The Audit Committee (the “Committee”) will assist the Board of Directors in fulfilling its statutory, regulatory, and fiduciary oversight responsibilities. The Committee has primary responsibility relating to the accuracy of the accounting and the validity of the financial reporting processes, the system of internal controls, the audit process, the independent auditor’s qualifications and the institution’s process for monitoring compliance with laws and regulations and with its code of conduct. In performing its duties, the Committee will maintain effective working relationships with the Board of Directors, management, regulators and the internal and independent auditors. To effectively perform his or her role, each Committee member will obtain an understanding of the detailed responsibilities of Committee membership as well as the institution's business, operations, and risks.
· The size of the Committee shall be determined at the discretion of the Board of Directors but will have a minimum of three members.
1.3 Membership Qualification
· Each member of the Committee shall satisfy the independence, financial literacy and experience requirements of Section 10A of the Securities and Exchange Act of 1934 (the “Act”), 12 CFR 363.5 and related Guidelines and Interpretations, and any other applicable regulatory requirements;
· The Committee shall contain at least one member who is an Audit Committee “financial expert” as defined by the implementing rules and regulations section of the Sarbanes-Oxley Act. A minimum of two members of the Committee shall have accounting or related financial management expertise with current or past employment experience in the finance or accounting field, or other comparable experience or background; and
· No Committee member shall serve simultaneously on the audit committees of more than two other public companies.
· Members of the Committee shall be composed solely of "independent" members as defined in 12 CFR 363.5, and Appendix to Part 363 ‑ Guidelines and Interpretations; and by the SEC and New York Stock Exchange rules.
1.5 Frequency of Meetings
· The Committee shall meet on a quarterly basis during the calendar year or more frequently as circumstances require;
· The majority of the members of the Committee shall constitute a quorum; and
· The Committee shall meet with management, the internal auditors, and the independent auditors in separate executive discussions to discuss any matters that the Committee or each of these groups believe should be discussed privately.
1.6 Appointment of Chairperson and Members
· The Committee chairperson and members shall be appointed by the Board of the Directors, and shall serve a term of one year or as determined by the Board of Directors. The process by which vacancies on the Committee are filled, and the process by which members are removed from the Committee will be determined by the Board of Directors.
2.0 ROLES AND RESPONSIBILITIES
The Committee does not itself prepare financial statements or perform audits, and its members are not auditors or certifiers of the Company’s financial statements.
2.1 Internal Control
· Evaluate whether management is setting appropriate priorities throughout the Company by communicating the importance of internal controls and ensuring that all individuals possess an understanding of their roles and responsibilities;
· Review with the internal and independent auditors and management the adequacy and effectiveness of internal controls, including computerized information systems, as well as significant changes in internal controls;
· Review significant audit findings and/or internal control recommendations made by internal and independent auditors; and
· Ensure that internal and independent auditors keep the Committee informed about fraud, illegal acts, deficiencies in internal controls and other similar matters.
2.2 Financial Reporting
· Review and discuss with management and the independent auditors: (a) any material financial or non-financial arrangements of the Company which do not appear on the Company’s financial statements; and (b) any transaction or course of dealing with parties related to the Company where a transaction is significant in size or involves terms or other aspects that differ from those that would likely be negotiated with independent parties, and which arrangement or transaction is relevant to an understanding of the Company’s financial statements;
· Review and discuss with management and the independent auditors the accounting policies that may be viewed as critical and any significant changes in the accounting policies of the Company. Review and discuss with management accounting and financial reporting proposals that may have a significant impact on the Company’s financial reports;
· Review and discuss significant risks and exposures with management and the internal and independent auditors, and review the plans to minimize such risks;
· Obtain and review an annual report from management and the independent auditors relating to the accounting principles used in the preparation of the Company’s financial statements, including those policies for which management is required to exercise discretion or judgment regarding the implementation thereof.
Annual Financial Statements
· Meet and discuss with management and the independent auditors the financial statements and the results of the audit to the extent necessary, including an analysis of the independent auditor’s judgment as to the quality of the Company’s accounting principles;
· Ensure that the independent auditors communicate certain required matters to the Committee;
· In accordance with 12 CFR 363.5, review with management and the independent auditors the basis for the report and attestation report prepared in accordance with the Federal Deposit Insurance Corporation Improvement Act;
· Based on the aforementioned reviews and discussions, recommend to the Board of Directors, whether or not the financial statements are acceptable for inclusion in the annual report on Form 10-K; and
· Review and discuss with management, the internal audit group and the independent auditors the Company’s financial statements to be included in the Annual Report to Stockholders including the content and the disclosures made in “Management Discussion and Analysis of Financial Condition and Results of Operations.”
Interim Financial Statements
· Review and discuss with management and the independent auditors the interim financial statements, the results of the independent auditors’ pre‑issuance review of quarterly financial information, and information reported to the public; and
· Ensure that the independent auditors communicate certain required matters to the Committee as required by Statement of Auditing Standards (SAS) 61.
· Periodically review separately with each of management, the independent auditors and the internal audit group (a) any significant disagreement between management and the independent auditors or the internal audit group in connection with the preparation of the financial statements, (b) any difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information, and (c) management’s response to each;
· Periodically discuss with the independent auditors, without management being present, (a) their judgments about the quality and appropriateness of the Company’s accounting principles and financial disclosure practices as applied in its financial reporting, (b) the completeness and accuracy of the Company’s financial statements, and (c) the degree of aggressiveness and conservatism;
· Consider and approve, if appropriate, significant changes to the Company’s accounting principles and financial disclosure practices as suggested by the independent auditors, management or the internal audit group. Review with the independent auditors, management and the internal audit group, at appropriate intervals, the extent to which any changes or improvements in accounting or financial practices, as approved by the Committee, have been implemented; and
· Review and discuss with management and the independent auditors and the Company’s General Counsel and independent counsel, as appropriate, any legal, regulatory or compliance matters that could have a significant impact on the Company’s financial statements, including applicable changes in accounting standards or rules.
2.3 Compliance with Laws and Regulations
· Review the effectiveness of the audit system for monitoring disclosures, compliance, and other regulations required by law, and the results of management’s investigation and follow-up (including disciplinary action) on any fraudulent acts or accounting irregularities;
· Periodically obtain updates from management and General Counsel regarding compliance;
· Be satisfied that all regulatory compliance matters have been considered in the preparation of the financial statements; and
· Review the findings of any examinations by regulatory agencies such as the Comptroller of the Currency, Federal Reserve, the Securities and Exchange Commission, and the Public Company Accounting Oversight Board.
2.4 Compliance with Code of Conduct
· Ensure that a code of conduct is formalized in writing and that all employees are aware of it;
· Evaluate whether management is setting appropriate priorities throughout the Company by communicating the importance of the code of conduct and the guidelines for acceptable business practices; and
· Review the program for monitoring compliance with the code of conduct and obtain an update at least annually from management regarding compliance.
2.5 Internal Audit
· Provide oversight over the internal audit function. This oversight may include organizational structure and ongoing qualifications of the internal audit function; selection, performance evaluation, compensation, and retention of the Internal Audit; and overall effectiveness of the internal audit function;
· Based upon discussions with the independent auditors, review the internal audit function of the Company, including the independence and line of authority for its reporting obligations, the scope and the plan of the proposed audit for the succeeding fiscal year, the coordination of such plans with the independent auditors and appropriate staffing levels;
· In consultation with the independent auditors and the internal audit group, review the adequacy of the Company’s internal control structure and procedures designed to insure compliance with laws and regulations, and discuss the responsibilities, budget and staffing needs of the internal audit group;
· Inquire of financial management, the internal auditor and the independent auditors about significant risks or exposures and assess the steps management has taken to minimize such risks to the Company;
· Receive a summary of findings from completed internal audits and a progress report on the proposed internal audit plan, with explanations for any deviations from the original plan;
· Review the internal control report prepared by management, including management’s assessment of the effectiveness of the Company’s internal control structure and procedures for financial reporting and the independent auditors’ attention, and report on the assessment made by management;
· Establish procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and (b) the confidential, anonymous submission by employees of the Company of concerns regarding any questionable accounting or auditing matters;
· Review on an annual basis the performance of the internal audit group; and
· Review appropriate staffing levels for the accounting, financial and internal audit functions and succession planning related thereto.
2.6 External Audit
· The Audit Committee shall have the sole authority to appoint, determine funding for, and oversee the independent auditors as set forth in Section 301 of the Sarbanes-Oxley Act of 2002 (and the applicable rules thereunder).
· The Audit Committee shall take, or recommend that the full Board of Directors take, appropriate action to oversee the independence of the independent auditor. In connection with this responsibility, the Audit Committee shall obtain and review a formal written statement from the independent auditor describing all relationships between the independent auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Audit Committee shall engage in an active dialogue with the independent auditor concerning any disclosed relationships or services that might impact the objectivity and independence of the auditor;
· Review and discuss the written statement from the independent auditors concerning any relationship between the auditor and the Company or any other relationships that may adversely affect the independence of the auditor;
Policies and Procedures
· Establish policies and procedures for the engagement of the independent auditor to perform non-audit services and consider whether the performance of these services is compatible with the auditor’s independence. Pre-approve any audit services or non-audit services provided by the independent auditors (see 5.0 Procurement of Audit and Non-Audit Services);
Review Scope of Services
· Review the nature and scope of other professional services provided to the Company by the independent auditors and consider their relationship to the auditors’ objectivity and independence. The Committee shall be satisfied as to the independence of the independent auditors and ensure that the independent auditors submit to the Committee on an annual basis a written statement consistent with Independent Standards Board Standard No.61;
· Be directly responsible for the appointment, compensation, and oversight of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing its audit of the financial statements of the Company and its divisions and subsidiaries for each fiscal year;
· Meet with the independent auditors and financial management of the Company to review the scope of the proposed audit for the current year and the audit procedures to be utilized, the staffing for such audit and the proposed compensation and, for each fiscal year, to review the results of such audit, including any comments or recommendations of the independent auditors arising there from;
Review Auditor’s Report
· At least annually, obtain and review an annual report from the independent auditors describing (a) the independent auditors’ internal dual control procedures and (b) any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to deal with any such issues; and
· Review all reports required to be submitted by the independent auditors to the Committee pursuant to the Act, including (a) a report of all critical accounting policies and practices to be used; (b) a report of all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management officials of the Company, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors; and (c) a report regarding all other material written communications between the independent auditors and management, such as the management letter or schedule of unadjusted differences.
2.7 Other Responsibilities
· In carrying out their responsibilities, the Committee believes that its policies and procedures should be flexible to properly respond to changing conditions;
· Perform other oversight functions as requested by the Board of Directors;
· Review this Charter on an annual basis and/or update it as necessary; receive approval of changes from the Board of Directors;
· Provide the report required to be included in the annual proxy statement by the rules of the Securities and Exchange Commission;
· Review material pending legal proceedings involving the Company and other contingent liabilities;
· Review and approve all related‑party transactions, as defined by SEC regulation S‑K, Item 404(a);
· Review reported evidence of material violations of securities laws or breach of fiduciary duty or similar violation by the Company or any of its agents;
· Establish a policy addressing the Company’s hiring of employees or former employees of the independent auditors who were engaged on the Company’s account;
· Establish and maintain a confidential procedure, whereby the Company’s employees can contact the members of the committee directly on an anonymous basis to express any concerns about auditing or accounting matters;
· Review its own performance annually; and
· Perform any other activities consistent with this Charter, the Company’s certificate of incorporation, bylaws and governing law, as the Committee or the Board of Directors deems necessary or appropriate.
2.8 Reporting Responsibilities
· Regularly update the Board of Directors about Committee activities and appropriate recommendations.
3.0 RESOURCES AND ASSISTANCE
· The Committee shall have authority to retain its own outside counsel, experts, and other advisors at the company’s expense to assist in the full performance of its functions or to authorize investigations into any matters within its scope of responsibilities without obtaining the approval of the institution's Board of Directors or management;
· The officers of the institution shall provide or arrange to provide such other information, data and services as the Committee may request. The Committee shall conduct such interviews or discussions as it deems appropriate with personnel of the institution, and others whose views the Committee would deem appropriate; and
· The Committee shall determine the appropriate funding of the Committee for payment of compensation to any advisers that the Committee may hire.
4.0 WHISTLE BLOWING
· No employee shall be discharged or discriminated against with respect to compensation, terms, conditions or privileges of employment because the employee (or any person acting pursuant to the request of the employee) informs either management, the Board of Directors, the Securities and Exchange Commission, or the U. S. Attorney General regarding a possible violation of any law or regulation, by the Company or any director, officer or employee. The Committee will establish procedures for the confidential, anonymous reporting by Company employees of concerns regarding questionable audit or accounting practices in accordance with Section 2.7.
5.0 PROCUREMENT OF AUDIT AND NON-AUDIT SERVICES
All services provided by the independent auditor, both audit and non-audit must be pre-approved by the Audit Committee or a Designated Member. The pre-approval of the audit and non-audit services may be given at any time up to a year before commencement of the specified service. Although the Sarbanes-Oxley Act permits de minimis exceptions, this policy is to pre-approve all audit and non-audit services.
Designated Member: The Audit Committee may delegate to one or more designated member(s) of the Audit Committee (a “Designated Member”), who is independent (as defined in 12 CFR 363.5, and Appendix to Part 363 – Guidelines and Interpretations; and by the SEC and New York Stock Exchange), the authority to grant pre-approvals of permitted audit related and other permitted services (collectively “permitted services”) or classes of these permitted services, to be provided by the Independent auditor. The decisions of a Designated Member to pre-approve a permitted service shall be reported to the Audit Committee at each of its regularly scheduled meetings.
All fees paid to the independent auditor will be disclosed in the Company’s annual proxy statement in accordance with applicable SEC rules. Subject to further rule making by the SEC, the annual proxy statement should include disclosure of the amount of “Audit Related Fees” which are currently required to be included in the “All Other Fees” category of the annual proxy statement disclosure.
This policy is to be approved annually by the Company’s Audit Committee or more frequently as necessary due to change in statute or regulatory rule making.
The scope of the independent auditor services is classified into the following categories:
5.1 Permitted Services
Audit Services/Audit Related
These services generally are highly correlated with the role of an independent auditor. Such services include matters such as analysis and interpretation of accounting principles and their application, support for financings and similar transactions, and other services that have bearing on the Company’s financial statements on which the external auditor provides their opinion. These services must be pre-approved annually by the Audit Committee.
· Audits of consolidated financial statement including quarterly reviews, consultation on accounting issues, internal control work, attendance at Audit Committee meetings, use of specialists in connection with the foregoing and other services integral to audits of financial statements.
· Assistance in the implementation of new accounting principles.
· Audits of opening balance sheets of acquired companies.
· Audits and accounting consultation on acquisition, dispositions and discontinued operations.
· Compliance letters, agreed-upon procedures, reviews and similar reports based on audited financial statement and the role of the independent auditor.
· Audits of financial statements and transactions that are used by lenders, filed with government and regulatory bodies and similar reports.
· Audits or reviews of financial statements of subsidiaries, or affiliates of the Company as may be requested by management for reasons other than as listed above.
· Services that result from the role of an independent auditor such as reviews of SEC filing letters to underwriters and other services related to financings.
These services are expressly allowed under this policy and do not impact the independence of the auditors. It is in the best interest of the Company to utilize the best service provider available particularly where knowledge of the Company is deemed highly advantageous, provided independence is not impaired. These services must be approved annually by the Audit Committee.
· Tax return and tax accrual reviews, consultations and assistance.
· Tax planning and other noncompliance related consultation or services.
Other Permitted Services
These services are allowed under the policy and do not effect the independence of the auditors, but do require the pre-approval of the Audit Committee prior to the engagement.
· Non-financial information systems/consulting
· Business process improvement advisory services and process re-engineering support services
· Review of third party specialist work related to appraisal and/or valuation services.
· Actuarial consulting services – non-audit related
· M&A transactional assistance
· Merger integration assistance and change management consulting services
· Employee benefit consulting
Restricted services are those services that may not be provided by the independent auditors as they are considered by statute or in the Company’s opinion to be incompatible with the role of an independent auditor.
· Bookkeeping or other services related to accounting records or financial statement (e.g., recording journal entries, reconciling accounts, processing data, preparing financial statements, etc.).
· Internal audit and credit review services
· Appraisals, valuation services or fairness opinions. Appraisal and valuation services include any process of valuing tangible and intangible assets and liabilities. In fairness opinions and contribution-in-kind reports, the firm provides its opinion on the adequacy of consideration in a transaction. The final rule prohibits an auditor from providing any appraisal or valuation service for financial reporting purposes or any service involving a fairness opinion or contribution-in-kind report for an audit client subject to the reasonably likely standard
· Signing tax returns (including payroll tax returns) on behalf of the Company.
· Actuarial services.
· Signing or co-signing checks.
· Acting as agent for the Company.
· Human resources function (managerial position search and evaluation activities).
· Payroll services.
· Broker-Dealer services (including underwriting, promoting, investment banking and investment management).
· Maintaining custody of the Company funds.
· Acting in a capacity equivalent to that of the Company management or employee, or performing any decision-making, supervisory or ongoing monitoring functions for the Company.
· Financial Information systems design and/or implementation.
· Legal services.
· Expert witness or testimony services, except where specifically related to the Company’s accounting policy, procedure, or audited financial statements.
5.2 Audit Committee Review of Services
At each regularly scheduled Audit Committee meeting, the Audit Committee shall review the following:
· A report summarizing the service; or grouping of related services, including fees, provided by the independent auditor, with detailed back-up documentation regarding the specific services provided.
· A listing of newly pre-approved services since its last regularly scheduled meeting.
· An updated projection for the current year, presented in a manner consistent with the proxy disclosure requirements, of the estimated annual fees to be paid to the independent auditor.