Audit Committee Charter
The Audit Committee (the "Committee”) is appointed by the Board of Directors (the "Board") of Bay Bancorp (the "Company") to assist the Board in monitoring (1) the integrity of the Company’s financial statements, (2) the independent auditor's qualifications and independence, (3) the performance of the Company's internal audit function and independent auditor, (4) the Company’s system of internal controls and internal control over financial reporting, (5) the Company’s accounting and financial reporting processes and system of disclosure controls and (6) the compliance by the Company with legal and regulatory requirements.
The Committee’s job is one of oversight as 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 in accordance with generally accepted accounting principles ("GAAP"). Nor is it the duty of the Committee to assure compliance of the Company’s policies and procedures with applicable laws and regulations. Management of the Company is responsible for the preparation, presentation and integrity of the financial statements of the Company and for maintaining internal controls. The Company's independent external auditor is responsible for auditing the Company's financial statements.
The Committee shall consist of no fewer than three and no more than five members, the exact number being determined by the Board. Each member of the Committee shall be “independent” as defined by applicable law, rules and regulations of the Securities and Exchange Commission (“SEC”) and the rules of the NASDAQ Stock Market LLC (“NASDAQ”), each as they may be interpreted or amended from time to time (Applicable Law, Rules and Regulations”), except as otherwise permitted by Applicable Law, Rules and Regulations. Each member of the Committee must be able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement, and at least one member shall have prior experience in accounting, financial management or financial oversight, as required by Applicable Law, Rules and Regulations. A majority of the members of the Committee shall constitute a quorum.
Committee members shall be appointed and may be replaced by the Board.
The Committee may request that any officer or employee of the Company or the Company's outside counsel or independent auditor attend a meeting of the Committee or meet with any members of, or consultants to, the Committee without the consent of management or the Board. The Committee shall meet, in separate executive sessions, at least quarterly with the independent auditor and at least semi-annually with management and the internal auditors. The Committee shall make regular reports to the Board. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Policy Committee of the Board and to the Board for approval. The Committee shall annually review the Committee's own performance and present such review to the Board.
STATEMENT OF POLICY
The Committee shall provide assistance to the Board in fulfilling its responsibility to the Company’s stockholders, and other stakeholders relating to the Company's corporate accounting and financial reporting processes, the systems of internal accounting and financial controls, the internal audit function, and the annual independent audit of the Company's financial statements.
In carrying out its responsibilities, the Committee believes its policies and procedures should remain flexible, in order to best react to changing circumstances and conditions.
In performing their duties and responsibilities, the Committee, and each member of the Committee in his or her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by (i) officers and other employees of the Company or Bay Bank (the “Bank”), whom such member(s) reasonably believes to be reliable and competent in the matters presented, (ii) Company counsel, public accountants or other persons retained by the Company, the Bank or the Committee as to matters which the member(s) reasonably believes to be within the professional competence of such person(s), and (iii) another committee of the Board as to matters within its designated authority which committee the Committee member(s) reasonably believes to merit confidence.
The Committee may form and delegate authority to subcommittees or Committee members when appropriate, including specifically the pre-approval of non-audit services and the review of earnings releases and earnings guidance.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
- Responsibilities Relating to Retention of Public Accounting Firms - The Committee shall have the sole authority and be directly responsible for the appointment, compensation, retention, oversight of the work, evaluation and termination of any registered public accounting firm employed by the Company (including resolving disagreements between management and the public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The registered public accounting firm shall report directly to the Committee.
- Pre-approval of Services - All auditing services (which may entail providing "comfort letters" in connection with securities underwritings) and all permitted non-audit services provided to the Company by the Company's independent auditor, subject to the exception set forth below, shall be pre-approved by the Committee pursuant to such processes as it determines to be advisable. The Committee shall establish and maintain general guidelines for the permissible scope and nature of any permitted non-audit services in connection with its annual review of the audit plan and shall review such guidelines with the Board. Such processes for pre-approval may include blanket pre-approval of non-prohibited services for limited dollar amounts which the Committee, in its business judgment, does not believe possess the potential for abuse or conflict. In no event shall the independent auditor perform any non-audit services for the Company that are prohibited by Section 10A(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) or the rules of the SEC or the Public Company Accounting Oversight Board (or other similar body as may be established from time to time).
- Exception - The pre-approval requirement set forth above shall not be applicable with respect to the provision of non-audit services, if:
i. the aggregate amount of all such non-audit services provided to the Company constitutes not more than 5 percent of the total amount of revenues paid by the Company to its auditor during the fiscal year in which the non-audit services are provided;
ii. such services were not recognized by the Company at the time of the engagement to be non-audit services; and
iii. such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board to whom authority to grant such approvals has been delegated by the Committee.
- Delegation - The Committee may delegate to one or more designated members of the Committee the authority to grant required pre-approvals. The decisions of any member, to whom authority is delegated under this paragraph, to pre-approve an activity under this subsection shall be presented to the full Committee at its next scheduled meeting and be noted in the Committee's minutes.
- Complaints - The Committee shall establish procedures for:
i. the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and
ii. the confidential, anonymous submission by employees of the Company or others of concerns regarding questionable accounting or auditing matters.
review and oversight responsibilities
The Committee, to the extent it deems necessary or appropriate, shall:
Financial Statement and Disclosure Matters
- Review and discuss with management and the independent auditor the Company’s annual audited financial statements and other financial information and its Form 10-K, including disclosures made in the management's discussion and analysis of financial condition and results of operation discussion, prior to the filing of the Company’s Form 10-K, and recommend to the Board whether the audited financial statements should be included in the Company's Form 10-K.
- Review and discuss with management and the independent auditor the Company's quarterly financial statements and other financial information in its Form 10-Q, including the disclosures made in the management's discussion and analysis of financial condition and results of operations discussion, and the results of the independent auditor’s review of the quarterly financial statements, prior to the filing of the Company's Form 10-Q, and determine whether the quarterly financial statements should be included in the Company’s Form 10-Q.
- Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including (i) any significant changes in the Company's selection or application of accounting principles, (ii) any major issues as to the adequacy of the Company's internal controls, (iii) the development, selection and disclosure of critical accounting estimates and principles, (iv) analyses of the effect of alternative assumptions, estimates, principles or GAAP methods on the Company's financial statements, (v) analyses and disclosure of financial trends, and (vi) presentation of the financial statements and notes thereto.
- Review and discuss reports from the independent auditor on: (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 officials of the Company, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (iii) other material written communications between the independent auditor and management of the Company, such as any management letter or schedule of unadjusted differences.
- Discuss with management and, where appropriate, the Company’s independent auditor, the financial information in the Company's earnings and other press releases, current reports, real time disclosures, call reports or other public disclosures before the same are filed, posted, disseminated or released, including the use of "pro forma", "adjusted" or other non-GAAP information, any earnings guidance, as well as financial information provided to analysts and/or rating agencies.
- Discuss with management and the independent auditor the effect of accounting initiatives as well as off-balance sheet structures on the Company's financial statements, conditions or results and any necessary public disclosures related thereto.
- Discuss with management, the internal auditors and the legal/compliance department the effect of regulatory initiatives on the Company's financial statements, conditions or results and any necessary public disclosures related thereto.
- Discuss with management and other Board committees, as applicable the Company's major financial and other risk exposures and the steps management has taken to identify, monitor and control such risks, including the Company's risk assessment and risk management policies, and regularly report to the full Board in this regard.
- Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, relating to the conduct of the audit.Review and discuss with the Company's chief executive officer and chief financial officer all matters such officers are required to certify in connection with the Company’s Form 10-K and Form 10-Q and any other filings or reports.
Oversight of the Company’s Relationship with the Independent Auditor
- Review the experience, rotation and qualifications of the senior members of the independent auditor team.
- Monitor the independence, qualifications and performance of the independent auditor by, among other things:
» Obtaining and reviewing a written report from the independent auditor at least annually regarding (i) the independent auditor's internal quality-control procedures, (ii) any material issues raised by the most recent quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years concerning one or more independent audits carried out by the firm, (iii) any steps taken to deal with any such issues, and (iv) all relationships, both direct and indirect, between the independent auditor and the Company.
» Obtaining the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Committee concerning independence, and discuss with the independent auditor its independence including any disclosed relationships or services that may impact its objectivity and independence.
» Evaluating the qualifications, performance and independence of the independent auditor, including considering whether the auditor's quality controls are adequate and the provision of non-audit services is compatible with maintaining the auditor's independence, and taking into account the opinions of management and the internal auditor.
» Establishing and overseeing restrictions on the actions of directors, officers, or employees of the Company in illegally influencing, coercing, manipulating or misleading the Company's independent auditor including violations of Rule 13b2-2 under the Exchange Act.
» Taking any additional actions it determines necessary to satisfy itself of the independent auditor’s qualifications, performance and independence.
The Committee shall present its conclusions to the Board and, if so determined by the Committee, recommend that the Board take additional action to satisfy itself of the qualifications, performance and independence of the auditor.
- 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. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the lead audit partner or even the independent auditing firm itself on a regular basis.
- Recommend to the Board policies for the Company's hiring of employees or former employees of the independent auditor who were engaged on the Company's account.
- Discuss with the independent auditor issues on which the independent auditor communicated with its national office, if any, regarding auditing or accounting issues.
- Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
- Where the Committee is performing the duties required by law to be performed by an audit committee for a subsidiary bank of the Company that does not have its own audit committee or where the members of such audit committee are the same as the members of the Committee, review with management and the independent auditor the basis for the reports required to be filed by management and by the independent auditor with all bank regulatory authorities.
Oversight of the Company’s Internal Audit Function
- Review and oversee the appointment, performance and replacement of the outsourced internal audit firm.
- Review the significant reports to management prepared by the internal auditing function and management's responses.
- Discuss with the independent auditor and management and approve the internal audit firm’s responsibilities, budget and staffing and any recommended changes in the planned scope of the internal audit.
- Review and approve, at least annually, the objectives and plans of the Company’s internal audit firm, and the effectiveness of the internal audit function, and review reports from the internal audit function submitted to the Committee and the results of their work.
- Periodically review the status of the approved internal audit plan and discuss such plan status at its meetings.
- Obtain from the independent auditor such assurance as the Committee deems adequate that such auditor has fulfilled its responsibilities under Section 10A(b) of the Exchange Act, and obtain from the independent auditor any reports required to be furnished to the Committee under Section 10A.
- Obtain reports from management, the Company's senior internal auditing executive and the regulatory compliance and legal/compliance department relating to the Company's conformity with applicable legal and regulatory requirements.
- Review and approve any related party transactions which are required to be disclosed pursuant to applicable SEC rules and regulations as well as the procedures designed to identify related party transactions that are material to the Company’s financial statements or otherwise require disclosure.
- Review with management, the Company's internal auditors and the Company's legal/compliance department the Company’s and its subsidiaries’ compliance with applicable laws and regulations. Advise the Board with respect to same.
- Review with the appropriate officers and/or the Company's outside legal counsel, pending material litigation and compliance matters that may have an impact on the Company’s financial statements or compliance policies.
- Address and take action, as it deems necessary or appropriate, with respect to any issues regarding the provisions of the Company's Code of Ethics to the extent the issue relates to accounting and disclosure and regulations of the SEC, the NASDAQ or other regulatory authority, and to the extent such misrepresentation or omission relates to financial statements or related financial information.
- Address and take any action, as it deems necessary or appropriate, with respect to any issues relating to inquiries or investigations regarding the quality of financial reports filed by the Company with the SEC or otherwise distributed to the public.
MISCELLANEOUS POWERS AND RESPONSIBILITIES
- The Committee shall have the power to investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel, without approval by management, the cost thereof to be paid by the Company for this purpose if, in the Committee’s judgment, such investigation and/or payment is appropriate.
- The Committee shall submit the minutes of all meetings of the Committee to the Board.
- The Committee shall review and assess the adequacy of this Charter at least annually.
- The Committee shall prepare the report required to be included in the Company's annual proxy statement by applicable SEC rules.
- The Committee shall have the power to access the Company's counsel without the approval of management, as it determines necessary to carry out its duties.
- The Committee shall also have the authority without the consent of management or the Board, to the extent it deems necessary or appropriate to carry out its duties, to retain outside counsel and accounting or other experts or advisors to advise the Committee in connection with fulfilling its obligations hereunder.
- The Company shall provide for appropriate funding, as determined by the Committee, to permit the Committee to perform its duties under this Charter, to compensate the independent auditor and any advisors retained by the Committee.
- The Committee shall discuss with management and the independent auditor any significant or material correspondence with regulators or governmental agencies, including all examination reports received from the various supervisory authorities, and any employee complaints or published reports that raise material issues regarding the Company's financial statements or accounting policies and review management's replies to such correspondence, complaints, or reports.
- The Committee shall discuss with the Company's counsel legal matters that may have a material impact on the financial statements or the Company's compliance policies.
- The Committee shall make provision to examine all dealings between the Company or Bank and members of the Committee and to examine or have examined all dealings between the Company or Bank and any company by whom a Committee member may be employed.
- The Committee will monitor management's oversight of the controls required to ensure accurate financial reporting.
- The Committee will monitor management’s, internal auditor's and independent auditor’s assessment of internal control functions.
The Committee shall meet as often as it determines necessary, but not less frequently than quarterly.
The Committee may meet simultaneously as a committee of the Company and any subsidiary of the Company that does not have its own audit committee or that has its own audit committee the members of which are the same as the members of the Committee. However, it should hold separate sessions if necessary to address issues that are relevant to one entity but not the other(s) or to consider transactions between the entities or other matters where the Company and one or more subsidiaries may have different interests.
The Committee should consult with counsel, if, in its opinion, any matter has the potential for any conflict between the interests of the Company and those of the Company’s subsidiaries in order to ensure that appropriate procedures are established for addressing any such potential conflict and for ensuring compliance with the Company’s policies regarding any applicable laws, rules and regulations.
Minutes of each meeting will be maintained by the Committee.