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Killbuck Savings Bank Co.
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Audit Committee Charter
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Killbuck Bancshares, Inc.
The Killbuck Savings Bank Co.

  1. General Overview

    1. Responsibilities. The Audit Committee (the “Committee”) is established as a committee reporting periodically to the Board of Directors (the “Board”) of The Killbuck Savings Bank Co. and Killbuck Bancshares (the “Company”) to assist the Board in monitoring:

      1. the integrity of the financial statements of the Company;

      2. independent auditor’s qualifications and independence;

      3. the performance of the Company’s internal audit function and independent auditors; and

      4. the compliance by the Company with legal and regulatory requirements.

    2. Primary Responsibilities and Duties. The primary responsibility of the Committee is to oversee the Company’s financial reporting process on behalf of the Board and report the results of its activities to the Board. Management is responsible for preparing the Company’s financial statements and related disclosures and the Company’s independent auditors are responsible for auditing those financial statements. 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”). It shall be the duty of the Committee to assist the Board in the oversight of the Company’s legal and regulatory requirements. It is not the duty of the Committee to assure compliance with the Company’s Code of Ethics.

  2. Committee Membership

    1. Membership. The Committee shall consist of a chairman and no fewer than three (3) members, each of whom shall be a director of the Company.

    2. Qualifications. The Committee shall be composed entirely of directors who are not, and within the last preceding fiscal year have not been, officers or employees of the Company or any affiliate thereof, and a majority of which shall meet the independence and experience requirements of NASDAQ¹; identified in footnote 1 below, and all other applicable legal requirements. Each member of the Committee shall be able to read and understand financial statements at the time of his appointment to the Committee.

    3. Appointment and Removal. The Chairman and each member of the Committee shall be appointed by the Board at the annual reorganization meeting of the Company in accordance with the Company’s bylaws and the policies established by the Board from time to time. The Chairman and each member of the Committee shall serve at the pleasure of the Board may be replaced by the Board at any time.

  3. Committee Practices and Procedures

    1. General. The Committee shall provide assistance to the Board in fulfilling its responsibility to the shareholders, potential shareholders, the investment community and others 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.

    2. Flexibility. In carrying out its responsibilities, the Committee believes that its policies and procedures should remain flexible in order to best react to changing circumstances and conditions.

    3. Meetings. The Committee shall meet at least once each calendar quarter, or more frequently as circumstances dictate. Special meetings may be convened as the Committee deems necessary or appropriate. Except in extraordinary circumstances as determined by the Chairman of the Committee, notice shall be given to each Committee member at least 48 hours in advance of a scheduled meeting.

    4. Quorum. A majority of the members of the Committee shall constitute a quorum to transact business. Members of the Committee may participate in a meeting of the Committee by means of telephone conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other.

    5. Voting. The affirmative vote of a majority of the members of the Committee will be required to approve any action of the Committee. Subject to the requirements of any applicable law or regulation, any action required or permitted to be taken at a meeting of the Committee may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the members of the Committee.

    6. Delegation. The Committee may in its discretion delegate authority to individual Committee members when appropriate, including the authority to pre-approve non-audit services and to review earnings releases.

    7. Reliance on Officers, Employees and Outside Experts. 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 and its subsidiaries whom such member believes to be reliable and competent in the matters presented; and (ii) counsel, public accountants or other persons as to matters which the member believes to be within the professional competence of such person.

    8. Access to Officers, Counsel, Independent Auditors and Others. The Committee may request any officer or employee of the Company or the Company’s legal counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee without the consent of management or the Board. The Committee shall meet with management, the internal auditing firm and the independent auditor in separate executive sessions at least quarterly.

    9. Annual Committee Self-Evaluation. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.

    10. Meeting Minutes and Reports to the Board. The Committee shall prepare minutes of each meeting and copies of such minutes shall be distributed to the Board. The Committee shall report regularly in such manner to the Board, but not less frequently than once each calendar quarter.

    11. Meeting Minutes. The Committee shall keep minutes of each meeting and copies of such minutes shall be distributed to the Board. Meeting minutes shall be complied by a person to be designated by the Committee (who may be an employee of the Company or of a Company subsidiary), who shall act as secretary to the Committee.

    12. Reports to the Board. The Committee shall report regularly to the Board, but not less frequently than once each calendar quarter.

  4. Committee Authority and Responsibilities

    1. Responsibilities Relating to Retention of Public Accounting Firm. The Committee shall be directly responsible for the appointment, compensation, oversight of the work, evaluation and termination of any accounting firm employed by the Company (including resolving disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report and related work. The accounting firm shall report directly to the Committee.

    2. Preapproval of Services. All auditing services (which may entail providing comfort letters in connection with securities underwritings) and all non-audit services provided to the Company by the Company’s auditors which are not prohibited by law shall be preapproved by the Committee pursuant to such procedures as the Committee determines to be advisable.

    3. Exception. The preapproval requirement set forth above shall not be applicable with respect to the provision of non-audit services, if:

      1. the aggregate amount of all such non-audit services provided to the Company constitutes not more than five percent (5%) 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;

      2. such services were not recognized by the Company at the time of the engagement to be non-audit services; and

      3. 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.

    4. Delegation. The Committee may delegate to one or more designated members of the Committee the authority to grant required preapprovals. The decisions of any member to whom authority is delegated under this paragraph to preapprove an activity under this subsection shall be presented to the full Committee at its next scheduled meeting.

    5. Complaints. The Committee shall establish procedures to facilitate:

      1. the receipt, retention, and treatment of complaints received by the Company from third parties regarding accounting, internal accounting controls, or auditing matters; and

      2. the confidential anonymous submission by the Company’s employees of concerns regarding questionable accounting or auditing matters.

    6. Financial Statement and Disclosure Matters. The Committee, to the extent it deems necessary or appropriate, shall:

      1. Review and discuss with management and the independent auditor the annual audited financial statements, including disclosures made in management’s discussion and analysis of financial condition and results of operations, if applicable, and recommend to the Board whether the audited financial statements should be included in the Company’s Annual Report to Shareholders and any related report required to be filed with any applicable bank regulatory agency..

      2. 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:

        1. any significant changes in the Company’s selection or application of accounting principles;

        2. any major issues as to the adequacy of the Company’s internal controls;

        3. the development, selection and disclosure of critical accounting estimates;

        4. analyses of the effect of alternative assumptions, estimates or GAAP methods on the Company’s financial statements;

        5. analyses and disclosure of financial trends; and

        6. presentation of the financial statements and notes thereto.

      3. Discuss with management the Company’s earnings press releases, including the use of “pro forma”, “adjusted” or other non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.

      4. 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.

      5. Discuss with management, the internal auditing firm, the compliance department and legal counsel the effect of regulatory initiatives on the Company’s financial statements.

      6. Discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company’s risk assessment and risk management policies.

      7. Discuss with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit, including:

        1. the adoption of, or changes to, the Company’s significant auditing and accounting principles and practices;

        2. the management letter provided by the independent auditor and the Company’s response to that letter; and

        3. any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, or personnel and any significant disagreements with management.

    7. Oversight of the Company’s Relationship with the Independent Auditor.

      1. Review the experience and qualifications of the senior members of the independent auditor team;

      2. Obtain and review a written report from the independent auditor at least annually regarding:

        1. the auditor’s internal quality-control procedures;

        2. 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;

        3. any steps taken to deal with any such issues; and

        4. all relationships, both direct and indirect, between the independent auditor and the Company and the independent auditor’s compliance with the independence standards and interpretations of the AICPA and the PCAOB.

      3. Evaluate 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, taking into account the opinions of management and the internal audit firm. 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.

      4. Consider whether, in order to assure continuing auditor independence, it is appropriate to adopt a policy of rotating the lead audit partner or the independent auditing firm itself on a regular basis.

      5. 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.

      6. Discuss with the independent auditor issues on which the independent auditor communicated with its national office (if any) regarding auditing or accounting issues.

      7. Meet with the independent auditor prior to the audit to discuss the planning and staffing of the audit.

    8. Oversight of the Company’s Internal Audit Function.

      1. Review the appointment and replacement of the internal auditing firm.

        Contingency Plan. The Audit Committee has the authority to recommend to the Board a need to change our third party Internal Audit CPA Firm. If the Board desires, Management will have the responsibility to obtain bids from other CPA Firms. At a minimum, the bids should contain the following:

        • Examples of an Audit Risk Matrix and a 1 to 3 year Audit Schedule

        • Summary page of audits preformed

        • Work papers, if available

        • Referrals

        • Scope of work performed

        • Resume of partners and managers

        • Listing of industries they specialize in

        • One to three year price quote for their services

        Approximately every 3 years bids will be obtained from at least two CPA firms to support our Contingency Plan and also to insure the Bank is receiving appropriate audit coverage from the current firm.

      2. The Audit Committee is assigned the duties of maintaining and supervising the Bank’s internal audit function. Included in these duties are ensuring audit program adequacy, effectiveness and reviews. Expectations of the Internal Auditors are:

        • The preparation of Audit Reports for the Board’s Audit Committee, the CEO and the Bank Staff.

        • To substantiate findings and recommendations contained in Audit Reports and to support conclusions regarding the systems of internal control.

        • To provide evidence of audit work performed.

        • There must be proper supervision of persons performing audits and proper review of work performed.

        • A central part of each audit will be a follow-up of previous audits. Corrective actions to comply with previous recommendations and to correct previous deficiencies should be in place when the follow-up audit is conducted.

        • To the extent possible, internal and external audits should be cooperative ventures to minimize unnecessary duplication of effort.

      3. The scope and frequency of the audits will be determined following the control risk assessment of the Bank and its various functions or areas. Those functions or areas carrying higher risks to the Bank will require greater scope and/or frequency than areas of lesser risk. Among the factors that the internal auditor should consider in assessing risk are:

        • The nature of the specific operation and related assets and liabilities.

        • The existence of appropriate policies and internal control standards.

        • The effectiveness of operating procedures and internal controls.

        • The potential materiality of errors and irregularities associated with the specific operation.

      4. Scope and frequency of the audit work. The scope is defined in each separate audit program and includes an explanation of any sampling techniques. The method by which a sample is chosen and the degree to which the sample is chosen is representative of the population and will determine when a valid conclusion can be drawn from that sample.

      5. Documentation of the work performed. Because the internal auditor will be making conclusions based on his/her findings, the basis of these finding should be clear enough to permit review by others, including the external auditors and the regulatory examiners. At a minimum, work papers should include audit work programs and analyses that clearly indicate the procedures performed, the extent of testing, and the basis for the conclusions reached.

      6. Content of the audit programs. The audit programs will describe the procedures required for each program. Generally, the audit program will include the following procedures:

        • Control of records selected for audit, such as loan files.

        • Review and assessment of the bank’s policies and procedures and any systems of internal control, such as segregation of duties and use of checklists.

        • Proof of related control records, such as checklists in file.

        • Verification procedures for selected transactions and/or balance, such as review of supporting documentation, direct confirmation and appropriate follow-up for exceptions, and physical inspection.

      7. Conclusions reached and reports issued. Audit conclusions must be based on the findings of the audit without inappropriate affect from anyone in the Bank. The internal auditor will communicate findings to Bank Management for responses. The internal auditor will generate reports at the conclusion of the audit work, including an appropriate time for management to respond to the audit findings. Summary comments as to the effectiveness of internal controls within the auditable area will be included in reports as well as recommendations for corrective actions and management’s responses as available. Executive summaries will also be prepared for reporting to the Audit Committee. Executive summaries and final reports will be issued to the Audit Committee at the quarterly meetings.

      8. The Audit Committee will review the effectiveness of the program annually. This includes assessing the effectiveness of the audit program, audit schedule, risk assessment and the internal audit firm’s effectiveness.

      9. Audit Committee liaison. Appoint an officer of the Bank, typically the Compliance Officer as the audit liaison to facilitate the internal audit process, process and gather management responses to any audit findings and report to the Audit Committee with respect to the corrective measures taken to correct any findings. The liaison will also maintain an audit tracking report for the Audit Committee.

    9. Compliance Oversight.

      1. Obtain reports from management, the Company’s internal auditing firm and the regulatory compliance department relating to the Company’s compliance with applicable legal and regulatory requirements. Review reports and disclosures of insider and affiliated party transactions.

      2. Review with management, the Company’s internal auditing firm and the Company’s compliance department and legal counsel compliance with laws and regulations. Advise the Board with respect to the Company’s compliance with applicable laws and regulations.

      3. Review with legal counsel pending material litigation and compliance matters.

      4. The Committee will 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 Regulators or otherwise distributed to the public.

    10. Miscellaneous Powers and Responsibilities.

      1. The Committee shall have the power to investigate any matter brought to its attention within the scope of its duties, with the power to engage outside counsel for this purpose if, in its judgment, such engagement is appropriate.

      2. The Committee shall have authority to access the Company’s legal counsel, without the consent or approval of management or the Board, to the extent it deems necessary or appropriate to carry out its duties.

      3. The Committee shall also have authority without the consent or approval of management or the Board and at the Company’s expense, to the extent it deems necessary or appropriate, to retain special independent legal, accounting or other consultants to advise the Committee in connection with fulfilling its obligations hereunder.

      4. The Committee shall be responsible for discussing with management and the independent auditing firm 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. The Committee shall also be responsible for reviewing management’s replies to such correspondence, complaints, or reports.

      5. The Committee shall be responsible for discussing with the Company’s legal counsel legal matters that may have a material impact on the financial statements or the Company’s compliance policies.

¹ The NASDAQ Marketplace Rules require that each member of the Committee be an ‘independent director.” Rule 5605 (a) (2) defines an “independent director” to be a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Rule 5605 (a) (2) further provides that the following persons shall not be considered independent: (i) a director who accepts any compensation from the Company or any of its affiliates in excess of $120,000.00 during any one of the prior three years, other than compensation for board service, benefits under a tax-qualified retirement plan, or non-discretionary compensation; (ii) a director who is a member of the immediate family of an individual who is, or has been in any of the past three years, employed by the Company or any of its affiliates as an executive officer; (iii) a director who is a partner in, or a controlling shareholder or an executive officer of, any for-profit business organization to which the Company made, or from which the Company received, payments (other than those arising solely from investments in the corporation’s securities) that exceed 5% of the Company’s or business organization’s consolidated gross revenues for that year, or $200,000.00, whichever is more, in any of the past three years; and (iv) a director who is employed as an executive of another entity where any of the Company’s executives serve on the entity’s compensation committee.

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