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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: MARCH 31, 2001
[ ] 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
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 March 31, 2001
$2.00 PAR VALUE 8,588,830
Class B Common Stock Outstanding at March 31, 2001
$.10 PAR VALUE 1,817,329
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS MARCH 31, 2001 DEC 31, 2000
------------- -------------
Cash and due from banks $ 10,307,215 $ 15,772,422
Federal funds sold 12,587,124 27,450,000
------------- -------------
Total cash and cash equivalents 22,894,339 43,222,422
------------- -------------
Investment securities held to maturity (market value of $92,404,166 at
March 31, 2001 and $86,348,525 at December 31, 2000) 92,475,968 86,109,704
Investment securities available for sale - at market value 68,184,288 70,143,717
Total loans 433,417,512 423,945,784
Less allowance for loan losses 12,185,902 11,972,839
------------- -------------
Net loans 421,231,610 411,972,945
Premises and equipment, net 6,998,318 6,615,153
Accrued interest receivable 5,904,994 5,504,058
Accrued interest and other assets 7,840,629 6,512,899
------------- -------------
$ 625,530,146 $ 630,080,898
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 50,531,164 $ 47,608,128
Interest bearing (includes certificates of deposit in excess
of $100,000 of $149,471,266 at March 31, 2001 and
$166,760,323 at December 31, 2000) 419,540,362 424,973,825
------------- -------------
Total deposits 470,071,526 472,581,953
Accrued interest 11,161,506 11,237,712
Other liabilities 7,075,634 9,328,326
Borrowings 33,000,000 33,000,000
Mortgage payable 423,032 431,386
------------- -------------
Total liabilities 521,731,698 526,579,377
------------- -------------
Stockholders' equity
Common stock
Class A, par value $2 per share; authorized, 18,000,000 shares; issued,
8,804,218 at March 31, 2001 and 8,387,711 at December 31, 2000 17,608,436 16,775,422
Class B, par value $.10 per share; authorized, 2,000,000 shares; issued,
1,817,329 at March 31, 2001 and 1,730,715 at December 31, 2000 181,733 173,072
Capital surplus 64,881,253 57,767,946
Retained earnings 25,388,242 31,640,205
Accumulated other comprehensive income or (loss) (1,996,009) (589,917)
------------- -------------
106,063,655 105,766,728
Treasury stock - at cost, shares of Class A, 215,388 at March 31, 2001,
and December 31, 2000 (2,265,207) (2,265,207)
------------- -------------
103,798,448 103,501,521
------------- -------------
$ 625,530,146 $ 630,080,898
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The accompanying notes are an integral part of these statements.
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
----------- -----------
Interest income
Loans, including fees $11,163,382 $10,015,585
Investment securities held to maturity
Taxable 1,541,883 1,435,864
Tax-exempt -- --
Investment securities available for sale
Taxable 1,559,291 1,,333,136
Tax-exempt -- --
Deposits in banks 68,461 900
Federal funds sold 374,771 141,704
----------- -----------
TOTAL INTEREST INCOME 14,707,788 12,927,189
----------- -----------
Interest expense
Deposits 5,652,004 4,402,199
Mortgage payable and other 466,606 475,000
Federal funds purchased -- 17,221
----------- -----------
TOTAL INTEREST EXPENSE 6,118,610 4,894,420
----------- -----------
NET INTEREST INCOME 8,589,178 8,032,769
Increase in provision for loan losses -- 250,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,589,178 7,782,769
----------- -----------
Other income (expense)
Service charges and fees 218,472 209,014
Realized gains on sale of investment securities available
for sale -- --
Gain on sale of other real estate 104,278 53,407
Gain on sale of loans -- --
Other income 79,722 68,858
----------- -----------
402,472 331,279
----------- -----------
Other expenses
Salaries & wages 1,697,405 1,463,343
Employee benefits 396,905 367,291
Occupancy and equipment 211,808 183,898
Other operating expenses 1,113,998 1,167,261
----------- -----------
3,420,116 3,181,793
----------- -----------
INCOME BEFORE INCOME TAXES 5,571,534 4,932,255
Income taxes 1,657,243 1,605,888
----------- -----------
NET INCOME $ 3,914,291 $ 3,326,367
=========== ===========
Per share data
Net income - basic $ .37 $ .31
=========== ===========
Net income - diluted $ .36 $ .31
=========== ===========
The accompanying notes are an integral part of these statements.
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK CAPITAL
SHARES AMOUNT SHARES AMOUNT SURPLUS
------------ ------------ ------------ ------------ ------------
Balance, January 1, 2001 8,387,711 $ 16,775,422 1,730,715 $ 173,072 $ 57,767,946
Net income for the nine months ended
Sept. 30, -- -- -- -- --
Conversion of Class B common stock to
Class A Common stock -- -- -- -- --
Purchase of treasury stock -- -- -- -- --
5% stock dividend declared 408,197 816,394 86,614 8,661 7,093,499
Cash dividends on common stock -- -- -- -- --
Cash in lieu of fractional shares -- -- -- -- --
Stock options exercised 8,310 16,620 -- -- 19,808
Other comprehensive income (loss), net
of reclassifications and taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Comprehensive income
Balance, March 31, 2001 8,804,218 $ 17,608,436 1,817,329 $ 181,733 $ 64,881,253
============ ============ ============ ============ ============
ACCUMULATED
OTHER
RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
EARNINGS STOCK INCOME (LOSS) INCOME
------------ ------------ ------------ ------------
Balance, January 1, 2001 $ 31,640,205 $ (2,265,207) $ (589,917)
Net income for the nine months ended
Sept. 30, 3,914,291 -- -- $ 3,914,291
Conversion of Class B common stock to
Class A Common stock -- -- -- --
Purchase of treasury stock -- -- --
5% stock dividend declared (7,918,555)
Cash dividends on common stock (2,247,699) -- -- --
Cash in lieu of fractional shares -- -- -- --
Stock options exercised -- -- -- --
Other comprehensive income (loss), net
of reclassifications and taxes -- -- (1,406,092) (1,406,092)
------------ ------------ ------------ ------------
Comprehensive income $ 2,508,199
============
Balance, March 31, 2001 $ 25,388,242 $ (2,265,207) $ (1,996,009)
============ ============ ============
The accompanying notes are an integral part of the financial statement.
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK CAPITAL
SHARES AMOUNT SHARES AMOUNT SURPLUS
------------ ------------ ------------ ------------ ------------
Balance, January 1, 2000 7,879,349 $ 15,758,698 1,683,113 $ 168,311 $ 50,865,395
Net income for the three months ended
March 31, -- -- -- --
Conversion of Class B common stock to
Class A Common stock 9,300 18,600 (8,089) (809) --
Purchase of treasury stock -- -- -- -- --
5% stock dividend declared 382,857 765,714 84,241 8,424 6,581,786
Cash dividends on common stock -- -- -- -- --
Cash in lieu of fractional shares -- -- -- -- --
Stock options exercised 11,014 22,028 -- -- 37,010
Other comprehensive income (loss), net
of Reclassifications and taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Comprehensive income
Balance, March 31, 2000 8,282,520 $ 16,565,040 1,759,265 $ 175,927 $ 57,484,191
============ ============ ============ ============ ============
ACCUMULATED
OTHER
RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
EARNINGS STOCK INCOME (LOSS) INCOME
------------ ------------ ------------ ------------
Balance, January 1, 2000 $ 33,329,374 $ (2,265,207) $ (2,022,053)
Net income for the three months ended
March 31, 3,326,367 -- -- $ 3,326,367
Conversion of Class B common stock to
Class A Common stock (17,791) -- -- --
Purchase of treasury stock -- -- --
5% stock dividend declared (7,355,924)
Cash dividends on common stock (2,119,675) -- -- --
Cash in lieu of fractional shares -- -- -- --
Stock options exercised -- -- -- --
Other comprehensive income (loss), net
of Reclassifications and taxes -- -- 996,402 996,402
------------ ------------ ------------ ------------
Comprehensive income $ 4,322,769
============
Balance, March 31, 2000 $ 27,162,351 $ (2,265,207) $ (1,025,651)
============ ============ ============
The accompanying notes are an integral part of the financial statement.
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
Cash flows from operating activities 2001 2000
------------ ------------
Net income $ 3,914,291 $ 3,326,367
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 62,007 147,553
Provision (recovery) of loan loss reserve (credit) -- 250,000
Accretion of investment securities discount (41,573) (92,665)
Amortization of investment securities premium 42,860 114,968
Amortization of deferred loan fees (348,558) (63,047)
Accretion of discount on loans purchased (584,503) (700,689)
(Benefit) provision for deferred income taxes (724,350) 513,314
(Gain) loss on other real estate (104,278) (53,407)
(Gain) on sale of loans -- --
(Gain) on sale of investment securities -- --
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (400,936) (991,370)
(Increase) decrease in other assets (390,317) (395,270)
Increase (decrease) in accrued interest payable (76,206) 832,197
Increase in unearned income on loans 359,286 59,404
Increase (decrease) in other liabilities (2,252,692) (831,988)
------------ ------------
Net cash provided by operating activities (544,969) 2,115,367
Cash flows from investing activities
Net (decrease) in interest bearing balances in banks -- --
Proceeds from calls/maturities of HTM investment securities 13,632,449 7,965,297
Proceeds from calls/maturities of AFS investment securities (19,446,663) 1,650,000
Purchase of HTM investment securities -- --
Purchase of AFS investment securities -- (431,467)
Purchase of loans -- (18,767,789)
Net (increase) decrease in loans (8,897,953) (19,302,621)
Proceeds from sale and payments on other real estate 104,278 --
Purchase of premises and equipment (445,172) --
------------ ------------
Net cash (used in) provided by investing activities (15,053,061) (28,886,580)
Cash flows from financing activities:
Net (decrease) in non-interest bearing and
interest bearing demand deposits and savings accounts 17,351,645 7,009,437
Net increase (decrease) in certificates of deposit (19,862,072) 26,376,448
Mortgage payments (8,354)
(11,974)
Net (decrease) increase in short term borrowings -- --
Cash dividends -- (2,119,674)
Cash in lieu of fractional shares -- --
Issuance of common stock under stock option plans 36,427 59,039
Purchase of treasury stock (2,247,699) --
------------ ------------
Net cash provided by (used in) financing activities (4,730,053) 31,313,276
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (20,328,083) 4,542,063
Cash and cash equivalents at beginning of year 43,222,422 17,725,462
------------ ------------
Cash and cash equivalents at end of period $ 22,894,339 $ 22,267,525
============ ============
The accompanying notes are an integral part of these statements.
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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying un-audited 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 inter-company transactions and balances have been eliminated.
1. The accompanying un-audited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. The financial information included
herein is un-audited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) that
are, in opinion of management, necessary to present a fair statement of
the results for the interim periods. Further information is included in
the Annual Report on Form 10-K for the year ended December 31, 2000.
2. The results of operations for the three-month period ended March 31,
2001 are not necessarily indicative of the results to be expected for
the full year.
3. Per Share Information
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings
Per Share," which eliminates primary and fully diluted EPS and requires
presentation of basic and diluted EPS in conjunction with the
disclosure of the methodology used in computing such EPS. Basic EPS
excludes dilution and is computed by dividing income available to
common shareholders by the weighted average common shares outstanding
during the period. Diluted EPS takes into account the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock. Basic and
diluted EPS are calculated as follows:
Three months ended March 31, 2001
-------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
---------- -------------- ---------
Basic EPS
Income available to common shareholders $3,914,291 10,677,897 $ 0.37
Effect of dilutive securities
Stock options 179,981
---------- ---------- ---------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $3,914,291 10,857,878 $ 0.36
========== ========== =========
(continued)
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Per Share Information - continued
Three months ended March 31, 2000
-------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
---------- -------------- ---------
Basic EPS
Income available to common shareholders $3,326,367 10,603,429 $ 0.31
Effect of dilutive securities
Stock options 171,991
---------- ---------- ---------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $3,326,367 10,775,420 $ 0.31
========== ========== =========
EPS is calculated on the basis of the weighted average number of shares
outstanding of 10,677,897 and 10,603,429 for the three months ended March 31,
2001 and 2000, respectively. Per share information and weighted average shares
outstanding have been restated to reflect the 5% stock dividend of January 2001.
4. Investment Securities:
The carrying value and approximate market value of investment
securities at March 31, 2001 are as follows:
AMORTIZED
OR GROSS GROSS APPROXIMATE
PURCHASED UNREALIZED UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE VALUE
----------- ---------- ----------- ----------- -----------
HELD TO MATURITY:
US agencies $30,438,588 $ -- $ 1 $30,438,587 $30,438,588
Corporate debt securities 62,037,380 1,591,636 1,663,437 61,965,579 62,037,380
----------- ----------- ----------- ----------- -----------
$92,475,968 $ 1,591,636 $1,663,4386 $92,404,166 $92,475,968
=========== =========== =========== =========== ===========
AVAILABLE FOR SALE:
Federal Home Loan
Bank Stock - at cost $ 3,169,700 $ -- $ -- $ 3,169,700 $ 3,169,700
Preferred and common stock 1,289,855 9,052 2,396 1,296,511 1,296,511
Other securities 66,748,988 1,033,707 4,064,618 63,718,077 63,718,077
----------- ----------- ----------- ----------- -----------
$71,208,543 $ 1,042,759 $ 4,067,014 $68,184,288 $68,184,288
=========== =========== =========== =========== ===========
5. In June 1998, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activity." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity
recognize all value. If certain conditions are met, a derivative may be
specifically designated as a hedge. The accounting for changes in the
fair value of derivatives (gains and losses) depends on the intended
use of the derivative and resulting designation. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Earlier applications are permitted only as of the beginning
of any fiscal quarter.
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6. Allowance for Credit Losses: Changes in the allowance for credit losses
were as follows:
THREE MONTHS ENDED MARCH 31,
---------------------------
2001 2000
----------- -----------
BALANCE AT BEGINNING OF PERIOD, $11,972,839 $11,737,337
Loans charged-off -- --
Recoveries 213,063 41,416
----------- -----------
Net charge-offs and recoveries 213,063 41,416
Provision for loan losses -- 250,000
----------- -----------
BALANCE AT END OF PERIOD $12,185,902 $12,028,753
=========== ===========
7. Nonperforming loans
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $3,749,563 and $1,602,504 at March 31, 2001
and 2000, respectively. Although the Company has non-performing loans
of approximately $4,714,937 at March 31, 2001, management believes it
has adequate collateral to limit its credit risks.
The balance of impaired loans was $339,188 at March 31, 2001. The
Company identifies a loan as 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 March 31, 2001. The income that was
recognized on impaired loans during the three-month period ended March
31, 2001 was $1,307.24. The cash collected on impaired loans during the
period was $13,153, of which $11,846 was credited to the principal
balance outstanding on such loans. Interest that would have been
accrued on impaired loans during this period in 2001 was $3,515. 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.
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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
three month period ended March 31, 2001.
From time to time, the Company may include forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters in this and other filings with the Securities
Exchange Commission. The Private Securities Litigation Reform Act of 1995
provides safe harbor for forward-looking statements. In order to comply with the
terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance development and results of the Company's business
include the following: general economic conditions, including their impact on
capital expenditures, business conditions in the banking industry; the
regulatory environment; rapidly changing technology and evolving banking
industry standards; competitive factors, including increased competition with
community, regional and national financial institutions; new service and product
offerings by competitors and price pressures and similar items.
FINANCIAL CONDITION
Total consolidated assets as of March 31, 2001 were $625.5 million, a
decrease of $4.6 million from the $630.1 million reported at year-end, December
31, 2000. This $4.6 million decrease in total assets is primarily due to a $20.3
million decrease in cash and cash equivalents offset by a $9.5 million increase
in loans and $4.4 million increase in investment securities. Total liabilities
decreased $4.9 million partially due to a decrease in deposits during the first
quarter of 2001.
Total loans increased $9.5 million from the $423.9 million level at
December 31, 2000 to $433.4 million at March 31, 2001. This $9.5 million
increase in total loans is primarily due to a internally generated growth in
loans, partially offset by loan payoffs, amortization and maturities. The
year-to-date average balance of loans was $427.4 million at March 31, 2001.
The allowance for loan loss increased $.2 million to $12.2 million at
March 31, 2001 from $12.0 million at December 31, 2000. The level of allowance
for loan loss reserve represents approximately 2.8% of total loans at March 31,
2000 versus 2.8% at December 31, 2000. While management believes that, based on
information currently available, the allowance for loan loss is sufficient to
cover losses inherent in the Company's loan portfolio at this time, no
assurances can be given that the level of allowance will be sufficient to cover
future loan losses or that future adjustments to the allowance will be
sufficient to cover future loan losses or that future adjustments to the
allowance will not be necessary if economic and/or other conditions differ
substantially from
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the economic and other conditions considered by management in evaluating the
adequacy of the current level of the allowance.
The $4.4 million increase in total investment securities is primarily
due to purchases of mostly government agencies, partially offset by scheduled
maturities in the first quarter of 2001. Held-to-maturity (HTM) investment
securities increased $6.4 million for this period, while available-for-sale
(AFS) investment securities decreased $2.0 million.
Total deposits, the primary source of funds, increased $2.5 million to
$470.1 million at March 31, 2001, from $472.6 million at December 31, 2000. This
decrease in deposits is primarily due to an decrease in certificates of deposits
of $20 million, partially offset by $13.9 million increase in interest-bearing
transaction accounts (NOW and money market), in addition to a $2.9 million
increase in non-interest bearing deposits. The $20 million decrease in
certificates of deposits was primarily due to a $19 million decrease in brokered
deposits due to scheduled maturities in 2001. The balance of brokered deposits
was $128.2 million, representing approximately 27% of total deposits at March
31, 2001.
Consolidated stockholder's equity increased $.3 million to $103.8
million at March 31, 2001 from $103.5 million at December 31, 2000. This
increase is primarily due to net income of $3.9 million, partially offset by a
cash dividend of $2.2 million. Additionally, stockholder's equity decreased $1.4
million primarily due to a downward adjustment in the market value of
available-for-sale investment securities during the first three months of 2001.
RESULTS OF OPERATIONS
Results of operations depend primarily on net interest income, which is
the difference between interest income on interest earning assets and interest
expense on interest bearing liabilities. Interest earning assets consist
principally of loans and investment securities, while interest bearing
liabilities consist primarily of deposits. Net income is also affected by the
provision for loan losses and the level of non-interest income as well as by
non-interest expenses, including salary and employee benefits, occupancy
expenses and other operating expenses.
Consolidated net income for the three months ended, March 31, 2001 was
$3,914,291 or $.37 basic earnings per share, as compared to net income of
$3,326,367 or $.31 basic earnings per share for the same three month period in
2000. This increase is primarily due to an increase in interest income relating
to the growth of the loan and investment portfolios in 2001. Average earning
assets were $499.9 million for the first quarter of 2001 versus $418.1 million
for the first quarter of 2000.
For the first quarter 2001, net interest income before provision for
loan loss was $8.6 million as compared to $8.0 million for the same quarter in
2000, an increase of $.6 million or 7%. This increase is primarily due to an
increase in the average balance in loans and investment securities in the first
quarter period of 2001 versus the same period in 2000. Interest income on loans
increased $1.2 million for the first quarter of 2001 versus 2000 primarily due
to a higher
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average balance of loans due the growth in the portfolio since March 31, 2000.
Interest income on investment securities increased $.6 million, a 21% increase
over the same three-month period in 2000, which is primarily due to the increase
in the average balance in investment securities. Total interest expense on
deposits and borrowings increased $1.2 million to $6.1 million as compared to
$4.9 million for the same three-month period in 2000. This increase in interest
expense is primarily due to an increase in the average balance of certificates
of deposits, in addition to an increase in interest expense on NOW and money
market deposits in the first quarter of 2001. This increase in the average
balance of certificates of deposits is primarily due to the increase in higher
costing brokered certificates of deposits in 2001. The increase in Now and money
market deposits is due to the introduction of a new deposit product in March
2000.
Provision for loan loss was $0 for the first quarter of 2001 as
compared to $.3 million for the same three-month period in 2000. Charge-offs and
recoveries were $0 and $213 thousand, respectively, for the three-month period
ended March 31, 2001 versus $0 million and $41 thousand, respectively, for the
same three-month period in 2000. Overall, Management considers the current level
of allowance for loan loss to be adequate at March 31, 2001.
Total non-interest income for the three-month period ended March 31,
2001 was $.4 million as compared to $.3 million for the same three-month period
in 2000. The $.1 million increase in 2001 is primarily due to an increase in
gains on sale of real estate.
Total non-interest expense for the three months ended March 31, 2001
was $3.4 million, an increase of $.2 million, or 7%, as compared to $3.2 million
for the same period in 2000. This increase in non-interest expense is due to
a$.2 million increase in salaries, primarily related to an increase in the bonus
accrual for 2001.
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 35%
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, capital trust securities, US Treasuries
and agencies, and to a lesser extent, federal funds sold. The overall liquidity
position is monitored on a monthly basis.
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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
March 31, 2001:
INTEREST RATE SENSITIVITY
(IN MILLIONS) DAYS
------------------- 1 TO 5 OVER 5 NON-RATE
ASSETS (1) 0 - 90 91 - 365 YEARS YEARS SENSITIVE TOTAL
------ -------- ------ ------ --------- ------
Interest-bearing deposits in banks $ 0.3 $ -- $ -- $ -- $-- $ 0.3
Federal funds sold 12.6 -- -- -- 12.6
Investment securities:
Available for sale 4.4 1.2 21.8 40.8 -- 68.2
Held to maturity 7.7 13.9 40.6 30.3 -- 92.5
------ ------ ------ ------ ------ ------
Total investment securities 12.1 15.1 62.4 71.1 -- 160.7
Loans: (2)
Fixed rate (3) 18.3 34.0 143.6 51.7 -- 247.6
Variable rate 173.9 7.7 3.0 5.6 -- 190.2
------ ------ ------ ------ ------ ------
Total loans 192.2 41.7 146.6 57.3 -- 437.8
Other assets (4) -- -- -- -- 14.1 14.1
------ ------ ------ ------ ------ ------
Total Assets $217.2 $ 56.8 $209.0 $128.4 $ 14.1 $625.5
====== ====== ====== ====== ====== ======
LIABILITIES & CAPITAL
Deposits:
Non interest bearing deposits $ -- $ -- $ -- $ -- $ 50.5 $ 50.5
Interest bearing deposits (5) 145.4 -- -- -- -- 145.4
Certificate of deposits 16.7 63.4 194.1 -- -- 274.2
------ ------ ------ ------ ------ ------
Total deposits 162.1 63.4 194.1 50.5 470.1
Mortgage and long term borrowings 3.0 -- 30.4 -- -- 33.4
Other liabilities -- -- -- -- 18.5 18.5
Capital -- -- -- -- 103.5 103.5
------ ------ ------ ------ ------ ------
Total liabilities & capital $165.1 $ 63.4 $224.5 $ -- $172.5 $625.5
====== ====== ====== ====== ====== ======
Net interest rate GAP $ 52.1 $ (6.6) $(15.5) $128.4 ($158.4)
====== ====== ====== ====== ======
Cumulative interest rate GAP $ 52.1 $ 45.5 $ 30.0 $158.4 --
====== ====== ====== ====== ======
GAP to total assets 8% -1%
====== ======
GAP to total equity 50% -6%
====== ======
Cumulative GAP to total assets 8% 7%
====== ======
Cumulative GAP to total equity 50% 44%
====== ======
(1) Interest earning assets are included in the period in which the balances
are expected to be repaid and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Reflects principal maturing within the specified periods for fixed and
variable rate loans and includes nonperforming loans.
(3) Fixed rate loans include a portion of variable rate loans whose floors are
in effect at March 31, 2001.
(4) For purposes of gap analysis, other assets include the allowance for
possible loan loss, unamortized discount on purchased loans and deferred
fees on loans.
(5) Based on historical analysis, Money market and Savings deposits are assumed
to have rate sensitivity of 1 month; NOW account deposits are assumed to
have a rate sensitivity of 4 months.
The Company's exposure to interest rate risk is mitigated somewhat by a
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
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originating fixed rate loans, a portion of the loan portfolio continues to be
comprised of floating rate loans with interest rate floors.
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 March 31, 2001, 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:
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
CAPITAL LEVELS
Tier 1 leverage ratio 16.8% 17.0%
Tier 1 risk-based ratio 18.7% 18.1%
Total risk-based ratio 19.9% 19.4%
CAPITAL PERFORMANCE
Return on average assets 2.5% (1) 2.5%
Return on average equity 15.2% (1) 14.3%
(1) annualized
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 meet 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 that, if such recommendations were implemented, would have a
material effect on liquidity, capital resources or operations of the Company.
PROPOSED ACQUISITION
On March 12, 2001, Royal Bank of Pennsylvania, a wholly owned subsidiary
of Royal Bancshares of Pennsylvania entered into a Purchase and Assumption
Agreement with Crusader Holding Corporation, a Pennsylvania corporation, the
holding company for Crusader Savings Bank, FSB, a federally chartered
savings bank, to which Royal Bank will acquire substantially all of Crusader
Savings Bank's assets and assume substantially all of its
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liabilities. The purchase price is payable in cash, based on Crusader's
tangible book value, and will be adjusted through closing for net income and
any other changes to Crusader's book value. This transaction is anticipated
to be accounted for under the purchase method of accounting.
The completion of transaction is subject to the satisfaction of
various conditions including the receipt of regulatory approval from the
Board of Governors of the Federal Reserve, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision and the Pennsylvania State
Banking Department.
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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
- - The Registrant filed a Form 8-K on March 13th, 2001, disclosing an item 5.
- - The Registrant filed a Form 8-K on March 15th, 2001, disclosing an item 5.
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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: May 14th, 2001 /s/ James J. McSwiggan
-------------------------------------------
James J. McSwiggan, CFO & Treasurer
Dated: May 14th, 2001 /s/ David J. Greenfield
-------------------------------------------
David J. Greenfield, Controller & VP
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