[DESCRIPTION] ROYAL 2ND QTR 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: JUNE 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 June 30, 1997
$2.00 PAR VALUE 6,719,209
Class B Common Stock Outstanding at June 30, 1997
$.10 PAR VALUE 1,605,083
<PAGE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1997 DEC 31, 1996
------------- -------------
<S> <C> <C>
Cash and due from banks $8,921,269 $7,744,012
Federal funds sold 21,275,000 10,625,000
Total cash and cash equivalents 30,196,269 18,369,012
Interest bearing deposits in banks 694,000 953,000
Investment securities held to maturity (market value of
$85,315, 109 @6/30/97 & $113,635,320 @ 12/31/96) 85,132,655 113,474,908
Investment securities available for sale - at market value 15,015,024 4,725,151
Total loans 205,831,617 209,016,895
Less allowance for loan losses 8,552,792 9,084,153
Net loans 197,278,825 199,932,742
Other real estate, net 225,616 504,104
Premises and equipment, net 4,743,830 4,708,531
Accrued interest and other assets 13,211,099 12,481,420
------------- -------------
$346,497,318 $355,148,868
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $33,886,673 $38,327,081
Interest bearing (includes certificates of deposit in excess
of $100,000 of $21,104,322 at 6/30/97 and
$23,657,679 at 12/31/96) 211,411,766 215,855,522
Total deposits 245,298,439 254,182,603
Accrued interest and other liabilities 12,022,403 11,571,988
Long-term borrowings 1,701,000 4,201,000
Mortgage payable 591,984 612,607
------------- -------------
Total liabilities 259,613,826 270,568,198
Stockholders' equity
Common stock
Class A, par value $2 per share; authorized, 18,000,000
shares issued, 6,926,724 @ 6/30/97 & 6,596,625 @ 12/31/96 13,853,448 13,193,250
Class B, par value $.10 per share; authorized, 2,000,000
shares; issued, 1,605,083 @ 6/30/97 & 1,592,091 @ 12/31/96 160,508 159,209
Capital surplus 38,819,924 34,827,443
Retained earnings 36,127,705 38,427,800
Accumulated unrealized gain (loss) on invest. securities
available for sale 66,992 (1,158)
------------- -------------
89,028,577 86,606,544
Treasury stock - at cost, shares of Class A, 207,516 @
6/30,97 @ 198,113 @ 12/31/96 (2,145,085) (2,025,874)
------------- -------------
86,883,492 84,580,670
------------- -------------
$346,497,318 $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,
JUNE 30
1997 1996
<S> <C> <C>
Interest income ----------- -----------
Loans, including fees $6,033,293 $5,161,126
Investment securities held to maturity
Taxable 1,422,415 1,404,896
Tax-exempt 14,750 14,750
Securities available for sale
Taxable 116,164 105,405
Tax-exempt - -
Deposits in banks 64,931 32,142
Federal funds sold 291,056 303,289
US Treasury and agencies 220,659 296,047
----------- -----------
TOTAL INTEREST INCOME 8,163,268 7,317,655
Interest expense
Deposits 2,493,898 2,387,719
Mortgage payable and other 42,954 86,138
Federal funds purchased - -
----------- -----------
TOTAL INTEREST EXPENSE 2,536,852 2,473,857
----------- -----------
NET INTEREST INCOME 5,626,416 4,843,798
Increase(decrease) in provision for loan losses (101,108) -
NET INTEREST INCOME AFTER PROVISION ----------- -----------
FOR LOAN LOSSES 5,727,524 4,843,798
Other income (expense)
Service charges and fees 253,682 255,029
Net investment security gains 13,643 -
Gain on sale of other real estate 149,010 1,771,316
Gain on sale of loans 5,923 351,150
Other income 114,692 603,967
----------- -----------
536,950 2,981,462
Other expenses
Salaries & wages 1,201,484 1,321,919
Employee benefits 585,608 2,262,840
Occupancy and equipment 167,942 164,207
Other operating expenses 1,115,664 929,982
----------- -----------
3,070,698 4,678,948
INCOME BEFORE INCOME TAXES 3,193,776 3,146,312
Income taxes 952,100 943,893
----------- -----------
NET INCOME $2,241,676 $2,202,419
=========== ===========
Per share data
Net income $.26 $.26
=========== ===========
Average number of shares outstanding 8,564,329 8,510,592
=========== ===========
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>
SIX MONTHS ENDED, JUNE
30,
1997 1996
<S> <C> <C>
Interest income ----------- -----------
Loans, including fees $11,516,464 $11,177,174
Investment securities held to maturity
Taxable 2,906,161 2,871,420
Tax-exempt 29,500 27,453
Securities available for sale
Taxable 197,727 166,225
Tax-exempt - -
Deposits in banks 90,962 54,846
Federal funds sold 390,076 590,183
US Treasury and agencies 467,119 600,176
----------- -----------
TOTAL INTEREST INCOME 15,598,009 15,487,477
Interest expense
Deposits 4,900,154 4,864,428
Mortgage payable and other 100,315 140,949
Federal funds purchased - -
----------- -----------
TOTAL INTEREST EXPENSE 5,000,469 5,005,377
----------- -----------
NET INTEREST INCOME 10,597,540 10,482,100
Provision for loan losses (101,108) -
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,698,648 10,482,100
Other income (expense)
Service charges and fees 503,250 508,048
Net investment security gains 13,643 -
Gain on sale of other real estate 329,404 1,910,955
Gain on sale of loans 11,448 402,875
Other income 180,208 659,206
----------- -----------
1,037,953 3,481,084
Other expenses
Salaries & wages 2,348,928 2,462,529
Employee benefits 972,100 2,786,840
Occupancy and equipment 335,280 329,972
Other operating expenses 2,022,156 2,222,912
----------- -----------
5,678,464 7,802,253
INCOME BEFORE INCOME TAXES 6,058,137 6,160,931
----------- -----------
Income taxes 1,702,337 1,848,279
----------- -----------
NET INCOME $4,355,800 $4,312,652
=========== ===========
Per share data
Net income $.52 $.51
=========== ===========
Average number of shares outstanding 8,450,619 8,413,161
=========== ===========
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
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON
STOCK 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 six months ended June 30, - - -
Conversion of Class B common stock to Class A
common stock 56,295 112,590 (48,867) (4,887)
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 15,628 31,256 - -
Cash dividends on common stock - - - -
Net unrealized loss on securities avail. for sale - - - -
--------- ----------- ----------- ----------
Balance, June 30, 1997 6,926,725 $13,853,448 1,605,083 $160,508
========= =========== =========== ==========
<CAPTION>
NET
UNREALIZED
(LOSS)/GAI
N 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 six months ended June 30, - 4,355,800 - -
Conversion of Class B common stock to Class A
common stock - (107,704) - -
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 192,775 - - -
Cash dividends on common stock - (2,223,470) - -
Net unrealized loss on securities avail for sale - - - 68,150
------------ ------------ ------------ ----------
Balance, June 30, 1997 $38,819,924 $36,127,705 $(2,145,085) $ 66,992
============ ============ ============ ==========
</TABLE>
<PAGE>
<TABLE>
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities ------------ -------------
Net income $4,355,800 4,312,652
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 201,972 178,836
Provision (recovery )of loan loss reserve (credit) (101,108) -
Accretion of investment securities discount (38,709) (58,603)
Amortization of investment securities premium 399,446 324,255
Amortization of deferred loan fees (66,197) (55,862)
Accretion of discount on loans purchased (596,905) (1,014,846)
(Benefit) provision for deferred income taxes 35,108 -
(Gain) loss on other real estate (329,404) (1,910,955)
(Gain) on sale of loans (11,448) (402,875)
(Gain) on sale of investment securities (13,643) -
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (190,900) (23,390)
(Increase) decrease in other assets (302,504) (978,150)
Increase (decrease) in accrued interest payable 512,465 440,295
Increase in unearned income on loans 226,315 22,809
Increase (decrease) in other liabilities (62,050) 2,184,356
------------- --------------
Net cash provided by operating activities 4,018,238 3,018,522
Cash flows from investing activities
Net(decrease) in interest bearing balances in banks - (495,001)
Proceeds from maturities of HTM invest. securities 35,589,319 8,058,108
Purchase of investment securities held to maturity (6,611,252) (15,833,385)
Purchase of investment securities avail for sale (11,013,781) (2,650,090)
Net decrease in loans 2,931,878 11,491,584
Purchase of premises and equipment (237,271) (439,480)
Proceeds from sales and payments on real estate 607,892 2,072,780
------------- --------------
Net cash (used in) provided by investing activities 21,266,785 2,204,516
Cash flows from financing activities:
Net(decrease) in non-interest bearing and
interest bearing demand deposits & savings accounts (11,878,943) (11,117,587)
Net increase (decrease) in certificates of deposit 2,994,779 (7,637,426)
Mortgage payments (20,624) (16,283)
Purchase of treasury stock (119,211) (581,567)
Net (decrease) increase in long-term borrowings (2,500,000) 2,500,000
Cash dividends (2,223,470) (969,640)
Cash in lieu of fractional shares (2,477) (2,098)
Issuance of common stock under stock option plans 224,031 -
Other 68,149 (47,024)
------------- --------------
Net cash provided by (used in) financing activities (13,457,766) (17,871,625)
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS 11,827,257 (12,648,587)
Cash and cash equivalents at beginning of year 18,369,012 46,645,012
------------- --------------
Cash and cash equivalents at end of period $30,196,269 $33,996,425
============= ==============
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 six month period ended June 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 8,564,329 and 8,510,592 for the three months ended, June
30, 1997 and 1996, respectively, and 8,450,619 and 8,413,161 for the six
months ended, June 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
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
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 $ 1,054,017 $ 4,726 $ - $ 1,058,743 $ 1,058,743
Prefd. stock securities 2,921,503 20,997 - 2,942,500 2,942,500
Other securities 10,938,040 91,111 15,370 11,013,781 11,013,781
--------------- ------------ ------------ -------------- -------------
$14,913,560 $ 116,834 $ 15,370 $15,015,024 $15,015,024
=============== ============ ============ ============== =============
HELD TO MATURITY:
US Treasury & agencies $18,814,717 $ 141,270 $ 5,077 $18,950,910 $18,814,717
Tax exempt securities 498,465 63,487 - 561,952 498,465
Taxable debt securities 65,819,473 239,660 256,886 65,802,247 65,819,473
--------------- ------------ ------------ -------------- -------------
$85,132,655 $ 444,417 $ 261,963 $85,315,109 $85,132,655
=============== ============ ============ ============== =============
</TABLE>
<PAGE>
5. Allowance for Credit Losses: Changes in the allowance for credit losses
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
BALANCE AT APRIL 1, $9,123,373 $9,598,929
Loans charged-off (565,232) (42,734)
Recoveries 95,758 99,672
----------- -----------
Net charge-offs and recoveries (469,574) 56,938
Provision for loan losses (101,107) -
----------- -----------
BALANCE AT END OF PERIOD $8,552,792 $9,655,867
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
BALANCE AT JANUARY 1, $9,084,153 $9,746,559
Loans charged -off (601,568) (266,481)
Recoveries 171,314 175,789
----------- -----------
Net charge-offs and recoveries (430,254) (90,692)
Provision for loan losses (101,107) -
----------- -----------
BALANCE AT END OF PERIOD $8,552,792 $9,655,867
=========== ===========
</TABLE>
6. Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $3,948,936 and $4,856,210 at June 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 June 30, 1997 and $0 at June 30,
1996. Although the Company has non-performing loans of approximately
$3,948,936 at June 30, 1997, management believes it has adequate
collateral to limit its credit risks.
The balance of impaired loans was $1,407,388 at June 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 June 30, 1997. The income recognized on impaired loans during
the six month period ended June 30, 1997 was $941. The cash collected on
impaired loans during this six month period was $242,280, of which
$241,339 was credited to the principal balance outstanding on such loans.
Interest that would have been accrued on impaired loans during this six
month period in 1997 was $45,541. 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
six month period ended June 30, 1997.
FINANCIAL CONDITION
Total consolidated assets as of June 30, 1997 were $346.5 million, a
decrease of $8.6 million from the $355.1 million reported at year end, December
31, 1996. This decrease is primarily due to a $18.1 million decrease in
investment securities, partially offset by a $11.8 million increase in cash and
cash equivalents. Liabilities decreased $10.9 million primarily due to deposit
runoff and a decrease in long term borrowings of $8.9 million and $2.5 million,
respectively.
This $18.1 million decrease in investment securities is comprised mostly of
a decrease in held to maturity ("HTM") investment securities of $28.3 million,
partially offset by a $10.3 million increase in available for sale ("AFS")
investment securities. The decrease in HTM investment securities is primarily
due to scheduled maturities in the first six 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 quarter of 1997. In addition to taxable corporate debt
securities, AFS investment securities include equity securities comprised of
preferred and common stock.
Total loans decreased $3.2 million to $205.8 million at June 30, 1997 from
$209 million at December 31, 1996, as originations did not keep pace with loan
maturities and payoffs in the first six months of 1997. The allowance for loan
loss decreased $531 thousand to $8.6 million at June 30, 1997. The level of
allowance for loan loss reserve represents 4.2% of total loans at June 30, 1997
versus 4.3 % at December 31, 1996.
Total deposits, the primary source of funds, decreased $8.9 million to
$245.3 million at June 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 $11.7 million partially offset by a $2.9 million
increase in certificates of deposits in the first half of 1997. FHLB advances
decreased $2.5 million as an advance was paid off in January 1997.
Consolidated stockholder's equity increased $2.3 million to $86.9 million
at June 30, 1997 from $84.6 million at December 31, 1996. This increase is
primarily due to net income of $4.3 million for the six month period of 1997,
partially offset by two quarterly cash dividends totaling $2.2 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, and an adjustment for accumulated unrealized gain on available for sale
investment securities of $68 thousand.
<PAGE>
RESULTS OF OPERATIONS
Consolidated net income for the three months ended, June 30, 1997 was
$2,241,676 or $.26 per share, as compared to net income of $2,202,419 or $.26
per share, for the same three month period in 1996. Consolidated net income for
the six month period ended, June 30, 1997 was $4,355,800, or $.52 per share, as
compared to $4,312,652 for the six month period June 30, 1996.
Net interest income before provision for loan loss reserve increased $.8
million, or 16%, to $5.6 million for the second quarter of 1997 as compared to
$4.8 million for the same quarter ended in 1996. This increase in net interest
income was due to a $17 million increase in the average balance of loans, or 9%,
to $210 million for the second quarter, in addition to the receipt of accretion
income in the second quarter of approximately $375 thousand. For the
comparative six month periods, net interest income increased $115 thousand, or
1%, to $10.6 million at June 30, 1997, versus $10.5 million at June 30, 1996.
This increase in net interest income was primarily due to an increase in
interest income on loans relating to a higher average balance for the six month
period, partially offset by a decrease in interest income on investment
securities of $229 thousand. Total interest expense on deposits and borrowings
were $2.5 million and $5 million for the respective three and six month periods
for 1997, versus $2.5 million and $5 million for 1996.
There was no provision for loan loss recorded for either the three or
six month periods for 1997 and 1996, however a recovery of $101 thousand
(credit) was recorded in the second quarter of 1997. Overall, Management
considers the current level of allowance for loan loss to be adequate at June
30, 1997.
Total non interest income for the three months ended June 30, 1997 was $537
thousand as compared to $3 million for the same period in 1996. This decrease
is primarily due to a decrease in gains on sales of real estate of $1.6 million,
due to sales of other real estate in 1996. Additionally, there was a decrease
in other income of $490 thousand due to a receipt of a litigation settlement in
the second quarter of 1996. For the comparative six month period, noninterest
income decreased $2.4 million primarily due to a decrease in gains on sale of
real estate in 1997.
<PAGE>
Total non interest expenses for the three months ended June 30, 1997 was
$3.1 million, a decrease of $1.6 million, as compared to $4.7 million for the
same period in 1996. For the comparative six month period, total non interest
expense was $5.7 million for 1997 as compared to $7.8 million for the same six
month period in 1996. These decreases are primarily attributable to decreases
in employee benefits expense, the result of a one-time accrual of approximately
$2 million relating to the establishment of a liability for the Stock Option and
Appreciation Right Plan recorded in the second quarter of 1996. Additionally,
other operating expenses increased $185 thousand to $1.1 million for the second
quarter of 1997. For the comparative six month period, other operating expenses
decreased $200 thousand to $2 million as compared to $2.2 million for the six
month period in 1996.
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 June 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>
JUNE 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
CAPITAL LEVELS --------------- -----------------
Tier 1 leverage ratio 25.03% 22.2%
Tier 1 risk-based ratio 31.02% 27.7%
Total risk-based ratio 32.30% 29.0%
CAPITAL PERFORMANCE
Return on average assets 2.5%(1) 2.6%
Return on average equity 10.3%(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.
<PAGE>
The liquidity ratio of the Company remains strong at approximately 50% 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 June 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 $ 1.8 $ - $ - $ 1.8
Federal funds sold 21.3 - - 21.3
Investment securities:
available for sale 15.0 - - 15.0
held to maturity 49.8 25.0 10.3 85.1
Loans: fixed 13.0 63.2 8.4 84.6
variable 45.6 53.7 25.2 124.5
Other assets - - 14.2 14.2
---------- ---------- ---------- ----------
TOTAL ASSETS $ 146.5 $ 141.9 $ 58.1 $ 346.5
========== ========== ========== ==========
CONSOLIDATED LIABILTIES & CAPITAL
Non-interest bearing deposits $ - $ - $ 30.8 $ 30.8
Interest bearing deposits: 110.8 49.4 50.3 210.5
Borrowed funds 1.2 1.1 - 2.3
Other liabilities - - 16.0 16.0
Stockholders' equity - - 86.9 86.9
---------- ---------- ---------- ----------
TOTAL LIABILITIES & CAPITAL $ 112.0 $ 50.5 $ 184.0 $ 346.5
========== ========== ========== ==========
Interest rate sensitivity gap $ 34.5 $ 91.4 $ (125.9)
========== ========== ==========
Cumulative interest rate
sensitivity gap $ 34.5 $ 125.9 $ -
========== ========== ==========
Gap to asset ratio 10% 26%
========== ==========
Cumulative gap to asset ratio 10% 36%
========== ==========
</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
On Thursday, June 19th, 1997 the Annual Meeting of Shareholders of Royal
Bancshares of Pennyslvania, Inc. was convened in Philadelphia, PA at 6:30 PM.
The following nominees were elected as Class I Directors to serve a term of
three year term:
For Withhold Authority
Joseph P. Campbell 18,330,368 23,237
Daniel M. Tabas 18,237,420 116,185
Susan Tabas Tepper 18,329,086 24,519
Howard Wurzak 18,329,074 24,531
No other business was conducted or subject to shareholder vote.
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: August 13th, 1997 /S/ JAMES J. MCSWIGGAN, JR.
------------------------------------------------
James J. McSwiggan, Chief Financial Officer and
Treasurer
Dated: August 13th, 1997 /S/ DAVID J. GREENFIELD
-----------------------------------------------
David J. Greenfield, Controller
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,765,269
<INT-BEARING-DEPOSITS> 1,850,000
<FED-FUNDS-SOLD> 21,275,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,015,024
<INVESTMENTS-CARRYING> 85,132,655
<INVESTMENTS-MARKET> 85,315,109
<LOANS> 205,831,617
<ALLOWANCE> 8,552,792
<TOTAL-ASSETS> 346,497,318
<DEPOSITS> 245,298,439
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,022,403
<LONG-TERM> 1,292,984
0
0
<COMMON> 14,013,956
<OTHER-SE> 72,869,536
<TOTAL-LIABILITIES-AND-EQUITY> 346,497,318
<INTEREST-LOAN> 11,516,464
<INTEREST-INVEST> 4,081,545
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,598,009
<INTEREST-DEPOSIT> 4,900,154
<INTEREST-EXPENSE> 5,000,469
<INTEREST-INCOME-NET> 10,597,540
<LOAN-LOSSES> (101,108)
<SECURITIES-GAINS> 13,643
<EXPENSE-OTHER> 5,678,464
<INCOME-PRETAX> 6,058,137
<INCOME-PRE-EXTRAORDINARY> 6,058,137
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,355,800
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<YIELD-ACTUAL> 5.09
<LOANS-NON> 3,948,936
<LOANS-PAST> 963,496
<LOANS-TROUBLED> 1,177,067
<LOANS-PROBLEM> 1,407,388
<ALLOWANCE-OPEN> 9,084,153
<CHARGE-OFFS> 601,568
<RECOVERIES> 95,758
<ALLOWANCE-CLOSE> 8,552,792
<ALLOWANCE-DOMESTIC> 8,552,792
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
