-----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, Ef+73AvS2pZVRn00Z9rlCq3GazzOVxU9MEuGXv2qhcnz9Lu6tZCpZeQW4H/f5tdp QNR4WWz/vGDC9uxVdZbnPw== 0000950116-01-501167.txt : 20020410 0000950116-01-501167.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950116-01-501167 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 000-26366 FILM NUMBER: 1791318 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 tenq.txt 10-Q 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, 2001 ------------------- [ ] 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 registrant 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, 2001 -------------------- --------------------------------- $2.00 par value 8,844,269 Class B Common Stock Outstanding at September 30, 2001 -------------------- --------------------------------- $.10 par value 1,804,693 Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
ASSETS Sept. 30, 2001 Dec 31, 2000 (Unaudited) ------------ ------------ Cash and due from banks $ 62,407,603 $ 15,772,422 Federal funds sold 6,950,000 27,450,000 ----------- ------------ Total cash and cash equivalents 69,357,603 43,222,422 ----------- ------------ Investment securities held to maturity (fair value of $104,434,768 at September 30, 2001 and $86,348,525 at December 31, 2000) 102,780,870 86,109,704 Investment securities available for sale - at fair value 86,026,137 70,143,717 Total loans 676,828,459 423,945,784 Less allowance for loan losses 11,821,378 11,972,839 ----------- ------------ Net loans 665,007,081 411,972,945 Premises and equipment, net 8,398,835 6,615,153 Accrued interest and other assets 19,351,975 12,016,957 ----------- ------------ $950,922,501 $630,080,898 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 50,944,565 $ 47,608,128 Interest bearing (includes certificates of deposit in excess of $100,000 of $332,382,016 at September 30, 2001 and $166,760,323 at December 31, 2000) 672,402,062 424,973,825 ----------- ------------ Total deposits 723,346,627 472,581,953 Accrued interest and other liabilities 20,428,980 20,566,038 Borrowings 100,225,000 33,000,000 Mortgage payable 396,411 431,386 ----------- ------------ Total liabilities 844,675,119 526,579,377 ----------- ------------ MINORITY INTEREST 278,101 -- Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 8,844,269 at September 30, 2001 and 8,387,711 at December 31, 2000 17,688,538 16,775,422 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,804,693 at September 30, 2001 and 1,730,715 at December 31, 2000 180,469 173,072 Additional paid in capital 64,962,850 57,767,946 Retained earnings 28,255,546 31,640,205 Accumulated other comprehensive (loss) (2,574,814) (589,917) ------------ ------------ 108,512,589 105,766,728 Treasury stock - at cost, shares of Class A, 215,388 at September 30, 2001, and December 31, 2000. (2,265,207) (2,265,207) ------------ ------------ 106,247,382 103,501,521 ------------ ------------ $950,922,501 $630,080,898 ============ ============
The accompanying notes are an integral part of these statements. Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended September 30, ---------------------------- 2001 2000 ---------- ---------- Interest income Loans, including fees $15,180,605 $11,729,273 Investment securities held to maturity 2,409,326 1,192,987 Investment securities available for sale 2,005,936 1,605,980 Deposits in banks 148,470 2,572 Federal funds sold 156,520 473,799 ---------- ---------- TOTAL INTEREST INCOME 19,900,857 15,004,611 ---------- ---------- Interest expense Deposits 8,296,330 5,380,403 Mortgage payable and other 1,573,334 465,083 ---------- ---------- TOTAL INTEREST EXPENSE 9,869,664 5,845,486 ---------- ---------- NET INTEREST INCOME 10,031,193 9,159,125 Provision for loan losses - -- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,031,193 9,159,125 ---------- ---------- Other income Service charges and fees 243,348 235,686 Gains on sales of investment securities available for sale 59,999 -- Gains on sales of other real estate 32,182 -- Gains on sales of loans 164,531 -- Other income 72,221 88,185 ---------- ---------- 572,281 323,871 ---------- ---------- Other expenses Salaries & wages 2,299,555 1,634,365 Employee benefits 915,641 689,796 Occupancy and equipment 479,646 184,058 Other operating expenses 1,485,920 1,318,447 ---------- ---------- 5,180,762 3,826,666 ---------- ---------- INCOME BEFORE INCOME TAXES 5,422,712 5,656,330 Income taxes 1,850,779 2,028,626 ---------- ---------- NET INCOME $3,571,933 $3,627,704 ========== ========== Per share data Net income - basic $.33 $.34 ========== ========== Net income - diluted $.33 $.34 ========== ==========
The accompanying notes are an integral part of these statements. Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine months ended September 30, ---------------------------- 2001 2000 ----------- ----------- Interest income Loans, including fees $38,033,076 $33,462,721 Investment securities held to maturity 5,488,828 3,827,323 Investment securities available for sale 5,120,513 4,559,059 Deposits in banks 253,926 12.484 Federal funds sold 682,993 934,392 ----------- ----------- TOTAL INTEREST INCOME 49,579,336 42,795,979 ----------- ----------- Interest expense Deposits 19,780,917 14,872,062 Mortgage payable and other 2,581,384 1,426,550 Federal funds purchased -- 17,238 ----------- ----------- TOTAL INTEREST EXPENSE 22,362,301 16,315,850 ----------- ----------- NET INTEREST INCOME 27,217,035 26,480,129 Provision for loan losses -- 250,000 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,217,035 26,230,129 ----------- ----------- Other income Service charges and fees 737,770 664,948 Gains on sale of investment securities available for sale 59,999 -- Gains on sales of other real estate 136,460 53,407 Gains on sales of loans 189,113 -- Other income 100,699 240,072 ----------- ----------- 1,224,041 958,427 ----------- ----------- Other expenses Salaries & wages 5,793,940 4,698,603 Employee benefits 2,361,306 2,041,304 Occupancy and equipment 857,209 468,031 Other operating expenses 4,326,696 3,776,919 ----------- ----------- 13,339,151 10,984,857 ----------- ----------- INCOME BEFORE INCOME TAXES 15,101,925 16,203,699 Income taxes 3,804,354 5,509,258 ----------- ----------- NET INCOME $11,297,571 $10,694,441 =========== =========== Per share data Net income - basic $1.07 $1.01 =========== =========== Net income - diluted $1.05 $1.00 =========== ===========
The accompanying notes are an integral part of these statements. Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Nine Months ended September 30, 2001 (UNAUDITED)
Accumulated Additional Class A Common Stock Class B Common Stock Paid in ------------------------ ----------------------- ------- Retained Shares Amount Shares Amount Capital Earnings --------- ----------- --------- -------- ----------- ----------- Balance, January 1, 2001 8,387,711 $16,775,422 1,730,715 $173,072 $57,767,946 $31,640,205 Net income for the six months ended June 30, - - - - 11,297,571 Conversion of Class B common stock to Class A Common stock 14,531 29,062 (12,636) (1,264) - (27,798) Purchase of treasury stock - - - - - - 5% stock dividend declared 408,197 816,394 86,614 8,661 7,093,499 (7,918,555) Cash dividends on common stock - - - - - (6,729,589) Cash in lieu of fractional shares - - - - - (6,288) Stock options exercised 33,830 67,660 - - 101,405 - Other comprehensive income (loss), net of Reclassifications and taxes - - - - - - --------- ----------- --------- -------- ----------- ----------- Comprehensive income Balance, September 30, 2001 8,844,269 $17,688,538 1,804,693 $180,469 $64,962,850 $28,255,546 ========= =========== ========= ======== =========== ===========
(RESTUBBED TABLE)
Other Treasury Comprehensive Comprehensive Stock Income (loss) Income ----------- ------------- ------------- Balance, January 1, 2001 $(2,265,207) $(589,917) Net income for the six months ended June 30, - - $11,297,571 Conversion of Class B common stock to Class A common stock - - - Purchase of treasury stock - - 5% stock dividend declared Cash dividends on common stock - - - Cash in lieu of fractional shares - - - Stock options exercised - - - Other comprehensive income (loss), net of Reclassifications and taxes - (1,984,897) (1,984,897) ----------- ----------- ---------- Comprehensive income $9,312,674 ========== Balance, September 30, 2001 $(2,265,207) $(2,574,814) =========== ===========
The accompanying notes are an integral part of the financial statement. Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30,
2001 2002 ----------- ----------- Cash flows from operating activities Net income $11,297,571 $10,694,441 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 555,415 186,022 Provision for loan loss -0- 250,000 Amortization of premiums and discounts on loans, mortgage-backed securities and investments (1,115,016) (1,956,649) (Benefit) provision for deferred income taxes (263,735) (458,543) (Gains) loss on other real estate (136,460) (53,407) (Gains) on sales of loans (189,113) -- (Gains) on sales of investment securities (59,999) -- Changes in assets and liabilities: (Increase) decrease in accrued interest receivable (1,004,213) (850,932) (Increase) decrease in other assets (1,521,633) 2,089,500 Increase (decrease) in accrued interest payable 1,007,809 2,794,861 Increase in unearned income on loans (269,380) (34,972) Increase (decrease) in other liabilities (2,099,776) 1,860,662 ----------- ----------- Net cash provided by operating activities 6,201,470 14,520,983 Cash flows from investing activities Net (decrease) in interest bearing balances in banks (26,135,181) -- Proceeds from calls/maturities of HTM investment securities 62,753,000 15,125,259 Proceeds from calls/maturities of AFS investment securities 7,350,000 1,650,000 Purchase of HTM investment securities (45,000,000) -- Purchase of AFS investment securities -- (2,261,471) Purchase of loans -- (32,299,245) Cash paid for asset acquisition (15,238,720) -- Cash from entity acquired 26,547,903 -- Net (increase) decrease in loans 14,399,692 (18,767,789) Purchase of premises and equipment (1,870,193) (730,083) ----------- ----------- Net cash (used in) provided by investing activities 22,806,501 (37,283,329) Cash flows from financing activities: Net increase (decrease) in non-interest bearing and interest bearing demand deposits and savings accounts 21,315,355 29,443,233 Net increase (decrease) in certificates of deposit (21,586,358) 37,647,709 Mortgage payments (34,975) (45,972) Net (decrease) increase in long term borrowings 4,000,000 -- Cash dividends (6,729,589) (6,378,558) Cash in lieu of fractional shares (6,288) -- Issuance of common stock under stock option plans 169,065 404,335 Purchase of treasury stock -- -- ----------- ----------- Net cash provided by (used in) financing activities (2,872,790) 61,070,747 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 26,135,181 38,308,401 Cash and cash equivalents at beginning of year 43,222,422 17,725,462 ----------- ----------- Cash and cash equivalents at end of period $69,357,603 $56,033,863 =========== ===========
The accompanying notes are an integral part of these statements. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying un-audited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. (the Company) and its wholly-owned subsidiaries: Royal Bank of Pennsylvania (the Bank), Royal Real Estate of Pennsylvania, Inc. and Royal Investments of Delaware, Inc. These financial statements reflect the historical information of the Company. All significant inter-company transactions and balances have been eliminated. 1. The accompanying un-audited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. The financial information included herein is un-audited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in opinion of management, necessary to present a fair statement of the results for the interim periods. Further information is included in the Annual Report on Form 10-K for the year ended December 31, 2000. 2. Acquisitions As of June 22, 2001, Royal Bancshares of Pennsylvania completed its acquisition of the assets of Crusader Holding Corporation (Crusader). Under the terms of the acquisition certain assets and liabilities were purchased for $41.8 million, which represented the approximate fair value of the assets acquired. The purchase price was paid in cash with $15.2 million of Royal cash on hand being utilized. This transaction was accounted for under the purchase method of accounting. The following represents the un-audited results of operations of the Company as the acquisition has occurred the first date of the period indicated. This pro forma information should be read in conjunction with the related historical information and is not necessarily indicative of the results that would have been attained had the acquisition actually been consummated on the dates indicated, nor are they necessarily indicative of our future operating results. Nine Months Ended Sept. 30, 2001 2000 ----------- ----------- Interest Income $65,255,000 $66,560,000 Interest Expense 31,252,000 30,911,000 ----------- ----------- Net interest income 34,003,000 35,649,000 Provision (recoveries) loan losses (11,000) 3,023,000 Non-interest income 1,998,000 2,787,000 Non-interest expense 18,528,000 17,439,000 ----------- ----------- Net income $17,484,000 $17,974,000 3. Per Share Information In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per Share," which eliminates primary and fully diluted EPS and requires presentation of basic and diluted EPS in conjunction with the disclosure of the methodology used in computing such EPS. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Basic and diluted EPS are calculated as follows:
Nine months ended September 30, 2001 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $11,297,571 10,606,651 $ 1.07 Effect of dilutive securities Stock options 138,901 ----------- ---------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $11,297,571 10,745,552 $ 1.05 =========== ========== =========
(continued) Per Share Information - continued
Nine months ended September 30, 2000 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $10,694,441 10,629,235 $ 1.01 Effect of dilutive securities Stock options Diluted EPS 111,834 (.01) ----------- ---------- --------- Income available to common shareholders plus assumed exercise of options $10,694,441 10,741,069 $ 1.00 =========== ========== =========
EPS is calculated on the basis of the weighted average number of shares outstanding of 10,606,651 and 10,629,235 for the nine months ended September 30, 2001 and 2000, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 5% stock dividend of January 2001.
Three months ended September 30, 2001 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $3,571,933 10,695,623 $ 0.33 Effect of dilutive securities Stock options 162,769 ---------- ---------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,571,933 10,858,392 $ 0.33 ========== ========== ========= Three months ended September 30, 2000 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- -------------- ---------- Basic EPS Income available to common shareholders $3,627,704 10,657,303 $ 0.34 Effect of dilutive securities Stock options 133,493 ---------- ---------- --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,627,704 10,790,796 $ 0.34 ========== ========== =========
EPS is calculated on the basis of the weighted average number of shares outstanding of 10,695,623 and 10,657,303 for the three months ended September 30, 2001 and 2000, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 5% stock dividend of January 2001. 4. Investment Securities: The carrying value and approximate market value of investment securities at September 30, 2001 are as follows:
Amortized Gross Gross Approximate Purchased Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ------------ ---------- --------- ------------ ------------ Held to maturity: - ----------------- US agencies $46,417,570 $368,800 $ - $46,786,370 $46,417,570 Corporate debt securities 56,363,300 1,722,108 (437,010) 57,648,398 56,363,300 ------------ ---------- --------- ------------ ------------ $102,780,870 $2,090,908 ($437,010) $104,434,768 $102,780,870 ============ ========== ========= ============ ============ Available for sale: - ------------------- Federal Home Loan Bank Stock - at cost $4,875,000 $ - $ - $ 4,875,000 $ 4,875,000 Preferred and common stock 31,273 1,149 - 32,422 32,422 Other securities 85,081,117 1,912,170 (5,874,572) 81,118,715 81,118,715 ------------ ---------- --------- ------------ ------------ $89,987,390 $1,913,319 (5,874,572) $86,026,137 $86,026,137 ============ ========== ========= ============ ============
5. In June 1998, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all value. If certain conditions are met, a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of derivatives (gains and losses) depends on the intended use of the derivative and resulting designation. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier applications are permitted only as of the beginning of any fiscal quarter. 6. Allowance for Credit Losses: Changes in the allowance for credit losses were as follows: Three months ended Sept 30, ------------------------------ 2001 2000 ----------- ----------- Balance at beginning of period, $12,248,143 $12,023,798 Loans charged-off (497,174) -- Recoveries 70,409 188,768 ----------- ----------- Net charge-offs and recoveries (426,765) 188,768 Provision for loan losses -- -- ----------- ----------- Balance at end of period $11,821,378 $12,212,566 =========== =========== Continued.... Nine months ended Sept 30, ------------------------------ 2001 2000 ----------- ----------- Balance at beginning of period, $11,972,839 $11,737,337 Loans charged-off (518,885) (201,339) Recoveries 367,424 426,568 ----------- ----------- Net charge-offs and recoveries (151,461) 225,229 Provision for loan losses -- 250,000 ----------- ----------- Balance at end of period $11,821,378 $12,212,566 =========== =========== 7. Nonperforming loans Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $7,416,598 and $4,714,937 at September 30, 2001 and 2000, respectively. This increase is primarily due to the $5,918,402 of non-performing loans acquired through the purchase of certain assets and liabilities of Crusader Holding Corporation. Although the Company has non-performing loans of approximately $7,416,598 at September 30, 2001, management believes it has adequate collateral to limit its credit risks. The balance of impaired loans was $121,645 at September 30, 2001. The Company identifies a loan as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreements. The allowance for credit loss associated with impaired loans was $ -0- at September 30, 2001. The income that was recognized on impaired loans during the nine-month period ended September 30, 2001 was $1,741. The cash collected on impaired loans during the same period was $264,414 of which $262,672 was credited to the principal balance outstanding on such loans. Interest that would have been accrued on impaired loans during this period in 2001 was $13,743. The Company's policy for interest income recognition on impaired loans is to recognize income on currently performing restructured loans under the accrual method. The Company recognizes income on non-accrual loans under the cash basis when the principal payments on the loans become current and the collateral on the loan is sufficient to cover the outstanding obligation to the Company. If these factors do not exist, the Company does not recognize income. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS The following discussion and analysis is intended to assist in understanding and evaluating the major changes in the financial condition and earnings performance of the Company and it's wholly owned subsidiaries for the nine month period ended September 30, 2001. From time to time, the Company may include forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters in this and other filings with the Securities Exchange Commission. The Private Securities Litigation Reform Act of 1995 provides safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance development and results of the Company's business include the following: general economic conditions, including their impact on capital expenditures, business conditions in the banking industry; the regulatory environment; rapidly changing technology and evolving banking industry standards; competitive factors, including increased competition with community, regional and national financial institutions; new service and product offerings by competitors and price pressures and similar items. FINANCIAL CONDITION - ------------------- Total consolidated assets as of September 30, 2001 were $950.9 million, an increase of $320.8 million from the $630.1 million reported at year-end, December 31, 2000. This increase is primarily due to the $331.3 million of assets acquired through the purchase of certain assets and liabilities from Crusader Holding Corporation which was completed on June 22, 2001. Total loans increased $252.9 million from the $423.9 million level at December 31, 2000 to $676.8 million at September 30, 2001, of which $236.5 million was related to the assumption of Crusader loan portfolio. Additionally, approximately $16.4 million of the increase in loans is attributable to internally generated loan growth in the first nine months of 2001. The year-to-date average balance of loans was $506.7 million at September 30, 2001. The allowance for loan loss decreased $151,461 to $11.8 million at September 30, 2001 from $12.0 million at December 31, 2000. The level of allowance for loan loss reserve represents approximately 1.8% of total loans at September 30, 2001 versus 2.8% at December 31, 2000. While management believes that, based on information currently available, the allowance for loan loss is sufficient to cover losses inherent in the Company's loan portfolio at this time, no assurances can be given that the level of allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will be sufficient to cover future loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the adequacy of the current level of the allowance. The $32.6 million increase in total investment securities is primarily attributable to the purchase of Crusader's investment portfolio. Total cash and cash equivalents increased to $26.2 million from $42.2 million level at December 31, 2000 to $69.4 million at September 30, 2001, of which $48.0 million was held in a money market fund due to a higher rate of return. Total deposits, the primary source of funds, increased $250.7 million to $723.3 million at September 30, 2001, from $472.6 million at December 31, 2000. This increase in deposits is primarily due to the assumption of deposits from Crusader Holding Corporation in the amount of $251.0 million, partially offset by deposit runoff. The balance of brokered deposits was $289.1 million, representing approximately 40% of total deposits at September 30, 2001. Consolidated stockholder's equity increased $2.7 million to $106.2 million at September 30, 2001 from $103.5 million at December 31, 2000. This increase is primarily due to net income of $11.3 million, partially offset by a quarterly cash dividend of $6.7 million. Additionally, stockholder's equity was decreased $2.0 million due to an adjustment in the market value of available-for-sale investment securities during the first nine months of 2001. RESULTS OF OPERATIONS - --------------------- Results of operations depend primarily on net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities. Interest earning assets consist principally of loans and investment securities, while interest bearing liabilities consist primarily of deposits. Net income is also effected by the provision for loan losses and the level of non-interest income as well as by non-interest expenses, including salary and employee benefits, occupancy expenses and other operating expenses. Consolidated net income for the three months ended, September 30, 2001 was $3.6 million or $.33 basic earnings per share, as compared to net income of $3.6 million or $.36 basic earnings per share for the same three month period in 2000. This decrease is primarily due to falling interest rates within our loan portfolio. Consolidated net income for the nine months ended, September 30, 2001 was $11.3 million or $1.07 basic earnings per share, as compared to net income of $10.7 million or $1.06 basic earnings per share for the same nine month period in 2000. This increase is primarily due to the growth in average earning assets versus interest bearing liabilities over the nine month period ending, September 30, 2001. For the third quarter 2001, net interest income was $10.0 million as compared to $9.2 million for the same quarter in 2000, an increase of $0.8 million or 8.7%. This increase is primarily due to an increase in the average balance in loans in the third quarter period of 2001 versus the same period in 2000. The balance of average loans for the third quarter of 2001 was $672.8 million, as compared to $407.7 million for the same quarter in 2000. This $265.1 million increase in the average balance of loans represents a 65% increase. Interest income on investment securities increased $1.6 million, a 57.8% increase over the same three-month period in 2000, which is primarily due to the increase in the average balance in investment securities. Total interest expense on deposits and borrowings increased $4.0 million to $9.9 million as compared to $5.9 million for the same three-month period in 2000. This increase in interest expense is primarily due to an increase in the average interest bearing liabilities balance in the third quarter of 2001. For the comparative nine-month period, net interest income increased $.7 million to $27.2 million for the nine months ended September 30, 2001 as compared to $26.5 million for same nine-month period in 2000. This increase in net income is primarily due to an increase in the average balance of loans in 2001 as compared to 2000. Provision for loan losses was $0 for the third quarter of 2001 and $0 for the same three-month period in 2000, respectively. Charge-offs and recoveries were $497 thousand and $70 thousand, respectively, for the three-month period ended September 30, 2001 versus $0 and $189 thousand, respectively, for the same three-month period in 2000. For the comparative nine-month period, provision for loan loss was $-0- thousand for the nine months ended, September 30, 2001 as compared to $250 thousand for the same nine-month period in 2000. Charge-offs and recoveries were $519 thousand and $367 thousand, respectively, for the nine-months ended September 30, 2001 as compared to $201 thousand and $427 thousand respectively for the same nine-month period in 2000. Overall, Management considers the current level of allowance for loan loss to be adequate at September 30, 2001. Total non-interest income for the three-month period ended September 30, 2001 was $572 thousand as compared to $324 thousand for the same three-month period in 2000. The $248 thousand increase in 2001 is primarily due to an increase in gains on sale of loans. For the comparative nine-month period, non-interest income was $1.2 million for the nine-months ended September 30, 2001 as compared to $958 thousand for the same nine-month period in 2000. This increase is again primarily due to a increase in gains on sale of loans. Total non-interest expense for the nine months ended September 30, 2001 was $5.2 million, an increase of $1.4 million, or 37%, as compared to $3.8 million for the same period in 2000. This increase in non-interest expense is primarily due to an increase in personnel costs resulting from the retention of the former employees of Crusader Savings Bank. For the comparative nine-month period, non-interest expense was $13.3 million for the nine months ended September 30, 2001 as compared to $11.0 million for the same nine-month period in 2000. CAPITAL ADEQUACY - ---------------- The company is required to maintain minimum amounts of capital to total "risk weighted" assets and a minimum Tier 1 leverage ratio, as defined by the banking regulators. At September 30, 2001, the Company was required to have a minimum Tier 1 and total capital ratios of 4% and 8%, respectively, and a minimum Tier 1 leverage ratio of 3% plus an additional 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, 2001 December 31, 2000 -------------- ----------------- Capital Levels Tier 1 leverage ratio 11.71% 17.0% Tier 1 risk-based ratio 13.91% 18.1% Total risk-based ratio 15.14% 19.4% Capital Performance Return on average assets 2.1% (1) 2.5% (1) Return on average equity 14.4% (1) 14.3% (1) (1) annualized The Company's ratios compare favorably to the minimum required amounts of Tier 1 and total capital to "risk weighted" assets and the minimum Tier 1 leverage ratio, as defined by banking regulators. The Company currently meets the criteria for a well-capitalized institution, and management believes that the Company will continue to meet its minimum capital requirements. At present, the Company has no commitments for significant capital expenditures. The Company is not under any agreement with regulatory authorities nor is the Company aware of any current recommendations by the regulatory authorities that, if such recommendations were implemented, would have a material effect on liquidity, capital resources or operations of the Company. LIQUIDITY & INTEREST RATE SENSITIVITY - ------------------------------------- Liquidity is the ability to ensure that adequate funds will be available to meet its financial commitments as they become due. In managing its liquidity position, all sources of funds are evaluated, the largest of which is deposits. Also taken into consideration is the repayment of loans. These sources provide alternatives to meet its short-term liquidity needs. Longer liquidity needs may be met by issuing longer-term deposits and by raising additional capital. The liquidity ratio is generally maintained equal to or greater than 25% of deposits and short-term liabilities. The liquidity ratio of the Company remains strong at approximately 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, 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, 2001:
Interest Rate Sensitivity (in millions) Days -------------------------- 1 to 5 Over 5 Non-rate Assets (1) 0 - 90 91 - 365 Years Years Sensitive Total - ------- ----------------------------------------------------------------------------------- Interest-bearing deposits in banks $ 60.1 $ -- $ -- $ -- $ -- $60.1 Federal funds sold 6.5 -- -- -- 6.5 Investment securities: Available for sale 7.2 3.2 22.4 53.2 -- 86.0 Held to maturity - 19.2 36.3 47.3 -- 102.8 ----------------------------------------------------------------------------------- Total investment securities 7.2 22.4 58.7 100.5 -- 188.8 Loans: (2) Fixed rate (3) 24.2 10.9 110.3 62.4 -- 207.8 Variable rate 276.5 33.2 148.2 15.9 -- 473.8 ----------------------------------------------------------------------------------- Total loans 300.7 44.1 258.5 78.3 -- 681.6 Other assets (4) -- -- -- -- 13.9 13.9 ----------------------------------------------------------------------------------- Total Assets $374.5 $66.5 $317.2 $178.8 $13.9 $950.9 =================================================================================== Liabilities & Capital - --------------------- Deposits: Non interest bearing deposits $ -- $ -- $ -- $ -- $ 50.9 $50.9 Interest bearing deposits (5) 162.5 -- -- -- -- 162.5 Certificate of deposits 69.0 228.6 212.3 -- -- 509.9 ----------------------------------------------------------------------------------- Total deposits 231.5 228.6 212.3 -- 50.9 723.3 Mortgage and long term borrowings 40.5 -- 59.7 -- -- 100.6 Other liabilities -- -- -- -- 20.8 20.8 Capital -- -- -- -- 106.2 106.2 ----------------------------------------------------------------------------------- Total liabilities & capital $272.0 $228.6 $272.0 $ -- $178.3 $950.9 =================================================================================== Net interest rate GAP $102.2 $(162.1) $45.2 $178.8 ($164.0) ===================================================================== Cumulative interest rate GAP $102.5 $(59.6) $(14.4) $164.0 -- ===================================================================== GAP to total assets 11% (17%) =========================== GAP to total equity 97% (153%) =========================== Cumulative GAP to total assets 11% (6%) =========================== Cumulative GAP to total equity 97% (56%) ===========================
(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, 2001. (4) For purposes of gap analysis, other assets include the allowance for possible loan loss, unamortized discount on purchased loans and deferred fees on loans. (5) Based on historical analysis, Money market and Savings deposits are assumed to have rate sensitivity of 1 month; NOW account deposits are assumed to have a rate sensitivity of 4 months. The Company's exposure to interest rate risk is mitigated somewhat by a portion of the Company's loan portfolio consisting of floating rate loans, which are tied to the prime lending rate but which have interest rate floors and no interest rate ceilings. Although the Company is originating fixed rate loans, a portion of the loan portfolio continues to be comprised of floating rate loans with interest rate floors. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- On June 29, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Intangible Assets. These statements are expected to result in significant modifications relative to Company's accounting for goodwill and other intangible assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 must be accounted for under the purchase method of accounting. SFAS No. 141 was effective upon issuance. SFAS No. 142 modifies the accounting for all purchased goodwill and intangible assets. SFAS No. 142 includes requirements to test goodwill and indefinite lived intangibles assets for impairment rather than amortize them. SFAS No. 142 will be effective for fiscal years beginning after December 31, 2001 and early adoption is not permitted except for business combinations entered into after June 30, 2001. The Company is currently evaluating the provisions of SFAS No. 142, but its preliminary assessment is that these Statements will not have a material impact on the Company's financial position or results of operations. On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. SAB No. 102 provides guidance on the development, documentation, and application of a systematic methodology for determining the allowance for loans and leases in accordance with US GAAP. The adoption of SAB No. 102 did not have a material impact on the Company's consolidated financial position or results of operations. PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings - ------------------------- None Item 2. Changes in Securities and use of Proceeds - ------------------------------------------------- None Item 3. Default and Upon Senior Securities - ------------------------------------------ None Item 4. Submission of Matters to Vote Security Holders - ------------------------------------------------------ On Wednesday May 16, 2001, the Annual Meeting of Shareholders of Royal Bancshares of Pennsylvania was convened in Philadelphia, PA at 6:30 PM. The following nominees were elected as Class III Directors of the Registrant to serve for a three-year term: For Withhold Authority --- ------------------ Albert Ominsky 23,518,184 82,918 Robert R. Tabas 23,519,037 82,918 Anthony Micale 23,519,037 82,918 Gregory T. Reardon 23,519,037 82,918 Jack R. Loew 23,518,184 82,918 Item 5. Other Information - ------------------------- None Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- None SIGNATURES ---------- Pursuant to the requirements of the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL BANCSHARES OF PENNSYLVANIA, INC. (Registrant) Dated: November 14th, 2001 /s/ James J. McSwiggan --------------------------------------------- James J. McSwiggan, CFO & Treasurer Dated: November 14th, 2001 /s/ Jeffrey T. Hanuscin --------------------------------------------- Jeffrey T. Hanuscin, VP of Finance -----END PRIVACY-ENHANCED MESSAGE-----