-----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, NBah0ifCTM8opMT8FCEXujMcEgU18C4Xp0o4QQpRiUv82u2QMf0m6xuilyKcySRv IyA2iBTAi5hrTcVTQYCFCg== /in/edgar/work/0000893220-00-001245/0000893220-00-001245.txt : 20001114 0000893220-00-001245.hdr.sgml : 20001114 ACCESSION NUMBER: 0000893220-00-001245 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL BANCSHARES OF PENNSYLVANIA INC CENTRAL INDEX KEY: 0000922487 STANDARD INDUSTRIAL CLASSIFICATION: [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: 758240 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 w42336e10-q.txt 10-Q FOR ROYAL BANK FOR 9/30/00 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: SEPTEMBER 30, 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 September 30, 2000 -------------------- --------------------------------- $2.00 PAR VALUE 8,194,498 Class B Common Stock Outstanding at September 30, 2000 -------------------- --------------------------------- $.10 PAR VALUE 1,700,280
2 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS SEPT. 30, 2000 DEC 31, 1999 -------------- ------------ Cash and due from banks $ 11,583,863 $ 17,525,462 Federal funds sold 44,450,000 200,000 ------------- ------------- Total cash and cash equivalents 56,033,863 17,725,462 ------------- ------------- Investment securities held to maturity (market value of $57,374,194 at September 30, 2000 and $81,493,670 at December 31, 1999) 57,688,806 83,064,914 Investment securities available for sale - at market value 70,757,550 59,485,027 Total loans 407,277,826 354,818,236 Less allowance for loan losses 12,212,566 11,737,337 ------------- ------------- Net loans 395,065,260 343,080,899 Premises and equipment, net 6,328,769 5,784,708 Accrued interest and other assets 13,620,572 13,395,037 ------------- ------------- $ 599,494,820 $ 522,536,047 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 45,108,279 $ 45,541,164 Interest bearing (includes certificates of deposit in excess of $100,000 of $153,074,403 at September 30, 2000 and $126,117,263 at December 31, 1999) 403,268,681 335,744,854 ------------- ------------- Total deposits 448,376,960 381,286,018 Accrued interest and other liabilities 19,591,455 14,935,932 Long - term borrowings 30,000,000 30,000,000 Mortgage payable 443,607 479,579 ------------- ------------- Total liabilities 498,412,022 426,701,529 ------------- ------------- Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 8,409,886 at September 30, 2000 and 7,879,349 at December 31, 1999 16,819,772 15,758,698 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,700,280 at September 30, 2000 and 1,683,113 at December 31, 1999 170,028 168,311 Capital surplus 57,710,432 50,865,395 Retained earnings 30,141,764 33,329,374 Accumulated other comprehensive income or (loss) (1,493,991) (2,022,053) ------------- ------------- 103,348,005 98,099,725 Treasury stock - at cost, shares of Class A, 215,388 at September 30, 2000, and December 31, 1999 (2,265,207) (2,265,207) ------------- ------------- 101,082,798 95,834,518 ------------- ------------- $ 599,494,820 $ 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 SEPTEMBER 30, ------------- 2000 1999 ---- ---- Interest income Loans, including fees $11,729,273 $ 8,275,430 Investment securities held to maturity Taxable 1,192,987 1,600,493 Tax-exempt -- 11,115 Investment securities available for sale Taxable 1,605,980 1,352,376 Tax-exempt -- -- Deposits in banks 2,572 2,205 Federal funds sold 473,799 106,044 ----------- ----------- TOTAL INTEREST INCOME 15,004,611 11,347,663 ----------- ----------- Interest expense Deposits 5,380,403 3,548,922 Mortgage payable and other 465,083 470,490 Federal funds purchased -- -- ----------- ----------- TOTAL INTEREST EXPENSE 5,845,486 4,019,412 ----------- ----------- NET INTEREST INCOME 9,159,125 7,328,251 Increase in provision for loan losses -- -- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,159,125 7,328,251 ----------- ----------- Other income (expense) Service charges and fees 235,686 253,437 Realized gains on sale of investment securities available for sale -- -- Gain on sale of other real estate -- 193,883 Gain on sale of loans -- -- Other income 88,185 567,331 ----------- ----------- 323,871 1,014,651 ----------- ----------- Other expenses Salaries & wages 1,634,365 1,280,949 Employee benefits 689,796 496,723 Occupancy and equipment 184,058 164,024 Other operating expenses 1,318,447 1,225,390 ----------- ----------- 3,826,666 3,167,086 ----------- ----------- INCOME BEFORE INCOME TAXES 5,656,330 5,175,816 Income taxes 2,028,626 1,682,263 ----------- ----------- NET INCOME $ 3,627,704 $ 3,493,553 =========== =========== Per share data Net income - basic $ .36 $ .35 =========== =========== Net income - diluted $ .35 $ .35 =========== ===========
The accompanying notes are an integral part of these statements. 3 4 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 2000 1999 ----------- ------------ Interest income Loans, including fees $33,462,721 $24,500,636 Investment securities held to maturity Taxable 3,827,323 4,212,007 Tax-exempt -- 33,345 Investment securities available for sale Taxable 4,559,059 3,122,803 Tax-exempt -- -- Deposits in banks 12,484 13,551 Federal funds sold 934,392 316,614 ----------- ----------- TOTAL INTEREST INCOME 42,795,979 32,198,956 ----------- ----------- Interest expense Deposits 14,872,062 9,746,755 Mortgage payable and other 1,426,550 1,416,405 Federal funds purchased 17,238 3,001 ----------- ----------- TOTAL INTEREST EXPENSE 16,315,850 11,166,161 ----------- ----------- NET INTEREST INCOME 26,480,129 21,032,795 Increase in provision for loan losses 250,000 -- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 26,230,129 21,032,795 ----------- ----------- Other income (expense) Service charges and fees 664,948 641,991 Realized gains on sale of investment securities available for sale -- -- Gain on sale of other real estate 53,407 344,531 Gain on sale of loans -- 27,879 Other income 240,072 726,241 ----------- ----------- 958,427 1,740,642 ----------- ----------- Other expenses Salaries & wages 4,698,603 4,049,893 Employee benefits 2,041,304 1,056,855 Occupancy and equipment 468,031 481,919 Other operating expenses 3,776,919 3,833,155 ----------- ----------- 10,984,857 9,421,822 ----------- ----------- INCOME BEFORE INCOME TAXES 16,203,699 13,351,615 Income taxes 5,509,258 4,298,519 ----------- ----------- NET INCOME $10,694,441 $ 9,053,096 =========== =========== Per share data Net income - basic $.1.06 $ .91 =========== =========== Net income - diluted $ 1.05 $ .90 =========== ===========
The accompanying notes are an integral part of these statements. 4 5 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK -------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ Balance, January 1, 2000 7,879,349 $15,758,698 1,683,113 $168,311 Net income for the nine months ended Sept. 30, -- -- -- Conversion of Class B common stock to Class A Common stock 77,138 154,276 (67,074) (6,707) Purchase of treasury stock -- -- -- -- 5% stock dividend declared 382,857 765,714 84,241 8,424 Cash dividends on common stock -- -- -- -- Cash in lieu of fractional shares -- -- -- -- Stock options exercised 70,542 141,084 -- -- Other comprehensive income (loss), net of reclassifications and taxes -- -- -- -- --------- ---------- --------- -------- Comprehensive income Balance, September 30, 2000 8,409,886 $16,819,772 1,700,280 $170,028 ========= =========== ========= ========
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
ACCUMULATED OTHER CAPITAL RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE SURPLUS EARNINGS STOCK INCOME (LOSS) INCOME ------- -------- ----- ------------- ------ Balance, January 1, 2000 $50,865,395 $33,329,374 $(2,265,207) $(2,022,053) Net income for the nine months ended Sept. 30, -- 10,694,441 -- -- $10,694,441 Conversion of Class B common stock to Class A Common stock -- (147,569) -- -- -- Purchase of treasury stock -- -- -- -- 5% stock dividend declared 6,581,786 (7,355,924) Cash dividends on common stock -- (6,378,558) -- -- -- Cash in lieu of fractional shares -- -- -- -- -- Stock options exercised 263,251 -- -- -- -- Other comprehensive income (loss), net of reclassifications and taxes -- -- -- 528,062 528,062 ----------- ----------- ----------- ----------- ----------- Comprehensive income $11,222,503 =========== Balance, September 30, 2000 $57,710,432 $30,141,764 $(2,265,207) $(1,493,991) =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statement. 5 6 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK -------------------- -------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ Balance, January 1, 1999 7,429,689 $14,859,378 1,630,544 $163,054 Net income for the nine months ended Sept. 30, -- -- -- Conversion of Class B common stock to Class A Common stock 4,886 9,772 (4,251) (426) Purchase of treasury stock -- -- -- -- 4% stock dividend declared 288,728 577,456 65,296 6,530 Cash dividends on common stock -- -- -- -- Cash in lieu of fractional shares -- -- -- -- Stock options exercised 145,844 291,688 -- -- Other comprehensive income (loss), net of reclassifications and taxes -- -- -- -- --------- ---------- --------- -------- Comprehensive income Balance, September 30, 1999 7,869,147 $15,738,294 1,691,589 $169,158 ========= =========== ========= ========
The accompanying notes are an integral part of this statement. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
ACCUMULATED OTHER CAPITAL RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE SURPLUS EARNINGS STOCK INCOME (LOSS) INCOME ------- -------- ----- ------------- ------ Balance, January 1, 1999 $45,392,659 $34,556,343 $(2,145,085) $ 1,242,919 Net income for the nine months ended Sept. 30, -- 9,053,096 -- -- $ 9,053,096 Conversion of Class B common stock to Class A Common stock -- (9,347) -- -- -- Purchase of treasury stock -- -- (110,971) -- -- 4% stock dividend declared 4,867,469 (5,451,455) -- Cash dividends on common stock -- (5,833,483) -- -- -- Cash in lieu of fractional shares -- (3,245) -- -- -- Stock options exercised 603,779 -- -- -- -- Other comprehensive income (loss), net of reclassifications and taxes -- -- -- (2,108,217) (2,108,217) ----------- ----------- ----------- ----------- ----------- Comprehensive income $ 6,944,879 =========== Balance, September 30, 1999 $50,863,907 $32,311,909 $(2,256,056) $ 865,298) =========== =========== =========== ===========
The accompanying notes are an integral part of this statement. 6 7 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30,
Cash flows from operating activities 2000 1999 ---- ---- Net income $ 10,694,441 $ 9,053,096 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 186,022 310,509 Provision (recovery) of loan loss reserve (credit) 250,000 -- Accretion of investment securities discount (71,884) (176,356) Amortization of investment securities premium 199,743 339,819 Amortization of deferred loan fees (132,305) (304,044) Accretion of discount on loans purchased (1,952,203) (1,246,188) (Benefit) provision for deferred income taxes (458,543) (1,244,237) (Gain) loss on other real estate (53,407) (344,531) (Gain) on sale of loans -- (27,879) (Gain) on sale of investment securities -- -- Changes in assets and liabilities: (Increase) decrease in accrued interest receivable (850,932) (395,052) (Increase) decrease in other assets 2,089,500 214,594 Increase (decrease) in accrued interest payable 2,794,861 823,407 Increase in unearned income on loans (34,972) 200,707 Increase (decrease) in other liabilities 1,860,662 2,329,482 ------------ ------------ Net cash provided by operating activities 14,520,983 9,533,327 Cash flows from investing activities Net (decrease) in interest bearing balances in banks -- -- Proceeds from calls/maturities of HTM investment securities 15,125,259 12,296,074 Proceeds from calls/maturities of AFS investment securities 1,650,000 -- Purchase of HTM investment securities -- (32,054,625) Purchase of AFS investment securities (2,261,471) (26,350,883) Purchase of loans (32,299,245) (20,576,158) Net (increase) decrease in loans (18,767,789) 12,547,436 Purchase of premises and equipment (730,083) (686,862) ------------ ------------ Net cash (used in) provided by investing activities (37,283,329) (54,825,018) Cash flows from financing activities: Net (decrease) in non-interest bearing and interest bearing demand deposits and savings accounts 29,443,233 183,459 Net increase (decrease) in certificates of deposit 37,647,709 56,994,419 Mortgage payments (45,972) (35,252) Net (decrease) increase in short term borrowings -- -- Cash dividends (6,378,558) (5,833,483) Cash in lieu of fractional shares -- (3,245) Issuance of common stock under stock option plans 404,335 895,467 Purchase of treasury stock -- (110,972) ------------ ------------ Net cash provided by (used in) financing activities 61,070,747 52,090,393 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 38,308,401 6,798,702 Cash and cash equivalents at beginning of year 17,725,462 19,242,654 ------------ ------------ Cash and cash equivalents at end of period $ 56,033,863 $ 26,041,356 ============ ============
The accompanying notes are an integral part of these statements 7 8 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying un-audited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. (the Company) and its wholly-owned subsidiaries: Royal Bank of Pennsylvania (the Bank), Royal Real Estate of Pennsylvania, Inc. and Royal Investments of Delaware, Inc. These financial statements reflect the historical information of the Company. All significant inter-company transactions and balances have been eliminated. 1. The accompanying un-audited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The financial information included herein is un-audited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in opinion of management, necessary to present a fair statement of the results for the interim periods. Further information is included in the Annual Report on Form 10-K for the year ended December 31, 1999. 2. The results of operations for the nine-month period ended September 30, 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. Basic and diluted EPS are calculated as follows:
Nine months ended September 30, 2000 ------------------------------------ Income Average shares Per share (numerator) (denominator) amount ----------- ------------- ------ Basic EPS Income available to common shareholders $10,694,458 10,123,081 $ 1.06 Effect of dilutive securities Stock options 106,509 ----------- ----------- ----------- Diluted EPS Income available to common shareholders plus assumed exercise of options $10,694,458 10,229,590 $ 1.05 =========== =========== ===========
(continued) 8 9 Per Share Information - continued
Nine months ended September 30, 1999 ------------------------------------ Income Average shares Per share (numerator) (denominator) amount ----------- ------------- ------ Basic EPS Income available to common shareholders $9,053,096 9,972,521 $ 0.91 Effect of dilutive securities Stock options 103,832 ---------- ---------- ---------- Diluted EPS Income available to common shareholders plus assumed exercise of options $9,053,096 10,076,353 $ 0.90 ========== ========== ==========
EPS is calculated on the basis of the weighted average number of shares outstanding of 10,123,081 and 9,972,521 for the nine months ended September 30, 2000 and 1999, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 5% stock dividend of January 2000.
Three months ended Sept. 30, 2000 --------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- ------------- ------ Basic EPS Income available to common shareholders $3,627,704 10,149,812 $ 0.36 Effect of dilutive securities Stock options 127,137 ---------- ---------- ---------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,627,704 10,276,949 $ 0.35 ========== ========== ==========
Three months ended Sept. 30, 1999 --------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- ------------- ------ Basic EPS Income available to common shareholders $3,493,553 10,004,494 $ 0.35 Effect of dilutive securities Stock options 103,705 ---------- ---------- ---------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,493,553 10,108,199 $ 0.35 ========== ========== ==========
EPS is calculated on the basis of the weighted average number of shares outstanding of 10,149,812 and 10,004,494 for the three months ended September 30, 2000 and 1999, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 5% stock dividend of January 2000. 9 10 4. Investment Securities: The carrying value and approximate market value of investment securities at September 30, 2000 are as follows: AMORTIZED
AMORTIZED OR GROSS GROSS APPROXIMATE PURCHASED UNREALIZED UNREALIZED MARKET CARRYING COST GAINS LOSSES VALUE VALUE ------------------ --------------- -------------- ------------------- ------------------ HELD TO MATURITY: US agencies $5,651,227 $ -- $10,904 $5,640,323 $5,651,227 Corporate debt securities 52,037,579 267,090 570,798 51,733,871 52,037,579 ------------------ --------------- -------------- ------------------- ------------------ $57,688,806 $267,090 $581,702 $57,374,194 $57,688,806 ================== =============== ============== =================== ================== AVAILABLE FOR SALE: Federal Home Loan Bank Stock - at cost $3,169,700 $ -- $ -- $3,169,700 $3,169,700 Preferred and common stock 1,950,980 8,035 186,906 1,772,109 1,772,109 Other securities 67,900,490 -- 2,084,749 65,815,741 65,815,741 ------------------ --------------- -------------- ------------------- ------------------ $73,021,170 $8,035 $2,271,655 $70,757,550 $70,757,550 ================== =============== ============== =================== ==================
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. On April 1, 2000 the Corporation adopted SFAS No. 133. Concurrent with the adoption, the Corporation reclassified $12,215,496 of investment securities from the held to maturity category to the available for sale category and recorded $1,381,054 net of taxes of unrealized holding losses in accumulated other comprehensive income. 6. Allowance for Credit Losses: Changes in the allowance for credit losses were as follows:
THREE MONTHS ENDED SEPT 30, --------------------------- 2000 1999 ---- ---- BALANCE AT BEGINNING OF PERIOD, $12,023,798 $12,029,155 Loans charged-off -- -- Recoveries 188,768 427,777 ----------- ----------- Net charge-offs and recoveries 188,768 427,777 Provision for loan losses -- -- ----------- ----------- BALANCE AT END OF PERIOD $12,212,566 $12,456,932 =========== ===========
Continued.... 10 11
NINE MONTHS ENDED SEPT. 30, -------------------------------- 2000 1999 ------------- ------------ BALANCE AT BEGINNING OF PERIOD, $ 11,737,337 $ 11,919,545 Loans charged-off (201,339) (270,798) Recoveries 426,568 808,185 ------------ ------------ Net charge-offs and recoveries 225,229 537,387 Provision for loan losses 250,000 -- ------------ ------------ BALANCE AT END OF PERIOD $ 12,212,566 $ 12,456,932 ============ ============
7. Nonperforming loans Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $4,714,937 and $2,202,582 at September 30, 2000 and 1999, respectively. Although the Company has non-performing loans of approximately $4,714,937 at September 30, 2000, management believes it has adequate collateral to limit its credit risks. The balance of impaired loans was $212,413 at September 30, 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 September 30, 2000. The income that was recognized on impaired loans during the nine-month period ended September 30, 2000 was $1,323. The cash collected on impaired loans during the period was $14,275, of which $12,952 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 $6,041. 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. 11 12 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, 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, 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 September 30, 2000 were $599.5 million, an increase of $77.0 million from the $522.5 million reported at year-end, December 31, 1999. This increase is primarily due to a $52 million increase in loans, partially offset by a $14.1 million decrease in investment securities. Total liabilities increased $71.7 million primarily due to an increase in deposits in the first nine months of 2000. Total loans increased $52.5 million from the $354.8 million level at December 31, 1999 to $407.3 million at September 30, 2000. This $52 million increase in total loans was partially due to a purchase of an $18.8 million loan portfolio. 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 $33.2 million of the increase in loans is attributable to internally generated loan growth in the first nine months of 2000. The year-to-date average balance of loans was $381.3 million at September 30, 2000. The allowance for loan loss increased $.5 million to $12.2 million at September 30, 2000 from $11.7 million at December 31, 1999. The level of allowance for loan loss reserve represents approximately 3.0% of total loans at September 30, 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 12 13 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 $14.1 million decrease in total investment securities is primarily attributable to scheduled maturities during the nine-month period of 2000. Hold-to-maturity (HTM) investment securities decreased $25.4 million for this period, while available-for-sale (AFS) investment securities increased $11.3 million. Total deposits, the primary source of funds, increased $67.1 million to $448.4 million at September 30, 2000, from $381.3 million at December 31, 1999. This increase in deposits is primarily due to an increase in certificates of deposits of $37.6 million, in addition to an $28.9 million increase in NOW and money market deposits. The $37.3 million increase in certificates of deposits was primarily due to a $23 million increase in brokered deposits in 2000. The balance of brokered deposits was $130.6 million, representing approximately 29% of total deposits at September 30, 2000. The $28.9 million increase in NOW and money market deposits is primarily due to the introduction of the Royal Treasury account in March 2000. This is a new money market deposit account that pays interest based on the U.S. Treasury 91 day rate. This new deposit product has been successful in attracting $38.5 million dollars in new deposits at September 30, 2000. Consolidated stockholder's equity increased $5.2 million to $101.1 million at September 30, 2000 from $95.8 million at December 31, 1999. This increase is primarily due to net income of $10.7 million, partially offset by three quarterly cash dividends totaling $6.4 million. Additionally, stockholder's equity was increased $.5 million due to an upward adjustment in the market value of available-for-sale investment securities during the first nine months of 2000. Employee stock options exercised in 2000 also increased stockholders' equity by $.4 million. 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, September 30, 2000 was $3,627,704 or $.36 basic earnings per share, as compared to net income of $3,493,553 or $.35 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 2000, partially offset by one time income of $694 thousand recorded in the third quarter of 1999. Consolidated net income for the nine months ended, September 30, 2000 was $10,694,441 or $1.06 basic earnings per share, as compared to net income of $9,053,096 or $.91 basic earnings per share for the same nine month 13 14 period in 1999. This increase is primarily due to an increase in interest income relating to loans and the investment portfolio in 2000. For the third quarter 2000, net interest income was $9.2 million as compared to $7.3 million for the same quarter in 1999, an increase of $1.9 million or 25%. This increase is primarily due to an increase in the average balance in loans in the third quarter period of 2000 versus the same period in 1999. The balance of average loans for the third quarter of 2000 was $407.7 million, as compared to $298.5 million for the same quarter in 1999. This $109.2 million increase in the average balance of loans represents a 36% increase. Interest income on investment securities increased $.2 million, a 7% 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 $1.8 million to $5.8 million as compared to $4.0 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 addition to an increase in interest expense on NOW and money market deposits in the third quarter of 2000. This increase in the average balance of certificates of deposits is primarily due to the increase in higher costing brokered certificates of deposits in 2000. The increase in Now and money market deposits is due to the introduction of a new deposit product in March 2000. For the comparative nine-month period, net interest income increased to $5.5 million to $26.5 million as compared to $21 million for same nine-month period in 1999. This 26% increase in net income is primarily due to an increase in the average balance of loans in 2000 as compared to 1999. Average loans increased $77.2 million, or 25% increase, for the nine-month period in 2000 to $387.9 million from the $310.7 million level for the same nine-month period in 1999. Provision for loan loss was $0 for the third quarter of 2000 and for the same three-month period in 1999, respectively. Charge-offs and recoveries were $0 and $189 thousand, respectively, for the three-month period ended September 30, 2000 versus $0 and $428 thousand, respectively, for the same three-month period in 1999. For the comparative nine-month period, provision for loan loss was $250 thousand for the nine months ended, September 30, 2000 as compared to $-0- for the same nine-month period in 1999. Charge-offs and recoveries were $201 thousand and $427 thousand, respectively, for the nine months ended September 30, 2000 as compared to $271 thousand and $808 thousand, respectively, for the same nine-month period in 1999. Overall, Management considers the current level of allowance for loan loss to be adequate at September 30, 2000. Total non-interest income for the three-month period ended September 30, 2000 was $324 thousand as compared to $1 million for the same three-month period in 1999. The $.7 million thousand decrease in 2000 is primarily due to a decrease in gains on sale of real estate, in addition to a one-time receipt of $.5 million payment from the Commonwealth of Pennsylvania as refund of Pennsylvania Shares tax in 1999. For the comparative nine-month period, non-interest income was $958 thousand for the nine-months ended September 30, 2000 as compared to $1.7 million for the same nine-month period in 1999. This decrease is again primarily due to a decrease in gains on sale of other real estate and the Pennsylvania Shares tax refund discussed previously. 14 15 Total non-interest expense for the three months ended September 30, 2000 was $3.8 million, an increase of $.7 million, or 22%, as compared to $3.2 million for the same period in 1999. This increase in non-interest expense is primarily due to a $.4 million increase in salaries, a $.2 million increase in employee benefits, and a $.1 million increase in other operating expenses. For the comparative nine-month period, non-interest expense was $10.9 million for the nine-months ended September 30, 2000 as compared to $9.4 million for the same nine-month period in 1999. This 17% increase is primarily due to a $1 million increase in employee benefits, the result of an increase in the provision for stock appreciation rights of $.9 million recorded in 2000 due to a corresponding increase in the price of the company's stock at September 30, 2000. Additionally, salary expense increased $.6 million, or 16%, primarily due to increase in the new employee bonus program for 2000. POST REPORTING PERIOD EVENTS In 1994, the Company invested approximately $4,250,000 in Christ Church Hospital d/b/a Kearsley ("Kearsley"), and was to receive $5,214,031 in low-income housing tax credits. Kearsley is a 227 year-old assisted living/nursing care facility located in Philadelphia, PA. Through December 31, 1999, the Company received $1,944,397 of these tax credits. During October 2000, Kearsley notified the Company's management that they had undergone an examination by the Pennsylvania Housing Finance Authority ("PHFA"). The PHFA is charged by the Internal Revenue Service with the responsibility for reviewing all low-income housing tax credit projects within the State of Pennsylvania to insure that they comply with the Internal Revenue Code. The results of the examination disclosed that Kearsley was not in compliance with Internal Revenue code requirements. Accordingly, the Internal Revenue has notified Kearsley that unless the project is brought back into compliance, the investment tax credits for 2000 would not be available. Additionally, it could be determined by the PHFA that all tax credits claimed in prior years would have to be recaptured. The management of Kearsley is working closely with the PHFA to bring the project back into compliance and is confident that it will be successful in bringing the project into compliance prior to December 31, 2000. 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 30% 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 15 16 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 September 30, 2000:
INTEREST RATE SENSITIVITY DAYS (IN MILLIONS) -------------------- 1 TO 5 OVER 5 NON-RATE ASSETS (1) 0 - 90 91 - 365 YEARS YEARS SENSITIVE TOTAL - ---------- ------ -------- ----- ----- --------- ----- Interest-bearing deposits in banks $ 0.4 $ -- $ -- $ -- $ -- $ 0.4 Federal funds sold 44.5 -- -- -- -- 44.5 Investment securities: Available for sale 4.9 0.5 26.4 38.9 -- 70.7 Held to maturity 4.5 6.7 38.6 7.9 -- 57.7 ------ ------ ------ ------ ------ ------ Total investment securities 9.4 7.2 65.0 46.8 -- 128.4 Loans: (2) Fixed rate (3) 9.6 20.2 134.0 52.5 -- 216.3 Variable rate 178.4 8.9 3.6 6.0 -- 196.9 ------ ------ ------ ------ ------ ------ Total loans 188.0 29.1 137.6 58.5 -- 413.2 Other assets (4) -- -- -- -- 13.0 13.0 ------ ------ ------ ------ ------ ------ Total Assets $242.3 $ 36.3 $202.6 $105.3 $ 13.0 $599.5 ====== ====== ====== ====== ====== ====== LIABILITIES & CAPITAL Deposits: Non interest bearing deposits $ -- $ -- $ -- $ -- $ 45.1 $ 45.1 Interest bearing deposits (5) 103.3 -- 21.8 -- -- 125.1 Certificate of deposits 21.2 63.8 193.1 -- -- 278.1 ------ ------ ------ ------ ------ ------ Total deposits 124.5 63.8 214.9 45.1 448.3 Mortgage and long term borrowings -- -- 30.4 -- -- 30.4 Other liabilities -- -- -- -- 19.7 19.7 Capital -- -- -- -- 101.1 101.1 ------ ------ ------ ------ ------ ------ Total liabilities & capital $124.5 $ 63.8 $245.3 $ -- $165.9 $599.5 ====== ====== ====== ====== ====== ====== Net interest rate GAP $117.8 $(27.5) $(42.7) $105.3 ($152.9) ====== ====== ====== ====== ====== Cumulative interest rate GAP $117.8 $ 90.3 $ 47.6 $152.9 -- ====== ====== ====== ====== ====== GAP to total assets 20% -5% ====== ====== GAP to total equity 118% -28% ====== ====== Cumulative GAP to total assets 20% 15% ====== ====== Cumulative GAP to total equity 118% 91% ====== ======
(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 September 30, 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. 16 17 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. 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, 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:
SEPT. 30, 2000 DECEMBER 31, 1999 -------------- ----------------- CAPITAL LEVELS Tier 1 leverage ratio 17.3% 18.8% Tier 1 risk-based ratio 19.4% 20.4% Total risk-based ratio 20.6% 21.6% CAPITAL PERFORMANCE Return on average assets 2.5%(1) 2.6% Return on average equity 14.5%(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. 17 18 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 18 19 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 13th, 2000 /s/ James J. McSwiggan --------------------------------------- James J. McSwiggan, CFO & Treasurer Dated: November 13th, 2000 /s/ David J. Greenfield --------------------------------------- David J. Greenfield, Controller & VP 19 EX-27 2 w42336ex27.txt FDS
9 1 9-MOS DEC-31-2000 SEP-30-2000 11,583,863 184,000 44,450,000 0 70,757,550 57,688,806 57,374,194 407,277,826 12,212,566 599,494,820 448,376,960 0 19,591,455 30,443,607 0 0 16,989,800 84,092,998 599,494,820 33,462,721 8,386,382 946,876 42,795,979 14,872,062 16,315,850 26,480,129 250,000 0 10,984,857 16,203,699 0 0 0 10,694,441 1.06 1.05 6.09 4,714,937 0 0 212,413 11,737,337 201,339 426,568 12,212,566 12,212,566 0 0
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