EXCESSIVE OR LUXURY EXPENDITURES POLICY

THE FARMERS STATE BANK

Approved by the Board of Directors December 18, 2009

1. Purpose of this Policy
The Farmers State Bank encourages the prudent allocation of funds to help secure and develop customer relationships, enhance community involvement, highlight achievement, educate and engage employees, and provide performance incentives. This policy provides guidance to employees for specific types of expenditures. The Farmers State Bank has adopted other policies and procedures that relate to business expenditures, and this policy is intended to serve as an addition to those policies and procedures, not as a replacement. The Farmers State Bank is mindful of the importance of making prudent choices regarding the use of corporate funds, while retaining the ability to remain competitive and grow its business. Management attempts to contain costs while helping to ensure that events and programs further business objectives. This policy applies to The Farmers State Bank and Farmers State Bankshares, Inc. The Management Team refers to The Farmers State Bank management-level Executives and is composed of the President/CEO and the Vice-President of Operations. These are the most senior executives.

2. Entertainment or Events
From time to time, the Company will require or permit its employees, officers and directors to attend events that are appropriate educational, marketing, strategic planning, business development or other business purposes opportunities. These conferences should be related to the financial services industry and have a direct correlation to an individual director, officer or employee’s responsibilities and must be approved in accordance with existing business unit or departmental procedures. At times it may be appropriate that a spouse travel to these events with an individual director, officer or employee. Accordingly, the director, officer, or employee will reimburse the bank for any spousal travel. Typically these events are sponsored by vendors, banking associations, or other industry related entities. Events that do not have an educational, marketing, strategic planning, business development or other business purpose will generally not be subsidized by the Company. If the total cost of an event is expected to exceed $1,500.00, it must be pre-approved by the Board of Directors.

3. Office and Facility Renovations
Any facility or office renovation must be approved by the President/CEO of the bank if such renovation is not in excess of $7,500.00. If the renovation is over $7,500.00 the Bank’s Board of Directors most approve. All renovations must serve legitimate business purposes. In addition to continued compliance with The Farmers State Bank’s expenditure policies and procedures, individual office or branch renovations including but not limited to branch construction in excess of $7,500.00 must be approved by the Board of Directors. Any amount which benefits the President or Vice-President of Operations concerning renovation of an office must be approved by the Board of Directors. The President and Vice-President of Operations must not be present for this discussion and must abstain from voting.

4. Aviation or Other Transportation Services
Transportation for directors, officers and employees of the Company in fulfilling their respective duties, including, without limitation, to bank locations, conferences, business development purposes and merger and acquisition due diligence, should generally be conducted in a cost efficient manner for the Company when appropriate, although other relevant factors may be considered when determining the specific mode of transportation. Modes of transportation to be used may consist of vehicle, commercial or private air or rail service. The selection of transportation services will take into account cost, efficiency, timeliness of travel and the needs of the Company and its directors, officers, and employees.

5. Other Similar Items, Activities, or Events
Other similar items, activities or events for which the Company may incur expenses, or reimburse an employee for incurring expenses, which are not specifically addressed elsewhere in this policy (e.g., performance incentives) shall be for legitimate business purposes and reasonable in nature and amount.

Generally the Company does not grant performance incentives in the form of travel or entertainment. However, if granted, such performance incentives must not encourage or promote excessive or unnecessary risk-taking or manipulation of financial results. Any performance incentive granted in the form of travel or entertainment must be approved in advance by the President/CEO. All meetings or events attended by Executive officers, employees, or board members shall be devoted to specific business purposes and be well documented. Participating executive officers and board members shall be responsible for any expenses incurred for non-business related activities and shall promptly reimburse the Company for any such expenses if paid by the Company.

6. Governance and Accountability
The Board of Directors will review and approve this policy at least annually. The Board of Directors delegates to the Chief Executive Officer (or a designee) the ability to amend or modify this policy to:

  • prohibit additional items, activities, or events; or
  • impose additional or more severe restrictions

Under this delegated authority, the President/CEO (or designee) will report any amendments or modifications to the Board of Directors of The Farmers State Bank. He will also communicate any policy amendments or modifications to its primary regulatory agency and post the amended policy on its Internet website at www.fsbks.com. The process for approving and reporting expenditures covered by this policy, as well as the actual amount of expenditures incurred, may be subject to audit by the Company’s internal audit staff to confirm policy compliance. Any violations or departures from policy requirements shall be promptly reported to the President/CEO, unless such violations or departures relate to the President/CEO. Violations or departures from this policy by the President/CEO should be promptly reported to the Board of Directors through any other executive officer or any member of the Audit Committee. The President/CEO and Vice-President of Operations shall certify, at least annually, that the approval of any expenditure under this policy requiring the prior approval of any senior executive officer, any executive officer of a substantially similar level of responsibility or the Board of Directors was properly obtained with respect to each such expenditure.