CHARTER OF THE AUDIT COMMITTEE

OF

THE BOARD OF DIRECTORS

OF

SOUTHERN CONNECTICUT BANCORP, INC.

AND

THE BOARD OF DIRECTORS OF

OF

THE BANK OF SOUTHERN CONNECTICUT

February 14, 2006

Purpose and Composition

This Charter governs the operations of the Audit Committee. The purpose of the Audit Committee shall be to (i) oversee Southern Connecticut Bancorp Inc.’s (“Bancorp”) and the Bank of Southern Connecticut ‘s (“the Bank”) called collectively (the “Company”) accounting and financial principles and policies and controls and procedures; (ii) assess the completeness and fairness of the presentation of the Company’s financial statements and periodic financial reports to shareholders and regulators, (iii) implement and monitor the internal audit program which incorporates an assessment of business, control and fraud risk; and (iv) select the Company’s outside auditors and evaluate their independence and the scope of their work.  The Company shall each constitute an Audit Committee.  The Audit Committees shall consist of three or more independent directors as determined by the Boards of Directors of Bancorp and the Bank respectively. In making the determination as to whether a particular director is independent of management, the Boards of Directors of Bancorp and the Bank shall consider all relevant information. In order to be considered to be independent, an Audit Committee member may not have a relationship which, in the opinion of Bancorp’s and the Bank’s Boards of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  An Audit Committee member may not:

· have been an employee of the Company or any of its affiliates in the current year or in any of the past three years;

· have received any payments from the Company or any of its affiliates in excess of $60,000 (except for Board service, benefits under a tax qualifying retirement plan, or non-discriminatory compensation) in the current or any of the past three fiscal years (the same prohibition applies to immediate family[1] members);

· be a member of the immediate family of an executive officer of the Company or any of its affiliates in the current or in the past three years;

· be an executive officer, partner or controlling shareholder of a business (including a not-for-profit business) that conducts business with the Company where the Company received payments from or made payments to that business in excess of 5% of the Company’s or that business’s gross revenues for that year, or $200,000, whichever is greater, in the current or any of the past three years;

· be employed as an executive of another entity where any of the Company’s executives serve on that entity’s compensation committee; or

· be a former partner or employee of the Company’s independent auditor who worked on the Company’s audit engagement until three years after such person’s relationship with the audit firm ended[2].

            All Audit Committee members shall be able to read and understand financial statements, including the balance sheet, income statement and statement of cash flow, or will become able to do so within a reasonable period of time after appointment to the Audit Committee. The Audit Committee shall have at least one member that has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer, or other senior officer with financial responsibilities.   At least one member shall be a “financial expert”.  To be considered a “financial expert”, a person must have, through education and experience,

• an understanding of generally accepted accounting principles and financial statements;
• the ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
• experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities;
• an understanding of internal control over financial reporting; and
• an understanding of audit committee functions.

      No member of the Audit Committee shall be a “large customer” of the Bank or represent a “large customer”. A “large customer” is defined as an individual or entity which, in the determination of the Board of Directors, has such significant direct or indirect credit or other relationships with the Bank that the termination of the same would likely materially and adversely impact the Bank’s financial condition or the results of its operations.[3]

            The members of the Audit Committee shall be elected by the Board of Directors annually and shall serve until their successors are duly elected and qualified. Unless a Chair is elected by the full Board of Directors, the members of the Audit Committee may designate a Chair by majority vote of the full Audit Committee membership.

Statement of Policy

            The Audit Committee shall provide assistance to the Board of Directors in overseeing the financial reporting process, the systems of internal accounting and financial controls, the performance and independence of the external and internal auditors, and the annual independent audit of the Company’s financial statements.

            The independent auditor for the Company and the head of the internal audit function shall report directly to the Audit Committee. The Audit Committee shall have direct responsibility to select, compensate, evaluate and, where appropriate, replace the independent auditor and the head of the internal audit function. The Audit Committee shall be responsible for the resolution of any disputes between management and the independent auditor regarding financial reporting.

No member of the Committee may vote on any matter in which they, directly or indirectly, have a material interest.

Responsibility and Processes

            The primary responsibility of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Boards of Directors and report the results of their activities to the Boards of Directors. It is not the duty of the Audit Committee to plan or conduct audits, to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles or to assure compliance with laws. These are the responsibilities of management, the internal auditor and the independent auditor. In carrying out its responsibilities, the Audit Committee’s policies and procedures should remain flexible in order to react to changing conditions and circumstances.

            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 alter or supplement them as appropriate.

1.         Annually, the Audit Committee shall review the proposal for the appointment of the Company’s independent auditor and the associated fees and formally approve the appointment of the Company’s independent auditor. No independent auditing firm may be engaged to conduct the Company’s independent audit if a senior management official of the Company worked for the auditor on the Company’s audit in the one year period prior to the new independent audit.

2.         The Audit Committee shall discuss with the internal auditors and the independent auditor the overall scope and plans for their respective audit engagements.

3.         The Audit Committee shall ensure that the independent auditor submits annually a formal written statement delineating all relationships between the independent auditor and the Company.  The Audit Committee is responsible for engaging in a dialogue with the independent auditor with respect to such disclosed relationships that may impact the objectivity and independence of the independent auditor and recommending that the Board of Directors take appropriate action to satisfy itself of the independent auditor’s independence.

4.         The Audit Committee shall establish policies and procedures for the engagement of the independent auditor to provide non-audit services, and shall approve in advance all non-audit services to be provided by the independent auditor.  To ensure that  this does not restrict access to the independent accountant by management on matters where the advice and consultation of the independent auditor is sought by management and such advice or consultation, in the opinion of management, cannot practically be delayed pending preapproval by the audit committee, the committee authorizes management to use their judgment and retain the independent accountant for such matters and consider such services to be preapproved provided the estimated cost of such services does not exceed 5% of the annual fees paid to the independent accountant and such services are formally approved by the audit committee at its next meeting.

5.         The Audit Committee shall discuss with management, the internal auditors and the independent auditor the adequacy and effectiveness of the Company’s accounting and financial records and system for monitoring and managing business risk and legal compliance programs. Further, the Audit Committee shall meet separately with the internal auditors and the independent auditor, with and without management present, to discuss the results of their work.

6.         The Audit Committee shall establish procedures for processing complaints, including 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 the Company of concerns regarding questionable accounting or auditing matters.

7.         The Audit Committee shall review and discuss with management, the internal auditor and the independent auditor the Company’s interim financial results to be included in the Company’s quarterly reports filed with the Securities and Exchange Commission, and the matters required to be discussed by Statement on Auditing Standards No.61 (Communications with Audit Committees), as it may be modified or supplemented.10

8.         The Audit Committee shall review with management and the independent auditor the financial statements to be included in the Company’s Annual Report on Form 10- K – Form 10-KSB (or the annual report to shareholders if distributed prior to the filing of Form 10-K – Form 10-KSB), as well as the auditor’s judgment about the quality, not just acceptability, of the Company’s accounting principles as applied in its financial reporting.  The review shall also include a discussion of the reasonableness of judgments and estimates made in the preparation of the financial statements that may be viewed as critical, as well as the clarity of financial statement disclosures.  In addition, the Audit Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Audit Committee by the independent auditor under generally accepted auditing standards, including the matters required to be discussed by Statement on Auditing Standards No.61 (Communications with Audit Committees), as it may be modified or supplemented.

9.         Based on its review and discussions of items 7 and 8, the Audit Committee shall recommend to the Board of Directors whether the financial statements should be included in the Annual Report on Form 10-K – Form 10-KSB (or the annual report to shareholders if distributed prior to the filing of Form 10-K- Form 10-KSB).

10.       As a whole, or through the Chair, the Audit Committee shall review the impact on the financial statements of significant events, transactions, or changes in accounting principles or estimates which potentially affect the quality of the financial reporting with management, the internal auditor and the independent auditor prior to the filing of the Company’s Reports on Form 10-Q – Form 10-QSB or 10-K – 10-KSB, or as soon as practicable if the communications cannot be made prior to its filing.16

11.       The Audit Committee shall require the independent auditor to communicate with the Audit Committee on a timely basis:

·          all critical accounting policies and practices to be used;

·          any disagreements with management on accounting, auditing or reporting matters;

·          all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use off such alternative disclosures and treatments, and the treatment preferred by the independent auditors; and

·          other material written communications between the independent auditor and management, such as any management letter, representation letters or schedule of unadjusted differences

12. The Audit Committee shall review and reassess this Charter annually and recommend any appropriate changes to the Board of Directors.

13. The Audit Committees shall meet as and when determined by the Chair of the Committee or at the call of a member, however not less than four times annually. Three members of the Committee shall constitute a quorum. The Audit Committee shall meet at least once annually separately with management, the internal auditor and the outside auditors to discuss matters that the Audit Committee or any of these parties believe should be discussed privately with the Committee. The Audit Committee may request any officer or employee of the Company or Corporate Counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of a conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other. Except under extraordinary circumstances as determined by the Committee Chair, notice shall be delivered to all Audit Committee members at least forty-eight hours in advance of the meeting date.

14. Any action required or permitted to be taken at a meeting of the Committee may be taken without a meeting if consent in writing, setting forth the action so taken, is signed by all members of the Committee. 

15. At the next meeting of the Board of Directors following any meeting of the Committee, a report of the Committee findings and action shall be rendered by the Chairperson of the Committee.

            The Audit Committee shall review with management and the independent auditor any pending or threatened action by regulators or government agencies and any employee complaints or published reports that raise material issues regarding the Company’s financial statements or accounting policies.  The Audit Committee may request any officer or employee of the Company or the Company’s counsel or independent auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee.  The Audit Committee shall also have the resources and authority appropriate to discharge its responsibilities, including the authority to engage its own counsel and other advisors and determine the appropriate funding to compensate the Company’s independent auditor and any advisors employed by the Audit Committee.

Reports

            1.         The Audit Committee shall prepare or cause the preparation of the report required by the rules of the Securities and Exchange Commission for inclusion in the Company’s annual proxy statement.

            2.         The Committee shall submit any recommendation for changes to the Audit Committee Charter to the full Board of Directors for approval.

            3.         The Audit Committee shall maintain minutes of its meetings and regularly report its activities to the Board of Directors.

Reliance on Information Provided

            In adopting this Audit Committee Charter, the Board of Directors acknowledges that the Audit Committee members are not employees of the Company and are not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditor’s work or auditing standards. Each member of the Audit Committee shall be entitled to rely on the integrity of those persons and organizations within and outside the Company that have provided 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 to the contrary.

---

[1] “Immediate family” means a persons spouse, parents, children, siblings, mother-in-law, father-in law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone who resides in such person’s home.  NASDAQ Marketplace Rules Section 4200(14)(C).

[2] Based on Section 4200(14) of the NASDAQ Marketplace Rules.

[3] 12 C.F.R. Part 363, Appendix A(33).

10 This review should occur prior to the Bank’s filing of the Form 10-Q – Form 10-QSB and, where possible, before the release of earnings reports.

16 The review of the impact of significant events is required by Statement of Accounting Standards 90