-----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, Lyvhm4UsdPfqeKMv0SYIQFX2VvsgTtVN/I78xVnmbtNL+yAW2mPNIZcoXJHI/n8M sSk1tpAocNNzTfxx9vIapg== 0000893220-99-000954.txt : 19990817 0000893220-99-000954.hdr.sgml : 19990817 ACCESSION NUMBER: 0000893220-99-000954 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691384 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 PERIOD ENDED JUNE 30, 1999 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: JUNE 30, 1999 [ ] 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 June 30, 1999 -------------------- ---------------------------- $2.00 PAR VALUE 7,525,360
Class B Common Stock Outstanding at June 30, 1999 -------------------- ---------------------------- $.10 PAR VALUE 1,694,914
2 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS JUNE 30, 1999 DEC 31, 1998 ------------- ------------- Cash and due from banks $ 8,782,370 $ 5,692,654 Federal funds sold 7,250,000 13,550,000 ------------- ------------- Total cash and cash equivalents 16,032,370 19,242,654 ------------- ------------- Investment securities held to maturity (market value of $83,420,137 @ 6/30/99 & $62,159,860 @ 12/31/98) 84,609,322 61,894,538 Investment securities available for sale - at market value 61,082,776 36,951,162 Total loans 301,056,711 304,475,629 Less allowance for loan losses 12,029,155 11,919,545 ------------- ------------- Net loans 293,166,871 292,556,084 Other real estate 656,075 707,397 Premises and equipment, net 5,906,820 5,452,765 Accrued interest and other assets 11,555,584 10,817,184 ============= ============= $ 468,870,503 $ 427,621,784 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 43,386,697 $ 41,150,730 Interest bearing (includes certificates of deposit in excess Of $100,000 of $85,156,335 @ 6/30/99 and $48,754,354 @ 12/31/98) 287,341,836 249,238,955 ------------- ------------- Total deposits 330,728,533 290,389,685 Federal funds purchased -- -- Accrued interest and other liabilities 13,002,590 12,271,111 Long - term borrowings 30,365,000 30,365,000 Mortgage payable 503,288 526,720 ------------- ------------- Total liabilities 374,599,411 333,552,516 ------------- ------------- Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 7,732,876 @ 6/30/99 & 7,429,689 @ 12/31/98 15,465,752 14,859,378 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,694,914 @ 6/30/99 & 1,630,544 @ 12/31/98 169,491 163,054 Capital surplus 50,302,118 45,392,659 Retained earnings 30,839,778 34,556,343 Accumulated other comprehensive income or (loss) (360,962) 1,242,919 ------------- ------------- 96,416,177 96,214,353 Treasury stock - at cost, shares of Class A, 207,516 @ 6/30/99, 207,516 @ 12/31/98 (2,145,085) (2,145,085) ------------- ------------- 94,271,092 94,069,268 ------------- ------------- $ 468,870,503 $ 427,621,784 ============= =============
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 JUNE 30, --------------------------- 1999 1998 ----------- ----------- Interest income Loans, including fees $ 8,187,479 $ 8,401,373 Investment securities held to maturity Taxable 1,449,009 735,251 Tax-exempt 11,115 54,075 Investment securities available for sale Taxable 989,596 463,190 Tax-exempt -- -- Deposits in banks 4,593 4,934 Federal funds sold 129,223 406,935 ----------- ----------- TOTAL INTEREST INCOME 10,771,015 10,065,758 ----------- ----------- Interest expense Deposits 3,288,132 2,799,289 Mortgage payable and other 472,539 495,622 Federal funds purchased -- -- ----------- ----------- TOTAL INTEREST EXPENSE 3,760,671 3,294,911 ----------- ----------- NET INTEREST INCOME 7,010,344 6,770,847 Increase in provision for loan losses -- -- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,010,344 6,770,847 ----------- ----------- Other income (expense) Service charges and fees 215,819 195,203 Realized gains on sale of investment securities available for sale -- -- Gain on sale of other real estate 143,868 -- Gain on sale of loans 27,879 191 Other income 77,903 84,788 ----------- ----------- 465,469 280,182 ----------- ----------- Other expenses Salaries & wages 1,426,008 1,451,655 Employee benefits 266,683 553,324 Occupancy and equipment 122,944 159,999 Other operating expenses 1,374,861 1,104,969 ----------- ----------- 3,190,496 3,269,947 ----------- ----------- INCOME BEFORE INCOME TAXES 4,285,317 3,781,082 Income taxes 1,449,111 1,167,256 =========== =========== NET INCOME $ 2,836,206 $ 2,613,826 =========== =========== Per share data Net income - basic $ .30 $ .28 =========== =========== Net income - diluted $ .29 $ .27 =========== ===========
The accompanying notes are an integral part of these statements. 3 4 ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 1999 1998 ----------- ----------- Interest income Loans, including fees $16,225,206 $16,282,233 Investment securities held to maturity Taxable 2,611,514 1,669,741 Tax-exempt 22,230 108,150 Investment securities available for sale Taxable 1,770,427 896,183 Tax-exempt -- -- Deposits in banks 11,346 15,676 Federal funds sold 210,570 606,083 ----------- ----------- TOTAL INTEREST INCOME 20,851,293 19,578,066 ----------- ----------- Interest expense Deposits 6,197,833 5,579,358 Mortgage payable and other 945,915 991,402 Federal funds purchased 3,001 4,094 ----------- ----------- TOTAL INTEREST EXPENSE 7,146,749 6,574,854 ----------- ----------- NET INTEREST INCOME 13,704,544 13,003,212 Increase in provision for loan losses -- 2,400,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,704,544 10,603,212 ----------- ----------- Other income (expense) Service charges and fees 388,554 418,815 Realized gains on sale of investment securities available for sale -- -- Gain on sale of other real estate 150,648 -- Gain on sale of loans 27,879 3,831 Other income 158,910 2,585,227 ----------- ----------- 725,991 3,007,873 ----------- ----------- Other expenses Salaries & wages 2,768,944 2,679,679 Employee benefits 560,132 1,013,358 Occupancy and equipment 317,895 349,889 Other operating expenses 2,607,765 1,993,310 ----------- ----------- 6,254,736 6,036,236 ----------- ----------- INCOME BEFORE INCOME TAXES 8,175,799 7,574,849 Income taxes 2,616,256 2,342,003 =========== =========== NET INCOME $ 5,559,543 $ 5,232,846 =========== =========== Per share data Net income - basic $ .59 $ .56 =========== =========== Net income - diluted $ .57 $ .54 =========== ===========
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 SIX MONTHS ENDED JUNE 30, 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 six months ended June 30, -- -- -- -- Conversion of Class B common stock to Class A Common stock 1,096 2,192 (926) (93) -- Purchase of treasury stock -- -- -- -- -- 4% stock dividend declared 288,728 577,456 65,296 6,530 4,867,469 Cash dividends on common stock -- -- -- -- -- Cash in lieu of fractional shares -- -- -- -- -- Stock options exercised 13,363 26,726 -- -- 41,990 Other comprehensive income (loss), net of net of reclassifications and taxes -- -- -- -- -- --------- ------------ --------- ------------ ------------ Comprehensive income Balance, June 30, 1999 7,732,876 $ 15,465,752 1,694,914 $ 169,491 $ 50,302,118 ========= ============ ========= ============ ============
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 six months ended June 30, 5,559,543 -- -- $ 5,559,543 Conversion of Class B common stock to Class A Common stock (2,099) -- -- -- Purchase of treasury stock -- -- -- -- 4% stock dividend declared (5,451,455) Cash dividends on common stock (3,819,321) -- -- -- Cash in lieu of fractional shares (3,233) -- -- -- Stock options exercised -- -- -- Other comprehensive income (loss), net of net of reclassifications and taxes -- -- (1,603,881) (1,603,881) ------------ ------------ ------------- ------------ Comprehensive income $ 3,955,662 ============ Balance, June 30, 1999 $ 30,839,778 $ (2,145,085) $ (360,962) ============ ============ ============
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 SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
CLASS A COMMON STOCK CLASS B COMMON STOCK CAPITAL SHARES AMOUNT SHARES AMOUNT SURPLUS --------- ------------ --------- ------------ ------------ Balance, January 1, 1998 7,015,721 $ 14,031,442 1,592,859 $ 159,286 $ 38,797,618 Net income for the six months ended June 30, -- -- -- -- Conversion of Class B common stock to Class A Common stock 7,062 14,124 (6,351) (635) -- Purchase of treasury stock -- -- -- -- -- 4% stock dividend declared 272,313 544,626 63,595 6,360 6,466,084 Cash dividends on common stock -- -- -- -- -- Cash in lieu of fractional shares -- -- -- -- -- Stock options exercised 7,027 14,054 -- -- 17,430 Other comprehensive income (loss), net of net of reclassifications and taxes -- -- -- -- -- --------- ------------ --------- ------------ ------------ Comprehensive income Balance, June 30, 1998 7,302,123 $ 14,604,246 1,650,103 $ 165,010 $ 45,281,133 ========= ============ ========= ============ ============
ACCUMULATED OTHER RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE EARNINGS STOCK INCOME (LOSS) INCOME ------------ ------------ ------------- ------------- Balance, January 1, 1998 $ 38,023,359 $ (2,145,085) $ 638,142 Net income for the six months ended June 30, 5,232,846 -- -- $ 5,232,846 Conversion of Class B common stock to Class A Common stock (13,491) -- -- Purchase of treasury stock -- -- -- 4% stock dividend declared (7,017,070) Cash dividends on common stock (3,455,164) -- -- Cash in lieu of fractional shares (3,829) Stock options exercised Other comprehensive income (loss), net of net of reclassifications and taxes -- -- 51,226 51,226 ------------ ------------ ------------- ------------- Comprehensive income $ 5,284,072 ============ Balance, June 30, 1998 $ 32,766,652 $ (2,145,085) $ 689,368 ============ ============ ============
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) SIX MONTHS ENDED JUNE 30,
1999 1998 ------------ ------------ Cash flows from operating activities Net income $ 5,559,543 $ 5,232,846 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 161,958 233,564 Provision (recovery )of loan loss reserve (credit) -- 2,400,000 Accretion of investment securities discount (176,356) (32,111) Amortization of investment securities premium 342,366 126,663 Amortization of deferred loan fees (386,413) (97,066) Accretion of discount on loans purchased (953,238) (1,090,418) (Benefit) provision for deferred income taxes (826,242) 26,390 (Gain) loss on other real estate (150,648) -- (Gain) on sale of loans (27,879) (3,831) (Gain) on sale of investment securities -- -- Changes in assets and liabilities: (Increase) decrease in accrued interest receivable 230,637 360,134 (Increase) decrease in other assets 438,784 507,549 Increase (decrease) in accrued interest payable 451,514 614,028 Increase in unearned income on loans 263,238 98,365 Increase (decrease) in other liabilities 279,965 (2,193,207) ------------ ------------ Net cash provided by operating activities 5,207,229 6,182,906 Cash flows from investing activities Net (decrease) in interest bearing balances in banks -- 200,000 Proceeds from calls/maturities of HTM invest. securities 9,173,831 32,076,924 Purchase of HTM investment securities (32,054,625) (10,653,841) Purchase of AFS investment securities (25,735,494) (5,074,045) Net (increase) decrease in loans 4,253,210 627,070 Purchase of premises and equipment (616,013) (598,942) ------------ ------------ Net cash (used in) provided by investing activities (44,979,091) 16,577,166 Cash flows from financing activities: Net (decrease) in non-interest bearing and interest bearing demand deposits and savings accounts 3,656,270 1,994,980 Net increase (decrease) in certificates of deposit 36,682,578 631,736 Mortgage payments (23,432) (21,693) Net (decrease) increase in short term borrowings -- (15,000,000) Cash dividends (3,819,321) (3,455,164) Cash in lieu of fractional shares (3,233) (3,830) Issuance of common stock under stock option plans 68,716 31,484 Other -- 51,227 ------------ ------------ Net cash provided by (used in) financing activities 36,561,578 (15,771,260) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,210,284) 6,988,812 Cash and cash equivalents at beginning of year 19,242,654 30,416,242 ------------ ------------ Cash and cash equivalents at end of period $ 16,032,370 $ 37,405,054 ============ ============
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 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, 1998. 2. The results of operations for the six and three month period ended June 30, 1999 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:
Six months ended June 30, 1999 ---------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $5,559,543 9,472,556 $ 0.59 Effect of dilutive securities Stock options 298,348 ---------- --------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $5,559,543 9,770,904 $ 0.57 ========== ========= =========
(continued) 8 9 Per Share Information - continued
Six months ended June 30, 1998 ---------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $5,232,846 9,298,076 $ 0.56 Effect of dilutive securities Stock options 347,320 ---------- --------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $5,232,846 9,645,396 $ 0.54 ========== ========= =========
EPS is calculated on the basis of the weighted average number of shares outstanding of 9,472,556 and 9,298,076 for the six months ended June 30, 1999 and 1998, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 4% stock dividend of May 1999.
Three months ended June 30, 1999 ---------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $2,836,206 9,473,764 $ 0.30 Effect of dilutive securities Stock options 302,519 ---------- --------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $2,836,206 9,776,283 $ 0.29 ========= ========== ========
Three months ended June 30, 1998 ---------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $2,613,826 9,325,584 $ 0.28 Effect of dilutive securities Stock options 348,932 ---------- --------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $2,613,826 9,674,516 $ 0.27 ========= ========== ========
EPS is calculated on the basis of the weighted average number of shares outstanding of 9,473,764 and 9,325,584 for the three months ended June 30, 1999 and 1998, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 4% stock dividend of May 1999. 9 10 4. Investment Securities: The carrying value and approximate market value of investment securities at June 30, 1999 are as follows:
AMORTIZED OR GROSS GROSS APPROXIMATE PURCHASED UNREALIZED UNREALIZED MARKET CARRYING COST GAINS LOSSES VALUE VALUE ----------- ---------- ----------- ----------- ----------- AVAILABLE FOR SALE: Common stock securities $3,209,556 $14,854 $ $3,224,411 $3,224,411 Preferred stock securities 2,828,750 -- 11,760 2,816,990 2,816,990 Other securities 55,591,382 1,387,197 1,937,204 55,041,375 55,041,375 ----------- ---------- ----------- ----------- ----------- $61,929,688 $1,402,051 $ 1,948,964 $61,082,776 $61,082,776 =========== ========== =========== =========== =========== HELD TO MATURITY: US agencies $3,692,931 $38,298 $ 26,611 $3,704,618 $3,692,931 Tax exempt securities 398,465 13,161 -- 411,626 398,465 Taxable debt securities 80,517,926 583,359 1,797,392 79,303,893 80,517,926 =========== ========== =========== =========== =========== $84,609,322 $634,818 $1,824,003 $83,420,137 $84,609,322 =========== ========== =========== =========== ===========
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. 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 JUNE 30, ------------------------------ 1999 1998 ----------- ----------- BALANCE AT APRIL 1, $11,998,724 $10,449,053 Loans charged-off (270,798) (112,748) Recoveries 301,229 44,065 ----------- ----------- Net charge-offs and recoveries 30,431 (68,683) Provision for loan losses -- -- ----------- ----------- BALANCE AT END OF PERIOD $12,029,155 $10,380,370 =========== ===========
(continued.....) 10 11 Allowance for Credit Losses (continued)
SIX MONTHS ENDED JUNE 30, ------------------------------ 1999 1998 ----------- ----------- BALANCE AT JANUARY 1, $11,919,545 $8,186,237 Loans charged-off (270,798) (339,753) Recoveries 380,408 133,886 ----------- ----------- Net charge-offs and recoveries 109,610 (205,867) Provision for loan losses -- 2,400,000 ----------- ----------- BALANCE AT END OF PERIOD $12,029,155 $10,380,370 =========== ===========
7. Comprehensive income On January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. This standard establishes new standards for reporting comprehensive income that includes net income as well as certain other items that result in a change to equity during the period. These financial statements have been classified to reflect the provisions of SFAS No. 130.
SIX MONTHS ENDED JUNE 30, 1999 ------------------------------ Net of Before Tax Tax Tax Amount Expense Amount ----------- ----------- ----------- Unrealized losses on securities Unrealized holding losses arising during the period $(2,430,123) $ (826,242) $(1,603,881) Less reclassification adjustment for gains/losses Realized in net income -- -- -- ----------- ----------- ----------- Other comprehensive loss, net $(2,430,123) $ (826,242) $(1,603,881) =========== =========== ===========
SIX MONTHS ENDED JUNE 30, 1999 ------------------------------ Net of Before Tax Tax Tax Amount Expense Amount ---------- ------- ------- Unrealized gains on securities Unrealized holding gains arising during the period $77,615 $26,389 $51,226 Less reclassification adjustment for losses Realized in net income -- -- -- ------- ------- ------- Other comprehensive income, net $77,615 $26,389 $51,226 ======= ======= =======
11 12 8. Nonperforming loans Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $3,064,792 and $4,309,216 at June 30, 1999 and 1998, respectively. Although the Company has non-performing loans of approximately $3,064,792 at June 30, 1999, management believes it has adequate collateral to limit its credit risks. The balance of impaired loans was $557,751 at June 30, 1999. The Company identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreements. The allowance for credit loss associated with impaired loans was $ -0- at June 30, 1999. The income that was recognized on impaired loans during the six-month period ended June 30, 1999 was $1,360. The cash collected on impaired loans during the period was $257,107, of which $255,747 was credited to the principal balance outstanding on such loans. Interest that would have been accrued on impaired loans during this period in 1999 was $35,450. 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. 12 13 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 six month period ended June 30, 1999. 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 June 30, 1999 were $468.9 million, an increase of $41.3 million from the $427.6 million reported at year-end, December 31, 1998. This increase is primarily due to a $46.8 million increase in total investment securities. Liabilities increased $41 million primarily due to an increase in deposits from December 31, 1998. This $46.1 million increase in total investment securities is comprised of an increase in held to maturity ("HTM") investment securities of $22.7 million and a $24.1 million increase in available for sale ("AFS") investment securities. This increase in HTM investment securities is primarily due to purchases of approximately $32.1 million in corporate bonds partially offset by scheduled maturities of approximately $9.2 million in 1999. 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, with maturities primarily in the three to five year range. The $24.1 million increase in AFS investment securities is primarily due to the purchase in the second quarter of 1999 of $20.5 million of dollar denominated, non-US, corporate securities. These corporate securities are rated "BBB" or better by Moody and/or Standard & Poor at the time of purchase with maturities primarily in the three to five year ranges. Additionally, $6 million of capital trust securities were purchased during 1999. 13 14 Net loans increased slightly from the $292.6 million level at December 31, 1998 to $293.2 million at June 30, 1999. Average net loans were $299.9 million for the six-month period of 1999. The allowance for loan loss increased $.1 million to $12.0 million at June 30, 1999 from $11.9 million. The level of allowance for loan loss reserve represents 4% of total loans at June 30, 1999 versus 3.9% at December 31, 1998. Total deposits, the primary source of funds, increased $40.3 million to $330.7 million at June 30, 1999, from $290.4 million at December 31, 1998. Average deposits were $329.7 million for the six-month period of 1999. This increase in deposits is primarily due to an increase in certificates of deposits of $36.7 million, in addition to a $3.7 million increase in NOW and money market deposits. The $36.7 million increase in certificates of deposits was primarily due to a $38.5 million increase in brokered deposits in 1999. The balance of brokered deposits was $68.7 million, representing 20% of total deposits at June 30, 1999. Consolidated stockholder's equity increased $.2 million to $94.3 million at June 30, 1999 from $94.1 million at December 31, 1998. This increase is primarily due to net income of $5.6 million, partially offset by two quarterly cash dividends totaling $3.8 million. Additionally, stockholder's equity was reduced $1.6 million due to a downward adjustment in the market value of available for sale investment securities in 1999. RESULTS OF OPERATIONS Consolidated net income for the three months ended, June 30, 1999 was $2,836,206 or $.30 basic earnings per share, as compared to net income of $2,613,826 or $.28 basic earnings per share, for the same three month period in 1998. Consolidated net income for the six months ended, June 30, 1999 was $5,559,543 or $.59 basic earnings per share as compared to net income of $5,232,846 or $.56 basic earnings per share. These increases are primarily due to an increase in interest income relating to the investment portfolio in 1999. Net interest income increased $.2 million to $7 million for the second quarter of 1999, as compared to $6.8 million for the same quarter ended in 1998. This increases in net interest income for the three-month period is primarily due to increase in the average balance of investment securities in 1999 versus 1998. The balance of average investment securities for the second quarter of 1999 was $129.3 million, as compared to $70.8 million for the same quarter in 1998. Total interest expense on deposits and borrowings increased $.5 million to $3.8 million as compared to $3.3 million for the same three-month period in 1998. This increase in interest expense is primarily due to an increase in the average balance of certificates of deposits in 1999. For the comparative six-month period, net interest income increased $.7 million to $13.7 million for the six months ended June 30, 1999 as compared to $13 million for the same six-month period in 1998. This increase is primarily due to an increase in the average balance of investment securities in 1999 as compared with 1998. The balance of average investment securities for the six-month period was $117.3 million versus $82.3 million for the same six-month period in 1998. 14 15 Provision for loan loss was $0 for the second quarter of 1999 and 1998. Charge-offs and recoveries were $.3 and $.3 million, respectively, for the three month period ended June 30, 1999 versus $.1 million and $90 thousand, respectively, for the same period in 1998. For the comparative six-month period, provision for loan loss was $0 for the six months ended June 30, 1999 as compared to $2.4 million for the same six-month period in 1998. Overall, Management considers the current level of allowance for loan loss to be adequate at June 30, 1999. Total non-interest income for the three month period ended June 30, 1999 was $.5 million, as compared to $.3 million for the same period in 1998. The $.2 million increase is primarily due to an increase in gains on sale of other real estate and loans $.2 million in the second quarter of 1999. For the comparative six-income period, total non-interest income was $.7 million for the six-month period ended June 30, 1999 versus $3 million for the same six-month period in 1998. This decrease is the result of a reversal of a legal accrual relating to the conclusion of litigation in the Company's favor in January of 1998. Additionally, service charge income decreased $30 thousand in 1999 as compared the same period in 1998. Total non-interest expense for the three months ended June 30, 1999 was $3.2 million, a decrease of $.2 million, as compared to $3.3 million for the same period in 1998. This decrease in non-interest expense is primarily due to decrease in employee benefits and occupancy expense of $.3 million and $36 thousand, respectfully, partially offset by a $.3 million increase in other operating expense in 1999. For the comparative six-month period total non-interest expense increased $.2 million to $6.3 million for the six months ended June 30, 1999 as compared to $6 million for the six months ended June 30, 1998. This increase is primarily due to a $.6 million increase in other operating expenses, partially offset by a $.5 million decrease in employee benefits of 1999. The $.6 million increase in other operating expenses is primarily due to increases associated with a $227 thousand loss on an investment in a real estate partnership, and increases in advertising expense ($58 thousand), and travel and entertainment expense ($189 thousand). YEAR 2000 Through the efforts of its Year 2000 Committee, the Company has remediated or replaced its computer systems and applications so that company-wide these systems and applications are now Year 2000 ("Y2K") compliant. In addition, the Year 2000 Committee has monitored the Y2K compliance efforts of its mission critical third party vendors to ensure sure that their systems and applications are also Y2K compliant. All of the computer systems and applications of the company have been fully tested and the testing of mission critical third party vendors have been diligently monitored. Management believes that all mission critical systems and applications, and the systems and applications of mission critical third party vendors are Y2K compliant and fully tested. Presently, the Company is developing a contingency plan as well as a plan to address the expected liquidity demands resulting from Y2K concerns of customers toward the end of 1999. Given that much of the Company's data processing is serviced by third party vendors, the Company has not incurred material costs associated with Y2K compliance. The amount expensed in 1999 is not material. 15 16 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. 16 17 Interest rate sensitivity is a function of the repricing characteristics of the Company's assets and liabilities. These include the volume of assets and liabilities repricing, the timing of the repricing, and the interest rate sensitivity gaps is a continual challenge in a changing rate environment. The following table shows separately the interest sensitivity of each category of interest earning assets and interest bearing liabilities as of June 30, 1999: 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 7.3 -- -- -- 7.3 Investment securities: Available for sale 6.0 -- 11.8 43.3 -- 61.0 Held to maturity 6.2 10.0 47.4 21.0 -- 84.6 ------------------------------------------------------------------------------ Total investment securities 12.2 10.0 59.2 64.2 -- 145.6 Loans: (2) Fixed rate (3) 11.7 12.2 122.0 22.9 -- 168.8 Variable rate 44.5 24.5 47.9 22.4 -- 139.3 ------------------------------------------------------------------------------ Total loans 56.2 36.7 169.9 45.3 -- 308.1 Other assets (4) -- -- -- -- 7.4 7.4 =============================================================================== Total Assets $ 76.3 $ 46.7 $ 229.1 $ 109.5 $ 7.4 $ 468.9 =============================================================================== LIABILITIES & CAPITAL Deposits: Non interest bearing deposits $ -- $ -- $-- $ -- $ 43.5 $ 43.5 Interest bearing deposits (5) 63.0 -- 33.2 -- -- 96.2 Certificate of deposits 19.6 43.8 127.8 -- -- 191.2 ------------------------------------------------------------------------------ Total deposits 82.6 48.4 161.0 -- 43.5 330.9 Short term borrowings -- -- -- -- -- -- Mortgage and long term borrowings -- 0.4 30.5 -- -- 30.9 Other liabilities -- -- -- -- 13.3 13.3 Capital -- -- -- -- 93.8 93.8 =============================================================================== Total liabilities & capital $ 82.6 $ 44.2 $ 191.5 $ -- $ 150.6 $ 468.9 =============================================================================== Net interest rate GAP $ (6.3) $ 2.5 $ 37.6 $ 109.5 ($ 143.0) ================================================================ Cumulative interest rate GAP $ (6.3) $ (3.9) $ 33.7 $ 143.0 -- ================================================================ GAP to total assets -1% 1% ====================== GAP to total equity -10% 4% ====================== Cumulative GAP to total assets -1% -1% ====================== Cumulative GAP to total equity -10% -6% =======================
(1) Interest earning assets are included in the period in which the balances are expected to be repaid and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities. (2) Reflects principal maturing within the specified periods for fixed and variable rate loans and includes nonperforming loans. (3) Fixed rate loans include a portion of variable rate loans whose floors are in effect at June 30, 1999. (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. 17 18 CAPITAL ADEQUACY The company is required to maintain minimum amounts of capital to total "risk weighted" assets and a minimum Tier 1 leverage ratio, as defined by the banking regulators. At June 30, 1999, 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:
JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- CAPITAL LEVELS Tier 1 leverage ratio 20.3% 22.1% Tier 1 risk-based ratio 22.2% 24.1% Total risk-based ratio 23.5% 25.4% CAPITAL PERFORMANCE Return on average assets 2.5% (1) 2.6% Return on average equity 11.9% (1) 11.8% (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. 18 19 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 19 20 SIGNATURES Pursuant to the requirements of the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL BANCSHARES OF PENNSYLVANIA, INC. (Registrant) Dated: August 12th, 1999 /s/ James J. McSwiggan -------------------------------------------------- James J. McSwiggan, CFO & Treasurer Dated: August 12th, 1999 /s/ David J. Greenfield -------------------------------------------------- David J. Greenfield, Controller & VP 20 EX-27 2 FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-1999 JUN-30-1999 8,227,370 555,000 7,250,000 0 61,082,776 84,609,322 83,420,137 301,056,711 12,029,155 468,870,503 330,728,533 365,000 13,002,590 30,503,288 0 0 16,635,243 78,635,849 468,870,503 16,225,206 4,626,087 0 20,851,293 6,197,833 7,146,749 13,704,544 0 0 6,254,736 8,175,799 0 0 0 5,559,543 .59 .57 6.04 3,064,792 0 557,751 557,751 11,919,545 270,798 380,408 12,029,155 12,029,155 0 0
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