Charter of the Compliance and Audit Committee

of the Board of Directors of

MB Financial, Inc.

 

I.  Statement of Policy

 

The Compliance and Audit Committee (the ďCommitteeĒ) is appointed by the Board of Directors (the ďBoardĒ) of MB Financial, Inc. (the ďCorporationĒ) to represent and provide assistance to the Board in fulfilling its oversight responsibility relating to the integrity of the Corporationís financial statements and the financial reporting processes; the systems of internal accounting and financial controls; compliance with legal and regulatory requirements and the Corporationís policies; the annual independent audit of the Corporationís financial statements; the independent auditorsí qualifications and independence; the performance of the Corporationís Internal Audit Department and independent auditors and any other areas of potential financial and compliance risks to the Corporation specified by the Board.  The Committee shall annually prepare a report to shareholders as required by the Securities and Exchange Commission (the ďSECĒ) for inclusion in the Corporationís annual proxy statement.  In discharging its duties and responsibilities, the Committee is empowered to investigate any matter brought to its attention, with full access to all necessary books, records, facilities and personnel of the Corporation, and has the authority to retain at the Corporationís expense special legal, accounting or other advisors, consultants or experts as it deems appropriate.

 

In fulfilling its responsibilities, it is recognized that members of the Committee are not employees of the Corporation. The Corporationís management is responsible for preparing the Corporationís financial statements. The independent auditors are responsible for auditing the Corporationís annual financial statements and reviewing the Corporationís quarterly financial statements prior to the filing of the Corporationís annual and quarterly reports on Forms 10-K and 10-Q with the SEC.  It is not the duty or responsibility of the Committee or its members to conduct auditing or accounting reviews or procedures or to determine that the Corporationís financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles (ďGAAPĒ) and applicable rules and regulations.  These are the responsibilities of management and the independent auditors.  Each member of the Committee shall be entitled to rely on the integrity of those persons and organizations within and outside the Corporation from whom and from which he or she receives information and the accuracy of the financial and other information provided to the Committee by such persons or organizations, absent actual knowledge to the contrary (which shall be promptly reported to the Board).

 

II.  Committee Composition and Meetings

 

The Committee composition shall be in accordance with the listing standards of the Nasdaq Stock Market (ďNasdaqĒ).  The Committee shall be comprised of three or more directors (including a chairperson) as appointed annually by the Board, considering the recommendation of the Nominating Committee.  Each member of the Committee shall meet the independence and other requirements of Nasdaq and the SEC for audit committee members, and each shall be free from any relationship that would interfere with the exercise of his or her independent judgment.  Each member of the Committee shall be financially knowledgeable, as such qualification is interpreted by the Board in its business judgment.  At least one member of the Committee who qualifies as such may be designated annually by the Board as an ďaudit committee financial expert,Ē as the SEC defines that term and as the Board interprets such qualification in its business judgment consistent with such definition.  Committee members shall not simultaneously serve on the audit committees of more than two other public companies. The Board shall have the power at any time to change the membership of the Committee and to fill vacancies, subject to the qualification requirements of this Charter.

 

The Committee shall meet at least quarterly. The Committee chairperson shall prepare and/or approve an agenda in advance of each meeting.  If the chairperson is not available for a meeting, the other members of the Committee may appoint a temporary chairperson for such meeting. The Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. The Committee shall meet separately, periodically, with management, the chief internal auditor and/or other members of the Corporationís Internal Audit Department, and the independent auditors, to discuss any matters that the Committee or any of these persons believes should be discussed.  The Committee may also meet separately with regulatory examiners.

 

 

III.  Committee Duties, Responsibilities and Processes

 

The following shall be the principal duties, responsibilities and recurring processes of the Committee in carrying out its oversight role.  The processes are set forth as a guide with the understanding that the Committee may supplement them as appropriate.  As part of its oversight responsibility, the Committee shall:

 

Review Procedures

 

1.               Review and discuss the form of presentation and type of information to be contained in earnings press releases.  The Committee need not discuss in advance each earnings release or each instance in which the Corporation may provide earnings guidance.

 

2.               Prior to the filing of quarterly and annual reports on Forms 10-Q and 10-K, review and discuss with management and the independent auditors: (i) the Corporationís quarterly and annual consolidated financial statements; (ii) matters that affect the Corporationís consolidated financial statements, including disclosures under ďManagementís Discussion and Analysis of Financial Condition and Results of Operations;Ē (iii) the results of the independent auditorsí reviews of the quarterly financial statements, the audit of the annual financial statements and the independent auditorsí report, and any other matters required to be communicated to the Committee by the independent auditors, as well as discussions regarding qualitative judgments of the independent auditors about the appropriateness, not just the acceptability, of the Corporationís accounting principles, and the clarity of the financial statements; (iv) all critical accounting policies and practices to be used; (v) any matters required to be communicated to the Committee by the independent auditors in accordance with SAS Nos. 61 and 71 or any other SAS; and (vi) other material written communications between the independent auditors and management.

 

3.               Regularly review with the independent auditors any problems or difficulties encountered in the course of the audit work and managementís response, including any restrictions on the scope of activities or access to requested information and any significant disagreements with management.

 

4.               Review: (i) any major issues regarding accounting principles and financial statement presentations, including any significant changes in the Companyís selection or application of accounting principles, and any major issues as to the adequacy of the Companyís internal controls and any special audit steps adopted in light of any material control deficiencies; (ii) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (iii) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Companyís financial statements.  In consultation with management, the independent auditors and the Internal Audit Department, monitor the integrity and effectiveness of the Corporationís financial reporting processes and systems of internal controls, including reviewing and discussing major financial risk exposures and the steps management has taken to monitor, control and report such exposures; and review significant findings relating to the foregoing prepared by the independent auditors or the internal auditors, together with managementís responses and follow-up to these reports.

 

5.               Establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.  Such procedures have been established by the Committee and are set forth in the Corporationís code of business conduct and ethics.

 

Independent Auditors and Other External Services

 

6.               The Committee is directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditors, including resolution of disagreements between management and the independent auditors regarding financial reporting.  The independent auditors shall report directly to the Committee.

 

7.               Pre-approve the engagement of and the fees to be paid to the independent auditors for all audit and permissible non-audit services to be provided by the independent auditors and consider the possible effect that any non-audit services could have on the independence of the auditors.  The Committee may establish pre-approval policies and procedures, as permitted by applicable law and SEC regulations and consistent with this Charter, for the engagement of the independent auditors to render permissible non-audit services to the Corporation, including but not limited to policies that would allow the delegation of pre-approval authority to one or more members of the Committee, provided that any pre-approvals delegated to one or more members of the Committee are reported to the Committee at its next scheduled meeting.

 

8.               Evaluate the qualifications, independence and performance of the independent auditors annually.  This evaluation shall include a review and discussion of the annual communication as to independence delivered by the independent auditors required by Independence Standards Board Standard No. 1.  Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law and the rotation of any other audit partner whose rotation is required by the regulations of the SEC.

 

9.               Review the audit plan of the independent auditors ó discuss scope, staffing, timing, estimated and actual fees, reliance upon management and internal auditors and general audit approach.   At the conclusion of the audit, review and discuss with the independent auditors any significant changes from the original audit plan.

 

10.         Set clear hiring policies for employees or former employees of the independent auditors.

 

Internal Audit Department

 

11.         Review the budget, program, changes in program, activities, strategies, organizational structure and qualifications of the Internal Audit Department, as needed, it being understood that the Internal Audit Department functionally reports directly to the Committee.   Evaluate whether the Internal Audit Department operation and structure permits unrestricted access by internal auditors to records, personnel and physical properties relevant to the performance of its responsibilities and to top management, the Committee and the Board.  Assess the appropriateness of the resources allocated to internal auditing. Evaluate the effectiveness of the internal audit function.

 

12.         Review the appointment, performance and replacement of the chief internal auditor. Decisions regarding hiring or termination of the chief internal auditor require endorsement by the Committee.  The chairperson of the Committee will also be involved in performance evaluation and compensation decisions related to the chief internal auditor.

 

13.         Review significant issues presented by the Internal Audit Department together with managementís response and follow-up to these reports.

 

Other Committee Responsibilities

 

14.         Review and reassess the adequacy of this Charter at least annually, and recommend any proposed changes to the Board for its approval.  Ensure the publication of this Charter in accordance with SEC regulations.

 

15.         Maintain minutes of meetings and report regularly to the Board on the Committeeís activities.  Review with the Board any issues that arise with respect to the quality or integrity of the Corporationís financial statements, the Corporationís compliance with legal or regulatory requirements, the performance and independence of the independent auditors, or the performance of the internal audit function.

 

16.         Conduct an appropriate review of and approve all related party transactions on an ongoing basis, as required by Nasdaq rules.  For these purposes, the term ďrelated party transactionsĒ shall refer to transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.

 

17.         Review with the Corporationís chief corporate counsel: (i) any significant legal matter that could have a material impact on the Corporationís financial statements; (ii) legal compliance matters, including corporate securities trading policies and material notices to or inquiries received from governmental

 

 

agencies; and (iii) reports of evidence of a material violation of securities laws or breaches of fiduciary duty.

 

18.         Review disclosures made to the Committee by the Corporationís CEO and CFO during their certification process for the Forms 10-K and 10-Q with respect to the financial statements and about any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting and any fraud, whether or not material, involving management or other employees who have a significant role in the Corporationís internal control over financial reporting.

 

19.         Ensure required certifications are made to Nasdaq:  (i) that a formal written charter has been adopted for the Committee and that the Committee has reviewed and reassessed the adequacy of the charter on an annual basis; and (ii) as to the independence of the members of the Committee.

 

20.         Monitoring:  (i) the Corporationís compliance program and loan review processes and receiving reports thereon; (ii) the Corporationís Disaster Recovery/Contingency Plan, including continuous testing thereof; (iii) the Corporationís senior officer expense reimbursement policies (including the use of Corporate assets by senior officers), and considering the results of any review of such expense reimbursements by the Internal Audit Department or independent auditors; (iv) compliance with the Corporationís code of business conduct and ethics by senior officers and directors; (v) compliance by the Corporationís subsidiary banks with all policies applicable to them and reporting thereon to the Board.

 

21.         Perform any other activities consistent with this Charter, the Corporationís bylaws or governing law as the Committee or the Board deems necessary or appropriate.

 

IV.  Funding

 

The Corporation shall provide the Committee with appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for payment of: (i) compensation to the independent auditors and to any advisors employed by the Committee; and (ii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.