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, 2001
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACTOF 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 June 30, 2001
-------------------- ----------------------------
$2.00 par value 8,826,528
Class B Common Stock Outstanding at June 30, 2001
-------------------- ----------------------------
$.10 par value 1,807,327
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS June 30, 2001 Dec 31, 2000
------------------- ------------------
Cash and due from banks $12,252,504 $15,772,422
Federal funds sold 6,345,123 27,450,000
------------------- ------------------
Total cash and cash equivalents 18,597,627 43,222,422
------------------- ------------------
Investment securities held to maturity (market value of $94,186,312 at
June 30, 2001 and $86,348,525 at December 31, 2000) 93,149,103 86,109,704
Investment securities available for sale - at market value 89,134,147 70,143,717
Total loans 705,774,723 423,945,748
Less allowance for loan losses 16,188,143 11,972,839
------------------- ------------------
Net loans 689,586,580 411,972,945
Premises and equipment, net 7,847,648 6,615,153
Accrued interest and other assets 19,201,205 12,016,957
------------------- ------------------
$917,516,310 $630,080,898
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $54,020,402 $47,608,128
Interest bearing (includes certificates of deposit in excess
Of $100,000 of $306,769,130 at June 30, 2001 and
$166,760,323 at December 31, 2000) 638,888,786 424,973,825
------------------- ------------------
Total deposits 692,909,188 472,581,953
Accrued interest and other liabilities 16,721,030 20,566,038
Borrowings 103,225,000 33,000,000
Mortgage payable 418,778 431,386
------------------- ------------------
Total liabilities 813,273,996 526,579,377
------------------- ------------------
Stockholders' equity
Common stock
Class A, par value $2 per share; authorized, 18,000,000 shares; issued,
8,826,528 at June 30, 2001 and 8,387,711 at December 31, 2000 17,653,056 16,775,422
Class B, par value $.10 per share; authorized, 2,000,000 shares; issued,
1,807,327 at June 30, 2001 and 1,730,715 at December 31, 2000 180,733 173,072
Capital surplus 64,881,253 57,767,946
Retained earnings 26,912,598 31,640,205
Accumulated other comprehensive income or (loss) (3,120,119) (589,917)
------------------- ------------------
106,507,521 105,766,728
Treasury stock - at cost, shares of Class A, 215,388 at June 30, 2001,
and December 31, 2000. (2,265,207) (2,265,207)
------------------- ------------------
104,242,314 103,501,521
------------------- ------------------
$917,516,310 $630,080,898
=================== ===================
The accompanying notes are an integral part of these statements.
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
June 30,
----------------------------------
2001 2000
----------------- ----------------
Interest income
Loans, including fees $11,689,088 $11,717,863
Investment securities held to maturity
Taxable 1,537,619 1,198,472
Tax-exempt -- --
Investment securities available for sale
Taxable 1,555,286 1,619,943
Tax-exempt -- --
Deposits in banks 36,995 9,012
Federal funds sold 151,702 318,889
----------------- ----------------
TOTAL INTEREST INCOME 14,970,690 14,864,179
----------------- ----------------
Interest expense
Deposits 5,832,582 5,089,460
Mortgage payable and other 541,444 486,467
Federal funds purchased -- 17
----------------- ----------------
TOTAL INTEREST EXPENSE 6,374,026 5,575,944
----------------- ----------------
NET INTEREST INCOME 8,596,664 9,288,235
Increase in provision for loan losses -- --
----------------- ----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,596,664 9,288,235
----------------- ----------------
Other income (expense)
Service charges and fees 275,950 220,248
Realized gains on sale of investment securities
available for sale -- --
Gain on sale of other real estate 24,582 --
Gain on sale of loans -- --
Other income (51,244) 83,029
----------------- ----------------
249,288 303,277
----------------- ----------------
Other expenses
Salaries & wages 1,796,980 1,600,895
Employee benefits 1,048,760 984,217
Occupancy and equipment 165,755 100,075
Other operating expenses 1,726,780 1,291,211
----------------- ----------------
4,738,275 3,976,398
----------------- ----------------
INCOME BEFORE INCOME TAXES 4,107,677 5,615,114
Income taxes 296,332 1,874,744
----------------- ----------------
NET INCOME $3,811,345 $3,740,370
================= ================
Per share data
Net income - basic $ .36 $ .35
================= ================
Net income - diluted $.35 $.35
================= ================
The accompanying notes are an integral part of these statements.
3
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six months ended
June 30,
----------------------------------
2001 2000
----------------- ----------------
Interest income
Loans, including fees $22,852,471 $21,733,448
Investment securities held to maturity
Taxable 3,079,502 2,634,336
Tax-exempt -- --
Investment securities available for sale
Taxable 3,114,577 2,953,079
Tax-exempt -- --
Deposits in banks 105,456 9.912
Federal funds sold 526,473 460,593
----------------- ----------------
TOTAL INTEREST INCOME 29,678,479 27,791,368
----------------- ----------------
Interest expense
Deposits 11,484,586 9,491,659
Mortgage payable and other 1,008,050 961,467
Federal funds purchased -- 17,238
----------------- ----------------
TOTAL INTEREST EXPENSE 12,492,636 10,470,364
----------------- ----------------
NET INTEREST INCOME 17,185,843 17,321,004
Increase in provision for loan losses -- 250,000
----------------- ----------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 17,185,843 17,071,004
----------------- ----------------
Other income (expense)
Service charges and fees 494,422 429,262
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 24,582 --
Other income 28,478 151,887
----------------- ----------------
651,760 634,556
----------------- ----------------
Other expenses
Salaries & wages 3,494,385 3,064,238
Employee benefits 1,445,665 1,351,508
Occupancy and equipment 377,563 283,973
Other operating expenses 2,840,777 2,458,472
----------------- ----------------
8,158,390 7,158,191
----------------- ----------------
INCOME BEFORE INCOME TAXES 9,679,213 10,547,369
Income taxes 1,953,575 3,480,632
----------------- ----------------
NET INCOME $7,725,638 $7,066,737
================= ================
Per share data
Net income - basic $ .72 $ .66
================= ================
Net income - diluted $.70 $.65
================= ================
The accompanying notes are an integral part of these statements.
4
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Six Months ended June 30, 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 six months ended June 30, - - - -
Conversion of Class B common stock to
Class A
Common stock 22,310 44,620 (10,002) (1,000) -
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, June 30, 2001 8,826,528 $17,653,056 1,807,327 $180,733 $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 six months ended June 30, 7,725,638 - - $7,725,638
Conversion of Class B common stock to
Class A
Common stock (43,620) - - -
Purchase of treasury stock - - -
5% stock dividend declared (7,918,555)
Cash dividends on common stock (4,491,070) - - -
Cash in lieu of fractional shares - - - -
Stock options exercised - - - -
Other comprehensive income (loss), net of
Reclassifications and taxes - - (2,530,202) (2,530,202)
------------- -------------- -------------- -----------------
Comprehensive income $5,195,436
=================
Balance, June 30, 2001 $26,912,598 $(2,265,207) $(3,120,119)
============= ============== ==============
The accompanying notes are an integral part of the financial statement.
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Six Months ended June 30, 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 six months ended June 30, - - - -
Conversion of Class B common stock to
Class A
Common stock 14,733 29,466 (12,815) (1,282) -
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 55,519 111,038 - - 200,050
Other comprehensive income (loss), net of
reclassifications and taxes - - - - -
------------- ------------- ------------- ------------- -------------
Comprehensive income
Balance, June 30, 2000 8,332,458 $16,664,916 1,754,539 $175,454 $57,647,231
============= ============= ============= ============= =============
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 six months ended June 30, 7,066,737 - - $7,066,737
Conversion of Class B common stock to
Class A
Common stock (28,185) - - -
Purchase of treasury stock - - - -
5% stock dividend declared (7,355,924) -
Cash dividends on common stock (4,247,098) - - -
Cash in lieu of fractional shares - - - -
Stock options exercised - - - -
Other comprehensive income (loss), net of
reclassifications and taxes - - (890,143) (890,143)
-------------------------------------------------------------
Comprehensive income $6,176,594
=================
Balance, June 30, 2000 $28,764,904 $(2,265,207) $(2,912,196)
=============================================
The accompanying notes are an integral part of this statement.
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
Cash flows from operating activities 2001 2000
------------ ------------
Net income $ 7,725,638 $ 7,066,737
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 256,013 124,015
Provision (recovery) of loan loss reserve (credit) -0- 250,000
Accretion of investment securities discount (82,662) (103,124)
Amortization of investment securities premium 85,717 171,387
Amortization of deferred loan fees (1,526,732) (99,281)
Accretion of discount on loans purchased (1,306,158) (1,112,959)
(Benefit) provision for deferred income taxes (3,343,013) (458,543)
(Gain) loss on other real estate -0- (53,407)
(Gain) on sale of loans -0- --
(Gain) on sale of investment securities -0- --
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable 1,447,945 (97,490)
(Increase) decrease in other assets (3,107,314) 772,654
Increase (decrease) in accrued interest payable (637,683) 1,465,124
Increase in unearned income on loans -0- 1,908
Increase (decrease) in other liabilities (4,157,800) 364,470
------------ ------------
Net cash provided by operating activities (4,646,049) 8,291,491
Cash flows from investing activities
Net (decrease) in interest bearing balances in banks -0- --
Proceeds from calls/maturities of HTM investment securities 27,700,000 12,702,824
Proceeds from calls/maturities of AFS investment securities 10,403,000 1,650,000
Purchase of HTM investment securities (1,140,462) --
Purchase of AFS investment securities (64,688,410) (1,595,952)
Purchase of loans -0- (46,004,183)
Cash paid for asset acquisition (15,238,720) --
Cash from entity acquired 26,547,903 --
Net (increase) decrease in loans 25,333,607 (18,767,789)
Purchase of premises and equipment (763,591) (751,176)
------------ ------------
Net cash (used in) provided by investing activities 8,153,327 (52,766,276)
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing and
interest bearing demand deposits and savings accounts (7,209,993) 12,291,802
Net increase (decrease) in certificates of deposit (23,498,449) 37,302,793
Mortgage payments (12,608) (23,931)
Net (decrease) increase in long term borrowings 7,000,000 --
Cash dividends (4,447,450) (4,247,098)
Cash in lieu of fractional shares -0- --
Issuance of common stock under stock option plans 36,427 311,090
Purchase of treasury stock -0- --
------------ ------------
Net cash provided by (used in) financing activities (28,132,073) 45,634,656
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (24,624,795) 1,159,871
Cash and cash equivalents at beginning of year 43,222,422 17,725,462
------------ ------------
Cash and cash equivalents at end of period $ 18,597,627 $ 18,885,333
============ ============
The accompanying notes are an integral part of these statements.
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 accounting principles generally accepted in
the United States 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. Acquisitions
As of June 22, 2001, Royal Bancshares of Pennsylvania completed its
acquisition of the assets of Crusader Holding Corporation. Under the
terms of the acquisition certain assets and liabilities were purchased
for $41.8 million, which represented the approximate fair value of the
assets acquired. The purchase price was paid in cash with $15.2 million
of Royal cash on hand being utilized. This transaction was accounted
for under the purchase method of accounting.
The following represents the unaudited results of operations of the
Company as the acquisition has occurred the first date of the period
indicated. This pro forma information should be read in conjunction
with the related historical information and is not necessarily
indicative of the results that would have attained had the acquisition
actually been consummated on the dates indicated, nor are the
necessarily indicative of our future operating results.
Six Months Ended June 30,
2001 2000
---------- ----------
Interest Income 48,615,000 46,108,000
Interest Expense 21,383,000 19,721,000
---------- ----------
Net interest income 27,232,000 26,387,000
Provision (recoveries) loan loss (11,000) 2,032,000
Non-interest income 1,426,000 2,162,000
Non-interest expense 15,300,000 15,744,000
--------- ----------
Net income 13,369,000 10,773,000
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:
Six months ended June 30, 2001
---------------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
----------- --------------- --------------
Basic EPS
Income available to common shareholders $7,725,638 10,699,346 $ 0.72
Effect of dilutive securities
Stock options 281,848
---------- ---------- --------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $7,725,638 10,981,194 $ 0.70
========== ========== ========
(continued)
Per Share Information - continued
Six months ended June 30, 2001
---------------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
----------- --------------- --------------
Basic EPS
Income available to common shareholders $7,066,737 10,700,518 $ 0.66
Effect of dilutive securities
Stock options 94,199
---------- ---------- ---------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $7,066,737 10,794,717 $ 0.65
========== =========== =========
EPS is calculated on the basis of the weighted average number of shares
outstanding of 10,699,346 and 10,700,518 for the six months ended June 30, 2001
and 2000, respectively. Per share information and weighted average shares
outstanding have been restated to reflect the 5% stock dividend of January 2001.
Three months ended June 30, 2001
-----------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
----------- --------------- -------------
Basic EPS
Income available to common shareholders $3,811,345 10,720,796 $ 0.36
Effect of dilutive securities
Stock options 297,458
---------- ---------- ---------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $3,811,345 11,018,254 $ 0.35
========== =========== =========
Three months ended June 30, 2000
-----------------------------------------------
Income Average shares Per share
(numerator) (denominator) amount
----------- --------------- -------------
Basic EPS
Income available to common shareholders $3,740,370 10,617,420 $ 0.35
Effect of dilutive securities
Stock options 109,879
---------- ---------- ---------
Diluted EPS
Income available to common shareholders
plus assumed exercise of options $3,740,370 10,727,299 $ 0.35
========== =========== =========
EPS is calculated on the basis of the weighted average number of shares
outstanding of 10,720,796 and 10,617,420 for the three months ended June 30,
2001 and 2000, respectively. Per share information and weighted average shares
outstanding have been restated to reflect the 5% stock dividend of January 2001.
10
4. Investment Securities:
---------------------
The carrying value and approximate market value of investment
securities at June 30, 2001 are as follows:
Amortized
Or Gross Gross Approximate
Purchased Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
--------------- ------------ ------------- ---------------- ----------------
Held to maturity:
US agencies $36,313,328 $ - $449,976 $35,863,352 $36,313,328
Corporate debt securities 56,835,775 1,511,822 24,637 58,322,960 56,835,775
---------------
------------ ------------- ---------------- ----------------
$93,149,103 $1,511,822 $474,613 $94,186,312 $93,149,103
=============== ============ ============= ================ ================
Available for sale:
Federal Home Loan
Bank Stock - at cost $4,775,000 $ - $ - $4,775,000 $4,775,000
Preferred and common stock 41,607 13,712 - 55,319 55,319
Other securities 88,705,115 - 4,401,287 84,303,828 84,303,828
--------------- ------------ ------------- ---------------- ----------------
$93,521,722 $13,712 $4,401,287 $89,134,147 $89,134,147
=============== ============ ============= ================ ================
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.
6. Allowance for Credit Losses: Changes in the allowance for credit losses
were as follows:
Three months ended June 30,
2001 2000
--------------- ---------------
Balance at beginning of period, $12,185,902 $12,028,753
Loans charged-off (21,173) (201,339)
Recoveries 83,414 196,384
--------------- ---------------
Net charge-offs and recoveries 62,241 (4,955)
Crusader Acquisition 3,940,000 --
Provision for loan losses -- --
--------------- ---------------
Balance at end of period $16,188,143 $12,023,798
=============== ===============
Continued....
Six months ended June 30,
2001 2000
--------------- ---------------
Balance at beginning of period, $11,972,839 $11,737,337
Loans charged-off (21,173) (201,339)
Recoveries 296,477 237,800
--------------- ---------------
Net charge-offs and recoveries 275,304 36,461
Crusader Acquisition 3,940,000 --
Provision for loan losses -- 250,000
--------------- ---------------
Balance at end of period $16,188,143 $12,023,798
=============== ===============
7. Nonperforming loans
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $6,653,702 and $1,893,742 at June 30, 2001
and 2000, respectively. This increase is primarily due to the
$5,918,402 of non-performing loans acquired through the purchase of
certain assets and liabilities of Crusader Holding Corporation.
Although the Company has non-performing loans of approximately
$6,653,702 at June 30, 2001, management believes it has adequate
collateral to limit its credit risks.
The balance of impaired loans was $153,705 at June 30, 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 June 30, 2001. The income that was
recognized on impaired loans during the six-month period ended June 30,
2001 was $1,741. The cash collected on impaired loans during the period
was $232,229, of which $230,488 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 $10,469. 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.
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 it's wholly owned subsidiaries for the
six month period ended June 30, 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 June 30, 2001 were $917.5 million, an
increase of $287.4 million from the $630.1 million reported at year-end,
December 31, 2000. This increase is primarily due to the $331.3 million of
assets acquired through the purchase of certain assets and liabilities from
Crusader Holding Corporation which was completed on June 22, 2001.
Total loans increased $281.9 million from the $423.9 million level at
December 31, 2000 to $705.8 million at June 30, 2001, of which $236.5 million
was related to the assumption of Crusader Holding Corporation's loan portfolio.
Additionally, approximately $45.4 million of the increase in loans is
attributable to internally generated loan growth in the first six months of
2001. The year-to-date average balance of loans was $423.6 million at June 30,
2001.
The allowance for loan loss increased $4.2 million to $16.2 million at
June 30, 2001 from $12.0 million at December 31, 2000. The level of allowance
for loan loss reserve represents approximately 2.3% of total loans at June 30,
2001 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 the economic and other conditions considered by management in
evaluating the adequacy of the current level of the allowance.
The $26 million increase in total investment securities is primarily
attributable to the purchase of Crusader Holding Corporation's investment
portfolio.
Total deposits, the primary source of funds, increased $220.3 million
to $692.9 million at June 30, 2001, from $472.6 million at December 31, 2000.
This increase in deposits is primarily due to the assumption of deposits from
Crusader Holding Corporation in the amount of $251.0 million, partially offset
by deposit runoff. The balance of brokered deposits was $277.7 million,
representing approximately 40% of total deposits at June 30, 2001.
Consolidated stockholder's equity increased $.7 million to $104.2
million at June 30, 2001 from $103.5 million at December 31, 2000. This increase
is primarily due to net income of $7.7 million, partially offset by a quarterly
cash dividend of $4.4 million. Additionally, stockholder's equity was decreased
$2.5 million due to an adjustment in the market value of available-for- sale
investment securities during the first six 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 effected 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, June 30, 2001 was
$3,811,345 or $.36 basic earnings per share, as compared to net income of
$3,740,370 or $.35 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 loans and the investment portfolio in the second quarter of 2001.
Consolidated net income for the six months ended, June 30, 2001 was $7,725,638
or $.72 basic earnings per share, as compared to net income of $7,066,737 or
$.66 basic earnings per share for the same six month period in 2000. This
increase is primarily due to an increase in interest income relating to loans
and the investment portfolio in 2001.
For the second quarter 2001, net interest income was $8.6 million as
compared to $9.3 million for the same quarter in 2000, a decrease of $0.7
million or 7.4%. This decrease is primarily due to an increase in the average
balance in loans in the second quarter period of 2001 versus the same period in
2000, impacted by lower interest rates experienced in 2001. The balance of
average loans for the second quarter of 2001 was $483.6 million, as compared to
$406.7 million for the same quarter in 2000. This $76.9 million increase in the
average balance of loans represents a 19% increase. Interest income on
investment securities increased $.3 million, a 9.7% 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 $.8 million to $6.4 million as compared to $5.6 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 the second quarter of 2001. For the comparative six-month period, net
interest income decreased $.1 million to $17.2 million for the six months ended
June 30, 2001 as compared to $17.3 million for same six-month period in 2000.
This decrease in net income is primarily due to an increase in the average
balance of loans in 2001 as compared to 2000, offset by a decreased interest
rate environment.
Provision for loan loss was $0 for the second quarter of 2001 and $
250,000 for the same three-month period in 2000, respectively. Charge-offs and
recoveries were $21 thousand and $83 thousand, respectively, for the three-month
period ended June 30, 2001 versus $201 and $196 thousand, respectively, for the
same three-month period in 1999. For the comparative six-month period, provision
for loan loss was $-0- thousand for the six months ended, June 30, 2001 as
compared to $250 for the same six-month period in 2000. Charge-offs and
recoveries were $21 thousand and $296 thousand, respectively, for the six months
ended June 30, 2001 as compared to $201 thousand and $238 thousand respectively
for the same six-month period in 2000. Overall, Management considers the current
level of allowance for loan loss to be adequate at June 30, 2001.
Total non-interest income for the three-month period ended June 30,
2001 was $249 thousand as compared to $303 thousand for the same three-month
period in 2000. The $54 thousand decrease in 2001 is primarily due to a decrease
in gains on sale of real estate. For the comparative six-month period,
non-interest income was $652 thousand for the six-months ended June 30, 2001 as
compared to $635 thousand for the same six-month period in 2000. This decrease
is again primarily due to a decrease in gains on sale of other real estate.
Total non-interest expense for the three months ended June 30, 2001 was
$4.7 million, an increase of $.7 million, or 18%, as compared to $4.0 million
for the same period in 2000. This increase in non-interest expense is primarily
due to an increase in employee benefits, the result of a $.3 million increase in
the reserve for the profit sharing plan recorded in the second quarter of 2001.
For the comparative six-month period, non-interest expense was $8.2 million for
the six-months ended June 30, 2001 as compared to $7.2 million for the same
six-month period in 2000.
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, 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 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:
June 30, 2001 December 31, 2000
------------- -----------------
Capital Levels
Tier 1 leverage ratio 9.78% 18.8%
Tier 1 risk-based ratio 11.04% 20.4%
Total risk-based ratio 11.50% 21.6%
Capital Performance
Return on average assets 2.4% (1) 2.6%
Return on average equity 14.8% (1) 12.8%
(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.
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 32%
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.
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, 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 $ - $ 0.5 $ -- $ -- $ -- $ 0.5
Federal funds sold 6.3 -- -- -- 6.3
Investment securities:
Available for sale - 23.0 1.6 64.5 -- 89.1
Held to maturity - - 58.1 35.0 -- 93.1
------------ ------------ ------------ ------------ ------------ ------------
Total investment securities - 23.0 59.7 99.5 -- 182.2
Loans: (2)
Fixed rate (3) 49.0 45.3 222.2 195.8 -- 512.3
Variable rate 182.0 0.4 11.1 -- -- 193.5
------------ ------------ ------------ ------------ ------------ ------------
Total loans 231.0 45.7 233.3 195.8 -- 705.8
------------ ------------ ------------ ------------ ------------ ------------
Other assets (4) -- -- -- -- 22.7 22.7
------------ ------------ ------------ ------------ ------------ ------------
Total Assets $237.3 $69.2 $ 293.0 $ 295.3 $ 14.1 $917.5
============ ============ ============ ============ ============ ============
Liabilities & Capital
Deposits:
Non interest bearing deposits $ -- $ -- $ -- $ -- $ 50.5 $50.5
Interest bearing deposits (5) 170.1 -- -- -- -- 170.1
Certificate of deposits 28.5 175.3 268.5 -- -- 472.3
------------ ------------ ------------ ------------ ------------ ------------
Total deposits 198.6 175.3 268.5 -- 50.5 692.9
Mortgage and long term borrowings 3.0 -- 100.2 -- -- 103.2
Other liabilities -- -- -- -- 17.2 17.2
Capital -- -- -- -- 104.2 104.2
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities & capital $201.6 $175.3 $ 368.7 $ -- $ 171.9 $917.5
============ ============ ============ ============ ============ ============
Net interest rate GAP $ 35.7 $ (106.1) $(75.7) $295.3 ($ 149.2)
============ ============ ============ ============ ============
Cumulative interest rate GAP $ 35.7 $ (70.4) $(146.1) $149.2 --
============ ============ ============ ============ ============
GAP to total assets 4% -12%
============ ============
GAP to total equity 34% -102%
============ ============
Cumulative GAP to total assets 4% -8%
============ ============
Cumulative GAP to total equity 34% -68%
============ ============
(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 June 30, 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 originating fixed rate loans, a
portion of the loan portfolio continues to be comprised of floating rate loans
with interest rate floors.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible Assets. These statements
are expected to result in significant modifications relative to Company's
accounting for goodwill and other intangible assets. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 must be accounted for
under the purchase method of accounting. SFAS No. 141 was effective upon
issuance. SFAS No. 142 modifies the accounting for all purchased goodwill and
intangible assets. SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangibles assets for impairment rather than amortize them.
SFAS No. 142 will be effective for fiscal years beginning after December 31,
2001 and early adoption is not permitted except for business combinations
entered into after June 30, 2001. The Company is currently evaluating the
provisions of SFAS No. 142, but its preliminary assessment is that these
Statements will not have a material impact on the Company's financial position
or results of operations.
On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and
Documentation Issues. SAB No. 102 provides guidance on the development,
documentation, and application of a systematic methodology for determining the
allowance for loans and leases in accordance with US GAAP. The adoption of SAB
No. 102 is not expected to have a material impact on the Company's financial
position or results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaul
Upon Senior Securities
None
Item 4. Submission of Matters to Vote Security Holders
On Wednesday May 16, 2001, the Annual Meeting of Shareholders of Royal
Bancshares of Pennsylvania was convened in Philadelphia, PA at 6:30 PM. The
following nominees were elected as Class III Directors of the Registrant to
serve for a three-year term:
For Withhold Authority
Albert Ominsky 23,518,184 82,918
Robert R. Tabas 23,519,037 82,918
Anthony Micale 23,519,037 82,918
Gregory T. Reardon 23,519,037 82,918
Jack R. Loew 23,518,184 82,918
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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 14th, 2000 /s/ James J. McSwiggan
-----------------------------------
James J. McSwiggan, CFO & Treasurer
Dated: August 14th, 2000 /s/ Jeffrey T. Hanuscin
-----------------------------------
Jeffrey T. Hanuscin, VP of Finance
ARTICLE 9
MULTIPLIER 1
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END DEC-31-2001
PERIOD-END Jun-30-2001
CASH AND DUE FROM BANK 12,252,504
INT-BEARING-DEPOSITS 0
FED-FUNDS-SOLD 6,345,123
TRADING-ASSETS 0
INVESTMENTS-HELD-FOR-SALE 93,149,103
INVESTMENTS-CARRYING 89,134,147
INVESTMENTS-MARKET 89,134,147
LOANS 705,774,723
ALLOWANCE 16,566,819
TOTAL-ASSETS 917,516,310
DEPOSITS 692,909,188
SHORT-TERM 0
LIABILITIES-OTHER 16,721,030
LONG-TERM 103,225,000
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 82,715,042
OTHER-SE 104,242,314
TOTAL-LIABILITIES-AND-EQUITY 917,516,310
INTEREST-LOAN 22,852,471
INTEREST-INVEST 6,194,079
INTEREST-OTHER 631,929
INTEREST-TOTAL 29,678,479
INTEREST-DEPOSIT 11,484,586
INTEREST-EXPENSE 12,492,636
INTEREST-INCOME-NET 17,185,843
LOAN-LOSSES 0
SECURITIES-GAINS 0
EXPENSE-OTHER 7,158,191
INCOME-PRETAX 9,679,213
INCOME-PRE-EXTRAORDINARY 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 7,725,638
EPS-PRIMARY .72
EPS-DILUTED .70
YIELD-ACTUAL 6.10
LOANS-NON 6,653,702
LOANS-PAST 0
LOANS-TROUBLED 0
LOANS-PROBLEM 153,705
ALLOWANCE-OPEN 11,972,839
CHARGE-OFFS 21,173
RECOVERIES 296,477
ALLOWANCE-CLOSE 16,566,819
ALLOWANCE-DOMESTIC 16,566,819
ALLOWANCE-FOREIGN 0
ALLOWANCE-UNALLOCATED 0