-----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, QHsIar/RH+0rX0W1/ZoAkY2skYznLtFVHJb1KvlRI3ibxJMF5uhzIh38ICTgebu5 5MutE6xGeRH/4JW8VyKJ8A== 0000950116-02-001087.txt : 20020514 0000950116-02-001087.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950116-02-001087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02646786 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 ten-q.txt FORM 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: March 31, 2002 -------------- |_| 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 March 31, 2002 -------------------- ----------------------------- $2.00 par value 9,519,625 Class B Common Stock Outstanding at March 31, 2002 -------------------- ----------------------------- $.10 par value 1,912,675
Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) ASSETS March 31, 2002 Dec 31, 2001 (Unaudited) ------------------ ------------------ Cash and due from banks $101,866 $32,918 Federal funds sold 24,850 7,100 ------------------- ------------------ Total cash and cash equivalents 126,716 40,018 ------------------- ------------------ Investment securities held to maturity (fair value of $62,264 at March 31, 2002 and $94,625 at December 31, 2001) 61,855 92,903 Investment securities available for sale - at fair value 203,193 129,755 Total loans 626,904 646,235 Less allowance for loan losses 12,105 11,888 ------------------- ------------------ Net loans 614,799 634,347 Premises and equipment, net 8,680 8,512 Accrued interest and other assets 28,663 25,445 ------------------- ------------------ Total assets $1,043,906 $930,980 =================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $59,003 $51,991 Interest bearing (includes certificates of deposit in excess of $100 of $300,426 at March 31, 2002 and $303,793 at December 31, 2001) 727,073 649,869 ------------------- ------------------ Total deposits 786,076 701,860 Accrued interest payable 12,275 11,238 Borrowings 130,225 100,225 Other liabilities 5,742 8,175 ------------------- ------------------ Total liabilities 934,318 821,894 ------------------- ------------------ MINORITY INTEREST 498 637 Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 9,519,625 at March 31, 2002 and 8,848,867 at December 31, 2001 19,039 17,698 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,912,675 at March 31, 2002 and 1,804,693 at December 31, 2001 191 180 Additional paid in capital 76,846 65,011 Retained earnings 19,692 30,457 Accumulated other comprehensive (loss) (4,414) (2,632) ------------------- ------------------ 111,354 110,714 Treasury stock - at cost, shares of Class A, 215,388 at March 31, 2002, and December 31, 2001. (2,265) (2,265) ------------------- ------------------ Total stockholders' equity 109,089 108,449 ------------------- ------------------ Total liabilities and stockholders' equity $1,043,906 $930,980 =================== ==================
The accompanying notes are an integral part of these statements. 2 Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended March 31, ---------------------------------- (in thousands, except per share data) 2002 2001 ----------------- ---------------- Interest income Loans, including fees $14,214 $11,163 Investment securities held to maturity 1,518 1,542 Investment securities available for sale 3,068 1,559 Deposits in banks 272 68 Federal funds sold 71 376 ----------------- ---------------- TOTAL INTEREST INCOME 19,143 14,708 ----------------- ---------------- Interest expense Deposits 7,641 5,652 Mortgage payable and other 1,576 467 ----------------- ---------------- TOTAL INTEREST EXPENSE 9,217 6,119 ----------------- ---------------- NET INTEREST INCOME 9,926 8,589 Provision for loan losses 200 -- ----------------- ---------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,726 8,589 ----------------- ---------------- Other income Service charges and fees 286 218 Gains on sales of investment securities available for sale -- -- Gains on sales of other real estate 164 104 Gains on sales of loans 202 -- Other income 15 80 ----------------- ---------------- 667 402 ----------------- ---------------- Other expenses Salaries & wages 1,928 1,697 Employee benefits 438 397 Occupancy and equipment 237 212 Other operating expenses 1,814 1,114 ----------------- ---------------- 4,417 3,420 ----------------- ---------------- INCOME BEFORE INCOME TAXES 5,976 5,571 Income taxes 1,761 1,657 ----------------- ---------------- NET INCOME $4,215 $3,914 ================= ================ Per share data Net income - basic $ .37 $ .35 ================= ================ Net income - diluted $ .36 $ .34 ================= ================
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 Three Months ended March 31, 2002 (UNAUDITED)
Additional Class A Common Stock Class B Common Stock Paid in ---------------------- -------------------- ------- (in thousands) Shares Amount Shares Amount Capital ------------- ------------- ------------- ------------- ------------- Balance, January 1, 2002 8,849 $17,698 1,805 $180 $65,011 Net income for the three months ended March 31, - - - - Conversion of Class B common stock to Class A Common stock - - - - - Purchase of treasury stock - - - - - 5% stock dividend declared 518 1,035 108 11 11,285 Cash dividends on common stock - - - - - Cash in lieu of fractional shares - - - - - Stock options exercised 153 306 - - 550 Other comprehensive income (loss), net of Reclassifications and taxes - - - - - ------------- ------------- ------------- ------------- ------------- Comprehensive income Balance, March 31, 2002 9,520 $19,039 1,913 $191 $76,846 ============= ============= ============= ============= =============
[RESTUBBED]
Accumulated Other Retained Treasury Comprehensive Comprehensive (in thousands) Earnings Stock Income (loss) Income ------------- ------------ ---------------------------------- Balance, January 1, 2002 $30,457 $(2,265) $(2,632) Net income for the three months ended March 31, 4,215 - - $4,215 Conversion of Class B common stock to Class A Common stock - - - - Purchase of treasury stock - - - 5% stock dividend declared (12,331) Cash dividends on common stock (2,642) - - - Cash in lieu of fractional shares (7) - - - Stock options exercised - - - - Other comprehensive income (loss), net of Reclassifications and taxes - - (1,782) (1,782) ------------- ------------------------------------------------ Comprehensive income $2,433 ================== Balance, March 31, 2002 $19,692 $(2,265) $(4,414) ============= ===============================
The accompanying notes are an integral part of the financial statement. 4 Royal Bancshares of Pennsylvania, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31, (in thousands)
Cash flows from operating activities 2002 2001 ---------------- ----------------- Net income $4,215 $3,914 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 311 62 Provision for loan loss 200 -- Amortization of premiums and discounts on loans, mortgage-backed securities and investments (2,197) (932) Benefit for deferred income taxes (479) (724) Gains on other real estate (164) (104) Gains on sales of loans (202) -- Gains on sales of investment securities -- -- Changes in assets and liabilities: Increase in accrued interest receivable (1,928) (401) Increase in other assets (810) (390) Increase (decrease) in accrued interest payable 641 (76) Increase (decrease) in unearned income on loans (216) 359 Increase (decrease) in other liabilities 1,289 (2,253) ---------------- ----------------- Net cash provided by (used in) operating activities 660 (545) Cash flows from investing activities Proceeds from calls/maturities of HTM investment securities 31,051 13,632 Proceeds from calls/maturities of AFS investment securities 2,656 -- Purchase of HTM investment securities -- -- Purchase of AFS investment securities (77,345) (19,447) Purchase of FHLB Stock (1,500) -- Purchase of loans -- -- Cash paid for asset acquisition -- -- Cash from entity acquired -- -- Net (increase) decrease in loans 19,548 (8,793) Purchase of premises and equipment (479) (445) ---------------- ----------------- Net cash used in by investing activities (26,069) (15,053) Cash flows from financing activities: Net increase in non-interest bearing and interest bearing demand deposits and savings accounts 90,714 17,352 Net decrease in certificates of deposit (6,498) (19,862) Mortgage payments (10) (8) Net increase in borrowings 30,000 -- Cash dividends (2,642) (2,248) Cash in lieu of fractional shares (7) -- Issuance of common stock under stock option plans 550 36 Purchase of treasury stock -- -- ---------------- ----------------- Net cash provided by (used in) financing activities 112,107 (4,730) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 86,698 (20,328) Cash and cash equivalents at beginning of year 40,018 43,222 ---------------- ----------------- Cash and cash equivalents at end of year $126,716 $22,894 ================ =================
The accompanying notes are an integral part of these statements. 5 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 Investments of Delaware, Inc. and Royal Bank of Pennsylvania (the Bank), Royal Real Estate of Pennsylvania, Inc. and Crusader Servicing Corporation. On June 22, 2001, the Bank purchased a 60% ownership in Crusader Servicing Corporation from Crusader Holding Corporation. 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, 2001. 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 the acquisition, certain assets and liabilities were purchased for approximately $41.5 million which represented the approximate fair value of net assets acquired. Included in this purchase was approximately $331.3 million of assets, of which $236.5 million was related the loan portfolio. The purchase also included the assumption of deposits in the approximate amount of $251 million. The purchase price was paid in cash. This transaction was accounted for under the purchase method of accounting. There was no goodwill recorded in connection with this transaction. The following represents the unaudited results of operations of the Company as if 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 necessary indicative of the results that would have been attained had the acquisition actually been consummated on the dates indicated, nor they necessarily indicative of our future operating results. Three months ended March 31, (in thousands) 2002 2001 --------------- --------------- Interest income $19,143 $22,825 Interest expense 9,217 10,948 --------------- --------------- Net interest income 9,926 11,877 Provision for loan losses 200 150 Non-interest income 667 778 Non-interest expense 4,417 4,915 Income tax expense 1,761 2,123 --------------- --------------- Net income $4,215 $5,467 =============== =============== 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 (In thousands, except per share data):
Three months ended March 31, 2002 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- --------------- -------------- Basic EPS Income available to common shareholders $4,215 11,447 $ 0.37 Effect of dilutive securities Stock options 236 (0.01) ------ ------ --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $4,215 11,683 $ 0.36 ====== ====== ========= Three months ended March 31, 2001 --------------------------------------------- Income Average shares Per share (numerator) (denominator) amount ----------- --------------- -------------- Basic EPS Income available to common shareholders $3,914 11,313 $ 0.35 Effect of dilutive securities Stock options 191 (0.01) ------ ------ --------- Diluted EPS Income available to common shareholders plus assumed exercise of options $3,914 11,504 $ 0.34 ====== ====== =========
EPS is calculated on the basis of the weighted average number of shares outstanding of 11,447,000 and 11,313,000 for the three months ended March 31, 2002 and 2001, respectively. Per share information and weighted average shares outstanding have been restated to reflect the 6% stock dividend of January 2002. 4. Investment Securities: --------------------- The carrying value and approximate market value of investment securities at March 31, 2002 are as follows:
Amortized Gross Gross Approximate Purchased Unrealized Unrealized Fair Carrying (in thousands) Cost Gains Losses Value Value --------------- ------------ ------------- ---------------- ---------------- Held to maturity: Mortgage Backed $ 883 $ -- $ -- $ 883 $ 883 US Agencies 20,000 -- (873) 19,127 20,000 Other Securities 40,972 1,242 -- 42,214 40,972 --------------- ------------ ------------- ---------------- ---------------- $61,885 $1,242 ($873) $62,224 $61,855 =============== ============ ============= ================ ================ Available for sale: Federal Home Loan Bank Stock - at cost $ 6,375 $ -- $ -- $ 6,375 $ 6,375 Mortgage Backed 10,772 40 (107) 10,705 10,705 US Agencies 122,325 -- (3,039) 119,286 119,286 Other securities 70,153 1,215 (4,541) 66,827 66,827 --------------- ------------ ------------- ---------------- ---------------- $209,625 $1,255 ($7,687) $203,193 $203,193 =============== ============ ============= ================ ================
5. Allowance for Credit Losses: Changes in the allowance for credit losses ---------------------------- were as follows: Three months ended March 31, ---------------------------------- 2002 2001 --------------- --------------- (in thousands) Balance at beginning of period, $11,888 $11,973 Loans charged-off (127) -- Recoveries 144 213 --------------- --------------- Net charge-offs and recoveries 17 213 Provision for loan losses 200 -- --------------- --------------- Balance at end of period $12,105 $12,186 =============== =============== 6. Non-performing loans -------------------- Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $10,044,000 and $3,750,000 at March 31, 2002 and 2001, respectively. This increase is primarily due to the $5,918,000 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 $10,044,000 at March 31, 2002, management believes it has adequate collateral to limit its credit risks. The balance of impaired loans which included the loans on which the accrual of interest has been discontinued, was approximately $10,103,000 and $4,089,000at March 31, 2002 and 2001, respectively 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. Although the company recognizes the balances of impaired loans when analyzing its' loan loss reserve, the allowance for loan loss specifically associated with impaired loans was $ -0- at March 31, 2002. The income that was recognized on impaired loans during the three-month period ended March 31, 2002 was $-0-. The cash collected on impaired loans during the same period was $-0- of which $-0- was credited to the principal balance outstanding on such loans. Interest that would have been accrued on impaired loans during this period in 2002 was $1,000. 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 changes in the financial condition and earnings performance of the Company and it's subsidiaries for the three month period ended March 31, 2002. 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 March 31, 2002 were $1,043.9 million, an increase of $112.9 million from the $931.0 million reported at year-end, December 31, 2001. This increase is primarily due to the $84.2 million of deposits generated during the quarter, of which $33.1 million was generated by our new branch located on 1650 Grant Avenue, Philadelphia, PA 19115. Total loans decreased $19.3 million from the $646.2 million level at December 31, 2001 to $626.9 million at March 31, 2002. This decrease is attributed to slow pace of the economic recovery and stiff loan competition that is occurring throughout the industry. The year-to-date average balance of loans was $627.9 million at March 31, 2002. The allowance for loan loss increased $217,000 to $12.1 million at March 31, 2002 from $11.9 million at December 31, 2001. The level of allowance for loan loss reserve represents approximately 1.9% of total loans at March 31, 2002 versus 1.8% at December 31, 2001. 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 $42.4 million increase in total investment securities is primarily attributable to the redeployment of excess cash on hand to achieve a higher rate of return. Total cash and cash equivalents increased to $86.7 million from $40.0 million level at December 31, 2001 to $126.7 million at March 31, 2002, of which $90.0 million was held in a money market fund due to a higher rate of return, awaiting pending investment settlements and certificate of deposit redemptions. Total deposits, the primary source of funds, increased $84.2 million to $786.1 million at March 31, 2002, from $701.9 million at December 31, 2001. This increase in deposits is primarily due to the competitive rates of our Royal Treasury money market and the opening of our new Grant Avenue Branch. The balance of brokered deposits was $250.1 million, representing approximately 32% of total deposits at March 31, 2002. Consolidated stockholder's equity increased $640,000 to $109.1 million at March 31, 2002 from $108.5 million at December 31, 2001. This increase is primarily due to net income of $4.2 million, partially offset by a quarterly cash dividend of $2.6 million. Additionally, stockholder's equity was decreased $1.8 million due to an adjustment in the market value of available-for-sale investment securities during the first three months of 2002. RESULTS OF OPERATIONS - --------------------- Results of operations depend primarily on net interest income, which is the difference between interest income on interest earning assets and interest expense on interest bearing liabilities. Interest earning assets consist principally of loans and investment securities, while interest bearing liabilities consist primarily of deposits. Net income is also effected by the provision for loan losses and the level of non-interest income as well as by non-interest expenses, including salary and employee benefits, occupancy expenses and other operating expenses. Consolidated net income for the three months ended, March 31, 2002 was $4.2 million or $.37 basic earnings per share, as compared to net income of $3.9 million or $.35 basic earnings per share for the same three month period in 2001. This increase is primarily due to a higher return due to an increase balance of earning assets. For the first quarter 2002, net interest income was $9.9 million as compared to $8.6 million for the same quarter in 2001, an increase of $1.3 million or 16%. This increase is primarily due to an increase in the average balance in earning assets in the first quarter period of 2002 versus the same period in 2001. Interest income on loans increased $3.1 for the first quarter of 2002 versus 2001 primarily due to higher average balance of loans during the same period. Interest income on investment securities increased $1.5 million, a 47.9% increase over the same three-month period in 2001, which is primarily due to the increase in the average balance in investment securities. Total interest expense on deposits and borrowings increased $3.1 million to $9.2 million as compared to $6.1 million for the same three-month period in 2001. This increase in interest expense is primarily due to an increase in the average interest bearing liabilities balance in the first quarter of 2002. Provision for loan losses was $200,000 for the first quarter of 2002 and $0 for the same three-month period in 2001, respectively. Charge-offs and recoveries were $127 thousand and $144 thousand, respectively, for the three-month period ended March 31, 2002 versus $0 and $213 thousand, respectively, for the same three-month period in 2001. Overall Management considers the current level of allowance for loan loss to be adequate at March 31, 2002. 10 Total non-interest income for the three-month period ended March 31, 2002 was $667 thousand as compared to $402 thousand for the same three-month period in 2001. The $265 thousand increase in 2002 is primarily due to an increase in gains on sale of loans. . Total non-interest expense for the three months ended March 31, 2002 was $4.4 million, an increase of $1.0 million, or 29%, as compared to $3.4 million for the same period in 2001. This increase in non-interest expense is primarily due to an increase in operating expenses which includes $249,000 of minority interest expense. CAPITAL ADEQUACY - ---------------- The company is required to maintain minimum amounts of capital to total "risk weighted" assets and a minimum Tier 1 leverage ratio, as defined by the banking regulators. At March 31, 2002, 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: March 31, 2002 December 31, 2001 -------------- ----------------- Capital Levels Tier 1 leverage ratio 12.2% 14.1% Tier 1 risk-based ratio 14.9% 14.4% Total risk-based ratio 16.2% 15.9% Capital Performance Return on average assets 1.8%(1) 2.0%(1) Return on average equity 15.5%(1) 15.0%(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. 11 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 35% 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 March 31, 2002: 12
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 $101.9 $ -- $ -- $ -- $-- $101.9 Federal funds sold 24.9 -- -- -- -- 24.9 Investment securities: Available for sale 5.4 -- 25.8 172.0 -- 203.2 Held to maturity 6.9 .1 34.3 20.6 -- 61.9 ------------ ------------ ------------ ------------ ------------ ------------ Total investment securities 12.3 .1 60.1 192.6 -- 265.1 Loans: (2) Fixed rate (3) 30.6 47.2 116.6 78.2 -- 272.9 Variable rate 151.9 18.6 147.5 23.9 -- 341.9 ------------ ------------ ------------ ------------ ------------ ------------ Total loans 182.5 65.8 264.1 102.4 -- 614.8 Other assets (4) -- -- -- -- 37.2 37.2 ------------ ------------ ------------ ------------ ------------ ------------ Total Assets $321.6 $65.9 $324.2 $295.0 $37.2 $1,043.9 ============ ============ ============ ============ ============ ============ Liabilities & Capital - --------------------- Deposits: Non interest bearing deposits $ -- $ -- $ -- $ -- $ 59.0 $59.0 Interest bearing deposits (5) 131.4 169.9 141.8 15.2 -- 458.3 Certificate of deposits 67.2 -- 201.6 -- -- 268.8 ------------ ------------ ------------ ------------ ------------ ------------ Total deposits 198.6 169.9 343.4 15.2 59.0 786.1 Borrowings -- 70.5 39.7 20.0 -- 130.2 Other liabilities -- -- -- .4 18.1 18.5 Capital -- -- -- -- 109.1 109.1 ------------ ------------ ------------ ------------ ------------ ------------ Total liabilities & capital $198.6 $240.4 $383.1 $35.6 $186.2 $1,043.9 ============ ============ ============ ============ ============ ============ Net interest rate GAP $123.0 ($174.5) ($58.9) $259.4 ($149.0) ============ ============ ============ ============ ============ Cumulative interest rate GAP $123.0 ($51.5) ($110.4) $149.0 -- ============ ============ ============ ============ ============ GAP to total assets 12% (17%) ============ ============ GAP to total equity 113% (160%) ============ ============ Cumulative GAP to total assets 12% (5%) ============ ============ Cumulative GAP to total equity 113% (47%) ============ ============
(1) Interest earning assets are included in the period in which the balances are expected to be repaid and/or repriced as a result of anticipated prepayments, scheduled rate adjustments, and contractual maturities. (2) Reflects principal maturing within the specified periods for fixed and variable rate loans and includes nonperforming loans. (3) Fixed rate loans include a portion of variable rate loans whose floors are in effect at March 31, 2002. (4) For purposes of gap analysis, other assets include the allowance for possible loan loss, unamortized discount on purchased loans and deferred fees on loans. (5) Based on historical analysis, Money market and Savings deposits are assumed to have rate sensitivity of 1 month; NOW account deposits are assumed to have a rate sensitivity of 4 months. The Company's exposure to interest rate risk is mitigated somewhat by a portion of the Company's loan portfolio consisting of floating rate loans, which are tied to the prime lending rate but which have interest rate floors and no interest rate ceilings. Although the Company is originating fixed rate loans, a portion of the loan portfolio continues to be comprised of floating rate loans with interest rate floors. 13 RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In August 2001, the FASB issued SFAS No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. However, SFAS No. 144 makes changes to the scope and certain measurement requirements of existing accounting guidance. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of this statement is not expected to have a significant impact on the financial condition or results of operations of the Company. 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 - ------------------------------------------------------ None Item 5. Other Information - ------------------------- None Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- None 14 SIGNATURES ---------- Pursuant to the requirements of the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROYAL BANCSHARES OF PENNSYLVANIA, INC. (Registrant) Dated: May 13th, 2002 /s/ James J. McSwiggan -------------------------------------------------------- James J. McSwiggan, CFO & Treasurer Dated: May 13th, 2002 /s/ Jeffrey T. Hanuscin -------------------------------------------------------- Jeffrey T. Hanuscin, VP of Finance 15 Royal Bancshares of Pennsylvania 732 Montgomery Avenue Narberth, Pa. 19072 Securities and Exchange Commission 450 5th Street, NW Judiciary Plaza Washington, DC 20549 Dear Sirs: Pursuant to regulations of the Securities and Exchange Commission, submitted herewith for filing on behalf of Royal Bancshares of Pennsylvania, Inc. (the "Company") is the Company's Quarterly Report on Form 10-Q for the quarter-ended period March 31, 2002. This filing is being effected by direct transmission to the Commission's EDGAR system. Sincerely, ROYAL BANCSHARES OF PENNSYLVANIA, INC. Jeffrey T. Hanuscin Vice President 16 -----END PRIVACY-ENHANCED MESSAGE-----