-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HIOxMerAqvLWSRUjuwaWN5AAyZbJNjwE6W7jeCHgF91GaXbXgIjqO0yNZ9RW4TIj hmFap83V67y9IN4kYOJNUg== 0000893220-00-000657.txt : 20000516 0000893220-00-000657.hdr.sgml : 20000516 ACCESSION NUMBER: 0000893220-00-000657 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL BANCSHARES OF PENNSYLVANIA INC CENTRAL INDEX KEY: 0000922487 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 231627866 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26366 FILM NUMBER: 631404 BUSINESS ADDRESS: STREET 1: 732 MONTGOMERY AVE CITY: NARBERTH STATE: PA ZIP: 19072 BUSINESS PHONE: 6106684700 MAIL ADDRESS: STREET 1: 732 MONGTOMERY AVENUE CITY: NARBERTH STATE: PA ZIP: 19072 10-Q 1 FORM 10-Q FOR MARCH 31,2000 1 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, 2000 [ ] 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, 2000 $2.00 PAR VALUE 8,067,132 Class B Common Stock Outstanding at March 31, 2000 $.10 PAR VALUE 1,759,265 2 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS MARCH 31, 2000 DEC 31, 1999 -------------- ------------- Cash and due from banks $ 9,267,525 $ 17,525,462 Federal funds sold 13,000,000 200,000 ------------- ------------- Total cash and cash equivalents 22,267,525 17,725,462 ------------- ------------- Investment securities held to maturity (market value of $73,113,678 at March 31, 2000 and $62,159,860 at December 31, 1999) 75,077,314 83,064,914 Investment securities available for sale - at market value 59,262,896 59,485,027 Total loans 393,605,468 354,818,236 Less allowance for loan losses 12,028,753 11,737,337 ------------- ------------- Net loans 381,576,715 343,080,899 Premises and equipment, net 5,726,812 5,784,708 Accrued interest and other assets 14,261,038 13,395,037 ------------- ------------- $ 558,172,300 $ 522,536,047 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 47,790,379 $ 45,541,164 Interest bearing (includes certificates of deposit in excess Of $100,000 of $145,933,015 at March 31, 2000 and $126,117,263 at December 31, 1999) 366,881,524 335,744,854 ------------- ------------- Total deposits 414,671,903 381,286,018 Accrued interest and other liabilities 14,936,141 14,935,932 Long-term borrowings 30,000,000 30,000,000 Mortgage payable 467,605 479,579 ------------- ------------- Total liabilities 460,075,649 426,701,529 ------------- ------------- Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 8,282,520 at March 31, 2000 and 7,879,349 at December 31, 1999 16,565,040 15,758,698 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,759,265 at March 31, 2000 and 1,683,113 at December 31, 1999 175,927 168,311 Capital surplus 57,484,191 50,865,395 Retained earnings 27,162,351 33,329,374 Accumulated other comprehensive income or (loss) (1,025,651) (2,022,053) ------------- ------------- 100,361,858 98,099,725 Treasury stock - at cost, shares of Class A, 215,388 at March 31, 2000, and December 31, 1999 (2,265,207) (2,265,207) ------------- ------------- 98,096,651 95,834,518 ------------- ------------- $ 558,172,300 $ 522,536,047 ============= =============
The accompanying notes are an integral part of these statements. 2 3 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ----------- Interest income Loans, including fees $10,015,585 $ 8,037,727 Investment securities held to maturity Taxable 1,435,864 1,162,505 Tax-exempt -- 11,115 Investment securities available for sale Taxable 1,333,136 780,831 Tax-exempt -- -- Deposits in banks 900 6,753 Federal funds sold 141,704 81,347 ----------- ----------- TOTAL INTEREST INCOME 12,927,189 10,080,278 ----------- ----------- Interest expense Deposits 4,402,199 2,909,701 Mortgage payable and other 475,000 473,376 Federal funds purchased 17,221 3,001 ----------- ----------- TOTAL INTEREST EXPENSE 4,894,420 3,386,078 ----------- ----------- NET INTEREST INCOME 8,032,769 6,694,200 Increase in provision for loan losses 250,000 -- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,782,769 6,694,200 ----------- ----------- Other income (expense) Service charges and fees 209,014 172,735 Realized gains on sale of investment securities -- -- available for sale Gain on sale of other real estate 53,407 -- Gain on sale of loans -- 3,390 Other income 68,858 84,397 ----------- ----------- 331,279 260,522 ----------- ----------- Other expenses Salaries & wages 1,463,343 1,342,936 Employee benefits 367,291 293,449 Occupancy and equipment 183,898 194,951 Other operating expenses 1,167,261 1,232,904 ----------- ----------- 3,181,793 3,064,240 ----------- ----------- INCOME BEFORE INCOME TAXES 4,932,255 3,890,482 Income taxes 1,605,888 1,167,145 ----------- ----------- NET INCOME $ 3,326,367 $ 2,723,337 =========== =========== Per share data Net income - basic $ .33 $ .27 =========== =========== Net income - diluted $ .32 $ .27 =========== ===========
The accompanying notes are an integral part of these statements. 3 4 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. 4 5 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK CAPITAL SHARES AMOUNT SHARES AMOUNT SURPLUS --------- ----------- --------- -------- ----------- Balance, January 1, 1999 7,429,689 $14,859,378 1,630,544 $163,054 $45,392,659 Net income for the three months ended March 31, -- -- -- -- Conversion of Class B common stock to Class A Common stock 61 122 82 7 -- Purchase of treasury stock -- -- -- -- -- 4% stock dividend declared -- -- -- -- -- Cash dividends on common stock -- -- -- -- -- Cash in lieu of fractional shares -- -- -- -- -- Stock options exercised 2.523 5,046 -- -- 4,311 Other comprehensive income (loss), net of reclassifications and taxes -- -- -- -- -- --------- ----------- --------- -------- ----------- Comprehensive income Balance, March 31, 1999 7,432,273 $14,864,546 1,630,626 $163,063 $45,396,970 ========= =========== ========= ======== ===========
ACCUMULATED OTHER RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE EARNINGS STOCK INCOME (LOSS) INCOME ----------- ----------- -------------- ------------- Balance, January 1, 1999 $34,556,343 $(2,145,085) $1,242,919 Net income for the three months ended March 31, 2,723,337 -- -- $2,723,337 Conversion of Class B common stock to Class A Common stock (130) -- -- -- Purchase of treasury stock -- -- -- -- 4% stock dividend declared -- -- Cash dividends on common stock (1,910,225) -- -- -- Cash in lieu of fractional shares -- -- -- -- Stock options exercised -- -- -- -- Other comprehensive income (loss), net of reclassifications and taxes -- -- (1,006,492) (1,006,492) ----------- ----------- -------------- ------------ Comprehensive income $1,716,845 ============ Balance, March 31, 1999 $35,369,325 $(2,145,085) $236,427 =========== =========== ==============
The accompanying notes are an integral part of this statement. 5 6 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31,
Cash flows from operating activities 2000 1999 ------------ ------------ Net income $ 3,326,367 $ 2,723,337 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 147,553 80,979 Provision (recovery) of loan loss reserve (credit) 250,000 -- Accretion of investment securities discount (92,665) (36,641) Amortization of investment securities premium 114,968 89,087 Amortization of deferred loan fees (63,047) (79,815) Accretion of discount on loans purchased (700,689) (500,639) (Benefit) provision for deferred income taxes 513,314 (518,497) (Gain) loss on other real estate (53,407) -- (Gain) on sale of loans -- (3,390) (Gain) on sale of investment securities -- -- Changes in assets and liabilities: (Increase) decrease in accrued interest receivable (991,370) (472,490) (Increase) decrease in other assets (395,270) (572,436) Increase (decrease) in accrued interest payable 832,197 295,411 Increase in unearned income on loans 59,404 -- Increase (decrease) in other liabilities (831,988) (281,120) ------------ ------------ Net cash provided by operating activities 2,115,367 723,786 Cash flows from investing activities Net (decrease) in interest bearing balances in banks -- -- Proceeds from calls/maturities of HTM investment securities 7,965,297 7,113,059 Proceeds from calls/maturities of AFS investment securities 1,650,000 -- Purchase of HTM investment securities -- (19,739,116) Purchase of AFS investment securities (431,467) (2,532,362) Purchase of loans (18,767,789) -- Net (increase) decrease in loans (19,302,621) (109,512) Purchase of premises and equipment -- (441,649) ------------ ------------ Net cash (used in) provided by investing activities (28,886,580) (15,709,580) Cash flows from financing activities: Net (decrease) in non-interest bearing and interest bearing demand deposits and savings accounts 7,009,437 5,185,091 Net increase (decrease) in certificates of deposit 26,376,448 13,206,373 Mortgage payments (11,974) (7,743) Net (decrease) increase in short term borrowings -- -- Cash dividends (2,119,674) (1,910,217) Cash in lieu of fractional shares -- -- Issuance of common stock under stock option plans 59,039 9,350 Purchase of treasury stock -- -- ------------ ------------ Net cash provided by (used in) financing activities 31,313,276 16,482,854 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 4,542,063 1,497,060 Cash and cash equivalents at beginning of year 17,725,462 19,142,624 ------------ ------------ Cash and cash equivalents at end of period $ 22,267,525 $ 20,639,684 ============ ============
The accompanying notes are an integral part of these statements 6 7 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 inter-company transactions and balances have been eliminated. 1. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in opinion of management, necessary to present a fair statement of the results for the interim periods. Further information is included in the Annual Report on Form 10-K for the year ended December 31, 1999. 2. The results of operations for the three-month period ended March 31, 2000 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. Prior period EPS calculations have been restated to reflect the adoption of SFAS No. 128. Basic and diluted EPS are calculated as follows:
Three months ended March 31, 2000 ------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ---------- -------------- --------- Basic EPS Income available to common shareholders $3,326,367 10,085,748 $ 0.33 Effect of dilutive securities Stock options 171,991 ---------- ---------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,326,367 10,257,739 $ 0.32 ========== ========== =========
(continued) 7 8 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 $2,723,337 9,955,289 $ 0.27 Effect of dilutive securities Stock options 183,991 ---------- ---------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $2,723,337 10,139,280 $ 0.27 ========== ========== =========
EPS is calculated on the basis of the weighted average number of shares outstanding of 10,085,748 and 9,955,289 for the three months ended March 31, 2000 and 1999, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 5% stock dividend of January 2000. 4. Investment Securities: The carrying value and approximate market value of investment securities at March 31, 2000 are as follows:
AMORTIZED OR GROSS GROSS APPROXIMATE PURCHASED UNREALIZED UNREALIZED MARKET CARRYING COST GAINS LOSSES VALUE VALUE ----------- ----------- ----------- ----------- ----------- HELD TO MATURITY: US agencies $ 6,432,465 $ 10,057 $ -- $ 6,442,522 $ 6,432,465 Corporate debt securities 68,644,849 96,332 2,070,025 66,671,156 68,644,849 ----------- ----------- ----------- ----------- ----------- $75,077,314 $ 106,389 $ 2,070,025 $73,113,678 $75,077,314 =========== =========== =========== =========== =========== AVAILABLE FOR SALE: Federal Home Loan Bank Stock - at cost $ 3,169,700 $ -- $ -- $ 3,169,700 $ 3,169,700 Preferred and common stock 1,950,981 9,493 73,000 1,887,474 1,887,474 Other securities 55,696,185 -- 1,490,463 54,205,722 54,205,722 ----------- ----------- ----------- ----------- ----------- $60,816,866 $ 9,493 $ 1,563,463 $59,262,896 $59,262,896 =========== =========== =========== =========== ===========
5. In June 1998, the Financial Accounting Standards 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 imbedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative (gains and losses) depends on the intended use of the derivative and resulting designation. SFAS No. 133 is effective for all fiscal years beginning after June 15, 1999. Earlier application is permitted only as of the beginning of any fiscal quarter. The Company is currently reviewing the provisions of SFAS No. 133. Subsequent to SFAS No. 133, the FASB issued SFAS #137 which amended the effective date of SFAS No. 133 to be all fiscal quarters of all fiscal years 8 9 beginning after June 15, 2000. To date the Company and its subsidiaries have not participated in derivative instruments or hedging activity. 6. Allowance for Credit Losses: Changes in the allowance for credit losses were as follows:
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 ----------- ----------- BALANCE AT JANUARY 1, $11,737,337 $11,919,545 Loans charged-off -- -- Recoveries 41,416 79,179 ----------- ----------- Net charge-offs and recoveries 41,416 79,179 Provision for loan losses 250,000 -- ----------- ----------- BALANCE AT END OF PERIOD $12,028,753 $11,998,724 =========== ===========
7. Nonperforming loans Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $1,602,504 and $3,952,850 at March 31, 2000 and 1999, respectively. Although the Company has non-performing loans of approximately $1,602,504 at March 31, 2000, management believes it has adequate collateral to limit its credit risks. The balance of impaired loans was $186,733 at March 31, 2000. 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, 2000. The income that was recognized on impaired loans during the three-month period ended March 31, 2000 was $1,338. The cash collected on impaired loans during the period was $6,032, of which $4,694 was credited to the principal balance outstanding on such loans. Interest that would have been accrued on impaired loans during this period in 2000 was $2,919. 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. 9 10 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, 2000. 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, the Year 2000 problem, 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, 2000 were $558.2 million, an increase of $35.7 million from the $522.5 million reported at year-end, December 31, 1999. This increase is primarily due to a $38.8 million increase in loans and a $8.3 million increase in cash and cash equivalents, partially offset by $8.2 million decrease in total investment securities. Liabilities increased $33.4 million primarily due to an increase in deposits from December 31, 1999. Total loans increased $38.8 million from the $354.8 million level at December 31, 1999 to $393.6 at March 31, 2000. This $38.8 million increase in total loans was primarily due to a purchase of a $18.8 million loan portfolio in March. This portfolio of 106 performing commercial mortgage loans located primarily in New Jersey and New York, and to a lesser extent, Connecticut and Maine. Additionally, approximately $20.0 million of the increase in loans is attributable to internally generated loan growth in the first quarter of 2000. The allowance for loan loss increased $.3 million to $12.0 million at March 31, 2000 from $11.7 million. The level of allowance for loan loss reserve represents 3% of total loans at March 31, 2000 versus 3.3% at December 31, 1999. 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 10 11 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 $8.2 million decrease in total investment securities is primarily attributable to a $8 million decrease in held-to-maturity ("HTM") investment securities and a $.2 million decrease in available-for-sale ("AFS") investment securities. HTM investment securities are primarily comprised of taxable corporate debt securities, which are rated "BBB" or better by Moody and/or Standard & Poor at the time of purchase. AFS investment securities are comprised primarily of non-rated capital trust security issues of regional banks, rated foreign corporate debt securities and to a lesser extent, preferred and common stock. This $8.2 million decrease in HTM and AFS investment securities is due to scheduled maturities in the first quarter of 2000. Total deposits, the primary source of funds, increased $33.4 million to $414.7 million at March 31, 2000, from $381.3 million at December 31, 1999. This increase in deposits is primarily due to an increase in certificates of deposits of $26.4 million, in addition to a $4.0 million increase in NOW and money market deposits. The $26.4 million increase in certificates of deposits was primarily due to a $18.3 million increase in brokered deposits in 2000. The balance of brokered deposits was $125.9 million, representing approximately 30% of total deposits at March 31, 2000. Consolidated stockholder's equity increased $2.3 million to $98.1 million at March 31, 2000 from $95.8 million at December 31, 1999. This increase is primarily due to net income of $3.3 million, partially offset by a quarterly cash dividend of $2.1 million. Additionally, stockholder's equity was increased $1.0 million due to an upward adjustment in the market value of available-for- sale investment securities during the first quarter of 2000. 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, March 31, 2000 was $3,326,367 or $.33 basic earnings per share, as compared to net income of $2,723,337 or $.27 basic earnings per share for the same three month period in 1999. This increase is primarily due to an increase in interest income relating to loans and the investment portfolio in the first quarter of 2000. For the first quarter 2000, net interest income was $8.0 million as compared to $6.7 million for the same quarter in 1999, an increase of $1.3 million or 19%. This increase is primarily due to an increase in the average balance in loans in the first quarter period of 2000 versus the same period in 1999. The balance of average loans for the first quarter of 2000 was $372.7 million, as compared 11 12 to $312.5 million for the same quarter in 1999. This $60.2 million increase in the average balance of loans represents a 19% increase. Interest income on investment securities increased $.9 million, a 41% increase over the same three month period in 1999, which is primarily due to the increase in the average balance in investment securities. Total interest expense on deposits and borrowings increased $1.5 million to $4.9 million as compared to $3.4 million for the same three-month period in 1999. This increase in interest expense is primarily due to an increase in the average balance of certificates of deposits in 2000. The increase in the average balance of certificates of deposits is primarily due to the increase in higher costing brokered certificates of deposits in 2000. Provision for loan loss was $.3 million for the first quarter of 2000 as compared to $-0- for the same period in 1999. Charge-offs and recoveries were $-0- thousand and $41 thousand, respectively, for the three month period ended March 31, 2000 versus $0 and $79 thousand, respectively, for the same period in 1999. Overall, Management considers the current level of allowance for loan loss to be adequate at March 31, 2000. Total non-interest income for the three-month period ended March 31, 2000 was $331 thousand as compared to $261 thousand for the same period in 1999. The $71 thousand increase is primarily due to a gain on sale of foreclosed property, in addition to a modest increase in service charges on deposits in the first quarter of 2000. Total non-interest expense for the three months ended March 31, 2000 was $3.2 million, an increase of $.1 million, or 3%, as compared to $3.1 million for the same period in 1999. This increase in non-interest expense is primarily due to an increase in salaries and employee benefits totaling $.2 million for the first three months in 2000. This increase is partially offset by a decrease in other operating expenses and occupancy expense totaling of $.1 million. 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 34% 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, 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 12 13 environment. The following table shows separately the interest sensitivity of each category of interest earning assets and interest bearing liabilities as of March 31, 2000:
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 13.0 -- -- -- 13.0 Investment securities: Available for sale 4.0 -- 11.5 42.7 1.0 59.2 Held to maturity 2.4 8.5 47.1 17.0 -- 75.0 ------ ------ ------ ------ ------ ------ Total investment securities 6.4 8.5 58.6 59.7 1.0 134.2 Loans: (2) Fixed rate (3) 6.2 28.0 126.8 39.0 -- 200.0 Variable rate 181.3 1.3 12.0 5.7 -- 200.3 ------ ------ ------ ------ ------ ------ Total loans 187.5 29.3 138.8 44.7 -- 400.3 Other assets (4) -- -- -- -- 10.2 10.2 ------ ------ ------ ------ ------ ------ Total Assets $207.4 $ 37.8 $197.4 $104.4 $ 11.2 $558.2 ====== ====== ====== ====== ====== ====== LIABILITIES & CAPITAL Deposits: Non interest bearing deposits $ -- $ -- $ -- $ -- $ 48.5 $ 48.5 Interest bearing deposits (5) 58.6 -- 42.1 -- -- 100.7 Certificate of deposits 16.0 66.0 183.5 -- -- 265.5 ------ ------ ------ ------ ------ ------ Total deposits 74.6 66.0 225.6 -- 48.5 414.7 Mortgage and long term borrowings -- -- 30.5 -- -- 30.5 Other liabilities -- -- -- -- 15.0 15.0 Capital -- -- -- -- 98.0 98.0 ------ ------ ------ ------ ------ ------ Total liabilities & capital $ 74.6 $ 66.0 $256.1 $ -- $161.5 $558.2 ====== ====== ====== ====== ====== ====== Net interest rate GAP $132.8 $(28.2) $(58.7) $104.4 ($150.3) ====== ====== ====== ====== ====== Cumulative interest rate GAP $132.8 $104.6 $ 45.9 $(150.3) -- ====== ====== ====== ====== ====== GAP to total assets -24% -5% ====== ====== GAP to total equity 136% -29% ====== ====== Cumulative GAP to total assets 24% 19% ====== ====== Cumulative GAP to total equity 136% 107% ====== ======
(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, 2000. (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. 13 14 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, 2000, 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, 2000 DECEMBER 31, 1999 -------------- ----------------- CAPITAL LEVELS Tier 1 leverage ratio 18.5% 18.8% Tier 1 risk-based ratio 19.4% 20.4% Total risk-based ratio 20.7% 21.6% CAPITAL PERFORMANCE Return on average assets 2.5% (1) 2.6% Return on average equity 13.7% (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. 14 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO VOTE SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 27. Financial Data Schedule 15 16 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 12th, 2000 /s/ James J. McSwiggan ----------------------------------------------------- James J. McSwiggan, CFO & Treasurer Dated: May 12th, 2000 /s/ David J. Greenfield ----------------------------------------------------- David J. Greenfield, Controller & VP 16 EX-27 2 FDS
9 1 3-MOS DEC-31-2000 MAR-31-2000 9,267,525 184,000 13,000,000 0 59,262,896 75,077,314 73,113,678 393,605,468 12,028,753 558,172,300 414,671,903 0 14,936,141 30,467,605 0 0 16,740,967 81,355,684 558,172,300 10,015,585 2,769,000 142,604 12,927,189 4,402,199 4,894,420 8,032,769 250,000 0 3,181,793 4,932,255 0 0 0 3,326,367 .33 .32 5.93 1,602,504 0 12,714 186,733 11,737,337 0 41,416 12,028,753 12,028,753 0 0
-----END PRIVACY-ENHANCED MESSAGE-----