South State Corporation Audit Committee Charter

Transcription

1 South State Corporation Audit Committee Charter January 18, 2018 I. Purpose (a) The primary function of the Audit Committee (the Committee ) is to assist the Board of Directors of South State Corporation (the Corporation ) in overseeing (i) the Corporation s accounting and financial reporting processes generally, (ii) the audits of the Corporation s financial statements, (iii) the Corporation s systems of internal controls regarding finance and accounting, (iv) the establishment and oversight of an internal audit function that is designed to be appropriate, adequate and effective to address the risks and meet the demands posed by the Corporation s current and planned activities; (v) the functions set forth in items (i) through (iv) above and as described otherwise herein, to the extent applicable, with respect to the divisions, affiliates and subsidiaries of the Corporation, including, but not limited to South State Bank (the Bank ), Minis & Co., Inc., First Southeast 401(K) Fiduciaries, Inc., and First Southeast Investor Services, Inc.; and (vi) the fulfillment of the other responsibilities as provided in this Amended and Restated Charter. (b) It shall not be the duty of the Committee to plan or conduct audits or determine that the Corporation s financial statements are complete and accurate or that they have been prepared in accordance with generally accepted accounting principles, each of which shall be the responsibility of management and the independent auditors. In discharging their duties, the members of the Committee shall be entitled to rely on information, opinions, reports, and statements, including financial statements and other financial data, prepared or presented by, among others, the Corporation s management and independent auditors to the extent permitted by Section of the South Carolina Business Corporation Act of 1988, as amended. (c) The Corporation s independent auditors shall report directly, and ultimately be accountable, to the Committee, which has the ultimate authority and responsibility to appoint (which appointment may be submitted to the Corporation s shareholders for ratification at a meeting of the shareholders of the Corporation), evaluate and, where appropriate, replace the independent auditors. The Committee has direct responsibility 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) for the purpose of preparing or issuing an audit report or related work. (d) The Corporation shall provide appropriate funding, as determined by the Committee, for payment of (i) compensation to the independent auditors for all audit and other services approved by the Committee or pursuant to its policies, (ii) compensation to any advisers employed by the Committee and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate to carry out its duties.

2 II. Membership (a) The Committee shall be comprised of three or more directors as appointed or replaced from time to time by the Board of Directors of the Corporation. The members of the Committee shall meet the independence and competence requirements for audit committee members established by the Securities Exchange Act of 1934 (the Exchange Act ), the Federal Deposit Insurance Corporation Improvement Act of 1991, the Sarbanes-Oxley Act of 2002, and NASDAQ (and other applicable rules and regulations, if any), in each case subject to any permitted exceptions. At least one member of the Committee shall qualify as financially sophisticated under NASDAQ s rules as a result of having 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. An audit committee financial expert as defined by the Securities and Exchange Commission (the SEC ) is presumed to be financially sophisticated. (b) To the extent required by applicable FDIC Part 363 regulations: (i) Each Committee member shall be an outside director who is independent of management of the institution. The definition of audit committee member independence set forth in the NASDAQ listing standards shall apply for purposes of determining whether an outside director is independent of management. (ii) No member of the Committee shall be a large customer of the Bank. Any individual or entity (including a controlling person of any such entity) which, in the determination of the Board of Directors, has such significant direct or indirect credit or other relationships with the Bank, the termination of which likely would materially and adversely affect the Bank s financial condition or results of operations, should be considered a large customer. (iii) At least two members of the Committee shall have banking or related financial management expertise. This determination is to be made by the Board of Directors of the Bank. A person will be considered to have such required expertise if the person has significant executive, professional, educational, or regulatory experience in financial, auditing, accounting, or banking matters as determined by the Board of Directors. Significant experience as an officer or member of the board of directors or audit committee of a financial services company would satisfy these criteria. A person who has the attributes of an audit committee financial expert as set forth in the SEC s rules would also satisfy these criteria. (c) Unless a Chairperson of the Committee is appointed by the Board of Directors of the Corporation, the members of the Committee may designate a Chairperson by majority vote of the full membership of the Committee. The Committee Chairperson will generally approve the agenda for the Committee s meetings, and any member may suggest items for consideration at a meeting. Page 2 of 10

3 III. Committee Authority and Responsibilities The Committee shall meet at least four times annually, and will meet more frequently to the extent that the Committee determines additional meetings to be necessary or appropriate. The Committee may ask members of management and other persons to attend any meeting and provide information or advice as needed. To foster open communication, the Committee shall meet periodically with the Corporation s management, internal auditors and independent auditors in separate executive sessions to discuss any matters that the Committee or any of these groups believes should be discussed privately. The Committee shall also ensure that employees performing an internal audit function and any independent public auditor or other external auditor have unrestricted access to the Committee. To fulfill its responsibilities and duties, the Committee shall: 1. Review of Documents and Reports; Engagement of Advisers; Audit Committee Report (a) Review and reassess the adequacy of this Charter at least annually, and recommend its revision by the Board of Directors as conditions require. (b) Review and discuss with management and the independent auditors the annual audited consolidated financial statements of the Corporation (and accompanying certification, report, opinion, attestation or review by the Corporation s independent auditors and management, as applicable) as well as the section of the Corporation s Form 10-K entitled Management s Discussion and Analysis of Financial Condition and Results of Operations (the MD&A ), and recommend to the Board whether the audited consolidated financial statements should be included in the Corporation s Form 10-K. (c) Review the Corporation s quarterly and annual financial results with management of the Corporation prior to the release of quarterly and annual earnings, review with management and the independent auditors the Corporation s consolidated financial statements to be included in its Form 10-Q prior to the filing of the Form 10-Q, including the results of the independent auditors review of the quarterly financial statements, and review the Corporation s disclosures to be made in the MD&A in the Form 10-Q. The Chairperson of the Committee may represent the entire Committee for these purposes. (d) Have the authority to retain independent legal counsel and other advisers, including accounting or other consultants, to advise the Committee as it determines necessary to carry out its duties, and otherwise to seek information or advice in any manner it deems appropriate. (e) To the extent required by the rules of the SEC, provide a report of the Committee in each proxy statement of the Corporation, which report shall contain the information required to be set forth therein by the SEC and such other disclosures as the Committee may deem to be necessary or advisable. Under the rules of the SEC in effect as of the effective date of the adoption of this Amended and Restated Charter, such report must appear over the names of each Committee member and must state: Page 3 of 10

4 (i) (ii) (iii) (iv) Whether the Committee has reviewed and discussed the audited financial statements with management; That the Committee has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended by AICPA, Professional Standards, Vol. 1. AU section 380, and adopted by the Public Corporation Accounting Oversight Board (the PCAOB ) in Rule 3200T; That the Committee has received the written disclosures and the letter from the independent auditors required by the PCAOB regarding the independent auditor s communications with the Committee concerning independence, and has discussed with the independent auditors the independent auditor s independence; and Whether, based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Corporation s Form 10-K filed with the SEC. 2. Independent Auditors (a) Select the Corporation s independent auditors, considering their independence and effectiveness, discuss with the independent auditors the scope of their proposed audit for each fiscal year, and approve the compensation to be paid to such independent auditors. (b) Review the qualifications, tenure, performance and independence of the Corporation s independent auditors, including considering whether the provision of permitted non-audit services is compatible with maintaining the auditor s independence. This shall include a review and discussion of the annual communication as to independence delivered by the independent auditors (PCAOB Rule 3526 Communication with Audit Committees Concerning Independence ). As part of its review and selection of the Corporation s independent auditors, the Committee may, among other things, review the performance (and may be involved in the selection) of the lead engagement partner of the Corporation s independent auditors. (c) Periodically consult with the independent auditors, out of the presence of management, about the Corporation s internal controls and the Corporation s financial statements. (d) Establish a communications channel for the independent auditors to be able to contact the Committee directly without going through management. (e) Preapprove (which may be pursuant to preapproval policies and procedures ) all audit services and permitted non-audit services (including fees and terms thereof) to be performed by the independent auditors for the Corporation, subject to such exceptions for nonaudit services as permitted by applicable laws and regulations. The Committee may form and Page 4 of 10

5 delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant preapprovals of audit and permitted non-audit services, provided that any decision of such subcommittee to grant preapprovals shall be presented to the full Committee at its next scheduled meeting. (f) At least annually, request from the independent auditors a formal written statement delineating all relationships between the independent auditors and the Corporation (consistent with applicable rules and regulations regarding communication with audit committees concerning the independence of the independent auditors), engage in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors, and take, or recommend that the full Board of Directors take, appropriate action to oversee the independence of the independent auditor. (g) Obtain annual confirmation from the independent auditors that all partner rotation requirements, as required by applicable rules and regulations, are executed. (h) Review and approve the Corporation s policies regarding the hiring of employees and former employees of the independent auditors. (i) Seek to ensure that engagement letters and any related agreements with the independent auditors for services to be performed under FDIC Part 363 (Annual Independent Audits and Reporting Requirements) do not contain any limitations of liability provisions that: (i) Indemnify the independent auditors against claims made by third parties; (ii) Hold harmless or release the independent auditors from liability for claims or potential claims that might be asserted by the Bank, other than claims for punitive damages; or (iii) Limit the remedies available to the Bank. Alternative dispute resolution agreements and jury trial waiver provisions are not precluded from engagement letters provided that they do not incorporate any limitations of liability provisions set forth in this paragraph (i). 3. Internal Auditing Processes (a) Annually review the effectiveness and performance of the Internal Audit Department and review and approve the Internal Audit Department Charter, the internal audit budget and staffing levels, and the audit plan (including material changes) and overall riskassessment methodology. This should include communications with the Director of Internal Audit regarding the Internal Audit Department s quality assurance and improvement program, including results of ongoing internal assessments and external assessments conducted at least every five years. Page 5 of 10

6 (b) Annually approve the job description, appointment, the annual performance evaluation and the compensation of the Director of Internal Audit. Recommend to the Board of Directors any proposed change with respect to the Director of Internal Audit if and when circumstances warrant. (c) The Director of Internal Audit shall report functionally to the Committee on internal audit matters. The Director of Internal Audit will meet in separate executive sessions with the Audit Committee on an as-needed basis. The Chairperson of the Committee will have ongoing interaction with the Director of Internal Audit separate from formally scheduled Committee meetings in order to keep the Chairperson apprised of any internal audit department, organizational, industry or other concerns. The Director of Internal Audit shall report administratively to the Chief Executive Officer. The Chief Executive Officer retains authority to delegate daily administrative oversight, where delegation would not compromise the independence of Internal Audit. Delegated oversight is intended to facilitate the reporting of material risk and control issues to the Committee, increase overall effectiveness of these monitoring functions, maximize utilization of resources, and enhance the Corporation s ability to comprehensively manage risk. If the Chief Executive Officer elects to delegate such administrative oversight, then during those times that internal audits are conducted for areas that are the responsibility of the delegatee, the Director of Internal Audit will report administratively to the Chief Executive Officer for those specific audit examinations. (d) Conflicts of interest for the Director of Internal Audit and all other internal audit staff should be monitored, and the Director of Internal Audit independence statement should be approved at least annually by the Committee, with appropriate restrictions placed on auditing areas where conflicts may occur. The Committee should seek to ensure that any internal consulting activities of the internal audit function do not interfere or conflict with the objectivity it should have with respect to monitoring the Corporation s system of internal control. (e) Periodically consult with the Director of Internal Audit regarding the internal audit process and the effectiveness and reliability of the Corporation s internal controls. (f) Consider whether the internal audit activities are conducted in accordance with professional standards, such as the Institute of Internal Auditors (IIA) Standards for the Professional Practice of Internal Auditing. (g) Establish a communication channel for the internal auditors to be able to contact the Committee directly without going through management. The Committee and/or its Chairperson should have ongoing interaction with the Director of Internal Audit separate from formally scheduled meetings to remain current on any internal audit department, organizational, or industry concerns. (h) Consider, in consultation with the Director of Internal Audit and, as appropriate, the independent auditors, the audit scope and plan of the internal auditors. For the avoidance of doubt, Internal Audit s activities are not intended to duplicate the monitoring and testing activities of the Company s risk management function Page 6 of 10

7 (including credit risk management, compliance and other second line of defense functions). The risk management function (including credit risk management, compliance and other second line of defense functions) is independent of, and not managed by, Internal Audit. With respect to risk management functions, Internal Audit s activities will include evaluation and reporting with respect to risk management processes, procedures and controls. (i) Review the regular internal reports to management prepared by the Internal Audit Department (or prepared by a third party to whom Internal Audit has outsourced internal audit activities), including management s responses thereto. The Chairperson of the Committee may represent the entire Committee for this purpose. (j) Periodically consider, review and discuss with the internal auditors and management, and discuss separately with the internal auditors and, if the Committee deems it appropriate, management: (i) (ii) Significant findings (including any finding that policies, procedures, and internal controls are ineffective or insufficient in a particular line of business or activity) by the internal auditors (including findings by any a third party to whom Internal Audit has outsourced material internal audit activities) during the year and the timeliness and effectiveness of management s responses to any identified issues; and Any difficulties encountered in the course of any audits by the internal auditors, including any restrictions on the scope of their work or access to required information. (k) Receive appropriate levels of information to fulfill its oversight responsibilities. At a minimum, the Committee should receive the following data from the Internal Audit Department: (i) (ii) (iii) (iv) (v) Audit results with a focus on areas rated less than satisfactory; Audit plan completion status and compliance with report issuance timeframes; Audit plan and audit budget changes, including the rationale for significant changes (including deferred or cancelled audits rated high-risk and other significant additions or deletions); Audit issue information, including aging, past-due status, root-cause analysis, and thematic trends; Information on higher-risk issues indicating the potential impact, root cause, and remediation status (including a high-level summary or discussion of the internal auditors risk assessment results that includes the most significant risks facing the Corporation as well as how these risks have been addressed in the internal audit plan); Page 7 of 10

8 (vi) (vii) Results of internal, and any external, quality assurance reviews (internal quality assessments should be done at least annually); Information on significant industry and institution trends in risks and controls; (viii) Reporting of significant changes in audit staffing levels; (ix) (x) (xi) (xii) Significant changes in internal audit processes, including a periodic review of key internal audit policies and procedures; Budgeted audit hours versus actual audit hours; Information on major projects; and Based on internal audit testing results, opinions on the adequacy of risk management processes, including effectiveness of management s selfassessment and remediation of identified issues (at least annually). (l) The Committee and the Director of Internal Audit are responsible for the selection and retention of internal audit vendors and should be aware of factors that may impact vendors competence and ability to deliver high-quality audit services. The Committee should approve all significant aspects of internal audit outsourcing arrangements (including, without limitation, with respect to DFAST stress testing, as applicable) and receive information on audit deficiencies in a manner consistent with that provided by the Internal Audit Department. The Committee should retain oversight responsibility for any aspects of the internal audit function that are outsourced to a third party and, with the Director of Internal Audit, should provide active and effective oversight of outsourced activities. 4. Financial Reporting Processes (a) In consultation with the Corporation s independent auditors and the Director of Internal Audit, review the integrity and adequacy of the Corporation s financial reporting processes, both internal and external. (b) Discuss with the Corporation s independent auditors their judgments about the quality and appropriateness of the Corporation s accounting principles as applied in its financial reporting. (c) Review and discuss reports from the independent auditors on: (i) all critical accounting policies and practices to be used; (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors; and (iii) other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. Page 8 of 10

9 (d) Consider, and approve if appropriate, any significant changes to the Corporation s auditing and accounting principles and practices suggested by the Corporation s independent auditors, Director of Internal Audit or management. (e) Establish procedures (sometimes referred to as Whistleblower procedures) for the receipt, retention, and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters. 5. Other Responsibilities (a) Facilitate the reporting to the Committee by both management and the independent auditors of any significant judgments made in the preparation of the financial statements and the view of both groups as to the appropriateness of such judgments. (b) After completion of the annual audit, review separately with the Corporation s management, Director of Internal Audit and independent auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. (c) Review and resolve any significant disagreements among management and the independent auditors in connection with the preparation of the Corporation s financial statements. (d) Review with the independent auditors, Director of Internal Audit and management the extent to which any changes or improvements in financial or accounting practices that have been approved by the Committee have been implemented. (e) Report Committee activities to the Board of Directors, and make such recommendations as the Committee deems appropriate. (f) Review with management and the independent auditors any correspondence with bank regulators or governmental agencies that raise material issues regarding the Corporation s financial statements, internal controls or accounting policies. (g) Discuss with the Corporation s corporate counsel legal matters, including, without limitation, any significant litigation or claims that may have a material impact on the Corporation s financial statements or internal controls. (h) Approve any report to be included in the Corporation s Form 10-K or proxy statement that describes the Committee s composition and responsibilities and how they were discharged. (i) Conduct and present to the Board of Directors an annual evaluation of the Committee s performance. Page 9 of 10

10 (j) Perform any other activities consistent with this Charter, the Corporation s bylaws and governing law that the Committee or the Board of Directors may deem necessary or appropriate. (k) Meet, through one or more members, not less than annually with one or more members of the Risk Committee to review and discuss (a) the key guidelines and policies governing the Corporation s significant processes for risk assessment and risk management; (b) the Corporation s major financial risk exposures and the steps management has taken to monitor and control such exposures; and (c) risks that the Risk Committee members believe have not come to the Audit Committee s attention of which the Audit Committee should be aware. Page 10 of 10