer) certifying that (i) the Bank is in compliance with this Policy and (ii) the approval of any expenditure requiring the prior approval of any senior executive officer, any executive officer of a substantially similar level of responsibility, or the Board (or a committee of the Board), was properly obtained with respect to each such expenditure.