The Audit and Examination Committee (the "Committee") is appointed by the Board of Directors, on the recommendation of the Governance and Nominating Committee, to assist the Board in fulfilling its responsibilities to oversee activities related to accounting and financial reporting policies, internal controls, auditing practices, and legal and regulatory compliance. The Committee's primary duties and responsibilities are to:
COMMITTEE ORGANIZATION AND MEMBERSHIP
The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall satisfy the definition of independent director as defined in any qualitative listing requirements for Nasdaq Stock Market, Inc. issuers and any applicable Securities and Exchange Commission rules and regulations. One of the members shall be designated "Chairman" by the Chairman of the Board. All members shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, including a balance sheet, income statement, and cash flow statement. The Committee has the authority to engage legal counsel or other experts or consultants as it deems appropriate to carry out its responsibilities.
In connection therewith, the Committee shall be provided appropriate funding as determined by the Committee, for payment to such counsel and other advisors. In addition, the Committee shall be provided funding for ordinary administrative expenses of the Corporation.
The Committee shall meet quarterly, or more frequently as circumstances dictate. Special meetings may be called by the Chairman of the Committee or any other Committee member.
The Committee believes that the above mission statement sets forth its primary roles and responsibilities. In that connection, the following is meant to serve as a guide in achieving that mission.
ROLES AND RESPONSIBILITIES
FINANCIAL STATEMENT REVIEW PROCEDURES
1. Review the Corporation's quarterly financial results and annual audited financial statements prior to filing or distribution, including a review of the independent auditor's opinion regarding such financial statements. The review should include discussion with management and independent auditors of significant issues regarding accounting principles, practices, and judgments. Discuss with independent auditors its judgment about the quality, not just acceptability, of the Corporation's accounting principles as applied in its financial reporting.
2. In consultation with management, independent auditors, and internal auditors, consider the integrity of the Corporation's financial reporting processes and controls. Discuss significant financial risk exposures and steps taken by management to monitor, control, and report such exposures.
3. Review significant findings prepared by the independent auditors and the internal auditors together with management's responses. Gain an understanding of whether internal control recommendations made by internal and independent auditors have been implemented by management.
4. Review the adequacy of the Corporation's internal control over financial reporting and review the certifications by the CEO and the CFO regarding any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting.
5. While the Committee's job is one of oversight as set forth in this Audit and Examination Committee Charter, the Committee is not providing any expert or special assurance as to the Corporation's financial statements, internal controls, or any professional certifications as to the independent auditors' work. It is not the duty of the Committee to prepare the Corporation's financial statements, to plan or conduct audits, or to determine that the Corporation's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. The Corporation's management is responsible for preparing the Corporation's financial statements and for maintaining internal control, and the independent auditors are responsible for auditing the financial statements. Nor is it the duty of the Committee to assure compliance with laws and regulations and the Corporation's Code of Ethics.
6. In performing their duties and responsibilities, as permitted under the Pennsylvania Business Corporation Law, as amended, Committee members are entitled to rely in good faith on information, opinions, reports or statements prepared or presented by:
1. The independent auditors are ultimately accountable and must report directly to the Committee and the Board of Directors. The Committee is responsible for the appointment, compensation, retention and oversight of the work of the independent auditors. In addition to assuring the regular rotation of the lead audit partner as required by law, the Committee shall also review and evaluate the lead audit partner and consider whether, in order to assure continuing auditor independence, there should be regular rotation of the firm. Based on this review and evaluation, the Committee shall annually recommend to the Board of Directors the appointment of the independent auditors or approve any discharge of auditors when circumstances warrant.
2. Review the independent auditors' timetable, scope and approach of the quarterly reviews and annual audit of the financial statements.
3. Obtain from the independent auditors their annual communication to the Committee in satisfaction of SAS 61 regarding communication with the Committee, and, if applicable, any commentary on internal contracts or other recommendations.
4. Review periodic reports regarding non-audit activities of the independent auditors and related fees.
5. The Committee should confirm the independence of the independent auditors by requiring them to disclose in writing all relationships that, in the independent auditors' professional judgment, may reasonably be thought to bear on the ability to perform the audit independently and objectively. The Committee shall confirm receipt of the written disclosures and the letter from the independent auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors' communications with the Committee concerning independence.
1. Approve an Annual Risk Assessment and Audit Plan developed by the internal auditors.
2. Meet quarterly with the internal auditors to gain an understanding of the effectiveness of the internal audit function. These meetings will also serve in evaluating their performance.
3. Review significant reports prepared by the internal auditors together with management's response. Monitor the appropriateness of management's response and follow-up to these reports.
4. The Committee may contract for internal audit services as necessary to assess the adequacy and effectiveness of internal controls, the accuracy of management reporting and compliance with laws, regulations and bank policy. The Committee will set forth the outsourcing vendor's responsibilities in a written contract the terms of which comply with the Interagency Policy Statement on the Internal Audit Function and its Outsourcing.
COMPLIANCE WITH LAWS AND REGULATIONS
1. Periodically obtain updates from management and compliance auditors regarding compliance with laws and regulations.
2. Review the findings of any examination by regulatory agencies such as the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, or the Securities and Exchange Commission.
3. Be familiar with management's response to regulatory examinations.
4. The Committee shall review periodically, but no less frequently than quarterly, a summary of the Corporation's transactions with directors and executive officers of the Corporation and with firms that employ directors, as well as any other related person transactions, for the purpose of recommending to the disinterested members of the Board of Directors that the transactions are fair, reasonable and within Corporation policy and should be ratified and approved. "Related person" and "transaction" shall have the meanings given to such terms in Securities and Exchange Commission Regulation S-K, Item 404, as amended from time to time.
OTHER COMMITTEE RESPONSIBILITIES
1. Review and update the Audit and Examination Committee Charter annually and submit the charter to the Board of Directors for approval. Ensure that the charter is included within the Corporation's proxy statement once every three years, made available on the Corporation's Web site or as may otherwise be required by applicable laws and regulations.
2. Prepare an annual Audit and Examination Committee Report in compliance with the rules and regulations of the Securities and Exchange Commission for inclusion in the Corporation's Annual Proxy Statement.
3. Perform other oversight functions as requested by the Board of Directors. Further, the Committee shall have the power to conduct or authorize investigations into any matters within the Committee's scope of responsibilities.
4. Maintain minutes of meetings and periodically report to the Board of Directors on significant results of the foregoing activities.
5. Meet periodically with the internal auditors, the independent accountants, and management in separate executive sessions to discuss any matters that the Committee or these groups believe should be discussed privately with the Committee.
6. Report Committee actions to the Board of Directors with such recommendations, as the Committee may deem appropriate.
7. Establish procedures with regard to the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and provide for confidential, anonymous submission by employees of their concerns regarding such matters.
SUBSIDIARY BANK AUDIT AND EXAMINATION COMMITTEE
If required by applicable laws and regulations, the Committee shall also serve as the Audit and Examination Committee of a subsidiary bank of the Corporation, subject to the approval of the board of directors of the subsidiary bank, and will perform the duties required by such laws and regulations.