NOTE 10 – BORROWINGS AND SUBORDINATED DEBENTURES

1. Advances from the Federal Home Loan Bank

Royal Bank has a $150 million line of credit with the FHLB of which $22.0 million was outstanding as of December 31, 2011. At December 31, 2011, advances from the FHLB totaling $104.2 million, which includes the $22.0 million mentioned above, will mature within one day to two years. The FHLB advances had a weighted average interest rate of 2.66%. The advances and the line of credit are collateralized by FHLB stock, government agencies and mortgage-backed securities, residential loans, and commercial real estate loans. As of December 31, 2011, investment securities with a market value of $93.7 million and loans with a book value of $77.6 million were pledged as collateral to the FHLB. The average balance of advances with the FHLB during 2011 was $107.7 million.

The available borrowing capacity is based on qualified collateral. During the first quarter of 2010, Royal Bank was notified by the FHLB that they were being placed on an over collateralized delivery requirement of 105%. The FHLB's decision was based primarily upon the level of Royal Bank's non-performing assets and net loss. The available amount for future borrowings will be based on the amount of collateral to be pledged.

At December 31, 2010, advances from FHLB totaled $110.7 million with maturities within one day to three years. These advances had a weighted average interest rate of 2.78%. The average balance of advances with the FHLB during 2010 was $185.1 million.

Presented below are the Company's FHLB borrowings allocated by the year in which they mature with their corresponding weighted average rates:

	As of December 31,
(Dollars in thousands)	2011					2010
	Amount		Rate			Amount		Rate
Advances maturing in
2011	$	-		-		$	22,000		0.72	%
2012		52,000		2.64	%		30,000		4.32	%
2013		50,000		2.64	%		50,000		2.64	%
Amortizing advance, due April 2012, requiring monthly principal and interest of $558,400		2,218		3.46	%		8,719		3.46	%
Total FHLB borrowings	$	104,218				$	110,719

2. Other borrowings

The Company has a note payable with PNC Bank (“PNC”) at December 31, 2011 in the amount of $3.8 million with a maturity date of August 25, 2016. The note payable balance at December 31, 2010 was $4.2 million. The interest rate is a variable rate using rate index of one month LIBOR + 15 basis points and adjusts monthly. The interest rate at December 31, 2011 and 2010 was 0.44% and 0.40%, respectively.

At December 31, 2011 and 2010, the Company had additional borrowings of $40 million from PNC which will mature on January 7, 2018. These borrowings are secured by government agencies and mortgaged-backed securities. These borrowings have a weighted average interest rate of 3.65%. As of December 31, 2011, investment securities with a market value of $52.9 million were pledged as collateral to secure all borrowings with PNC.

3. Subordinated debentures

The Company has outstanding $25.0 million of Trust Preferred Securities issued through two Delaware trust affiliates, Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”). The Company issued an aggregate principal amount of $12.9 million of floating rate junior subordinated debt securities to Trust I, which debt securities bear an interest rate of 2.70% at December 31, 2011, and reset quarterly at 3-month LIBOR plus 2.15%. The Company also issued an aggregate principal amount of $12.9 million of fixed/floating rate junior subordinated deferrable interest to Trust II, which debt securities had an initial interest rate of 5.80% until December 2009 and now resets quarterly at 3-month LIBOR plus 2.15%. The interest rate at December 31, 2011 was 2.70%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and an aggregate principal amount of $387,000 of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to the Company. The Company has fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

On August 13, 2009, the Company's Board of Directors determined to suspend interest payments on the trust preferred securities. The Company's Board of Directors took this action in consultation with the Federal Reserve Bank of Philadelphia as required by recent regulatory policy guidance. The Company currently has sufficient capital and liquidity to pay the scheduled interest payments; however, the Company believes this decision will better support the capital position of Royal Bank. As of December 31, 2011 the trust preferred interest payment in arrears was $1.8 million and has been recorded in interest expense and accrued interest payable.