PURPOSE:
The Audit and Examination Committee (the "Committee") is appointed by the Board of Directors of
Citizens Financial Services, Inc. (the “Corporation”), 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:
- Monitor the performance of the Corporation’s systems of internal control over financial reporting and disclosure controls and procedures.
- Monitor the quality and integrity of the Corporation’s accounting and financial reporting processes and the integrity and audit of the Corporation’s financial statements.
- Review the qualifications and independence of the independent registered public accounting firm engaged the purpose of preparing or issuing an audit report as to the Corporation’s financial statements, or performing other audit, review or attest services for the Corporation (the “independent auditors”) and monitor the performance of the independent auditors and internal auditing function.
- Provide an avenue of communication among the independent auditors, management, the internal auditing function, and the Board of Directors.
- 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.
- Monitor and oversee the Corporation’s risk assessment, risk management and risk mitigation policies and programs, including matters relating to privacy and cybersecurity.
- Prepare and approve the Committee report required by the rules of the U.S. Securities and Exchange Commission (the “SEC”) to be included in the Corporation’s annual proxy statement.
- Perform the Audit and Examination Committee function for such subsidiaries of the Corporation as determined by the Board of Directors to the extent required under applicable law.
- Otherwise carry out the duties and responsibilities set forth in this Audit and Examination Committee Charter and any other responsibilities or duties that the Board may assign to the Committee from time to time.
- To effectively perform his or her role, each Committee member will obtain an understanding of the detailed responsibilities of Committee membership.
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 of
The Nasdaq Stock Market LLC (“Nasdaq”), any rules and regulations promulgated by the Securities and
Exchange Commission (the “SEC”) and any other applicable laws relating to independence, as
determined by the Board in its business judgment. No member shall have participated in the preparation
of the financial statements of the Corporation or any subsidiary of the Corporation at any time during the
past three years. 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.
At least one member shall have past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable experience or background which results
in the individual’s financial sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight responsibilities. The Board may presume
that any person who satisfies the definition of “audit committee financial expert” under SEC rules
satisfies the requirement for financial sophistication. In addition, at least one member shall satisfy the
definition of an “audit committee financial expert” as defined in SEC rules.
AUTHORITY AND RESPONSIBILITIES:
Financial Statement Review Procedures
1. Review the Corporation's quarterly financial results and annual audited financial statements,
including the disclosures under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” (and, in each case, related footnotes), prior to filing or distribution,
including a review of the independent auditor's opinion regarding such financial statements, and
recommend to the Board whether (a) the audited financial statements and the disclosures under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” be
included in the Corporations’ Annual Report on Form 10-K (the “Form 10-K”) and (b) the Form
10-K should be filed with the SEC. 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 the
disclosure controls and procedures designed to ensure compliance with applicable law
5. Periodically review with management any significant deficiencies or material weaknesses in the
design or operation of internal controls over financial reporting, any fraud involving any
employees who have a significant role in the Corporation’s internal control over financial
reporting and any significant changes in internal controls over financial reporting or in other
factors that could significantly affect internal controls over financial reporting, including
management’s responses thereto.
6. Review and discuss with each of management and the independent auditor (i) the Corporation’s
earnings press releases, including the content, presentation of information and the use of any “pro forma,”
“adjusted” or other non-GAAP financial information, prior to public disclosure, and (ii)
any financial information and earnings guidance provided to analysts and rating agencies.
7. 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.
8. 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:
-
- One or more officers or employees of the Corporation whom the Committee member reasonably believes to be reliable and competent in the matters presented;
- Counsel, independent auditors, or other persons as to matters which the Committee member reasonably believes to be within the professional or expert competence of such person; or
- Another committee of the Board as to matters within its designated authority which committee the Committee member reasonably believes to merit confidence.
- One or more officers or employees of the Corporation whom the Committee member reasonably believes to be reliable and competent in the matters presented;
Independent Auditors
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,
evaluation, retention and oversight of the work of the independent auditors, including resolving
disagreements between management and the independent auditor regarding financial reporting. 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. The
Committee shall have the power and authority to discharge the independent auditors, if necessary
or advisable in the Committee’s judgment.
2. At least annually, review and discuss with the independent auditors the following matters: (i) all
critical accounting policies and practices to be used, (ii) all alternative treatments of financial
information within GAAP that have been discussed with management, ramifications of the use of
the alternative disclosures and treatments, and the treatment preferred by the independent
auditors, (iii) other material written communications between the independent auditors and
management, (iv) the auditor’s responsibilities under GAAP and the responsibilities of
management in the audit process, (v) the overall audit strategy, (vi) the scope and timing of the
annual audit, (vii) any significant risks identified during the auditor’s risk assessment procedures
and (viii) the results, including significant findings, of the annual audit, including any critical
audit matters.
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. Pre-approve, or establish and maintain an appropriate policy governing the pre-approval of, all
audit, audit-related and permissible non-audit and tax services to be provided to the Corporation
by the independent auditor, in accordance with Section 10A of the Securities Exchange Act of
1934, as amended, and SEC rules. The Committee shall have the sole power and authority with
respect to the approval of all services, fees and terms of audit and non-audit engagements with the
independent auditor, in each case as may be permissible and compatible with the auditor’s
independence. The Committee shall periodically review the appropriateness and effectiveness of
any auditor services pre-approval policy.
5. Discuss with the independent auditors the matters that are required to be communicated to, or
discussed with, the Committee under Public Company Accounting Oversight Board (“PCAOB”)
and SEC rules.
6. (i) Establish clear policies with respect to hiring employees or former employees of the
independent auditor and (ii) in accordance with the policies established by the Committee, review
and approve, as applicable, the Corporation’s hiring of employees of the independent auditor who
were engaged on the Corporation’s account.
7. Oversee compliance with the requirements of the SEC with respect to disclosure of the
(a) services and fees of the independent auditor (and, where applicable, any affiliate thereof) and
(b) any conflict or potential conflict of interest of the independent auditor.
8. 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 PCAOB regarding the
independent auditors' communications with the Committee concerning independence.
9. Recommend to the Board, on an annual basis, that the engagement of the independent auditor be
submitted to the Corporation’s shareholders for ratification.
Internal Auditors
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. Review with management, the independent auditor and (as appropriate) the Corporation’s legal
counsel, any legal and regulatory matters that may have a material impact on the financial
statements, related compliance policies and programs any correspondence with or reports from
regulators or governmental agencies and any employee complaints regarding the Company’s
financial statements, accounting, internal accounting controls or auditing matters.
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 director, 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.
Oversight of Risk Management
1. Review, discuss with management, and oversee management’s programs and policies to identify,
assess, manage, mitigate and monitor significant business risks of the Company, including
financial, operational, information technology, privacy, security, business continuity, legal,
regulatory and reputational risks.
2. Review, discuss with management, and oversee management’s risk assessment, management,
mitigation and monitoring decisions, practices and activities, including the steps management has
taken to monitor and control the Company’s major financial risk exposures.
3. Review, discuss with management, and oversee policies and guidelines to govern the process by
which risk assessment and risk management are undertaken.
Other Committee Responsibilities
1. Periodically review separately with each of management, the independent auditor and the
Risk/Compliance Officer (i) any disagreements between management and each of the
independent auditor and the internal audit function in connections with the respective external or
internal audits, any problems or difficulties encountered by each of the independent auditor and
the internal audit function during the course of the respective external or internal audits, including
restrictions in scope or access to required information, and any other advisable or appropriate
subjects and (ii) management’s response.
2. Consider and approve, if appropriate, the adoption of, or significant changes to, the Corporation’s
internal auditing, accounting principles (including the selection and application thereof) and
financial disclosure practices as proposed or recommended by management, the independent
auditor or the internal audit function.
3. Periodically review and discuss with management the status of compliance by the Corporation
and the Corporation’s employees, executive officers and directors with the Corporation’s Code of
Ethics and the program that management has established to monitor compliance with the Code.
4. 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.
5. 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.
6. 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, including any matters appropriate or required
to be discussed under applicable accounting and auditing professional standards or applicable
regulations, including auditing standards adopted by the PCAOB and SEC rules.
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.
COMMITTEE, STRUCTURE AND OPERATIONS
1. The Committee shall meet with such frequency and at such intervals as it shall determine is
necessary to carry out its duties and responsibilities, but in any case, the Committee shall meet at
least four times per year. The Committee shall establish a schedule of meetings to be held each
year and may schedule additional meetings as it determines to be necessary or appropriate.
Special meetings may be called by the Chairman of the Committee or any other member of the
Committee. The Committee may meet by telephone or videoconference and may take action by
unanimous written consent. The Committee may invite to meetings such officers of the
Corporation or other persons as the Committee deems necessary or appropriate in its discretion.
Minutes of each meeting shall be kept and distributed to each member of the Committee.
2. The Committee may, in its discretion, form and delegate all or a portion of its authority to
subcommittees, to the extent permitted by applicable law and Nasdaq rules; provided that any
delegate shall report any actions taken by the delegate to the full Committee at its next regularly
scheduled meeting
3. The Committee shall have the authority to obtain advice and seek assistance from internal or
external legal, accounting or other advisors. The Committee shall have the sole authority to
retain and terminate outside legal or other advisors to the Committee as it deems necessary or
appropriate in its sole discretion, including any search firm to be used in identifying director
candidates. In selecting any such outside advisor, the Committee shall consider the outside
advisor’s independence, as determined by the Committee in its business judgment. The
Committee shall have the sole authority to approve the fees and other retention terms for such
outside advisors. The Committee shall provide appropriate funding for payment of the
compensation (as determined by the Committee in its sole reasonable opinion) of such outside
advisors retained by the Committee, as well as reasonable ordinary administrative expenses of
Committee that are necessary or appropriate in carrying out its duties.
4. The Committee shall make regular reports to the Board summarizing the matters reviewed and
the actions taken at each Committee meeting and make appropriate recommendations for action
by the Board.
5. At least annually, the Committee shall undertake a performance evaluation of the Committee,
including an assessment of its performance in light of the duties and responsibilities set forth in
this Audit and Examination Committee Charter and such other matters as the Committee may
deem necessary or appropriate in its discretion. In connection with such performance evaluation,
the Committee also shall review and assess the adequacy of this Audit and Examination
Committee Charter, and propose to the Board for its review and approval any changes to this
Audit and Examination Committee Charter deemed necessary or appropriate. The Committee
may recommend amendments to this Audit and Examination Committee Charter at any time and
submit amendments for approval to the Board.
DISCLOSURE
This Audit and Examination Committee Charter, as may be amended from time to time, shall be posted
on the Company’s website. The Corporation shall state in its annual proxy statement that this Audit and
Examination Committee Charter is available on the Corporation’s website and provide the website
address.
Approved: March 7, 2022