There shall be a committee of the Board of Directors (the "Board") which shall be called the Audit Committee.
Purpose
The Audit Committee is appointed by the Board to oversee the accounting and financial reporting processes of State Bancorp, Inc. and State Bank of Long Island (collectively the "Company") and the audits of the Company's financial statements. In that regard, the Audit Committee assists the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the integrity of the system of internal controls including risk assessment and risk management processes, (3) the qualification and independence of the Company's registered public accounting firm ("independent auditor"), (4) the performance of the Company's internal audit function and independent auditors, and (5) the compliance by the Company with applicable legal and regulatory requirements.
The Audit Committee shall prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement.
Authority
The Audit Committee shall have the sole authority to appoint (subject to shareholder ratification, where appropriate), evaluate and, if necessary, replace the independent auditor. The Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The independent auditor shall report directly to the Audit Committee.
The Audit Committee shall pre-approve all auditing services, internal control-related services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor, subject to the de minimis exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act that are approved by the Audit Committee prior to the completion of the audit. The Audit Committee shall review and discuss with the independent auditor any documentation supplied by the auditor as to the nature and scope of any tax services to be approved, as well as the potential effects of the provision of such services on the auditor's independence. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided the decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to engage and determine funding for independent legal, accounting or other advisors. The company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report or performing other audit, review or attest services for the Company and to any advisors employed by the Audit Committee, as well as funding for the payment of ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
Composition
The Audit Committee shall be comprised of three or more members, each of whom shall be an independent director, free from any relationship that would interfere with the exercise of his or her independent judgment. Each member of the Audit Committee shall satisfy the independence, experience and financial literacy requirements of NASDAQ and SEC Rule 10A-3 and Section 10A of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002. No member of the Audit Committee shall, other than in his or her capacity as a member of the Audit Committee, the Board or any other Board Committee, accept any consulting, advisory or other compensatory fee from the Company or be an affiliated person of the Company or any subsidiary thereof. The Board shall make a determination each year that the members of the Audit Committee are independent.
The Audit Committee Chair shall be financially sophisticated and all members of the Audit Committee shall be financially literate at the time of appointment. At least one member of the Audit Committee shall be an audit committee financial expert, as defined by applicable SEC and NASDAQ rules.
The Board shall appoint the members of the Audit Committee annually. The members of the Audit Committee shall serve until their successors are appointed and qualify. The Board shall designate the Chairman of the Audit Committee. Except as expressly provided in this Charter or the By-Laws of the Company or the Corporate Governance Guidelines of the Company, or as otherwise provided by law or the rules of NASDAQ, the Audit Committee shall fix its own rules of procedure.
Meetings
The Committee shall meet at least quarterly prior to the release of SEC regulatory filings on Form 10Q and Form 10K. The Committee may convene more frequently as circumstances require. The Committee may ask members of management or others to attend meetings and provide pertinent information as necessary, but no such persons shall participate in the decision making functions of the Committee. The Committee Chairman should approve the content of the agenda for each meeting. The Committee shall meet privately in executive session at least annually, and at other times when considered appropriate, with management, the chief audit executive and the independent auditor to discuss any matters that the Committee believes should be discussed.
Responsibilities and Duties
The Audit Committee shall make regular reports to the Board. The Audit Committee shall review and reassess the adequacy of this Charter annually and recommend proposed changes to the Board for approval. The Audit Committee shall annually review the Audit Committee's own performance.
The Audit Committee shall:
Financial Statement and Disclosure Matters
Review and discuss with management and the independent auditor the annual audited financial statements and the quarterly financial statements, including disclosures made in Management's Discussion and Analysis of Financial Conditions and Results of Operations (MD&A) and related footnotes to be included in the Company's Form 10-K and 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 any significant changes in the Company's selection or application of accounting principles, any major issues as to the adequacy of the Company's internal controls and any special steps adopted in light of material control deficiencies.
Review and discuss with management and the independent auditor any major issues as to the adequacy of the Company's internal controls, any special steps adopted in light of material control deficiencies and the adequacy of disclosures about changes in internal controls over financial reporting.
Review and discuss with management, the chief audit executive and the independent auditor the Company's internal control report and the independent auditor's attestation of the report prior to the filing of the Company's Form 10-K.
Review and discuss quarterly reports from the independent auditor on:
All critical accounting policies and practices to be used;
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 auditor; and
Other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.
Review the Company's earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies. Such reviews may be done generally (consisting of reviewing the types of information to be disclosed and the types of presentations to be made).
Discuss with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures on the Company's financial statements.
Discuss with management the Company's major financial risk exposures and the steps management has undertaken to monitor and control such exposures, including the Company's risk assessment and risk management policies.
Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards (SAS) No. 61, as amended by SAS 90, relating to the conduct of the audit, including any difficulties encountered in the course of the audit work, any restriction on the scope of activities or access to requested information, and any significant disagreements with management.
Review disclosures made to the Audit Committee by the Company's CEO and CFO during their certification process for the Form 10-K and Form 10-Q 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.
Ensure that a public announcement of the Company's receipt of an audit opinion that contains a going concern qualification is made promptly.
Oversight of the Company's Relationship with the Independent Auditor
Review and evaluate the lead partner of the independent auditor team.
Obtain and review a report from the independent auditor at least annually regarding (a) the independent auditor's internal quality control procedures, (b) any material issues raised by the most recent internal 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 respecting one or more independent audits carried out by the firm, and (c) any steps taken to deal with any such issues. Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor's quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor's independence, and taking into account the opinions of management and internal auditors. The Audit Committee shall present its conclusions with respect to the independent auditor to the Board.
Obtain from the independent auditor a formal written statement delineating all relationships between the independent auditor and the Company. It is the responsibility of the Audit Committee to actively engage in a dialogue with the independent auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor and for purposes of taking, or recommending that the full board take, appropriate action to oversee the independence of the outside auditor.
Ensure the rotation of the lead audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit at least every five years. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the independent auditing firm on a regular basis.
Establish policies for the Company's hiring of employees or former employees of the independent auditor.
Discuss with the independent auditor material issues on which the national office of the independent auditor was consulted by the Company's audit team.
Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
Review and concur in the appointment, replacement, or dismissal of the chief audit executive.
Review with management and the chief audit executive the charter, activities, budget, staffing, and organizational structure of the internal audit function.
Review and approve the annual audit plan and all major changes to the plan.
Consider, in consultation with the chief audit executive and the independent auditor, the audit plan and scope of the internal audit and the independent auditor to assure completeness of coverage, reduction of redundant efforts and the effective use of audit resources.
Review significant internal audit reports to management and management's responses, as well as follow-up reports on action taken.
Review and approve any co-sourcing arrangements proposed by the chief audit executive.
At least once per year, review the performance of the chief audit executive and concur with the annual compensation and salary adjustment.
Review the effectiveness of the internal audit function, including compliance with The Institute of Internal Auditor's International Standards for the Professional Practice of Internal Auditing.
On a regular basis, meet separately with the chief audit executive to discuss any matters that the committee or internal audit believes should be discussed privately.
Compliance oversight Responsibilities
Obtain from the independent auditor assurance that Section 10A(b) of the Exchange Act has not been implicated.
Review with, and obtain reports from management, the chief audit executive and the independent auditor that the Company, its subsidiaries and affiliates are in conformity with applicable legal requirements and the Company's Code of Business Conduct and Ethics. Review with the Board any issues that arise with respect to the Company's compliance with applicable laws and regulations and with the Company's Code of Business Conduct and Ethics.
Review and provide oversight of related party transactions.
Establish 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.
Discuss with management, the chief audit executive and the independent auditor any correspondence with the regulators or governmental agencies and any published reports that raised material issues regarding the Company's financial statements or accounting policies.
Review and discuss with management and the chief audit executive the findings of any examinations by regulatory agencies and management responses, as well as follow-up reports on actions taken.
Discuss with the Company's General Counsel legal matters that may have material impact on the financial statements or the Company's compliance policies.
Other Responsibilities
Discuss with management the Company's enterprise risk management program and the steps management has taken to identify, monitor and mitigate significant risks.
At least on an annual basis, report to the Board on the status of the Company's enterprise risk management program.
Review overdrafts of any customer in excess of $50,000 outstanding for more than 5 days.
Institute and oversee special investigations as needed.
Perform other activities related to this Charter as requested by the Board.
Limitations of Audit Committee's Roles
While the Audit Committee has the responsibilities and powers set forth in its Charter, it is not the duty of the Audit Committee to prepare financial statements, plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
Approved by the Audit Committee on March 10, 2010 and
Adopted by the Board of Directors of the Company
on April 27, 2010
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