The Sarbanes-Oxley Act of 2002

Hinman, Howard & Kattell

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Introduction:

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the "Act").

Enacted in response to the recently exposed corporate and accounting wrongdoing, the Act contains some of the most significant changes to the federal securities laws since their enactment during the Depression.

The Act: i) creates a new federal accounting oversight body; ii) revamps auditor independence rules; iii) enacts new corporate responsibility and governance measures; iv) enhances disclosures by public companies; v) regulates potential conflicts of interest by securities analysts; vi) strengthens the powers and resources of the Securities and Exchange Commission ("SEC"); and vii) imposes new penalties for securities fraud and related wrongful conduct.

This memorandum will focus on those provisions of the Act that affect the Bank, as an issuer of securities regulated by the Office of the Comptroller of the Currency ("OCC"); the Board, as the Bank's governing body, and in particular, as the overseer of its outside auditors; senior management, who prepare the Bank's financial statements and its filings with the OCC; and the Bank's outside auditors, who report directly to the Bank's Audit Committee. To properly perform their fiduciary responsibilities to the Bank and its shareholders, directors must understand these rules.

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For more information, contact Cliff Weber at cweber@hhk.com.

This Memorandum is not, and should not be understood as, a comprehensive discussion of the Act. Instead, it is a summary of the key provisions of the Act applicable to the Bank and omits many provisions that have no practical application to the Bank. These include, among other provisions, amendments to the securities laws limiting insider trading during pension blackout periods (the Bank has no such pensions or periods), regulating the use of pro forma figures in Forms 10-QSB and 10-KSB (the Bank doesn't use them) and the accounting treatment of off-balance sheet transactions (the Bank doesn't engage in them). In addition, this Memorandum does not treat the titles of the Act dealing with criminal penalties, securities analyst conflicts of interest and agency studies and reports to Congress.

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