SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Soliciting Material Under Rule
|_| Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
|_| Fee paid previously with preliminary materials:
________________________________________________________________________________
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
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4) Date Filed:
________________________________________________________________________________
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of ROYAL
BANCSHARES OF PENNSYLVANIA, INC. will be held at the Hilton Hotel Philadelphia,
4200 City Line Avenue, Philadelphia, Pennsylvania, 19131, on Wednesday, May 19,
2004, at 6:30 p.m., for the following purposes:
1. ELECTION OF DIRECTORS. To elect six Class II Directors to serve a term
of three years and until their successors are elected and qualified.
2. OTHER BUSINESS. To consider such other business as may properly be
brought before the meeting and any adjournment or postponement thereof.
Only shareholders of record at the close of business on April 2, 2004, are
entitled to notice of and to vote at the meeting, either in person or by proxy.
We enclose a copy of the 2003 Annual Report on Form 10K for Royal
Bancshares of Pennsylvania, Inc. Additional copies of the 2003 Annual Report on
Form 10K are available upon request.
By Order of the Board of Directors
Richard S. Hannye, Esquire
Secretary
Enclosures (Proxy Card and Annual Report)
April 19, 2004
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING, YOU
MAY REVOKE YOUR PROXY AND VOTE IN PERSON AFTER GIVING WRITTEN NOTICE TO THE
SECRETARY OF THE CORPORATION.
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
732 Montgomery Avenue
Narberth, Pennsylvania 19072
Trading Symbol: RBPAA
NASDAQ NM
Website: www.royalbankamerica.com
PROXY STATEMENT
2004 Annual Meeting of Shareholders
Wednesday, May 19, 2004
Mailed to Shareholders on or about April 19, 2004
TABLE OF CONTENTS
PROXY STATEMENT PAGE
- --------------- ----
General Information 1
Revocation and Voting of Proxies 1
Voting Securities, Record Date and Quorum 1-2
Principal Shareholders 2-3
Election of Directors 3
Cumulative Voting 4
Information about Nominees, Continuing Directors 4-8
and Executive Officers
Nominees for Class I Directors 7
Meetings and Committees of the Board of Directors 8-9
Remuneration of Directors and Officers and Other Transactions 9-13
Compensation Committee Report on Executive Compensation 14-15
The Audit Committee Report 15-17
Interest of Management and Others in Certain Transactions 18
Common Stock Performance Graph 18-19
Beneficial Ownership - Compliance 19-20
Legal Proceedings 20
Shareholder Proposals and Communication 20
Other Matters 21
PROXY STATEMENT
GENERAL INFORMATION
We furnish this proxy statement in connection with the solicitation of
proxies by the Board of Directors of Royal Bancshares of Pennsylvania, Inc., for
the Annual Meeting of Shareholders of the corporation to be held on May 19,
2004, and any adjournment or postponement of the meeting. The corporation will
bear the expense of soliciting proxies. In addition to mailings, directors,
officers and employees of the corporation may solicit proxies personally or by
telephone. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to forward proxy solicitation material to the
beneficial owners of stock held of record by these persons and, upon request
therefore, the corporation will reimburse them for their reasonable forwarding
expenses.
REVOCATION AND VOTING OF PROXIES
The execution and return of the enclosed proxy will not affect your right
to attend the meeting and to vote in person. You may revoke your proxy by
delivering written notice of revocation to Richard S. Hannye, Esquire, Secretary
of the corporation, at the corporation's address at any time before the proxy is
voted at the meeting. Unless revoked, the proxyholders will vote your proxy in
accordance with your instructions. In the absence of instructions, proxyholders
will vote all proxies FOR the election of the six nominees for Class II
Director. Although the Board of Directors knows of no other business to be
presented, in the event that any other matters are brought before the meeting,
proxyholders will vote any proxy in accordance with the recommendations of the
management of the corporation.
VOTING SECURITIES, RECORD DATE AND QUORUM
Shareholders of record at the close of business on April 2, 2004, are
entitled to vote at the meeting and any adjournment or postponement of the
meeting. At the close of business on April 2, 2004, there were 10,013,746 shares
of Class A common stock exclusive of 215,387 treasury shares ($2.00 par value
per share), issued and outstanding, and 1,945,422 shares of Class B common stock
($0.10 par value per share), issued and outstanding.
Each shareholder is entitled to one vote for each share of Class A common
stock and ten votes for each share of Class B common stock on all matters to be
acted upon at the meeting, except that in the election of directors shareholders
are entitled to vote shares cumulatively. See "ELECTION OF DIRECTORS--CUMULATIVE
VOTING."
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares entitled to vote constitutes a quorum for the conduct of
business. A majority of the votes cast at a meeting, at which a quorum is
present, is required to approve any matter submitted to a vote of the
shareholders, except in cases where the vote of a greater number of votes is
required by law or under the Articles of Incorporation or Bylaws of the
corporation. Votes withheld and abstentions will be counted in determining the
presence of a quorum for the particular matter. Broker non-votes will not be
counted in determining the presence of a quorum for the particular matter as to
which the broker withheld authority.
1
In the case of the election of directors, assuming the presence of a
quorum, the six candidates receiving the highest number of votes for Class II
Director shall be elected to the Board of Directors. Votes withheld from a
nominee and broker non-votes will not be cast for the nominee.
PRINCIPAL SHAREHOLDERS
The following table shows the amount of outstanding common stock
beneficially owned by each shareholder (including any "group" as the term is
used in Section 3(d)(3) of the Securities Exchange Act of 1934) known by the
corporation to be the beneficial owner of more than 5% of such stock, and all
directors and officers as a group. Each share of Class A common stock is
entitled to one vote per share. Each share of Class B common stock is entitled
to ten votes per share and may be converted into shares of Class A common stock
at the current rate of 1.15 shares of Class A common stock for each share of
Class B common stock. Beneficial ownership is determined in accordance with
applicable regulations of the SEC and the information is not necessarily
indicative of beneficial ownership for any other purpose. For purposes of the
table set forth below, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and any shares
that the individual has the right to acquire within 60 days of February 28,
2004. In addition, a person is deemed to beneficially own any stock for which
he, directly or indirectly, through any contact, arrangement, understanding,
relationship or otherwise has or shares:
o Voting power, which includes the power to vote or to direct the
voting of the stock, or
o Investment power, which includes the power to dispose or to direct
the disposition of the stock.
Unless otherwise indicated in a footnote, shares reported in this table are
owned directly by the reporting person. The percent of class assumes all options
exercisable within 60 days of February 28, 2004, have been exercised and,
therefore, on a pro forma basis, 10,189,034 shares of Class A common stock would
be outstanding. The information is furnished as of February 28, 2004, on which
date 10,011,838 Class A shares (exclusive of 215,388 treasury shares) and
1,945,422 Class B shares, were issued and outstanding.
Name and address of Shares Beneficially Percent of
Beneficial owner Owned Class
---------------- ----- -----
Evelyn Rome Tabas(1)(2)(4) 5,060,271(A) 50.54%
543 Mulberry Lane 1,469,932(B) 75.56%
Haverford, PA 190941
Richard Tabas (3)(4) 70(A) 0.00%
1309 Lafayette Road 128,477(B) 6.60%
Gladwyne, PA 19035
1) The 5,060,271 shares of Class A common stock and the 1,469,932 shares of
Class B common stock beneficially owned by Evelyn R. Tabas include: 2,475
shares of Class A common stock owned solely by Evelyn R. Tabas, 3,321,892
shares of Class A common stock and 1,025,961 shares of Class B common
stock held by the Daniel M. Tabas Trust; 1,474,857 shares of Class A
common stock and 443,976 shares of Class B common stock held in trust
2
for the children and grandchildren of Mrs. Tabas; 255,409 shares of Class
A common stock controlled by Evelyn R. Tabas as custodian for her
grandchildren; and Evelyn R. Tabas' options to purchase 3,000 shares of
Class A common stock that are exercisable within 60 days of February 28,
2004. Included in the beneficial ownership of Evelyn R. Tabas are: (a)
219,650 shares of Class A Common stock and 69,878 shares of Class B common
stock which are held in trust for the benefit of her daughter, Jo Ann
Wurzak (wife of Director, Howard Wurzak) under which the Jo Ann Tabas
Wurzak Trust retains voting and dispositive control; (b) 260,491 shares of
Class A common stock and 77,678 shares of Class B common stock held in
trust for her son, Director, Lee E. Tabas, under which the Lee E. Tabas
Trust retains voting and dispositive control; (c) 189,863 shares of Class
A common stock and 69,735 shares of Class B common stock which are held in
trust for the benefit of her son, Director, Robert R. Tabas, under which
the Robert Tabas Trust retains voting and dispositive control; (d) 228,531
shares of Class A common stock and 75,903 shares of Class B Common stock
which are held in trust for the benefit of her daughter, Director, Linda
Tabas Stempel (wife of Director, Murray Stempel, III) under which the
Linda Tabas Stempel Trust retains voting and dispositive control. In
calculating the tabulated percent of class, the options to purchase 3,000
shares of Class A common stock were added to the shares of Class A common
stock currently held by Evelyn R. Tabas and to the total number of shares
of Class A common stock outstanding assuming all options exercisable
within 60 days of February 28, 2004 held by Evelyn R. Tabas, were
exercised.
(2) Evelyn R. Tabas, Lee E. Tabas, Robert R. Tabas, Linda Tabas Stempel,
Murray Stempel, Howard Wurzak, members of their immediate families and
their affiliates in the aggregate, own 5,446,950 shares of Class A common
stock and 1,535,201 shares of Class B common stock.
(3) The 70 shares of Class A common stock and 128,477 shares of Class B common
stock beneficially owned by Richard Tabas include: 112,233 shares of Class
B common stock owned solely by Mr. Tabas; 16,025 shares of Class B common
stock owned by his mother, Harriette Tabas; 70 shares of Class A common
stock and 219 shares of Class B common stock owned by his wife, Leslee
Silverman Tabas, Esquire. Upon information and belief, Mr. Tabas has sole
power to vote and dispose of 112,233 shares of Class B common stock, and
has no power to vote or dispose of 70 shares of Class A common stock and
16,244 shares of Class B common stock.
(4) Evelyn R. Tabas is the mother of Lee E. Tabas, Robert R. Tabas and Linda
Tabas Stempel, the aunt of Richard Tabas, and the mother in law of Murray
Stempel and Howard Wurzak.
ELECTION OF DIRECTORS
The Bylaws of the corporation provide that the Board of Directors consist
of not less than 5 nor more than 25 persons and that the directors are
classified with respect to the time they hold office by dividing them into 3
classes, as nearly equal in number as possible. The Bylaws further provide that
the directors of each class are elected for a 3 year term, so that the term of
office of one class of directors expires at the annual meeting each year. The
Bylaws also provide that the aggregate number of directors and the number of
directors in each class of directors is determined by the Board of Directors.
Any vacancy occurring on the Board of Directors is filled by appointment by the
remaining directors. Any director who is appointed to fill a vacancy holds
office until the expiration of the term of office of the class of directors to
which he or she was appointed.
There are presently 16 members of the Board of Directors. At the March 17,
2004, meeting of the corporation's Board of Directors, in accordance with
Article 10 of the corporation's Bylaws, the directors fixed the number of
directors in Class I at 5, the number of directors in Class II at 6 and the
number of directors in Class III at 5. Due to an exemption as a "Controlled
Company" under NASDAQ Rules, we are not required to meet NASDAQ independence
standards for our Board of Directors.
The Board of Directors has nominated the following 6 persons for election
to the Board of Directors as Class II Directors for a term of 3 years:
Jack R. Loew Albert Ominsky
Anthony J. Micale Gregory T. Reardon
Mitchell L. Morgan Robert R. Tabas
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CUMULATIVE VOTING
In the election of directors, every shareholder entitled to vote has the
right, in person or by proxy, to multiply the number of votes to which he may be
entitled by the number of directors in the class to be elected at the annual
meeting. Every shareholder may cast his or her whole number of votes for one
candidate or may distribute them among any 2 or more candidates in the class.
The 6 candidates receiving the highest number of votes for Class II Director at
the meeting will be elected. There are no conditions precedent to the exercise
of cumulative voting rights. Joseph P. Campbell and Richard S. Hannye, the
persons named as proxies, have the right to vote cumulatively and to distribute
their votes among the nominees as they consider advisable, unless a shareholder
indicates on his or her Proxy how votes are to be cumulated for voting purposes.
INFORMATION ABOUT NOMINEES, CONTINUING DIRECTORS
AND EXECUTIVE OFFICERS
Information concerning the directors of the corporation, including the 6
persons nominated for election to the Board of Directors as Class II Directors
at the meeting, the 10 continuing directors and the executive officer(s) of the
corporation, is set forth below, including the number of shares of common stock
of the corporation beneficially owned,(A) as of February 28, 2004, by each of
them. Unless otherwise indicated in a footnote, each nominee and continuing
director holds sole voting and investment power with respect to shares
beneficially owned.
Director Shares Percent
or Officer Beneficially of
Name Age Since Owned Stock
---- --- ----- ----- -----
CLASS I DIRECTORS
Joseph P. Campbell 57 1982 94,890(A) .77%
James J. McSwiggan 48 1992 44,546(A) .36%
Linda Tabas Stempel(1)(4) 52 2003 1,168(A) .01%
Murray Stempel, III(1)(4) 48 1998 14,407(A) .12%
Howard Wurzak(1)(4) 49 1992 10,500(A) .09%
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NOMINEES FOR CLASS II DIRECTORS
Jack R. Loew 56 1997 10,500(A) .09%
Anthony J. Micale 66 1997 3,618(A) .03%
Mitchell L. Morgan 49 2003 19,920(A) .16%
Albert Ominsky(3) 70 1982 40,240(A) .67%
36,668(B)
Gregory T. Reardon 50 1997 9,514(A) .08%
Robert R. Tabas(1)(4) 48 1998 60,795(A) .55%
5,952(B)
CLASS III DIRECTORS
Carl M. Cousins 71 1993 7,081(A) 0.06%
John M. Decker 43 1998 35,257(A) 0.29%
Evelyn R. Tabas(1)(4) 79 2002 5,060,271(A) 55.11%
1,469,932(B)
Lee E. Tabas(1)(2)(4) 54 1980 355,118(A) 3.46%
59,317(B)
Edward B. Tepper 64 1986 35,092(A) 0.29%
557(B)
All directors and 5,804,271(A) 57.97%
executive officers as 1,700,903(B) 87.43%
a group (18 persons)
Non-Director Executive Officers are Richard S. Hannye, General Counsel and
Corporate Secretary and Jeffrey T. Hanuscin, Chief Financial Officer.
The information in this table was furnished by the beneficial owners or their
representatives and includes direct and indirect ownership.
We assume full conversion of Class B common stock to Class A common stock at the
current conversion factor of 1.15 shares of Class A common stock for each share
of Class B common stock. In calculating the tabulated percent of class for each
officer and director who has exercisable stock options, the additional shares of
Class A common stock to which the officer and director would be entitled upon
the exercise of his options were added to the shares of Class A common stock
currently held by the officer and director and to the total number of shares of
Class A common stock outstanding assuming the officer and directors exercised
all outstanding exercisable options.
(A) The table includes options exercisable within 60 days of February 28, 2004,
stock options unexercised, but currently exercisable, and stock beneficially
owned.
The percent of stock assumes all outstanding exercisable options and options
exercisable within 60 days of February 28, 2004, issued to directors and
officers, have been exercised and therefore, on a pro forma basis, 10,189,034
shares of Class A common stock would be outstanding at February 28, 2004.
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(1) The 5,060,271 shares of Class A common stock and the 1,469,932 shares of
Class B common stock beneficially owned by Evelyn R. Tabas include: 2,475
shares of Class A common stock owned solely by Evelyn R. Tabas, 3,321,892
shares of Class A common stock and 1,025,961 shares of Class B common
stock held by the Daniel M. Tabas Trust; 1,474,857 shares of Class A
common stock and 443,976 shares of Class B common stock held in trust for
the children and grandchildren of Mrs. Tabas; 255,409 shares of Class A
common stock controlled by Evelyn R. Tabas as custodian for her
grandchildren; and Evelyn R. Tabas' options to purchase 3,000 shares of
Class A common stock that are exercisable within 60 days of February 28,
2004. Included in the beneficial ownership of Evelyn R. Tabas are: (a)
219,650 shares of Class A Common stock and 69,878 shares of Class B common
stock which are held in trust for the benefit of her daughter, Jo Ann
Wurzak (wife of Director, Howard Wurzak) under which the Jo Ann Tabas
Wurzak Trust retains voting and dispositive control; (b) 260,491 shares of
Class A common stock and 77,678 shares of Class B common stock held in
trust for her son, Director, Lee E. Tabas, under which the Lee E. Tabas
Trust retains voting and dispositive control; (c) 189,863 shares of Class
A common stock and 69,735 shares of Class B common stock which are held in
trust for the benefit of her son, Director, Robert R. Tabas, under which
the Robert Tabas Trust retains voting and dispositive control; (d) 228,531
shares of Class A common stock and 75,903 shares of Class B Common stock
which are held in trust for the benefit of her daughter, Director, Linda
Tabas Stempel (wife of Director, Murray Stempel, III) under which the
Linda Tabas Stempel Trust retains voting and dispositive control. In
calculating the tabulated percent of class, the options to purchase 3,000
shares of Class A common stock were added to the shares of Class A common
stock currently held by Evelyn R. Tabas and to the total number of shares
of Class A common stock outstanding assuming all options exercisable
within 60 days of February 28, 2004 held by Evelyn R. Tabas, were
exercised.
(2) The 355,118 shares of Class A common stock and 59,317 shares of Class B
common stock beneficially owned by Lee E. Tabas include: 306,885 shares of
Class A common stock owned jointly with his wife, Nancy Tabas; 4,742
shares of Class A common stock and 53,904 shares of Class B common stock
owned by his wife, Nancy Tabas; and 37,491 shares of Class A common stock
and 5,413 shares of Class B common stock held by Mr. Tabas as custodian
for his children. In calculating the tabulated percent of class, the
options to purchase 6,000 shares of Class A common stock were added to the
shares of Class A common stock currently held by Mr. Tabas and to the
total number of shares of Class A common stock outstanding assuming all
options exercisable within 60 days of February 28, 2004, held by Mr.
Tabas, were exercised.
(3) The 40,240 shares of Class A common stock and 36,668 shares of Class B
common stock beneficially owned by Mr. Ominsky include: 13,581 shares of
Class A common stock owned solely by Mr. Ominsky; 13,301 shares of Class A
common stock and 36,668 shares of Class B common stock owned by Ominsky &
Welsh, P.C. as trustee for a rollover account for the benefit of Albert
Ominsky; 5,858 shares of Class A common stock owned by the Ominsky &
Welsh, P.C. Profit Sharing Plan; and options to purchase 7,500 shares of
Class A common stock exercisable within 60 days of February 28, 2004.
(4) Evelyn R.Tabas, Lee E. Tabas, Robert R. Tabas, Murray Stempel, Linda Tabas
Stempel, Howard Wurzak and members of their immediate families and their
affiliates, in the aggregate, own 5,446,950 shares of Class A common stock
(54.41% of Class A) and 1,535,201 shares of Class B common stock (78.91%
of Class B), or 58.88% of Class A assuming full conversion of Class B
common stock to Class A common stock at a current conversion factor of
1.15 shares of Class A common stock for each share of Class B common
stock.
CLASS I DIRECTORS
Joseph P. Campbell is the President and Chief Executive Officer of the
corporation and a Director of the corporation.
James J. McSwiggan is the Executive Vice President of the corporation and
a Director of the corporation.
Linda Tabas Stempel is a Director of the corporation, and is Director of
Shareholder Relations for Royal Bank of Pennsylvania. She is the daughter of
Evelyn R. Tabas, the wife of Murray Stempel, III, the sister of Lee E. Tabas and
Robert R. Tabas and the sister-in-law of Howard Wurzak.
Murray Stempel, III is a Senior Vice President and Senior Lender of Royal
Bank of Pennsylvania and a Director of the corporation. Mr. Stempel is the
son-in-law of Evelyn R. Tabas, the husband of Linda Tabas Stempel and the
brother-in-law of Lee E. Tabas, Robert R. Tabas and Howard Wurzak.
Howard Wurzak is a Director of the corporation, and is President and CEO
of the Hilton Hotel Philadelphia, Regency Palace and Ramada Plaza Hotel and
Wurzak Management Corporation. He is the son-in-law of Evelyn R. Tabas, and the
brother-in-law of Lee E. Tabas, Robert R. Tabas, Murray Stempel, III and Linda
Tabas Stempel.
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NOMINEES FOR CLASS II DIRECTORS
Jack R. Loew is a Director of the corporation, and is the President of J.
Loew & Associates, Inc., a real estate development firm specializing in office,
industrial and retail properties.
Anthony J. Micale is a Director of the corporation, is President of Micale
Management Corporation and owns and operates ten McDonald's restaurants.
Mitchell L. Morgan is a Director of the corporation, and is President of
Morgan Properties which owns and manages over 16,500 apartment units.
Albert Ominsky is a Director of the corporation, is an attorney and
President of the law firm of Ominsky & Ominsky, P.C. in Philadelphia,
Pennsylvania.
Gregory T. Reardon is a Director of the corporation, is a certified
valuation analyst, a licensed certified public accountant, and is President of
the Reardon Group, Inc. The Reardon Group, located in Glen Mills, Pennsylvania
and Wilmington, Delaware, comprises Weiss - Reardon & Company, P.C. (a regional
public accounting firm); Reardon Consulting, Inc. (a management consulting
firm); and Valuation Advisors, Inc. (a business valuation firm). The Reardon
Group is devoted to healthcare and other highly regulated industries.
Robert R. Tabas is the Chairman of the Board and a Director of the
corporation; and is a Senior Vice President and Senior Lender of Royal Bank of
Pennsylvania. He is the son of Evelyn R. Tabas, the brother of Lee E. Tabas and
Linda Tabas Stempel and the brother-in-law of Howard Wurzak and Murray Stempel,
III.
CLASS III DIRECTORS
Carl M . Cousins is a Director of the corporation, and is a retired
veterinarian.
John M. Decker is a Senior Vice President and Senior Lender of Royal Bank
of Pennsylvania and a Director of the corporation.
Evelyn R. Tabas is a Director of the corporation and is involved in a
variety of community and charitable causes and endeavors including Trustee,
Daniel M. Tabas Family Foundation; Trustee, Bank Street College; Director,
United Cerebral Palsy, Philadelphia; Founding Member, American Family Institute;
and Advisory Board, Drexel University Department of Education. She is the mother
of Lee E. Tabas, Robert R. Tabas and Linda Tabas Stempel and the mother-in-law
of Howard Wurzak and Murray Stempel, III.
Lee E. Tabas is a Director of the corporation, an adjunct professor at
Philadelphia University and an independent investor. He is the son of Evelyn R.
Tabas, the brother of Robert Tabas and Linda Tabas Stempel and the
brother-in-law of Howard Wurzak and Murray Stempel, III.
7
Edward B. Tepper is a Director of the corporation and the President of
Tepper Properties, a real estate investment company in Villanova, Pennsylvania.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The committees of the Board of Directors include, the Audit Committee, the
Compensation Committee, and the Nominating Committee.
The Audit Committee met 6 times in 2003. The Audit Committee arranges
examinations by the corporation's independent certified public accountant,
reviews and evaluates the recommendations of the examinations, receives all
reports of examination of the corporation and the Bank by regulatory agencies,
analyzes such reports and reports the results of its analysis of the regulatory
reports to the corporation's Board. The committee also receives reports directly
from the corporation's internal auditors on a quarterly basis, and recommends
any action to be taken. The members of the Audit Committee were Gregory T.
Reardon, Chairperson, Jack R. Loew, and Anthony J. Micale. The Board of
Directors has determined that Gregory T. Reardon is an "Audit Committee
Financial Expert" and "Independent" under applicable SEC and NASDAQ Rules.
Edward B. Tepper served as a non-voting advisor to the committee at the
committee's discretion.
The Compensation Committee met 6 times in 2003. The members of this
committee were Jack R. Loew, Chairperson, Edward B. Tepper, Carl M. Cousins, and
Anthony Micale. The Compensation Committee reviews and determines compensation
for all officers and employees of the corporation. The committee also has the
authority to manage, administer, amend and interpret the corporation's
Employees' Stock Option and Appreciation Rights Plan and to determine, among
other things:
o The employees to whom awards shall be made under the plan;
o The type of the awards to be made and the amount, size and terms of
the awards; and
o When awards shall be granted.
The Nominating Committee met 2 times in 2003. The members of this
committee were Albert Ominsky, Chairman, Carl Cousins and Edward Tepper, each of
whom is a non-employee Director. The Committee was formed in 2003 and held its
first meeting in 2003. All members of the Nominating Committee are independent
(as independence is currently defined in Rule 4200(a)(14) of the NASD listing
standards). The principal duties of the Nominating Committee include developing
and recommending to the Board criteria for selecting qualified director
candidates, identifying individuals qualified to become Board members,
evaluating and selecting, or recommending to the Board, director nominees for
each election of directors, considering committee member qualifications,
appointment and removal, recommending codes of conduct and codes of ethics
applicable to the corporation and providing oversight in the evaluation of the
Board of each committee. The Nominating Committee has no formal process for
considering director candidates recommended by shareholders, but its policy is
to give due consideration to any and all such candidates. If a shareholder
wishes to recommend a director candidate, the shareholder should mail the name,
background and contact information for the candidate to the Nominating Committee
at the
8
corporation's offices at 732 Montgomery Avenue, Narberth, PA, 19072. The
Nominating Committee intends to develop a process for identifying and evaluating
all nominees for director, including any recommended by shareholders, and
minimum requirements for nomination. The Nominating Committee has adopted a
written Charter that can be accessed on the internet via the corporation's
website at www.royalbankamerica.com.
The Board of Directors of the corporation held twelve formal meetings
during 2003. Each director attended at least 75% of the aggregate number of
meetings of the Board of Directors and the various committees on which he or she
served. Daniel M. Tabas, Chairman of the bank and the corporation, attended 75%
of the aggregate number of meetings of the Board of Directors and the various
committees on which he served prior to his death on September 12, 2003. The
corporation has no policy regarding attendance by directors at the Annual
Shareholders Meeting, but all directors attended the May 21, 2003, Annual
Shareholders Meeting.
REMUNERATION OF DIRECTORS AND OFFICERS AND OTHER TRANSACTIONS
Each member of the Board of Directors received a fee of $1,000 per board
meeting attended. Additionally, independent directors received $450 for each
committee meeting attended. In addition to his board and committee fees,
Director, Greg Reardon received $4,950 in 2003 as compensation for his duties as
Chairman of the corporation's Audit Committee. Directors who are also employees
of the corporation are not compensated for attendance at committee meetings.
Supplemental Executive Retirement Plan
The bank has established the Royal Bank Supplemental Executive Retirement Plan
for its executive officers and other key employees for the purpose of providing
supplemental income benefits to plan participants or their survivors upon
participants' retirement or post-retirement death. The bank has established and
maintains a grantor "rabbi" trust for the purpose of accumulating funds with
which to meet the bank's future obligations under the plan. Although the trust
is irrevocable and assets contributed to the trust can only be used to pay the
benefits, with certain exceptions, the benefits under the plan remain
obligations of the bank. The bank has purchased company-owned life insurance
policies for its benefit on the lives of certain participants estimated to be
sufficient to recover, over time, the cost of benefits provided plus the cost of
insurance. Estimated annual benefits payable upon retirement to participants are
intended to provide participants a single life annuity with 120 months certain,
commencing at normal retirement age 60, at the rate of up to a maximum of 50% of
each Group 1 participant's final average recognized compensation (averaged over
the three consecutive years which produce the highest average), not to exceed
$180,000; at the rate of up to a maximum of 35% of each Group 2 participant's
final average recognized compensation (averaged over the 3 consecutive years
that produce the highest average), not to exceed $50,000; and at the rate of up
to a maximum of 20% of each Group 3 participant's final average recognized
compensation (averaged over the three consecutive years which produce the
highest average), not to exceed $20,000.
9
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ESTIMATED MAXIMUM ANNUAL BENEFITS AT AGE 60
FINAL AVERAGE SALARY GROUP 1 GROUP 2 GROUP 3
(FAS) PARTICIPANTS PARTICIPANTS PARTICIPANTS
$ 75,000 $ 37,500 $26,250 $15,000
$100,000 $ 50,000 $35,000 $20,000
$125,000 $ 62,500 $43,750 $20,000
$150,000 $ 75,000 $50,000 $20,000
$175,000 $ 87,500 $50,000 $20,000
$200,000 $100,000 $50,000 $20,000
$300,000 $150,000 $50,000 $20,000
$375,000 $180,000 $50,000 $20,000
Employee Option Grants in Fiscal Year 2003
Potential Realized
Value at
Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term ($)
Options Employees Price Expiration ------------------------
Name Granted (#)(1) In Fiscal Year ($/Sh)(2) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------
Joseph P. Campbell 25,100 16.821% 19.956 4/20/13 315,010.55 798,298.59
James J. McSwiggan 10,386 6.960% 19.956 4/20/13 130,346.60 330,323.87
Robert R. Tabas 8,695 5.827% 19.956 4/20/13 109,124.17 276,542.08
John M. Decker 7,246 4.856% 19.956 4/20/13 90,936.90 230,457.03
Murray Stempel, III 7,247 4.857% 19.956 4/20/13 90,951.45 230,488.84
- ----------
(1) Pursuant to the employee stock option plan, the options are exercisable at
20% per year after the date of grant and must be exercised within ten
years of the grant (April 19, 2003).
(2) Securities underlying stock options have been adjusted for the
corporation's 2004 stock dividend.
10
Aggregated Option/SAR Exercises in Last Fiscal Year and 2003 Option/SAR Values
Number of Securities Value of
Underlying Unexercised Unexercised in-the-money
Shares Options/SARS Options/SARS at
Acquired December 31, 2003 December 31, 2003(1)
on Value ----------------- --------------------
Name Exercise(#) Realized Exercisable(#( Unexercisable(#) Exercisable($) Unexercisable($)
- ------------------ ----------- -------- -------------- ---------------- -------------- ----------------
Joseph P. Campbell -- -- 28,269 65,294 316,389 479,702
James J. McSwiggan 7,694 270,986 23,054 29,070 386,944 217,203
Robert R. Tabas 7,342 299,093 20,164 23,525 347,011 175,161
John M. Decker 4,340 152,767 14,135 18,518 229,665 134,968
Murray Stempel, III 859 30,381 10,616 18,422 144,697 134,619
(1) Value of unexercised options/SARS is based upon the closing stock price at
December 31, 2003, of $25.00.
Securities Authorized for Issuance Under Equity Compensation Plans
The following two tables disclose the number of outstanding options,
warrants and rights granted by the corporation to participants in equity
compensation plans, as well as the number of securities remaining available for
future issuance under the plans. The tables provide this information separately
for equity compensation plans that have and have not been approved by security
holders.
11
(a) (b) (c)
Number of securities to Weighted-average Number of securities
be issued upon exercise price of remaining available for
exercise of outstanding outstanding options, future issuance under
options, warrants and warrants and rights equity compensation
rights plans (excluding
securities reflected in
column (a)
---------------------------------------------------------------------------
Outside Directors Stock Option Plan
Equity compensation plan approved
by stockholders 70,061 $15.206 84,937
Equity compensation plan not
approved by stockholders -- -- --
------ ------- ------
Total 70,061 $15.206 84,937
(a) (b) (c)
Number of securities to Weighted-average Number of securities
be issued upon exercise price of remaining available for
exercise of outstanding outstanding options, future issuance under
options, warrants and warrants and rights equity compensation
rights plans (excluding
securities reflected in
column (a)
---------------------------------------------------------------------------
Employees Stock Option Plan
Equity compensation plan approved
by stockholders 420,032 $16.075 251,112
Equity compensation plan not
approved by stockholders -- -- --
------ ------- ------
Total 420,032 $16.075 251,112
During 2003, no present or former officer or employee of the corporation
or its subsidiary, and no individual who had a relationship with the
corporation, requiring disclosure under Item 404
12
of Regulation S-K, participated in deliberations of the Compensation Committee
concerning executive officer compensation. Joseph P. Campbell and James J.
McSwiggan attended portions of the meetings at the request of the committee
chairperson in a non-voting capacity.
Summary Compensation Table
The following table sets forth all compensation paid by the corporation to
the Chief Executive Officer and each of the four most highly compensated non-CEO
executive officers whose total annual salary and profit sharing exceeded
$100,000 in 2003, for services rendered during the past three fiscal years.
Value Securities
Other Options Underlying 401K
Profit Annual SARS Options Plan
Sharing Compensation Exercised Granted Contribution
Name and Principal Position Year Salary($) ($)(1) ($) $) #)(2) ($)(#)
- --------------------------- ---- --------- ------ --- -- ----- ------
Joseph P. Campbell 2003 337,500 303,448 29,852 -- 25,100 2,500
President & CEO 2002 257,452 259,777 14,000 640,500 24,463 2,500
2001 256,000 277,608 12,000 -- 25,179 2,550
James J. McSwiggan 2003 215,000 147,834 23,600 270,986 10,386 2,500
Executive Vice President 2002 161,827 113,938 14,000 166,446 11,301 2,500
2001 159,000 121,758 12,000 -- 11,692 2,550
Robert R. Tabas 2003 180,000 112,820 23,600 292,438 8,695 2,500
Chairman of the Board 2002 127,500 77,477 14,000 434,159 8,904 2,500
2001 125,500 82,795 12,000 119,474 9,228 2,550
John M. Decker 2003 150,000 101,149 23,600 152,767 7,246 2,500
Senior Vice President 2002 98,077 64,534 14,000 92,124 6,849 2,500
2001 95,000 68,964 12,000 -- 6,985 2,550
Murray Stempel, III 2003 150,000 112,820 23,600 30,381 7,247 2,500
Senior Vice President 2002 98,077 77,443 14,000 -- 6,849 2,500
2001 95,000 82,758 11,200 -- 6,985 2,500
(1) Profit sharing of Joseph P. Campbell, Robert R. Tabas, James J. McSwiggan,
Murray Stempel, III and John M. Decker are performance based and tied to
goals set by the Compensation Committee.
(2) Securities underlying stock options have been adjusted for the
corporation's 2003 stock dividend.
(3) Consists of the Bank's contribution to its Employee 401(k) Pension Plan,
under which the Board of Directors has an obligation to match 100% of the
total employee contributions up to an annual maximum of $2,500. The Plan
was administered by Flanagan Financial Group, Inc. Each employee
participant is entitled to contribute up to 15% of his gross salary.
Senior management executives are asked to refrain from contributing to
13
the plan in the event the administrator determines their contributions
would make the Plan top heavy. Each participant in the Plan will have
credited to his Participant's Benefit Account his proportionate share of
all appropriate amounts. Future benefits are based on future
contributions.
Compensation Committee Report on Executive Compensation
The Board of Directors of Royal Bancshares of Pennsylvania, Inc. is
responsible for the governance of the corporation and its subsidiaries. In
fulfilling its fiduciary duties, the Board of Directors acts in the best
interests of the corporation's shareholders, customers and the communities
served by the corporation and its subsidiaries. To accomplish the strategic
goals and objectives of the corporation, the Board of Directors engages
competent persons to accomplish these objectives with integrity and in a
cost-effective manner. The compensation of these individuals is part of the
Board of Directors' fulfillment of its duties to accomplish the corporation's
strategic mission. The corporation provides compensation to its employees.
The fundamental philosophy of the corporation and the Bank's compensation
program is to offer competitive compensation opportunities for all employees
based on the individual's contribution and personal performance. The
compensation program is administered by a committee comprised of four outside
directors. The objectives of the compensation committee are to establish a fair
compensation policy to govern executive officers' base salaries and incentive
plans, to attract and motivate competent, dedicated, and ambitious managers
whose efforts will enhance the products and services of the corporation, the
results of which will be improved shareholder value.
The compensation of the Chief Executive Officer and the Senior Executive
Officers consists of a base salary, profit sharing and perquisites. For 2003,
the profit sharing of the CEO and the Senior Executive Officers were directly
tied to specific performance goals, some of which are listed below. The CEO's
2003 compensation and the compensation of the Senior Executive Officers were
based on the Committee's subjective determination after a review of all
information, including the below, that it deems relevant. Future methods of
determining compensation may differ.
Consolidated earnings for the twelve months ended December 31, 2003, were
$18,526,000, as compared to $17,405,000 for the same period ended in 2002.
Consolidated basic earnings per share for the year ended, December 31, 2003,
were $1.52 versus $1.44 for the same period in 2002. Consolidated assets were
$1,154,410,000 at December 31, 2003, as compared to $1,088,484,000 December 31,
2002. Total investment securities increased to $565,337,000 at December 31,
2003, as compared to $448,930,000 at December 31, 2002.
Total compensation opportunities available to the employees of the
corporation are influenced by general labor market conditions, the specific
responsibilities of the individual, and the individual's contributions to the
corporation's success. Individuals are reviewed annually on a calendar year
basis. The corporation strives to offer compensation that is competitive with
that offered employees of a comparable size and performance in our industry.
Through these compensation policies, the corporation strives to meet its
strategic goals and objectives to its constituencies and provide compensation
that is fair and meaningful to its employees.
14
Compensation Committee
Jack R. Loew, Chairman
Carl M. Cousins, D.V.M.
Edward B. Tepper
Anthony Micale
The Audit Committee Report:
The Audit Committee of the Board of Directors is comprised of 3 Directors,
each of whom meets the NASDAQ Standards for "independence". The members of the
Audit Committee are: Greg Reardon, Chairman; Anthony Micale; and Jack Loew. The
Audit Committee held 6 meetings during calendar year 2003. The Audit Committee
operates under a charter adopted by the Board of Directors, which was reviewed
and revised in October, 2003, and which is attached to this Proxy Statement.
The Audit Committee's membership is organized to meet the recommendations
of the NASDAQ Audit Committee Policy and the provisions of the Sarbanes-Oxley
Act of 2002. Accordingly, the 3 Committee members are: directors, independent of
management, and free from relationships that, in accordance with our Board's
interpretations, could interfere with the exercise of the independent judgment
of our Committee members. No officers or employees of the corporation or
subsidiaries serve on the Committee.
The Audit Committee oversees the financial reporting process on behalf of
the Board of Directors. In fulfilling this responsibility, the Audit Committee
recommends the reappointment of the corporation's independent public
accountants, Grant Thornton LLP, and the continuing appointment of The
Outsourcing Partnership, LLC, a provider of professional and internal auditing
services, to direct the role of the Bank's financial, compliance, and internal
audit functions.
All auditing services (which may entail providing comfort letters or
consents in connection with securities underwritings) and all non-audit
services, provided to the corporation by the corporation's auditors have been
and will be preapproved by the Committee pursuant to such processes as are
determined to be available. This preapproval requirement shall not be applicable
with respect to the provision of non-audit services, if:
(i) the aggregate amount of all such non-audit services provided
to the corporation constitutes not more than 5 percent of the
total amount of revenues paid by corporation to its auditor
during the fiscal year in which the non-audit services are
provided;
(ii) such services were not recognized by the corporation at the
time of the engagement to be non-audit services; and
15
(iii) 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 of Directors to whom authority to
grant such approvals has been delegated by the Committee.
The Audit Committee discussed, with the internal auditors and the
independent public accountants, the overall scope and specific plans for their
respective audits. The Audit Committee also discussed with both, and separately
with management, the corporation's consolidated financial statements and the
adequacy of the corporation's internal controls.
The Committee meets with the internal and independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluations of the corporation's internal controls, and overall quality of the
corporation's financial reporting.
Management has the primary responsibility for the financial statements and
the reporting process, including the system of internal control. In fulfilling
its oversight responsibilities, the Committee reviewed the audited financial
statements and the annual report with management, including a discussion of the
quality, not just the acceptability, of the accounting principles; the
reasonableness of the significant judgments; and the clarity of disclosures in
the financial statements.
In reliance on the reviews and discussions referred to above, the
Committee recommends to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 for filing with the Securities and Exchange Commission.
Fees pertaining to services rendered to the corporation and the bank by
Grant Thornton, L.P. during the years ended December 31, 2002 and December 31,
2003 were as follows:
16
Year Ended December 31,
2003 2002
---- ----
Audit fees $87,000 $83,250
Audit related fees $ 8,600 $ 8,600
Tax fees $15,000 $14,000
All other fees $ 0 $ 0
Audit Fees include fees billed for professional services rendered for the
audit of the annual financial statement and fees billed for the review of
financial statements included in the corporation's Forms 10-Q and services that
are normally provided by Grant Thornton in connection with statutory and
regulatory filings or engagements.
Audit Related Fees include fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
registrants financial statements and are not reported under the Audit Fees
section of the table above. Audit Related Fees are limited to audit of the
bank's 401K Plan.
Tax Fees include fees billed for professional services rendered by Grant
Thornton, L.P. for tax compliance, tax advice, and tax planning. These services
include review and preparation of the corporation's federal and state tax
returns.
All Other Fees include fees billed for products and services provided by
Grant Thornton, L.P., other than the services reported under the Audit Fees,
Audit Related Fees, or Tax Fees sections of the table above. The corporation did
not incur or pay "All Other Fees" during 2002 or 2003.
The Audit Committee has considered whether, and determined that, the
provision of the non-audit services is compatible with maintaining Grant
Thornton's independence.
Audit Committee
Gregory T. Reardon, Chairman
Anthony J. Micale
Jack R. Loew
17
Independent Public Accountants
The Audit Committee selected Grant Thornton, L.P. as the corporation's
principal independent certified public accountant for 2004. Representatives of
Grant Thornton, L.P. will attend the corporation's Annual Meeting of
Shareholders, will have the opportunity to make a statement if they desire to do
so, and will be expected to be available to respond to appropriate questions.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In the ordinary course of business, Royal Bank of Pennsylvania, the
corporation's wholly-owned banking subsidiary, has had, and expects to have in
the future, banking transactions with directors, officers of the bank, principal
shareholders of the corporation and their associates which involve substantially
the same terms, including interest rates, collateral and repayment terms as
those prevailing at the time for comparable transactions with others, and no
more than the normal risk of collectability or other unfavorable features.
The largest aggregate amount of indebtedness to the corporation and the
bank during the year 2003, by all directors and officers of the corporation and
bank as a group, and their affiliates, was $10,858,343.98. The total of such
outstanding loans at December 31, 2003, was $4,712,446.77, representing 3.5% of
shareholder's equity in the corporation. Interest rates for fixed rate loans
ranged from 5.25 percent to 6.25 percent. Floating interest rates ranged from
prime to prime plus 1.0 points.
The corporation has had and intends to have business transactions in the
ordinary course of business with directors, officers and associates on
comparable terms as those prevailing from time to time for other non-affiliated
vendors of the corporation. During 2003, the corporation used the services of
the Hilton Philadelphia Hotel and banquet facilities for Board of Director's
meetings. The Hilton Philadelphia Hotel complex is managed by Howard Wurzak and
owned by Stoudt Road Hotel Development, 50% of which is owned by Evelyn R. Tabas
and 50% of which is owned by the Estate of Daniel M. Tabas.
COMMON STOCK PERFORMANCE GRAPH
The performance graph on the following page shows cumulative investment
returns to shareholders based on the assumption that an investment of $100 was
made on December 31, 1998 (with all dividends reinvested), in each of the
following:
o Royal Bancshares of Pennsylvania, Inc. Class A common stock;
o the stock of all United States companies trading on the NASDAQ
market;
o Common stock of the 2003 peer group of Mid-Atlantic Banks with total
assets between $750 Million and $1.5 Billion.
18
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
[LINGE GRAPH]
- -----------------------------------------------------------------------------------------------------------
Period Ending
- -----------------------------------------------------------------------------------------------------------
Index 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
- -----------------------------------------------------------------------------------------------------------
Royal Bancshares of Pennsylvania, Inc. 100.00 107.94 107.42 169.63 200.05 256.40
- -----------------------------------------------------------------------------------------------------------
NASDAQ - Total US* 100.00 185.95 113.19 89.65 61.67 92.90
- -----------------------------------------------------------------------------------------------------------
Royal Bancshares Peer Group* 100.00 85.07 82.37 113.37 143.04 186.74
- -----------------------------------------------------------------------------------------------------------
* Royal Bancshares Peer Group consists of twenty banks headquartered in the
Mid-Atlantic region, trade on the major exchanges, and have total assets
between $750M and $1.5B.
BENEFICIAL OWNERSHIP - COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the corporation's officers and directors, and persons who own more than 10% of
the registered class of the corporation's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than 10% shareholders are required by SEC regulation to furnish the corporation
copies of all Section 16(a) forms they file.
Based solely on its review of forms received from certain reporting
persons, or written representations from reporting persons that no Forms 5 were
required for those persons, the corporation believes that during the period
January 1, 2003 through December 31, 2003, its officers and directors were in
material compliance with all filing requirements applicable to them.
19
EMPLOYEE CODE OF ETHICS
In 2003, as required by law and regulation, we amended our Code of Ethics.
Our employee Code of Ethics is applicable to our directors, officers and
employees. The Code of Ethics encourages individuals to report any conduct that
they believe in good faith to be an actual or apparent violation of the Code of
Ethics. The Board periodically receives reports on our compliance program. The
Code of Ethics is posted on our website at www@royalbankamerica.com. We have
also filed a copy of the Code of Ethics with the SEC as an exhibit to our
December 31, 2003 Annual Report on Form 10-K.
LEGAL PROCEEDINGS
In the opinion of the management of the corporation, there are no
proceedings pending to which the corporation and the bank are a party or to
which its property is subject, which, if determined adversely to the corporation
and the bank, would be material in relation to the corporation's and the bank's
financial condition. There are no proceedings pending other than litigation
incident to the business of the corporation and the bank. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the corporation or the bank by government authorities.
SHAREHOLDER PROPOSALS
AND COMMUNICATION
Any shareholder who, in accordance with and subject to the provisions of
the proxy rules of the SEC, wishes to submit a proposal for inclusion in the
corporation's proxy statement for its 2005 Annual Meeting of Shareholders must
deliver the proposal in writing to the Secretary of Royal Bancshares of
Pennsylvania, Inc. at its principal executive offices, 732 Montgomery Avenue,
Narberth, Pennsylvania 19072, not later than December 20, 2004. A shareholder
who desires to propose an individual for consideration by the Board of Directors
as a nominee for director should submit a proposal in writing to the Secretary
of the corporation in accordance with Section 10.1 of the corporation's Bylaws.
Any shareholder who intends to nominate any candidate for election to the Board
of Directors must notify the Secretary of the corporation in writing not less
than 60 days prior to the date of the annual meeting of shareholders or not
later than 7 days after the date on which notice was given for any other meeting
of shareholders called for the election of one or more directors.
Any shareholder who wishes to communicate with the Board of Directors may
send correspondence to Joseph P. Campbell, President and CEO, Royal Bank of
Pennsylvania at 732 Montgomery Avenue, Narberth, PA, 19072, Phone # (610)
668-4700, or by sending an electronic message to Mr. Campbell at
jcampbell@royalbankamerica.com. Mr. Campbell will submit your correspondence to
the Board of Directors or the appropriate committee as applicable.
20
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the accompanying Notice of
Annual Meeting of Shareholders, but if any matters are properly presented, it is
the proxyholders intent to vote on such matters in accordance with their best
judgment.
21
October 2003
ROYAL BANCSHARES OF PENNSYLVANIA
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") of Royal Bancshares of Pennsylvania (the "Company") to
assist the Board in monitoring (1) the integrity of the financial statements of
the Company, (2) the independent auditor's qualification 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.
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
their 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 or accurate and in accordance
with 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.
Committee Membership
The Committee shall consist of no fewer than three members and no more
than five members, each of whom shall be a director of the Company. Each member
of the Committee shall meet the independence and experience of the listing
standards of NASDAQ and the SEC and all other applicable legal requirements,
including the requirement that at least one member of the Committee be an "audit
committee financial expert" within the meaning of rules promulgated by the SEC
under the Sarbanes-Oxley Act of 2002. Each member of the Committee shall be
"financially" literate in the business judgment of the Board. A majority of the
members of the Committee shall constitute a quorum.
Committee members shall be appointed in accordance with the Company's
bylaws and policies established by the Board. Committee members may be replaced
by the Board.
The Committee may request any officer or employee of the Company or the
Company's outside 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 auditors and the independent auditor in separate
executive sessions at least quarterly. The
Committee shall make regular reports to the Board. The Committee shall review
and reassess the adequacy of this Charter annually and recommend any proposed
changes to the Board for approval. The Committee shall annually review the
Committee's own performance and present such review to the Board.
Statement of Policy
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.
In carrying out its responsibilities, the Committee believes its policies
and procedures should remain flexible, in order to best react to changing
circumstances and conditions.
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 or Royal Bank of Pennsylvania, whom
such member believes to be reliable and competent in the matters presented, or
(ii) counsel, public accountants, internal auditors or other persons as to
matters which the member believes to be within the professional competence of
such person.
Committee Authority and Responsibilities
o Responsibilities Relating to Retention of Public Accounting Firms -
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.
o Preapproval of Services - All auditing services (which may entail
providing comfort letters or consents 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 processes as are
determined to be advisable.
o Exception - The preapproval requirement set forth above, shall not
be applicable with respect to the provision of non-audit services,
if:
(i) the aggregate amount of all such non-audit services
provided to the Company constitutes not more than 5 percent of
the total amount of
revenues paid by Company to its auditor during the fiscal year
in which the non-audit services are provided;
(ii) such services were not recognized by the Company at the
time of the engagement to be non-audit services; and
(iii) 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 of Directors to whom
authority to grant such approvals has been delegated by the
Committee.
o 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.
o Complaints - The Committee shall establish procedures to facilitate:
(i) the receipt, retention, and treatment of complaints
received by the Company from third parties regarding
accounting, internal accounting controls, or auditing matters;
and
(ii) the confidential, anonymous submission by employees of
the Company of concerns regarding questionable accounting or
auditing matters.
Financial Statement and Disclosure Matters.
The Committee, to the extent it deems necessary or appropriate, shall:
o 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 operation and any other matters required to be
communicated to the Committee by the independent auditors under
Generally Accepted Auditing Standards, and recommend to the Board
whether the audited financial statements should be included in the
Company's Form 10-K.
o Review and discuss with management and the independent auditor the
Company's quarterly financial statements, including the disclosures
made in management's discussion and analysis of financial condition
and results of operations prior to the filing of the Company's Form
10-Q, including the results of the independent auditors' reviews of
the quarterly financial statements and any other matters
required to be communicated to the Committee by the
independent auditors under Generally Accepted Auditing
Standards.
o Annually the Committee shall receive a report from the independent
auditor prior to the filing of its audit report with the SEC, on (i)
any significant changes in the Company's selection or application of
accounting principles, (ii) any major issues as to the adequacy of
the Company's internal controls, (iii) the development, selection
and disclosure of critical accounting estimates, (iv) all material
alternative treatments of financial information within GAAP that
have been discussed with management, including the ramifications of
the use of such alternative treatments and disclosures and treatment
preferred by the independent auditor, (v) their judgment about the
quality, not just the acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity and
adequacy of the disclosures, including financial trends of the
financial statements and notes thereto, (vi) the adoption of, or
changes to, the Company's significant auditing and accounting
principles and practices; (vii) 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; (viii) and any other
matters required to be communicated to the Committee by the
independent auditors under Generally Accepted Auditing Standards.
The report should also include any other formal written
communications between the independent auditor and management,
including the management letter provided by the independent auditor
and the Company's response to that letter.
o 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.
o 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.
o Discuss with management, the internal auditors, the compliance
auditors and the legal department the effect of regulatory
initiatives on the Company's financial statements.
o 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.
Oversight of the Company's Relationship with the Independent Auditor
o Review the experience and qualifications of the senior members of
the independent auditor team.
o Obtain and review a written report from the independent auditor at
least annually regarding (i) the auditor's internal quality-control
procedures, (ii) 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, (iii) any steps taken to deal with
any such issues, and (iv) all relationships, both direct and
indirect, between the independent auditor and the Company. 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, and taking
into account the opinions of management and the internal auditor.
The Committee shall present it conclusions to the Board.
o Consider whether, in order to assure continuing auditor
independence, it is appropriate to adopt a policy of rotating the
lead audit partner or even the independent auditing firm itself on a
regular basis.
o 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.
o Discuss with the independent auditor issues on which the independent
auditor communicated with its national office regarding auditing or
accounting issues.
o Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
Oversight of the Company's Internal Audit Function
o Review the appointment and replacement of the senior internal
auditing executive.
o Review the significant reports to management prepared by the
internal auditing department and management's responses.
o Discuss with the independent auditor the internal audit department
responsibilities, budget and staffing and any recommended changes in
the planned scope of the internal audit.
Compliance Oversight
o Obtain from the independent auditor such assurance as it deems
adequate that such auditor has fulfilled its responsibilities under
Section 10A of the Securities Exchange Act of 1934.
o Obtain reports from management, the Company's senior internal
auditing executive and the regulatory compliance and
legal/compliance department relating to the Company's conformity
with applicable legal and regulatory requirements. Review reports
and disclosures of insider and affiliated party transactions.
o Review with management, the Company's internal auditors and the
Company's legal/compliance department compliance with laws and
regulations. Advise the Board with respect to the Company's
compliance with applicable laws and regulations.
o Review with the Office of the Company's General Counsel, pending
material litigation and compliance matters.
o The Committee will address and take action, as it deems necessary or
appropriate, with respect to any issues regarding the provisions of
the Company's Code of Ethics for the Chief Executive Officer and
Senior Financial Officers to the extent the issue relates to
accounting and disclosure and regulations of the SEC, NASDAQ, the
FDIC or other bank regulatory authority, and any provision of such
Code to the extent such misrepresentation or omission relates to
financial statements or related financial information.
o 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 SEC or otherwise distributed
to the public.
Miscellaneous Powers and Responsibilities
o The Committee shall have the power to investigate any matter brought
to its attention within the scope of its duties, with the power to
retain outside counsel for this purpose if, in its judgment, that is
appropriate.
o The Committee shall have the responsibility to submit the minutes of
all meetings of the Audit Committee to the Board of Directors.
o The Audit Committee shall have the responsibility to prepare the
report required to be included in the Company's annual proxy
statement by the rules of the Securities and Exchange Commission and
for oversight of the compliance effort with respect to FDIC
regulations that relates to the internal audit function and FDIC
regulations that relates to the external audit function.
o The Committee shall have the power to access the Company's counsel
without the approval of management, as it determines necessary to
carry out its duties.
o The Committee shall also have the authority without the consent of
management or the Board, 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.
o At the request of the Board, the Committee shall have the
responsibility of discussing with management and the independent
auditor any significant or material correspondence with regulators
or governmental agencies, including all examination reports received
from the various supervisory authorities and review management's
replies to such correspondence or reports. The Committee shall have
the responsibility of discussing with management and the independent
auditor any employee complaints or published reports that raise
material issues regarding the Company's financial statements or
accounting policies and review management's replies to such
complaints.
o The Committee shall have the responsibility to discuss with the
Company's General Counsel legal matters that may have a material
impact on the financial statements or the Company's compliance
policies.
Meetings
The Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee may form and delegate authority
to Committee members when appropriate, including specifically the pre-approval
of non-audit services and the review of earnings releases, and earnings
guidance.
Minutes of each meeting will be compiled by the person designated by the
Committee.