-----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, Aagps8jhjj5grenVaGS/9uC44UWmFXBIOUkFuTp4yNo8117+EigxbjAaneioWX8p bUKBMOc8W0rII2f0S4JRbg== 0000950116-04-002414.txt : 20040809 0000950116-04-002414.hdr.sgml : 20040809 20040809165338 ACCESSION NUMBER: 0000950116-04-002414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 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: 04961978 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 TENQ.TXT 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, 2004 [ ] 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 by check mark whether the registrant is an accelerated filer (as defined in Exchange Act 12b-2). 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 July 31, 2004 -------------------- ----------------------------- $2.00 PAR VALUE 10,242,904 Class B Common Stock Outstanding at July 31, 2004 -------------------- ----------------------------- $.10 PAR VALUE 1,942,222
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS JUNE 30,2004 DEC 31, 2003 (UNAUDITED) ----------- ----------- Cash and due from banks $ 24,543 $ 17,470 Federal funds sold 25,000 7,600 ----------- ----------- Total cash and cash equivalents 49,543 25,070 ----------- ----------- Investment securities held to maturity (HTM) (fair value of $175,947 at June 30, 2004 and $114,275 at December 31, 2003) 176,528 113,091 Investment securities available for sale (AFS) - at fair value 404,805 452,246 Loans held for sale 2,087 3,157 Loans 435,695 512,557 Less allowance for loan losses 12,539 12,426 ----------- ----------- Net loans 423,156 500,131 Premises and equipment, net 70,824 7,480 Accrued interest and other assets 58,791 53,235 ----------- ----------- Total assets $ 1,185,734 $ 1,154,410 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest bearing $ 58,373 $ 58,942 Interest bearing (includes certificates of deposit in excess of $100 of $96,238 at June 30, 2004 and $104,123 at December 31, 2003) 705,299 732,117 ----------- ----------- Total deposits 763,672 791,059 Accrued interest payable 8,021 7,733 Borrowings 267,762 212,000 Other liabilities 7,588 7,920 ----------- ----------- Total liabilities 1,047,043 1,018,712 ----------- ----------- MINORITY INTEREST 3,598 865 Stockholders' equity Common stock Class A, par value $2 per share; authorized, 18,000,000 shares; issued, 10,236,505 at June 30, 2004 and 10,027,284 at December 31, 2003 20,473 20,055 Class B, par value $.10 per share; authorized, 2,000,000 shares; issued, 1,942,222 at June 30, 2004 and 1,909,742 at December 31, 2003 194 191 Additional paid in capital 91,364 85,448 Retained earnings 22,223 24,989 Accumulated other comprehensive income 3,104 6,415 ----------- ----------- 137,358 137,098 Treasury stock - at cost, shares of Class A, 215,388 at June 30, 2004, and December 31, 2003 (2,265) (2,265) ----------- ----------- Total stockholders' equity 135,093 134,833 ----------- ----------- Total liabilities and stockholders' equity $ 1,185,734 $ 1,154,410 =========== ===========
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 JUNE 30, ----------------------- (in thousands, except per share data) 2004 2003 ------- ------- Interest income Loans, including fees $10,018 $11,503 Investment securities held to maturity 1,219 579 Investment securities available for sale 5,095 5,427 Deposits in banks 146 199 Federal funds sold 30 46 ------- ------- TOTAL INTEREST INCOME 16,508 17,754 ------- ------- Interest expense Deposits 4,288 5,732 Borrowings 2,681 1,899 ------- ------- TOTAL INTEREST EXPENSE 6,969 7,631 ------- ------- NET INTEREST INCOME 9,539 10,123 Provision for loan losses 4 167 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,535 9,956 ------- ------- Other income Service charges and fees 319 302 Net gains on sales of investment securities 33 -- Gains on sales of other real estate 542 109 Gains on sales of loans 256 153 Other income 2,314 41 ------- ------- 3,464 605 ------- ------- Other expenses Salaries & wages 2,592 1,995 Employee benefits 558 508 Occupancy and equipment 1,593 328 Other operating expenses 2,039 1,851 ------- ------- 6,782 4,682 ------- ------- INCOME BEFORE INCOME TAXES 6,217 5,879 Income taxes 1,823 1,899 ------- ------- NET INCOME $ 4,394 $ 3,980 ======= ======= Per share data Net income - basic $ .36 $ .33 ======= ======= Net income - diluted $ .36 $ .33 ======= =======
The accompanying notes are an integral part of these statements ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- (in thousands, except per share data) 2004 2003 ------- ------- Interest income Loans, including fees $20,652 $23,690 Investment securities held to maturity 2,393 1,171 Investment securities available for sale 10,651 10,950 Deposits in banks 287 284 Federal funds sold 53 90 ------- ------- TOTAL INTEREST INCOME 34,036 36,185 ------- ------- Interest expense Deposits 8,655 12,163 Borrowings 5,044 3,495 ------- ------- TOTAL INTEREST EXPENSE 13,699 15,658 ------- ------- NET INTEREST INCOME 20,337 20,527 Provision for loan losses 5 317 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 20,332 20,210 ------- ------- Other income Service charges and fees 671 555 Net gains on sales of investment securities 226 144 Gains on sales of other real estate 874 189 Gains on sales of loans 432 284 Other income 4,444 57 ------- ------- 6,647 1,229 ------- ------- Other expenses Salaries & wages 4,682 3,983 Employee benefits 1,070 892 Occupancy and equipment 2,014 665 Other operating expenses 5,592 3,686 ------- ------- 13,358 9,226 ------- ------- INCOME BEFORE INCOME TAXES 13,621 12,213 Income taxes 4,063 3,833 ------- ------- NET INCOME $ 9,558 $ 8,380 ======= ======= Per share data Net income - basic $ .78 $ .69 ======= ======= Net income - diluted $ .77 $ .69 ======= =======
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 SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) ACCUMULATED CLASS A CLASS B ADDITIONAL OTHER COMPRE- COMMON STOCK COMMON STOCK PAID IN RETAINED TREASURY COMPREHENSIVE HENSIVE (in thousands) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK INCOME (LOSS) INCOME ------ -------- ----- -------- ---------- -------- -------- ------------ -------- Balance, January 1, 2004 10,027 $ 20,054 1,909 $ 191 $ 85,448 $ 24,989 $ (2,265) $ 6,415 Net income for the nine months ended June 30, -- -- -- -- -- 9,558 -- -- $ 9,558 Conversion of Class B common stock to Class A C 7 14 (6) (1) -- (13) -- -- -- Purchase of treasury stock -- -- -- -- -- -- -- -- -- 2% stock dividend declared 196 392 39 4 5,842 (6,237) -- -- Cash dividends on common stock -- -- -- -- -- (6,063) -- -- -- Cash in lieu of fractional shares -- -- -- -- -- (11) -- -- -- Stock options exercised 7 13 -- -- 74 -- -- -- -- Other comprehensive income, net of Reclassifications and taxes -- -- -- -- -- -- -- (3,311) (3,311) ------ -------- ----- -------- -------- -------- -------- -------- -------- Comprehensive income $ 6,247 ======== Balance, June 30, 2004 10,237 $ 20,473 1,942 $ 194 $ 91,364 $ 22,223 $ (2,265) $ 3,104 ====== ======== ===== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the financial statement. ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, (in thousands)
Cash flows from operating activities 2004 2003 --------- --------- Net income $ 9,558 $ 8,380 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation 420 517 Provision for loan loss 5 317 Net accretion of discounts on loans, mortgage-backed securities and investments 1,539 101 Provision for deferred income taxes (711) 269 Gains on other real estate (874) (189) Gains on sales of loans (432) (284) Net (gain) loss on sales of investment securities (226) (144) Changes in assets and liabilities: Increase (decrease) in accrued interest receivable 1,132 (1,255) (Increase) in other assets (5,915) (1,651) Increase (decrease) in accrued interest payable 6,804 (651) Increase (decrease) in other liabilities 773 (9) --------- --------- Net cash provided by operating activities 12,013 5,401 Cash flows from investing activities Proceeds from calls/maturities of HTM investment securities 89,285 2,000 Proceeds from calls/maturities of AFS investment securities 126,104 131,522 Proceeds from sales of AFS investment securities 890 19,078 Purchase of AFS investment securities (86,302) (182,766) Purchase of HTM investment securities (155,125) -- Redemption (purchase) of FHLB Stock 807 (3,654) Net decrease in loans 78,208 29,323 Purchase of premises and equipment (63,764) (359) --------- --------- Net cash (used in) investing activities (9,897) (4,856) Cash flows from financing activities: Net (decrease) increase in non-interest bearing and interest bearing demand deposits and savings accounts (5,280) 83,078 Net decrease in certificates of deposit (22,106) (64,722) Mortgage payments (31) (30) Net increase in borrowings 55,762 80,000 Cash dividends (6,064) (5,640) Cash in lieu of fractional shares (11) (8) Issuance of common stock under stock option plans 87 193 --------- --------- Net cash provided by financing activities 22,357 92,871 NET INCREASE IN CASH AND CASH EQUIVALENTS 24,473 93,416 Cash and cash equivalents at beginning of year 25,070 40,571 --------- --------- Cash and cash equivalents at end of year $ 49,543 $ 133,987 ========= =========
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 unaudited 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., Royal Investment of Pennsylvania, Inc. and its 60% ownership interest in Crusader Servicing Corporation. 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 accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. The financial information included herein is unaudited; 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. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the three-month period ended June 30, 2004, are not necessarily indicative of the results, to be expected for the full year. 2. Segment Information The Company's community banking segment consists of commercial and retail banking. The community banking business segment is managed as a single strategic unit which generates revenue from a variety of products and services provided by the Bank. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. The same is also true for consumer and residential mortgage lending. The Company's tax lien operation does not meet the quantitative thresholds for requiring disclosure, but has different characteristics to the community banking operation. The Company's tax lien operation consists of purchasing delinquent tax certificates from local municipalities at auction. The tax lien operation is managed as a single strategic unit which generates revenue from a nominal interest rate achieved at the individual auction along with periodic penalties imposed. The accounting policies used in this disclosure of business segments are the same as those described in the summary of significant accountings policies. The consolidating adjustments reflect certain eliminations of inter-segment revenues, cash and investments in subsidiaries.
SIX MONTHS ENDED JUNE 30 2004, --------------------------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED ------------ ------------------- ----------------- Total assets $1,135,750 $49,984 $1,185,734 Total deposits 763,672 -- 763,672 Net interest income 18,699 1,638 20,337 Provision for loan losses -- 5 5 Other income 5,681 966 6,647 Other expense 12,086 1,272 13,358 Income tax expense 3,809 254 4,063 ------------ ------------------- ----------------- Net income $8,485 $1,073 $9,558 ============ =================== =================
SIX MONTHS ENDED JUNE 30, 2003, --------------------------------------------------------- (in thousands) COMMUNITY TAX LIEN BANKING OPERATION CONSOLIDATED ------------ ------------------- ----------------- Total assets $1,147,104 $48,725 $1,195,829 Total deposits 839,197 -- 839,197 Net interest income 18,803 1,724 20,527 Provision for loan losses 300 17 317 Other income 1,051 178 1,229 Other expense 8,217 1,009 9,226 Income tax expense 3,614 219 3,833 ------------- ------------------- ----------------- Net income $7,723 $657 $8,380 ============= =================== =================
Interest paid to the Community Bank segment by the Tax Lien Operation was approximately $857 thousand and $974 thousand for the six months period ending June 30, 2004, and 2003, respectively. 3. Per Share Information The Company follows the provisions of SFAS No. 128, "Earnings Per Share. 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. In January 2004 the Company declared a 2% stock dividend. All share and per share information has been restated to reflect this dividend. Basic and diluted EPS are calculated as follows (In thousands, except per share data):
THREE MONTHS ENDED JUNE 30, 2004 Income Average shares Per share (numerator) (denominator) Amount -------------- ------------------ -------------- Basic EPS Income available to common shareholders $4,394 12,253 $0.36 Effect of dilutive securities Stock options 79 -- -------------- ------------------ -------------- Diluted EPS Income available to common shareholders Plus assumed exercise of options $4,394 12,332 $0.36 THREE MONTHS ENDED JUNE 30, 2003 Income Average shares Per share (numerator) (denominator) Amount -------------- ------------------ -------------- Basic EPS Income available to common shareholders $3,980 12,113 $0.33 Effect of dilutive securities Stock options 59 -- -------------- ------------------ -------------- Diluted EPS Income available to common shareholders Plus assumed exercise of options $3,980 12,172 $0.33
SIX MONTHS ENDED JUNE 30, 2004 Income Average shares Per share (numerator) (denominator) Amount -------------- ------------------ -------------- Basic EPS Income available to common shareholders $9,558 12,251 $0.78 Effect of dilutive securities Stock options 86 (.01) -------------- ------------------ -------------- Diluted EPS Income available to common shareholders Plus assumed exercise of options $9,558 12,337 $0.77 SIX MONTHS ENDED JUNE 30, 2003 Income Average shares Per share (numerator) (denominator) Amount -------------- ------------------ -------------- Basic EPS Income available to common shareholders $8,380 12,110 $0.69 Effect of dilutive securities Stock options 57 -- -------------- ------------------ -------------- Diluted EPS Income available to common shareholders Plus assumed exercise of options $8,380 12,167 $0.69
4. Investment Securities: The carrying value and approximate market value of investment securities at June 30, 2004 are as follows:
AMORTIZED GROSS GROSS APPROXIMATE PURCHASED UNREALIZED UNREALIZED FAIR CARRYING (in thousands) COST GAINS LOSSES VALUE VALUE --------- --------- --------- --------- --------- HELD TO MATURITY: Mortgage Backed $ 281 $ -- $ -- $ 281 $ 281 US Agencies 155,125 -- (1,446) 153,679 155,125 Other Securities 21,122 866 (1) 21,987 21,122 --------- --------- --------- --------- --------- $ 176,528 $ 866 ($ 1,447) $ 175,947 $ 176,528 ========= ========= ========= ========= ========= AVAILABLE FOR SALE: Federal Home Loan Bank Stock - at cost $ 10,600 $ -- $ -- $ 10,600 $ 10,600 Mortgage Backed 58,056 115 (462) 57,709 57,709 CMO's 33,212 258 -- 33,470 33,470 US Agencies 94,976 -- (3,316) 91,660 91,660 Other securities 203,257 8,548 (439) 211,366 211,366 --------- --------- --------- --------- --------- $ 400,101 $ 8,921 ($4,217) $ 404,805 $ 404,805 ========= ========= ========= ========= =========
5. Allowance for Credit Losses: Changes in the allowance for credit losses were as follows:
THREE MONTHS ENDED JUNE 30, 2004 2003 --------------- --------------- (in thousands) BALANCE AT BEGINNING OF PERIOD, $12,467 $12,602 Loans charged-off (34) (142) Recoveries 102 27 --------------- --------------- Net charge-offs and recoveries 68 (115) Provision for loan losses 4 167 --------------- --------------- BALANCE AT END OF PERIOD $12,539 $12,654 =============== =============== SIX MONTHS ENDED JUNE 30, 2004 2003 --------------- --------------- (in thousands) BALANCE AT BEGINNING OF PERIOD, $12,426 $12,470 Loans charged-off (91) (201) Recoveries 199 68 --------------- --------------- Net charge-offs and recoveries 108 (133) Provision for loan losses 5 317 --------------- --------------- BALANCE AT END OF PERIOD $12,539 $12,654 =============== ===============
6. Non-performing loans Loans on which the accrual of interest has been discontinued or reduced amounted to approximately $6.8 million and $13.9 million at June 30, 2004 and 2003, respectively. Although the Company has non-performing loans of approximately $6.8 million at June 30, 2004, management believes it has adequate collateral to limit its credit risk with these loans. The balance of impaired loans which included the loans on which the accrual of interest has been discontinued, was approximately $6.8 million and $13.9 million at June 30, 2004 and 2003, 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 associated with impaired loans was $1.0 million at June 30, 2004. The income that was recognized on impaired loans during the three-month period ended June 30, 2004 was $-0-. The cash collected on impaired loans during the same period was $95 thousand of which $95 thousand was credited to the principal balance outstanding on such loans. 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. 7. Pension Plan The Company has a noncontributory nonqualified defined benefit pension plan covering certain eligible employees. The Company-sponsored pension plan provides retirement benefits under pension trust agreements and under contracts with insurance companies. The benefits are based on years of service and the employee's compensation during the highest consecutive years during the last 10 years of employment. The Company's policy is to fund pension costs allowable for income tax purposes. Net periodic defined benefit pension expense for the six months ended June 30, 2004 and 2003 included the following components: 2004 2003 ------- -------- Service cost 382 206 Interest cost 106 107 ------- -------- Net periodic benefit cost 488 313 8. Stock-based Compensation At June 30, 2004, the Company had both a director and employee stock-based compensation plan. The Company accounts for the plan under the recognition and measurement principals of APB No. 25, "Accounting for Stock Issued to Employee, and related interpretations. Stock-based employee compensation cost are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value under the underlying common stock of the date of the grant. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure and certain transition provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". The new disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 and financial reports containing condensed financial statement for interim periods beginning after December 15, 2002. The following table provides the disclosure required by SFAS No. 148 and illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
(in thousands, except per share data) 2004 2003 ----- ---- Net income (loss), as reported $9,558 $8,380 Less: Stock-based compensation costs under Fair value based method for all awards. (212) (218) --------- -------- Pro forma net income $9,346 $8,162 Earnings per share - Basic As reported $0.78 $0.69 Pro forma $0.76 $0.67 Earnings per share - Diluted As reported $0.77 $0.69 Pro forma $0.76 $0.67
9. Variable Interest Entities ("VIE") The Company, together with a real estate development company, formed Brook View Investors, L.L.C. ("Brook View") in May 2001. Brook View was formed to construct 13 apartment buildings with a total of 116 units in a gated apartment community. The development company is the general partner of the project. The Company invested 60% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At June 30, 2004, Brook View had total assets of $13.4 million and total borrowings of $13.0 million of which $0 is guaranteed by the Company. The Company has determined that Brook View is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Brook View is $332 thousand. The Company, together with a real estate development company, formed Burrough's Mill Apartment, L.L.C. ("Burrough's Mill") in December 2001. Burrough's Mill was formed to construct 32 apartment buildings with a total of 308 units in a gated apartment community. The development company is the general partner of the project. The Company invested 72% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At June 30, 2004, Burrough's Mill had total assets of $34.7 million and total borrowings of $27.7 million of which $0 is guaranteed by the Company. The Company has determined that Burrough's Mill is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Burrough's Mill is $5.0 million. The Company, together with a real estate development company, formed Main Street West Associates, L.P. ("Main Street") in February 2002. Main Street was formed to acquire, maintain, improve, and operate office space located in Norristown, Pennsylvania. The development company is the general partner of the project. The Company invested 90% of initial capital contributions with the development company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the development company. At June 30, 2004, Main Street had total assets of $3.7 million and total borrowings of $3.0 million of which $0 is guaranteed by the Company. The Company has determined that Main Street is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from Main Street is $1.0 million. The Company, together with a real estate investment company, formed 212 C Associates, L.P. ("212 C") in May 2002. 212 C was formed to acquire, hold, improve, and operate office space located in Lansdale, Pennsylvania. The investment company is the general partner of the project. The Company invested 90% of initial capital contributions with the investment company holding the remaining equity interest. Upon the repayment of the initial capital contributions and a preferred return, distributions will convert to 50% for the Company and 50% for the investment company. At June 30, 2004, 212 C had total assets of $14.2 million and total borrowings of $12.1 million of which $0 is guaranteed by the Company. The Company has determined that 212 C is a VIE and it is the primary beneficiary. The Company's exposure to loss due to its investment in and receivables due from 212 C is $1.7 million. 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 its' subsidiaries for the six-month period ended June 30, 2004. 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. CRITICAL ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES The accounting and reporting policies of the company conform with accounting principals generally accepted in the United States of America and general practices within the financial services industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. Allowance for Credit Losses The company considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from managements estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. Income Taxes Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities. Deferred tax assets are subject to managements' judgment based upon available evidence that future realization is more likely than not. If management determines that the company may be unable to realize all or part of the net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of net deferred tax assets to the expected realizable amount. FINANCIAL CONDITION Total consolidated assets as of June 30, 2004 were $1,186 million, an increase of $32 million from the $1,154 million reported at year-end, December 31, 2003. This increase is primarily due to $59 million of assets relating to investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Previously these investments were accounted for under the equity method of accounting. Total loans decreased $76.9 million from the $512.6 million level at December 31, 2003 to $435.7 million at June 30, 2004. This decrease is attributed to the speed of loans payoffs resulting from project completions and rate restructuring. The year-to-date average balance of loans was $480.5 million at June 30, 2004. The allowance for loan loss increased $113 thousand to $12.5 million at June 30, 2004 from $12.4 million at December 31, 2003. The level of allowance for loan loss reserve represents approximately 2.9% of total loans at June 30, 2004 versus 2.4% at December 31, 2003. 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 $16.0 million increase in total investment securities is primarily attributable to the redeployment of excess cash held during the quarter. Total cash and cash equivalents increased $24.4 million from the $25.1 million level at December 31, 2003 to $49.5 million at June 30, 2004. This increase is primarily due to loan payoffs which occurred at the end of the quarter. Total deposits, the primary source of funds, decreased $27.4 million to $763.7 million at June 30, 2004, from $791.1 million at December 31, 2003. The balance of brokered deposits was $73.1 million, representing approximately 10% of total deposits at June 30, 2004. Generally, these brokered deposits cannot be redeemed prior to the stated maturity, except in the event of the death or adjudication of incompetence of the deposit holder. Total borrowings increased $55.8 million to $267.8 million at June 30, 2004, from $212.0 million at December 31, 2003. This increase is primarily attributed to the consolidation of investments in real estate partnerships as a result of FIN 46(R). In the balance at June 30, 2004, $55.8 million of borrowings are not an obligation nor guaranteed by the company. Consolidated stockholder's equity increased $260 thousand to $135.1 million at June 30, 2004 from $134.8 million at December 31, 2003. This increase is primarily due to net income of $9.6 million, partially offset by quarterly cash dividends totaling $6.1 million. Additionally, stockholders' equity decreased by $3.3 million due to an adjustment in the market value of available-for-sale investment securities during the first six months of 2004. 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 and borrowings. 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, June 30, 2004 was $4.4 million or $0.36 basic earnings per share, as compared to net income of $4.0 million or $0.33 basic earnings per share for the same three month period in 2003. Consolidated net income for the six months ended, June 30, 2004 was $9.6 million or $0.78 basic earnings per share, as compared to net income of $8.4 million or $0.69 basic earnings per share for the same six month period in 2003. For the second quarter 2004, net interest income was $9.5 million as compared to $10.1 million for the same quarter in 2003, a decrease of $584 thousand. This decrease is primarily due to $865 thousand of interest paid relating to investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Interest income including fees on loans decreased $1.5 million for the second quarter of 2004 versus 2003 primarily due to a decrease in the average balance of loans during the same period. Interest income on investment securities during the second quarter increased $308 thousand, a 5% increase over the same three-month period in 2003, which is primarily due to the larger average balance in investment securities held during the quarter. Total interest expense on deposits and borrowings decreased $662 thousand to $7.0 million as compared to $7.6 million for the same three-month period in 2003. This decrease in interest expense is primarily due the reduction of interest rates on deposits and borrowings offset by an increase of interest reported as a result investments in real estate partnerships that are now being consolidated as a result of FIN 46(R). Provision for loan losses was $4 thousand for the second quarter of 2004 and $167 for the same three-month period in 2003. Charge-offs and recoveries were $34 thousand and $102 thousand respectively. Overall, management considers the current level of allowance for loan loss to be adequate at June 30, 2004. Total non-interest income for the three-month period ended June 30, 2004 was $3.5 million as compared to $605 thousand for the same three-month period in 2003. The $2.9 million increase in 2004 is primarily due to a $2.4 million addition from the consolidation as a result of FIN 46(R) and gains realized from the sale of other real estate owned. Total non-interest expense for the three months ended June 30, 2004 was $6.8 million, an increase of $2.1 million, as compared to $4.7 million for the same period in 2003. The increase is primarily attributed to the $1.3 million addition from the consolidation as a result of FIN 46(R). 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, 2004, 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:
JUNE 30, 2004 DECEMBER 31, 2003 ------------- ----------------- CAPITAL LEVELS Tier 1 leverage ratio 11.4% 11.1% Tier 1 risk-based ratio 16.1% 15.3% Total risk-based ratio 17.4% 16.5% CAPITAL PERFORMANCE Return on average assets 1.5% (1) 1.6% (1) Return on average equity 13.3% (1) 14.5% (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 53% 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 June 30, 2004:
INTEREST RATE SENSITIVITY (IN MILLIONS) DAYS -------------------------- 1 TO 5 OVER 5 NON-RATE ASSETS 0 - 90 91 - 365 YEARS YEARS SENSITIVE TOTAL ------------ ------------ ------------ ------------ ------------ ------------ Interest-bearing deposits in banks $15.1 $-- $-- $-- $9.4 $24.5 Federal funds sold 25.0 -- -- -- -- 25.0 Investment securities: Available for sale 18.1 19.8 264.4 97.8 4.7 404.8 Held to maturity 1.0 11.5 162.7 1.3 -- 176.5 ------------ ------------ ------------ ------------ ------------ ------------ Total investment securities 19.1 31.3 427.1 99.1 4.7 581.3 Loans: Fixed rate 36.1 60.5 118.7 7.0 -- 222.3 Variable rate 121.5 93.9 -- -- (12.5) 202.9 ------------ ------------ ------------ ------------ ------------ ------------ Total loans 157.6 154.4 118.7 7.0 (12.5) 425.2 Other assets -- -- -- -- 129.7 129.7 ------------ ------------ ------------ ------------ ------------ ------------ Total Assets $216.8 $185.7 $545.8 $106.1 $131.3 $1,185.7 ============ ============ ============ ============ ============ ============ LIABILITIES & CAPITAL Deposits: Non interest bearing deposits $-- $-- $-- $-- $58.4 $58.4 Interest bearing deposits 56.9 170.7 262.9 -- -- 490.5 Certificate of deposits 51.1 73.1 80.5 10.1 -- 214.8 ------------ ------------ ------------ ------------ ------------ ------------ Total deposits 108.0 243.8 343.4 10.1 58.4 763.7 Borrowings (1) -- 67.0 87.5 57.5 55.8 267.8 Other liabilities -- -- .3 -- 18.8 19.1 Capital -- -- -- -- 135.1 135.1 ------------ ------------ ------------ ------------ ------------ ------------ Total liabilities & capital $108.0 $310.8 $431.2 $67.6 $268.1 $1,185.7 ============ ============ ============ ============ ============ ============ Net interest rate GAP $108.8 ($125.1) $114.6 $38.5 ($136.8) ============ ============ ============ ============ ============ Cumulative interest rate GAP $108.8 ($16.3) $98.3 $136.8 -- ============ ============ ============ ============ ============ GAP to total assets 9% (11%) ============ ============ GAP to total equity 81% (93%) ============ ============ Cumulative GAP to total assets 9% (1%) ============ ============ Cumulative GAP to total equity 81% (12%) ============ ============
(1) The $55.8 in borrowings classified as non-rate sensitive are related to variable interest entities and are not obligations of the Company. 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. ITEM 4 - CONTROLS AND PROCEDURES We maintain a system of controls and procedures designed to provide reasonable assurance to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, within 90 days prior to the filing date of this report. Based upon that evaluation, our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings. No significant changes were made to our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). In general, a variable interest entity is a corporation, partnership, trust or any other legal structures used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to interest entities created after January 31, 2003. In December 2003, the FASB issued FIN 46(R) with respect to variable interest entities created before January 31, 2003, which among other things revised the implementation date to the first fiscal year or interim period ended after March 15, 2004, with the exception of Special Purpose Entities (SPE). The Company currently has no SPEs. The Company adopted the provisions of FIN 46 effective for the period ending March 31, 2004, which required the Company to consolidate its investment in real estate partnerships. Prior to FIN 46 and 46(R), the Company accounted for its investment in the real estate partnerships under the equity method of accounting. The Company's investment in real estate partnerships is further discussed in Note 9. In November 2003, the Emerging Issues Task Force (EITF) of the FASB issued EITF Abstract 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1). The quantitative and qualitative disclosures provisions of EITF 03-1 were effective for years ending after December 15, 2003 and were included in the Corporation's 2003 Form 10-K. In March 2004, the EITF issued a Consensus on Issue 03-1 requiring that the provisions of EITF 03-1 be applied for reporting periods beginning after June 15, 2004 to investments accounted for under SFAS No. 115 and 124. EITF 03-1 establishes a three-step approach for determining whether an investment is considered impaired, whether the impairment is other-than-temporary, and the measurement of an impairment loss. The Corporation is in the process of determining the impact that this EITF will have on its financial statements. The SEC recently released Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments. SAB 105 provides guidance about the measurements of loan commitments recognized at fair value under FASB Statement No. 133, Accountings for Derivative Instruments and Hedging Activities. SAB 105 also requires companies to disclose their accounting policy for those loan commitments including methods and assumptions used to estimate fair value and associated hedging strategies. SAB 105 is effective for all loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of SAB 105 is not expected to have a material effect on our consolidated financial statements. On March 31, 2004, the Financial Accounting Standards Board (FASB) issued a proposed Statement, Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB's proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company is currently evaluating this proposed statement and its effects on its 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 19, 2004, the Annual Meeting of Shareholders of Royal Bancshares of Pennsylvania was convened in Philadelphia, PA at 6:30 P.M. The following nominees were elected as Class II Directors of the Registrant to serve for a three year term: FOR WITHHOLD --- -------- Jack Loew 25,285,186 9,945 Anthony MiCale 25,286,693 8,438 Mitchell Morgan 25,287,443 7,688 Albert Ominsky 25,285,186 9,945 Gregory Reardon 25,286,693 8,438 Robert Tabas 25,151,534 143,597 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by Joseph P. Campbell, Chief Executive Officer of Royal Bancshares of Pennsylvania on August 9, 2004. 31.2 Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by Jeffrey T. Hanuscin, Chief Financial Officer of Royal Bancshares of Pennsylvania on August 9, 2004. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joseph P. Campbell, Chief Executive Officer of Royal Bancshares of Pennsylvania on August 9, 2004. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Jeffrey T. Hanuscin, Chief Financial Officer of Royal Bancshares of Pennsylvania on August 9, 2004. (b) The Company filed the following report on Form 8-K on July 22, 2004 announcing it's 37th quarterly cash dividend and also released earnings for the 2nd quarter ending June 30, 2004. SIGNATURES Pursuant to 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 9th, 2004 /s/ Jeffrey T. Hanuscin ------------------------ Jeffrey T. Hanuscin Chief Financial Officer EX-31 2 ex31-1.txt EX31-1.TXT EXHIBIT 31.1 ------------ CERTIFICATION I, Joseph P. Campbell, Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania; 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15(d)-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: (b) [Intentionally omitted]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 9, 2004 /s/ Joseph P. Campbell ----------------------- Chief Executive Officer EX-31 3 ex31-2.txt EX31-2.TXT EXHIBIT 31.2 CERTIFICATION I, Jeffrey T. Hanuscin, Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania; 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) internal control over financial reporting for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: b) [Intentionally omitted]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 9, 2004 /s/ Jeffrey T. Hanuscin ---------------------------------- Chief Financial Officer EX-32 4 ex32-1.txt EX32-1.TXT EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT 2002 In connection with the Annual Report of Royal Bancshares ("Royal") on form 10-Q for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph P. Campbell, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Royal as of the dates and for the periods expressed in the Report. /s/ Joseph P. Campbell --------------------------- Joseph P. Campbell Chief Executive Officer August 9, 2004. EX-32 5 ex32-2.txt EX32-2.TXT EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT 2002 In connection with the Annual Report of Royal Bancshares ("Royal") on form 10-Q for the period ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey T. Hanuscin, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Royal as of the dates and for the periods expressed in the Report. /s/ Jeffrey T. Hanuscin --------------------------- Jeffrey T. Hanuscin Chief Financial Officer August 9, 2004. -----END PRIVACY-ENHANCED MESSAGE-----