PRESENTATION TO AUDIT COMMITTEE (DATE)

1. ABC BANK PRESENTATION TO AUDIT COMMITTEE (DATE)

2. Table of Contents I. Introduction of Internal and External Audit Teams II. Audit Risk Assessment Process and Audit Plan III. Summary Comparison of Audit Effort in prior year versus Plan for the current year. IV. Internal Audit Schedule V. Sample Audit Committee Deliverable VI. Matrix for Evaluation of Audit Independence

3. Internal Audit Plan - Overview • The audit plan was developed using a risk based audit approach. Utilizing experience and understanding of the bank’s operations as well as industry knowledge, internal audit identified auditable areas, performed a risk assessment for each of these areas, and assigned each of these a risk rating of high, medium or low. • Internal Audit considered the following factors, as well as knowledge of the Bank, in determining the risk rating for each auditable area: • Discussions with Bank Management which provided insight regarding issues and risks in the auditable areas • Potential impact that the auditable area may have on the financial position of the Bank • Other environmental factors, such as past audit results, changes in personnel and operations, past and current emphasis by regulators, and future business strategies • This risk assessment process will be performed on an ongoing (at least annually) basis to ensure changing risk factors, including losses, operational changes or turnover are continually monitored. • A cycling approach to the internal audit plan was used, whereby high risk areas are audited on an annual basis, and medium to low risk areas are audited over a 18 to 24 month cycle.

4. Risk Map - ABC Bank Disaster Recovery Logical Security/Security Admin. SIGNIFICANCE Commercial Lending Local Area Network Treasury/Investments/ALM Centralized Doc. Unit Community Reinvestment Act Central Services IT Telecommunications Commercial Business Lending Finance Internet Conn./Firewall Software Licensing Operations Support SBA Center ITI Applications New Product Development Small Business Lending Real Estate Lending II I Branch Network Human Resources/Payroll Loan Administration Dept. Credit Administration Financial Products Appraisal Department Marketing/Promotions Facilities Pink = High Risk Yellow = Medium Risk Green = Low Risk IV III LIKELIHOOD

5. Summary Audit Plan Risk Audit Area Assessment Budgeted Hours Treasury/Investments/ALM High 300 Real Estate Lending High 250 Central Services High 450 Commercial Business Lending High 250 SBA Center High 250 New Product Development High 160 Internet Connectivity/Firewall High 80 Centralized Documentation Unit Medium 450 Logical Security & Security Admin Medium 100 Local Area Networks Medium 80 IT Telecommunications Medium 100 Disaster Recovery Planning Medium 60 Software Liscencing Medium 50 Finance/Accounting/Accts Payable Medium 250 Operations Support Medium 200 Community Reinvestment Act Medium 150 Branch Network Low 450 Human Resources/Payroll Low 150 Discretionary N/A 400 Planning, Admin & Reporting to AC N/A 260 Follow up on prior year Audit plan N/A 80 Total Budgeted Audit Hours 4,520

6. Summary Focus of Audit Effort During Prior and Current Years Hours

7. Significant Changes in Audit Plan from Prior to Current Year • As is depicted on the preceding page, the following summarizes the most significant changes seen in the audit plan for this year versus last: • Greater emphasis on lending activities, including centralized • documentation unit, based on risk assessment process • Significant re-allocation of time from branch network to • centralized/back office operational activities based on our risk assessment • process. For branch network, focus to be on high risk activities, including • branch losses, wire initiation, among others • Increased discretionary time for special projects • Reduced administration time, as well as no allocation for training, • vacation, or sick leave

8. Internal Audit Schedule = Planned = In Process = Completed

9. Internal Audit Schedule, continued = Planned = In Process = Completed

10. Internal Audit Schedule - Regulatory Compliance Federal/State Regulations Reviewed as Part of the Audit Plan As part of our review of the identified business processes and retail branches, Internal Audit will integrate compliance testing of the following regulations as follows: Internal Audit will coordinate with ABC Bank’s Compliance Officer when determining the scope and degree of work to be performed for compliance related issues.