[DESCRIPTION] 3RD QUARTER, 1997 10-Q
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
for the quarterly period ended: SEPTEMBER 30, 1997
------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from: to
------------- -------------
Commission file number: 0-26366
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ROYAL BANCSHARES OF PENNSYLVANIA, INC.
------------------------------------------------------
(Exact name of the bank as specified in its charter)
PENNSYLVANIA 23-2812193
------------ ------------
State or other jurisdiction of (IRS Employer
incorporated or organization) identification
No.)
732 MONTGOMERY AVENUE, NARBERTH, PA 19072
---------------------------------------------
(Address of principal Executive Offices)
(610) 668-4700
----------------------------------------------------
(Registrant's telephone number, including area code)
N/A
---------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by Section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at September 30, 1997
-------------------- ----------------------------------
$2.00 PAR VALUE 6,730,992
Class B Common Stock Outstanding at September 30, 1997
-------------------- ----------------------------------
$.10 PAR VALUE 1,598,410
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPT 30, 1997 DEC 31, 1996
------------- -------------
<S> <C> <C>
Cash and due from banks $13,196,833 $7,744,012
Federal funds sold 18,775,000 10,625,000
------------- -------------
Total cash and cash equivalents 31,971,833 18,369,012
Interest bearing deposits in banks 395,015 953,000
Investment securities held to maturity (market value of
$75,474,259 @ 9/30/97 & $113,635,320 @ 12/31/96) 74,872,259 113,474,908
Invest. securities available for sale - at market value 18,556,597 4,725,151
Total loans 214,281,803 209,016,895
Less allowance for loan losses 8,398,058 9,084,153
------------- -------------
Net loans 205,883,745 199,932,742
Other real estate, net 225,615 504,104
Premises and equipment, net 4,805,407 4,708,531
Accrued interest and other assets 12,326,720 12,481,420
------------- -------------
$349,037,191 $355,148,868
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $43,413,762 $38,327,081
Int. bearing (includes cert. of deposit in excess
of $100,000 of $17,868,418 at 9/30/97 and
$23,657,679 at 12/31/96) 202,297,483 215,855,522
------------- -------------
Total deposits 245,711,245 254,182,603
Accrued interest and other liabilities 12,847,941 11,571,988
Long-term borrowings 1,701,000 4,201,000
Mortgage payable 581,503 612,607
------------- -------------
Total liabilities 260,841,689 270,568,198
Stockholders' equity
Common stock
Class A, par value $2 per share; authorized,
18,000,000 shares; issued, 6,938,508 @ 9/30/97
& 6,596,625 @ 12/31/96 13,877,016 13,193,250
Class B, par value $.10 per share; authorized,
2,000,000 shares; issued
1,598,410 @ 9/30/97 & 1,592,091 @ 12/31/96 159,841 159,209
Capital surplus 38,880,008 34,827,443
Retained earnings 37,004,829 38,427,800
Accumulated unrealized gain (loss)on invest.
securities available for sale 418,893 (1,158)
------------- -------------
90,340,587 86,606,544
Treasury stock - at cost, shares of Class A, 207,516
@ 9/30/97, 198,113 @ 12/31/96 (2,145,085) (2,025,874)
------------- -------------
88,195,502 84,580,670
------------- -------------
$349,037,191 $355,148,868
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
SEPT 30,
1997 1996
----------- -----------
<S> <C> <C>
Interest Income
Loans, including fees $5,999,298 $8,486,326
Investment securities held to maturity
Taxable 957,981 1,526,420
Tax-exempt 33,204 14,750
Securities available for sale
Taxable 331,194 84,998
Tax-exempt - -
Deposits in banks 11,658 22,933
Federal funds sold 218,114 273,634
US Treasury and agencies 286,153 217,709
----------- -----------
TOTAL INTEREST INCOME 7,837,602 10,626,770
Interest expense
Deposits 2,432,801 2,390,527
Mortgage payable and other 42,726 101,755
Federal funds purchased - -
----------- -----------
TOTAL INTEREST EXPENSE 2,475,527 2,492,282
----------- -----------
NET INTEREST INCOME 5,626,416 8,134,488
----------- -----------
Increase (decrease) in prov for loan losses (1,573,801) (1,000,000)
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,935,876 9,134,488
Other income (expense)
Service charges and fees 250,735 250,940
Net investment security gains - -
Gain on sale of other real estate 76,813 90,230
Gain on sale of loans 15,945 14,003
Other income (635,572) 51,462
----------- -----------
(292,079) 406,635
Other expenses
Salaries & wages 1,241,805 1,132,401
Employee benefits 1,468,606 1,831,560
Occupancy and equipment 199,189 168,061
Other operating expenses 352,031 1,719,304
----------- -----------
3,261,631 4,851,326
INCOME BEFORE INCOME TAXES 3,382,166 4,689,797
----------- -----------
Income taxes 954,283 1,583,964
----------- -----------
NET INCOME $2,427,883 $3,105,833
=========== ===========
Per share data
Net income $.28 $.36
Average number of shares outstanding 8,567,011 8,633,378
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED, SEPT 30,
1997 1996
----------- -----------
<S> <C> <C>
Interest income
Loans, including fees $17,515,762 $19,663,500
Investment securities held to maturity
Taxable 3,864,142 4,397,840
Tax-exempt 62,704 42,203
Securities available for sale
Taxable 528,921 251,223
Tax-exempt - -
Deposits in banks 102,620 77,779
Federal funds sold 685,232 873,810
US Treasury and agencies 676,229 807,892
----------- -----------
TOTAL INTEREST INCOME 23,435,610 26,114,247
Interest expense
Deposits 7,332,955 7,254,955
Mortgage payable and other 142,883 242,704
Federal funds purchased 158 -
----------- -----------
TOTAL INTEREST EXPENSE 7,475,996 7,497,659
----------- -----------
NET INTEREST INCOME 15,959,614 18,616,588
----------- -----------
Provision for loan losses (1,674,909) (1,000,000)
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 17,634,523 19,616,588
Other income (expense)
Service charges and fees 753,985 758,988
Net investment security gains 13,643 -
Gain on sale of other real estate 406,217 710,668
Gain on sale of loans 27,393 416,878
Other income (455,364) 2,001,185
----------- -----------
745,874 3,887,719
Other expenses
Salaries & wages 3,590,733 3,594,930
Employee benefits 2,440,706 4,618,400
Occupancy and equipment 534,469 498,033
Other operating expenses 2,374,187 3,942,216
----------- -----------
8,940,095 12,653,579
INCOME BEFORE INCOME TAXES 9,440,302 10,850,728
----------- -----------
Income taxes 2,656,619 3,432,243
----------- -----------
NET INCOME $6,783,683 $7,418,485
=========== ===========
Per share data
Net income $.79 $.87
Average number of shares outstanding 8,564,083 8,486,567
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 6,596,625 $13,193,250 1,592,091 $159,209
Net income for the nine months ended, - - -
Setpember 30
Conversion of Class B common stock to
Class A common stock 63,961 127,921 (55,540) (5,554)
Purchase of treasury stock - - - -
4% stock dividend 258,176 516,352 61,859 6,186
Cash in lieu of fractional shares - - - -
Employee stock options exercised 19,747 39,494 - -
Cash dividends on common stock - - - -
Net unrealized loss on securities
available for sale - - - -
------------ ------------ ----------- ------------
Balance, September 30, 1997 6,938,509 $13,877,016 1,598,410 $159,841
============ ============ =========== ============
The accompanying notes are an integral part of this statement.
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
NET
UNREALIZED
(LOSS)/GAIN ON
SECURITIES
CAPITAL RETAINED TREASURY AVAILABLE
SURPLUS EARNINGS STOCK FOR SALE
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $34,827,443 $38,427,800) $(2,025,874) $(1,158)
Net income for the nine months ended, - 6,783,683 -
Setpember 30
Conversion of Class B common stock to
Class A common stock - (122,367) - -
Purchase of treasury stock - - (119,211) -
4% stock dividend 3,799,706 (4,322,244) - -
Cash in lieu of fractional shares - (2,477) - -
Employee stock options exercised 252,859 - - -
Cash dividends on common stock - (3,759,566) - -
Net unrealized loss on securities
available for sale - - - 420.051
------------ ------------ ------------ --------------
Balance, September 30, 1997 $38,880,008 $37,004,829 $(2,145,085) $ 418,893
============ ============ ============ ==============
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $6,783,683 $7,418,485
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 236,246 319,523
Provision (recovery )of loan loss reserve (credit) (1,674,908) (1,000,000)
Accretion of investment securities discount (61,210) (77,503)
Amortization of investment securities premium 717,252 515,487
Amortization of deferred loan fees (109,593) (90,366)
Accretion of discount on loans purchased (1,150,384) (1,078,281)
(Benefit) provision for deferred income taxes 471,627 (636,181)
(Gain) loss on other real estate (406,217) (1,969,201)
(Gain) on sale of loans (27,393) (416,878)
(Gain) on sale of investment securities (13,643) -
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (284,881) (416,711)
(Increase) decrease in other assets 1,895,371 1,606,390
Increase (decrease) in accrued interest payable 512,693 515,194
Increase in unearned income on loans 341,304 128,441
Increase (decrease) in other liabilities 763,260 4,485,380
------------ ------------
Net cash provided by operating activities 7,993,207 9,303,779
Cash flows from investing activities
Net (decrease) in int. bearing balances in banks - (495,001)
Proceeds from calls and maturities of Hold to
maturity investment securities 48,544,611 8,802,031
Purchase of investment securities held to maturity (9,324,013) (17,502,243)
Purchase of investment securities avail. for sale (14,533,809) (2,653,171)
Net decrease in loans (5,180,634) 2,370,552
Purchase of premises and equipment (333,122) (469,235)
Proceeds from sale & payments on other real estate 607,892 2,230,997
------------ ------------
Net cash (used in)provided by investing activities 19,780,925 (7,716,070)
Cash flows from financing activities:
Net (decrease) in noninterest bearing and interest
bearing demand deposits and savings accounts (3,353,084) (13,168,412)
Net increase (decrease) in certificates of deposit (5,118,273) (7,785,826)
Mortgage payments (31,104) (29,607)
Purchase of treasury stock (119,211) (1,477,165)
Net (decrease) increase in long-term borrowings (2,500,000) 2,500,000
Cash dividends (3,759,566) (1,473,330)
Cash in lieu of fractional shares (2,479) (2,098)
Issuance of common stock under stock option plans 292,353 -
Other 420,053 (44,992)
------------- -------------
Net cash provided by(used in) financing activities (14,171,311) (22,327,238)
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS 13,602,821 (20,739,529)
------------- -------------
Cash and cash equivalents at beginning of year 18,369,012 46,645,012
------------- -------------
Cash and cash equivalents at end of period $31,971,833 $25,905,483
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited consolidated financial statements include the
accounts of Royal Bancshares of Pennsylvania , Inc. (the Company) and its
wholly-owned subsidiaries: Royal Bank of Pennsylvania (the Bank), Royal Real
Estate of Pennsylvania, Inc. and Royal Investments of Delaware, Inc. These
financial statements reflect the historical information of the Company. All
significant intercompany transactions and balances have been eliminated.
1. The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. The financial information included herein
is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in opinion
of management, necessary to present a fair statement of the results for the
interim periods. For further information thereto included in the Annual
Report on Form 10-K for the year ended December 31, 1996.
2. The results of operations for the nine month period ended September 30,
1997 are not necessarily indicative of the results to be expected for the
full year.
3. Per share data are based on the weighted average number of shares
outstanding of 8,567,011 and 8,633,378 for the three months ended,
September 30, 1997 and 1996, respectively, and 8,564,083 and 8,486,567
for the nine months ended, September 30, 1997 and 1996, respectively.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128., EARNINGS PER SHARE , which is effective
for financial statements issued after December 15, 1997. Early adoption
of the new standard is not permitted. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the
per share amounts were computed. The adoption of this new standard is not
expected to have a material impact on the disclosure of earnings per share
in the financial statements.
4. Investment Securities:
The carrying value and approximate market value of investment securities at
September 30, 1997 are as follows:
<TABLE>
AMORTIZED
OR GROSS GROSS APPROXIMATE
PURCHASED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
--------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Common stock securities $ 1,054,056 $8,733 $ - $ 1,062,789 $ 1,062,789
Preferred stock securities 2,904,353 55,647 2,960,000 2,960,000
Other securities 13,963,503 570,305 - 14,533,808 14,533,808
--------------- ------------- ------------- --------------- ---------------
$17,921,912 $634,685 $ - $18,556,597 $18,556,597
=============== ============= ============= =============== ===============
HELD TO MATURITY:
US Treasury & agencies $14,284,941 $ 196,890 $ 41 $14,481,790 $14,284,941
Tax exempt securities 3,098,465 59,447 - 3,157,912 3,098,465
Taxable debt securities 57,488,853 374,629 28,928 57,834,554 57,488,853
--------------- ------------- ------------- --------------- ---------------
$74,872,259 $ 630,966 $28,969 $75,474,256 $74,872,259
=============== ============= ============= =============== ===============
</TABLE>
<PAGE>
5. Allowance for Credit Losses: Changes in the allowance for credit losses
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
BALANCE AT JULY 1, $8,552,792 $9,655,867
Loans charged-off (160,222) (204,623)
Recoveries 1,579,289 1,300,667
----------- -----------
Net charge-offs and recoveries (1,419,067) 1,096,044
Provision for loan losses (1,573,801) (1,000,000)
----------- -----------
BALANCE AT END OF PERIOD $8,398,058 $9,751,911
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
BALANCE AT JANUARY 1, $9,084,153 $9,746,559
Loans charged-off (761,791) (471,104)
Recoveries 1,750,605 1,476,456
----------- -----------
Net charge-offs and recoveries 988,814 1,005,352
Provision for loan losses (1,674,909) (1,000,000)
----------- -----------
BALANCE AT END OF PERIOD $8,398,058 $9,751,911
=========== ===========
</TABLE>
6. Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $3,286,976 and $4,052,681 at September 30, 1997
and 1996, respectively. Loan balances past due 90 days or more that are
not on a non-accrual status, but management expects it will eventually be
paid in full amounted to approximately $0 at September 30, 1997 and $0 at
September 30, 1996. Although the Company has non-performing loans of
approximately $3,286,976 at September 30, 1997, management believes it has
adequate collateral to limit its credit risks.
The balance of impaired loans was $1,160,913 at September 30, 1997. The
Company identified a loan impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the
loan agreements. The allowance for credit loss associated with impaired
loans was $ -0- at September 30, 1997. The income recognized on impaired
loans during the nine month period ended September 30, 1997 was $1,407.
The cash collected on impaired loans during this nine month period was
$156,394, of which $154,987 was credited to the principal balance
outstanding on such loans. Interest that would have been accrued on
impaired loans during this nine month period in 1997 was $36,034. The
Company's policy for interest income recognition on impaired loans is to
recognize income on currently performing restructured loans under the
accrual method. The Company recognizes income on non-accrual loans under
the cash basis when the principal payments on the loans become current and
the collateral on the loan is sufficient to cover the outstanding
obligation to the Company. If these factors do not exist, the Company
does not recognize income.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
The following discussion and analysis is intended to assist in
understanding and evaluating the major changes in the financial condition and
earnings performance of the Company and its wholly owned subsidiaries for the
nine month period ended September 30, 1997.
FINANCIAL CONDITION
- -------------------
Total consolidated assets as of September 30, 1997 were $349 million, a
decrease of $6.1 million from the $355.1 million reported at year end, December
31, 1996. This decrease is primarily due to a $24.8 million decrease in total
investment securities, partially offset by a $13.6 million increase in cash and
cash equivalents, in addition to a $5.3 million increase in total loans. Total
liabilities decreased $9.7 million primarily due to deposit runoff and a
decrease in long term borrowings of $8.5 million and $2.5 million, respectively.
This $24.8 million decrease in total investment securities is comprised
mostly of a decrease in held to maturity ("HTM") investment securities of $38.6
million, partially offset by a $13.8 million increase in available for sale
("AFS") investment securities. The decrease in HTM investment securities is
primarily due to scheduled maturities in the first nine months of 1997. HTM
investment securities are primarily comprised of taxable corporate debt
securities which are "A" rated or better by Moodys and/or Standard & Poor at the
time of purchase, with maturities in the three to five year range. The increase
in AFS investment securities is due to the purchase of taxable corporate debt
securities in the second and third quarter of 1997. In addition to taxable
corporate debt securities, AFS investment securities include to a lesser extent
equity securities comprised of preferred and common stock.
Total loans increased $5.3 million to $214.3 million at September 30, 1997
from $209 million at December 31, 1996, as loan originations outpaced loan
maturities and payoffs in the first nine months of 1997. The allowance for loan
loss decreased $686 thousand to $8.4 million at September 30, 1997. The level
of allowance for loan loss reserve represents 3.9% of total loans at September
30, 1997 versus 4.3 % at December 31, 1996.
Total deposits, the primary source of funds, decreased $8.5 million to
$245.7 million at September 30, 1997, from $254.2 million at December 31, 1996.
This decrease is primarily due to runoff experienced in noninterest bearing, NOW
and money market deposits of $14 million, partially offset by a $5.3 million
increase in certificates of deposits in 1997. FHLB advances decreased $2.5
million as an advance was paid off in January 1997.
Total consolidated stockholder's equity increased $3.6 million to $88.2
million at September 30, 1997 from $84.6 million at December 31, 1996. This
increase is primarily due to net income of $6.8 million for the nine month
period of 1997, in addition to an adjustment for the accumulated unrealized gain
on available for sale investment securities of $420 thousand, partially offset
by three quarterly cash dividends totaling $3.8 million. Additionally, in 1997
the Company repurchased 9,403 shares of the Company's class A common stock at a
cost of $119 thousand which is reflected as treasury stock.
<PAGE>
RESULTS OF OPERATIONS
- ----------------------
Consolidated net income for the three months ended, September 30, 1997 was
$2,427,883 or $.28 cents per share, as compared to net income of $3,105,833, or
$.36 cents per share for the same three month period in 1996. Consolidated net
income for the nine month period ended, September 30, 1997 was $6,783,683, or
$.79 cents per share, as compared to $7,418,485, or $.87 cents per share for the
nine month period September 30, 1996.
While net income decreased $677,950 and $634,802 respectively for both
comparative three and nine periods due to the effect of nonrecurring income
being greater in 1996 than in 1997, core earnings increased in 1997 for both
comparative three and nine month periods. Core earnings is defined as earnings
without the effect of net nonrecurring income being included in the amounts.
Core earnings for the third quarter 1997 rose to approximately $2.0 million, or
$.23 cents per share from $1.9 million, or $.22 cents per share for the third
quarter 1996. For the comparative nine month period, core earnings was $6.0
million, or $.70 cents per share for the nine months ended September 30, 1997
versus $5.8 million, or $.68 cents per share for same nine month period in 1996.
Net interest income before provision for loan loss reserve decreased $2.8
million, to $5,362,075 for the third quarter of 1997 as compared to $8,134,488
for the same quarter ended in 1996. This decrease in net interest income was
due to the receipt in 1996 of nonrecurring income relating to loan recoveries.
For the comparative nine month periods, net interest income decreased $2.7
million, to $15,959,614 at September 30, 1997, versus $18,616,588 at September
30, 1996. Again, the decrease in net interest income for the nine month period
was primarily due to due to the receipt in 1996 of nonrecurring income relating
to loan recoveries. Total interest expense on deposits and borrowings were
$2,475,527 and $7,475,996 for the respective three and nine month periods for
1997, versus $2,492,282 and $7,497,659 for 1996.
Due to recoveries exceeding chargeoffs for the third quarter and nine
month year to date period, a recovery from allowance for loan loss of $1,573,801
and $1,674,909 (credits) were recorded in 1997 for the third quarter period and
the nine month year-to-date period for 1997, respectively, primarily due to
Management's assessment that the current level of reserves are adequate.
Total non interest income for the three months ended September 30, 1997 was
a loss of $292,079 as compared to income of $406,635 for the same period in
1996. This decrease is primarily due to a loss of approximately $781 thousand
relating to a real estate investment in the third quarter of 1997. For the
comparative nine month period, noninterest income decreased $3.1 million to
$745,874 from $3,887,719 recorded in 1996. This decrease is related to a
decrease in gains on sale of real estate in 1997 of $1.6 million in addition to
loss experienced in 1997 relating to a real estate investment of approximately
$781 thousand.
<PAGE>
Total noninterest expense for the three months ended September 30, 1997 was
$3,261.631 million, a decrease of approximately $1.6 million, as compared to
$4,851,326 for the same period in 1996. For the comparative nine month period,
total non interest expense was $8,940,095 for 1997 as compared to $12,653,579
for the same nine month period in 1996. These decreases are primarily
attributable to decreases in employee benefits expense, the result of a accrual
of approximately $2 million relating to the establishment of a liability for the
Stock Option and Appreciation Right Plan recorded in 1996. Additionally, the
reduction in the legal accrual in 1997 also contributed to the decrease in
noninterest expenses.
CAPITAL ADEQUACY
- ----------------
The company is required to maintain minimum amounts of capital to total
"risk weighted" assets and a minimum Tier 1 leverage ratio, as defined by the
banking regulators. At September 30, 1997, the Company was required to have a
minimum Tier 1 and total capital ratios of 4% and 8%, respectively, and a
minimum Tier 1 leverage ratio of 3% plus an additional cushion of 100 to 200
basis points.
The table below provides a comparison of Royal Bancshares of Pennsylvania's
risk-based capital ratios and leverage ratios:
<TABLE>
<CAPTION>
SEPT 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
CAPITAL LEVELS
Tier 1 leverage ratio 25.59% 22.2%
Tier 1 risk-based ratio 31.27% 27.7%
Total risk-based ratio 32.54% 29.0%
CAPITAL PERFORMANCE
Return on average assets 2.6%(1) 2.6%
Return on average equity 10.6%(1) 11.1%
(1) annualized
</TABLE>
The Company's ratios compare favorably to the minimum required amounts of
Tier 1 and total capital to "risk weighted" assets and the minimum Tier 1
leverage ratio, as defined by banking regulators. The Company currently meets
the criteria for a well capitalized institution, and management believes that
the Company will continue to meets its minimum capital requirements. At
present, the Company has no commitments for significant capital expenditures.
The Company is not under any agreement with regulatory authorities nor is
the Company aware of any current recommendations by the regulatory authorities
which, if such recommendations were implemented, would have a material effect on
liquidity, capital resources or operations of the Company.
LIQUIDITY & INTEREST RATE SENSITIVITY
- -------------------------------------
Liquidity is the ability to ensure that adequate funds will be available to
meet its financial commitments as they become due. In managing its liquidity
position, all sources of funds are evaluated, the largest of which is deposits.
Also taken into consideration is the repayment of loans. These sources provide
alternatives to meet its short term liquidity needs. Longer liquidity needs may
be met by issuing longer term deposits and by raising additional capital. The
liquidity ratio is generally maintained equal to or greater than 25% of deposits
and short term liabilities.
The liquidity ratio of the Company remains strong at approximately 40% and
exceeds the Company's peer group levels and target ratio set forth in the
Asset/Liability Policy. The Company's level of liquidity is provided by funds
invested primarily in corporate bonds, US Treasuries and agencies, and to a
lesser extent, obligations of state and political subdivisions and federal funds
sold. The overall liquidity position is monitored on a monthly basis.
Interest rate sensitivity is a function of the repricing characteristics of
the Company's assets and liabilities. These include the volume of assets and
liabilities repricing, the timing of the repricing, and the interest rate
sensitivity gaps is a continual challenge in a changing rate environment. The
following table shows separately the interest sensitivity of each category of
interest earning assets and interest bearing liabilities as of September 30,
1997:
<TABLE>
INTEREST SENSITIVITY ANALYSIS
(in millions)
<CAPTION> REPRICING PERIODS
-----------------------------------------
NON RATE
ONE YEAR SENSITIVE
WITHIN THRU AND OVER
CONSOLIDATED ASSETS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- ----------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest bearing deposits
with banks $ 0.9 $ - $ - $ 0.9
Federal funds sold 18.8 - - 18.8
Investment securities:
available for sale 18.6 - - 18.6
held to maturity 50.5 15.7 8.8 75.0
Loans: fixed 15.1 66.0 6.3 87.4
variable 44.6 60.1 24.8 129.5
Other assets - - 18.8 18.8
---------- ---------- ---------- ----------
TOTAL ASSETS $ 148.5 $ 141.8 $ 58.7 $ 349.0
========== ========== ========== ==========
CONSOLIDATED LIABILITIES & CAPITAL
Non-interest bearing deposits $ - $ - $ 43.0 $ 43.0
Interest bearing deposits: 93.6 43.2 66.1 202.9
Borrowed funds 1.2 1.0 - 2.2
Other liabilities - - 12.7 12.7
Stockholders' equity - - 88.2 88.2
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND CAPITAL $ 94.8 $ 44.2 $ 210.0 $ 349.0
========== ========== ========== ==========
Interest rate sensitivity gap $ 53.7 $ 97.6 $ (151.3)
========== ========== ==========
Cumulative interest rate
sensitivity gap $ 53.7 $ 151.3 $ -
========== ========== ==========
Gap to asset ratio 4% 28%
========== ==========
Cumulative gap to asset ratio 15% 43%
========== ==========
</TABLE>
<PAGE>
The Company's exposure to interest rate risk is somewhat mitigated by a
significant portion of the Company's loan portfolio consisting of floating rate
loans, which are tied to the prime lending rate but which have interest rate
floors and no interest rate ceilings. Although the Company is originating fixed
rate loans, a significant portion of the loan portfolio continues to be
comprised of floating rate loans with interest rate floors.
<PAGE>
PART II - OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
None
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE SECURITY HOLDERS
- ------------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- -------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
(Registrant)
Dated: November 12th, 1997 /s/ JAMES J. MCSWIGGAN
---------------------------------------------
James J. McSwiggan, Chief Financial Officer
and Treasurer
Dated: November 12th, 1997 /S/ DAVID J. GREENFIELD
----------------------------------------------
David J. Greenfield, Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,398,362
<INT-BEARING-DEPOSITS> 798,471
<FED-FUNDS-SOLD> 18,775,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,556,597
<INVESTMENTS-CARRYING> 74,872,259
<INVESTMENTS-MARKET> 75,474,256
<LOANS> 214,281,803
<ALLOWANCE> 8,398,058
<TOTAL-ASSETS> 349,037,191
<DEPOSITS> 245,711,245
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,847,941
<LONG-TERM> 1,292,984
0
0
<COMMON> 14,036,857
<OTHER-SE> 74,158,645
<TOTAL-LIABILITIES-AND-EQUITY>349,037,191
<INTEREST-LOAN> 17,515,762
<INTEREST-INVEST> 5,919,848
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,435,610
<INTEREST-DEPOSIT> 7,332,955
<INTEREST-EXPENSE> 7,475,996
<INTEREST-INCOME-NET> 15,959,614
<LOAN-LOSSES> (1,674,909)
<SECURITIES-GAINS> 13,643
<EXPENSE-OTHER> 8,940,095
<INCOME-PRETAX> 9,440,302
<INCOME-PRE-EXTRAORDINARY> 9,440,302
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,783,683
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<YIELD-ACTUAL> 5.09
<LOANS-NON> 3,286,976
<LOANS-PAST> 1,255,645
<LOANS-TROUBLED> 1,142,100
<LOANS-PROBLEM> 1,142,100
<ALLOWANCE-OPEN> 9,084,153
<CHARGE-OFFS> 761,791
<RECOVERIES> 1,750,603
<ALLOWANCE-CLOSE> 8,398,058
<ALLOWANCE-DOMESTIC> 8,398,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
