Audit Committee Charter
Penseco Financial Services Corporation
and Penn Security Bank & Trust Company
Amended and Restated
Audit Committee Charter
The primary purpose of the Audit Committee (the “Committee”) is to assist the Board of Directors (the “Board”) of Penseco Financial Services Corporation and Penn Security Bank and Trust Company (collectively, the “Company”) in fulfilling its oversight responsibilities in connection with: (a) reviewing the financial reports and other financial information prepared by the Company for submission to any governmental or regulatory body, the public, or other users thereof, and maintaining the integrity of such financial reports; (b) reviewing the Company’s systems of internal accounting and financial controls established for finance, accounting, legal compliance and ethics; (c) reviewing the Company’s accounting and financial reporting processes generally and the audits of the financial statements of the Company; (d) evaluating the independence and performance of the Company’s independent public accountants; (e) compliance by the Company with legal regulatory requirements and the Company’s policies as established from time to time by the Board; and (f) providing effective communication among the Board, senior and financial management and the Company’s independent public accountants. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full power and all necessary resources to retain special legal, accounting or other consultants to advise the Committee.
The Committee shall be comprised of not less than three members of the Board, each of whom shall meet the independence requirements of the Nasdaq Stock Market (or any other national securities exchange that the Company’s securities are then listed or quoted on that has rules pertaining to the independence of Committee members), Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
- Each member of the Committee must be an independent, non-executive director, free from any relationship that, in the judgment of the Board, may interfere with the exercise of the member’s independence;
- Each member of the Committee must also be an outside director independent of management within the meaning of applicable banking regulations, guidelines and interpretations;
- Each member of the Committee must not receive any consulting, advisory or other compensatory fee from the Company other than in such member’s capacity as a director;
- Each member of the Committee must be financially literate, as that term is interpreted by the Board in its business judgment;
- Each member must not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the previous three years; and
- At least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in such 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 members of the Committee shall be appointed by the Board on an annual basis and shall serve for a term of one year. They shall serve until their successors are duly elected and qualified. Should any member of the Committee cease to be independent, such member shall immediately resign his or her membership on the Committee. Unless a Chairman is elected by the Board, the members of the Committee shall designate a Chairman by majority vote of the full Committee membership. The Committee may appoint a secretary, who need not be a member. Members of the Committee may be removed by the Board at any time with or without cause. In the case of a vacancy on the Committee, the Board may appoint an independent director to fill the vacancy for the remainder of the term.
The Committee shall meet at such times, and from time to time, as it deems to be appropriate, but not less than quarterly. Members of the Committee may attend a meeting by telephone conference. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent public accountants to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
Except as otherwise provided by statute or this Charter, a majority of the incumbent members of the Committee shall be required to constitute a quorum for the transaction of business at any meeting, and the act of a majority of the Committee members present and voting at any meeting at which a quorum is present shall be the act of the Committee. Minutes of each meeting of the Committee shall be reduced to writing. The Committee shall report to the Board at the first Board meeting following each such Committee meeting. The Committee may also act by unanimous written consent without a meeting.
As a part of its job to foster open communication, the Committee should meet, whenever deemed appropriate by the Committee, with management and the independent public accountants in separate sessions to discuss any matters that the Committee or each of the groups believe should be discussed privately. In addition, the Committee should meet with the independent public accountants and management quarterly to review the Company’s financial statements and related materials as described below.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company’s independent public accountants shall be accountable to the Committee, and the Committee shall have sole authority to select, evaluate and replace the Company’s independent public accountants. The Committee shall be directly responsible for the compensation and oversight of the work of the independent public accountants (including resolution of disagreements between management and the independent public accountant regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent public accountant shall report directly to the Committee. The Committee will ascertain that the independent public accountants will be available to the full Board at least annually (and more frequently if deemed appropriate by the Committee) to provide the Board with a timely analysis of significant financial reporting issues. The Committee will not engage the independent public accountants to perform any services set forth in Section 10(A)(g) of the Exchange Act.
RESPONSIBILITIES AND DUTIES
The Committee shall:
Documents/Reports Reviews, Independent Public Accountants and Internal Auditor
- Review and assess the adequacy of the Committee and this Charter periodically as conditions dictate, and in any event no less than annually, and recommend any updates to the Board.
- Review and discuss with management and the independent public accountants, prior to the filing of the Form 10-K (and, to the extent practicable, prior to the annual earnings release), the audited financial statements and related footnotes, and the clarity of the disclosures in the financial statements to be included in the Company’s Annual Report on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of the Form 10-K) and, based on such review and discussions, recommend to the Board whether the audited financial statements be included in the Company’s Annual Report on Form 10-K for filing with the SEC.
- Review with management and the independent public accountants their judgments about the quality, and not just the acceptability, of accounting principles, the reasonableness of significant judgments and the clarity and transparency of the disclosures made in the financial statements.
- Prepare the required report by the rules of the SEC regarding the Committee to be included in the Company’s annual proxy statement. The Committee will include a statement within such report on whether the Committee has recommended that the financial statements be included in the Form 10-K. The Committee should also ensure that a copy of the Committee’s Charter is included within the Company’s proxy statement at least once every three years or that the Committee’s Charter is posted to the Company’s website.
- Review and discuss with management and the independent public accountants the Company’s quarterly financial statements to be included in the Company’s Quarterly Reports on Form 10-Q for filing with the SEC, as well as whether significant events, transactions and changes in accounting estimates were considered by the independent public accountants (after performing their required quarterly review) to have affected the quality of the Company’s financial reporting. Such review will occur prior to the Company’s filing of the Form 10-Q and, to the extent practicable, prior to the quarterly earnings release.
- Review the Company’s disclosures contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or other pertinent form, as applicable.
- Review the Company’s earnings press releases, including the use of “pro-forma” or “adjusted” non-GAAP information (subject to compliance with law and applicable SEC rules, including Regulation G), as well as other publicly disclosed financial information and earnings guidance, and discuss any of the foregoing with management to the extent desired by any member of the Committee. Such discussion may be general in nature (consisting of types of information to be disclosed and the types of presentations to be made).
- Meet periodically with management and the independent public accountants to review the Company’s major financial risk exposures and the steps taken to monitor and control such exposures.
- Discuss with management and the independent public accountants the effect of regulatory and accounting initiatives, including pronouncements by the Financial Accounting Standards Board, the SEC and other agencies or bodies, on the Company’s financial statements.
- Review disclosures made to the Committee by the Company’s Chief Executive Officer and Chief Financial Officer (or principal financial officer) or the Company’s disclosure committee or any member thereof, during their certification process for the Form 10-K or Form 10-Q, as appropriate, about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company’s internal controls.
- Review and discuss with management and the independent public accountants the matters required to be discussed under the American Institute of Certified Public Accountants’ Statement of Auditing Standards No. 61 and also the management letter.
- Review and discuss with the internal auditor and management the internal audit reports produced by the internal auditing department and management’s response thereto.
- Receive from the independent public accountants and discuss with them the disclosures required by Independence Standards Board, Standard No. 1, their relationships with the Company and their independence. The Committee shall take appropriate action to ensure the continuing objectivity and independence of the independent public accountants.
- Review and discuss quarterly reports from the independent public accountants regarding:
- all critical accounting policies and practices to be used;
- all alternative disclosures and treatments of financial information within GAAP (generally accepted accounting principles) that have been discussed with management officials, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent public accountants, and
- all other material written communications between the independent public accountants and management, such as any management letter or schedule of unadjusted differences.
- At least annually, consult with the independent public accountants out of the presence of management about internal controls, the fullness and accuracy of the Company’s financial statements and the appropriateness of accounting policies, and the correction of controls and policies deemed to be deficient. After the completion of the audit, the Committee shall review with the independent public accountants any problems or difficulties the independent public accountants may have encountered.
- Pre-approve all auditing services and permitted non-audit services (including the fees for such services and terms thereof) to be performed for the Company by its independent public accountants in one of two methods. Under the first method, the engagement to render the services would be entered into pursuant to pre-approval policies and procedures established by the Committee, provided (i) the policies and procedures are detailed as to the services to be performed, (ii) the Committee is informed of each service, and (iii) such policies and procedures do not include delegation of the Committee’s responsibilities under the Exchange Act to the Company’s management. Under the second method, the engagement to render the services would be presented to and pre-approved by the Committee (subject to the de minimis exceptions for non-audit services described in Section 10(A)(i)(1)(B) of the Exchange Act that are approved by the Committee prior to the completion of the audit). The Chairman of the Committee will have the authority to give pre-approvals of audit and permissible non-audit services by the independent public accountants, provided that all pre-approvals by the Chairman must be presented to the full Committee at its next scheduled meeting. The Company will provide for appropriate funding as determined by the Committee, for payment of compensation to the independent public accountants and to any consultants, experts or advisors engaged by the Committee.
- 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.
- Recommend to the Board policies for the Company’s hiring of employees or former employees of the independent public accountants who participated in any capacity in the audit of the Company.
- Review with the Company’s legal counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies.
- Review and recommend to the Board the appointment, replacement, reassignment or dismissal of the internal auditor.
- Confirm and assure the independence of the internal auditor.
- Review and approve the audit scope and procedural plans of the internal auditor.
- Review the effectiveness of the internal audit system.
- Periodically (at least quarterly) consult with the internal auditor, out of the presence of management, about internal controls, compliance with the laws and regulations, compliance with policies promulgated by the Board, compliance with the Company’s Code of Ethical Conduct and the adequacy of the department’s resources.
- Review and, if and as required under any related party transaction policy the Company has adopted, approve any transaction between the Company and related parties, and periodically review such policies and procedures and make recommendations to the Board with respect thereto.
- Conduct or authorize investigations into any matters within the Committee’s scope of responsibilities with full access to all books, records, facilities and personnel of the Company and direct access to the independent public accountants. The Committee has the ability to retain, at the Committee’s request, special legal, accounting or other consultants, experts or advisors it deems necessary in the performance of its duties.
- Consider such other matters in relation to the financial affairs of the Company and its accounts, and in relation to the audit of the Company, as the Committee may, in its discretion, determine to be advisable.
- Provide an open avenue of communication among the independent public accountants, senior management, the internal auditing department and the Board.
- Report to the Board all actions taken by the Committee and their appraisal of the audit efforts of the Company’s independent public accountants and internal audit department.
- Meet as needed with management alone to discuss any matter that the Committee or management believes should be discussed privately.
- Perform such other duties as may be determined by the Board from time to time.
- Periodically review, and make any appropriate recommendations to the Board concerning updates or changes to, the Company’s Code of Ethical Conduct, and ensure that management has established a system to enforce the Code. Review the procedures established by the Company that monitor the compliance by the Company with the Code by directors, officers and employees.
- The Committee shall adopt and maintain procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
Although the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with the generally accepted accounting principles or that internal control systems are present or effective. These are the responsibility of management and the independent public accountants.
The Committee recognizes that the Company’s management is responsible for preparing the Company’s financial statements and establishing adequate internal control systems, and the independent public accountants are responsible for auditing or reviewing those financial statements and internal control systems for compliance with applicable law. The Committee also recognizes that management of the Company and the independent public accountants have more time, knowledge and more detailed information on the Company than do Committee members. Consequently, in carrying out its oversight responsibility, the Committee will not provide any special assurances as to the Company’s financial statements or any professional certification as to the independent public accountants’ work.
The Committee will have the resources and authority necessary to discharge its duties and responsibilities. The Committee has sole authority to retain and terminate outside counsel or other experts or consultants, as it deems appropriate, including sole authority to approve the firms’ fees and other retention terms. The Committee will be provided with appropriate funding by the Company, as the Committee determines, for the payment of compensation to the Company’s independent auditor, outside counsel and other advisors as it deems appropriate, and ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention. Any communications between the Committee and legal counsel in the course of obtaining legal advice will be considered privileged communications of the Company, and the Committee will take all necessary steps to preserve the privileged nature of those communications.
The Committee may form and delegate authority to subcommittees and may delegate authority to one or more designated members of the Committee.
RELIANCE ON INFORMATION AND EXPERT OPINION
In performing its various functions, the Committee may rely on the information, advice and opinions it receives in its discussions with management, the Company’s internal auditor and the Company’s independent public accountants and it is recognized that the Committee is not providing any expert or special assurance as to the Company’s financial statements or internal control systems or any professional certification regarding the work of management, the internal auditor or independent public accountants.
Approved by the Audit Committee, this 18th day of June 2009.
Adopted by the Board of Directors, this 21st day of July 2009.