Code of Ethics

We have a unique relationship with the public, our customers.  Our continued existence depends on their confidence in us.  We earn that confidence through the integrity, discretion, and care with which each of us respond to their needs and transact their business.
The Code of Ethics reaffirms our basic policies of ethical conduct for directors and staff members.  The foundation of our Code consists of basic standards of business as well as personal conduct:
• Honesty and candor in our activities, including observance of the spirit as well as the letter, of the law.
• Avoidance of conflicts between personal interests and the interests of the bank, or even the appearance of such conflicts.
• Maintenance of our reputation and avoidance of activities which might reflect adversely on the bank.
• Integrity in dealing with the bank’s assets.
All directors, officers, employees, and agents of Harbor Federal and its subsidiaries are expected to conduct themselves in accordance with the spirit of this Code of Ethics.

Compliance with Laws and Regulations
The bank strives to comply with all laws and regulations that are applicable to its business.  Although laws and regulations may sometimes be ambiguous and difficult to interpret, as a good citizen, the bank emphasizes good faith efforts to follow the spirit and intent of the law.  If there is any question about any laws or regulations, staff members should seek advice from their supervisor or the compliance officer.
Compliance with Bank Policies
Bank policies are designed to provide direction and guidance in the daily completion of our duties.  Although these policies may seem cumbersome or unrealistic at times, they are based on the principles of bank safety and soundness.  Everyone must learn and use these policies.  If there are any questions or concerns about any policy, you should seek advice from your supervisor.
Candor Among Staff Members and in Dealing with Auditors and Counsel
Senior Management of the bank must be informed at all times of matters which might adversely affect the reputation of the bank, regardless of the source of such information, including governmental and regulatory agencies.  Concealment may be a signal that the bank’s policies and procedures can be ignored, and such conduct cannot be tolerated.  Accordingly, full disclosure to senior management is required.  Staff members are also required to respond honestly and candidly when dealing with the bank’s independent and internal auditors, regulators and attorneys.
The primary principle underlying conflicts of interest is that directors and staff members must never permit their personal interests to conflict or appear to conflict with the interests of the bank or its customers.  Even the appearance of a conflict between personal gain and the interests of the bank erodes the trust and confidence on which our reputation rests.  A staff member should not represent the bank in any transaction where he/she has any material connection or significant financial interests.  Examples of material connections would include relatives or close personal friends, whether the transaction involves them as individuals or as principals in a firm doing business with the bank.  Examples of significant financial interest would include the staff member’s involvement as proprietor, partner, or joint venturer in a firm doing business with the bank.  It would also include a situation where the staff member has a large enough investment in a corporation – especially a small corporation – to permit him to influence the corporation’s policies and decisions.  The staff member should avoid transactions involving any of the above circumstances, or otherwise a conflict of interest would exist.  “Transactions” include not only authorizing and making loans, but also such things as approval of overdrafts, accepting checks
on uncollected funds, waiving of financial statements of collateral documents.  All significant interests held by a director, officer or employee and/or member of his immediate family must be fully reported to the appropriate member of Management.
Detailed guidelines for dealing with conflicts of interest are found in the Insider Transaction Policy Manual.
Dealing with Suppliers
The Physical Resources and Systems Departments have been charged with the majority of the purchasing responsibilities of the bank.  However, there are times when other departments will find it necessary to make purchases or enter into contracts on behalf of the bank.  Staff members must award orders, contracts, and commitments to suppliers of goods or services without favoritism.  Bank business of this nature must be conducted strictly on the basis of merit and competitive bidding.
Though not prohibited by Regulation, Management discourages the use of employees, their immediate family members or their related interests as suppliers of goods or services.  Proper documentation of the disclosure of the relationship must be obtained.  Both the employee and department executing the contract are responsible for disclosing the relationship.  The prior approval of the Human Resources Department is required.
Guidelines for business dealings with insiders are found in the Insider Transaction Policy Manual.  Any Department entering into a contract which results in the appointment of an individual, company, or firm to act as an Agent of the Bank is responsible for obtaining the signature of the Agent of the Bank’s Code of Ethics.  The signed copy should be forwarded to the Human Resources Department.
Fair Competition
Under no circumstances should staff members enter into arrangements with competitors.  This includes such matters as (1) pricing, (2) marketing practices, and (3) official management interlocks with nonaffiliates.
Loans to Insiders
The Bank has developed employee loan programs which are outlined in the benefits section of the Human Resources Manual.  All loans to salaried officers or employees of the bank will be originated using those guidelines.
Guidelines for origination of loans to directors, and their related interests, are addressed in the Insider Transaction Policy Manual.
Self-Dealing or Trading on One’s Position
Bank staff members are prohibited from self-dealing or otherwise trading on their positions with the bank.  More specifically:
• No staff member may solicit for himself/herself 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.

• No staff member may accept anything of value (other than bona fide salary, wages, fees or other usual compensation from the bank) from anyone in connections with the business of the bank, either before or after a transaction is discussed or consummated.

• No staff member may engage in self-dealing or otherwise trading on his/her position with the bank.  This prohibition includes:
• Handling his/her personal or business affairs (or those of his/her family) as a representative of the bank;
• Becoming a regular supplier or purchaser of goods or services to or from the bank (except attorneys or agents in the normal course of business);
• Appropriating any business opportunity that rightly belongs to the bank;
• Using the bank’s property for personal benefit without the prior permission from, or reimbursement to, the bank.
• No staff member may accept from someone doing business or seeking to do business with the bank a business opportunity that is not generally available to the public, or that is made available because of the staff member’s position with the bank.
We recognize that there are instances where something of value may be accepted from someone doing or seeking to do business with the bank, without improperly influencing the business transaction.  The following are situations in which it is permissible for a staff member to accept something of value:
• The gift, gratuity, amenity or favor is based on an obvious family or personal relationship and it is clear that the relationship, not the Bank business involved, motivates the act of giving.
• Meals, refreshments, travel arrangements, or entertainment in the course of a meeting or other occasion intended to include bona fide business discussions or to foster better business relations.  The expenses must be within the Bank’s established travel and entertainment policy, and must be such that they would have been paid by the Bank if not paid by the other party.
• Loans from other financial institutions on regular and customary terms to finance the proper and usual activities of the staff member except where prohibited by law.
• Advertising or promotional material of reasonable value, such as pens, pencils, note pads, key rings, calendars, and similar items.
• Discounts or rebates on merchandise or services that are available to other customers.
• Gifts of reasonable value related to special occasions such as Christmas, wedding, retirement, promotion or new job.
• Civic, charitable, educational, or religious organizational awards for recognition of service and accomplishment.
For the purpose of this policy, “reasonable value” is defined as not more than approximately $50.
If a staff member is offered or receives something of value beyond what is authorized in the code, the staff member must disclose all relevant facts and circumstances in writing to Senior Management immediately after the offering or receipt.  Senior Management will review the written disclosure to determine appropriate action, which may be permission to retain the thing of value.  Management review is necessary to guard against circumstances that might lead to implications of, or actual, improper activity.
Confidentiality of Information
As a publicly held company, Harbor Federal has certain responsibilities.  While we must disclose accurate information about our operations on a timely basis, Harbor Federal shall seek to curtail the risk that certain investors or employees take unfair advantage of share-holders by trading while in possession of information not yet released to the public.
The success of these efforts depends upon the confidentiality of the institution’s corporate information.  All employees, regardless of title or rank, must preserve that confidentiality.  All nonpublic information concerning the securities, financial condition, earnings or performance of Harbor Federal is to remain confidential and should not be discussed with anyone outside the Bank until and unless it is properly disseminated to the public.  It is particularly important to safeguard the confidentiality of information that will have an immediate impact on the market for Harbor Federal securities, e.g. quarterly earnings results and other significant corporate announcements.   In order to help ensure the confidentiality of nonpublic information, it is important that staff members who have access to information of this nature maintain the confidentiality of such information even within the institution.
Section 10 (b) of the Securities Exchange Act of 1934 and the rule 10b-5 of the Act make it unlawful for any person directly or indirectly, in connection with the purchase or sale of any security to (1) employ any device, scheme or trick to defraud, or (2) make any untrue statement of a material fact or to omit to state a material fact in order to make the statements made not misleading, or (3) engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.  Beyond the requirements of the law, Harbor Federal endeavors to preserve a fair marketplace for its shareholders.
It is against corporate policy for employees to share with non-employees material information which has not been made public.  Under certain circumstances such sharing of information which results in trading of Harbor Federal securities could be in violation of securities laws.  “Insiders”, under rule 10b-5 of the Securities and Exchange Act are those who come into possession of undisclosed material information in the course of their business activities and those (“tippees”) who receive such information from an insider or third party.  Thus, employees, consultants, retained counsel, accountants, underwriters, broker-dealers, analysts, investment advisors and those who are informed directly or indirectly by any of these people are all insiders within the purview of the Rule 10b-5.
Releasing Information
Maintaining a fair and orderly market requires that the Chief Executive Officer, or the Stock Relations Department issue all public releases.  Releasing any corporate information through other channels is a violation of this policy.
Request for Information
All general requests for information from reporters, securities analysts, or arbitrageurs should be referred to the Senior Vice President – Finance, or in his/her absence the Chief Executive Officer.  All general requests for information from shareholders or the public should be referred to the Public Relations Coordinator, or in his/her absence, the Chief Executive Officer or Senior vice President – Finance.
Insider Trading
Insider trading is a serious crime.  The offense may occur when, for example, a person trades stock while in possession of material nonpublic information about Harbor Federal.
Information is “material” if it would affect the average person’s decision to buy, sell or hold the stock of Harbor Federal.
Information is nonpublic if it has not been released to the investing public, or if the investing public has not had sufficient time to absorb the details of the information.  If you are aware of material information relating to Harbor Federal that has not been publicly disseminated for at least two full business days, you are prohibited from purchasing or selling securities, directly or indirectly, and you are prohibited from disclosing such information to any other person so that they may trade in the stock.  Do not trade on the basis of any confidential information whether the information relates to Harbor Federal, a customer or any other entity contemplating doing business with or currently doing business with Harbor Federal or whether you become aware of the information at your job, or outside of your normal working environment.
In addition, it is the policy of Harbor Federal to prohibit directors, executive officers, and employees from engaging in options trading on future exchanges.
Designated Insiders
In addition to the above requirements, directors and senior officers defined below as SEC “designated insiders” and the spouses or other associates of such persons are subject to special trading restrictions.  Associates include immediate family members and anyone else living in the same household.  The safest period for purchases or sales of Common Stock by “designated insiders” is the ten day period each quarter that begins two days after the quarterly results have been released to the general public – provided they are not in possession of additional insider information which has not yet been released to the public.  For that reason, “designated insiders” must pre-clear all trades with the Senior Vice President – Finance.  Detailed guidelines for designated insider transactions are found in the Insider Transaction Policy Manual.
Employees defined as “designated insiders” include:
1.     All Directors
2.     President
     Executive Vice President
     All Senior Vice Presidents
SEC Reporting Obligations (17CFR Part 240 Section 16):
Directors, Senior Officers designated as “insiders” for purposes of Section 16 reporting obligations, and any ten percent shareholders are subject to two
additional requirements.  The first is the “short swing” profit rule.  Any profit deriving from a purchase and sale (or vice-versa) of Harbor Federal securities of which they are deemed to be the beneficial owner, within a six-month period, must be returned to the institution.  In other words, if there is any sale and purchase within a six-month period, they may be matched; irrespective of whether the transactions produced a real profit.
Additionally, Section 16(a) of the Securities Exchange Act of 1934 requires that SEC forms be filed any time these designed insiders purchase or sell Harbor Federal stock.
Since it is possible for a designated insider’s beneficial interest in Harbor Federal stock to change without a purchase or sale transaction (i.e. gift, exercise of options, etc.), it will be necessary for each designated insider to complete an SEC Form 4.  The Form is required to be filed within two (2) business days of the date of any transaction. In order to aid in the filing of Forms 4 and 5, the Internal Audit/Compliance Department will assist in the completion and submission of the appropriate forms.
Both Harbor Federal and its employees share an interest in avoiding an insider trading investigation.  An individual convicted of insider trading may face criminal penalties of up to ten years in prison and/or a fine up to $1 million dollars or three times the amount of profit (whichever is greater).  The investigation could tarnish the institution’s reputation and may subject the institution to additional penalties.  Any violations of the insider trading ban may lead to immediate sanctions, including termination for cause.
If you have any doubt about how this policy applies to you, ask before you trade.  All questions should be directed to Internal Audit/Compliance.
As Harbor requires its employees to adhere to the letter and the spirit of the law, it also provides protection to those employees who aid governmental entities in investigating violations of laws.
Harbor Federal shall not discharge, demote, suspend, threaten, harass, or discriminate against any employee who (A) provides information during an investigation, or (B) files, testifies, participates in, or otherwise assists in a proceeding filed, that relates to a violation of an SEC rule, or any Federal law relating to fraud against shareholders when the information is provided to, or conducted by (i) a Federal regulatory or law enforcement agency, (ii) any member or committee of Congress, or (iii) a person with supervisory authority over the employee or who has the authority to investigate, discover or terminate misconduct.
Sound Personal Finances
All staff members are expected to conduct their personal financial affairs in a responsible manner which will reflect favorably on the reputation of the bank.  Difficult financial situations, such as excessive credit, salary attachments, and checks drawn against insufficient funds should be particularly avoided.  (For more information, see “Employee Overdraft Policy”.)  The inability of a staff member to meet financial obligations is potentially harmful to the bank’s reputation, and may have an adverse effect on job performance.
Outside Employment
Appropriate gainful employment outside the bank is permissible, but discouraged.  Appropriate employment is defined to exclude any outside employment which would interfere with the time and attention which must be devoted to the individual’s duties at the bank, or adversely affect the quality of work performed.  A staff member should not be employed by or advise any business which in its principal activity competes with Harbor Federal.
Any outside employment should not compete or conflict with the activities of the bank; involve the use of the bank’s equipment, supplies, or facilities; imply the bank’s sponsorship or support; or adversely affect Harbor Federal’s reputation. 
Proper approval from your immediate supervisor must be received before
engaging in any outside employment.  Employees at the Assistant Vice President level and above must secure written approval and a copy of the written approval should be forwarded to the Human Resources Department.  This code of ethics
does not exclude immediate family members from such employment, however,
any significant interest must be reported to the appropriate member of management. 
Involvement in Civic Trade, Educational, Charitable and Fraternal Affairs
The bank encourages staff members to participate in civic and charitable activities.  For business reasons, it is sometimes desirable to have staff members of the bank become active members of not-for-profit corporations.  Staff members choosing to participate in civic, charitable political and professional bank activities are responsible for seeing that such participation does not result in any actual or apparent conflict of interest, encroach upon working time or
otherwise interfere with regular duties.  If a staff member has any question in this regard, he or she should discuss the matter with the Human Resources Department.
Personal Fiduciary Appointments
Staff members must not accept personal fiduciary appointments without first securing the written approval of the board of directors unless such appointments result from close family relationships.
All information relating to the affairs of the bank and its customer and business affiliates is considered privileged and must be treated with the strictest confidence.  Under no circumstances should you discuss or reveal information concerning customer transactions or bank operations to those not authorized to receive it.  Additionally, confidential information is to be used solely for corporate purposes and not for the purposes of personal gain.  (see Insider Information)
Dealing with the Assets of the Bank
Proper Accounting
The bank has established internal accounting controls and record keeping policies in order to meet both the legal and business requirements of the bank.
Staff members are expected to maintain and adhere to these controls and policies.  The accounting records of the bank must be complete, accurate and in
reasonable detail.  The underlying transactions must be properly authorized and recorded on a timely basis in order to permit preparation of financial statements in accordance with generally accepted accounting principles and maintain accountability of assets.  No fund or asset that is not fully and properly recorded on the bank’s books is permitted.  In addition, it is unlawful to falsify any book, record, or account which reflects transactions of the bank or dispositions of the bank’s assets.  Staff members should be certain that all transactions with other persons are properly documented and recorded to avoid any possible allegation that the bank was assisting such persons in improperly recording or detailing the nature of the transactions involved.  In addition, staff members will adhere to the Currency Transaction Reporting Policy as required by federal law.  All staff
members of the bank who are authorized to incur business expenses are responsible for the accurate and timely reporting of such expenses.  All expenditures must be in accordance with existing policies.
Proprietary Information, Products, Services and Other Property
All staff members are expected to protect the bank’s ownership of property, including information, products and services.  The misuse or removal from bank facilities of the bank’s furnishing, equipment, and supplies is prohibited, unless specifically authorized.  This applies equally to other property created, obtained or copied by the bank for its exclusive use – such as client lists, files, reference materials and reports, computer software, data processing systems, and databases.  Neither originals nor copies may be removed from the bank’s premises or used for purposes other than bank business without the proper authorization.
Violations of the Code of Ethics
Violations of the Code of Ethics or any of the bank’s rules of conduct in effect from time-to-time constitute grounds for dismissal.  Staff members are expected to act fairly and honestly in all transactions with the bank and with others and to
maintain the high ethical standards of the bank in accordance with this Code of Ethics.  If a situation arises wherein you are unsure whether there may be a violation of the Code of Ethics, you should contact your supervisor or the Human
Resources Department of guidance.
Discovery of Violations of the Code of Ethics or Illegal Activities
Discovery of events that appear to be in violation of the Code of Ethics must be promptly reported to your supervisor, the Human Resources Department or through Harbor Federal’s “Ethics Hotline”.  If such instances are identified with
persons at the highest levels within the bank the matter should also be reported
to executive management, the board of directors, Internal Audit or supervisory agencies.  In addition, the Uniform Criminal Referral Form should be completed by the Security Officer and forwarded to the proper authorities.  Failure to report such events also constitutes a violation of this Code of Ethics.
Deliberate failure to disclose the receipt of gratuities constitutes a serious violation of the Code.  Additionally, receipt of an excessive number of gratuities as defined by the policy may also constitute a violation of this Code.  Violations of this nature will result in the individual(s) being placed on probation for a period of not less than one year or immediate dismissal.
The Vice President – Human Resources will prepare a report to the Board of Directors on a quarterly basis which will confirm staff members compliance with this policy. 
The Independent Directors must approve any waivers to the Code of Ethics.
All staff members are to be given a copy of this Code of Ethics and any subsequent changes.  All staff members must acknowledge, in writing, the initial receipt of the Code as well as receipt of subsequent changes.  In addition, the Chief Executive Officer, the Chief Financial Officer and the Controller are required to sign a separate “Code of Ethics for Financial Managers”.

Last Updated: 01/11/06