Policy Regarding Insider Trading

PSB FINANCIAL, INC.

POLICY REGARDING INSIDER TRADING

PSB Financial, Inc. (the “Company”) is a public company whose common stock is registered under the Securities Exchange Act of 1934, as amended. As a public company, the Company files periodic reports and proxy statements with the Securities and Exchange Commission (the “SEC”). Investment by directors, officers and employees in the Company stock is generally desirable and encouraged. However, such investments should be made with caution and with recognition of the legal prohibitions against the use of confidential information by “insiders” for their own profit.

As a director, officer or employee of a public company, you have the responsibility not to participate in the market for the Company stock while in possession of material inside information about the Company. There are severe civil and criminal penalties if you wrongly obtain or use such material, inside information when you are deciding whether to buy or sell securities, or if you give that information to another person who uses it in buying or selling securities. If you buy or sell securities while in possession of material, inside information, you will not only have to pay back any profit you made, but you could be found guilty of criminal charges, and face substantial fines or even time in prison. Additionally, the Company could be held liable for your violations of insider trading laws

To avoid these consequences, the Company has developed the following guidelines to briefly explain the insider trading laws and set forth procedures and limitations on trading by directors, officers and employees. However, these guidelines do not address all possible situations that you may face. In addition, you need to review and understand the Company’s Regulation FD Policy that describes your obligations regarding the selective disclosure of confidential information to ensure compliance with SEC Regulation FD, which requires “fair disclosure” of material, non-public information.

Each individual is responsible for making sure that he or she complies with these guidelines, and that any family member, household member or entity whose transactions are also covered, as discussed below, also comply with these guidelines. In all cases, the responsibility for determining whether an individual is in possession of material nonpublic information rests with that individual, and any action on the part of the Company, the Compliance Officer (as defined below) or any other employee or director does not in any way constitute legal advice or insulate an individual from liability under applicable securities laws.

Insider Trading Key Concepts What is “Inside” Information?

Inside information includes any non-public information of which you become aware because of your “special relationship” with the Company as a director, officer or employee and which has not been disclosed to the public (i.e., is non-public). The information may be about the Company, Pioneer State Bank (the “Bank”) or any other subsidiaries or affiliates. It may also include information you learn about another company (for example, companies that are current or prospective customers or suppliers to the Company or the Bank or those with which the Company or the Bank may be in negotiations regarding a potential transaction).

What is Material Information?

Information is material if a reasonable investor would think that it is important in deciding whether to buy, sell or hold stock, or if it could affect the market price of the stock. Either good or bad information may be material. If you are unsure whether the information is material, assume it is material.

Examples of material information typically include, but are not limited to:

  • Financial or accounting problems;
  • Estimates of future earnings or losses;
  • Significant non-recurring gains or losses;
  • Events that could result in restating financial information;
  • A proposed acquisition, sale, merger or restructuring;
  • Changes in directors or in key management personnel;
  • Development of a significant new service;
  • Beginning or settling a major lawsuit;
  • Changes in dividend policies;
  • Declaring a stock split;
  • A stock repurchase program; or
  • A stock or bond

What is Non-Public Information?

Non-public information is information that has not yet been made public by the Company. Information only becomes public when the Company makes an official announcement (in a publicly accessible conference call, in a press release or in SEC filings, for example) and the investing public has had an opportunity to absorb it.

Trading Guidelines

  1. Rules Applicable to All Directors, Officers and

No director, officer or employee may engage in a transaction in any security, whether issued by the Company or by any other company, while in possession of “material inside information” about the issuer. Transactions subject to this policy include purchases, sales, and bona fide gifts of the Company’s securities. Further, no director, officer or employee may disclose “material inside information” to any other person (including immediate family members, friends or stockbrokers) so that such other person may trade in the stock. It is usually safe to buy or sell stock after the information is officially announced, as long as you do not know of other material information that has not yet been announced. Even after the information is announced, you should generally wait two full trading days before buying or selling securities to allow the market to absorb the information.

This means the following with respect to any Bank or Company employee benefit plans:

  • Company Stock Purchase Plan. A director, officer or employee may not sign up for, or increase participation in, any employee stock purchase plan while in possession of material inside information regarding the Company. However, ongoing purchases through those plans pursuant to a prior election are not prohibited.
  • Stock Options. A director, officer or employee may exercise a stock option at any time, but any stock acquired upon such exercise may not be sold (whether by means of a cashless exercise or otherwise) if the employee is in possession of material inside information regarding the At any time, however, an employee may deliver Company stock already owned to pay the option exercise price and taxes.

This means the following with respect to hedging and other derivative transactions with respect to the Company’s securities:

  • Hedging and Other Derivative Transactions. No director, officer or employee of the Company or any of its subsidiaries (including the Bank), or any of his or her designees or related persons, may at any time purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds), or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s stock or other equity

B. Additional Guidelines Applicable to All Executive Officers, Directors, and Persons in the Accounting Department (the “Restricted Group”).

  1. Blackout Periods

Quarterly Blackout Periods. No person in the Restricted Group may trade in Company securities during a blackout period that begins on the 20th calendar day of the last month of each calendar quarter (i.e., on March 20, June 20, September 20 and December 20) and ends at the end of the first full trading day after the public release of the Company’s earnings for such quarter. The blackout period applies to

(i) open market purchases or sales, (ii) a sale of securities following exercise of a stock option (including a sale by way of a cashless exercise), and (iii) signing up for, or increasing participation in, any employee stock purchase plan or dividend reinvestment plan. However, ongoing purchases through a Company-sponsored or Bank-sponsored plan pursuant to a prior election are permitted at any time (i.e., they are not subject to the blackout period).

Temporary Blackout Periods. The Company may also institute temporary blackout periods at any time in the discretion of management. Notice of temporary blackout periods will be distributed by means of a written or electronic communication specifying the duration of the blackout period and the persons subject to it.

Written Plan Exception. The limitations of the blackout periods shall not apply to trading in Company securities pursuant to a “written plan for trading securities” provided that such plan was entered into before the start of the applicable blackout period, meets the requirements of SEC Rule 10b5-1 and is approved in advance by the Company’s Board of Directors. See also Sections C.3 and C.4 below.

  1. Selling Short. No person in the Restricted Group may at any time sell short Company stock or otherwise sell any equity securities of the Company that they do not own. Generally, a short sale means any transaction whereby one may benefit from a decline in the Company’s stock price.
  2. Options. No person in the Restricted Group may at any time buy or sell options on Company securities (so called “puts” and “calls”) except according to a program approved by the Company’s Board of Directors or a trade cleared by the Chief Executive Officer. This restriction does not apply to the exercise of employee or director stock options, which is treated under Section A
  3. Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities held in an account which may be borrowed against or are otherwise pledged (or hypothecated) as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. A margin sale or foreclosure sale may occur at a time when the pledgor is aware of material non-public information or otherwise is not permitted to trade in Company securities and, as a result, the pledgor may be subject to liability under insider trading laws.

Therefore, you may not purchase Company securities on margin, or borrow against any account in which Company securities are held, or pledge Company securities as collateral for a loan.

An exception to this prohibition may be granted where a person wishes to pledge Company securities as collateral for a loan from a third party (not including margin debt from a securities broker) and clearly demonstrates the financial capacity to repay the loan without resort to the sale of pledged securities. Any person who wishes to pledge Company securities as collateral for a loan from a third party must submit a request for approval to the Company’s Board of Directors at least two weeks before the execution of the documents evidencing the proposed pledge.

C. Additional Rules

  1. Pre-Clearance and Reporting. Any trade of the Company’s securities by a director or executive officer, or a family member sharing the same household or a corporation or trust they control, must be pre-cleared with the Company’s Chief Executive Officer (the “Compliance Officer”) and must be reported promptly to the Compliance Officer once made. Notwithstanding the foregoing, any trade of the Company’s securities by the Chief Executive Officer, or by a family member sharing the same household as, or a corporation or trust controlled by, the Chief Executive Officer must be pre-cleared by either the Chair of the Company’s Board of Directors or outside securities counsel designated by the Chair of the Board of Directors. If, upon requesting clearance, you are advised that Company stock may not be traded, you may not engage in any trade of any type under any circumstances, nor may you inform anyone of the restriction. You may re-apply for pre-clearance at a later date when trading restrictions may no longer be applicable. It is critical that you obtain pre-clearance of any trading to prevent both inadvertent short-swing profit or insider trading violations and to avoid even the appearance of an improper transaction (which could result, for example, when an officer engages in a trade while unaware of a pending major corporate development).
  1. Options and Other Stock Plans. The sale of stock acquired upon an exercise of stock options and the transfer of funds into and out of the Company’s stock plans are subject to special rules. The Compliance Officer should be contacted before any such transaction is conducted.
  2. Pre-Clearance for Rule 10b5-1 Plans. Directors and executive officers may not implement a trading plan under SEC Rule 10b5-1 at any time without prior clearance. Directors and executive officers may only enter into a trading plan when they are not in possession of material inside In addition, directors and executive officers may not enter into a trading plan during a quarterly blackout period, a temporary blackout period or a pension fund blackout period. Once a trading plan is pre-cleared, trades made pursuant to the plan will not require additional pre-clearance, but only if the plan specifies the dates, prices and amounts of the contemplated trades or establishes a formula for determining dates, prices and amounts. Transactions made under a trading plan must be promptly reported to the Compliance Officer, or the Compliance Officer’s designee, who will have the necessary Form 4 prepared.
  3. Cooling-off Periods for Rule 10b5-1 Plans. Transactions under a Rule 10b5-1 trading plan may only begin after a “cooling-off” period:
    • For directors and executive officers, the cooling-off period is the later of (i) 90 days after the adoption of the trading plan or (ii) two business days following the disclosure of the Company’s financial results for the fiscal quarter in which the trading plan was adopted, whether disclosed in a Form 10-Q or Form 10-K, as applicable.
    • For persons who are not directors or executive officers, the cooling-off period is 30 days after adoption of the trading plan.

D. Additional Rules Applicable to Mergers/Acquisitions.

Whenever the Company is actively considering a particular company for merger, acquisition or for another significant business relationship (such as a joint venture) or whenever the Company is engaged in active discussion regarding the sale of control of the Company, all of the Company’s personnel involved in, or aware of, due diligence or other planning for or attention to the acquisition or business relationship should not trade in any of the Company’s securities and any securities of the other company without first contacting the Compliance Officer, who may consult with outside counsel.

Note: This policy applies to personal securities transactions by the directors, officers and employees identified above, and also applies to:

  • Transactions for accounts in which the director, officer or employee has an interest or an ability to influence transactions; and
  • Transactions by the director’s, officer’s or employee’s spouse or any other member of their household unless (i) the household member’s investment decisions are made independently of the director, officer or employee and (ii) the household member has not received inside information about the issuer of the security.

E. Stock Repurchases by the Company.

Any repurchase by the Company of its common stock, if authorized by the Board of Directors, shall be conducted in compliance with applicable securities laws and only at times when the Company is not in possession of non-public material information that prohibits such purchases.

Confidentiality

Serious problems could develop for the Company by unauthorized disclosure of inside information about the Company, whether or not for the purpose of facilitating improper trading of the Company’s stock.

A. Confidentiality of Non-Public Information.

Directors, officers and employees should not discuss internal matters or developments with anyone outside of the Company (including family members, securities analysts, individual investors, members of the investment community and news media), except as required in the performance of regular corporate duties. In addition, directors, officers and employees of the Company with knowledge of material, non-public information should only disclose such information to other Company personnel on a “need-to-know” basis so that the group of individuals with knowledge of material, non-public information is kept as small as possible.

All inquiries about the Company made by the financial press, investment analysts or others in the financial community, or by shareholders must be handled in accordance with the Company’s Regulation FD Policy. If you have any doubt as to your responsibilities under this policy, you should seek clarification from the Disclosure Policy Compliance Officer before acting.

B. Prohibition Against Internet Disclosure

It is inappropriate for any unauthorized person to disclose Company information or to discuss the Company on the Internet, including in any forum or chat room where companies and their prospects are discussed. The posts in these forums are, in some cases, made by investors whoare poorly informed, who have malicious intent or who intend to benefit their own stock positions. To avoid the disclosure of material, inside information, no director, officer or employee may discuss the Company or Company-related information in an Internet forum or chat room, regardless of the situation.

If you have any questions regarding this policy, contact the Company’s Compliance Officer.