Audit Committee Charter
TABLE OF CONTENTS
- CHARTER REVIEW
- RESPONSIBILITIES AND PROCESSES
- SPECIFIC MATTERS FOR CONSIDERATION
- LIMITATION OF AUDIT COMMITTEE'S ROLE
The purpose of the audit committee established by this charter will be to oversee the corporate financial reporting process and the internal and external audits of Pacific Premier Bank (the "Bank"). The audit committee will undertake those specific duties, responsibilities and processes listed below, and such other duties as the board of directors (the "Board") from time to time may prescribe. In fulfilling this role, the audit committee will ensure that there is effective communication among the Board, management and external auditors, in matters relating to the Bank. The audit committee will monitor business risk practices and legal and ethical programs. In this way, it will help the Board fulfill its oversight responsibility as it relates to the Bank's financial statements, financial reporting process and to ensure compliance with regulatory requirements.
2. CHARTER REVIEW
The audit committee will review and reassess the adequacy of this charter at least once a year and obtain the approval of the Board of directors as to the proposed revisions.
The audit committee will be comprised of at least three members of the Board. The members will be appointed by and serve at the pleasure of the Board. The members of the audit committee will not be officers or employees of the Bank. Each member of the audit committee will be an "independent" director and as such is prohibited from accepting any fees from the Bank other than fees for service as a member of the Board (which may include service as a committee member or officer of the Board).
Each member of the audit committee also must be able to read and understand fundamental financial statements, including the Bank's balance sheet, income statement, and cash flow statement, or must become able to do so within a reasonable period of time after his or her appointment to the audit committee. In addition, at least one member of the audit committee shall have accounting or related financial management expertise whom the Board has determined to be a "financial expert".
In addition, if an audit committee member ceases to be independent for reasons outside the member's reasonable control, his or her membership on the audit committee may continue, at the Board's discretion, until the earlier of the Bank's next annual shareholders' meeting or one year from the occurrence of the event that caused failure to qualify as independent.
4. RESPONSIBILITIES AND PROCESSES
The audit committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The committee should take appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior.
- The primary responsibility of the audit committee is to oversee the Bank's financial reporting process, test for sound internal controls and the adherence to Bank policies through periodic audits on behalf of the Board and report the results of its activities to the Board.
- The following shall be the principal recurring processes of the audit committee in carrying out its oversight responsibilities. The processes are set forth as a guide with the understanding that the audit committee may supplement them as appropriate.
- The committee shall have a clear understanding with management that the independent auditors are ultimately accountable to the Board and the audit committee, as representatives of the Bank's shareholders.
- The committee shall have the ultimate authority and responsibility to select, evaluate, and where appropriate in the exercise of their business judgment, replace the Bank's independent auditors.
- The committee shall discuss with the auditors their independence from management and the Bank, including matters in the written disclosures required by the Independence Standards Board.
- Annually, the committee shall review and recommend to the Board the selection of the Bank's independent auditors.
- The committee shall discuss with the internal auditors and the independent auditors the overall scope and plans for their respective audits, including the adequacy of staffing and compensation.
- The committee shall discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Bank's system to monitor and manage business risk, and legal and ethical compliance programs, including the Bank's code of conduct.
- The committee shall discuss the results and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards
- The committee shall discuss with the independent accountants the quality of the Bank's financial and accounting personnel. The committee also shall elicit the comments of management regarding the responsiveness of the independent accountants to the Bank's needs.
- The committee shall meet with management, internal audit, and the independent accountants to discuss any relevant significant recommendations that the independent accountants may have, particularly those characterized as ‘material' or ‘serious'. The Committee shall review responses of management to the Letter of Comments and Recommendations from the independent accountants and receive follow-up reports on action taken concerning the aforementioned recommendations.
- The committee shall over-see the adequacy of the Bank's system of internal controls, through the use of internal audits in accordance with the established audit schedule including obtaining from the external auditors management letters or summaries on such internal accounting controls.
- The committee shall over-see the legal and other compliance programs established by management and the Board.
- The committee shall establish procedures for: (1) the treatment of complaints received by the Bank regarding accounting, internal accounting controls, or auditing matters; and (2) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
- The committee shall review audit reports generated by the Bank's internal auditor or third party audit reports or certifications presented by management disclosing any significant deficiencies and material weaknesses in the design or operation of internal controls, and any fraud – whether or not material – that involves management or other employees who have a significant role in the Bank's internal controls.
- 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 committee shall require pre-approval of any non-audit service to be performed by the external auditor, provided that the auditor may not be hired to provide any of the following services:
- bookkeeping or other services related to accounting records or financial statements of the audit;
- financial information systems design and implementation;
- appraisal or valuation services;
- fairness opinions or contribution in kind reports;
- actuarial services
- internal audit outsourcing services;
- management functions or human resources services;
- broker or dealer, investment adviser or investment banking services;
- legal services and expert unrelated to the audit; or
- any other service the Public Company Accounting Oversight Board determines is impermissible.
5. SPECIFIC MATTERS FOR CONSIDERATION
In connection with the audit committee's oversight of the Bank's financial reporting process, the committee shall consider, among other things, the following matters:
- The internal audit department's size and structure are adequate to meet its established objectives.
- The experience level of the internal auditors is adequate to the audit assignments.
- The performance of the Director of Internal Audit is reviewed on an annual basis.
- The audit personnel appear to be objective.
- The technical knowledge of the department members is sufficient to ensure that duties are performed appropriately.
- The department's work is planned appropriately and supported by written audit plans and programs.
- The internal audit reports are issued on a timely basis and include sufficient detail for effective action by management and/or the audit committee.
- Management's response to internal audit findings is appropriate and timely to significant recommendations and comments made by the internal auditors.
- Internal audit procedures should encompass both operational and financial, areas.
- Internal audit's involvement in the annual audit process needs to be effective and efficient.
- The committee should approve any outsourcing of the internal audit function to include selection of vendor, fees paid, and areas to be audited.
- Internal audit's work must be concentrated in areas of high risk and sensitivity.
- The annual risk assessment prepared by internal audit is the primary vehicle used for development of internal audits' annual work plan.
- The Previous Audit Follow-Up Report (a summary report of major findings) should receive appropriate attention by the internal auditors and management in addressing the conditions reported.
The audit committee will meet with the Bank's external auditors upon the completion of the annual audit (which meeting may be held without the presence of management, at the committee's discretion), and at such other times as it deems appropriate, to review the external auditors' examination and management report.
The audit committee shall meet at least quarterly with the internal auditors and as many additional times as the committee deems necessary. Minutes of the meetings will be prepared and after review and approval by the committee, will be submitted to the Board for its review.
The following agenda items will be routinely discussed at the time of each periodic meeting of the audit committee:
- Internal audit reports issued and management's corrective action response.
- Previous Audit Follow-Up Report.
- Report from the Bank's compliance officer, including filings of Suspicious Activity Reports.
7. LIMITATION OF AUDIT COMMITTEE'S ROLE
While the audit committee has the responsibilities and powers set forth in this charter, it is not the duty of the audit committee to plan or conduct audits or to determine that the Bank's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. The internal auditor and external auditor plan and conduct audits, while management and the external auditor are responsible for the Bank's financial statements.