CHARTER OF THE AUDIT COMMITTEE OF THE BOARDS OF DIRECTORS
2004 Committee Charter : FCNCA
January 26, 2004
The Audit Committee of the Board of Directors of First Citizens BancShares, Inc. ("FCBS") and First-Citizens Bank & Trust Company ("FCBT"), and of their respective subsidiaries, IronStone Bank ("IronStone") and First Citizens Bank, National Association ("FCBNA") (the "Audit Committee"), shall be appointed jointly by the Boards of Directors of FCBS and FCBT to assist the Boards of Directors of FCBS, FCBT, IronStone and FCBNA (collectively, the "Companies") in fulfilling their oversight responsibilities and to perform the duties of an independent Audit Committee of each of the Companies.
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 ensure that the Companies' financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Each member of the Audit Committee shall be entitled to rely on the advice, expertise and integrity of those persons and organizations within and outside the Companies that provide information to the Audit Committee and the accuracy and completeness of the financial and other information provided to the Audit Committee by such persons or organizations, absent actual knowledge that such reliance is not reasonable or warranted.
The Audit Committee shall have the authority to:
· Employ, discharge, compensate, and oversee the work of independent auditors selected by the Audit Committee to conduct the annual audit of FCBS' consolidated financial statements. This independent audit firm shall report directly to the Audit Committee.
· Resolve any disagreements between management and the independent auditors regarding financial reporting or any other matter.
· Retain, at its discretion and without management or the Board's prior permission, independent counsel, accountants, or others to advise the Audit Committee or assist it in carrying out its duties, and to direct the Companies to pay reasonable compensation for such services at the Companies' expense.
· Seek any information it requires from employees - all of whom are directed to cooperate with the Audit Committee's requests - or external parties.
· Meet with company officers, independent auditors, or outside counsel, as necessary.
To the extent not inconsistent with other sections of this Charter or applicable laws or regulations, the Audit Committee may delegate authority to subcommittees or individual members.
The Audit Committee shall consist of at least three and no more than seven members of the Board. Each member of the Audit Committee shall (i) be an "independent director" of FCBS under regulations of the Securities and Exchange Commission and the listing requirements of The Nasdaq Stock Market (except to the extent otherwise permitted by those regulations or requirements), and (ii) be able to read and understand fundamental financial statements. No person shall be appointed as an Audit Committee member if he or she owns or controls 20% or more of FCBS' voting securities.
The Boards of FCBS and FCBT shall appoint Audit Committee members and the Audit Committee Chair for terms of one year or until their successors shall be elected, whichever is longer; provided, however, that the term of an Audit Committee member shall end upon his or her death or resignation, the termination of the member's service as a director of FCBS, or the occurrence of any event that causes the member to no longer qualify to serve as a Director of FCBS or to be eligible to continue as a member of the Audit Committee. The Board, in its discretion, may designate an Audit Committee member as an "audit committee financial expert." The audit committee financial expert is an Audit Committee member who has the experience and knowledge that, in the judgment of the Board, qualifies him or her to be so designated under the regulations of the Securities and Exchange Commission. At least two members of the Audit Committee shall have banking or related financial management expertise sufficient to comply with applicable regulations of the Federal Deposit Insurance Corporation.
The Audit Committee shall meet at least four times per year, and it shall have the authority to convene additional meetings, as circumstances require. It shall meet separately and independently, on a periodic basis, with management and with the Companies' General Counsel, internal auditors and independent auditors. It shall also meet periodically in executive session. Appropriate briefing materials shall be prepared and provided in advance to members. Minutes of all meetings shall be prepared and maintained.
The Audit Committee shall carry out the following duties and responsibilities:
· Monitor the integrity of the financial reporting process and systems of internal controls of the Companies regarding finance, accounting, and legal compliance.
· Monitor and oversee the independence and performance of the independent auditors.
· Review the internal Audit Department and set the Audit Plan for each year. The senior internal audit executive (the "General Auditor") shall report for substantive purposes to the Audit Committee.
· Pre-approve all audit and permitted non-audit services performed by the Companies' independent auditors in accordance with approval policies and procedures adopted by the Audit Committee from time to time.
· Provide for free and open communication among the independent auditors, management, the internal Audit Department, and the Board.
· Monitor the Companies' compliance with applicable banking laws and regulations regarding safety and soundness.
· Exercise independent judgment in carrying out its responsibilities.
· Review and discuss with management and the independent auditors significant accounting and reporting issues, including:
è All critical accounting policies and practices to be used;
è Other written material communications between the independent auditors and management.
· Review and discuss analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.
· Review and discuss FCBS' annual audited and quarterly unaudited financial statements with management and the independent auditors.
· Review and discuss disclosures made by CEO and CFO during the Forms 10-K and 10-Q certification process about significant deficiencies in the design or operation of internal controls or any fraud that involves management or other employees who have a significant role in the Company's internal controls.
· Review and discuss quarterly earnings press releases.
· In connection with the annual audit of FCBS' consolidated financial statements and the filing of its Form 10-K:
è Discuss with the independent auditors the matters required to be discussed by SAS 61;
è Receive written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, and discuss the independence of the independent auditors with them;
è Based on its review of FCBS' consolidated financial statements with management and the independent auditors and the additional discussions described above, recommend to FCBS' Board of Directors whether the financial statements be included in the Form 10-K.
· Review, discuss and evaluate with management:
è The Companies' internal control structure and procedures for financial reporting.
è All significant deficiencies in the design or operation of internal controls which could adversely affect the Companies' ability to record, process, summarize and report financial data, and any material weaknesses in internal controls, disclosed by management to the Audit Committee or the Companies' independent auditors.
è Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companies' internal controls.
· Review with the General Auditor the plans, activities, staffing, and organizational structure of the internal Audit Department.
· Ensure there are no unjustified restrictions or limitations on the internal audit function.
· Review the effectiveness of the internal audit function.
· Review and discuss significant findings that have been reported to management and the progress of the related corrective action plans.
· Executive management shall provide administrative oversight of the internal audit function after consultation and input from the Audit Committee, including:
è Appointing, evaluating, and replacing the General Auditor;
è Setting the Audit Department's annual budget; and
è Establishing the person to whom the General Auditor reports administratively.
· Review the performance of the independent auditors.
· Ensure the rotation of the lead audit partner every five years and other audit partners every seven years, and consider whether there should be regular rotation of the audit firm itself.
· Recommend to the Board clear hiring policies for employees or former employees of the independent auditors, which guidelines shall comply with the requirements of applicable law and regulation.
· Discuss with the national office of the independent auditors issues on which they were consulted by the Companies' audit team as well as matters relating to the Companies' audit quality and consistency.
· Resolve disagreements between management and the independent auditors regarding financial reporting.
· Establish procedures for: (i) the receipt, retention, and treatment of complaints received by the Companies regarding accounting, internal accounting controls, or auditing matters; and (ii) the confidential, anonymous submission by employees of the Companies of concerns regarding questionable accounting or auditing matters.
· Review the findings of any examinations by regulatory agencies and any observations by the examining agency.
· On at least an annual basis, review with the counsel of the Companies any legal matters that could have a significant impact on the organization's financial statements, compliance with applicable laws and regulations, as well as inquiries received from regulators or governmental agencies.
· Prepare an annual report to the Board and the shareholders that shall describe the Committee's composition, responsibilities, how those responsibilities are discharged, and report its findings.
· Review any other reports of the Companies that relate to Audit Committee responsibilities.
· Perform other activities related to this charter as requested by the Board.
· Institute and oversee special investigations as needed.
· Review and assess the adequacy of the Audit Committee charter annually, requesting Board approval for proposed changes, and ensure appropriate disclosure as may be required by law or regulation.
· Confirm annually to the Board that all responsibilities outlined in this charter have been carried out.