THIS DOCUMENT IS A CONFIRMING COPY OF THE FORM 10-Q QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 PREVIOUSLY FILED BY PAPER ON
NOVEMBER 12, 1996.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended: SEPTEMBER 30, 1996
---------------------
[ ] 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 September 30, 1996
- -------------------- ----------------------------------
$2.00 PAR VALUE 6,587,327
Class B Common Stock Outstanding at September 30, 1996
- -------------------- ---------------------------------
$.10 PAR VALUE 1,600,178
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPT 30, 1996 DEC 31, 1996
------------- ------------
ASSETS
Cash and due from banks $ 8,305,483 $ 9,320,012
Federal funds sold 17,600,000 37,325,000
----------- -----------
Total cash and cash
equivalents 25,905,483 46,645,012
----------- -----------
Interest bearing deposits
in banks 1,023,752 718,751
Investment securities held
to maturity (market value
of $111,842,746 @ 9/30/96
& 104,636,075 @ 12/31/95) 111,915,025 103,462,796
Invest securities available
for sale - at market
value 3,623,507 970,336
Total loans 197,099,994 198,419,480
Less allowance for loan
losses 9,751,911 9,746,559
----------- -----------
Net loans 187,348,083 188,672,921
Other real estate, net 350,452 612,249
Premises and equipment, net 4,576,961 4,427,248
Accrued interest and other
assets 11,612,396 10,754,527
----------- -----------
$346,355,659 $356,263,840
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 34,655,677 $ 34,113,344
Interest bearing
(includes certificates
of deposit in excess
of $100,000 of
$22,516,606 at 9/30/96
and $22,850,705 at
12/31/95) 210,631,625 234,128,196
------------- -------------
Total deposits 245,287,302 268,241,540
Accrued interest and
other liabilities 12,849,847 7,849,273
Long-term borrowings 4,832,000 2,332,000
Mortgage payable 622,760 652,367
------------- -------------
Total liabilities 263,591,909 279,075,180
------------- -------------
Stockholders' equity
Common stock
Class A, par value
$2 per share; authorized,
18,000,000 shares;
issued, 6,587,327 @ 9/30/96
& 6,086,554 @ 12/31/95 13,174,654 12,173,108
Class B, par value $.10
per share; authorized,
2,000,000 shares; issued,
1,600,178 @ 9/30/96
& 1,529,100 @ 12/31/95 160,018 152,910
Capital surplus 13,380,530 12,450,320
Retained earnings 57,571,271 52,412,886
Accumulated unrealized
loss on investment
securities available for
sale (45,557) (564)
------------- -------------
84,240,916 77,188,660
Less: Treasury stock
- at cost, shares of
Class A,148,096 @ 9/30/96,
-0- @ 12/31/95 1,477,166 --
------------- -------------
82,763,750 7,188,660
------------- -------------
$346,355,659 $356,263,840
============= ============
The accompanying notes are an integral part of these statements.
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPT 30,
1996 1995
---------------------------
Interest income
Loans, including fees $8,486,326 $5,676,335
Investment securities
Taxable 1,526,420 1,325,332
Tax-exempt 14,750 182,718
Securities available
for sale 84,998 31,783
Deposits in banks 22,933 43,530
Federal funds sold 273,634 273,841
US Treasury and agencies 217,709 381,712
----------- ----------
TOTAL INTEREST INCOME 10,626,770 7,915,251
----------- ----------
Interest expense
Deposits 2,390,527 2,629,165
Mortgage payable and other 101,755 73,760
Federal funds purchased - -
----------- ----------
TOTAL INTEREST EXPENSE 2,492,282 2,702,925
----------- ----------
NET INTEREST INCOME 8,134,488 5,212,326
Provision for loan losses (1,000,000) -
----------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR
LOAN LOSSES 9,134,488 5,212,326
----------- ----------
Other income (expense)
Service charges and fees 250,940 212,484
Gain on sale of other
real estate 51,462 139,529
Gain on sale of loans 14,003 26,432
Other income 90,230 76,753
----------- ----------
406,635 455,198
----------- ----------
Other expenses
Salaries & wages 1,132,401 1,188,022
Employee benefits 1,831,560 133,528
Occupancy and equipment 168,061 187,427
Other operating expenses 1,719,304 1,178,172
----------- ----------
4,851,326 2,687,149
----------- ----------
INCOME BEFORE INCOME TAXES 4,689,797 2,980,375
Income taxes 1,583,964 839,188
----------- ----------
NET INCOME $3,105,833 $2,141,187
=========== ==========
Per share data
Net income $.37 $.26
=========== ==========
Average number of
shares outstanding 8,310,610 8,309,726
=========== ==========
The accompanying notes are an integral part of these statements.
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPT. 30,
1996 1995
------------------------------
Interest income
Loans, including fees $19,663,500 $15,430,148
Investment securities
Taxable 4,397,840 3,975,155
Tax-exempt 42,203 607,712
Securities available for sale 251,223 49,634
Deposits in banks 77,779 81,999
Federal funds sold 807,892 668,748
US Treasury and agencies 873,810 381,712
----------- ----------
TOTAL INTEREST INCOME 26,114,247 21,195,108
----------- ----------
Interest expense
Deposits 7,254,955 6,605,446
Mortgage payable and other 242,704 203,017
Federal funds purchased - 4,876
---------- ----------
TOTAL INTEREST EXPENSE 7,497,659 6,813,339
---------- ----------
NET INTEREST INCOME 18,616,588 14,381,769
Provision for loan losses (1,000,000) -
----------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 19,616,588 14,381,769
---------- ----------
Other income (expense)
Service charges and fees 758,988 546,592
Gain on sale of other real estate 2,001,185 654,977
Gain on sale of loans 416,878 54,024
Other income 710,668 138,833
---------- ----------
3,887,719 1,394,426
---------- ----------
Other expenses
Salaries & wages 3,594,930 2,974,092
Employee benefits 4,618,400 423,412
Occupancy and equipment 498,033 381,033
Other operating expenses 3,942,216 3,484,457
---------- ----------
12,653,579 7,262,994
---------- ----------
INCOME BEFORE INCOME TAXES 10,850,728 8,513,201
Income taxes 3,432,243 2,348,110
---------- ----------
NET INCOME $7,418,485 $6,165,091
========== ==========
Per share data
Net income $.92 $.76
========== ==========
Average number of shares
outstanding 8,095,865 8,203,124
========== ==========
The accompanying notes are an integral part of these statements.
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
Class A Commn Stock
--------------------
Shares Amount
-------- ---------
Balance, December 31, 1995 6,086,554 $12,173,108
Net income for the nine months
ended Sept 30, 1996 - -
Conversion of Class B common
stock to Class A common stock 23,554 47,107
6% stock dividends declared 365,229 730,458
Cash in lieu of fractional shares - -
Employee stock options exercised 111,991 223,982
Purchase of treasury stock - -
Cash dividends on common stock - -
Net unrealized loss on securities - -
-------- -----------
Balance, September 30, 1996 6,587,328 $13,174,655
========= ===========
Class B Common Stock
-------------------------
Shares Amount
---------- -----------
Balance, December 31, 1995 1,529,100 $ 152,910
Net income for the nine months
ended Sept. 30, 1996 -
Conversion of Class B common stock
to Class A common stock (20,561) (2,056)
6% stock dividends declared 91,641 9,164
Cash in lieu of fractional shares - -
Employee sstock options exercised
Purchase of treasury stock - -
Cash dividends on common stock - -
Net unrealized loss on securities
available for sale - -
----------- ------------
1,600,180 $ 160,018
=========== ============
Capital Retained
Surplus Earnings
---------- ------------
Balance, December 31, 1995 $12,450,320 $52,412,886
Net income for the nine months
ended Sept. 30, 1996 - 7,418,485
Conversion of Class B common stock
to Class A common stock - (45,051)
6% stock dividends declared - (739,622)
Cash in lieu of fractional shares - (2,098)
Employee stock options exercised 930,210
Purchase of treasury stock - -
Cash dividends on common stock - (1,473,329)
Net unrealized loss on securities
available for sale - -
------------ --------------
Balance, September 30, 1996 $13,380,530 $57,571,271
============ ==============
Net
unrealized
loss on
securities
Treasury available
stock for sale
----------- ---------------
Balance, December 31, 1995 $ - $ (564)
Net income for the nine months
ended Sept. 30, 1996 - -
Conversion of Class B common stock
to Class A common stock
6% stock dividends declared - -
Cash in lieu of fractional shares - -
Employee stock options exercised - -
Purchase of treasury stock (1,477,166) -
Cash dividends on common stock - -
Net unrealized loss on securities
available for sale - (44,993)
------------- ---------------
$(1,477,166) $ (45,557)
============= ===============
The accompanying notes are an integral part of this statement.
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------- --------
Cash flows from operating activities
Net income $7,418,485 6,165,091
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 319,523 186,920
Provision for loan losses (1,000,000) -
Accretion of investment
securities discount (77,503) (67,472)
Amortization of investment
securities prem 515,487 108,461
Amortization of deferred loan fees (90,366) (84,894)
Accretion of discount on loans
purchased (1,078,281) (913,516)
(Benefit) provision for deferred
income taxes (636,181) (3,088,528)
Loss (gain) on sale of equipment - 4,104
(Gain) loss on other real estate (1,969,201) (600,359)
Gain on sale of loans (416,878) (54,024)
(Increase) decrease in accrued
interest rec (416,711) (1,466,853)
(Increase) decrease in other assets 1,606,390 1,656,265
Increase (decrease) in accrued
interest pay 515,194 1,057,857
Increase in unearned income on loans 128,441 206,571
Increase (decrease) in other
liabilities 4,485,380 1,308,252
----------- -----------
Net cash provided by operating
activities 9,303,779 4,417,875
Cash flows from investing activities
Net increase in int bearing balances
in banks (495,001) (640,061)
Proceeds from calls and maturities of
investment securities
held to maturity 8,802,031 19,107,212
Purchase of investment securities
held to maturity (17,502,243) (40,697,004)
Purchase of loans - (51,493,946)
Purchase of securities
available for sale (2,653,171) -
Net decrease in loans 2,370,552 6,485,168
Purchase of premises and equipment (469,235) (834,707)
Proceeds from sale and payments
on other real est 2,230,997 4,271,198
----------- -------------
Net cash (used in) provided by
investing activities (7,716,070) (63,802,140)
Cash flows from financing activities
Net (decrease) increase in short-term
borrowings - (21,000,000)
Net increase (decrease) in
non-interest bearing &
interest bearing demand
deposits and savings a/cs (13,168,412) 19,283,227
Net increase (decrease) in
certificates of deposit (9,785,826) 41,959,218
Mortgage payments (29,607) (27,359)
Cash dividends in lieu of
fractional shares (2,098) (2,073)
Purchase of treasury stock (1,477,165) -
Net increase in long-term borrowings 2,500,000 -
Issuance of common stock under stock
option plans 1,154,192 41,681
Cash dividends (1,473,330) (470,356)
Retirement of purchased
treasury stock - (843,986)
Other (44,992) -
------------ ------------
Net cash provided by (used in)
financing activities (22,327,238) 38,940,352
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (20,739,529) (20,443,913)
Cash and cash equivalents at
beginning of year 46,645,012 47,137,320
------------ -------------
Cash and cash equivalents at
end of year $25,905,483 $26,693,407
=========== ===========
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 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 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, 1995.
2. The results of operations for the three and nine month
periods ended September 30, 1996 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 8,310,610 and 8,309,726 for the three months
ended, September 30, 1996 and 1995, respectively, and 8,095,865 and
8,203,124 for the nine months ended September 30, 1996 and 1995,
respectively.
4. Investment Securities:
The carrying value and approximate market value of
investment securities at September 30, 1996 are as follows:
Amortized
or Gross Gross Approximate
purchased unrealized unrealized market Carrying
cost gains losses value value
--------- --------- ---------- ----------- --------
Available for sale:
- -------------------
Common stock $1,063,982 $ 1,269 $ 244 $ 1,065,007 $1,065,007
Preferred stock 2,628,550 - 70,050 2,558,500 2,558,500
---------- ---------- ---------- ----------- ----------
$3,692,532 $ 1,269 $ 70,294 $ 3,623,507 $3,623,507
========== ========== ========== =========== ==========
Held to maturity:
- -----------------
US Treasury &
agencies $16,434,344 $ 94,518 $ 43,480 $16,485,382 $ 16,434,344
State &
municipal 496,930 88,170 - 585,100 496,930
Corporate debt
securities 94,983,751 313,457 534,120 94,763,088 94,983,751
------------ --------- --------- ------------ ------------
$111,915,025 $ 496,145 $ 577,600 $111,833,570 $111,915,025
============ ========= ========= ============ ============
5. Allowance for Credit Losses: Changes in the allowance for credit
losses were as follows:
THREE MONTHS ENDED SEPT. 30,
----------------------------
1996 1995
BALANCE AT JUNE 30, $9,655,867 $8,966,818
Loans charged -off (204,623) (21,312)
Recoveries 1,300,667 52,439
----------- ----------
Net charge-offs and recoveries 1,096,044 31,127
Addition due to Knoblauch merger - 912,250
----------- ----------
Provision for loan losses (1,000,000) -
----------- ----------
BALANCE AT END OF PERIOD $9,751,911 $9,910,195
========== ==========
NINE MONTHS ENDED SEPT. 30,
---------------------------
1996 1995
BALANCE AT BEGINNING OF YEAR $9,746,559 $8,991,617
Loans charged-off (471,104) (71,312)
Recoveries 1,476,456 77,640
----------- -----------
Net charge-offs and recoveries 1,005,352 6,328
Addition due to Knoblauch merger - 912,250
----------- ----------
Provision for loan losses (1,000,000) -
----------- ----------
BALANCE AT END OF PERIOD $9,751,911 $9,910,195
========== ==========
6. Loans on which the accrual of interest has been discontinued
or reduced amounted to approximately $4,052,681 and $7,708,477 at
September 30, 1996 and 1995, respectively. Loan balances past due 90 days or
more that are not on a non-accrual status, but management expects will
eventually be paid in full amounted to approximately $0 at September 30, 1996
and $391,257 at September 30, 1995. Although the Company has non-performing
loans of approximately $4,052,681 at September 30, 1996, management believes
it has adequate collateral to limit its credit risks.
The balance of impaired loans was $2,766,983 at September 30, 1996.
The Company identified a loan impaired when it is probable that interest
and principal will not be collected according to the contractual terms of
the loan agreements. The allowance for credit loss associated with
impaired loans was $ -0- at September 30, 1996. The income recognized on
impaired loans during the nine month period ended September 30, 1996
was $3,984.
The cash collected on impaired loans during this nine month period was
$269,326, of which $265,342 was credited to the principal balance outstanding on
such loans. Interest that would have been accrued on impaired loans during this
nine month period in 1996 was $81,411. 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 its wholly owned
subsidiaries for the nine month period ended September 30, 1996.
FINANCIAL CONDITION
- -------------------
Total assets as of September 30, 1996 were $346.4 million, a
decrease of $9.9 million from the $356.3 million reported at year end,
December 31, 1995. This decrease is primarily due to decreases in cash and cash
equivalents and loans of $20.7 million, partially offset by a $11.1 million
increase in investment securities.
The decrease in cash and equivalents of $20.7 million is primarily
attributable to the purchase of investment securities and the funding of
maturing deposits in the first quarter of 1996. Total loans decreased $1.3
million to $197.1 million from $198.4 million at December 31, 1995. This
decrease is primarily due to maturities, payoffs and amortization
of loan principal, partially offset by loan originations. Investment
securities increased $11.1 million primarily due to the purchase of
corporate bonds and preferred stock. Other real estate decreased $471
thousand due to the sale of properties, in addition to a reduction of
new property foreclosures in 1996. The allowance for loan loss decreased
$158 thousand, due to chargeoffs and negative provision of $1 million in
the third quarter, to $9.7 million which represents 5% of total loans.
Total deposits, the primary source of funds, decreased $23 million to
$245.3 million at September 30, 1996, from $268.2 million at December 31,
1995. This decrease is primarily due to runoff experienced in
certificates of deposits totaling $26.1 million. FHLB advances increased
$2.5 million due to an advance taken in March, 1996 for $2.5 million for a
term of ten years. Other liabilities increased $5 million, partially
attributable to the establishment of a reserve of approximately $2.5 million
relating to stock appreciate rights arising from the Stock Option and
Appreciation Plan. This Plan provides employees compensation in the form of
options to purchase shares of the Company's common stock. At the time an
option is granted, an identical number of stock appreciation rights are
granted, which enable the recipient on exercise, to receive payment in cash
of increases in the market value of the stock from the date of grant.
Accordingly, the Company has accrued approximately $2.5 million in the first
nine months of 1996 toward the difference between current fair market values
and the values at the stock appreciation grant date.
Stockholder's equity increased $5.6 million to $82.8 million
at September 30, 1996 from $77.2 million at December 31, 1995. This increase
is primarily due net income of $7.4 million for the nine months period of
1996, partially offset by cash dividends of $1.5 million. Additionally, in
1996 the Company repurchased 148,096 shares of the Company's class A common
stock at a cost of $1.5 million which is reflected as treasury stock, and an
adjustment for accumulated unrealized loss on available for sale investment
securities of $44 thousand. These decreases were partially offset by a $1.2
million increase due to stock options exercised in the third quarter of
111,991 shares.
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 46%
and exceeds the Company's peer group levels and target ratio set forth in the
Asset/Liability Policy. The Company's level of liquidity is provided by
funds invested primarily in corporate bonds, US Treasuries and
agencies, and to a lesser extent, obligations of state and political
subdivisions and federal funds sold. The overall liquidity position is
monitored on a monthly basis.
Interest rate sensitivity is a function of the repricing
characteristics of the Company's assets and liabilities. These include the
volume of assets and liabilities repricing, the timing of the repricing, and
the interest rate sensitivity gaps is a continual challenge in a changing rate
environment. The following table shows separately the interest sensitivity of
each category of interest earning assets and interest bearing liabilities as of
September 30, 1996:
INTEREST SENSITIVITY ANALYSIS
(in thousands) REPRICING PERIODS
-----------------------------------------
ONE YEAR NON RATE
WITHIN THRU SENSITIVE
ASSETS ONE FIVE AND OVER
YEAR YEARS FIVE YEARS TOTAL
------ ------- ----------- ------
Interest bearing deposits
with banks $1.6 $ $ $1.6
Federal funds sold 17.6 - - 17.6
Securities available for
sale 3.6 - - 3.6
Securities held to maturity 48.0 53.1 10.8 111.9
Loans 61.6 100.3 38.8 200.7
Other assets - - 10.9 10.9
------ ------ ----- ------
TOTAL ASSETS $132.4 $153.4 $60.5 $346.3
LIABILITIES AND CAPITAL
Non-interest bearing
deposits $ - - $34.3 $34.3
Interest bearing deposits: 113.2 41.2 56.2 210.6
Borrowed funds 1.3 1.7 2.5 5.5
Other liabilities - - 12.8 12.89
Stockholders' equity - - 83.1 83.1
------ ------ ----- --------
TOTAL LIABILITIES AND
CAPITAL $114.5 $42.9 $188.9 $346.3
Interest rate sensitivity
gap $17.9 $110.5 $(128.4) $ -
------- ------- ------- ---------
Cumulative interest rate
sensitivity gap $17.9 $128.4 $ -
------- -------- ------- ---------
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.
RESULTS OF OPERATIONS
- ---------------------
Net income for the three months ended, September 30, 1996
was $3,105,833 or $.37 per share, as compared to net income of $2,141,187 or
$.26 per share, for the same three month period in 1995. Net income for the
nine months ended September 30, 1996 was $7,418,485, or $.92 per share, as
compared to $6,165,091, or $.76 per share, for the same nine month period in
1995. These increases are primarily attributable to an increase in net
interest income in addition to income relating to loan recoveries recorded in
the third quarter of 1996.
Net interest income increased $2.9 million to $8.1 million for the
third quarter of 1996 as compared to $5.2 million for the same period
ended, 1995. For the comparative nine month period, net interest income
increased $4.2 million to $18.6 million as compared to $14.8 million for the
same period in 1995. These increases are primarily attributable to interest
recoveries arising from the repayment of a large loan, partially charged in
prior periods, and an increase in an average earning assets relating to the
acquisition of Knoblauch State Bank ("KSB") in 1995. These increases are
comprised of $4.3 million and $2.8 million in interest income and fees on
loans for the respective three and nine month periods. The year to date
average balance of loans for the three and nine months ended September 30,
1996 were approximately and $196 million and $198.2 million, respectively,
as compared to $203.5 and $178.2 for the same periods in 1995. Additionally,
there was a $.1 million decrease and a $.6 million increase in interest and
dividends on investment securities and interest bearing time deposits at
banks for the respective three and nine month periods. These increases were
partially offset by a $.5 million and $.7 million increase in interest
expense on deposits for the respective three and nine month periods. The
year to date average balance of deposits for the three and nine months
ended September 30, 1996 were approximately $254.3 million and $256.1
million, respectively, as compared to $190.8 and $191.9 million for same
periods in 1995.
Due to recoveries exceeding charge-offs by $1.3 million for
the third quarter, a recovery from allowance for loan loss of a $1 million
(credit) was recorded in the third quarter of 1996, primarily due to
Management's assessment that the level of reserves are adequate.
Total non interest income for the three months ended September 30,
1996 was $.4 million, a decrease of $.1 as compared to $.5 million for the
same period in 1995. For the comparative nine month period, non interest
income was $3.9 million, an increase of $2.5 million as compared to $1.4 million
for the same nine month period in 1995. These increases are primarily due to
an increase in gains on sale of other real estate and loans in 1996.
Additionally, there was an increase on service charges and fees on deposit
accounts primarily due to the acquisition of KSB.
Total non interest expenses for the three months ended September 30,
1996was $4.9 million, an increase of $2.2 million, as compared to $2.7 million
for the same period in 1995. For the comparative six month period ended
September 30, 1996, non-interest expense was $12.7 million, a $5.4 million
increase, as compared to $7.3 million for the same nine month period in 1995.
These increases are partially attributable to salaries and employee
benefits due to an increase in staffing expenses attributable to the KSB
acquisition, in addition to an expense recorded relating to the establishment of
a reserve for the Stock Option and Appreciation Right Plan.
The Company has a Stock Option and Appreciation Right Plan which
provides employees compensation in the form of options to purchase shares
of the Company's common stock. At the time an option is granted, an
identical number of stock appreciation rights are granted, which enable the
recipient on exercise, to receive payment in cash of increases in the market
value of the stock from the date of grant. Accordingly, the Company accrued
$2.4 million relating to these stock appreciation rights as employee benefits
expense in the current period toward the difference between current market
values and the values at the grant date.
Occupancy expenses decreased $.1 million for the three month period
due to the closure of a branch in October, 1995, while occupancy expense
increased $.1 million for the nine month comparative periods with the newly
acquired office locations in the KSB acquisition. Other operating expenses
increased $.5 million for both the respective three and nine month periods
ended September 30, 1996 and are partially attributable to an increase in legal
fees in addition to increased costs associated with the operation of the newly
acquired office locations in the KSB acquisition.
CAPITAL ADEQUACY
- ---------------
The company is required to maintain minimum amounts of capital to
total "risk weighted" assets and a minimum Tier 1 leverage ratio, as
defined by the banking regulators. At September 30, 1996, 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:
SEPT. 30, 1996 DECEMBER 31, 1995
CAPITAL LEVELS
Tier 1 leverage ratio 23.89% 22.2%
Tier 1 risk-based 29.08% 27.7%
ratio
Total risk-based ratio 30.36% 29.0%
CAPITAL PERFORMANCE
Return on average 2.9%(1) 2.6%
assets
Return on average 12.5.%(1) 11.1%
equity
(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 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.
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
- ----------------------------------------
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: November 15th, 1996
/s/ JAMES J. MCSWIGGAN
-------------------------------------------------------
James J. McSwiggan, Chief Financial Officer and Treasurer
Dated: November 15th, 1996
/s/ DAVID J. GREENFIELD
---------------------------------------------------------
David J. Greenfield, Controller