10-Q

  UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, DC  20549

FORM 10-Q

 (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, 2013

o 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 incorporation or organization)	(IRS  Employer 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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12-b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No. x

Applicable only to corporate issuers:

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 April 30, 2013
$2.00 par value	10,933,150
Class B Common Stock	Outstanding at April 30, 2013
$0.10 par value	2,020,449

PART I – FINANCIAL STATEMENTS

Item 1. Financial Statements

ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited)

	March 31,			December 31,
	2013			2012
ASSETS	(In thousands, except share data)
Cash and due from banks	$	7,941		$	10,621
Interest bearing deposits		13,312			18,181
Total cash and cash equivalents		21,253			28,802
Investment securities available-for-sale ("AFS”)		321,184			349,203
Other investment, at cost		2,250			2,250
Federal Home Loan Bank ("FHLB") stock		5,127			6,011
Loans and leases held for sale ("LHFS")		1,472			1,572
Loans and leases ("LHFI")		358,055			344,165
Less allowance for loan and lease losses		15,389			17,261
Net loans and leases		342,666			326,904
Bank owned life insurance		14,721			14,585
Accrued interest receivable		9,723			10,256
Other real estate owned ("OREO"), net		13,264			13,435
Premises and equipment, net		4,745			5,232
Other assets		14,973			15,466
Total assets	$	751,378		$	773,716
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest bearing	$	58,239		$	58,531
Interest bearing		473,131			496,386
Total deposits		531,370			554,917
Long-term borrowings		108,221			108,333
Subordinated debentures		25,774			25,774
Accrued interest payable		4,411			3,760
Other liabilities		22,590			22,517
Total liabilities		692,366			715,301
Shareholders’ equity
Royal Bancshares of Pennsylvania, Inc. equity:
Preferred stock, Series A perpetual, $1,000 liquidation value, 500,000 shares authorized, 30,407 shares issued and outstanding at March 31, 2013 and December 31, 2012		29,531			29,396
Class A common stock, par value $2.00 per share, authorized 20,000,000 shares; issued, 11,431,638 at March 31, 2013 and December 31, 2012, respectively		22,863			22,863
Class B common stock, par value $0.10 per share; authorized 3,000,000 shares; issued, 2,020,499 at March 31, 2013 and December 31, 2012, respectively		202			202
Additional paid in capital		126,294			126,287
Accumulated deficit		(117,097	)		(117,080	)
Accumulated other comprehensive income (loss)		157			(142	)
Treasury stock - at cost, shares of Class A, 498,488 at March 31, 2013 and December 31, 2012		(6,971	)		(6,971	)
Total Royal Bancshares of Pennsylavania, Inc. shareholders’ equity		54,979			54,555
Noncontrolling interest		4,033			3,860
Total equity		59,012			58,415
Total liabilities and shareholders’ equity	$	751,378		$	773,716

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations - (unaudited)

	For the three months ended
	March 31,
(In thousands, except per share data)	2013			2012
Interest income
Loans and leases, including fees	$	5,461		$	6,817
Investment securities available-for-sale		1,284			1,980
Deposits in banks		7			9
Total Interest Income		6,752			8,806
Interest expense
Deposits		1,073			1,628
Short-term borrowings		-			293
Long-term borrowings		907			892
Total Interest Expense		1,980			2,813
Net Interest Income		4,772			5,993
(Credit) provision for loan and lease losses		(251	)		84
Net Interest Income after (Credit) Provision for Loan and Lease Losses		5,023			5,909
Other income
Gain on sale of premises and equipment		676			-
Service charges and fees		313			301
Net gains (losses) on sales of other real estate owned		162			(138	)
Income from bank owned life insurance		136			138
Net gains on the sale of AFS investment securities		45			139
Gains on sales of loans and leases		16			41
Other income		60			180
Total Other Income		1,408			661
Other expenses
Employee salaries and benefits		2,789			2,869
Professional and legal fees		660			1,004
Occupancy and equipment		570			549
OREO expenses and impairment		369			804
Pennsylvania shares tax		274			315
FDIC and state assessments		267			206
Loan collection expenses		136			(3	)
Directors' fees		101			102
Impairment on loans held for sale		100			-
Restructuring charges		87			-
Department of Justice fine		-			1,600
Other operating expenses		787			621
Total Other Expenses		6,140			8,067
Income (Loss) Before Tax Expense (Benefit)		291			(1,497	)
Income tax expense (benefit)		-			-
Net Income (Loss)	$	291		$	(1,497	)
Less net income (loss) attributable to noncontrolling interest	$	173		$	(628	)
Net income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	$	118		$	(869	)
Less Preferred stock Series A accumulated dividend and accretion	$	515		$	506
Net loss available to common shareholders	$	(397	)	$	(1,375	)
Per common share data
Net loss – basic and diluted	$	(0.03	)	$	(0.10	)

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) - (unaudited)

	For the three months ended
	March 31,
(In thousands)	2013			2012
Net income (loss)	$	291		$	(1,497	)
Other comprehensive income (loss), net of tax
Unrealized gains on investment securities:
Unrealized holding gains arising during period		235			364
Less reclassification adjustment for gains realized in net income (loss)1		30			90
Unrealized gains on investment securities		205			274
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization2		(94	)		(51	)
Other comprehensive income		299			325
Comprehensive income (loss)	$	590		$	(1,172	)
Less comprehensive income (loss) attributable to noncontrolling interest		173			(628	)
Comprehensive income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	$	417		$	(544	)

The accompanying notes are an integral part of these consolidated financial statements.

1 Amounts are included in net gains on the sale of available for sale investment securities on the Consolidated Statements of Operations in total non-interest income.

2 Amounts are included in salaries and benefits on the Consolidated Statements of Operations in non-interest expense.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders' Equity

Three months ended March 31, 2013

(unaudited)

	Preferred stock		Class A common stock				Class B common stock				Additional paid in		Accumulated			Accumulated other comprehensive			Treasury			Noncontrolling		Total Shareholders'
(In thousands, except share data)	Series A		Shares		Amount		Shares		Amount		capital		deficit			income			stock			Interest		Equity
Balance January 1, 2013	$	29,396		11,432	$	22,863		2,020	$	202	$	126,287	$	(117,080	)	$	(142	)	$	(6,971	)	$	3,860	$	58,415
Net income														118									173		291
Other comprehensive income, net of reclassifications and taxes																	299						-		299
Accretion of discount on preferred stock		135												(135	)										-
Stock option expense												7													7
Balance March 31, 2013	$	29,531		11,432	$	22,863		2,020	$	202	$	126,294	$	(117,097	)	$	157		$	(6,971	)	$	4,033	$	59,012

ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders' Equity

Three months ended March 31, 2012

(unaudited)

	Preferred stock		Class A common stock				Class B common stock					Additional paid in		Accumulated			Accumulated other comprehensive		Treasury			Noncontrolling			Total Shareholders'
(In thousands, except share data)	Series A		Shares		Amount		Shares			Amount		capital		deficit			income		stock			Interest			Equity
Balance January 1, 2012	$	28,878		11,362	$	22,723		2,081		$	208	$	126,245	$	(100,803	)	$	800	$	(6,971	)	$	4,865		$	75,945
Net loss															(869	)							(628	)		(1,497	)
Other comprehensive income, net of reclassifications and taxes																		325					-			325
Common stock conversion from Class B to Class A				1		2		(1	)		-				(2	)										-
Accretion of discount on preferred stock		126													(126	)										-
Stock option expense													14													14
Balance March 31, 2012	$	29,004		11,363	$	22,725		2,080		$	208	$	126,259	$	(101,800	)	$	1,125	$	(6,971	)	$	4,237		$	74,787

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

Three months ended March 31,

(In thousands)	2013			2012
Cash flows from operating activities:
Net income (loss)	$	118		$	(869	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		95			106
Stock compensation expense		7			14
(Credit) provision for loan and lease losses		(251	)		84
Impairment charge for other real estate owned		12			53
DOJ Fine accrual		-			1,600
Net amortization of investment securities		1,448			1,317
Net accretion on loans		(62	)		(66	)
Net gains on sales of premises and equipment		(676	)		-
Net (gains) losses on sales of other real estate		(162	)		138
Proceeds from sales of loans and leases		123			3,831
Gains on sales of loans and leases		(16	)		(41	)
Net gains on sales of investment securities		(45	)		(139	)
Income from bank owned life insurance		(136	)		(138	)
Impairment on loans held for sale		100			-
Changes in assets and liabilities:
Decrease in accrued interest receivable		533			2,285
Decrease in other assets		493			695
Increase in accrued interest payable		651			818
Increase (decrease) increase in other liabilities		73			(1,094	)
Net cash provided by operating activities		2,305			8,594
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of available-for-sale ("AFS") investment securities		37,311			39,958
Proceeds from sales of AFS investment securities		12,135			11,827
Purchase of AFS investment securities		(22,590	)		(58,959	)
Redemption of Federal Home Loan Bank stock		884			424
Net (increase) decrease in loans		(17,280	)		5,865
Proceeds from the sales of premises and equipment		1,115			-
Purchase of premises and equipment		(47	)		(60	)
Proceeds from sales of foreclosed real estate		2,277			4,531
Net cash provided by investing activities		13,805			3,586
Cash flows from financing activities:
Decrease in demand and NOW accounts		(960	)		(1,375	)
(Decrease) increase in money market and savings accounts		(5,025	)		719
(Decrease) increase in certificates of deposit		(17,562	)		906
Repayments of short-term borrowings		-			(27,661	)
Repayments of long-term borrowings		(112	)		(112	)
Proceeds from long-term borrowings		-			15,000
Net cash used in financing activities		(23,659	)		(12,523	)
Net decrease in cash and cash equivalents		(7,549	)		(343	)
Cash and cash equivalents at the beginning of the period		28,802			24,506
Cash and cash equivalents at the end of the period	$	21,253		$	24,163
Supplemental Disclosure
Interest paid	$	1,329		$	1,995
Transfers to other real estate owned	$	1,956		$	8,010

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Summary of Significant Accounting Policies

Basis of Financial Presentation

The accompanying unaudited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. (“Royal Bancshares” or the “Company”) and its wholly-owned subsidiaries, Royal Investments of Delaware, Inc., including Royal Investments of Delaware, Inc.’s wholly owned subsidiary, Royal Preferred, LLC, and Royal Bank America (“Royal Bank”), including Royal Bank’s subsidiaries, Royal Real Estate of Pennsylvania, Inc., Royal Investments America, LLC, RBA Property LLC, Narberth Property Acquisition LLC, Rio Marina LLC, and its three 60% ownership interests in Crusader Servicing Corporation, Royal Tax Lien Services, LLC, and Royal Bank America Leasing, LP.  The two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). These consolidated financial statements reflect the historical information of the Company.  All significant intercompany transactions and balances have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Applications of the principles in the Company’s preparation of the consolidated financial statements in conformity with U.S. GAAP require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes.  These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates. The interim financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods.  These interim consolidated 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, 2012.  The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain items in the 2012 consolidated financial statements and accompanying notes have been reclassified to conform to the current year’s presentation format.  There was no effect on net loss for the periods presented herein as a result of reclassification.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) which amends ASC Topic 210 “Balance Sheet”. Because of the significant differences in requirements under U.S. GAAP and IFRS, FASB and the International Accounting Standards Board (“IASB”) are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a significant impact on the Company’s consolidated financial statements.

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In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”) to improve the reporting of reclassifications out of accumulated comprehensive income.  ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04).  ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements.  ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:

a. The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors

b. Any additional amount the reporting entity expects to pay on behalf of its co-obligors.

ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  For public companies ASU 2013-04 is effective for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-04 is not expected to have a significant impact on the Company’s consolidated financial statements.

Note 2. Regulatory Matters and Significant Risks or Uncertainties

FDIC and Department of Banking Orders

On July 15, 2009, Royal Bank agreed to enter into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the “Orders”) with each of the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (the “Department”). The material terms of the Orders were identical and required Royal Bank among other items to maintain, after establishing an adequate allowance for loan and lease losses, a ratio of Tier 1 capital to total assets (“leverage ratio”) equal to or greater than 8% and a ratio of qualifying total capital to risk-weighted assets (“total risk-based capital ratio”) equal to or greater than 12%. The FDIC and the Department replaced the Orders in the fourth quarter of 2011 with an informal agreement, known as a memorandum of understanding (“MOU”). Included in the MOU is the continued requirement of maintaining a leverage ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%.  At March 31, 2013, based on capital levels calculated under regulatory accounting principles (“RAP”), Royal Bank’s Tier 1 leverage and total risk-based capital ratios were 8.96% and 15.92%, respectively.  Please refer to “Note 11 – Regulatory Capital Requirements” to the Consolidated Financial Statements.

Following the issuance of the Orders, management implemented plans to address key areas that were noted in the Orders.  Management has reduced classified assets, delinquencies, commercial real estate concentrations, reliance on non-core deposits and wholesale funding sources and maintained capital ratios above required minimums which were all factors that contributed to replacing the Orders with the MOU.  Management has continued to improve in each of these areas since the Orders were replaced with the MOU.

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Federal Reserve Agreement

On March 17, 2010, the Company agreed to enter into the Federal Reserve Agreement with the Reserve Bank. The material terms of the Federal Reserve Agreement provide that: (i) the Company’s board of directors will take appropriate steps to fully utilize the Company’s financial and managerial resources to serve as a source of strength to its subsidiary banks; (ii) the Company’s board of directors will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank a written plan to strengthen board oversight of the management and operations of the consolidated operation; (iii) the Company will not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (iv) the Company and its non-bank subsidiaries will not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (v) the Company and its nonbank subsidiaries will not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank; (vi) the Company will not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank; (vii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank an acceptable written capital plan to maintain sufficient capital at the Company on a consolidated basis, which plan will at a minimum address: regulatory requirements for the Company and the Banks, the adequacy of the Banks’ capital taking into account the volume of classified credits, the allowance for loan and lease losses, current and projected asset growth, and projected retained earnings; the source and timing of additional funds necessary to fulfill the consolidated organization’s and the Banks’ future capital requirements; supervisory requests for additional capital at the Banks or the requirements of any supervisory action imposed on the Banks by federal or state regulators; and applicable legal requirements that the Company serve as a source of strength to the Banks; (viii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank cash flow projections for 2010 showing planned sources and uses of cash for debt service, operating expenses, and other purposes, and will submit similar cash flow projections for each subsequent calendar year at least one month prior to the beginning of such year; (ix) the Company will comply with applicable legal notice provisions in advance of appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer such that the officer would assume a different senior executive officer position, and comply with restrictions on indemnification and severance payments imposed by the Federal Deposit Insurance Act; and (x) the Company’s board of directors will, within 45 days after the end of each quarter, submit progress reports to the Reserve Bank detailing the form and manner of all actions taken to secure compliance with the Agreement and the results thereof, together with a parent company-level balance sheet, income statement, and, as applicable, report of changes in shareholders’ equity.

The Federal Reserve Agreement will remain in effect and enforceable until stayed, modified, terminated or suspended by the Reserve Bank. Royal Bancshares has submitted all progress reports and responses required under the Federal Reserve Agreement as of the date of this Report.

Our success as a Company is dependent upon pursuing various alternatives in not only achieving the growth and expansion of our banking franchise but also in managing our day to day operations. The existence of the MOU and the Federal Reserve Agreement may limit or impact our ability to pursue all previously available alternatives in the management of the Company. Our ability to retain existing retail and commercial customers as well as the ability to attract potentially new customers may be impacted by the existence of the MOU and the Federal Reserve Agreement. Additionally, our ability to expand into potentially attractive commercial real estate or construction loans at this time is limited. The Company’s ability to raise capital in the current economic environment could be potentially limited or impacted as a result of the MOU and the Federal Reserve Agreement. Attracting new management talent is critical to the success of our business and could be potentially impacted due to the existence of the MOU and the Federal Reserve Agreement.

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Significant Losses

Over the past five calendar years, the Company has recorded significant losses totaling $119.6 million which were primarily related to charge-offs on the loan and lease portfolio, impairment charges on investment securities, impairment charges on other real estate owned (“OREO”), credit related expenses and the establishment of a deferred tax valuation allowance.  For the first quarter of 2013, the Company recorded net income of $118,000 compared to a net loss of $869,000 for the comparable period in 2012. The quarter over quarter improvement was mainly related to $676,000 in gains on the sales of two premises, a $335,000 decline in provision for loan and lease losses and a decline of a $1.6 million accrual recorded in the first quarter of 2012 for a U.S. Department of Justice (“DOJ”) fine related to the tax lien subsidiaries.  After adjusting for the noncontrolling interest, the Company’s 60% share of the DOJ fine amounted to $960,000.  Partially offsetting these items was a $1.2 million reduction in net interest income.  In addition to reducing the total shareholders’ equity, the continued losses and negative retained earnings impacts the Company’s ability to pay cash dividends to its shareholders now and in future years.  The Company’s deferred tax valuation allowance amounted to $39.6 million at March 31, 2013.  The deferred tax valuation allowance is a result of management’s conclusion that it was more likely than not that the Company would not generate sufficient future taxable income to realize all of the deferred tax assets.

Credit Quality

Adverse economic conditions in our specific market areas and decreases in real estate property values due to the nature of our loan portfolio in particular have affected the ability of customers to repay their loans and generally impact our financial condition and results of operations. The financial services and real estate industries were hit particularly hard during the “Great Recession” and as a result the Company’s loan and investment portfolios were directly affected.  The Company’s commercial real estate loans, including construction and land development loans, have seen a decline in the collateral values, and a reduction in the borrowers’ ability to meet the payment terms of their loans due to reduced cash flow.  Further declines in collateral values and borrowers’ liquidity with sustained unemployment at current levels may lead to additional increases in foreclosures, delinquencies and customer bankruptcies.  The Company is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of more diverse economies.

The Company had non-performing loans of $17.6 million and $23.0 million at March 31, 2013 and December 31, 2012, respectively.  The Company recorded $2.0 million in charge-offs for the first quarter of 2013 compared to $153,000 in charge-offs for the first quarter of 2012.  OREO balances were $13.3 million at March 31, 2013 and $13.4 million at December 31, 2012.

Royal Bank was successful in reducing net classified loans, which includes LHFS and OREO from $51.8 million at December 31, 2012 to $45.6 million at March 31, 2013.  Royal Bank’s delinquent loans held for investment (30 to 90 days) amounted to $4.7 million at March 31, 2013 versus $4.6 million at December 31, 2012. Material advances on any classified or delinquent loan are to be approved by the Board of Directors and determined to be in Royal Bank’s best interest.  The Company has restructured the investment portfolio to reduce credit risk by selling corporate debt securities and equity securities and replacing their maturities with U.S. government issued or sponsored securities. Royal Bank did not record other-than-temporary-impairment (“OTTI”) losses during the first quarter of 2013 or 2012.

Commercial Real Estate Concentrations

As mentioned previously the adverse economic conditions have primarily impacted the real estate secured loan portfolio.  Commercial real estate and construction and development loans are often riskier and tend to have significantly larger balances than home equity loans or residential mortgage loans to individuals.  While the Company believes that the commercial real estate concentration risk is mitigated by diversification among the types and characteristics of real estate collateral properties, sound underwriting practices, and ongoing portfolio monitoring and market analysis, the repayments of these loans usually depends on the profitable operation of a business or the sale of the underlying property.  As a result, these loans are more likely to be unfavorably affected by adverse conditions in the real estate market or the economy in general, which may result in increasing levels of loan charge-offs and non-performing assets and the reduction of earnings.  When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair market value of the collateral, which may ultimately result in a loss.  It is possible that Royal Bank may be required to maintain higher levels of capital than it would be otherwise be expected to maintain as a result of the Bank’s commercial real estate loans, which may require the Company to obtain additional capital.

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Commercial real estate, multi-family and construction and land development loans held for investment were $221.8 million at March 31, 2013 comprising 62% of total loans compared to $216.1 million at December 31, 2012 comprising 63% of total loans.  Based on capital levels calculated under U.S. GAAP and RAP, Royal Bank does not have a concentration of commercial real estate loans as defined in the joint agency “Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” issued on December 12, 2006. Please see discussion in “Note 11 – Regulatory Capital Requirements” to the Consolidated Financial Statements).

Liquidity and Funds Management

Royal Bank has limited capacity to borrow additional funds in the event it is needed for liquidity purposes. However, Royal Bank has continued to maintain liquidity measures that are well in excess of the target levels.  As discussed in “Note 8 – Borrowings and Subordinated Debentures” to the Consolidated Financial Statements, Royal Bank has an over collateralized delivery requirement of 105% with the FHLB as a result of the level of non-performing assets and the losses that have been experienced over the past five years.   The ability to borrow additional funds is based on the amount of collateral that is available to be pledged.  As of March 31, 2013, Royal Bank had $13.3 million of available borrowing capacity at the FHLB as a result of excess collateral that has been pledged.  In addition at March 31, 2013, Royal Bank had $189.4 million in unpledged agency securities that were available to be pledged as collateral if needed and $20.0 million in cash on hand.  Royal Bank also has limited availability to borrow from the Federal Reserve Discount Window, which was $7.3 million at March 31, 2013, and was based on collateral pledged.

At March 31, 2013, the liquidity to deposits ratio was 44.2% compared to Royal Bank’s 12% policy target and the liquidity to total liabilities ratio was 34.2% compared to Royal Bank’s 10% policy target.  Borrowings were $108.2 million and $108.3 million at March 31, 2013 and December 31, 2012, respectively.

The Company also has unfunded pension plan obligations, which potentially could impact liquidity, of $16.8 million as of March 31, 2013 compared to $16.9 million at December 31, 2012.  The Company plans to fund the pension plan obligations through existing Company owned life insurance policies.

Dividend and Interest Restrictions

Due to the MOU and the Federal Reserve Agreement, our ability to obtain lines of credit, to receive attractive collateral treatment from funding sources, and to pursue all attractive funding alternatives in this current low interest rate environment could be impacted and thereby limit liquidity alternatives. On August 13, 2009, the Company’s Board of Directors determined to suspend regular quarterly cash dividends on the $30.4 million in Series A Preferred Stock and to suspend interest payments on the $25.8 million in trust preferred securities.  As of March 31, 2013, the Series A Preferred stock dividend in arrears was $6.3 million and has not been recognized in the consolidated financial statements.  In the event the Company declared the preferred dividend the Company’s capital ratios would be negatively affected; however, they would remain above the required minimum ratios.  Please read “Note 11 - Regulatory Capital Requirements” to the Consolidated Financial Statements. As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable. The Company believes the decision to suspend the preferred cash dividends and the trust preferred interest payments will better support the liquidity position of Royal Bank. The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014.   After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company’s consolidated financial statements and liquidity.

At March 31, 2013, as a result of significant losses within Royal Bank, the Company had negative retained earnings and therefore would not have been able to declare and pay any cash dividends.  Royal Bank must receive prior approval from the FDIC and the Department before declaring and paying a dividend to the Company.  Under the Federal Reserve Agreement the Company may not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.

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Capital Adequacy

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Consolidated Reports of Condition and Income (the “Call Report”) instructions and under RAP, that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank’s current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for March 31, 2013 and the previous ten quarters in accordance with U.S. GAAP.  However, the change in the manner of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s and potentially the Company’s capital ratios as disclosed in “Note 11 - Regulatory Capital Requirements” to the Consolidated Financial Statements.  Royal Bank is in discussions with the FDIC to resolve the matter.

Under the MOU, Royal Bank must maintain a minimum total risk-based capital ratio and a minimum Tier 1 leverage ratio of 12% and 8%, respectively. At March 31, 2013, based on capital levels calculated under RAP, Royal Bank’s Tier 1 leverage and total risk-based capital ratios were 8.96% and 15.92%, respectively.

Department of Justice Investigation

Royal Bank holds a 60% equity interest in each of CSC and RTL.  The Company acquired its ownership interest in CSC in 2001.  CSC and RTL acquired, through public auction, delinquent tax liens in various jurisdictions thereby assuming a superior lien position to most other lien holders, including mortgage lien holders.   On March 4, 2009, each of CSC and RTL received grand jury subpoenas issued by the U.S. District Court for New Jersey (“Court”) upon application of the Antitrust Division of the United States DOJ.  The subpoenas sought certain documents and information relating to an ongoing investigation being conducted by the DOJ relating to alleged bid-rigging at tax lien auctions in New Jersey.  Royal Bank, CSC and RTL have produced to the DOJ documents responsive to the subpoenas and have been cooperating with the DOJ throughout the investigation.  On February 23, 2012, the former President of CSC and RTL entered a plea of guilty to one count of conspiring to rig bids at certain auctions for tax liens in New Jersey from 1998 until approximately the spring of 2009.  The former President’s employment with CSC and RTL was terminated in November 2010.  As previously disclosed, Royal Bank had been advised that neither CSC nor RTL were targets of the DOJ investigation, but they were subjects of the investigation.  Based on discussions with the DOJ and the plea entered by the former President of CSC and RTL, the Company believed that the outcome of the investigation would result in fines and penalties being assessed against CSC, RTL or both.  As a result, the Company accrued $2.0 million during 2012 for a DOJ fine relating to the DOJ investigation.  After adjusting for the noncontrolling interest, the Company’s 60% share of the fine amounted to $1.2 million.  On September 26, 2012, as a result of the former President’s guilty plea and pursuant to a plea agreement with the DOJ, CSC entered a guilty plea in the United States District Court for the District of New Jersey to one count of conspiracy to commit bid-rigging at certain auctions for tax liens in New Jersey.  Under the terms of the plea agreement, which the Court accepted at the September 26, 2012 plea hearing, the DOJ agreed not to bring further criminal charges against CSC and not to bring criminal charges against RTL, or any current or former director, officer, or employee of CSC and/or RTL, for any act or offense committed prior to the date of the plea agreement that was in furtherance of any agreement to rig bids at municipal tax lien sales or auctions in the State of New Jersey. The former President of CSC and RTL and any person who bid at any time at a tax lien auction on behalf of CSC and/or RTL are excluded from this non-prosecution protection.  At the sentencing hearing held in December 2012, the sentencing judge agreed with the DOJ’s recommendation and imposed a $2.0 million fine for CSC, which, as stated above, had been previously recognized in the Company’s consolidated financial statements.  The Company is evaluating appropriate legal action against the former President of CSC and RTL to attempt to recover legal expenses and any fines or penalties ultimately levied against CSC.

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Additionally a number of lawsuits have been filed in the Superior Court of New Jersey against the former President of CSC and RTL, CSC, RTL, Royal Bancshares of Pennsylvania and certain other parties on behalf of a proposed class of taxpayers who became delinquent in paying their municipal tax obligations. These lawsuits allege violations of the New Jersey Antitrust Act and unjust enrichment, and seek treble damages, attorney fees and injunctive relief.  CSC, RTL and Royal Bancshares removed these cases to the U.S. District Court for the District of New Jersey. On June 12, 2012, the Court entered an Order consolidating for pretrial purposes the above actions with all subsequently filed or transferred related actions, collectively referred to as "In re New Jersey Tax Sale Certificates Antitrust Litigation".  On October 22, 2012, the Court appointed two law firms as interim class counsel and another law firm as liaison class counsel and further ordered appointed counsel to file a master complaint for the consolidated action.   On December 21, 2012, plaintiffs filed a Consolidated Master Class Action Complaint (the “Complaint”) against numerous defendants, including the former President of CSC and RTL, Royal Bancshares of Pennsylvania, Inc., Royal Bank America, CSC and RTL.  The Company filed a motion to dismiss the Complaint on March 8, 2013, which is currently pending before the Court.  As of the date of this filing Royal Bancshares and Royal Bank cannot reasonably estimate the possible loss or range of loss that may result from these actions or proceedings.

Company Plans and Strategy

The Company has enhanced the Board through the addition of experienced directors with diverse backgrounds. The newer members are comprised of the following: a former banking regulator with consulting experience, a former Chief Executive Officer (“CEO”) of a much larger financial institution who has bank turnaround experience, a former President of the lead bank within a larger financial institution (Treasury appointee), a former executive within the financial services industry (Treasury appointee) and a former senior partner of a public accounting firm.  During the first quarter of 2012, the Board elected a Lead Independent Director to further improve corporate governance by serving as a liaison between the Chairman of the Board, management, and the independent directors. During 2012, Royal Bank hired a new Chief Lending Officer (“CLO”) who has significant experience in commercial and consumer lending with a larger bank within the Philadelphia market. After announcing the retirements of the Company’s CEO and President during the second quarter of 2012, the Company’s Board conducted an executive search for a candidate for the combined role of President and CEO.  On December 18, 2012 the Company announced F. Kevin Tylus as President and CEO of Royal Bank.  On February 20, 2013, the Company announced that Mr. Tylus was appointed President, CEO and a Class III member of the Board of Directors of the Company.  Former CEO, Robert Tabas, remains as Chairman of the Board of Directors.

In order to meet the requirements in the previous Orders, the current MOU, and the Federal Reserve Agreement, management adopted a strategy to deleverage the balance sheet in order to maintain capital ratios at required regulatory minimums. The Board and management remain committed to meeting the capital level requirements for Royal Bank as set forth in the previous Orders and current MOU.  As a result, the Board and management have developed a contingency plan to maintain capital ratios at required levels which may include selling interest-earning assets. This strategy also assisted in reducing the level of classified assets by giving management the ability to actively pursue exit strategies on loans and OREO which were at historically high levels.  The deleveraging was largely accomplished by the continued reduction of brokered deposits from $89.1 million at December 31, 2010 to $0 as of March 31, 2013.  In addition, borrowings were reduced by $46.7 million during the same period.  The Company’s strategic plan includes improving the overall level of credit quality, maintaining reduced credit risk within the investment portfolio, reducing the overall level of expenses, and returning to profitability.

During the past few years, the Company recorded significant impairment charges and carrying costs on non-accrual loans and OREO which has weighed heavily on earnings and was the largest contributing factor to the Company’s losses. While sustaining capital ratios above the required minimum, the Company has made progress in improving credit quality, reducing the CRE concentration, strengthening the Board and maintaining liquidity. As a result of the decline in level of classified assets, there has been a corresponding reduction in the provision for loan and lease losses and the overall carrying costs associated with classified assets.  The deleveraging of the balance sheet has also reduced earning assets which has resulted in a decline in net interest income and has had a significant impact on overall earnings. To improve net interest margin and net interest income, management is diligently working on changing the mix of earnings assets and interest-bearing liabilities.  In the event further deleveraging is necessary to maintain the required capital levels, net interest income would be negatively impacted.

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The Company is focused on transitioning Royal Bank into a more traditional community bank with the branches becoming selling centers and not just service centers.  Traditional consumer products such as home equity loans and a new mobile banking application are part of the expanded product offerings.  The Company is also evaluating the addition of fee-based business lines to complement and enhance existing services.  The Company has developed a management Profitability Improvement Plan (the “Plan”) to generate steady revenue growth, expense management and gain operational efficiencies. Specific initiatives of the Plan effectuated in the first quarter of 2013 focused on adjustments to personnel of the Company and discretionary expenses. These efforts, which included a 9% reduction in workforce and an annualized reduction of approximately 10% of discretionary expenses, were implemented and enhanced day-to-day operations and the ability of the Company to drive new revenue.  As a result of the reduction in workforce, the Company recorded an $87,000 restructuring charge directly related to one-time employee termination benefits.  The Company has reorganized and relocated certain personnel to improve departmental synergies andbetter align managers and staff so they can work together in cohesive teams to accomplish these objectives.  Additionally, the Company is currently developing a facilities rationalization plan as part of the overall strategic goal to return to profitability.   During the first quarter of 2013, the Company sold its storage facility site in Philadelphia and a building in Narberth that housed the training center.  The Company recorded gains of $676,000 as a result of these sales.  Additionally, in January 2013, Royal Bank consolidated the leased Henderson Road office between the King of Prussia and Bridgeport offices and retained the majority of the deposits.  During the third quarter of 2013, the Company will consolidate the 15th Street office into the Walnut Street office, which are both located in Center City Philadelphia.  The Company continues to review its retail footprint and will explore additional branch office relocations, consolidations or both.  The Company is also analyzing opportunities to move non-retail personnel into a centralized location.  The Company has targeted to have the Plan fully implemented by the end of 2013. Through the reorganizing of the Lending and Credit departments during the last half of 2012, Royal Bank was able to increase loans held for investment (“LHFI”) $13.9 million from $344.2 million at December 31, 2012 to $358.1 million at March 31, 2013. All of these plans are focused on repositioning the Company for 2013 and beyond.

Note 3. Investment Securities

The carrying value and fair value of investment securities available-for-sale (“AFS”) at March 31, 2013 and December 31, 2012 are as follows:

As of March 31, 2013			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	69,358	$	92	$	(77	)	$	-	$	69,373
Mortgage-backed  securities-residential		31,653		573		(61	)		-		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		196,521		4,844		(378	)		-		200,987
Non-agency		874		30		-			-		904
Corporate bonds		7,868		70		(49	)		-		7,889
Municipal bonds		5,640		1		(47	)		-		5,594
Other securities		3,673		695		(143	)		-		4,225
Common stocks		33		14		-			-		47
Total available for sale	$	315,620	$	6,319	$	(755	)	$	-	$	321,184

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As of December 31, 2012			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	66,371	$	151	$	(78	)	$	-	$	66,444
Mortgage-backed  securities-residential		30,038		518		(47	)		-		30,509
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		229,556		5,031		(611	)				233,976
Non-agency		1,007		4		-			-		1,011
Corporate bonds		7,477		32		(72	)		-		7,437
Municipal bonds		5,645		-		(30	)		-		5,615
Other securities		3,752		520		(108	)		-		4,164
Common stocks		33		14		-			-		47
Total available for sale	$	343,879	$	6,270	$	(946	)	$	-	$	349,203

The amortized cost and fair value of investment securities at March 31, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2012
(In thousands)	Amortized cost		Fair value
Within 1 year	$	19,905	$	19,975
After 1 but within 5 years		4,682		4,724
After 5 but within 10 years		31,841		31,708
After 10 years		26,438		26,449
Mortgage-backed  securities-residential		31,653		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		196,521		200,987
Non-agency		874		904
Total available for sale debt securities		311,914		316,912
No contractual maturity		3,706		4,272
Total available for sale securities	$	315,620	$	321,184

Proceeds from the sales of AFS investments during the three months ended March 31, 2013 and 2012 were $12.1 million and $11.8 million, respectively.  The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:

	For the three months
	ended March 31,
(In thousands)	2013			2012
Gross realized gains	$	138		$	311
Gross realized losses		(93	)		(172	)
Net realized gains	$	45		$	139

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The Company evaluates securities for OTTI at least on a quarterly basis.  The Company assesses whether OTTI is present when the fair value of a security is less than its amortized cost.  All investment securities are evaluated for OTTI under FASB ASC Topic 320, “Investments-Debt & Equity Securities” (“ASC Topic 320”).  The non-agency collateralized mortgage obligations that are rated below AA are evaluated under FASB ASC Topic 320 Subtopic 40, “Beneficial Interests in Securitized Financial Assets” under FASB ASC Topic 325, “Investments-Other”.  In determining whether OTTI exists, management considers numerous factors, including but not limited to: (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company’s intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.

Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis.  In addition, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell or will more likely than not be required to sell the security.  If an entity intends to sell the security or will be required to sell the security, the OTTI shall be recognized in earnings equal to the entire difference between the fair value and the amortized cost basis at the balance sheet date.  If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before the recovery of its amortized cost basis, the OTTI shall be separated into two amounts, the credit-related loss and the noncredit-related loss. The credit-related loss is based on the present value of the expected cash flows and is recognized in earnings.  The noncredit-related loss is based on other factors such as illiquidity and is recognized in other comprehensive income.  The Company did not record OTTI charges to earnings during the first quarters of 2013 and 2012.

The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at March 31, 2013 and 2012 for which a portion of OTTI was recognized in other comprehensive income:

(In thousands)	2013		2012
Balance at January 1,	$	173	$	173
Reductions for securities sold during the period (realized)		-		-
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Balance at March 31,	$	173	$	173

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012:

March 31, 2013	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	24,560	$	(77	)	$	-	$	-		$	24,560	$	(77	)
Mortgage-backed securities-residential		10,664		(61	)		-		-			10,664		(61	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		43,889		(372	)		2,885		(6	)		46,774		(378	)
Corporate bonds		995		(5	)		956		(44	)		1,951		(49	)
Municipal bonds		5,458		(47	)		-		-			5,458		(47	)
Other securities		276		(44	)		226		(99	)		502		(143	)
Total available-for-sale	$	85,842	$	(606	)	$	4,067	$	(149	)	$	89,909	$	(755	)

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December 31, 2012	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	23,818	$	(78	)	$	-	$	-		$	23,818	$	(78	)
Mortgage-backed securities-residential		7,280		(47	)		-		-			7,280		(47	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		44,937		(592	)		3,975		(19	)		48,912		(611	)
Corporate bonds		2,165		(13	)		941		(59	)		3,106		(72	)
Municipal bonds		4,597		(21	)		882		(9	)		5,479		(30	)
Other securities		289		(38	)		255		(70	)		544		(108	)
Total available-for-sale	$	83,086	$	(789	)	$	6,053	$	(157	)	$	89,139	$	(946	)

The AFS portfolio had gross unrealized losses of $755,000 and $946,000 at March 31, 2013 and December 31, 2012, respectively.  In determining the Company’s intent not to sell and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, management considers the following factors: current liquidity and availability of other non-pledged assets that permits the investment to be held for an extended period of time but not necessarily until maturity, capital planning, and any specific investment committee goals or guidelines related to the disposition of specific investments.

Common stocks:  As of March 31, 2013, the Company had two common stocks of financial institutions with a total fair value of $47,000 and an unrealized gain of $14,000.  During the first quarter of 2012 the Company sold one common stock investment and recorded a gain of $112,000.

For all debt security types discussed below the fair value is based on prices provided by brokers and safekeeping custodians with the exception of trust preferred securities which are described below.

U.S. government-sponsored agencies (“U.S. Agencies”):  As of March 31, 2013, the Company had eight U.S. Agencies with a fair value of $24.6 million and gross unrealized losses of $77,000.  All of these U.S. Agencies have been in an unrealized loss position for twelve months or less.  Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

Mortgage-backed securities issued by U.S. government agencies and U.S. government sponsored enterprises:As of March 31, 2013, the Company had three mortgage-backed securities with a fair value of $10.7 million and gross unrealized losses of $61,000. The three mortgage-backed securities had been in an unrealized loss position for twelve months or less. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase.  The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

U.S. government issued or sponsored collateralized mortgage obligations (“Agency CMOs”):  As of March 31, 2013, the Company had seventeen Agency CMOs with a fair value of $46.8 million and gross unrealized losses of $378,000.  Sixteen of the Agency CMOs have been in an unrealized loss position for twelve months or less. The one Agency CMO that has been in an unrealized loss position for more than twelve months has a fair market value of $2.9 million and an unrealized loss of $6,000 at March 31, 2013.  The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase.  The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

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Non-agency collateralized mortgage obligations (“Non-agency CMOs”):  As of March 31, 2013, the Company had one non-agency CMO with a fair value of $904,000 and gross unrealized gains of $30,000.  The non-agency CMO is rated CCC.

Corporate bonds:  As of March 31, 2013, the Company had two corporate bonds with a fair value of $2.0 million and gross unrealized losses of $49,000.  One bond has been in an unrealized loss position for twelve months or less and one bond has been in an unrealized loss position for more than twelve months.  The two bonds are above investment grade.  The Company’s unrealized losses in investments in corporate bonds represent interest rate risk and not credit risk of the underlying issuers. As previously mentioned management also considered (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company’s intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.  Management utilized discounted cash flow analysis based upon the credit ratings of the securities, liquidity risk premiums, and the recent corporate spreads for similar securities to arrive at the credit risk component as required under ASC Topic 320 to determine the credit risk component of the corporate bonds.  Based on these analyses, there was no credit-related loss on the two bonds. Because the Company does not intend to sell the corporate bonds and it is not more likely than not that the Company will be required to sell the bonds before recovery of their amortized cost basis, which may be maturity, the Company does not consider the two bonds to be other-than-temporarily impaired at March 31, 2013.

Municipal bonds:  As of March 31, 2013, the Company had six municipal bond with a fair value $5.5 million and an unrealized loss of $47,000.  These six municipal bonds have been in an unrealized loss position for twelve months or less.  Because the Company does not intend to sell the bonds and it is not more likely than not that the Company will be required to sell the bond before recovery of its amortized cost basis, which may be maturity, the Company does not consider the bonds to be other-than-temporarily impaired at March 31, 2013.

Other securities:  As of March 31, 2013, the Company had seven investments in private equity funds which were predominantly invested in real estate.  In determining whether or not OTTI exists, the Company reviews the funds’ financials, asset values, and its near-term projections.  At March 31, 2013, two of the private equity funds had a combined fair value of $502,000 and an unrealized loss of $143,000.  OTTI charges were recorded in a prior period on these two funds.  Management concluded that there was no additional impairment on these two funds as of March 31, 2013.

The Company will continue to monitor these investments to determine if the discounted cash flow analysis, continued negative trends, market valuations or credit defaults result in impairment that is other than temporary.

Note 4. Loans and Leases

Major classifications of LHFI are as follows:

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	March 31,		December 31,
(In thousands)	2013		2012
Commercial real estate	$	175,397	$	167,115
Construction and land development		34,533		37,215
Commercial and industrial		67,512		40,560
Multi-family		11,830		11,756
Residential real estate		6,697		24,981
Leases		38,629		37,347
Tax certificates		22,541		24,569
Consumer		916		1,139
Total gross loans	$	358,055	$	344,682
Deferred fees, net*		-		(517	)
Total loans and leases	$	358,055	$	344,165

*For the 2013 period net deferred fees were allocated among the loan types.

The Company grants commercial and real estate loans, including construction and land development loans primarily in the greater Philadelphia metropolitan area as well as selected locations throughout the mid-Atlantic region.  The Company also has participated with other financial institutions in selected construction and land development loans outside our geographic area. The Company has a concentration of credit risk in commercial real estate, construction and land development loans at March 31, 2013.  A substantial portion of its debtors’ ability to honor their contracts is dependent upon the housing sector specifically and the economy in general.

Loans and leases are classified as LHFI when management has the intent and ability to hold the loan or lease for the foreseeable future or until maturity or payoff.  LHFI are stated at their outstanding unpaid principal balances, net of an allowance for loan and leases losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan.

At March 31, 2013 and December 31, 2012, the Company’s LHFS were $1.5 million and $1.6 million, respectively, and were comprised of one non-accrual commercial real estate loan. This loan was transferred from LHFI at the lower of cost or fair market value using expected net sales proceeds.  During the first quarter of 2013, the Company recorded additional impairment of $100,000.

The Company classifies its leases as finance leases, in accordance with FASB ASC Topic 840, “Leases”. The difference between the Company’s gross investment in the lease and the cost or carrying amount of the leased property, if different, is recorded as unearned income, which is amortized to income over the lease term by the interest method.

The Company uses a nine point grading risk classification system commonly used in the financial services industry as the credit quality indicator.  The first five classifications are rated Pass.  The riskier classifications include Special Mention, Substandard, Doubtful and Loss.  The risk rating is related to the underlying credit quality and probability of default.  These risk ratings are used to calculate the historical loss component of the allowance.

· Pass: includes credits that demonstrate a low probability of default;

· Pass-watch: a warning classification which includes credits that are beginning to demonstrate above average risk through declining earnings, strained cash flows, increased leverage and/or weakening market fundamentals;

· Special mention: includes credits that have potential weaknesses that if left uncorrected could weaken the credit or result in inadequate protection of the Company’s position at some future date. While potentially weak, credits in this classification are marginally acceptable and loss of principal or interest is not anticipated;

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· Substandard accrual: includes credits that exhibit a well-defined weakness which currently jeopardizes the repayment of debt and liquidation of collateral even though they are currently performing. These credits are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

· Non-accrual (substandard non-accrual, doubtful, loss): includes credits that demonstrate serious problems to the point that it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.

All loans, at the time of presentation to the appropriate loan committee, are given an initial loan “risk” rating by the Chief Credit Officer. From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

The following tables present risk ratings for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

March 31, 2013					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	80,916	$	65,135	$	18,078	$	3,389	$	7,879	$	175,397
Construction and land development		3,579		14,461		12,873		578		3,042		34,533
Commercial & industrial		38,912		12,812		730		11,035		4,023		67,512
Multi-family		9,092		2,152		586		-		-		11,830
Residential real estate		6,265		-		-		-		432		6,697
Leases		38,181		233		58		-		157		38,629
Tax certificates		21,990		-		-		-		551		22,541
Consumer		849		67		-		-		-		916
Total LHFI	$	199,784	$	94,860	$	32,325	$	15,002	$	16,084	$	358,055

December 31, 2012					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	64,308	$	69,510	$	19,529	$	3,423	$	10,345	$	167,115
Construction and land development		2,139		13,872		16,343		581		4,280		37,215
Commercial & industrial		14,764		10,774		92		9,969		4,961		40,560
Multi-family		9,019		2,034		703		-		-		11,756
Residential real estate		15,125		6,634		602		1,626		994		24,981
Leases		36,755		325		16		-		251		37,347
Tax certificates		23,968		-		-		-		601		24,569
Consumer		926		213		-		-		-		1,139
Subtotal LHFI		167,004		103,362		37,285		15,599		21,432		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

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The following tables present an aging analysis of past due payments for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

March 31, 2013	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,032	$	1,486	$	-	$	7,879	$	165,000	$	175,397
Construction and land development		-		-		-		3,042		31,491		34,533
Commercial & industrial		297		46		-		4,023		63,146		67,512
Multi-family		-		-		-		-		11,830		11,830
Residential real estate		1,434		121		-		432		4,710		6,697
Leases		233		58		-		157		38,181		38,629
Tax certificates		-		-		-		551		21,990		22,541
Consumer		-		-		-		-		916		916
Total LHFI	$	2,996	$	1,711	$	-	$	16,084	$	337,264	$	358,055

December 31, 2012	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,548	$	1,486	$	-	$	10,345	$	153,736	$	167,115
Construction and land development		-		-		-		4,280		32,935		37,215
Commercial & industrial		200		-		-		4,961		35,399		40,560
Multi-family		-		-		-		-		11,756		11,756
Residential real estate		562		486		-		994		22,939		24,981
Leases		325		16		-		251		36,755		37,347
Tax certificates		-		-		-		601		23,968		24,569
Consumer		-		-		-		-		1,139		1,139
Subtotal LHFI		2,635		1,988		-		21,432		318,627		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

The following tables detail the composition of the non-accrual loans at March 31, 2013 and December 31, 2012.

	March 31, 2013				December 31, 2012
(In thousands)	Loan balance		Specific reserves		Loan balance		Specific reserves
Non-accrual loans held for investment
Commercial real estate	$	7,879	$	-	$	10,345	$	835
Construction and land development		3,042		-		4,280		820
Commercial & industrial		4,023		45		4,961		255
Residential real estate		432		13		994		14
Leases		157		70		251		55
Tax certificates		551		27		601		47
Total non-accrual LHFI	$	16,084	$	155	$	21,432	$	2,026
Non-accrual loans held for sale
Commercial real estate	$	1,472	$	-	$	1,572	$	-
Total non-accrual LHFS	$	1,472	$	-	$	1,572	$	-
Total non-accrual loans	$	17,556	$	155	$	23,004	$	2,026

Total non-accrual loans at March 31, 2013 were $17.6 million and were comprised of $16.1 million in LHFI and $1.5 million in LHFS.  Total non-accrual loans at December 31, 2012 were $23.0 million and were comprised of $21.4 million in LHFI and $1.6 million in LHFS.  The $5.4 million decrease was the result of a $3.5 million reduction in existing non-accrual loan balances through payments and payoffs, $2.0 million in charge-offs related to specific reserves on LHFI, $100,000 write down on the LHFS and $100,000 in transfers to OREO, which were partially offset by additions of $241,000.  If interest had been accrued, such income would have been approximately $526,000 for the three months ended March 31, 2013.  The Company had no loans past due 90 days or more on which it has continued to accrue interest during the quarter.Typically, loans are restored to accrual status when the loan is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

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Impaired Loans

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 agreement.  Impaired loans include troubled debt restructurings (“TDRs”). The Company does not accrue interest income on impaired non-accrual loans. Excess proceeds received over the principal amounts due on impaired non-accrual loans are recognized as income on a cash basis. The Company recognizes income under the accrual 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.

Total cash collected on non-accrual and impaired loans during the three months ended March 31, 2013 and 2012 was $4.4 million and $6.1 million respectively, of which $4.2 million and $6.0 million was credited to the principal balance outstanding on such loans, respectively.

The following is a summary of information pertaining to impaired loans:

	March 31,		December 31,
(In thousands)	2013		2012
Impaired loans with a valuation allowance	$	3,404	$	9,405
Impaired loans without a valuation allowance		19,349		19,423
Impaired LHFS		1,472		1,572
Total impaired loans and leases	$	24,225	$	30,400
Valuation allowance related to impaired loans	$	155	$	2,026

Troubled Debt Restructurings

A loan modification is deemed a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower or collateral with similar credit risk characteristics.  All loans classified as TDRs are considered to be impaired.  TDRs are returned to an accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual restructured principal and interest is no longer in doubt.  At March 31 2013, the Company had twelve TDRs, of which seven are on non-accrual status, with a total carrying value of $17.6 million.  At the time of the modifications, seven of the loans were already classified as impaired loans.   At December 31, 2012, the Company had twelve TDRs with a total carrying value of $21.1 million.  The Company’s policy for TDRs is to recognize income on currently performing restructured loans under the accrual method.  During the first quarter of 2013, the Company received pay downs and payoffs of $2.5 million and recorded specific reserve charge-offs of $1.1 million.

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The following table details the Company’s TDRs that are on an accrual status and non-accrual status at March 31, 2013.

(In thousands)	As of March 31, 2013
	Number of loans		Accrual Status		Non-Accrual Status		Total TDRs
Commercial real estate		3	$	605	$	7,600	$	8,205
Construction and land development		4		1,423		529		1,952
Commercial & industrial		3		4,953		2,314		7,267
Residential real estate		2		-		141		141
Total		12	$	6,981	$	10,584	$	17,565

At March 31, 2013, all of the TDRs were in compliance with their restructured terms.

The following table presents newly restructured loans that occurred during the three months ended March 31, 2013.

	Modifications by type for the three months ended March 31, 2013
(Dollars in thousands)	Number of loans		Rate		Term		Payment		Combination of types		Total		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & industrial		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87
Total		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87

Note 5. Allowance for Loan and Lease Losses

The following tables present the detail of the allowance and the loan portfolio disaggregated by loan portfolio segment as of March 31, 2013 and March 31, 2012.

Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2013
(In thousands)	Commercial real estate			Construction and land development			Commercial & industrial			Multi- family		Residential real estate			Leases			Tax certificates			Consumer			Unallocated			Total
Beginning balance	$	8,750		$	2,987		$	1,924		$	654	$	1,098		$	1,108		$	472		$	29		$	239		$	17,261
Charge-offs		(835	)		(820	)		(173	)		-		-			(147	)		(10	)		-			-			(1,985	)
Recoveries		104			95			4			-		151			-			10			-			-			364
Provision		84			(184	)		958			4		(1,081	)		100			(88	)		(11	)		(33	)		(251	)
Ending balance	$	8,103		$	2,078		$	2,713		$	658	$	168		$	1,061		$	384		$	18		$	206		$	15,389
Ending balance: related to loans individually evaluated for impairment	$	-		$	-		$	45		$	-	$	13		$	70		$	27		$	-		$	-		$	155
Ending balance: related to loans collectively evaluated for impairment	$	8,103		$	2,078		$	2,668		$	658	$	155		$	991		$	357		$	18		$	206		$	15,234
LHFI
Ending balance	$	175,397		$	34,533		$	67,512		$	11,830	$	6,697		$	38,629		$	22,541		$	916		$	-		$	358,055
Ending balance: individually evaluated for impairment	$	8,484		$	4,466		$	8,750		$	-	$	431		$	71		$	551		$	-		$	-		$	22,753
Ending balance: collectively evaluated for impairment	$	166,913		$	30,067		$	58,762		$	11,830	$	6,266		$	38,558		$	21,990		$	916		$	-		$	335,302

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Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2012
(In thousands)	Commercial real estate		Construction and land development			Commercial & industrial		Multi- family		Residential real estate		Leases			Tax certificates			Consumer		Unallocated			Total
Beginning balance	$	7,744	$	2,523		$	2,331	$	531	$	1,188	$	1,311		$	425		$	20	$	307		$	16,380
Charge-offs		-		-			-		-		-		(133	)		(20	)		-		-			(153	)
Recoveries		3		104			2		-		1		8			25			-		-			143
Provision		149		(178	)		21		84		5		109			(24	)		-		(82	)		84
Ending balance	$	7,896	$	2,449		$	2,354	$	615	$	1,194	$	1,295		$	406		$	20	$	225		$	16,454
Ending balance: related to loans individually evaluated for impairment	$	-	$	-		$	47	$	-	$	20	$	53		$	55		$	-	$	-		$	175
Ending balance: related to loans collectively evaluated for impairment	$	7,896	$	2,449		$	2,307	$	615	$	1,174	$	1,242		$	351		$	20	$	225		$	16,279
LHFI
Ending balance	$	180,123	$	49,399		$	52,794	$	13,735	$	27,155	$	37,468		$	39,056		$	945	$	-		$	400,675
Ending balance: individually evaluated for impairment	$	12,846	$	13,728		$	6,173	$	1,688	$	1,334	$	76		$	1,025		$	-	$	-		$	36,870
Ending balance: collectively evaluated for impairment	$	167,277	$	35,671		$	46,621	$	12,047	$	25,821	$	37,392		$	38,031		$	945	$	-		$	363,805

The following tables detail the loans that were evaluated for impairment by loan segment at March 31, 2013 and December 31, 2012.

	For the three months ended March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,858	$	8,484	$	-	$	8,961	$	-
Construction and land development		11,550		4,466		-		3,957		-
Commercial & industrial		7,459		6,399		-		7,313		-
Residential real estate		-		-		-		272		27
Total:	$	29,867	$	19,349	$	-	$	20,503	$	27
With an allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	1,167	$	18
Construction and land development		-		-		-		1,239		14
Commercial & industrial		2,554		2,351		45		2,979		102
Residential real estate		530		431		13		434		-
Leasing		71		71		70		74		-
Tax certificates		4,405		551		27		592		-
Total:	$	7,560	$	3,404	$	155	$	6,485	$	134

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	For the year ended December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,417	$	8,623	$	-	$	11,163	$	78
Construction and land development		6,250		3,464		-		10,059		187
Commercial & industrial		7,790		6,820		-		5,545		73
Multi-family		-		-		-		780		-
Residential real estate		572		516		-		490		21
Tax certificates		-		-		-		583		-
Total:	$	25,029	$	19,423	$	-	$	28,620	$	359
With an allowance recorded:
Commercial real estate	$	4,136	$	2,335	$	835	$	1,526	$	-
Construction and land development		6,180		2,479		820		923		-
Commercial & industrial		9,585		3,431		255		682		-
Multi-family		-		-		-		383		-
Residential real estate		685		478		14		714		7
Leases		81		81		55		86		-
Tax certificates		4,408		601		47		288		-
Total:	$	25,075	$	9,405	$	2,026	$	4,602	$	7

Note 6. Other Real Estate Owned

OREO declined $171,000 from $13.4 million at December 31, 2012 to $13.3 million at March 31, 2013.  Set forth below is a table which details the changes in OREO from December 31, 2012 to March 31, 2013.

	2013
(In thousands)	First Quarter
Beginning balance	$	13,435
Net proceeds from sales		(2,277	)
Net gain on sales		162
Assets acquired on loans		1,956
Impairment charge		(12	)
Ending balance	$	13,264

At March 31, 2013, OREO was comprised of $5.3 million in land, $3.7 million in commercial real estate, $3.7 million in tax liens, and residential real estate with a fair value of $588,000.  During the first quarter of 2013, the Company sold collateral related to land, received net proceeds of $1.8 million and recorded a loss of $38,000.  The Company also sold three condominiums related to a construction project in Minneapolis, Minnesota in which the Company is a participant. The Company received its pro rata share of net proceeds in the amount of $24,000 and recorded a gain of $17,000.  Additionally the Company sold four single family homes related to two loans.  The Company received net proceeds of $43,000 and recorded a small net gain of $3,000.  In addition to the sales mentioned above, the Company sold eleven properties acquired through the tax lien portfolio.  The Company received proceeds of $367,000 and recorded a net gain of $180,000 as a result of these sales.During the first quarter of 2013, the Company acquired collateral related to a residential real estate loan and transferred $100,000 to OREO.  In addition the Company acquired collateral related to the tax lien portfolio and transferred $1.9 million to OREO.The Company recorded impairment charges of $12,000 related to properties acquired through the tax lien portfolio.

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Note 7. Deposits

The Company’s deposit composition as of March 31, 2013 and December 31, 2012 is presented below:

(In thousands)	March 31, 2013		December 31, 2012
Demand	$	58,239	$	58,531
NOW		43,252		43,920
Money Market		174,133		179,359
Savings		17,673		17,472
Time deposits (over $100)		85,510		91,233
Time deposits (under $100)		152,563		164,402
Total deposits	$	531,370	$	554,917

Note 8. Borrowings and Subordinated Debentures

1.  Advances from the Federal Home Loan Bank

The available borrowing capacity with the FHLB is based on qualified collateral.  Royal Bank has a collateralized delivery requirement of 105% with the FHLB due to the level of Royal Bank’s non-performing assets and net losses. The available amount for future borrowings will be based on the amount of collateral to be pledged.  Total advances from the FHLB were $65.0 million at March 31, 2013 and December 31, 2012. Royal Bank has a $150 million line of credit with the FHLB of which $0 was outstanding as of March 31, 2013 and December 31, 2012.  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 March 31, 2013, investment securities with a market value of $58.9 million and loans with a book value of $47.3 million were pledged as collateral to the FHLB.

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

	As of March 31,					As of December 31,
(Dollars in thousands)	2013					2012
	Amount		Rate			Amount		Rate
Advances maturing in
2013	$	50,000		2.64	%	$	50,000		2.64	%
2017		15,000		1.39	%		15,000		1.39	%
Total FHLB borrowings	$	65,000				$	65,000

As of March 31, 2013, there were no FHLB advances scheduled to mature during the years 2014 through 2016.

2.  Other borrowings

The Company has a note payable with PNC Bank (“PNC”) at March 31, 2013 in the amount of $3.2 million compared to $3.3 million at December 31, 2012.  The note’s maturity date is August 25, 2016.  The interest rate is a variable rate using rate index of one month LIBOR + 15 basis points and adjusts monthly.  The interest rate at March 31, 2013 was 0.35%.

At March 31, 2013 and December 31, 2012, the Company had additional borrowings of $40.0 million from PNC which will mature on January 7, 2018.    These borrowings have a weighted average interest rate of 3.65%. The note payable and the borrowings are secured by government agencies and mortgage-backed securities.

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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 and an aggregate principal amount of $12.9 million of fixed/floating rate junior subordinated deferrable interest to Trust II.  Both debt securities bear an interest rate of 2.43% at March 31, 2013, and reset quarterly at 3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially 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.  Under the Federal Reserve Agreement as described in “Note 2 – Regulatory Matters and Significant Risks or Uncertainties” to the Consolidated Financial Statements, the Company and its non-bank subsidiaries may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.  As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable.  The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014.  After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company’s consolidated financial statements and liquidity.

Note 9. Commitments, Contingencies, and Concentrations

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they become payable.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. These financial instruments include commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they become payable.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The contract amounts are as follows:

	March 31,		December 31,
(In thousands)	2013		2012
Financial instruments whose contract amounts represent credit risk:
Open-end lines of credit	$	23,182	$	20,515
Commitments to extend credit		13,010		24,030
Standby letters of credit and financial guarantees written		1,097		1,199

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Litigation

From time to time, the Company is a party to routine legal proceedings within the normal course of business.  Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company's financial condition or results of operations.

Royal Bank holds a 60% equity interest in each of CSC and RTL.  The Company acquired its ownership interest in CSC in 2001.   CSC and RTL acquired, through public auction, delinquent tax liens in various jurisdictions thereby assuming a superior lien position to most other lien holders, including mortgage lien holders.   On March 4, 2009, each of CSC and RTL received grand jury subpoenas issued by the Court upon application of the Antitrust Division of the United States DOJ.  The subpoenas sought certain documents and information relating to an ongoing investigation being conducted by the DOJ relating to alleged bid-rigging at tax lien auctions in New Jersey.  Royal Bank, CSC and RTL have produced to the DOJ documents responsive to the subpoenas and have been cooperating with the DOJ throughout the investigation.  On February 23, 2012, the former President of CSC and RTL entered a plea of guilty to one count of conspiring to rig bids at certain auctions for tax liens in New Jersey from 1998 until approximately the spring of 2009.  The former President’s employment with CSC and RTL was terminated in November 2010.  As previously disclosed, Royal Bank had been advised that neither CSC nor RTL were targets of the DOJ investigation, but they were subjects of the investigation.  Based on discussions with the DOJ and the plea entered by the former President of CSC and RTL, the Company believed that the outcome of the investigation would result in fines and penalties being assessed against CSC, RTL or both.  As a result, the Company accrued $2.0 million during 2012 for a DOJ fine relating to the DOJ investigation.  After adjusting for the noncontrolling interest, the Company’s 60% share of the fine amounted to $1.2 million.  On September 26, 2012, as a result of the former President’s guilty plea and pursuant to a plea agreement with the DOJ, CSC entered a guilty plea in the United States District Court for the District of New Jersey to one count of conspiracy to commit bid-rigging at certain auctions for tax liens in New Jersey.  Under the terms of the plea agreement, which the Court accepted at the September 26, 2012 plea hearing, the DOJ agreed not to bring further criminal charges against CSC and not to bring criminal charges against RTL, or any current or former director, officer, or employee of CSC and/or RTL, for any act or offense committed prior to the date of the plea agreement that was in furtherance of any agreement to rig bids at municipal tax lien sales or auctions in the State of New Jersey. The former President of CSC and RTL and any person who bid at any time at a tax lien auction on behalf of CSC and/or RTL are excluded from this non-prosecution protection.  At the sentencing hearing held in December 2012, the sentencing judge agreed with the DOJ’s recommendation and imposed a $2.0 million fine for CSC, which, as stated above, had been previously recognized in the Company’s consolidated financial statements.  The Company is evaluating appropriate legal action against the former President of CSC and RTL to attempt to recover legal expenses and any fines or penalties ultimately levied against CSC.

On March 13, 2012, March 30, 2012, April 20, 2012, May 2, 2012, May 11, 2012, May 18, 2012, June 18, 2012 and June 29, 2012, the former President of CSC and RTL, CSC, RTL and the Company were named defendants, among others, in putative class action lawsuits filed in the U.S. District Court for the District of New Jersey (“Court”) on behalf of a proposed class of taxpayers who became delinquent in paying their municipal tax obligations: Boyer v. Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., Superior Court of New Jersey, Chancery Division (“the Boyer Action”), Contarino v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; MSC LLC v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; English v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Ledford v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; T&B Associates v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Jacobs et al v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Senatore Builders, LLC  v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey, respectively alleging a conspiracy to rig bids in municipal tax lien auctions.   On June 12, 2012, the Court entered an Order consolidating for pretrial purposes the above actions with all subsequently filed or transferred related actions, collectively referred to as In re New Jersey Tax Sale Certificates Antitrust Litigation.  On October 22, 2012, the Court appointed two law firms as interim class counsel and another law firm as liaison class counsel and further ordered appointed counsel to a master complaint for the consolidated action.  On December 21, 2012, plaintiffs filed a Consolidated Master Class Action Complaint (the “Complaint”) against numerous defendants, including the former President of CSC and RTL, Royal Bancshares of Pennsylvania, Inc., Royal Bank America, CSC and RTL.  The Company filed a motion to dismiss the Complaint on March 8, 2013, which is currently pending before the Court.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from these class action lawsuits.

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On or about March 15, 2012, CSC, RTL and the Company were named defendants, among others, in a complaint filed by Marina Bay Towers Urban Renewal II, LP (“MBT”) in the Superior Court of New Jersey, Law Division, Cape May County.  The complaint alleges essentially the same claims as asserted in the Boyer Action.  However MBT does not seek to represent a class and only seeks remedies related to itself.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

In 2005, the Company purchased $25.0 million in Class B-1 Notes of a collateralized debt obligation (“CDO”) offered by Lehman Brothers, Inc.  Concurrently with the issuance of the notes, the issuer entered into a credit swap with LBSF.  Lehman Brothers Holdings, Inc. (“LBHI”) guaranteed LBSF’s obligations to the issuer under the credit swap. When LBHI filed for bankruptcy in September 2008, an event of default under the indenture occurred, and the trustee declared the notes to be immediately due and payable.  The Company was repaid its principal on the notes in September 2008.  In September 2010, LBSF filed suit in the United States Bankruptcy court for the Southern District of New York against certain indenture trustees, certain special-purpose entities (issuers) and a class of noteholders and trust certificate holders who received distributions from the trustees, to recover funds that were allegedly improperly paid to the noteholders in forty-seven separate CDO transactions.  In July 2012, LBSF added the Company as a defendant in the proceeding. As of the date of this filing, the Company cannot determine whether this proceeding will have a material adverse effect on its results of operations and cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

Note 10. Shareholders’ Equity

1.     Preferred Stock

On February 20, 2009, as part of the Capital Purchase Program (“CPP”) established by the United States Department of Treasury (“Treasury”), the Company issued to Treasury 30,407 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value per share (the “Series A Preferred Stock”), and a liquidation preference of $1,000 per share.  In conjunction with the purchase of the Series A Preferred Stock, Treasury received a warrant to purchase 1,104,370 shares of the Company’s Class A common stock.  The aggregate purchase price for the Series A Preferred Stock and warrant was $30.4 million in cash.  The Series A Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter.  The Series A Preferred Stock may generally be redeemed by the Company at any time following consultation with its primary banking regulators.  The warrant issued to Treasury has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $4.13 per share of the common stock.  The Company’s utilized the extra capital provided by the CPP funds to support its efforts to prudently and transparently provide lending and liquidity while also balancing the goal to remain well-capitalized.

2.     Common Stock

The Company’s Class A common stock trades on the NASDAQ Global Market under the symbol RBPAA.  There is no market for the Company’s Class B common stock.  The Class B shares may not be transferred in any manner except to the holder’s immediate family.  Class B shares may be converted to Class A shares at the rate of 1.15 to 1.  Class B common stock is entitled to one vote for each Class A share and ten votes for each Class B share held.  Holders of either class of common stock are entitled to conversion equivalent per share dividends when declared.

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3.    Payment of Dividends

Under the Pennsylvania Business Corporation Law, the Company may pay dividends only if it is solvent and would not be rendered insolvent by the dividend payment. There are also restrictions set forth in the Pennsylvania Banking Code of 1965 (the “Code”) and in the Federal Deposit Insurance Act (“FDIA”) affecting the payment of dividends by the Company.  Under the Code, no dividends may be paid by a bank except from “accumulated net earnings” (generally retained earnings).  Under the FDIA, no dividend may be paid if a bank is in arrears in the payment of any insurance assessment due to FDIC.  In addition, dividends paid by Royal Bank to the Company would be prohibited if the effect thereof would cause Royal Bank’s capital to be reduced below applicable minimum capital requirements.

On August 13, 2009, the Company’s Board of Directors determined to suspend regular quarterly cash dividends on the $30.4 million in Series A Preferred Stock.  The Company’s Board of Directors took this action in consultation with the Federal Reserve Bank of Philadelphia as required by regulatory policy guidance.  The Company currently has sufficient liquidity to pay the scheduled dividends on the preferred stock; however, this decision better supports the capital position of Royal Bank, a wholly owned subsidiary of the Company. As of March 31, 2013, the Series A Preferred stock dividend in arrears was $6.3 million and has not been recognized in the consolidated financial statements.  In the event the Company declared the preferred dividend the Company’s capital ratios would be negatively affected however they would remain above the required minimum ratios.  In February 2014, the preferred cumulative dividend rate will prospectively increase to 9% per annum.

At March 31, 2013, as a result of significant losses within Royal Bank, the Company had negative retained earnings and therefore would not have been able to declare and pay any cash dividends.  Royal Bank must receive prior approval from the FDIC and the Department before declaring and paying a dividend to the Company.  Under the Federal Reserve Agreement as described in “Note 2 – Regulatory Matters and Significant Risks or Uncertainties” to the Consolidated Financial Statements, the Company may not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.

Note 11. Regulatory Capital Requirements

The Company and Royal Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Royal Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  Under the informal agreement referenced in “Note 2 – Regulatory Matters and Significant Risks And Uncertainties” to the Consolidated Financial Statements, Royal Bank is required to maintain a minimum Tier 1 leverage ratio of 8% and a Total risk-based capital ratio of 12%.  As of March 31, 2013, the Company and Royal Bank met all capital adequacy requirements to which it is subject and Royal Bank met the criteria for a well capitalized institution.

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Call Report instructions and under RAP, that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank’s current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for March 31, 2013 and the previous ten quarters in accordance with U.S. GAAP.  The change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s and the Company’s capital ratios as shown below.  Royal Bank is in discussions with the FDIC to resolve the matter.

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The table below sets forth Royal Bank’s capital ratios under RAP based on the FDIC’s interpretation of the Call Report instructions:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	72,906		15.92	%	$	36,625		8.00	%	$	45,782		10.00	%
Tier I capital (to risk-weighted assets)	$	67,064		14.65	%	$	18,313		4.00	%	$	27,469		6.00	%
Tier I capital (to average assets, leverage)	$	67,064		8.96	%	$	29,954		4.00	%	$	37,443		5.00	%

The tables below reflect the adjustments to the net loss as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the three
	months ended
(In thousands)	March 31, 2013
RAP net loss	$	(4,251	)
Tax lien adjustment, net of noncontrolling interest		4,454
U.S. GAAP net income	$	203

	At March 31, 2013
	As reported			As adjusted
	under RAP			for U.S. GAAP
Total capital (to risk-weighted assets)		15.92	%		17.28	%
Tier I capital (to risk-weighted assets)		14.65	%		16.01	%
Tier I capital (to average assets, leverage)		8.96	%		9.85	%

The tables below reflect the Company’s capital ratios:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	89,237		19.00	%	$	37,574		8.00	%		N/A		N/A
Tier I capital (to risk-weighted assets)	$	77,849		16.57	%	$	18,787		4.00	%		N/A		N/A
Tier I capital (to average assets, leverage)	$	77,849		10.21	%	$	30,500		4.00	%		N/A		N/A

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The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C (“FR Y-9C”) as of March 31, 2013 consistent with U.S. GAAP and the FR Y-9C instructions.  In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the three
	months ended
(In thousands)	March 31, 2013
U.S. GAAP net income	$	118
Tax lien adjustment, net of noncontrolling interest		(4,454	)
RAP net loss	$	(4,336	)

	At March 31, 2013
	As reported			As adjusted
	under U.S. GAAP			for RAP
Total capital (to risk-weighted assets)		19.00	%		17.68	%
Tier I capital (to risk-weighted assets)		16.57	%		14.70	%
Tier I capital (to average assets, leverage)		10.21	%		9.00	%

Note 12. Pension Plan

The Company has a noncontributory nonqualified defined benefit pension plan (“Pension Plan”) covering certain eligible employees.  The Company’s Pension Plan provides retirement benefits under pension trust agreements.  The benefits are based on years of service and the employee’s compensation during the highest three consecutive years during the last 10 years of employment.

Net periodic defined benefit pension expense for the three month periods ended March 31, 2013 and 2012 included the following components:

	Three months ended
	March 31,
(In thousands)	2013		2012
Service cost	$	19	$	68
Interest cost		133		152
Amortization of prior service cost		22		22
Amortization of actuarial loss		122		96
Net periodic benefit cost	$	296	$	338

The Company has unfunded pension plan obligations of $16.8 million as of March 31, 2013 compared to $16.9 million at December 31, 2012.  The Company plans to fund the pension plan obligations through existing Company owned life insurance policies.

Note 13. Loss Per Common Share

The Company follows the provisions of FASB ASC Topic 260, “Earnings per Share” (“ASC Topic 260”).  Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period.  The Company has two classes of common stock currently outstanding. The classes are A and B, of which one share of Class B is convertible into 1.15 shares of Class A.  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 using the treasury stock method. For the three months ended March 31, 2013, 248,132 options to purchase shares of common stock were anti-dilutive in the computation of diluted EPS, as exercise price exceeded average market price.  For the three months ended March 31, 2012, 520,979 options to purchase shares of common stock were anti-dilutive in the computation of diluted EPS, as exercise price exceeded average market price and as a result of the net loss for the three months ended March 31, 2012.  Additionally 30,407 warrants were also anti-dilutive.

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Basic and diluted EPS are calculated as follows:

	Three months ended March 31, 2013
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(397	)		13,257	$	(0.03	)

	Three months ended March 31, 2012
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(1,375	)		13,257	$	(0.10	)

Note 14. Comprehensive Income (Loss)

FASB ASC Topic 220, “Comprehensive Income” (“ASC Topic 220”), requires the reporting of all changes in equity during the reporting period except investments from and distributions to shareholders.  Net income (loss) is a component of comprehensive income (loss) with all other components referred to in the aggregate as other comprehensive income.  Unrealized gains and losses on AFS securities is an example of an other comprehensive income component.

	Three months ended March 31, 2013
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	285		$	50		$	235
Less reclassification adjustment for gains realized in net income		45			15			30
Unrealized gains on investment securities		240			35			205
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(142	)		(48	)		(94	)
Other comprehensive income, net	$	382		$	83		$	299

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	Three months ended March 31, 2012
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	518		$	154		$	364
Less reclassification adjustment for gains realized in net loss		139			49			90
Unrealized gains on investment securities		379			105			274
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(78	)		(27	)		(51	)
Other comprehensive income, net	$	457		$	132		$	325

Note 15. Fair Value of Financial Instruments

Under FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”), fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, management uses quoted market prices to determine fair value.  If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments using discounted cash flow methodologies.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

ASC Topic 820 provides guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly declined and for identifying circumstances when a transaction is not orderly.  ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under ASC Topic 820 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.  Level 2 includes debt securities with quoted prices that are traded less frequently then exchange-traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company did not have transfers of financial instruments within the fair value hierarchy during the quarters ended March 31, 2013 and 2012.

Items Measured on a Recurring Basis

The Company’s available for sale investment securities are recorded at fair value on a recurring basis.

Fair value for Level 1 securities are determined by obtaining quoted market prices on nationally recognized securities exchanges.  Level 1 securities include common stocks.

Level 2 securities include obligations of U.S. government-sponsored agencies, debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  The prices were obtained from third party vendors. This category generally includes mortgage-backed securities and CMOs issued by U.S. government and government-sponsored agencies, non-agency CMOs, and corporate and municipal bonds.

Level 3 securities include investments in seven private equity funds which are predominantly invested in real estate.  The value of the private equity funds are derived from the funds’ financials and K-1 filings.  The Company also reviews the funds’ asset values and its near-term projections.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of March 31, 2013	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	69,373	$	-	$	69,373
Mortgage-backed  securities-residential		-		32,165		-		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		200,987		-		200,987
Non-agency		-		904		-		904
Corporate bonds		-		7,889		-		7,889
Municipal bonds		-		5,594		-		5,594
Other securities		-		-		4,225		4,225
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	316,912	$	4,225	$	321,184

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	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of December 31, 2012	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	66,444	$	-	$	66,444
Mortgage-backed  securities-residential		-		30,509		-		30,509
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		233,976		-		233,976
Non-agency		-		1,011		-		1,011
Corporate bonds		-		7,437		-		7,437
Municipal bonds		-		5,615		-		5,615
Other securities		-		-		4,164		4,164
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	344,992	$	4,164	$	349,203

The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value for the three months ended March 31, 2013 and 2012:

(In thousands)
Investment Securities Available for Sale	Other securities
Beginning balance January 1, 2013	$	4,164
Total gains/(losses) - (realized/unrealized):
Included in earnings		5
Included in other comprehensive income		140
Purchases		-
Sales and calls		(84	)
Transfers in and/or out of Level 3		-
Ending balance March 31, 2013	$	4,225

(In thousands)	Trust preferred			Other
Investment Securities Available for Sale	securities			securities			Total
Beginning balance January 1, 2012	$	12,603		$	6,918		$	19,521
Total gains/(losses) - (realized/unrealized):
Included in earnings		-			32			32
Included in other comprehensive income		(18	)		102			84
Purchases		-			334			334
Sales and calls		-			(133	)		(133	)
Amortization of premium		(7	)		-			(7	)
Transfers in and/or out of Level 3		-			-			-
Ending balance March 31, 2012	$	12,578		$	7,253		$	19,831

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Items Measured on a Nonrecurring Basis

Non-accrual loans and TDRs are evaluated for impairment on an individual basis under FASB ASC Topic 310 “Receivables”.  The impairment analysis includes current collateral values, known relevant factors that may affect loan collectability, and risks inherent in different kinds of lending.  When the collateral value or discounted cash flows less costs to sell is less than the carrying value of the loan a specific reserve (valuation allowance) is established. Loans held for sale are carried at the lower of cost or fair value. OREO is carried at the lower of cost or fair value.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

	Fair Value Measurements Using:
Balances as of March 31, 2013	Quoted Prices in Acitve Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	4,896	$	4,896
Other real estate owned		-		-		3,727		3,727
Loans and leases held for sale		-		-		1,472		1,472

	Fair Value Measurements Using:
Balances as of December 31, 2012	Quoted Prices in Acitve Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	9,180	$	9,180
Other real estate owned		-		-		7,632		7,632
Loans and leases held for sale		-		-		1,572		1,572

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The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Qualitative Information about Level 3 Fair Value Measurements
Balances as of March 31, 2013			Valuation	Unobservable	Range (Weighted
(In thousands)	Fair Value		Techniques	Input	Average)
Impaired loans and leases	$	4,896	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -69.9% (-22.0%)
				Liquidation expenses	0.0% to -21.6% (-7.0%)
			Salvageable value of collateral (2)			0.0	%
Other real estate owned		3,727	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -81.1% (-4.3%)
			Sales prices
Loans and leases held for sale		1,572	Sales prices	Appraisal adjustments		-5.6	%
				Liquidation expenses		-12.7	%

(1) Appraisals may be adjusted for qualitative factors such as interior condition of the property and liquidation expenses.

(2) Leases are measured using the salvageable value of the collateral.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2013 and December 31, 2012. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The methodologies for estimating the fair value of financial instruments that are measured on a recurring or nonrecurring basis are discussed above.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities:

Management uses quoted market prices to determine fair value of securities (level 1).  If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates (level 2). If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments by reviewing the private equities funds’ financials and K-1 filings (level 3).

Other Investment (carried at cost):

This investment includes the Solomon Hess SBA Loan Fund, which the Company invested in to partially satisfy its community reinvestment requirement.  Shares in this fund are not publicly traded and therefore have no readily determinable fair market value.  An investor can have their investment in the Fund redeemed for the balance of their capital account at any quarter end with 60 days notice to the Fund.  The investment in this Fund is recorded at cost.  The Company does not record this investment at fair value on a recurring basis, as this investment’s carrying amount approximates fair value.

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Restricted investment in bank stock (carried at cost):

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Loans held for sale (carried at lower of cost or fair value):

The fair values of loans held for sale are based upon appraised values of the collateral less costs to sell, management’s estimation of the value of the collateral or expected net sales proceeds.These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.   Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

Impaired loans are accounted for under ASC Topic 310.Impairedloans are those in which the Company has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-term debt (carried at cost):

Fair values of FHLB advances and other long-term borrowings are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated debt (carried at cost):

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

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Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.  They are not shown in the table because the amounts are immaterial.

The tables below state the fair value of the Company’s financial instruments at March 31, 2013 and December 31, 2012.

					Fair Value Measurements
					At March 31, 2013
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	21,253	$	21,253	$	21,253	$	-	$	-
Investment securities available-for-sale		321,184		321,184		47		316,912		4,225
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		5,127		5,127		-		-		5,127
Loans held for sale		1,472		1,472		-		-		1,472
Loans, net		342,666		344,298		-		-		344,288
Accrued interest receivable		9,723		9,723		-		9,723		-
Financial Liabilities:
Demand deposits		58,239		58,239		-		58,239		-
NOW and money markets		217,385		217,385		-		217,385		-
Savings		17,673		17,673		-		17,673		-
Time deposits		238,073		234,873		-		234,873		-
Long-term borrowings		108,221		103,611		-		103,611		-
Subordinated debt		25,774		24,111		-		24,111		-
Accrued interest payable		4,411		4,411		-		4,411		-

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					Fair Value Measurements
					At December 31, 2012
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	28,802	$	28,802	$	28,802	$	-	$	-
Investment securities available-for-sale		349,203		349,203		47		344,992		4,164
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		6,011		6,011		-		-		6,011
Loans held for sale		1,572		1,572		-		-		1,572
Loans, net		326,904		330,260		-		-		330,260
Accrued interest receivable		10,256		10,256		-		10,256		-
Financial Liabilities:
Demand deposits		58,531		58,531		-		58,531		-
NOW and money markets		223,279		223,279		-		223,279		-
Savings		17,472		17,472		-		17,472		-
Time deposits		255,635		251,532		-		251,532		-
Long-term borrowings		108,333		102,824		-		102,824		-
Subordinated debt		25,774		23,837		-		23,837		-
Accrued interest payable		3,760		3,760		-		3,760		-

Limitations

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments.  Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.  This is due to the fact that no market exists for a sizable portion of the loan, deposit and off balance sheet instruments.

In addition, the fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Other significant assets that are not considered financial assets include premises and equipment.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments.  This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

Note 16. Segment Information

FASB ASC Topic 280, “Segment Reporting” (“ASC Topic 280”) established standards for public business enterprises to report information about operating segments in their annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders.  It also established standards for related disclosure about products and services, geographic areas, and major customers.  Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision makers in deciding how to allocate and assess resources and performance.  The Company’s chief operating decision makers are the CEO and the Chief  Administrative and Risk Officer (“CARO”).The Company has identified its reportable operating segments as “Community Banking” and “Tax Liens”.

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Community banking

The Company’s Community Banking segment which includes Royal Bank consists of commercial and retail banking and leasing. The Community Banking business segment is managed as a single strategic unit which generates revenue from a variety of products and services provided by Royal Bank.  For example, commercial lending is dependent upon the ability of Royal Bank to fund cash needed to make loans with retail deposits and other borrowings and to manage interest rate and credit risk.

Tax lien operation

The Company’s Tax Lien Operation consists of purchasing delinquent tax certificates from local municipalities at auction and then processing those liens to either encourage the property holder to pay off the lien, or to foreclose and sell the property.   The tax lien operation earns income based on interest rates (determined at auction) and penalties assigned by the municipality along with gains on sale of foreclosed properties.

The following table presents selected financial information for reportable business segments for the three month periods ended March 31, 2013 and 2012.

	Three months ended March 31, 2013
	Community			Tax Lien
(In thousands)	Banking			Operation		Consolidated
Total assets	$	715,157		$	36,221	$	751,378
Total deposits		531,370			-		531,370
Interest income	$	5,949		$	803	$	6,752
Interest expense		1,551			429		1,980
Net interest income		4,398			374		4,772
(Credit) provision for loan and lease losses		(310	)		59		(251	)
Total other income		1,162			246		1,408
Total other expenses		5,611			529		6,140
Income tax expense (benefit)		-			-		-
Net income	$	259		$	32	$	291
Noncontrolling interest		160			13		173
Net income attributable to Royal Bancshares	$	99		$	19	$	118

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	Three months ended March 31, 2012
	Community		Tax Lien
(In thousands)	Banking		Operation			Consolidated
Total assets	$	779,212	$	57,519		$	836,731
Total deposits		576,166		-			576,166
Interest income	$	7,217	$	1,589		$	8,806
Interest expense		1,901		912			2,813
Net interest income		5,316		677			5,993
Provision (credit) for loan and lease losses		109		(25	)		84
Total other income		789		(128	)		661
Total other expenses		5,772		2,295			8,067
Income tax expense (benefit)		51		(51	)		-
Net income (loss)	$	173	$	(1,670	)	$	(1,497	)
Noncontrolling interest		40		(668	)		(628	)
Net income (loss) attributable to Royal Bancshares	$	133	$	(1,002	)	$	(869	)

Interest income earned by the Community Banking segment related to the Tax Lien Operation was approximately $429,000 and $912,000 for the three month periods ended March 31, 2013 and 2012, respectively.

Note 17. Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”), the Company is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements.  The stock can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, there is no active market for the FHLB stock. As of March 31, 2013 and December 31, 2012, FHLB stock totaled $5.1 million and $6.0 million, respectively.

FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. The Company evaluates impairment quarterly. The decision of whether impairment exists is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following: (1) its operating performance, (2) the severity and duration of declines in the fair value of its net assets related to its capital stock amount, (3) its liquidity position, and (4) the impact of legislative and regulatory changes on the FHLB.  Based on the capital adequacy and the liquidity position of the FHLB, management believes that the par value of its investment in FHLB stock will be recovered.  Accordingly, there is no other-than-temporary impairment related to the carrying amount of the Company’s FHLB stock as of March 31, 2013.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 three month periods ended March 31, 2013 and 2012. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2012, included in the Company’s Form 10-K for the year ended December 31, 2012.

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FORWARD-LOOKING STATEMENTS

From time to time, Royal Bancshares of Pennsylvania, Inc. (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 and Exchange Commission. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. When we use words such as “believes,” “expects,” “anticipates” or similar expressions, we are making 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; interest rate fluctuations; business conditions in the banking industry; the regulatory environment: the nature, extent, and timing of governmental actions and reforms, including the rules of participation for the Troubled Asset Relief Program voluntary Capital Purchase Plan under the Emergency Economic Stabilization Act of 2008, which may be changed unilaterally and retroactively by legislative or regulatory actions; 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.

All forward-looking statements contained in this report are based on information available as of the date of this report.  These statements speak only as of the date of this report, even if subsequently made available by the Company on its website, or otherwise.  The Company expressly disclaims any obligation to update any forward-looking statement to reflect future statements to reflect future events or developments.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and general practices within the financial services industry.  Applications of the principles in the Company’s preparation of the consolidated 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 consolidated financial statements and the accompanying notes.  These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates.

Note 1 to the Company’s Consolidated Financial Statements (included in Item 8 of the Form 10-K for the year ended December 31, 2012) lists significant accounting policies used in the development and presentation of the Company’s consolidated financial statements.  The following discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other quantitative and qualitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.  We complete an internal review of this financial information.  This review requires substantive judgment and estimation. As disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, we have identified other-than-temporary impairment on investment securities, accounting for allowance for loan and lease losses, deferred tax assets, loans held for sale, the valuation of other real estate owned, net periodic pension costs and the pension benefit obligation as among the most critical accounting policies and estimates.  These critical accounting policies and estimates are important to the presentation of the Company’s financial condition and results of operations, and they require difficult, subjective or complex judgments as a result of the need to make estimates.

Financial Highlights and Business Results

On June 29, 1995, pursuant to the plan of reorganization approved by the shareholders of Royal Bank America, formerly Royal Bank of Pennsylvania (“Royal Bank”), all of the outstanding shares of common stock of Royal Bank were acquired by Royal Bancshares and were exchanged on a one-for-one basis for common stock of Royal Bancshares. The principal activities of the Company are supervising Royal Bank, which engages in a general banking business principally in Montgomery, Chester, Bucks, Philadelphia and Berks counties in Pennsylvania and in northern and southern New Jersey and Delaware. The Company also has a wholly owned non-bank subsidiary, Royal Investments of Delaware, Inc., which is engaged in investment activities.

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The chief sources of revenue for the Company are interest income from extending loans and from investing in security instruments, mostly through its subsidiary Royal Bank. Royal Bank principally generates commercial real estate loans primarily secured by first mortgage liens, construction loans for commercial real estate projects and residential home development, land development loans, tax liens and leases. At March 31 2013, commercial real estate loans, commercial and industrial loans, leases, and construction and land development loans comprised 49%, 19%, 11%, and 10%, respectively, of Royal Bank’s loan portfolio. Construction loans and land development loans can have more risk associated with them, especially when a weakened economy, such as we have experienced the past few years, adversely impacts the commercial rental or home sales market.   Net earnings of the Company are largely dependent on taking in deposits at competitive market rates, and then redeploying those deposited funds into loans and investments in securities at rates higher than those, paid to the depositors to earn an interest rate spread.  Refer to the “Net Interest Income and Net Interest Margin” section in Managements Discussion and Analysis of Financial Condition and Results of Operation below for additional information on interest yield and cost.

Like many other financial institutions the Company’s financial results were negatively impacted by the recession, but the effects on the Company were more pronounced than the effects on its competitors. The concentration of commercial real estate loans coupled with the introduction of additional lines of business resulted in a much higher level of non-performing loans and losses.  The past losses were partially attributed to charge-offs and impairment of commercial, construction and land loans associated with real estate projects, many of which were participation loans outside the Company’s primary market. Some of the participation loans were located in Florida, Nevada, North Carolina and other markets that were overbuilt during the construction boom within the United States from 2000-2007. The Company also launched new business initiatives such as mezzanine lending, real estate joint ventures, hard money lending and equity investments in real estate shortly before the housing bubble burst which contributed to the losses. Additionally, the Company experienced a high level of investment impairment associated with corporate bonds, common stocks, private label mortgage backed securities and real estate investment funds that experienced declines in value during the past few years. Also contributing to the losses were increased costs associated with the high level of non-performing assets, legal expenses related to credit quality issues and the U. S. Department of Justice (“DOJ”) tax lien investigation (for additional information refer to Item 1 “Legal Proceedings” under Part II “Other Information” of this Form 10-Q), and higher Federal Deposit Insurance Corporation (“FDIC”) assessments resulting from the higher rates for deposit insurance due to the Orders to Cease and Desist (the “Orders”) which were issued in 2009 and replaced in 2011 with an informal agreement, known as a memorandum of understanding (“MOU”). Finally, the establishment of a valuation allowance in 2008 and subsequent years that currently amounts to $39.6 million, has prevented the Company from utilizing tax credits on losses during the past five years.

While the Company’s deleveraging strategy improved the risk profile of the Company by shedding higher risk assets and paying off higher cost brokered CDs, it has had a negative impact on income. The deleveraging has resulted in lower average loan balances and a higher proportion of lower yielding investment securities, which have negatively impacted net interest income, a principal source of income. While the Company still expects external headwinds and credit quality costs associated with non-performing assets to negatively affect financial results, over time their impact may decline as the overall level of non-performing assets declines.

After announcing the retirements of the Company’s Chief Executive Officer (“CEO”) and President during the second quarter of 2012, the Company’s Board conducted an executive search for a candidate for the combined role of President and CEO.  On December 18, 2012 the Company announced F. Kevin Tylus as President and CEO of Royal Bank.  On February 20, 2013, the Company announced that Mr. Tylus was appointed President, CEO and a Class III member of the Board of Directors of the Company.  Former CEO, Robert Tabas, remains as Chairman of the Board of Directors.  The Company is focused on transitioning Royal Bank into a more traditional community bank with the branches becoming selling centers and not just service centers.  Traditional consumer products such as home equity loans and a new mobile banking application are part of the enhanced product offerings.  The Company has developed a Profitability Improvement Plan to generate steady revenue growth, expense management and gain operational efficiencies. The Company has reorganized and relocated certain personnel to improve departmental synergies andbetter align managers and staff so they can work together in cohesive teams to accomplish these objectives.  Consequently, the Company eliminated twelve personnel positions and recorded $87,000 in restructuring charges directly related to one-time employee termination benefits.  Additionally, the Company is currently developing a facilities rationalization plan as part of the overall strategic goal to return to profitability.   During the first quarter of 2013, the Company sold its storage facility site in Philadelphia and a building in Narberth that housed the training center.  The Company recorded gains of $676,000 as a result of these sales.  Additionally, in January 2013, Royal Bank consolidated the leased Henderson Road office into the King of Prussia and Bridgeport offices and retained the majority of the deposits. During 2012, Royal Bank hired a new Chief Lending Officer (“CLO”) who has significant experience in commercial and consumer lending with a larger bank within the Philadelphia market. Through the reorganizing of the Lending and Credit departments during the last half of 2012, Royal Bank was able to increase loans held for investment (“LHFI”) $13.9 million from $344.2 million at December 31, 2012 to $358.1 million at March 31, 2013. All of these initiatives are focused on repositioning the Company for 2013 and beyond.

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Consolidated Net Income (Loss)

During the first quarter of 2013, the Company recorded net income of $118,000, compared to a net loss of $869,000 for the comparable quarter of 2012.  The quarter versus quarter improvement was mainly related to $676,000 in gains on the sales of two premises, a $335,000 decline in provision for loan and lease losses and a decline of a $1.6 million accrual recorded in the first quarter of 2012 for a DOJ fine related to the tax lien subsidiaries.  After adjusting for the noncontrolling interest, the Company’s 60% share of the DOJ fine amounted to $960,000.  Additionally, other real estate owned (“OREO”) expenses and impairment associated with foreclosed properties declined $435,000 while gains on the sale of OREO increased $300,000.  Partially offsetting these items was a $1.2 million reduction in net interest income, a $100,000 impairment on loans held for sale and $87,000 in restructuring charges. Although the level of non-performing assets has declined it continues to negatively impact net interest income as well as operating expenses, such as legal, loan collection and OREO costs, and therefore the overall level of profitability. The loss in the first quarter of 2012 was mainly attributable to the DOJ fine previously mentioned.  The Company has been able to mitigate part of the impact of the nonperforming assets by reducing funding costs through the re-pricing of retail CDs, the runoff of higher costing brokered deposits and the paying down of FHLB advances. Impaired and non-accrual loans are reviewed in the “Credit Risk Management” section of this report. Basic and diluted loss per common share were $0.03 for the first quarter of 2013, as compared to basic and diluted loss per common share of $0.10 for the first quarter of 2012.

Interest Income

Total interest income of $6.8 million for the first quarter of 2013 represented a decline of $2.0 million, or 23.3%, from the comparable quarter of 2012. The decrease was primarily driven by a decline in average loan balances quarter versus quarter coupled with a decline in the yield on investment securities. Average interest-earning assets amounted to $708.9 million in the first quarter of 2013, which resulted in a decline of $71.5 million, or 9.2%, from the level of $780.4 million in the first quarter of 2012. The decrease in interest-earning assets was mainly related to a $69.2 million decline in average loan balances, which negatively impacted interest income by $1.2 million.  Average loan balances amounted to $352.5 million for the first quarter of 2013 compared to $421.7 million for the first quarter of 2012.  The decline in average loan balances was attributed to loan payoffs, loan pay downs, loan charge-offs, and transfers to OREO that was accompanied by minimal new loan growth.

The yield on average interest-earning assets for the first quarter of 2013 of 3.83% amounted to a decline of 71 basis points from the yield of 4.54% in the prior year’s first quarter. The yield reduction was comprised of quarter versus quarter declines of 82 and 22 basis points for investments (1.53% versus 2.35%) and loans (6.28% versus 6.50%), respectively. The decline in the investment yield was due to the replacement of sold and called higher yielding investment securities during 2012 with lower yielding government agency securities due to increased mortgage re-financings and the accelerated amortization of premiums due to prepayments of government agency mortgage-backed (“MBS”) and collateralized mortgage obligation (“CMO”) securities.  The decrease in loan yields reflects the $21.6 million decline in higher yielding tax liens quarter versus quarter and the lower rates of new loans.

Interest Expense

Total interest expense of $2.0 million in the first quarter of 2013 declined by $833,000, or 29.6%, from the comparable quarter of 2012. The reduction in interest expense was primarily associated with both lower balances of interest-bearing liabilities as well as a decline in the interest rates paid on those liabilities. Average interest-bearing liabilities of $617.7 million for the first quarter of 2013, amounted to a decline of $79.4 million, or 11.4%, primarily resulting from the intentional run off of maturing retail CDs and the payoff of maturing FHLB advances.  For the quarter ended March 31, 2013, average certificates of deposit and average borrowings amounted to $245.3 million and $134.1 million, respectively, and reflected a decline of $37.0 million, or 13.1%, and $37.9 million, or 22.0%, respectively, from the comparable quarter of 2012.  These declines in average balances contributed $406,000 to the $558,000 decline in interest expense on certificates of deposit and borrowings.  The remaining $152,000 was related to a reduction in rates paid on retail CDs and trust preferred securities.

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The average interest rate paid on average total interest-bearing liabilities during the first quarter of 2013 amounted to 1.30%, which represented an improvement of 32 basis points from the interest rate paid during the comparable quarter of 2012. During the first quarter of 2013 the average interest rate paid on average interest-bearing deposits was 0.90% which resulted in a decline of 35 basis points from the level of 1.25% during the comparable quarter of 2012. Quarter versus quarter lower average interest rates were paid on existing customer NOW and money market rates (0.30% in 2013 versus 0.75% in 2012) and on CDs (1.49% in 2013 versus 1.68% in 2012). The decline in interest rates paid on CDs was attributed to lower rates on new accounts and the continued run off of maturing retail CDs. The average interest rate paid for borrowings during the first quarter of 2013 amounted to 2.74% which amounted to a small reduction of 3 basis points from the average rate paid of 2.77% during the first quarter of 2012.

Net Interest Income and Net Interest Margin

Net interest income for the quarter ended March 31, 2013 amounted to $4.8 million resulting in a decline of $1.2 million, or 20.4%, from the comparable quarter of 2012.  The decline was primarily attributed to a lower yield on investment securities and a reduction of average loan balances quarter versus quarter. The reduction of the yield on investment securities was due mainly to the replacement of sold investment securities and principal payments and prepayments on government agency investments with comparable investment securities at lower interest rates. The reduction of average loan balances quarter versus quarter was primarily caused by charge-offs, payoffs and pay downs, which were partially attributable to the de-leveraging of the balance sheet. The decline was partially offset by a reduction in the average balances and the average interest rate paid on interest-bearing liabilities associated with the redemption of maturing retail CDs and lower rates paid on renewing and new retail CDs.

The net interest margin in the first quarter of 2013 of 2.73% declined 36 basis points from the comparable quarter of 2012. The improvement in the funding costs, which amounted to a reduction of 32 basis points, was entirely offset by the overall decline in the yield on investment securities quarter versus quarter and a change in the mix of interest-earning assets in the first quarter of 2013.  The Company continued to redeem maturing retail CDs and was also able to lower retail deposit costs through the re-pricing of maturing CDs at lower interest rates. However the replacement of sold and called investment securities during 2012 with lower yielding government agency MBS and CMO securities and the accelerated amortization of premiums on investment securities during the first quarter of 2013 accounted for the decline in the yield on interest-earning assets. The change in the mix of interest-earning assets also negatively impacted the margin results quarter versus quarter.  The increased concentration of lower yielding investment securities and the reduced concentration of higher-yielding tax liens more than offset the level of the higher yielding lease portfolio and accounted for the decline in the margin. During the first quarter of 2013, loans, which are the highest yielding interest-earning asset, amounted to 50% of total interest-earning assets, while they amounted to 54% of interest-earning assets in the comparable quarter of 2012.

The following table represents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest-earning assets and interest-bearing liabilities, as well as average rates for the periods indicated.  The loans outstanding include non-accruing loans.  The yields are presented on an annualized basis.

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	For the three months ended							For the three months ended
	March 31, 2013							March 31, 2012
(In thousands, except percentages)	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Cash equivalents	$	15,508	$	7		0.18	%	$	19,727	$	9		0.18	%
Investment securities		340,806		1,284		1.53	%		338,946		1,980		2.35	%
Loans		352,541		5,461		6.28	%		421,674		6,817		6.50	%
Total interest earning assets		708,855		6,752		3.83	%		780,347		8,806		4.54	%
Non-earning assets		53,637							69,494
Total average assets	$	762,492						$	849,841
Interest-bearing deposits
NOW and money markets	$	220,813		162		0.30	%	$	226,189		424		0.75	%
Savings		17,581		9		0.21	%		16,700		22		0.53	%
Time deposits		245,267		902		1.49	%		282,304		1,182		1.68	%
Total interest bearing deposits		483,661		1,073		0.90	%		525,193		1,628		1.25	%
Borrowings		134,064		907		2.74	%		171,971		1,185		2.77	%
Total interest bearing liabilities		617,725		1,980		1.30	%		697,164		2,813		1.62	%
Non-interest bearing deposits		58,373							54,670
Other liabilities		27,757							21,625
Shareholders' equity		58,637							76,382
Total average liabilities and equity	$	762,492						$	849,841
Net interest margin			$	4,772		2.73	%			$	5,993		3.09	%

Rate Volume Analysis

The following tables sets forth a rate/volume analysis, which segregates in detail the major factors contributing to the change in net interest income exclusive of interest on obligation through real estate owned via equity investment, for the three month period ended March 31, 2013, as compared to the respective period in 2012, into amounts attributable to both rates and volume variances.

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	For the three months ended
	March 31,
	2013 vs. 2012
	Increase (decrease)
(In thousands)	Volume			Rate			Total
Interest income
Interest-bearing deposits	$	(2	)	$	-		$	(2	)
Total short term earning assets		(2	)		-			(2	)
Investments securities		(11	)		(685	)		(696	)
Loans
Commercial demand loans		(694	)	$	26			(668	)
Commercial real estate		188			(141	)		47
Residential real estate		9			39			48
Leases		8			(16	)		(8	)
Tax certificates		(683	)		(66	)		(749	)
Other loans		(16	)		(5	)		(21	)
Loan fees		(5	)		-			(5	)
Total loans		(1,193	)		(163	)		(1,356	)
Total decrease in interest income		(1,206	)		(848	)		(2,054	)
Interest expense
Deposits
NOW and money market		(10	)	$	(252	)		(262	)
Savings		1			(14	)		(13	)
Time deposits		(143	)		(137	)		(280	)
Total deposits		(152	)		(403	)		(555	)
Borrowings		(263	)		2			(261	)
Trust preferred		-			(17	)		(17	)
Total decrease in interest expense		(415	)		(418	)		(833	)
Total decrease in net interest income	$	(791	)	$	(430	)	$	(1,221	)

Credit Risk Management

The Company’s loan and lease portfolio (the “credit portfolio”) is subject to varying degrees of credit risk. The Company maintains an allowance for loan and lease losses (the “allowance”) to absorb losses in the loan and lease portfolio.  The allowance is based on the review and evaluation of the loan and lease portfolio, along with ongoing, quarterly assessments of the probable losses inherent in that portfolio. The allowance represents an estimation made pursuant to FASB ASC Topic 450, “Contingencies” (“ASC Topic 450”) or FASB ASC Topic 310, “Receivables” (“ASC Topic 310”).  The adequacy of the allowance is determined through evaluation of the credit portfolio, and involves consideration of a number of factors, as outlined below, to establish a prudent level. Determination of the allowance is inherently subjective and requires significant estimates, including estimated losses on pools of homogeneous loans and leases based on historical loss experience and consideration of current economic trends, which may be susceptible to significant change. Loans and leases deemed uncollectible are charged against the allowance, while recoveries are credited to the allowance. Management adjusts the level of the allowance through the provision for loan and lease losses, which is recorded as a current period expense. The Company’s systematic methodology for assessing the appropriateness of the allowance includes: (1) general reserves reflecting historical loss rates by loan type, (2) specific reserves for risk-rated credits based on probable losses on an individual or portfolio basis and (3) qualitative reserves based upon current economic conditions and other risk factors.

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The loan portfolio is stratified into loan segments that have similar risk characteristics. The general allowance is based upon historical loss rates using a weighted three-year rolling average of the historical loss experienced within each loan segment.  The qualitative factors used to adjust the historical loss experience address various risk characteristics of the Company’s loan and lease portfolio include evaluating: (1) trends in delinquencies and other non-performing loans, (2) changes in the risk profile related to large loans in the portfolio, (3) changes in the growth trends of categories of loans comprising the loan and lease portfolio, (4) concentrations of loans and leases to specific industry segments, and (5) changes in economic conditions on both a local and national level, (6) quality of loan review and board oversight, (7) changes in lending policies and procedures, and (8) changes in lending staff.  Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a report accompanying the allowance calculation.

The specific reserves are determined utilizing standards required under ASC Topic 310.  A loan is considered impaired when it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement. Non-accrual loans and loans restructured under a troubled debt restructuring are evaluated for impairment on an individual basis considering all known relevant factors that may affect loan collectability such as the borrower’s overall financial condition, resources and payment record, support available from financial guarantors and the sufficiency of current collateral values (current appraisals or rent rolls for income producing properties), and risks inherent in different kinds of lending (such as source of repayment, quality of borrower and concentration of credit quality). Non-accrual loans that experience insignificant payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis for commercial and industrial loans, commercial real estate loans and commercial construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.  The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. The Company obtains third-party appraisals on the fair value of real estate collateral.  Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Once a loan is determined to be impaired it will be deducted from the portfolio and the net remaining balance will be used in the general and qualitative analysis.  A specific reserve is established for an impaired loan if its carrying value exceeds its estimated fair value.

The provision for loan and lease losses was a credit of $251,000 in the first quarter of 2013 compared to $84,000 in the comparable quarter of 2012. The decline in the 2013 provision was directly related to the improved credit quality of the loan portfolio.  The allowance decreased $1.9 million from $17.3 million at December 31, 2012 to $15.4 million at March 31, 2013. The decline in the allowance was directly related to the charge-off of specific reserves.  Impaired loans decreased $6.2 million during the first quarter of 2013.  The allowance was 4.30% of total loans and leases at March 31, 2013 compared to 5.02% at December 31, 2012.

The amount of the allowance is reviewed and approved by the Chief Financial Officer (“CFO”), Chief Administrative and Risk Officer (“CARO”), CLO, and Chief Credit Officer (“CCO”) on at least a quarterly basis.  Management believes that the allowance at March 31, 2013 is adequate. However, its determination requires significant judgment, and estimates of probable losses inherent in the credit portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize probable losses, future changes to the allowance may be necessary based on changes in the credits comprising the portfolio and changes in the financial condition of borrowers, such as may result from changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the credit portfolio and the allowance. Such review may result in additional provisions based on their judgment of information available at the time of each examination.

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Changes in the allowance were as follows:

	For the three months ended March 31,
(In thousands)	2013			2012
Balance at period beginning	$	17,261		$	16,380
Charge-offs
Commercial real estate		(835	)		-
Construction and land development		(820	)		-
Commercial and industrial		(173	)		-
Leases		(147	)		(133	)
Tax certificates		(10	)		(20	)
Total charge-offs		(1,985	)		(153	)
Recoveries
Commercial real estate		104			3
Construction and land development		95			104
Commercial and industrial		4			2
Residential real estate		151			1
Leases		-			8
Tax certificates		10			25
Total recoveries		364			143
Net charge-offs		(1,621	)		(10	)
(Credit) provision for loan and lease losses		(251	)		84
Balance at period end	$	15,389		$	16,454

An analysis of the allowance by loan type is set forth below:

	March 31, 2013					December 31, 2012
(In thousands, except percentages)	Allowance amount		Percent of outstanding loans in each category to total loans			Allowance  amount		Percent of outstanding loans in each category to total loans
Commercial real estate	$	8,103		49.0	%	$	8,750		48.5	%
Construction and land development		2,078		9.6	%		2,987		10.8	%
Commercial and industrial		2,713		18.9	%		1,924		11.8	%
Multi-family		658		3.3	%		654		3.4	%
Residential real estate		168		1.9	%		1,098		7.3	%
Leases		1,061		10.8	%		1,108		10.8	%
Tax certificates		384		6.3	%		472		7.1	%
Consumer		18		0.2	%		29		0.3	%
Unallocated		206		-			239		-
Total allowance	$	15,389		100.0	%	$	17,261		100.0	%

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The following table presents the principal amounts of non-accrual loans and other real estate owned:

	March 31,			December 31,
(Amounts in thousands)	2013			2012
Non-accrual LHFI (1)	$	16,084		$	21,432
Non-accrual LHFS		1,472			1,572
Other real estate owned		13,264			13,435
Total nonperforming assets	$	30,820		$	36,439
Nonperforming assets to total assets		4.10	%		4.71	%
Total non-accural loans to total loans		4.88	%		6.65	%
ALLL to non-accrual LHFI		95.68	%		80.54	%
ALLL to total LHFI		4.30	%		5.02	%

(1) Generally, a loan is placed on non-accruing status when it has been delinquent for a period of 90 days or more.

The composition of non-accrual loans is as follows:

	March 31, 2013				December 31, 2012
(In thousands)	Loan balance		Specific reserves		Loan balance		Specific reserves
Non-accrual loans held for investment
Commercial real estate	$	7,879	$	-	$	10,345	$	835
Construction and land development		3,042		-		4,280		820
Commercial & industrial		4,023		45		4,961		255
Residential real estate		432		13		994		14
Leases		157		70		251		55
Tax certificates		551		27		601		47
Total non-accrual LHFI	$	16,084	$	155	$	21,432	$	2,026
Non-accrual loans held for sale
Commercial real estate	$	1,472	$	-	$	1,572	$	-
Total non-accrual LHFS	$	1,472	$	-	$	1,572	$	-
Total non-accrual loans	$	17,556	$	155	$	23,004	$	2,026

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Non-accrual loan activity for the first quarter of 2013 is set forth below:

			1st Quarter Actvity
(In thousands)	Balance at January 1, 2013		Additions		Payments and other decreases			Charge-offs/  Impairment*			Transfer to OREO			Balance at March 31, 2013
Non-accrual loans held for investment
Construction and land development	$	4,280	$	-	$	(418	)	$	(820	)	$	-		$	3,042
Commercial real estate		10,345		-		(1,631	)		(835	)		-			7,879
Commercial & industrial		4,961		141		(906	)		(173	)		-			4,023
Residential real estate		994		-		(462	)		-			(100	)		432
Leases		251		-		(84	)		(10	)		-			157
Tax certificates		601		100		(3	)		(147	)		-			551
Total non-accrual LHFI	$	21,432	$	241	$	(3,504	)	$	(1,985	)	$	(100	)	$	16,084
Non-accrual loans held for sale
Construction and Commercial real estate	$	1,572	$	-	$	-		$	(100	)	$	-		$	1,472
Total non-accrual LHFS	$	1,572	$	-	$	-		$	(100	)	$	-		$	1,472
Total non-accrual loans	$	23,004	$	241	$	(3,504	)	$	(2,085	)	$	(100	)	$	17,556

*Charge-offs on LHFI were recorded in the allowance while impairment on loans held for sale (“LHFS”) was recorded in other expenses.

Total non-accrual loans at March 31, 2013 were $17.6 million and were comprised of $16.1 million in LHFI and $1.5 million in LHFS.  Total non-accrual loans at December 31, 2012 were $23.0 million and were comprised of $21.4 million in LHFI and $1.6 million in LHFS.  The $5.4 million decrease was the result of a $3.5 million reduction in existing non-accrual loan balances through payments and payoffs, $2.0 million in charge-offs related to specific reserves on LHFI, $100,000 write down on the LHFS and $100,000 in transfers to OREO, which were partially offset by additions of $241,000.  If interest had been accrued, such income would have been approximately $526,000 for the three months ended March 31, 2013.  The Company had no loans past due 90 days or more on which it has continued to accrue interest during the quarter.Typically, loans are restored to accrual status when the loan is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Impaired Loans

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 agreement.  Impaired loans include troubled debt restructurings (“TDRs”). The Company does not accrue interest income on impaired non-accrual loans. Excess proceeds received over the principal amounts due on impaired non-accrual loans are recognized as income on a cash basis.  The Company recognizes income under the accrual 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.

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The following is a summary of information pertaining to impaired loans and leases:

	March 31,		December 31,
(In thousands)	2013		2012
Impaired loans with a valuation allowance	$	3,404	$	9,405
Impaired loans without a valuation allowance		19,349		19,423
Impaired LHFS		1,472		1,572
Total impaired loans and leases	$	24,225	$	30,400
Valuation allowance related to impaired loans	$	155	$	2,026

	For the three months
(In thousands)	2013		2012
Average investment in impaired loans	$	28,534	$	51,967
Interest income recognized on impaired loans and leases	$	161	$	82
Interest income recognized on a cash basis on impaired loans and leases	$	27	$	-

Troubled Debt Restructurings

A loan modification is deemed a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower or collateral with similar credit risk characteristics.  All loans classified as TDRs are considered to be impaired.  TDRs are returned to an accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual restructured principal and interest is no longer in doubt.  At March 31 2013, the Company had twelve TDRs, of which seven are on non-accrual status, with a total carrying value of $17.6 million.  At the time of the modifications, seven of the loans were already classified as impaired loans.   At December 31, 2012, the Company had twelve TDRs with a total carrying value of $21.1 million.  The Company’s policy for TDRs is to recognize income on currently performing restructured loans under the accrual method.  During the first quarter of 2013, the Company received pay downs and payoffs of $2.5 million and recorded specific reserve charge-offs of $1.1 million.

Other Real Estate Owned

OREO declined $171,000 from $13.4 million at December 31, 2012 to $13.3 million at March 31, 2013.  Set forth below is a table which details the changes in OREO from December 31, 2012 to March 31, 2013.

	2013
(In thousands)	First Quarter
Beginning balance	$	13,435
Net proceeds from sales		(2,277	)
Net gain on sales		162
Assets acquired on loans		1,956
Impairment charge		(12	)
Ending balance	$	13,264

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At March 31, 2013, OREO was comprised of $5.3 million in land, $3.7 million in commercial real estate, $3.7 million in tax liens, and residential real estate with a fair value of $588,000.  During the first quarter of 2013, the Company sold collateral related to land, received net proceeds of $1.8 million and recorded a loss of $38,000.  The Company also sold three condominiums related to a construction project in Minneapolis, Minnesota in which the Company is a participant. The Company received its pro rata share of net proceeds in the amount of $24,000 and recorded a gain of $17,000.  Additionally the Company sold four single family homes related to two loans.  The Company received net proceeds of $43,000 and recorded a small net gain of $3,000.  In addition to the sales mentioned above, the Company sold eleven properties acquired through the tax lien portfolio.  The Company received proceeds of $367,000 and recorded a net gain of $180,000 as a result of these sales.During the first quarter of 2013, the Company acquired collateral related to a residential real estate loan and transferred $100,000 to OREO.  In addition the Company acquired collateral related to the tax lien portfolio and transferred $1.9 million to OREO.The Company recorded impairment charges of $12,000 related to properties acquired through the tax lien portfolio.

Credit Classification Process

The Company outsources the loan review function to a third party vendor which examines credit quality and portfolio management. The Company uses a nine point grading risk classification system commonly used in the financial services industry.  The first four classifications are rated Pass.  The riskier classifications include Pass-Watch, Special Mention, Substandard, Doubtful and Loss.  Upon completion of a loan review, a copy of any review receiving an adverse classification by the reviewer is presented to the Classified, Charge-off and Impairment Committee (“CCIC”) for discussion. The CCO is the primary bank officer dealing with the third party vendor during the reviews.

All loans are subject to initial loan review. Additional review is undertaken with respect to loans providing potentially greater exposure. This is accomplished by:

· 100% of loans with balances of $1.5 million or greater;

· 80% of loans with balances from $1.0 million up to $1.5 million;

· 25% of loans with balances from $500,000 up to $1 million;

· 5% of loans with balances below $500,000; and

· Loans requested specifically by the Company’s management

Loans on the Company’s Special Assets Committee list are also subject to loan review even though they are receiving the daily attention of an assigned officer and monthly attention of the Special Assets Committee.  A watch list is maintained and reviewed at each meeting of CCIC. CCIC was formed to formalize the process and documentation required to classify, remove from classification, impair or charge-off a loan. The CCIC, which is comprised of the CEO, CARO, CFO, CCO, and CLO meet as required and provide regular updated reports to the Board of Directors. Loans are added to the watch list, even though the loans may be current or less than 30 days delinquent if they exhibit elements of substandard creditworthiness. The watch list contains a statement for each loan as to why it merits special attention, and this list is distributed to the Board of Directors on a monthly basis. Loans may be removed from the watch list if the CCIC determines that exception items have been resolved or creditworthiness has improved. Additionally, if loans become serious collection matters and are listed on the Company’s monthly delinquent loan or Special Assets Committee lists, they may be removed from the watch list.  Minutes outlining the CCIC’s findings and recommendations are issued after each meeting for follow-up by individual loan officers.

All loans, at the time of presentation to the appropriate loan committee, are given an initial loan “risk” rating by the CCO. From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

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Potential Problem Loans

Potential problem loans are loans not currently classified as non-accrual, but management has doubts as to the borrowers’ ability to comply with present repayment terms. The loans are usually delinquent more than 30 days but less than 90 days or they have a risk rating of substandard. Potential problem loans amounted to approximately $13.2 million and $13.3 million at March 31, 2013 and December 31, 2012.

Other Income

Other income for the first quarter of 2013 was $1.4 million compared to $661,000 for the comparable quarter of 2012 resulting in an increase of $747,000.  During the first quarter of 2013, the Company sold its storage facility site in Philadelphia and a building in Narberth that housed the training center.The Company received net proceeds of $1.1 million and recorded gains of $676,000, which contributed to the quarter versus quarter improvement in other income.  Additionally, the Company recorded net gains on OREO of $162,000 during the first quarter of 2013 compared to a net loss of $138,000 in the comparable quarter of 2012.  Partially offsetting these increases was a decrease of $94,000 in gains on the sale of AFS investment securities ($45,000 in 2013 versus $139,000 in 2012).

Other Expense

Non-interest expense decreased $2.0 million from $8.1 million for the first quarter of 2012 to $6.1 million for the first quarter of 2013. The improvement was primarily related a decline of a$1.6 million accrual recorded in the first quarter of 2012 for a DOJ fine related to the tax lien subsidiaries.  After adjusting for the noncontrolling interest, the Company’s 60% share of the DOJ fine amounted to $960,000.OREO expenses and impairment declined $435,000 quarter versus quarter ($369,000 in 2013 versus $804,000 in 2012) due to the decline in OREO balances. Additionally, professional and legal fees declined $344,000 ($660,000 in 2013 versus $1.0 million in 2012) mainly related to the resolution of one problem loan which was sold during the second quarter of 2012.  Salaries and benefits declined $80,000 ($2.8 million in 2013 versus $2.9 million in 2012) due to various salary reductions and a phasing out of certain nonessential employee benefits.  Partially offsetting these declines was an increase of $139,000, $100,000, and $87,000 in loan collection expenses ($136,000 in 2013 versus ($3,000) in 2012), impairment on LHFS ($100,000 in 2013 versus $0 in 2012), and restructuring charges, respectively.  The increase in loan collection expenses was related to a first quarter 2012 recovery of $91,000 on a loan that had previously been classified as non-accrual.  The increase in impairment on LHFS was related to ongoing negotiations with a potential buyer of the loan.  The restructuring charges were related to the reduction in work force of twelve employees as part of the Profitability Improvement Plan.

Income Tax Expense

Total income tax expense for the first quarter of 2013 and the comparable quarter of 2012 was $0. The Company did not record a tax expense during the first quarter of 2013 despite the net income of $118,000 due to the ability to utilize the net operating loss carryforward from prior years.  The Company did not record a tax benefit despite the net loss during the first quarter of  2012 since it concluded at that time that it was more likely than not that the Company would not generate sufficient taxable income to realize all of the deferred tax assets.

The Company concluded at March 31, 2013 and December 31, 2012 that it was more likely than not that the Company would not generate sufficient future taxable income to realize all of the deferred tax assets. Management’s conclusion was based on consideration of the relative weight of the available evidence and the uncertainty of future market conditions on results of operations. The Company recorded a non-cash charge of $15.5 million in the consolidated statements of operations in the period ended December 31, 2008 related to the establishment of a valuation allowance for the deferred tax asset for the portion of the future tax benefit that more likely than not will not be utilized in the future. During 2009, 2010, 2011 and 2012 the Company established additional valuation allowances of $10.2 million, $7.7 million,  $3.0 million and $3.2 million respectively, which was the result of the net operating losses for each year and the portion of the future tax benefit that more than likely will not be utilized in the future. The valuation allowance for deferred tax assets at March 31, 2013, totaled $39.6 million. The effective tax rate for the first quarters of both 2013 and 2012 was 0%.

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Results of Operations by Business Segments

Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision makers in deciding how to allocate and assess resources and performance.  The Company’s chief operating decision makers are the CEO and the CARO. The Company has identified two reportable operating segments, “Community Banking” and “Tax Liens”.

	Three months ended March 31, 2013
	Community			Tax Lien
(In thousands)	Banking			Operation		Consolidated
Total assets	$	715,157		$	36,221	$	751,378
Total deposits		531,370			-		531,370
Interest income	$	5,949		$	803	$	6,752
Interest expense		1,551			429		1,980
Net interest income		4,398			374		4,772
(Credit) provision for loan and lease losses		(310	)		59		(251	)
Total other income		1,162			246		1,408
Total other expenses		5,611			529		6,140
Income tax expense (benefit)		-			-		-
Net income	$	259		$	32	$	291
Noncontrolling interest		160			13		173
Net income attributable to Royal Bancshares	$	99		$	19	$	118

	Three months ended March 31, 2012
	Community		Tax Lien
(In thousands)	Banking		Operation			Consolidated
Total assets	$	779,212	$	57,519		$	836,731
Total deposits		576,166		-			576,166
Interest income	$	7,217	$	1,589		$	8,806
Interest expense		1,901		912			2,813
Net interest income		5,316		677			5,993
Provision (credit) for loan and lease losses		109		(25	)		84
Total other income		789		(128	)		661
Total other expenses		5,772		2,295			8,067
Income tax expense (benefit)		51		(51	)		-
Net income (loss)	$	173	$	(1,670	)	$	(1,497	)
Noncontrolling interest		40		(668	)		(628	)
Net income (loss) attributable to Royal Bancshares	$	133	$	(1,002	)	$	(869	)

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Community Bank Segment

Royal Bank America

Royal Bank was incorporated in the Commonwealth of Pennsylvania on July 30, 1963, was chartered by the Commonwealth of Pennsylvania Department of Banking and commenced operation as a Pennsylvania state-chartered bank on October 22, 1963. Royal Bank is the successor of the Bank of King of Prussia, the principal ownership of which was acquired by the Tabas family in 1980. The deposits of Royal Bank are insured by the FDIC.  Royal Bank owns 60% of the subsidiaries, Crusader Servicing Corporation and Royal Tax Lien Services, LLC, each of which was formed to purchase and service delinquent tax liens and Royal Bank America Leasing, LP.  RBA Property LLC, Narberth Property Acquisition LLC, and Rio Marina LLC are wholly owned subsidiaries of Royal Bank.  These three entities were established to hold other real estate owned acquired through foreclosure of collateral associated with non-performing loans.

Royal Bank derives its income principally from interest charged on loans, interest earned on investment securities, and fees received in connection with the origination of loans and other services.  Royal Bank’s principal expenses are interest expense on deposits and borrowings and operating expenses.  Operating revenues, deposit growth, investment maturities, loan sales and the repayment of outstanding loans provide the majority of funds for activities.

Royal Bank conducts business operations as a commercial bank offering checking accounts, savings and time deposits, and loans, including residential mortgages and home equity loans. Royal Bank also offers safe deposit boxes, collections, internet banking and bill payment along with other customary bank services (excluding trust) to its customers. Drive-up, ATM, remote deposit, and night depository facilities are available. Services may be added or deleted from time to time. Royal Bank’s business and services are not subject to significant seasonal fluctuations.During the first quarter of 2013, Royal Bank launched its mobile banking application.Royal Bank is a member of the Federal Reserve FedLine Wire Transfer System.

Service Area: Royal Bank’s primary service area includes Pennsylvania, primarily Montgomery, Chester, Bucks, Delaware, Berks and Philadelphia counties, and Gloucester County, New Jersey.  This area includes residential areas and industrial and commercial businesses of the type usually found within a major metropolitan area.  Royal Bank serves this area from fifteen branches located throughout Montgomery, Philadelphia, Delaware and Berks counties and Gloucester County, New Jersey.  Royal Bank also considers New York, Maryland, and Delaware as a part of its service area for certain products and services.  In the past, Royal Bank had frequently conducted business with clients located outside of its service area.  Royal Bank has loans in twenty-two states via loan originations and/or participations with other lenders who have broad experience in those respective markets. Royal Bank’s headquarters are located at 732 Montgomery Avenue, Narberth, Pennsylvania 19072.

Competition: The financial services industry in our service area is extremely competitive. Competitors within our service area include banks and bank holding companies with greater resources. Many competitors have substantially higher legal lending limits.  In addition, savings banks, savings and loan associations, credit unions, money market and other mutual funds, mortgage companies, leasing companies, finance companies and other financial services companies offer products and services similar to those offered by Royal Bank, on competitive terms.

Employees: Royal Bank employed approximately 133 people on a full-time equivalent basis as of March 31, 2013.

Deposits: At March 31, 2013, total deposits of Royal Bank were distributed among demand deposits (12%), money market deposit, savings and NOW accounts (44%) and time deposits (44%). At March 31, 2013, deposits of $537.3 million declined $23.7 million from $561.0 million at year end 2012.  Included in Royal Bank’s deposits are approximately $5.5 million of intercompany deposits that are eliminated through consolidation.

Current market and regulatory trends in banking are changing the basic nature of the banking industry.  Royal Bank intends to keep pace with the banking industry by being competitive with respect to interest rates and new types or classes of deposits insofar as it is practical to do so consistent with Royal Bank’s size, objective of profit maintenance and stable capital structure.

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Lending: At March 31, 2013, Royal Bank, including its subsidiaries, had a total net loan portfolio (excluding loans held for sale) of $342.7 million, representing 46% of total assets. The loan portfolio is categorized into commercial and industrial, commercial mortgages, residential mortgages (including home equity lines of credit), construction, real estate tax liens, small business leases and consumer loans.  At March 31, 2013, net loans increased $15.8 million from year end 2012 due to new loan originations and a decline in the allowance and were partially offset by pay downs, payoffs, charge-offs and transfers to OREO.

Business results: Total assets of Royal Bank were $744.6 million at March 31, 2013 compared to $767.3 million at year end 2012.  Royal Bank recorded net income of $203,000 for the first quarter of 2013 compared to a net loss of $892,000 for the comparable quarter of 2012. Total interest income of Royal Bank for the quarter ended March 31, 2013 was $6.7 million compared to $8.8 million for the quarter ended March 31, 2012, a decrease of 23.3%.  The decline in interest income was attributed to lower yields on interest-earning assets, primarily investments, coupled with a reduced level of interest-earning assets. Interest expense was $2.0 million for the quarter ended March 31, 2013, compared to $2.8 million for the quarter ended March 31, 2012, a decrease of 29.2% due to the intentional run off of higher costing retail CDs and FHLB advances and the favorable re-pricing of maturing retail CDs. The $1.1 million improvement in net income quarter versus quarter was mainly attributable to a decline of a $1.6 million accrual for a fine related to a settlement with the DOJ pertaining to the tax lien subsidiaries recognized during the first quarter of 2012. After adjusting for the noncontrolling interest, Royal Bank’s 60% share of the fine amounted to $960,000.  Additionally during the first quarter of 2013, Royal Bank recorded a $676,000 gain on the sale of two facilities.  Offsetting these transactions was a $1.2 million reduction in net interest income for the reason previously mentioned. The above amounts reflect the consolidation totals for Royal Bank and its subsidiaries.  The subsidiaries included in these amounts are Royal Investments America, Royal Real Estate, Royal Bank America Leasing, Royal Tax Lien Services, Crusader Servicing Corporation, RBA Property LLC, Narberth Property Acquisitions, and Rio Marina LLC.

Royal Investments of Delaware

On June 30, 1995, the Company established a special purpose Delaware investment company, Royal Investments of Delaware (“RID”), as a wholly owned subsidiary. Legal headquarters are at 1105 N. Market Street, Suite 1300, Wilmington, Delaware. RID buys, holds and sells investment securities.

Business results: For the three months ended March 31, 2013, RID reported net income of $170,000, compared to net income of $307,000 for the three months ended March 31, 2012. The quarter versus quarter decrease was directly related to a $139,000 decline in gains on the sale of investment securities.  At March 31, 2013 total assets of RID were $29.3 million, of which $2.6 million was held in cash and cash equivalents and $3.0 million was held in investment securities. The amounts shown above include the activity related to RID’s wholly owned subsidiary Royal Preferred LLC.  Royal Bank previously extended loans to RID, secured by securities and as per the provisions of Regulation W.  At March 31, 2013 no loans were outstanding.

Royal Preferred LLC

On June 16, 2006, the Company, through its wholly owned subsidiary RID, established Royal Preferred LLC as a wholly owned subsidiary. Royal Preferred LLC was formed to purchase a subordinated debenture from Royal Bank America.  At March 31, 2013, Royal Preferred LLC had total assets of $23.6 million.

Royal Bancshares Capital Trust I and II

On October 27, 2004, the Company formed two Delaware trust affiliates, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II, in connection with the sale of an aggregate of $25.0 million of a private placement of trust preferred securities. The interest rates for the debt securities associated with the Trusts at March 31, 2013 amounted to 2.43%.

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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 regulatory policy guidance.  The Company believes this decision better supports the liquidity position of Royal Bank, a wholly owned subsidiary of the Company.  As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable.The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014. After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company’s consolidated financial statements and liquidity.

Royal Bank America Leasing, LP

On July 25, 2005, the Company, through its wholly owned subsidiary Royal Bank, formed Royal Bank America Leasing, LP (“Royal Leasing”). Royal Bank holds a 60% ownership interest in Royal Leasing. Legal headquarters are 550 Township Line Road, Blue Bell, Pennsylvania. Royal Leasing was formed to originate small business leases. Royal Leasing originates small ticket leases through its internal sales staff and through independent brokers located throughout its business area. In general, Royal Leasing will portfolio individual small ticket leases in amounts up to $250,000. Leases originated in amounts in excess of that are sold for a profit to other leasing companies. These purchases are at market based on pricing and terms that Royal Leasing would expect to receive from unrelated third-parties. From time to time Royal Leasing will sell small lease portfolios to third-parties and will, on occasion, purchase lease portfolios from other originators. During the first three months of 2013 and 2012, neither sales nor purchases of lease portfolios were material.

Business results: At March 31, 2013, total assets of Royal Leasing were $38.2 million, including $38.0 million in net leases, as compared to $37.1 million in assets at December 31, 2012.  For the quarter ended March 31, 2013, Royal Leasing had net interest income of $561,000 compared to $581,000 for the comparable period of 2012; provision for lease losses credit of $47,000 versus debit of $109,000 in the comparable quarter of 2012; non-interest income of $130,000 as compared to $156,000 in the first quarter of 2012; and an increase of $116,000 in non-interest expense quarter over quarter.  Prior to partner distributions net income for the quarter ended March 31, 2013 was $622,000, an increase of $240,000 from $382,000 for the three months ended March 31, 2012.

Royal Bank has extended loans to RBA Leasing at market interest rates, secured by the lease portfolio of RBA Leasing and as per the provisions of Regulation W. At March 31, 2013, the amount due Royal Bank from RBA Leasing was $35.5 million.

Royal Investments America

On June 23, 2003, the Company, through its wholly owned subsidiary Royal Bank, established Royal Investments America, LLC (“RIA”) as a wholly owned subsidiary. Legal headquarters are at 732 Montgomery Avenue, Narberth, Pennsylvania. RIA was formed to invest in equity real estate ventures subject to limitations imposed by the FDIC and Pennsylvania Department of Banking by regulation.

Business results: At March 31, 2013 and December 31, 2012, total assets of RIA were $5.9 million.  For the quarter ended March 31, 2013, RIA recorded a net loss of $10,000 compared to net income of $13,000 for the comparable period of 2012.  Royal Bank had previously extended loans to RIA at market interest rates, secured by the loan portfolio of RIA and as per the provisions of Regulation W. At March 31, 2013, there were no outstanding loans from Royal Bank to RIA.

Tax Lien Operations

Crusader Servicing Corporation

The Company, through its wholly owned subsidiary Royal Bank, holds a 60% ownership interest in Crusader Servicing Corporation (“CSC”). Legal headquarters are at 732 Montgomery Avenue, Narberth, Pennsylvania.  CSC acquires, through auction, delinquent property tax liens in various jurisdictions, assuming a lien position that is generally superior to any mortgage liens on the property, and obtaining certain foreclosure rights as defined by local statute. Due to a change in CSC management, Royal Bank and other shareholders, constituting a majority of CSC shareholders, voted to liquidate CSC under an orderly, long term plan adopted by CSC management.  At March 31, 2013, total assets of CSC were $6.6 million.

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Business results:  CSC had net interest expense of $63,000 for the quarter ended March 31, 2013 compared to $3,000 for the comparable quarter in 2012.  The $60,000 decline was primarily related to the decline in average lien balances.  CSC recorded a net loss of $112,000 for the three months ended March 31, 2013 compared to $1.0 million for the comparable period of 2012. The $907,000 quarter versus quarter improvement was primarily related to a decline of an $800,000 accrual for a DOJ fine for a settlement with the DOJ related to their investigation that was recorded during the first quarter of 2012.  Additionally, during the first quarter of 2013, CSC recorded a net gain on the sales of OREO of $73,000 compared to a net loss of $121,000 for the comparable period in 2012.  At March 31, 2012, total assets of CSC were $6.6 million, of which $2.8 million was held in net tax liens while at December 31, 2012 total assets were $6.7 million, of which $3.8 million was held in tax liens. Royal Bank has extended loans to CSC at market interest rates, secured by the tax lien portfolio of CSC and as per the provisions of Regulation W.  At March 31, 2013, the amount due Royal Bank from CSC was $6.6 million.

Royal Tax Lien Services, LLC

On November 17, 2006, the Company, through its wholly owned subsidiary Royal Bank, formed Royal Tax Lien Services, LLC (“RTL”). Royal Bank holds a 60% ownership interest in RTL. Its legal headquarters is located at 732 Montgomery Avenue, Narberth, Pennsylvania 19072.  RTL was formed to purchase and service delinquent tax certificates.  RTL typically acquires delinquent property tax liens through public auctions in various jurisdictions, assuming a lien position that is generally superior to any mortgage liens that are on the property, and obtaining certain foreclosure rights as defined by local statute.

Business results: RTL’s net interest income of $437,000, for the quarter ended March 31, 2013, decreased $244,000 for the comparable quarter of 2012.  The decrease in net interest income was largely due to a quarter-versus-quarter significant decline in tax liens outstanding.  For the quarter ended March 31, 2013, RTL recorded net income of $144,000 compared to a net loss of $651,000 for the comparable quarter in 2012.  The $795,000 improvement was primarily related to a decline of an $800,000 accrual for a DOJ fine for a settlement with the DOJ related to their investigation that was recorded during the first quarter of 2012.  At March 31, 2013, total assets of RTL were $29.6 million, of which the majority was held in tax liens as compared to total assets at December 31, 2012 of $30.6 million, of which the majority was held in tax liens.

Royal Bank has extended loans to RTL at market interest rates, secured by the tax lien portfolio of RTL and as per the provisions of Regulation W.  At March 31, 2013, the amount due Royal Bank from RTL was $19.2 million.

FINANCIAL CONDITION

Consolidated Assets

Total consolidated assets at March 31, 2013 were $751.4 million, a decrease of $22.3 million, or 2.9%, from December 31, 2012.  This decrease was mainly attributed to a reduction of $28.0 million and $7.5 million in investment securities and cash and cash equivalents, respectively.  Cash flows from the investment portfolio including sales, calls and principal payment on mortgage-backed securities and CMOs were redeployed into new loan originations and to fund the reduction in deposits.  Net loans and leases grew $15.8 million while deposits declined $23.5 million.

Cash and Cash Equivalents

Total cash and cash equivalents of $21.3 million at March 31, 2013 decreased $7.5 million from $28.8 million at December 31, 2012.

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Investment Securities

AFS investment securities of $321.2 million at March 31, 2013, declined $28.0 million from the level at December 31, 2012.  The decrease was primarily due to slowly changing the mix of interest-earning assets to loans and to fund the intentional run-off of maturing CDs.   FHLB stock was $5.1 million at March 31, 2013 and $6.0 million at December 31, 2012.

The AFS portfolio had gross unrealized losses of $755,000 at March 31, 2013, which improved $191,000 from gross unrealized losses of $946,000 at December 31, 2012.  The decrease in gross unrealized losses on CMOs and corporate bonds were slightly offset by an increase in gross unrealized losses on residential mortgage backed securities, municipal bonds and other securities. There was no OTTI impairment for any of the investments during the first quarter of 2013 or the first quarter of 2012.  The AFS portfolio had net unrealized gains of $5.6 million at March 31, 2013, which increased $240,000 from net unrealized gains of $5.3 million at December 31, 2012.  For the three months ended March 31, 2013, the increase in net unrealized gains was primarily associated with an increase in net unrealized gains related to other securities.

Investment securities within the AFS portfolio are marked to market quarterly and any resulting gains or losses are recorded in other comprehensive income, net of taxes, within the equity section of the balance sheet as shown in “Note 14 - Comprehensive Income (Loss)” to the Consolidated Financial Statements. When a loss is deemed to be other-than-temporary but the Company does not intend to sell the security and it is not more likely than not that the Company will have to sell the security before recovery of its cost basis, the Company will recognize the credit component of an OTTI charge in earnings and the remaining portion in other comprehensive income.

The Company will continue to monitor these investments to determine if the continued negative trends, market valuations or credit defaults result in impairment that is other than temporary.

Loans and Leases

Total loans and leases of $358.1 million grew $13.9 million, or 4.0%, from the level at December 31, 2012.  The increase was attributed to new loan originations partially offset by balances being paid down, payoffs, charge-offs, and transfers to OREO during the first quarter of 2013.  The higher yielding tax certificates declined $2.0 million, or 8.3%. The Company has become more selective in approving commercial real estate loans. As a result, the Company has shifted its lending focus to generating small business loans, owner occupied commercial real estate and more recently middle market business lending.

The following table represents loan balances by type:

	March 31,		December 31,
(In thousands)	2013		2012
Commercial real estate	$	175,397	$	167,115
Construction and land development		34,533		37,215
Commercial and industrial		67,512		40,560
Multi-family		11,830		11,756
Residential real estate		6,697		24,981
Leases		38,629		37,347
Tax certificates		22,541		24,569
Consumer		916		1,139
Total gross loans and leases	$	358,055	$	344,682
Deferred fees, net (1)		-		(517	)
Total loans and leases	$	358,055	$	344,165

1 For the 2013 period net deferred fees were allocated among the loan types.

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Deposits

Total deposits, the Company’s primary source of funds, declined $23.5 million, or 4.2%, from $554.9 million at December 31, 2012 to $531.4 million at March 31, 2013.  Time deposits and money market accounts decreased $17.6 million and $5.2 million, respectively from year end 2012.

The following table represents ending deposit balances by type:

(In thousands)	March 31, 2013		December 31, 2012
Demand	$	58,239	$	58,531
NOW		43,252		43,920
Money Market		174,133		179,359
Savings		17,673		17,472
Time deposits (over $100)		85,510		91,233
Time deposits (under $100)		152,563		164,402
Total deposits	$	531,370	$	554,917

Borrowings

Total borrowings, which include long-term borrowings and trust preferred securities, amounted to $134.0 million at March 31, 2013 compared to $134.1 million at December 31, 2012. The small reduction is attributable to payments made on an amortizing loan with another financial institution.

Shareholders’ Equity

Consolidated shareholders’ equity of $59.0 million at March 31, 2013 increased $597,000, or 1.0%, from $58.4 million at December 31, 2012. The increase was related to an increase of $299,000 in other comprehensive income mostly related to a modest improvement in the valuation of the investment portfolio, a $173,000 increase in non-controlling interest and net income of $118,000 for the first quarter of 2013.

CAPITAL ADEQUACY

The Company and Royal Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Royal Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company and Royal Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  As of March 31, 2013, the Company and Royal Bank met all capital adequacy requirements to which they are subject.

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Under the informal agreement referenced in “Note 2 – Regulatory Matters and Significant Risks And Uncertainties” to the Consolidated Financial Statements, Royal Bank is required to maintain a minimum Tier 1 leverage ratio of 8% and a Total risk-based capital ratio of 12%.  As shown in the table below, Royal Bank met these requirements at March 31, 2013 and December 31, 2012 and met the criteria for a well capitalized institution.

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Consolidated Reports of Condition and Income (the “Call Report”) instructions and under regulatory accounting principles (“RAP”), that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank’s current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for March 31, 2013 and the most recent ten quarters in accordance with U.S. GAAP.  A change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s capital ratios as shown below.  Royal Bank is in discussions with the FDIC to resolve the matter.

The table below sets forth Royal Bank’s capital ratios under RAP, based on the FDIC’s interpretation of the Call Report instructions:

											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)
At March 31, 2013	$	72,906		15.92	%	$	36,625		8.00	%	$	45,782		10.00	%
At December 31, 2012	$	71,891		16.10	%	$	35,732		8.00	%	$	45,169		10.00	%
Tier I capital (to risk-weighted assets)
At March 31, 2013	$	67,064		14.65	%	$	18,313		4.00	%	$	27,469		6.00	%
At December 31, 2012	$	66,164		14.81	%	$	17,866		4.00	%	$	27,101		6.00	%
Tier I capital (to average assets, leverage)
At March 31, 2013	$	67,064		8.96	%	$	29,954		4.00	%	$	37,443		5.00	%
At December 31, 2012	$	66,164		8.53	%	$	31,012		4.00	%	$	38,765		5.00	%

The tables below reflect the adjustments to the net loss as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the three
	months ended
(In thousands)	March 31, 2013
RAP net loss	$	(4,251	)
Tax lien adjustment, net of noncontrolling interest		4,454
U.S. GAAP net income	$	203

	At March 31, 2013						At December 31, 2012
	As reported			As adjusted			As reported			As adjusted
	under RAP			for U.S. GAAP			under RAP			for U.S. GAAP
Total capital (to risk-weighted assets)		15.92	%		17.28	%		16.10	%		17.57	%
Tier I capital (to risk-weighted assets)		14.65	%		16.01	%		14.81	%		16.29	%
Tier I capital (to average assets, leverage)		8.96	%		9.85	%		8.53	%		9.45	%

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The tables below reflect the Company’s capital ratios:

											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)
At March 31, 2013	$	89,237		19.00	%	$	37,574		8.00	%		N/A		N/A
At December 31, 2012	$	88,838		19.33	%	$	36,774		8.00	%		N/A		N/A
Tier I capital (to risk-weighted assets)
At March 31, 2013	$	77,849		16.57	%	$	18,787		4.00	%		N/A		N/A
At December 31, 2012	$	77,450		16.85	%	$	18,387		4.00	%		N/A		N/A
Tier I capital (to average assets, leverage)
At March 31, 2013	$	77,849		10.21	%	$	30,500		4.00	%		N/A		N/A
At December 31, 2012	$	77,450		9.80	%	$	31,614		4.00	%		N/A		N/A

The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C (“FR Y-9C”) as of March 31, 2013 consistent with U.S. GAAP and the FR Y-9C instructions.  In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the three
	months ended
(In thousands)	March 31, 2013
U.S. GAAP net income	$	118
Tax lien adjustment, net of noncontrolling interest		(4,454	)
RAP net loss	$	(4,336	)

	At March 31, 2013						At December 31, 2012
	As reported			As adjusted			As reported			As adjusted
	under U.S. GAAP			for RAP			under U.S. GAAP			for RAP
Total capital (to risk-weighted assets)		19.00	%		17.68	%		19.33	%		17.90	%
Tier I capital (to risk-weighted assets)		16.57	%		14.70	%		16.85	%		14.82	%
Tier I capital (to average assets, leverage)		10.21	%		9.00	%		9.80	%		8.56	%

The capital ratios set forth above 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 regulation.  At March 31, 2013, the Company was required to have minimum Tier 1 and total capital ratios of 4.0% and 8.0%, respectively, and a minimum Tier 1 leverage ratio of 4.0%.  At March 31, 2013, the Company met the regulatory minimum capital requirements, and management believes that, under current regulations, the Company will continue to meet its minimum capital requirements in the foreseeable future.

LIQUIDITY & INTEREST RATE SENSITIVITY

Liquidity is the ability to ensure that adequate funds will be available to meet the Company’s 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 are securities maturing in one year or less, other short-term investments and 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 Company’s level of liquidity is provided by funds invested primarily in mortgage-backed securities and CMOs issued by U.S. government and government-sponsored agencies, corporate bonds and to a lesser extent, federal funds sold.  The overall liquidity position of Royal Bank is monitored on a weekly basis while the remaining legal entities are monitored monthly.

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The liquidity ratio is calculated by adding total cash, availability on lines of credit, and unpledged investment securities and subtracting any reserve requirements, this amount is then divided by total deposits as well as by total liabilities to determine the liquidity ratios.  The Company’s policy is to maintain a liquidity ratio as a percentage of total deposits of at least 12% and a liquidity ratio as a percentage of total liabilities of at least 10%.  At March 31, 2013, the Company’s liquidity ratios were more than three times the policy minimums.

On August 13, 2009, the Company’s Board of Directors determined to suspend the regular quarterly cash dividends on the $30.4 million in Series A Preferred Stock issued to the United States Department of the Treasury (“Treasury”) as part of the Capital Purchase Program (“CPP”) established by the Treasury.  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 Board of Directors also suspended interest payments on its $25.8 million of outstanding trust preferred securities.  The decision to suspend the preferred cash dividend and the trust preferred interest payment better supports the liquidity position of Royal Bank, a wholly owned subsidiary of the Company.  As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable. The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014.  After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company’s consolidated financial statements and liquidity. As of March 31, 2013 the Series A Preferred stock dividend in arrears was $6.3 million and has not been recognized in the consolidated financial statements.

In managing its interest rate sensitivity positions, the Company seeks to develop and implement strategies to control exposure of net interest income to risks associated with interest rate movements.  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 which are a continual challenge in a changing rate environment.

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The following table shows separately the interest sensitivity of each category of interest-earning assets and interest-bearing liabilities as of March 31, 2013:

(In millions)	Days						1 to 5			Over 5		Non-rate
Assets		0 – 90			91 – 365		Years			Years		Sensitive			Total
Interest-bearing deposits in banks	$	13.4		$	-		$	-		$	-	$	7.9		$	21.3
Investment securities AFS		33.7			60.7			151.6			69.6		5.6			321.2
Loans:
Fixed rate		24.5			44.1			121.3			49.8		(15.4	)		224.3
Variable rate		70.8			49.0			-			-		-			119.8
Total loans		95.3			93.1			121.3			49.8		(15.4	)		344.1
Other assets		-			22.1			-			-		42.7			64.8
Total Assets	$	142.4		$	175.9		$	272.9		$	119.4	$	40.8		$	751.4
Liabilities & Capital
Deposits:
Non interest bearing deposits	$	-		$	-		$	-		$	-	$	58.2		$	58.2
Interest bearing deposits		25.7			77.1			132.3			-		-			235.1
Certificate of deposits		31.2			95.9			95.5			15.5		-			238.1
Total deposits		56.9			173.0			227.8			15.5		58.2			531.4
Borrowings		79.0			-			55.0			-		-			134.0
Other liabilities		-			-			-			-		27.0			27.0
Capital		-			-			-			-		59.0			59.0
Total liabilities & capital	$	135.9		$	173.0		$	282.8		$	15.5	$	144.2		$	751.4
Net  interest rate  GAP	$	6.5		$	2.9		$	(9.9	)	$	103.9	$	(103.4	)
Cumulative interest rate  GAP	$	6.5		$	9.4		$	(0.5	)	$	103.4
GAP to total  assets		1	%		0	%
GAP to total equity		11	%		5	%
Cumulative GAP to total assets		1	%		1	%
Cumulative GAP to total equity		11	%		16	%

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.  At March 31, 2013, floating rate loans with floors and without floors were $81.4 million and $38.4 million, respectively.

REGULATORY ACTIONS

FDIC and Department of Banking Orders

On July 15, 2009, Royal Bank agreed to enter into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the “Orders”) with each of the Federal Deposit Insurance Corporation (“FDIC”) and the Pennsylvania Department of Banking (the “Department”). The material terms of the Orders were identical and required Royal Bank among other items to maintain, after establishing an adequate allowance for loan and lease losses, a ratio of Tier 1 capital to total assets (“leverage ratio”) equal to or greater than 8% and a ratio of qualifying total capital to risk-weighted assets (“total risk-based capital ratio”) equal to or greater than 12%. The FDIC and the Department replaced the Orders in the fourth quarter of 2011 with an informal agreement, known as a memorandum of understanding (“MOU”). Included in the MOU is the continued requirement of maintaining a leverage ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%.At March 31, 2013, based on capital levels calculated under RAP, Royal Bank’s Tier 1 leverage and total risk-based capital ratios were 8.96% and 15.92%, respectively.  Please refer to “Capital Adequacy” under “Financial Condition”.

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Federal Reserve Agreement

On March 17, 2010, the Company agreed to enter into a Written Agreement (the “Federal Reserve Agreement”) with the Federal Reserve Bank of Philadelphia (the “Reserve Bank”). The material terms of the Federal Reserve Agreement provide that: (i) the Company’s board of directors will take appropriate steps to fully utilize the Company’s financial and managerial resources to serve as a source of strength to its subsidiary banks, including taking steps to ensure that Royal Bank complies with the Orders previously entered into with the FDIC and the Department on July 15, 2009; (ii) the Company’s board of directors will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank a written plan to strengthen board oversight of the management and operations of the consolidated operation; (iii) the Company will not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (iv) the Company and its non-bank subsidiaries will not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (v) the Company and its nonbank subsidiaries will not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank; (vi) the Company will not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank; (vii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank an acceptable written capital plan to maintain sufficient capital at the Company on a consolidated basis, which plan will at a minimum address: regulatory requirements for the Company and the Banks, the adequacy of the Banks’ capital taking into account the volume of classified credits, the allowance for loan and lease losses, current and projected asset growth, and projected retained earnings; the source and timing of additional funds necessary to fulfill the consolidated organization’s and the Banks’ future capital requirements; supervisory requests for additional capital at the Banks or the requirements of any supervisory action imposed on the Banks by federal or state regulators; and applicable legal requirements that the Company serve as a source of strength to the Banks; (viii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank cash flow projections for 2010 showing planned sources and uses of cash for debt service, operating expenses, and other purposes, and will submit similar cash flow projections for each subsequent calendar year at least one month prior to the beginning of such year; (ix) the Company will comply with applicable legal  notice provisions in advance of appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer such that the officer would assume a different senior executive officer position, and comply with restrictions on indemnification and severance payments imposed by the Federal Deposit Insurance Act; and (x) the Company’s board of directors will, within 30 days after the end of each quarter, submit progress reports to the Reserve Bank detailing the form and manner of all actions taken to secure compliance with the Agreement and the results thereof, together with a parent company-level balance sheet, income statement, and, as applicable, report of changes in shareholders’ equity.

The Federal Reserve Agreement will remain in effect and enforceable until stayed, modified, terminated or suspended by the Reserve Bank. Royal Bancshares has submitted all progress reports and responses required under the Federal Reserve Agreement as of the date of this Report.

Our success as a Company is dependent upon pursuing various alternatives in not only achieving the growth and expansion of our banking franchise but also in managing our day to day operations. The existence of the MOU and the Federal Reserve Agreement may limit or impact our ability to pursue all previously available alternatives in the management of the Company. Our ability to retain existing retail and commercial customers as well as the ability to attract potentially new customers may be impacted by the existence of the MOU and the Federal Reserve Agreement. Additionally, our ability to expand into potentially attractive commercial real estate or construction loans at this time is limited. The Company’s ability to raise capital in the current economic environment could be potentially limited or impacted as a result of the MOU and the Federal Reserve Agreement. Attracting new management talent is critical to the success of our business and could be potentially impacted due to the existence of the MOU and the Federal Reserve Agreement.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information presented in the Liquidity and Interest Rate Sensitivity section of the Management’s Discussion and Analysis of Financial Condition and Results Operations of this Report is incorporated herein by reference.

ITEM 4 – CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms. As of the end of the period covered by this report, the Company evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based on that evaluation our CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at March 31, 2013.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the first quarter of 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There are inherent limitations to the effectiveness of any controls system. A controls system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Further, the design of a control system must reflect the fact that there are limits on resources, and the benefits of controls must be considered relative to their costs and their impact on the business model. We intend to continue to improve and refine our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Royal Bank holds a 60% equity interest in each of CSC and RTL.  The Company acquired its ownership interest in CSC in 2001.   CSC and RTL acquired, through public auction, delinquent tax liens in various jurisdictions thereby assuming a superior lien position to most other lien holders, including mortgage lien holders.   On March 4, 2009, each of CSC and RTL received grand jury subpoenas issued by the U.S. District Court for New Jersey (“Court”) upon application of the Antitrust Division of the United States DOJ.  The subpoenas sought certain documents and information relating to an ongoing investigation being conducted by the DOJ relating to alleged bid-rigging at tax lien auctions in New Jersey.  Royal Bank, CSC and RTL have produced to the DOJ documents responsive to the subpoenas and have been cooperating with the DOJ throughout the investigation.  On February 23, 2012, the former President of CSC and RTL entered a plea of guilty to one count of conspiring to rig bids at certain auctions for tax liens in New Jersey from 1998 until approximately the spring of 2009.  The former President’s employment with CSC and RTL was terminated in November 2010.  As previously disclosed, Royal Bank had been advised that neither CSC nor RTL were targets of the DOJ investigation, but they were subjects of the investigation.  Based on discussions with the DOJ and the plea entered by the former President of CSC and RTL, the Company believed that the outcome of the investigation would result in fines and penalties being assessed against CSC, RTL or both.  As a result, the Company accrued $2.0 million during 2012 for a DOJ fine relating to the DOJ investigation.  After adjusting for the noncontrolling interest, the Company’s 60% share of the fine amounted to $1.2 million.  On September 26, 2012, as a result of the former President’s guilty plea and pursuant to a plea agreement with the DOJ, CSC entered a guilty plea in the United States District Court for the District of New Jersey to one count of conspiracy to commit bid-rigging at certain auctions for tax liens in New Jersey.  Under the terms of the plea agreement, which the Court accepted at the September 26, 2012 plea hearing, the DOJ agreed not to bring further criminal charges against CSC and not to bring criminal charges against RTL, or any current or former director, officer, or employee of CSC and/or RTL, for any act or offense committed prior to the date of the plea agreement that was in furtherance of any agreement to rig bids at municipal tax lien sales or auctions in the State of New Jersey. The former President of CSC and RTL and any person who bid at any time at a tax lien auction on behalf of CSC and/or RTL are excluded from this non-prosecution protection.  At the sentencing hearing held in December 2012, the sentencing judge agreed with the DOJ’s recommendation and imposed a $2.0 million fine for CSC, which, as stated above, had been previously recognized in the Company’s consolidated financial statements.  The Company is evaluating appropriate legal action against the former President of CSC and RTL to attempt to recover legal expenses and any fines or penalties ultimately levied against CSC.

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On March 13, 2012, March 30, 2012, April 20, 2012, May 2, 2012, May 11, 2012, May 18, 2012, June 18, 2012 and June 29, 2012, the former President of CSC and RTL, CSC, RTL and the Company were named defendants, among others, in putative class action lawsuits filed in the U.S. District Court for the District of New Jersey (“Court”) on behalf of a proposed class of taxpayers who became delinquent in paying their municipal tax obligations: Boyer v. Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., Superior Court of New Jersey, Chancery Division (“the Boyer Action”), Contarino v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; MSC LLC v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; English v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Ledford v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; T&B Associates v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Jacobs et al v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey; Senatore Builders, LLC  v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., U.S. District Court for the District of New Jersey, respectively alleging a conspiracy to rig bids in municipal tax lien auctions.   On June 12, 2012, the Court entered an Order consolidating for pretrial purposes the above actions with all subsequently filed or transferred related actions, collectively referred to as In re New Jersey Tax Sale Certificates Antitrust Litigation.  On October 22, 2012, the Court appointed two law firms as interim class counsel and another law firm as liaison class counsel and further ordered appointed counsel to file a master complaint for the consolidated action.  .  On December 21, 2012, plaintiffs filed a Consolidated Master Class Action Complaint (the “Complaint”) against numerous defendants, including the former President of CSC and RTL, Royal Bancshares of Pennsylvania, Inc., Royal Bank America, CSC and RTL.  The Company filed a motion to dismiss the Complaint on March 8, 2013, which is currently pending before the Court.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from these class action lawsuits.

On or about March 15, 2012, CSC, RTL and the Company were named defendants, among others, in a complaint filed by Marina Bay Towers Urban Renewal II, LP (“MBT”) in the Superior Court of New Jersey, Law Division, Cape May County.  The complaint alleges essentially the same claims as asserted in the Boyer Action.  However MBT does not seek to represent a class and only seeks remedies related to itself.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

In 2005, the Company purchased $25.0 million in Class B-1 Notes of a collateralized debt obligation (“CDO”) offered by Lehman Brothers, Inc.  Concurrently with the issuance of the notes, the issuer entered into a credit swap with LBSF.  Lehman Brothers Holdings, Inc. (“LBHI”) guaranteed LBSF’s obligations to the issuer under the credit swap. When LBHI filed for bankruptcy in September 2008, an event of default under the indenture occurred, and the trustee declared the notes to be immediately due and payable.  The Company was repaid its principal on the notes in September 2008.  In September 2010, LBSF filed suit in the United States Bankruptcy court for the Southern District of New York against certain indenture trustees, certain special-purpose entities (issuers) and a class of noteholders and trust certificate holders who received distributions from the trustees, to recover funds that were allegedly improperly paid to the noteholders in forty-seven separate CDO transactions.  In July 2012, LBSF added the Company as a defendant in the proceeding. As of the date of this filing, the Company cannot determine whether this proceeding will have a material adverse effect on its results of operations and cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

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Item 1A. Risk Factors.

There have been no material changes from risk factors as previously disclosed in our Form 10-K for the year ended December 31, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None

Item 6. Exhibits.

(a)
	3.1	Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3(i) of the Company’s report on Form 10-K filed with the Commission on March 30, 2009.)
	3.2	Bylaws of the Company (Incorporated by reference to Exhibit 3(ii) to the Company’s report on Form 10-K filed with the Commission on March 30, 2009.)
	31.1	Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by F. Kevin Tylus, Principal Executive Officer of Royal Bancshares of Pennsylvania on May 14, 2013.
	31.2	Section 302 Certification Pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 signed by Michael S. Thompson, Principal Financial Officer of Royal Bancshares of Pennsylvania on May 14, 2013.
	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 F. Kevin Tylus, Principal Executive Officer of Royal Bancshares of Pennsylvania on May 14, 2013.
	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 Michael S. Thompson, Principal Financial Officer of  Royal Bancshares of Pennsylvania on May 14, 2013.
	101	Interactive Data File

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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: May 14, 2013

/s/ Michael S. Thompson

Michael S. Thompson

Principal Financial and Accounting Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, F. Kevin Tylus, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania, Inc.;

2. Based on my knowledge, this 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 consolidated 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-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) Designed such internal control over financial reporting, or caused such internal  control over financial reporting to be designed under our supervision, to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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: May 14, 2013

/s/ F. Kevin Tylus

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael S. Thompson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Royal Bancshares of Pennsylvania, Inc.;

2. Based on my knowledge, this 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 consolidated 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-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) Designed such internal control over financial reporting, or caused such internal  control over financial reporting to be designed under our supervision, to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(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 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: May 14, 2013

/s/ Michael S. Thompson

Principal Financial and Accounting Officer

EX-32.1

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 this Quarterly Report of Royal Bancshares of Pennsylvania, Inc (“Royal”) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, F. Kevin Tylus, Principal 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) as applicable of the Securities Exchange Act of 1934, as amended; 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.

The foregoing certification is being furnish solely pursuant to 18 U.S. C. Section 1350 and is not being filed as part of this Report or as a separate disclosure document.

/s/ F. Kevin Tylus

F. Kevin Tylus

Principal Executive Officer

May 14, 2013

EX-32.2

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 this Quarterly Report of Royal Bancshares of Pennsylvania, Inc (“Royal”) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael S. Thompson, Principal Financial and Accounting 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) as applicable of the Securities Exchange Act of 1934, as amended; 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.

The foregoing certification is being furnish solely pursuant to 18 U.S. C. Section 1350 and is not being filed as part of this Report or as a separate disclosure document.

/s/ Michael S. Thompson

Michael S. Thompson

Principal Financial and Accounting Officer

May 14, 2013

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Summary of Significant Accounting Policies (Details) (Crusader Servicing Corporation [Member])	Mar. 31, 2013
Crusader Servicing Corporation [Member]
Noncontrolling Interest [Line Items]
Percentage of ownership interest in subsidiary (in hundredths)	60.00%

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Pension Plan (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Pension Plan [Abstract]
Highest consecutive years of employee compensation used to compute benefit	3 years
Years of employment used in benefit computation	10 years
Net Pension Cost [Abstract]
Service cost	$ 19,000	$ 68,000
Interest cost	133,000	152,000
Amortization of prior service cost	22,000	22,000
Amortization of net actuarial loss	122,000	96,000
Net periodic benefit cost	296,000	338,000
Unfunded pension plan obligations	$ 16,800,000		$ 16,900,000

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Other Real Estate Owned (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Other Real Estate Owned [Abstract]
Other real estate owned decrease	$ 171,000
Foreclosed Property [Roll Forward]
Beginning balance	13,435,000
Net proceeds from sales	(2,277,000)	(4,531,000)
Net (loss) gain on sales	162,000	(138,000)
Assets acquired on loans	1,956,000	8,010,000
Impairment charge	(12,000)	(53,000)
Ending balance	13,264,000
Other real estate owned (OREO)	13,264,000
Land [Member]
Foreclosed Property [Roll Forward]
Ending balance	5,300,000
Other real estate owned (OREO)	5,300,000
Proceeds from sale of collateral related to loans or other real estate owned	1,800,000
Gain (loss) on sale of OREO	38,000
Commercial Real Estate [Member]
Foreclosed Property [Roll Forward]
Ending balance	3,700,000
Other real estate owned (OREO)	3,700,000
Proceeds from sale of collateral related to loans or other real estate owned	24,000
Gain (loss) on sale of OREO	17,000
Single family homes [Member]
Foreclosed Property [Roll Forward]
Ending balance	588,000
Other real estate owned (OREO)	588,000
Proceeds from sale of collateral related to loans or other real estate owned	43,000
Gain (loss) on sale of OREO	3,000
Number of loans that the collateral was sold	4
Number of lending relationships	2
Tax Lien [Member]
Foreclosed Property [Roll Forward]
Ending balance	3,700,000
Other real estate owned (OREO)	3,700,000
Foreclosed Collateral On Residential Loans [Member]
Foreclosed Property [Roll Forward]
Transfer to other real estate owned	100,000
Foreclosed Collateral On Tax Liens [Member]
Foreclosed Property [Roll Forward]
Proceeds from sale of collateral related to loans or other real estate owned	367,000
Gain (loss) on sale of OREO	180,000
Impairment charge for other real estate owned	12,000
Transfer to other real estate owned	$ 1,900,000
Number of loans that the collateral was sold	11

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Loss Per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 Class	Mar. 31, 2012
Loss Per Common Share [Abstract]
Number of classes of common stock outstanding	2
Basic and Diluted EPS [Abstract]
Loss available to common shareholders	$ (397)	$ (1,375)
Average shares (in shares)	13,257	13,257
Per share amount (in dollars per share)	$ (0.03)	$ (0.1)
Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of antidilutive common share (in shares)	248,132	520,979
Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of antidilutive common share (in shares)		30,407
Common Class A [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of converted share (in shares)	1.15
Common Class B [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Number of converted share (in shares)	1.15

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Allowance for Loan and Lease Losses - Changes in Allowance for Loan and Lease Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	$ 17,261	$ 16,380
Charge-offs	(1,985)	(153)
Recoveries	364	143
Provision	(251)	84
Ending balance	15,389	16,454
Ending balance: related to loans individually evaluated for impairment	155	175
Ending balance: related to loans collectively evaluated for impairment	15,234	16,279
LHFI [Abstract]
Ending balance	358,055	400,675	344,682
Ending balance: individually evaluated for impairment	22,753	36,870
Ending balance: collectively evaluated for impairment	335,302	363,805
Commercial Real Estate [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	8,750	7,744
Charge-offs	(835)	0
Recoveries	104	3
Provision	84	149
Ending balance	8,103	7,896
Ending balance: related to loans individually evaluated for impairment	0	0
Ending balance: related to loans collectively evaluated for impairment	8,103	7,896
LHFI [Abstract]
Ending balance	175,397	180,123
Ending balance: individually evaluated for impairment	8,484	12,846
Ending balance: collectively evaluated for impairment	166,913	167,277
Construction and Land Development [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	2,987	2,523
Charge-offs	(820)	0
Recoveries	95	104
Provision	(184)	(178)
Ending balance	2,078	2,449
Ending balance: related to loans individually evaluated for impairment	0	0
Ending balance: related to loans collectively evaluated for impairment	2,078	2,449
LHFI [Abstract]
Ending balance	34,533	49,399
Ending balance: individually evaluated for impairment	4,466	13,728
Ending balance: collectively evaluated for impairment	30,067	35,671
Commercial and Industrial [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	1,924	2,331
Charge-offs	(173)	0
Recoveries	4	2
Provision	958	21
Ending balance	2,713	2,354
Ending balance: related to loans individually evaluated for impairment	45	47
Ending balance: related to loans collectively evaluated for impairment	2,668	2,307
LHFI [Abstract]
Ending balance	67,512	52,794
Ending balance: individually evaluated for impairment	8,750	6,173
Ending balance: collectively evaluated for impairment	58,762	46,621
Multi Family [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	654	531
Charge-offs	0	0
Recoveries	0	0
Provision	4	84
Ending balance	658	615
Ending balance: related to loans individually evaluated for impairment	0	0
Ending balance: related to loans collectively evaluated for impairment	658	615
LHFI [Abstract]
Ending balance	11,830	13,735
Ending balance: individually evaluated for impairment	0	1,688
Ending balance: collectively evaluated for impairment	11,830	12,047
Residential Real Estate [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	1,098	1,188
Charge-offs	0	0
Recoveries	151	1
Provision	(1,081)	5
Ending balance	168	1,194
Ending balance: related to loans individually evaluated for impairment	13	20
Ending balance: related to loans collectively evaluated for impairment	155	1,174
LHFI [Abstract]
Ending balance	6,697	27,155
Ending balance: individually evaluated for impairment	431	1,334
Ending balance: collectively evaluated for impairment	6,266	25,821
Leases [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	1,108	1,311
Charge-offs	(147)	(133)
Recoveries	0	8
Provision	100	109
Ending balance	1,061	1,295
Ending balance: related to loans individually evaluated for impairment	70	53
Ending balance: related to loans collectively evaluated for impairment	991	1,242
LHFI [Abstract]
Ending balance	38,629	37,468
Ending balance: individually evaluated for impairment	71	76
Ending balance: collectively evaluated for impairment	38,558	37,392
Tax Certificates [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	472	425
Charge-offs	(10)	(20)
Recoveries	10	25
Provision	(88)	(24)
Ending balance	384	406
Ending balance: related to loans individually evaluated for impairment	27	55
Ending balance: related to loans collectively evaluated for impairment	357	351
LHFI [Abstract]
Ending balance	22,541	39,056
Ending balance: individually evaluated for impairment	551	1,025
Ending balance: collectively evaluated for impairment	21,990	38,031
Consumer [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	29	20
Charge-offs	0	0
Recoveries	0	0
Provision	(11)	0
Ending balance	18	20
Ending balance: related to loans individually evaluated for impairment	0	0
Ending balance: related to loans collectively evaluated for impairment	18	20
LHFI [Abstract]
Ending balance	916	945
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	916	945
Unallocated [Member]
Allowance for Loan and Leases Losses [Roll Forward]
Beginning balance	239	307
Charge-offs	0	0
Recoveries	0	0
Provision	(33)	(82)
Ending balance	206	225
Ending balance: related to loans individually evaluated for impairment	0	0
Ending balance: related to loans collectively evaluated for impairment	206	225
LHFI [Abstract]
Ending balance	0	0
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	$ 0	$ 0

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Regulatory Capital Requirements (Tables)

3 Months Ended

Mar. 31, 2013

Regulatory Capital Requirements [Abstract]

Royal Bank's capital ratios

The table below sets forth Royal Bank's capital ratios under RAP based on the FDIC's interpretation of the Call Report instructions:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	72,906		15.92	%	$	36,625		8.00	%	$	45,782		10.00	%
Tier I capital (to risk-weighted assets)	$	67,064		14.65	%	$	18,313		4.00	%	$	27,469		6.00	%
Tier I capital (to average assets, leverage)	$	67,064		8.96	%	$	29,954		4.00	%	$	37,443		5.00	%

Adjustments to net loss as well as the capital ratios

The tables below reflect the adjustments to the net loss as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the three
	months ended
(In thousands)	March 31, 2013
RAP net loss	$	(4,251	)
Tax lien adjustment, net of noncontrolling interest		4,454
U.S. GAAP net income	$	203

	At March 31, 2013
	As reported			As adjusted
	under RAP			for U.S. GAAP
Total capital (to risk-weighted assets)		15.92	%		17.28	%
Tier I capital (to risk-weighted assets)		14.65	%		16.01	%
Tier I capital (to average assets, leverage)		8.96	%		9.85	%

Company capital ratios

The tables below reflect the Company's capital ratios:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	89,237		19.00	%	$	37,574		8.00	%		N/A		N/A
Tier I capital (to risk-weighted assets)	$	77,849		16.57	%	$	18,787		4.00	%		N/A		N/A
Tier I capital (to average assets, leverage)	$	77,849		10.21	%	$	30,500		4.00	%		N/A		N/A

Adjustment to Company's capital ratio under RAP

The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C ("FR Y-9C") as of March 31, 2013 consistent with U.S. GAAP and the FR Y-9C instructions.  In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the three
	months ended
(In thousands)	March 31, 2013
U.S. GAAP net income	$	118
Tax lien adjustment, net of noncontrolling interest		(4,454	)
RAP net loss	$	(4,336	)

	At March 31, 2013
	As reported			As adjusted
	under U.S. GAAP			for RAP
Total capital (to risk-weighted assets)		19.00	%		17.68	%
Tier I capital (to risk-weighted assets)		16.57	%		14.70	%
Tier I capital (to average assets, leverage)		10.21	%		9.00	%

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financial assets measured at fair value on recurring basis [Abstract]
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	$ 200,987
Collateralized mortgage obligations Non-agency	904
Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
Total investment securities available-for-sale	47	47
Financial assets measured at fair value on nonrecurring basis [Abstract]
Loans and leases held for sale	0	0
Significant Other Observable Inputs Level 2 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
Total investment securities available-for-sale	316,912	344,992
Financial assets measured at fair value on nonrecurring basis [Abstract]
Loans and leases held for sale	0	0
Significant Unobservable Inputs Level 3 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
Total investment securities available-for-sale	4,225	4,164
Financial assets measured at fair value on nonrecurring basis [Abstract]
Loans and leases held for sale	1,472	1,572
Recurring [Member]
Financial assets measured at fair value on recurring basis [Abstract]
U.S. government agencies	69,373	66,444
Mortgage-backed securities - residential	32,165	30,509
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	200,987	233,976
Collateralized mortgage obligations Non-agency	904	1,011
Corporate bonds	7,889	7,437
Municipal bonds	5,594	5,615
Other securities	4,225	4,164
Common stocks	47	47
Total investment securities available-for-sale	321,184	349,203
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
U.S. government agencies	0	0
Mortgage-backed securities - residential	0	0
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	0	0
Collateralized mortgage obligations Non-agency	0	0
Corporate bonds	0	0
Municipal bonds	0	0
Other securities	0	0
Common stocks	47	47
Total investment securities available-for-sale	47	47
Recurring [Member] | Significant Other Observable Inputs Level 2 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
U.S. government agencies	69,373	66,444
Mortgage-backed securities - residential	32,165	30,509
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	200,987	233,976
Collateralized mortgage obligations Non-agency	904	1,011
Corporate bonds	7,889	7,437
Municipal bonds	5,594	5,615
Other securities	0	0
Common stocks	0	0
Total investment securities available-for-sale	316,912	344,992
Recurring [Member] | Significant Unobservable Inputs Level 3 [Member]
Financial assets measured at fair value on recurring basis [Abstract]
U.S. government agencies	0	0
Mortgage-backed securities - residential	0	0
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	0	0
Collateralized mortgage obligations Non-agency	0	0
Corporate bonds	0	0
Municipal bonds	0	0
Other securities	4,225	4,164
Common stocks	0	0
Total investment securities available-for-sale	4,225	4,164
Nonrecurring [Member]
Financial assets measured at fair value on nonrecurring basis [Abstract]
Impaired loans and leases	4,896	9,180
Other real estate owned	3,727	7,632
Loans and leases held for sale	1,472	1,572
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Financial assets measured at fair value on nonrecurring basis [Abstract]
Impaired loans and leases	0	0
Other real estate owned	0	0
Loans and leases held for sale	0	0
Nonrecurring [Member] | Significant Other Observable Inputs Level 2 [Member]
Financial assets measured at fair value on nonrecurring basis [Abstract]
Impaired loans and leases	0	0
Other real estate owned	0	0
Loans and leases held for sale	0	0
Nonrecurring [Member] | Significant Unobservable Inputs Level 3 [Member]
Financial assets measured at fair value on nonrecurring basis [Abstract]
Impaired loans and leases	4,896	9,180
Other real estate owned	3,727	7,632
Loans and leases held for sale	$ 1,472	$ 1,572

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting Policies [Abstract]

Basis of Financial Presentation

Basis of Financial Presentation

The accompanying unaudited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. ("Royal Bancshares" or the "Company") and its wholly-owned subsidiaries, Royal Investments of Delaware, Inc., including Royal Investments of Delaware, Inc.'s wholly owned subsidiary, Royal Preferred, LLC, and Royal Bank America ("Royal Bank"), including Royal Bank's subsidiaries, Royal Real Estate of Pennsylvania, Inc., Royal Investments America, LLC, RBA Property LLC, Narberth Property Acquisition LLC, Rio Marina LLC, and its three 60% ownership interests in Crusader Servicing Corporation, Royal Tax Lien Services, LLC, and Royal Bank America Leasing, LP.  The two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II are not consolidated per requirements under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, "Consolidation" ("ASC Topic 810"). These consolidated financial statements reflect the historical information of the Company.  All significant intercompany transactions and balances have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Applications of the principles in the Company's preparation of the consolidated financial statements in conformity with U.S. GAAP require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes.  These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates. The interim financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods.  These interim consolidated 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, 2012.  The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Reclassifications

Certain items in the 2012 consolidated financial statements and accompanying notes have been reclassified to conform to the current year's presentation format.  There was no effect on net loss for the periods presented herein as a result of reclassification.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Update ("ASU") 2011-11, "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11") which amends ASC Topic 210 "Balance Sheet". Because of the significant differences in requirements under U.S. GAAP and IFRS, FASB and the International Accounting Standards Board ("IASB") are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a significant impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02") to improve the reporting of reclassifications out of accumulated comprehensive income.  ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a significant impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04).  ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements.  ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:

a. The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors

b. Any additional amount the reporting entity expects to pay on behalf of its co-obligors.

ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  For public companies ASU 2013-04 is effective for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-04 is not expected to have a significant impact on the Company's consolidated financial statements.

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Borrowings and Subordinated Debentures (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Advances from Federal Home Loan Banks [Abstract]
Percentage of over collateralized delivery requirement with federal home loan bank (in hundredths)	105.00%
Line of credit with federal home loan bank, amount	$ 150,000,000
Federal Home Loan Bank, advances, general debt obligations, disclosures, collateral pledged	58,900,000
Federal Home Loan Bank, advances, general debt obligations, disclosures, collateral pledged book value	47,300,000
Amount [Abstract]
Advances maturing in 2013	50,000,000	50,000,000
Advances maturing in 2017	15,000,000	15,000,000
Total FHLB borrowings	65,000,000	65,000,000
Rate [Abstract]
Advances maturing in 2013 (in hundredths)	2.64%	2.64%
Advances maturing in 2017 (in hundredths)	1.39%	1.39%
Subordinated Debentures [Line Items]
Number of Delaware trust affiliates	2
Interest payable in arrears	2,600,000
Trust Preferred Securities [Member]
Subordinated Debentures [Line Items]
Aggregate principal amount	25,000,000
Description of variable rate basis	3-month LIBOR
Interest payable in arrears	2,600,000
Trust Preferred Securities [Member] | Trust I [Member]
Other borrowings [Abstract]
Basis spread on variable rate (in hundredths)	2.15%
Subordinated Debentures [Line Items]
Aggregate principal amount	12,500,000
Junior subordinated debenture owed to unconsolidated subsidiary trust	12,900,000
Debt securities interest rate (in hundredths)	2.43%
Basis spread on variable rate (in hundredths)	2.15%
Trust Preferred Securities [Member] | Trust II [Member]
Other borrowings [Abstract]
Basis spread on variable rate (in hundredths)	2.15%
Subordinated Debentures [Line Items]
Aggregate principal amount	12,500,000
Junior subordinated debenture owed to unconsolidated subsidiary trust	12,900,000
Debt securities interest rate (in hundredths)	2.43%
Basis spread on variable rate (in hundredths)	2.15%
Common Securities [Member]
Subordinated Debentures [Line Items]
Aggregate principal amount	387,000
PNC Bank [Member]
Other borrowings [Abstract]
Description of variable rate basis	one month LIBOR
Notes payable [Member] | PNC Bank [Member]
Other borrowings [Abstract]
Notes payable with PNC Bank	3,200,000	3,300,000
Maturity date	Aug. 25, 2016
Basis spread on variable rate (in hundredths)	0.15%
Interest rate on notes payable (in hundredths)	0.35%
Subordinated Debentures [Line Items]
Basis spread on variable rate (in hundredths)	0.15%
Other Borrowings [Member] | PNC Bank [Member]
Other borrowings [Abstract]
Maturity date	Jan. 07, 2018
Other borrowings	$ 40,000,000	$ 40,000,000
Weighted average interest rate (in hundredths)	3.65%	3.65%

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Loans and Leases - Major classifications of LHFI (Details) (USD $)	3 Months Ended
	Mar. 31, 2013		Dec. 31, 2012		Mar. 31, 2012
Major classifications of loans held for investment [Abstract]
Total gross loans	$ 358,055,000		$ 344,682,000		$ 400,675,000
Less: Deferred loan fees	0	[1]	(517,000)	[1]
Total LHFI, net of unearned income	358,055,000		344,165,000
Loans and leases ("LHFS")	1,472,000		1,572,000
Additional impairment	100,000
Commercial Real Estate [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	175,397,000		167,115,000
Construction and Land Development [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	34,533,000		37,215,000
Total LHFI, net of unearned income	34,533,000
Commercial and Industrial [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	67,512,000		40,560,000
Multi Family [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	11,830,000		11,756,000
Total LHFI, net of unearned income	11,830,000
Residential Real Estate [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	6,697,000		24,981,000
Leases [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	38,629,000		37,347,000
Total LHFI, net of unearned income	38,629,000
Tax Certificates [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	22,541,000		24,569,000
Total LHFI, net of unearned income	22,541,000
Consumer [Member]
Major classifications of loans held for investment [Abstract]
Total gross loans	916,000		1,139,000
Total LHFI, net of unearned income	$ 916,000

[1] For the 2013 period net deferred fees were allocated among the loan types.

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments [Abstract]

Schedule of Financial Assets Measured at Fair Value on Recurring Basis

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of March 31, 2013	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	69,373	$	-	$	69,373
Mortgage-backed  securities-residential		-		32,165		-		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		200,987		-		200,987
Non-agency		-		904		-		904
Corporate bonds		-		7,889		-		7,889
Municipal bonds		-		5,594		-		5,594
Other securities		-		-		4,225		4,225
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	316,912	$	4,225	$	321,184

	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of December 31, 2012	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	66,444	$	-	$	66,444
Mortgage-backed  securities-residential		-		30,509		-		30,509
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		233,976		-		233,976
Non-agency		-		1,011		-		1,011
Corporate bonds		-		7,437		-		7,437
Municipal bonds		-		5,615		-		5,615
Other securities		-		-		4,164		4,164
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	344,992	$	4,164	$	349,203

Additional Information About Assets Measured at Fair Value on a Recurring Basis, Level 3 Inputs

The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value for the three months ended March 31, 2013 and 2012:

(In thousands)
Investment Securities Available for Sale	Other securities
Beginning balance January 1, 2013	$	4,164
Total gains/(losses) - (realized/unrealized):
Included in earnings		5
Included in other comprehensive income		140
Purchases		-
Sales and calls		(84	)
Transfers in and/or out of Level 3		-
Ending balance March 31, 2013	$	4,225

(In thousands)	Trust preferred			Other
Investment Securities Available for Sale	securities			securities			Total
Beginning balance January 1, 2012	$	12,603		$	6,918		$	19,521
Total gains/(losses) - (realized/unrealized):
Included in earnings		-			32			32
Included in other comprehensive income		(18	)		102			84
Purchases		-			334			334
Sales and calls		-			(133	)		(133	)
Amortization of premium		(7	)		-			(7	)
Transfers in and/or out of Level 3		-			-			-
Ending balance March 31, 2012	$	12,578		$	7,253		$	19,831

Financial Assets Measured at Fair Value on Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

Balances as of March 31, 2013	Fair Value Measurements Using:
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	4,896	$	4,896
Other real estate owned		-		-		3,727		3,727
Loans and leases held for sale		-		-		1,472		1,472

Balances as of December 31, 2012	Fair Value Measurements Using:
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	9,180	$	9,180
Other real estate owned		-		-		7,632		7,632
Loans and leases held for sale		-		-		1,572		1,572

Schedule of quantitative information about assets measured at fair value on nonrecurring basis

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Qualitative Information about Level 3 Fair Value Measurements
Balances as of March 31, 2013			Valuation	Unobservable	Range (Weighted
(In thousands)	Fair Value		Techniques	Input	Average)
Impaired loans and leases	$	4,896	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -69.9% (-22.0%)
				Liquidation  expenses	0.0% to -21.6% (-7.0%)
			Salvageable value of collateral (2)			0.0	%
Other real estate owned		3,727	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -81.1% (-4.3%)
			Sales prices
Loans and leases held for sale		1,572	Sales prices	Appraisal adjustments		-5.6	%
				Liquidation  expenses		-12.7	%

(1)   Appraisals may be adjusted for qualitative factors such as interior condition of the property and liquidation expenses.

(2)   Leases are measured using the salvageable value of the collateral.

Fair Value by Balance Sheet Grouping Instruments

The tables below state the fair value of the Company's financial instruments at March 31, 2013 and December 31, 2012.

					Fair Value Measurements
					At March 31, 2013
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	21,253	$	21,253	$	21,253	$	-	$	-
Investment securities available-for-sale		321,184		321,184		47		316,912		4,225
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		5,127		5,127		-		-		5,127
Loans held for sale		1,472		1,472		-		-		1,472
Loans, net		342,666		344,298		-		-		344,298
Accrued interest receivable		9,723		9,723		-		9,723		-
Financial Liabilities:
Demand deposits		58,239		58,239		-		58,239		-
NOW and money markets		217,385		217,385		-		217,385		-
Savings		17,673		17,673		-		17,673		-
Time deposits		238,073		234,873		-		234,873		-
Long-term borrowings		108,221		103,611		-		103,611		-
Subordinated debt		25,774		24,111		-		24,111		-
Accrued interest payable		4,411		4,411		-		4,411		-

					Fair Value Measurements
					At December 31, 2012
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	28,802	$	28,802	$	28,802	$	-	$	-
Investment securities available-for-sale		349,203		349,203		47		344,992		4,164
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		6,011		6,011		-		-		6,011
Loans held for sale		1,572		1,572		-		-		1,572
Loans, net		326,904		330,260		-		-		330,260
Accrued interest receivable		10,256		10,256		-		10,256		-
Financial Liabilities:
Demand deposits		58,531		58,531		-		58,531		-
NOW and money markets		223,279		223,279		-		223,279		-
Savings		17,472		17,472		-		17,472		-
Time deposits		255,635		251,532		-		251,532		-
Long-term borrowings		108,333		102,824		-		102,824		-
Subordinated debt		25,774		23,837		-		23,837		-
Accrued interest payable		3,760		3,760		-		3,760		-

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Shareholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Series A Preferred Stock [Member]	Mar. 31, 2013 Common Class A [Member]	Mar. 31, 2013 Common Class B [Member]
Preferred Stock [Abstract]
Preferred stock, shares issued (in shares)	30,407	30,407
Preferred stock, liquidation value (in dollars per share)	$ 1,000	$ 1,000
Number of shares to be purchased by warrant (in shares)				1,104,370
Aggregate purchase price			$ 30.4
Preferred stock cumulative dividend rate percentage for first five years (in hundredths)			5.00%
Preferred stock cumulative dividend rate percentage for thereafter five years (in hundredths)			9.00%
Number of years for warrant issued to treasury			10 years
Warrants, exercise price (in dollars per share)			$ 4.13
Common Stock [Abstract]
Rate class B shares may be converted to class A shares				1.15 to 1	1.15 to 1
Number of vote for class of shares held				1	10
Payments of Dividends [Abstract]
Value on which quarterly dividend is suspended			30.4
Preferred stock dividend in arrears			$ 6.3

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Selected Segment Information and Reconciliations to Consolidated Financial Information [Abstract]
Total assets	$ 751,378	$ 836,731	$ 773,716
Total deposits	531,370	576,166	554,917
Interest income	6,752	8,806
Interest expense	1,980	2,813
Net Interest Income	4,772	5,993
Provision (credit) for loan and lease losses	(251)	84
Total other income	1,408	661
Total other expenses	6,140	8,067
Income tax expense (benefit)	0	0
Net Income (Loss)	291	(1,497)
Noncontrolling interest	173	(628)
Net income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	118	(869)
Community Banking [Member]
Selected Segment Information and Reconciliations to Consolidated Financial Information [Abstract]
Total assets	715,157	779,212
Total deposits	531,370	576,166
Interest income	5,949	7,217
Interest expense	1,551	1,901
Net Interest Income	4,398	5,316
Provision (credit) for loan and lease losses	(310)	109
Total other income	1,162	789
Total other expenses	5,611	5,772
Income tax expense (benefit)	0	51
Net Income (Loss)	259	173
Noncontrolling interest	160	40
Net income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	99	133
Tax Lien Operation [Member]
Selected Segment Information and Reconciliations to Consolidated Financial Information [Abstract]
Total assets	36,221	57,519
Total deposits	0	0
Interest income	803	1,589
Interest expense	429	912
Net Interest Income	374	677
Provision (credit) for loan and lease losses	59	(25)
Total other income	246	(128)
Total other expenses	529	2,295
Income tax expense (benefit)	0	(51)
Net Income (Loss)	32	(1,670)
Noncontrolling interest	13	(668)
Net income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	19	(1,002)
Tax Lien Operation Interest [Member]
Selected Segment Information and Reconciliations to Consolidated Financial Information [Abstract]
Interest income	$ 429,000	$ 912,000

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Allowance for Loan and Lease Losses - Loans that were Evaluated for Impairment by Loan Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Unpaid principal balance [Abstract]
With no related allowance recorded	$ 29,867	$ 25,029
With an allowance recorded	7,560	25,075
Recorded investment [Abstract]
With no related allowance recorded	19,349	19,423
With an allowance recorded	3,404	9,405
Related allowance
Related allowance	155	2,026
Average recorded investment [Abstract]
With no related allowance recorded	20,503	28,620
With an allowance recorded	6,485	4,602
Interest income recognized [Abstract]
With no related allowance recorded	27	359
With an allowance recorded	134	7
Commercial Real Estate [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded	10,858	10,417
With an allowance recorded	0	4,136
Recorded investment [Abstract]
With no related allowance recorded	8,484	8,623
With an allowance recorded	0	2,335
Related allowance
Related allowance	0	835
Average recorded investment [Abstract]
With no related allowance recorded	8,961	11,163
With an allowance recorded	1,167	1,526
Interest income recognized [Abstract]
With no related allowance recorded	0	78
With an allowance recorded	18	0
Construction and Land Development [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded	11,550	6,250
With an allowance recorded	0	6,180
Recorded investment [Abstract]
With no related allowance recorded	4,466	3,464
With an allowance recorded	0	2,479
Related allowance
Related allowance	0	820
Average recorded investment [Abstract]
With no related allowance recorded	3,957	10,059
With an allowance recorded	1,239	923
Interest income recognized [Abstract]
With no related allowance recorded	0	187
With an allowance recorded	14	0
Commercial and Industrial [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded	7,459	7,790
With an allowance recorded	2,554	9,585
Recorded investment [Abstract]
With no related allowance recorded	6,399	6,820
With an allowance recorded	2,351	3,431
Related allowance
Related allowance	45	255
Average recorded investment [Abstract]
With no related allowance recorded	7,313	5,545
With an allowance recorded	2,979	682
Interest income recognized [Abstract]
With no related allowance recorded	0	73
With an allowance recorded	102	0
Multi Family [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded		0
With an allowance recorded		0
Recorded investment [Abstract]
With no related allowance recorded		0
With an allowance recorded		0
Related allowance
Related allowance		0
Average recorded investment [Abstract]
With no related allowance recorded		780
With an allowance recorded		383
Interest income recognized [Abstract]
With no related allowance recorded		0
With an allowance recorded		0
Residential real estate [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded	0	572
With an allowance recorded	530	685
Recorded investment [Abstract]
With no related allowance recorded	0	516
With an allowance recorded	431	478
Related allowance
Related allowance	13	14
Average recorded investment [Abstract]
With no related allowance recorded	272	490
With an allowance recorded	434	714
Interest income recognized [Abstract]
With no related allowance recorded	27	21
With an allowance recorded	0	7
Leases [Member]
Unpaid principal balance [Abstract]
With an allowance recorded	71	81
Recorded investment [Abstract]
With an allowance recorded	71	81
Related allowance
Related allowance	70	55
Average recorded investment [Abstract]
With an allowance recorded	74	86
Interest income recognized [Abstract]
With an allowance recorded	0	0
Tax Certificates [Member]
Unpaid principal balance [Abstract]
With no related allowance recorded		0
With an allowance recorded	4,405	4,408
Recorded investment [Abstract]
With no related allowance recorded		0
With an allowance recorded	551	601
Related allowance
Related allowance	27	47
Average recorded investment [Abstract]
With no related allowance recorded		583
With an allowance recorded	592	288
Interest income recognized [Abstract]
With no related allowance recorded		0
With an allowance recorded	$ 0	$ 0

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Regulatory Matters and Significant Risks or Uncertainties

3 Months Ended

Mar. 31, 2013

Regulatory Matters and Significant Risks or Uncertainties [Abstract]

Regulatory Matters and Significant Risks or Uncertainties

Note 2.      Regulatory Matters and Significant Risks or Uncertainties

FDIC and Department of Banking Orders

On July 15, 2009, Royal Bank agreed to enter into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the "Orders") with each of the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department of Banking (the "Department"). The material terms of the Orders were identical and required Royal Bank among other items to maintain, after establishing an adequate allowance for loan and lease losses, a ratio of Tier 1 capital to total assets ("leverage ratio") equal to or greater than 8% and a ratio of qualifying total capital to risk-weighted assets ("total risk-based capital ratio") equal to or greater than 12%. The FDIC and the Department replaced the Orders in the fourth quarter of 2011 with an informal agreement, known as a memorandum of understanding ("MOU"). Included in the MOU is the continued requirement of maintaining a leverage ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%.  At March 31, 2013, based on capital levels calculated under regulatory accounting principles ("RAP"), Royal Bank's Tier 1 leverage and total risk-based capital ratios were 8.96% and 15.92%, respectively.  Please refer to "Note 11 – Regulatory Capital Requirements" to the Consolidated Financial Statements.

Following the issuance of the Orders, management implemented plans to address key areas that were noted in the Orders.  Management has reduced classified assets, delinquencies, commercial real estate concentrations, reliance on non-core deposits and wholesale funding sources and maintained capital ratios above required minimums which were all factors that contributed to replacing the Orders with the MOU.  Management has continued to improve in each of these areas since the Orders were replaced with the MOU.

Federal Reserve Agreement

On March 17, 2010, the Company agreed to enter into the Federal Reserve Agreement with the Reserve Bank. The material terms of the Federal Reserve Agreement provide that: (i) the Company's board of directors will take appropriate steps to fully utilize the Company's financial and managerial resources to serve as a source of strength to its subsidiary banks; (ii) the Company's board of directors will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank a written plan to strengthen board oversight of the management and operations of the consolidated operation; (iii) the Company will not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (iv) the Company and its non-bank subsidiaries will not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System; (v) the Company and its nonbank subsidiaries will not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank; (vi) the Company will not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank; (vii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank an acceptable written capital plan to maintain sufficient capital at the Company on a consolidated basis, which plan will at a minimum address: regulatory requirements for the Company and the Banks, the adequacy of the Banks' capital taking into account the volume of classified credits, the allowance for loan and lease losses, current and projected asset growth, and projected retained earnings; the source and timing of additional funds necessary to fulfill the consolidated organization's and the Banks' future capital requirements; supervisory requests for additional capital at the Banks or the requirements of any supervisory action imposed on the Banks by federal or state regulators; and applicable legal requirements that the Company serve as a source of strength to the Banks; (viii) the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve Bank cash flow projections for 2010 showing planned sources and uses of cash for debt service, operating expenses, and other purposes, and will submit similar cash flow projections for each subsequent calendar year at least one month prior to the beginning of such year; (ix) the Company will comply with applicable legal notice provisions in advance of appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer such that the officer would assume a different senior executive officer position, and comply with restrictions on indemnification and severance payments imposed by the Federal Deposit Insurance Act; and (x) the Company's board of directors will, within 45 days after the end of each quarter, submit progress reports to the Reserve Bank detailing the form and manner of all actions taken to secure compliance with the Agreement and the results thereof, together with a parent company-level balance sheet, income statement, and, as applicable, report of changes in shareholders' equity.

The Federal Reserve Agreement will remain in effect and enforceable until stayed, modified, terminated or suspended by the Reserve Bank. Royal Bancshares has submitted all progress reports and responses required under the Federal Reserve Agreement as of the date of this Report.

Our success as a Company is dependent upon pursuing various alternatives in not only achieving the growth and expansion of our banking franchise but also in managing our day to day operations. The existence of the MOU and the Federal Reserve Agreement may limit or impact our ability to pursue all previously available alternatives in the management of the Company. Our ability to retain existing retail and commercial customers as well as the ability to attract potentially new customers may be impacted by the existence of the MOU and the Federal Reserve Agreement. Additionally, our ability to expand into potentially attractive commercial real estate or construction loans at this time is limited. The Company's ability to raise capital in the current economic environment could be potentially limited or impacted as a result of the MOU and the Federal Reserve Agreement. Attracting new management talent is critical to the success of our business and could be potentially impacted due to the existence of the MOU and the Federal Reserve Agreement.

Significant Losses

Over the past five calendar years, the Company has recorded significant losses totaling $119.6 million which were primarily related to charge-offs on the loan and lease portfolio, impairment charges on investment securities, impairment charges on other real estate owned ("OREO"), credit related expenses and the establishment of a deferred tax valuation allowance.  For the first quarter of 2013, the Company recorded net income of $118,000 compared to a net loss of $869,000 for the comparable period in 2012. The quarter over quarter improvement was mainly related to $676,000 in gains on the sales of two premises, a $335,000 decline in provision for loan and lease losses and a decline of a $1.6 million accrual recorded in the first quarter of 2012 for a U.S. Department of Justice ("DOJ") fine related to the tax lien subsidiaries.  After adjusting for the noncontrolling interest, the Company's 60% share of the DOJ fine amounted to $960,000.  Partially offsetting these items was a $1.2 million reduction in net interest income.  In addition to reducing the total shareholders' equity, the continued losses and negative retained earnings impacts the Company's ability to pay cash dividends to its shareholders now and in future years.  The Company's deferred tax valuation allowance amounted to $39.6 million at March 31, 2013.  The deferred tax valuation allowance is a result of management's conclusion that it was more likely than not that the Company would not generate sufficient future taxable income to realize all of the deferred tax assets.

Credit Quality

Adverse economic conditions in our specific market areas and decreases in real estate property values due to the nature of our loan portfolio in particular have affected the ability of customers to repay their loans and generally impact our financial condition and results of operations. The financial services and real estate industries were hit particularly hard during the "Great Recession" and as a result the Company's loan and investment portfolios were directly affected.  The Company's commercial real estate loans, including construction and land development loans, have seen a decline in the collateral values, and a reduction in the borrowers' ability to meet the payment terms of their loans due to reduced cash flow.  Further declines in collateral values and borrowers' liquidity with sustained unemployment at current levels may lead to additional increases in foreclosures, delinquencies and customer bankruptcies.  The Company is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of more diverse economies.

The Company had non-performing loans of $17.6 million and $23.0 million at March 31, 2013 and December 31, 2012, respectively.  The Company recorded $2.0 million in charge-offs for the first quarter of 2013, compared to $153,000 in charge-offs for the first quarter of 2012.  OREO balances were $13.3 million at March 31, 2013 and $13.4 million at December 31, 2012.

Royal Bank was successful in reducing net classified loans, which includes LHFS and OREO from $51.8 million at December 31, 2012 to $45.6 million at March 31, 2013.  Royal Bank's delinquent loans held for investment (30 to 90 days) amounted to $4.7 million at March 31, 2013 versus $4.6 million at December 31, 2012. Material advances on any classified or delinquent loan are to be approved by the Board of Directors and determined to be in Royal Bank's best interest.  The Company has restructured the investment portfolio to reduce credit risk by selling corporate debt securities and equity securities and replacing their maturities with U.S. government issued or sponsored securities. Royal Bank did not record other-than-temporary-impairment ("OTTI") losses during the first quarter of 2013 or 2012.

Commercial Real Estate Concentrations

As mentioned previously the adverse economic conditions have primarily impacted the real estate secured loan portfolio.  Commercial real estate and construction and development loans are often riskier and tend to have significantly larger balances than home equity loans or residential mortgage loans to individuals.  While the Company believes that the commercial real estate concentration risk is mitigated by diversification among the types and characteristics of real estate collateral properties, sound underwriting practices, and ongoing portfolio monitoring and market analysis, the repayments of these loans usually depends on the profitable operation of a business or the sale of the underlying property.  As a result, these loans are more likely to be unfavorably affected by adverse conditions in the real estate market or the economy in general, which may result in increasing levels of loan charge-offs and non-performing assets and the reduction of earnings.  When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair market value of the collateral, which may ultimately result in a loss.  It is possible that Royal Bank may be required to maintain higher levels of capital than it would be otherwise be expected to maintain as a result of the Bank's commercial real estate loans, which may require the Company to obtain additional capital.

Commercial real estate, multi-family and construction and land development loans held for investment were $221.8 million at March 31, 2013 comprising 62% of total loans compared to $216.1 million at December 31, 2012 comprising 63% of total loans.  Based on capital levels calculated under U.S. GAAP and RAP, Royal Bank does not have a concentration of commercial real estate loans as defined in the joint agency "Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices" issued on December 12, 2006. Please see discussion in "Note 11 – Regulatory Capital Requirements" to the Consolidated Financial Statements).

Liquidity and Funds Management

Royal Bank has limited capacity to borrow additional funds in the event it is needed for liquidity purposes. However, Royal Bank has continued to maintain liquidity measures that are well in excess of the target levels.  As discussed in "Note 8 – Borrowings and Subordinated Debentures" to the Consolidated Financial Statements, Royal Bank has an over collateralized delivery requirement of 105% with the FHLB as a result of the level of non-performing assets and the losses that have been experienced over the past five years.   The ability to borrow additional funds is based on the amount of collateral that is available to be pledged.  As of March 31, 2013, Royal Bank had $13.3 million of available borrowing capacity at the FHLB as a result of excess collateral that has been pledged.  In addition at March 31, 2013, Royal Bank had $189.4 million in unpledged agency securities that were available to be pledged as collateral if needed and $20.0 million in cash on hand.  Royal Bank also has limited availability to borrow from the Federal Reserve Discount Window, which was $7.3 million at March 31, 2013, and was based on collateral pledged.

At March 31, 2013, the liquidity to deposits ratio was 44.2% compared to Royal Bank's 12% policy target and the liquidity to total liabilities ratio was 34.2% compared to Royal Bank's 10% policy target.  Borrowings were $108.2 million and $108.3 million at March 31, 2013 and December 31, 2012, respectively.

The Company also has unfunded pension plan obligations, which potentially could impact liquidity of $16.8 million as of March 31, 2013 compared to $16.9 million at December 31, 2012.  The Company plans to fund the pension plan obligations through existing Company owned life insurance policies.

Dividend and Interest Restrictions

Due to the MOU and the Federal Reserve Agreement, our ability to obtain lines of credit, to receive attractive collateral treatment from funding sources, and to pursue all attractive funding alternatives in this current low interest rate environment could be impacted and thereby limit liquidity alternatives. On August 13, 2009, the Company's Board of Directors determined to suspend regular quarterly cash dividends on the $30.4 million in Series A Preferred Stock and to suspend interest payments on the $25.8 million in trust preferred securities.  As of March 31, 2013, the Series A Preferred stock dividend in arrears was $6.3 million and has not been recognized in the consolidated financial statements.  In the event the Company declared the preferred dividend the Company's capital ratios would be negatively affected however they would remain above the required minimum ratios.  Please read "Note 11 - Regulatory Capital Requirements" to the Consolidated Financial Statements. As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable. The Company believes the decision to suspend the preferred cash dividends and the trust preferred interest payments will better support the liquidity position of Royal Bank.  The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014.  After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company's consolidated financial statements and liquidity.

At March 31, 2013, as a result of significant losses within Royal Bank, the Company had negative retained earnings and therefore would not have been able to declare and pay any cash dividends.  Royal Bank must receive prior approval from the FDIC and the Department before declaring and paying a dividend to the Company.  Under the Federal Reserve Agreement the Company may not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.

Capital Adequacy

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Consolidated Reports of Condition and Income (the "Call Report") instructions and under RAP, that income from Royal Bank's tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank's current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC's conclusion and filed the Call Report for March 31, 2013 and the previous ten quarters in accordance with U.S. GAAP.  However, the change in the manner of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank's and potentially the Company's capital ratios as disclosed in "Note 11 - Regulatory Capital Requirements" to the Consolidated Financial Statements.  Royal Bank is in discussions with the FDIC to resolve the matter.

Under the MOU, Royal Bank must maintain a minimum total risk-based capital ratio and a minimum Tier 1 leverage ratio of 12% and 8%, respectively. At March 31, 2013, based on capital levels calculated under RAP, Royal Bank's Tier 1 leverage and total risk-based capital ratios were 8.96% and 15.92%, respectively.

Department of Justice Investigation

Royal Bank holds a 60% equity interest in each of CSC and RTL.  The Company acquired its ownership interest in CSC in 2001.  CSC and RTL acquired, through public auction, delinquent tax liens in various jurisdictions thereby assuming a superior lien position to most other lien holders, including mortgage lien holders.   On March 4, 2009, each of CSC and RTL received grand jury subpoenas issued by the U.S. District Court for New Jersey ("Court") upon application of the Antitrust Division of the United States DOJ.  The subpoenas sought certain documents and information relating to an ongoing investigation being conducted by the DOJ relating to alleged bid-rigging at tax lien auctions in New Jersey.  Royal Bank, CSC and RTL have produced to the DOJ documents responsive to the subpoenas and have been cooperating with the DOJ throughout the investigation.  On February 23, 2012, the former President of CSC and RTL entered a plea of guilty to one count of conspiring to rig bids at certain auctions for tax liens in New Jersey from 1998 until approximately the spring of 2009.  The former President's employment with CSC and RTL was terminated in November 2010.  As previously disclosed, Royal Bank had been advised that neither CSC nor RTL were targets of the DOJ investigation, but they were subjects of the investigation.  Based on discussions with the DOJ and the plea entered by the former President of CSC and RTL, the Company believed that the outcome of the investigation would result in fines and penalties being assessed against CSC, RTL or both.  As a result, the Company accrued $2.0 million during 2012 for a DOJ fine relating to the DOJ investigation.  After adjusting for the noncontrolling interest, the Company's 60% share of the fine amounted to $1.2 million.  On September 26, 2012, as a result of the former President's guilty plea and pursuant to a plea agreement with the DOJ, CSC entered a guilty plea in the United States District Court for the District of New Jersey to one count of conspiracy to commit bid-rigging at certain auctions for tax liens in New Jersey.  Under the terms of the plea agreement, which the Court accepted at the September 26, 2012 plea hearing, the DOJ agreed not to bring further criminal charges against CSC and not to bring criminal charges against RTL, or any current or former director, officer, or employee of CSC and/or RTL, for any act or offense committed prior to the date of the plea agreement that was in furtherance of any agreement to rig bids at municipal tax lien sales or auctions in the State of New Jersey. The former President of CSC and RTL and any person who bid at any time at a tax lien auction on behalf of CSC and/or RTL are excluded from this non-prosecution protection.  At the sentencing hearing held in December 2012, the sentencing judge agreed with the DOJ's recommendation and imposed a $2.0 million fine for CSC, which, as stated above, had been previously recognized in the Company's consolidated financial statements.  The Company is evaluating appropriate legal action against the former President of CSC and RTL to attempt to recover legal expenses and any fines or penalties ultimately levied against CSC.

Additionally a number of lawsuits have been filed in the Superior Court of New Jersey against the former President of CSC and RTL, CSC, RTL, Royal Bancshares of Pennsylvania and certain other parties on behalf of a proposed class of taxpayers who became delinquent in paying their municipal tax obligations. These lawsuits allege violations of the New Jersey Antitrust Act and unjust enrichment, and seek treble damages, attorney fees and injunctive relief.  CSC, RTL and Royal Bancshares removed these cases to the U.S. District Court for the District of New Jersey. On June 12, 2012, the Court entered an Order consolidating for pretrial purposes the above actions with all subsequently filed or transferred related actions, collectively referred to as "In re New Jersey Tax Sale Certificates Antitrust Litigation".  On October 22, 2012, the Court appointed two law firms as interim class counsel and another law firm as liaison class counsel and further ordered appointed counsel to file a master complaint for the consolidated action.  On December 21, 2012, plaintiffs filed a Consolidated Master Class Action Complaint (the "Complaint") against numerous defendants, including the former President of CSC and RTL, Royal Bancshares of Pennsylvania, Inc., Royal bank America, CSC and RTL. The Company filed a motion to dismiss the Complaint on March 8, 2013, which is currently pending before the Court.  As of the date of this filing Royal Bancshares and Royal Bank cannot reasonably estimate the possible loss or range of loss that may result from these actions or proceedings.

Company Plans and Strategy

The Company has enhanced the Board through the addition of experienced directors with diverse backgrounds. The newer members are comprised of the following: a former banking regulator with consulting experience, a former Chief Executive Officer ("CEO") of a much larger financial institution who has bank turnaround experience, a former President of the lead bank within a larger financial institution (Treasury appointee), a former executive within the financial services industry (Treasury appointee) and a former senior partner of a public accounting firm.  During the first quarter of 2012, the Board elected a Lead Independent Director to further improve corporate governance by serving as a liaison between the Chairman of the Board, management, and the independent directors. During 2012, Royal Bank hired a new Chief Lending Officer ("CLO") who has significant experience in commercial and consumer lending with a larger bank within the Philadelphia market. After announcing the retirements of the Company's CEO and President during the second quarter of 2012, the Company's Board conducted an executive search for a candidate for the combined role of President and CEO.  On December 18, 2012 the Company announced F. Kevin Tylus as President and CEO of Royal Bank.  On February 20, 2013, the Company announced that Mr. Tylus was appointed President, CEO and a Class III member of the Board of Directors of the Company.  Former CEO, Robert Tabas, remains as Chairman of the Board of Directors.

In order to meet the requirements in the previous Orders, the current MOU, and the Federal Reserve Agreement, management adopted a strategy to deleverage the balance sheet in order to maintain capital ratios at required regulatory minimums. The Board and management remain committed to meeting the capital level requirements for Royal Bank as set forth in the previous Orders and current MOU.  As a result, the Board and management have developed a contingency plan to maintain capital ratios at required levels which may include selling interest-earning assets. This strategy also assisted in reducing the level of classified assets by giving management the ability to actively pursue exit strategies on loans and OREO which were at historically high levels.  The deleveraging was largely accomplished by the continued reduction of brokered deposits from $89.1 million at December 31, 2010 to $0 as of March 31, 2013.  In addition, borrowings were reduced by $46.7 million during the same period.  The Company's strategic plan includes improving the overall level of credit quality, maintaining reduced credit risk within the investment portfolio, reducing the overall level of expenses, and returning to profitability.

During the past few years, the Company recorded significant impairment charges and carrying costs on non-accrual loans and OREO which has weighed heavily on earnings and was the largest contributing factor to the Company's losses. While sustaining capital ratios above the required minimum, the Company has made progress in improving credit quality, reducing the CRE concentration, strengthening the Board and maintaining liquidity. As a result of the decline in level of classified assets, there has been a corresponding reduction in the provision for loan and lease losses and the overall carrying costs associated with classified assets.  The deleveraging of the balance sheet has also reduced earning assets which has resulted in a decline in net interest income and has had a significant impact on overall earnings. To improve net interest margin and net interest income, management is diligently working on changing the mix of earnings assets and interest-bearing liabilities.  In the event further deleveraging is necessary to maintain the required capital levels, net interest income would be negatively impacted.

The Company is focused on transitioning Royal Bank into a more traditional community bank with the branches becoming selling centers and not just service centers.  Traditional consumer products such as home equity loans and a new mobile banking application are part of the expanded product offerings.  The Company is also evaluating the addition of fee-based business lines to complement and enhance our existing services.  The Company has developed a management Profitability Improvement Plan (the "Plan") to generate steady revenue growth, expense management and gain operational efficiencies.  Specific initiatives of the Plan effectuated in the first quarter of 2013 focused on adjustments to personnel of the Company and discretionary expenses.  These efforts, which included a 9% reduction in workforce and an annualized reduction of approximately 10% of discretionary expenses, were implemented and enhanced day-to-day operations and the ability of the Company to drive new revenue.  As a result of the reduction in workforce, the Company recorded an $87,000 restructuring charge directly related to one-time employee termination benefits.  The Company has reorganized and relocated certain personnel to improve departmental synergies andbetter align managers and staff so they can work together in cohesive teams to accomplish these objectives.  Additionally, the Company is currently developing a facilities rationalization plan as part of the overall strategic goal to return to profitability.   During the first quarter of 2013, the Company sold its storage facility site in Philadelphia and a building in Narberth that housed the training center.  The Company recorded gains of $676,000 as a result of these sales.  Additionally, in January 2013, Royal Bank consolidated the leased Henderson Road office between the King of Prussia and Bridgeport offices and retained the majority of the deposits.  During the third quarter of 2013, the Company will consolidate the 15^th Street office into the Walnut Street office, which are both located in Center City Philadelphia.  The Company continues to review its retail footprint and will explore additional branch office relocations, consolidations or both. The Company is also analyzing opportunities to move non-retail personnel into a centralized location.  The Company has targeted to have the Plan fully implemented by the end of 2013.  Through the reorganizing of the Lending and Credit departments during the last half of 2012, Royal Bank was able to increase loans held for investment ("LHFI") $13.9 million from $344.2 million at December 31, 2012 to $358.1 million at March 31, 2013. All of these plans are focused on repositioning the Company for 2013 and beyond.

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Federal Home Loan Bank Stock (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Federal Home Loan Bank Stock [Abstract]
Total FHLB stock	$ 5,127	$ 6,011

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Loans and Leases - Risk Ratings for Each Loan Portfolio Segment (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013		Dec. 31, 2012		Mar. 31, 2012
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI	$ 358,055		$ 344,682		$ 400,675
Less: Deferred loan fees	0	[1]	(517)	[1]
Total loans and leases	358,055		344,165
Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			167,115
Total loans and leases	175,397
Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI	34,533		37,215
Total loans and leases	34,533
Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			40,560
Total loans and leases	67,512
Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI	11,830		11,756
Total loans and leases	11,830
Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			24,981
Total loans and leases	6,697
Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI	38,629		37,347
Total loans and leases	38,629
Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI	22,541		24,569
Total loans and leases	22,541
Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			1,139
Total loans and leases	916
Pass [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			167,004
Total loans and leases	199,784
Pass [Member] | Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			64,308
Total loans and leases	80,916
Pass [Member] | Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			2,139
Total loans and leases	3,579
Pass [Member] | Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			14,764
Total loans and leases	38,912
Pass [Member] | Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			9,019
Total loans and leases	9,092
Pass [Member] | Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			15,125
Total loans and leases	6,265
Pass [Member] | Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			36,755
Total loans and leases	38,181
Pass [Member] | Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			23,968
Total loans and leases	21,990
Pass [Member] | Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			926
Total loans and leases	849
Pass-Watch [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			103,362
Total loans and leases	94,860
Pass-Watch [Member] | Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			69,510
Total loans and leases	65,135
Pass-Watch [Member] | Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			13,872
Total loans and leases	14,461
Pass-Watch [Member] | Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			10,774
Total loans and leases	12,812
Pass-Watch [Member] | Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			2,034
Total loans and leases	2,152
Pass-Watch [Member] | Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			6,634
Total loans and leases	0
Pass-Watch [Member] | Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			325
Total loans and leases	233
Pass-Watch [Member] | Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Pass-Watch [Member] | Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			213
Total loans and leases	67
Special Mention [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			37,285
Total loans and leases	32,325
Special Mention [Member] | Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			19,529
Total loans and leases	18,078
Special Mention [Member] | Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			16,343
Total loans and leases	12,873
Special Mention [Member] | Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			92
Total loans and leases	730
Special Mention [Member] | Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			703
Total loans and leases	586
Special Mention [Member] | Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			602
Total loans and leases	0
Special Mention [Member] | Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			16
Total loans and leases	58
Special Mention [Member] | Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Special Mention [Member] | Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Substandard [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			15,599
Total loans and leases	15,002
Substandard [Member] | Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			3,423
Total loans and leases	3,389
Substandard [Member] | Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			581
Total loans and leases	578
Substandard [Member] | Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			9,969
Total loans and leases	11,035
Substandard [Member] | Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Substandard [Member] | Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			1,626
Total loans and leases	0
Substandard [Member] | Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Substandard [Member] | Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Substandard [Member] | Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Non-accrual [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			21,432
Total loans and leases	16,084
Non-accrual [Member] | Commercial Real Estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			10,345
Total loans and leases	7,879
Non-accrual [Member] | Construction and Land Development [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			4,280
Total loans and leases	3,042
Non-accrual [Member] | Commercial & industrial [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			4,961
Total loans and leases	4,023
Non-accrual [Member] | Multi Family [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	0
Non-accrual [Member] | Residential real estate [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			994
Total loans and leases	432
Non-accrual [Member] | Leases [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			251
Total loans and leases	157
Non-accrual [Member] | Tax Certificates [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			601
Total loans and leases	551
Non-accrual [Member] | Consumer Portfolio Segment [Member]
Risk Ratings for Each Loan Portfolio Segment [Abstract]
Subtotal LHFI			0
Total loans and leases	$ 0

[1] For the 2013 period net deferred fees were allocated among the loan types.

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Other Real Estate Owned (Tables)

3 Months Ended

Mar. 31, 2013

Other Real Estate Owned [Abstract]

Details of changes in other real estate owned

OREO declined $171,000 from $13.4 million at December 31, 2012 to $13.3 million at March 31, 2013.  Set forth below is a table which details the changes in OREO from December 31, 2012 to March 31, 2013.

	2013
(In thousands)	First Quarter
Beginning balance	$	13,435
Net proceeds from sales		(2,277	)
Net gain on sales		162
Assets acquired on loans		1,956
Impairment charge		(12	)
Ending balance	$	13,264

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Allowance for Loan and Lease Losses (Tables)

3 Months Ended

Mar. 31, 2013

Allowance for Loan and Lease Losses [Abstract]

Detail of the allowance and loan portfolio disaggregated by loan portfolio segment

The following tables present the detail of the allowance and the loan portfolio disaggregated by loan portfolio segment as of March 31, 2013 and March 31, 2012.

Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2013
(In thousands)	Commercial real estate			Construction and land development			Commercial & industrial			Multi-family		Residential real estate			Leases			Tax certificates			Consumer			Unallocated			Total
Beginning balance	$	8,750		$	2,987		$	1,924		$	654	$	1,098		$	1,108		$	472		$	29		$	239		$	17,261
Charge-offs		(835	)		(820	)		(173	)		-		-			(147	)		(10	)		-			-			(1,985	)
Recoveries		104			95			4			-		151			-			10			-			-			364
Provision		84			(184	)		958			4		(1,081	)		100			(88	)		(11	)		(33	)		(251	)
Ending balance	$	8,103		$	2,078		$	2,713		$	658	$	168		$	1,061		$	384		$	18		$	206		$	15,389
Ending balance: related to loans individually evaluated for impairment	$	-		$	-		$	45		$	-	$	13		$	70		$	27		$	-		$	-		$	155
Ending balance: related to loans collectively evaluated for impairment	$	8,103		$	2,078		$	2,668		$	658	$	155		$	991		$	357		$	18		$	206		$	15,234
LHFI
Ending balance	$	175,397		$	34,533		$	67,512		$	11,830	$	6,697		$	38,629		$	22,541		$	916		$	-		$	358,055
Ending balance: individually evaluated for impairment	$	8,484		$	4,466		$	8,750		$	-	$	431		$	71		$	551		$	-		$	-		$	22,753
Ending balance: collectively evaluated for impairment	$	166,913		$	30,067		$	58,762		$	11,830	$	6,266		$	38,558		$	21,990		$	916		$	-		$	335,302

Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2012
(In thousands)	Commercial real estate		Construction and land development			Commercial & industrial		Multi-family		Residential real estate		Leases			Tax certificates			Consumer		Unallocated			Total
Beginning balance	$	7,744	$	2,523		$	2,331	$	531	$	1,188	$	1,311		$	425		$	20	$	307		$	16,380
Charge-offs		-		-			-		-		-		(133	)		(20	)		-		-			(153	)
Recoveries		3		104			2		-		1		8			25			-		-			143
Provision		149		(178	)		21		84		5		109			(24	)		-		(82	)		84
Ending balance	$	7,896	$	2,449		$	2,354	$	615	$	1,194	$	1,295		$	406		$	20	$	225		$	16,454
Ending balance: related to loans
individually evaluated for impairment	$	-	$	-		$	47	$	-	$	20	$	53		$	55		$	-	$	-		$	175
Ending balance: related to loans
collectively evaluated for impairment	$	7,896	$	2,449		$	2,307	$	615	$	1,174	$	1,242		$	351		$	20	$	225		$	16,279
LHFI
Ending balance	$	180,123	$	49,399		$	52,794	$	13,735	$	27,155	$	37,468		$	39,056		$	945	$	-		$	400,675
Ending balance: individually evaluated for impairment	$	12,846	$	13,728		$	6,173	$	1,688	$	1,334	$	76		$	1,025		$	-	$	-		$	36,870
Ending balance: collectively evaluated for impairment	$	167,277	$	35,671		$	46,621	$	12,047	$	25,821	$	37,392		$	38,031		$	945	$	-		$	363,805

Financing receivable evaluated for impairment by portfolio segment

The following tables detail the loans that were evaluated for impairment by loan segment at March 31, 2013 and December 31, 2012.

	For the three months ended March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,858	$	8,484	$	-	$	8,961	$	-
Construction and land development		11,550		4,466		-		3,957		-
Commercial & industrial		7,459		6,399		-		7,313		-
Residential real estate		-		-		-		272		27
Total:	$	29,867	$	19,349	$	-	$	20,503	$	27
With an allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	1,167	$	18
Construction and land development		-		-		-		1,239		14
Commercial & industrial		2,554		2,351		45		2,979		102
Residential real estate		530		431		13		434		-
Leasing		71		71		70		74		-
Tax certificates		4,405		551		27		592		-
Total:	$	7,560	$	3,404	$	155	$	6,485	$	134

	For the year ended December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,417	$	8,623	$	-	$	11,163	$	78
Construction and land development		6,250		3,464		-		10,059		187
Commercial & industrial		7,790		6,820		-		5,545		73
Multi-family		-		-		-		780		-
Residential real estate		572		516		-		490		21
Tax certificates		-		-		-		583		-
Total:	$	25,029	$	19,423	$	-	$	28,620	$	359
With an allowance recorded:
Commercial real estate	$	4,136	$	2,335	$	835	$	1,526	$	-
Construction and land development		6,180		2,479		820		923		-
Commercial & industrial		9,585		3,431		255		682		-
Multi-family		-		-		-		383		-
Residential real estate		685		478		14		714		7
Leases		81		81		55		86		-
Tax certificates		4,408		601		47		288		-
Total:	$	25,075	$	9,405	$	2,026	$	4,602	$	7

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Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Unrealized gains on investment securities [Abstract]
Unrealized holding gains (losses) arising during period, before tax	$ 285		$ 518
Less reclassification adjustment for gains realized in net loss, before tax	45		139
Unrealized gains on investment securities, before tax	240		379
Unrecognized benefit obligation expense [Abstract]
Less reclassification adjustment for amortization, before tax	(142)		(78)
Other comprehensive loss, net, before tax	382		457
Unrealized gains on investment securities [Abstract]
Unrealized holding gains (losses) arising during period, tax	50		154
Less reclassification adjustment for gains realized in net loss, tax	15		49
Unrealized gains on investment securities, tax	35		105
Unrecognized benefit obligation expense [Abstract]
Less reclassification adjustment for amortization, tax	(48)		(27)
Other comprehensive income, net, tax	83		132
Unrealized gains on investment securities [Abstract]
Unrealized holding gains (losses) arising during period, net of tax	235		364
Less reclassification adjustment for gains realized in net loss	30	[1]	90	[1]
Unrealized gains on investment securities, net of tax	205		274
Unrecognized benefit obligation expense [Abstract]
Less reclassification adjustment for amortization, net of tax	(94)	[2]	(51)	[2]
Other comprehensive income	$ 299		$ 325

[1] Amounts are included in net gains on the sale of available for sale investment securities on the Consolidated Statements of Operations in total non-interest income.

[2] Amounts are included in salaries and benefits on the Consolidated Statements of Operations in non-interest expense.

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Loans and Leases - Aging Analysis of Past Due Payments for Each Loan Portfolio Segment (Details) (USD $)	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012	Dec. 31, 2012
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	$ 2,996,000			$ 2,635,000
60-89 Days Past Due	1,711,000			1,988,000
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	16,084,000			21,432,000
Current	337,264,000			318,627,000
Subtotal LHFI	358,055,000		400,675,000	344,682,000
Less: Deferred loan fees	0	[1]		(517,000)	[1]
Total loans and leases	358,055,000			344,165,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	16,084,000			21,432,000
Total non-accrual LHFI, Specific reserves	155,000			2,026,000
Non-accrual loans held for sale [Abstract]
Total non-accrual LHFS, Loan balance	1,472,000			1,572,000
Non accrual loans held for sale, Specific reserves	0			0
Total non-accrual loans, Loan balance	17,556,000			23,004,000
Total non accrual loans, Specific reserves	155,000			2,026,000
Period decrease in nonaccrual loans	5,400,000
Reduction in existing non accrual loan balances	3,500,000
Addition of non accrual loan balance	241,000
Change in the non accrual loans [Abstract]
Charge-offs to the allowance for loan and lease losses	1,985,000		153,000
Interest income lost on non-accrual loans	526,000
Cash collected on non accrual and impaired loan	4,400,000		6,100,000
Amount credited to principal balance outstanding	4,200,000		6,000,000
Summary of impaired loans [Abstract]
Impaired loans with valuation allowance	3,404,000			9,405,000
Impaired loans without valuation allowance	19,349,000			19,423,000
Impaired LHFS	1,472,000			1,572,000
Total impaired loans and leases	24,225,000			30,400,000
Valuation allowance related to impaired loans	155,000			2,026,000
Non-accrual Loans Held For Investment [Member]
Non-accrual loans held for investment [Abstract]
Non-accrual loans transfer to other real estate owned	100,000
Change in the non accrual loans [Abstract]
Charge-offs to the allowance for loan and lease losses	2,000,000
Non accrual Loans Held For Sale [Member]
Non-accrual loans held for sale [Abstract]
Impairment of loans held for sale	100,000
Commercial Real Estate [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	1,032,000			1,548,000
60-89 Days Past Due	1,486,000			1,486,000
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	7,879,000			10,345,000
Current	165,000,000			153,736,000
Subtotal LHFI				167,115,000
Total loans and leases	175,397,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	7,879,000			10,345,000
Total non-accrual LHFI, Specific reserves	0			835,000
Non-accrual loans held for sale [Abstract]
Total non-accrual LHFS, Loan balance	1,472,000			1,572,000
Non accrual loans held for sale, Specific reserves	0			0
Construction and Land Development [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	0			0
60-89 Days Past Due	0			0
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	3,042,000			4,280,000
Current	31,491,000			32,935,000
Subtotal LHFI	34,533,000			37,215,000
Total loans and leases	34,533,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	3,042,000			4,280,000
Total non-accrual LHFI, Specific reserves	0			820,000
Commercial and Industrial [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	297,000			200,000
60-89 Days Past Due	46,000			0
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	4,023,000			4,961,000
Current	63,146,000			35,399,000
Subtotal LHFI				40,560,000
Total loans and leases	67,512,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	4,023,000			4,961,000
Total non-accrual LHFI, Specific reserves	45,000			255,000
Residential real estate [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	1,434,000			562,000
60-89 Days Past Due	121,000			486,000
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	432,000			994,000
Current	4,710,000			22,939,000
Subtotal LHFI				24,981,000
Total loans and leases	6,697,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	432,000			994,000
Total non-accrual LHFI, Specific reserves	13,000			14,000
Multi Family [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	0			0
60-89 Days Past Due	0			0
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	0			0
Current	11,830,000			11,756,000
Subtotal LHFI	11,830,000			11,756,000
Total loans and leases	11,830,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	0			0
Total non-accrual LHFI, Specific reserves	0			0
Leases [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	233,000			325,000
60-89 Days Past Due	58,000			16,000
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	157,000			251,000
Current	38,181,000			36,755,000
Subtotal LHFI	38,629,000			37,347,000
Total loans and leases	38,629,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	157,000			251,000
Total non-accrual LHFI, Specific reserves	70,000			55,000
Tax Certificates [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	0			0
60-89 Days Past Due	0			0
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	551,000			601,000
Current	21,990,000			23,968,000
Subtotal LHFI	22,541,000			24,569,000
Total loans and leases	22,541,000
Non-accrual loans held for investment [Abstract]
Total non-accrual LHFI, loan balance	551,000			601,000
Total non-accrual LHFI, Specific reserves	27,000			47,000
Consumer [Member]
Aging analysis of past due payments for each loan portfolio segment [Abstract]
30-59 Days Past Due	0			0
60-89 Days Past Due	0			0
Accruing 90+Days	0			0
Total non-accrual LHFI, loan balance	0			0
Current	916,000			1,139,000
Subtotal LHFI	916,000			1,139,000
Total loans and leases	$ 916,000

[1] For the 2013 period net deferred fees were allocated among the loan types.

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Deposits (Tables)

3 Months Ended

Mar. 31, 2013

Deposits [Abstract]

Deposits summary

The Company's deposit composition as of March 31, 2013 and December 31, 2012 is presented below:

		March 31, 2013		December 31, 2012
Demand	$	58,239	$	58,531
NOW		43,252		43,920
Money Market		174,133		179,359
Savings		17,673		17,472
Time deposits (over $100)		85,510		91,233
Time deposits (under $100)		152,563		164,402
Total deposits	$	531,370	$	554,917

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Borrowings and Subordinated Debentures (Tables)

3 Months Ended

Mar. 31, 2013

Borrowings and Subordinated Debentures [Abstract]

FHLB borrowings allocated by the year in which they mature with their corresponding weighted average rates

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

	As of March 31,					As of December 31,
(Dollars in thousands)	2013					2012
	Amount		Rate			Amount		Rate
Advances maturing in
2013	$	50,000		2.64	%	$	50,000		2.64	%
2017		15,000		1.39	%		15,000		1.39	%
Total FHLB borrowings	$	65,000				$	65,000

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1.       Summary of Significant Accounting Policies

Basis of Financial Presentation

The accompanying unaudited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. ("Royal Bancshares" or the "Company") and its wholly-owned subsidiaries, Royal Investments of Delaware, Inc., including Royal Investments of Delaware, Inc.'s wholly owned subsidiary, Royal Preferred, LLC, and Royal Bank America ("Royal Bank"), including Royal Bank's subsidiaries, Royal Real Estate of Pennsylvania, Inc., Royal Investments America, LLC, RBA Property LLC, Narberth Property Acquisition LLC, Rio Marina LLC, and its three 60% ownership interests in Crusader Servicing Corporation, Royal Tax Lien Services, LLC, and Royal Bank America Leasing, LP.  The two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II are not consolidated per requirements under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, "Consolidation" ("ASC Topic 810"). These consolidated financial statements reflect the historical information of the Company.  All significant intercompany transactions and balances have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Applications of the principles in the Company's preparation of the consolidated financial statements in conformity with U.S. GAAP require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes.  These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates. The interim financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods.  These interim consolidated 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, 2012.  The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain items in the 2012 consolidated financial statements and accompanying notes have been reclassified to conform to the current year's presentation format.  There was no effect on net loss for the periods presented herein as a result of reclassification.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Update ("ASU") 2011-11, "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11") which amends ASC Topic 210 "Balance Sheet". Because of the significant differences in requirements under U.S. GAAP and IFRS, FASB and the International Accounting Standards Board ("IASB") are issuing joint requirements that will enhance current disclosures. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. An entity should provide the disclosures required by these amendments retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a significant impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02") to improve the reporting of reclassifications out of accumulated comprehensive income.  ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a significant impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04).  ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements.  ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following:

a. The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors

b. Any additional amount the reporting entity expects to pay on behalf of its co-obligors.

ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  For public companies ASU 2013-04 is effective for reporting periods beginning after December 15, 2013. The adoption of ASU 2013-04 is not expected to have a significant impact on the Company's consolidated financial statements.

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Commitments, Contingencies, and Concentrations (Tables)

3 Months Ended

Mar. 31, 2013

Commitments, Contingencies, and Concentrations [Abstract]

Contracts of financial instruments represent credit risk

The contract amounts are as follows:

	March 31,		December 31,
(In thousands)	2013		2012
Financial instruments whose contract amounts represent credit risk:
Open-end lines of credit	$	23,182	$	20,515
Commitments to extend credit		13,010		24,030
Standby letters of credit and financial guarantees written		1,097		1,199

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Regulatory Matters and Significant Risks or Uncertainties (Details) (USD $)	3 Months Ended		12 Months Ended	27 Months Ended	60 Months Ended		3 Months Ended			3 Months Ended			3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2010	Mar. 31, 2013 Series A Preferred Stock [Member]	Mar. 31, 2013 Commercial real estate and construction and land development loans [Member]	Dec. 31, 2012 Commercial real estate and construction and land development loans [Member]	Mar. 31, 2013 Nonperforming Financing Receivable [Member]	Mar. 31, 2012 Nonperforming Financing Receivable [Member]	Dec. 31, 2012 Nonperforming Financing Receivable [Member]	Mar. 31, 2013 Royal Bank [Member]	Dec. 31, 2011 Royal Bank [Member]	Jul. 15, 2009 Royal Bank [Member]	Mar. 31, 2013 Royal Tax Lien Services, LLC [Member]	Mar. 31, 2013 Crusader Servicing Corporation [Member]
Federal Deposit Insurance Corporation and Department of Banking Orders [Abstract]
Minimum Tier one leverage ratio required (in hundredths)	8.00%			8.00%										8.00%	8.00%
Minimum total capital to risk weighted assets ratio required (in hundredths)	12.00%			12.00%										12.00%	12.00%
Tier I capital (to average assets, leverage) (in hundredths)	8.96%			8.96%									8.96%
Total capital (to risk-weighted assets) (in hundredths)	15.92%			15.92%									15.92%
Continued Losses [Abstract]
Continued significant losses over five calendar years					$ 119,600,000
Net income (loss)	118,000	(869,000)											203,000
Gain (loss) on sale of premises	676,000	0
Decline in provision for loan and lease losses	335,000
Department of Justice fine	0	1,600,000	2,000,000
Percentage of entity's share in loss contingency (in hundredths)			60.00%
Department of Justice fine in period attributable to parent		960,000
Deferred tax valuation allowance	39,600,000			39,600,000
Financing Receivable, Recorded Investment [Line Items]
Non accrual financing receivables	17,556,000		23,004,000	17,556,000	23,004,000					17,600,000		23,000,000
Non performing loans, charge offs										2,000,000	153,000
Other real estate owned (OREO)	13,264,000		13,435,000	13,264,000	13,435,000					13,264,000		13,435,000
Net classified loans and forecosed property	45,600,000		51,800,000	45,600,000	51,800,000
Delinquent loans held for investment										4,700,000		4,600,000
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total gross loans	358,055,000	400,675,000	344,682,000	358,055,000	344,682,000			221,800,000	216,100,000			21,432,000
Percentage of loans held for investment (in hundredths)								62.00%	63.00%
Liquidity and Funds Management [Abstract]
Collateralized delivery requirement with Federal Home Loan Banks (in hundredths)	105.00%			105.00%
Available borrowing capacity at the federal home loan bank	13,300,000			13,300,000
Unpledged agency securities were available to be pledged as collateral	189,400,000			189,400,000
Cash on hand	20,000,000			20,000,000
Limited availability to borrow from the federal reserve discount window	7,300,000			7,300,000
Liquidity to deposits ratio (in hundredths)	44.20%			44.20%
Percentage of policy target (in hundredths)	12.00%			12.00%
Liquidity to total liabilities ratio (in hundredths)	34.20%			34.20%
Percentage of total liability ratio, policy target (in hundredths)	10.00%			10.00%
Borrowings	108,200,000		108,300,000	108,200,000	108,300,000
Unfunded pension plan obligations	16,800,000		16,900,000	16,800,000	16,900,000
Class of Stock [Line Items]
Series A Preferred stock on which quarterly dividend suspended	29,531,000		29,396,000	29,531,000	29,396,000		30,400,000
Trust preferred securities with suspend interest payments	25,774,000		25,774,000	25,774,000	25,774,000
Preferred stock dividend in arrears							6,300,000
Trust preferred securities interest expense in arrears	2,600,000			2,600,000
Capital Adequacy [Abstract]
Minimum total capital to risk weighted assets ratio required (in hundredths)	12.00%			12.00%										12.00%	12.00%
Minimum Tier one leverage ratio required (in hundredths)	8.00%			8.00%										8.00%	8.00%
Total capital (to risk-weighted assets) (in hundredths)	15.92%			15.92%									15.92%
Tier I capital (to average assets, leverage) (in hundredths)	8.96%			8.96%									8.96%
Noncontrolling Interest [Line Items]
Percentage of ownership interest in subsidiary (in hundredths)																60.00%	60.00%
Company Plans and Strategy [Abstract]
Brokered deposits	0			0		89,100,000
Reduction in borrowings				46,700,000
Increase loans held for investment	13,900,000
An annualized reduction of discretionary expenses (in hundredths)	0.1
Reduction in workforce (in hundredths)	0.09
Restructuring charge directly related to one-time employee termination benefits	$ 87,000

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Regulatory Capital Requirements (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended					3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 Royal Bank [Member]	Dec. 31, 2011 Royal Bank [Member]	Jul. 15, 2009 Royal Bank [Member]	Mar. 31, 2013 Royal Bancshares [Member]	Mar. 31, 2013 Royal Bancshares [Member] FR Y-9C [Member]
Regulatory Capital Requirements [Abstract]
Minimum Tier one leverage ratio required (in hundredths)	8.00%			8.00%	8.00%
Total risk based capital ratio (in hundredths)	12.00%
Capital actual amount under regulations [Abstract]
Total capital (to risk-weighted assets)			$ 72,906			$ 89,237
Tier I capital (to risk-weighted assets)			67,064			77,849
Tier I capital (to average assets, leverage)			67,064			77,849
Actual Ratio Under RAP [Abstract]
Total capital (to risk-weighted assets) (in hundredths)	15.92%		15.92%			19.00%
Tier I capital (to risk-weighted assets) (in hundredths)			14.65%			16.57%
Tier I capital (to average assets, leverage) (in hundredths)	8.96%		8.96%			10.21%
For capital adequacy purposes, amount [Abstract]
Total capital (to risk-weighted assets)			36,625			37,574
Tier I capital (to risk-weighted assets)			18,313			18,787
Tier I capital (to average assets, leverage)			29,954			30,500
For capital adequacy purposes, ratio [Abstract]
Total capital (to risk-weighted assets) (in hundredths)			8.00%			8.00%
Tier I capital (to risk-weighted assets) (in hundredths)			4.00%			4.00%
Tier I capital (to average assets, leverage) (in hundredths)			4.00%			4.00%
To be well capitalized capitalized under prompt corrective action provision, amount [Abstract]
Total capital (to risk-weighted assets)			45,782
Tier I capital (to risk-weighted assets)			27,469
Tier I capital (to average assets, leverage)			37,443
To be well capitalized capitalized under prompt corrective action provision, ratio [Abstract]
Total capital (to risk-weighted assets) (in hundredths)			10.00%
Tier I capital (to risk-weighted assets) (in hundredths)			6.00%
Tier I capital (to average assets, leverage) (in hundredths)			5.00%
Adjustments to net loss as well as the capital ratios [Abstract]
RAP net loss			(4,251)			(4,336)
Tax lien adjustment, net of noncontrolling interest			4,454			(4,454)
U.S. GAAP net loss	$ 118	$ (869)	$ 203			$ 118
Actual Ratio Under US GAAP [Abstract]
Total capital (to risk-weighted assets) (in hundredths)			17.28%				19.00%
Tier I capital (to risk-weighted assets) (in hundredths)			16.01%				16.57%
Tier I capital (to average assets, leverage) (in hundredths)			9.85%				10.21%
Ratios As Adjusted Under RAP [Abstract]
Tier One Leverage Capital To Average Assets Adjusted For RAP						17.68%
Tier One Risk Based Capital To Risk Weighted Assets Adjusted For RAP						14.70%
Capital To Risk Weighted Assets Adjusted For RAP						9.00%

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Consolidated Balance Sheets (unaudited) (USD $)	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 7,941,000	$ 10,621,000
Interest bearing deposits	13,312,000	18,181,000
Total cash and cash equivalents	21,253,000	28,802,000
Investment securities available-for-sale ("AFS")	321,184,000	349,203,000
Other investment, at cost	2,250,000	2,250,000
Federal Home Loan Bank ("FHLB") stock	5,127,000	6,011,000
Loans and leases held for sale ("LHFS")	1,472,000	1,572,000
Loans and leases ("LHFI")	358,055,000	344,165,000
Less allowance for loan and lease losses	15,389,000	17,261,000
Net loans and leases	342,666,000	326,904,000
Bank owned life insurance	14,721,000	14,585,000
Accrued interest receivable	9,723,000	10,256,000
Other real estate owned ("OREO"), net	13,264,000	13,435,000
Premises and equipment, net	4,745,000	5,232,000
Other assets	14,973,000	15,466,000
Total assets	751,378,000	773,716,000
Deposits
Non-interest bearing	58,239,000	58,531,000
Interest bearing	473,131,000	496,386,000
Total deposits	531,370,000	554,917,000
Long-term borrowings	108,221,000	108,333,000
Subordinated debentures	25,774,000	25,774,000
Accrued interest payable	4,411,000	3,760,000
Other liabilities	22,590,000	22,517,000
Total liabilities	692,366,000	715,301,000
Royal Bancshares of Pennsylvania, Inc. equity:
Preferred stock, Series A perpetual, $1,000 liquidation value, 500,000 shares authorized, 30,407 shares issued and outstanding at March 31, 2013 and December 31, 2012	29,531,000	29,396,000
Additional paid in capital	126,294,000	126,287,000
Accumulated deficit	(117,097,000)	(117,080,000)
Accumulated other comprehensive income (loss)	157,000	(142,000)
Treasury stock - at cost, shares of Class A, 498,488 at March 31, 2013 and December 31, 2012	(6,971,000)	(6,971,000)
Total Royal Bancshares of Pennsylavania, Inc. shareholders' equity	54,979,000	54,555,000
Noncontrolling interest	4,033,000	3,860,000
Total equity	59,012,000	58,415,000
Total liabilities and shareholders' equity	751,378,000	773,716,000
Common Class A [Member]
Royal Bancshares of Pennsylvania, Inc. equity:
Common stock	22,863,000	22,863,000
Total equity	22,863,000	22,863,000
Common Class B [Member]
Royal Bancshares of Pennsylvania, Inc. equity:
Common stock	202,000	202,000
Total equity	$ 202,000	$ 202,000

XML

Loans and Leases, Troubled Debt Restructuring (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Loan	Mar. 31, 2012
Financing Receivable, Modifications [Line Items]
Number of TDRs on non-accrual status	7
Number of TDRs already classified as impaired	7
Pay downs and payoffs received	$ 2,500,000
TDR, charge off recorded	1,100,000
Number of loans	12
Total TDRs	17,565,000	21,100,000
Financing Receivable New Modifications for the Period [Abstract]
Number of loans	1
Rate	0
Term	0
Payment	0
Combination of types	85,000
Total	85,000
Pre-Modification Outstanding Recorded Investment	87,000
Post-Modification Outstanding Recorded Investment	87,000
Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	6,981,000
Non-Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	10,584,000
Commercial real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	3
Total TDRs	8,205,000
Commercial real estate [Member] | Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	605,000
Commercial real estate [Member] | Non-Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	7,600,000
Construction and land development [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	4
Total TDRs	1,952,000
Construction and land development [Member] | Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	1,423,000
Construction and land development [Member] | Non-Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	529,000
Commercial & industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	3
Total TDRs	7,267,000
Financing Receivable New Modifications for the Period [Abstract]
Number of loans	1
Rate	0
Term	0
Payment	0
Combination of types	85,000
Total	85,000
Pre-Modification Outstanding Recorded Investment	87,000
Post-Modification Outstanding Recorded Investment	87,000
Commercial & industrial [Member] | Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	4,953,000
Commercial & industrial [Member] | Non-Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	2,314,000
Residential real estate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans	2
Total TDRs	141,000
Residential real estate [Member] | Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	0
Residential real estate [Member] | Non-Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Total TDRs	$ 141,000

XML

Consolidated Statement of Changes in Shareholders' Equity (unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Preferred Stock Series A [Member]	Common Class A [Member]	Common Class B [Member]	Additional Paid In Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]	Total
Balance at Dec. 31, 2011	$ 28,878	$ 22,723	$ 208	$ 126,245	$ (100,803)	$ 800	$ (6,971)	$ 4,865	$ 75,945
Balance (in shares) at Dec. 31, 2011		11,362	2,081
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)					(869)			(628)	(1,497)
Other comprehensive income, net of reclassifications and taxes						325		0	325
Common stock conversion from Class B to Class A		2	0		(2)				0
Common stock conversion from Class B to Class A (in shares)		1	(1)
Accretion of discount on preferred stock	126				(126)				0
Stock option expense				14					14
Balance at Mar. 31, 2012	29,004	22,725	208	126,259	(101,800)	1,125	(6,971)	4,237	74,787
Balance (in shares) at Mar. 31, 2012		11,363	2,080
Balance at Dec. 31, 2012	29,396	22,863	202	126,287	(117,080)	(142)	(6,971)	3,860	58,415
Balance (in shares) at Dec. 31, 2012		11,432	2,020
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)					118			173	291
Other comprehensive income, net of reclassifications and taxes						299		0	299
Accretion of discount on preferred stock	135				(135)				0
Stock option expense				7					7
Balance at Mar. 31, 2013	$ 29,531	$ 22,863	$ 202	$ 126,294	$ (117,097)	$ 157	$ (6,971)	$ 4,033	$ 59,012
Balance (in shares) at Mar. 31, 2013		11,432	2,020

XML

Fair Value of Financial Instruments - Quantitative Information (Details) (Significant Unobservable Inputs Level 3 [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2013
Maximum [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Liquidation expenses (in hundredths)	0.00%	[1]
Minimum [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Liquidation expenses (in hundredths)	(21.60%)	[1]
Weighted Average [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Liquidation expenses (in hundredths)	(7.00%)	[1]
Appraisal of collateral valuation technique [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Assets, Fair Value	4,896
Appraisal of collateral valuation technique [Member] | Maximum [Member] | Other real estate owned [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	0.00%	[1]
Appraisal of collateral valuation technique [Member] | Maximum [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	0.00%	[1]
Appraisal of collateral valuation technique [Member] | Minimum [Member] | Other real estate owned [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	(81.10%)	[1]
Appraisal of collateral valuation technique [Member] | Minimum [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	(69.90%)	[1]
Appraisal of collateral valuation technique [Member] | Weighted Average [Member] | Other real estate owned [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	(4.30%)	[1]
Appraisal of collateral valuation technique [Member] | Weighted Average [Member] | Impaired loans and leases [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Appraisal adjustments (in hundredths)	(22.00%)	[1]
Salvageable value of collateral valuation technique [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Range (Weighted Average) of Salvageable value of collateral (in hundredths)	0.00%	[2]
Salvageable value of collateral valuation technique [Member] | Other real estate owned [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Assets, Fair Value	3,727
Sales prices [Member] | Loans and leases held for sale [Member]
Additional quantitative information about assets measured at fair value on a nonrecurring basis [Abstract]
Assets, Fair Value	1,572
Range (Weighted Average) of Appraisal adjustments (in hundredths)	(5.60%)
Range (Weighted Average) of Liquidation expenses (in hundredths)	(12.70%)

[1] Appraisals may be adjusted for qualitative factors such as interior condition of the property and liquidation expenses.

[2] Leases are measured using the salvageable value of the collateral.

XML

Loss Per Common Share (Tables)

3 Months Ended

Mar. 31, 2013

Loss Per Common Share [Abstract]

Schedule of computation of basic and diluted earning per share

Basic and diluted EPS are calculated as follows:

	Three months ended March 31, 2013
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(397	)		13,257	$	(0.03	)

	Three months ended March 31, 2012
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(1,375	)		13,257	$	(0.10	)

XML

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 15.    Fair Value of Financial Instruments

Under FASB ASC Topic 820 "Fair Value Measurements and Disclosures" ("ASC Topic 820"), fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, management uses quoted market prices to determine fair value.  If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments using discounted cash flow methodologies.

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

ASC Topic 820 provides guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly declined and for identifying circumstances when a transaction is not orderly.  ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under ASC Topic 820 are as follows:

           Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

          Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.  Level 2 includes debt securities with quoted prices that are traded less frequently then exchange-traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices. 

          Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  The Company did not have transfers of financial instruments within the fair value hierarchy during the quarters ended March 31, 2013 and 2012.

Items Measured on a Recurring Basis

The Company's available for sale investment securities are recorded at fair value on a recurring basis.

Fair value for Level 1 securities are determined by obtaining quoted market prices on nationally recognized securities exchanges.  Level 1 securities include common stocks..

Level 2 securities include obligations of U.S. government-sponsored agencies, debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  The prices were obtained from third party vendors. This category generally includes mortgage-backed securities and CMOs issued by U.S. government and government-sponsored agencies, non-agency CMOs, and corporate and municipal bonds.

Level 3 securities include investments in seven private equity funds which are predominantly invested in real estate.  The value of the private equity funds are derived from the funds' financials and K-1 filings.  The Company also reviews the funds' asset values and its near-term projections.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of March 31, 2013	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	69,373	$	-	$	69,373
Mortgage-backed  securities-residential		-		32,165		-		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		200,987		-		200,987
Non-agency		-		904		-		904
Corporate bonds		-		7,889		-		7,889
Municipal bonds		-		5,594		-		5,594
Other securities		-		-		4,225		4,225
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	316,912	$	4,225	$	321,184

	Fair Value Measurements Using:
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
Balances as of December 31, 2012	Assets		Inputs		Inputs
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Investment securities available-for-sale
U.S. government agencies	$	-	$	66,444	$	-	$	66,444
Mortgage-backed  securities-residential		-		30,509		-		30,509
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		-		233,976		-		233,976
Non-agency		-		1,011		-		1,011
Corporate bonds		-		7,437		-		7,437
Municipal bonds		-		5,615		-		5,615
Other securities		-		-		4,164		4,164
Common stocks		47		-		-		47
Total investment securities available-for-sale	$	47	$	344,992	$	4,164	$	349,203

The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value for the three months ended March 31, 2013 and 2012:

(In thousands)
Investment Securities Available for Sale	Other securities
Beginning balance January 1, 2013	$	4,164
Total gains/(losses) - (realized/unrealized):
Included in earnings		5
Included in other comprehensive income		140
Purchases		-
Sales and calls		(84	)
Transfers in and/or out of Level 3		-
Ending balance March 31, 2013	$	4,225

(In thousands)	Trust preferred			Other
Investment Securities Available for Sale	securities			securities			Total
Beginning balance January 1, 2012	$	12,603		$	6,918		$	19,521
Total gains/(losses) - (realized/unrealized):
Included in earnings		-			32			32
Included in other comprehensive income		(18	)		102			84
Purchases		-			334			334
Sales and calls		-			(133	)		(133	)
Amortization of premium		(7	)		-			(7	)
Transfers in and/or out of Level 3		-			-			-
Ending balance March 31, 2012	$	12,578		$	7,253		$	19,831

Items Measured on a Nonrecurring Basis

Non-accrual loans and TDRs are evaluated for impairment on an individual basis under FASB ASC Topic 310 "Receivables".  The impairment analysis includes current collateral values, known relevant factors that may affect loan collectability, and risks inherent in different kinds of lending.  When the collateral value or discounted cash flows less costs to sell is less than the carrying value of the loan a specific reserve (valuation allowance) is established. Loans held for sale are carried at the lower of cost or fair value. OREO is carried at the lower of cost or fair value.  Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2013 and December 31, 2012 are as follows:

Balances as of March 31, 2013	Fair Value Measurements Using:
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	4,896	$	4,896
Other real estate owned		-		-		3,727		3,727
Loans and leases held for sale		-		-		1,472		1,472

Balances as of December 31, 2012	Fair Value Measurements Using:
(In thousands)	Level 1		Level 2		Level 3		Fair Value
Assets
Impaired loans and leases	$	-	$	-	$	9,180	$	9,180
Other real estate owned		-		-		7,632		7,632
Loans and leases held for sale		-		-		1,572		1,572

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Qualitative Information about Level 3 Fair Value Measurements
Balances as of March 31, 2013			Valuation	Unobservable	Range (Weighted
(In thousands)	Fair Value		Techniques	Input	Average)
Impaired loans and leases	$	4,896	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -69.9% (-22.0%)
				Liquidation  expenses	0.0% to -21.6% (-7.0%)
			Salvageable value of collateral (2)			0.0	%
Other real estate owned		3,727	Appraisal of collateral (1)	Appraisal adjustments	0.0% to -81.1% (-4.3%)
			Sales prices
Loans and leases held for sale		1,572	Sales prices	Appraisal adjustments		-5.6	%
				Liquidation  expenses		-12.7	%

(1)   Appraisals may be adjusted for qualitative factors such as interior condition of the property and liquidation expenses.

(2)   Leases are measured using the salvageable value of the collateral.

The following methods and assumptions were used to estimate the fair values of the Company's financial instruments at March 31, 2013 and December 31, 2012. The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.  The methodologies for estimating the fair value of financial instruments that are measured on a recurring or nonrecurring basis are discussed above.

Cash and cash equivalents (carried at cost):

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets' fair values.

Securities:

Management uses quoted market prices to determine fair value of securities (level 1).  If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates (level 2). If observable market-based inputs are not available, the Company uses unobservable inputs to determine appropriate valuation adjustments by reviewing the private equities funds' financials and K-1 filings (level 3).

Other Investment (carried at cost):

This investment includes the Solomon Hess SBA Loan Fund, which the Company invested in to partially satisfy its community reinvestment requirement.  Shares in this fund are not publicly traded and therefore have no readily determinable fair market value.  An investor can have their investment in the Fund redeemed for the balance of their capital account at any quarter end with 60 days notice to the Fund.  The investment in this Fund is recorded at cost.  The Company does not record this investment at fair value on a recurring basis, as this investment's carrying amount approximates fair value.

Restricted investment in bank stock (carried at cost):

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Loans held for sale (carried at lower of cost or fair value):

The fair values of loans held for sale are based upon appraised values of the collateral less costs to sell, management's estimation of the value of the collateral or expected net sales proceeds.These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Loans receivable (carried at cost):

The fair values of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.   Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired loans (generally carried at fair value):

Impaired loans are accounted for under ASC Topic 310.Impairedloans are those in which the Company has measured impairment generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Accrued interest receivable and payable (carried at cost):

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit liabilities (carried at cost):

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-term debt (carried at cost):

Fair values of FHLB advances and other long-term borrowings are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.  These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated debt (carried at cost):

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

Off-balance sheet financial instruments (disclosed at cost):

Fair values for the Company's off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties' credit standing.  They are not shown in the table because the amounts are immaterial.

The tables below state the fair value of the Company's financial instruments at March 31, 2013 and December 31, 2012.

					Fair Value Measurements
					At March 31, 2013
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	21,253	$	21,253	$	21,253	$	-	$	-
Investment securities available-for-sale		321,184		321,184		47		316,912		4,225
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		5,127		5,127		-		-		5,127
Loans held for sale		1,472		1,472		-		-		1,472
Loans, net		342,666		344,298		-		-		344,298
Accrued interest receivable		9,723		9,723		-		9,723		-
Financial Liabilities:
Demand deposits		58,239		58,239		-		58,239		-
NOW and money markets		217,385		217,385		-		217,385		-
Savings		17,673		17,673		-		17,673		-
Time deposits		238,073		234,873		-		234,873		-
Long-term borrowings		108,221		103,611		-		103,611		-
Subordinated debt		25,774		24,111		-		24,111		-
Accrued interest payable		4,411		4,411		-		4,411		-

					Fair Value Measurements
					At December 31, 2012
					Quoted Prices
					in Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
(In thousands)	amount		fair value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash  equivalents	$	28,802	$	28,802	$	28,802	$	-	$	-
Investment securities available-for-sale		349,203		349,203		47		344,992		4,164
Other investment		2,250		2,250		-		-		2,250
Federal Home Loan Bank stock		6,011		6,011		-		-		6,011
Loans held for sale		1,572		1,572		-		-		1,572
Loans, net		326,904		330,260		-		-		330,260
Accrued interest receivable		10,256		10,256		-		10,256		-
Financial Liabilities:
Demand deposits		58,531		58,531		-		58,531		-
NOW and money markets		223,279		223,279		-		223,279		-
Savings		17,472		17,472		-		17,472		-
Time deposits		255,635		251,532		-		251,532		-
Long-term borrowings		108,333		102,824		-		102,824		-
Subordinated debt		25,774		23,837		-		23,837		-
Accrued interest payable		3,760		3,760		-		3,760		-

Limitations

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments.  Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.  Further, the foregoing estimates may not reflect the actual amount that could be realized if all or substantially all of the financial instruments were offered for sale.  This is due to the fact that no market exists for a sizable portion of the loan, deposit and off balance sheet instruments.

In addition, the fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Other significant assets that are not considered financial assets include premises and equipment.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments.  This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

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Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2013

Comprehensive Income (Loss) [Abstract]

Components of Other Comprehensive Income (Loss) and Related Tax Effects

FASB ASC Topic 220, "Comprehensive Income" ("ASC Topic 220"), requires the reporting of all changes in equity during the reporting period except investments from and distributions to shareholders.  Net income (loss) is a component of comprehensive income (loss) with all other components referred to in the aggregate as other comprehensive income.  Unrealized gains and losses on AFS securities is an example of an other comprehensive income component.

	Three months ended March 31, 2013
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	285		$	50		$	235
Less reclassification adjustment for gains realized in net income		45			15			30
Unrealized gains on investment securities		240			35			205
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(142	)		(48	)		(94	)
Other comprehensive income, net	$	382		$	83		$	299

	Three months ended March 31, 2012
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	518		$	154		$	364
Less reclassification adjustment for gains realized in net loss		139			49			90
Unrealized gains on investment securities		379			105			274
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(78	)		(27	)		(51	)
Other comprehensive income, net	$	457		$	132		$	325

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Federal Home Loan Bank Stock

3 Months Ended

Mar. 31, 2013

Federal Home Loan Bank Stock [Abstract]

Federal Home Loan Bank Stock

Note 17.     Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank of Pittsburgh ("FHLB"), the Company is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements.  The stock can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, there is no active market for the FHLB stock. As of March 31, 2013 and December 31, 2012, FHLB stock totaled $5.1 million and $6.0 million, respectively.

FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. The Company evaluates impairment quarterly. The decision of whether impairment exists is a matter of judgment that reflects management's view of the FHLB's long-term performance, which includes factors such as the following: (1) its operating performance, (2) the severity and duration of declines in the fair value of its net assets related to its capital stock amount, (3) its liquidity position, and (4) the impact of legislative and regulatory changes on the FHLB.  Based on the capital adequacy and the liquidity position of the FHLB, management believes that the par value of its investment in FHLB stock will be recovered.  Accordingly, there is no other-than-temporary impairment related to the carrying amount of the Company's FHLB stock as of March 31, 2013.

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Consolidated Statements of Cash Flows (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income (loss)	$ 118	$ (869)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	95	106
Stock compensation expense	7	14
(Credit) provision for loan and lease losses	(251)	84
Impairment charge for other real estate owned	12	53
DOJ Fine accrual	0	1,600
Net amortization of investment securities	1,448	1,317
Net accretion on loans	(62)	(66)
Net gains on sales of premises and equipment	(676)	0
Net gains on sales of other real estate owned	(162)	138
Proceeds from sales of loans and leases	123	3,831
Gains on sales of loans and leases	(16)	(41)
Net gains on sales of investment securities	(45)	(139)
Income from bank owned life insurance	(136)	(138)
Impairment on loans held for sale	100	0
Changes in assets and liabilities:
Decrease in accrued interest receivable	533	2,285
Decrease in other assets	493	695
Increase in accrued interest payable	651	818
Increase (decrease) increase in other liabilities	73	(1,094)
Net cash provided by operating activities	2,305	8,594
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of available-for-sale ("AFS") investment securities	37,311	39,958
Proceeds from sales of AFS investment securities	12,135	11,827
Purchase of AFS investment securities	(22,590)	(58,959)
Redemption of Federal Home Loan Bank stock	884	424
Net (increase) decrease in loans	(17,280)	5,865
Proceeds from the sales of premises and equipment	1,115	0
Purchase of premises and equipment	(47)	(60)
Proceeds from sales of foreclosed real estate	2,277	4,531
Net cash provided by investing activities	13,805	3,586
Cash flows from financing activities:
Decrease in demand and NOW accounts	(960)	(1,375)
(Decrease) increase in money market and savings accounts	(5,025)	719
(Decrease) increase in certificates of deposit	(17,562)	906
Repayments of short-term borrowings	0	(27,661)
Repayments of long-term borrowings	(112)	(112)
Proceeds from long-term borrowings	0	15,000
Net cash used in financing activities	(23,659)	(12,523)
Net decrease in cash and cash equivalents	(7,549)	(343)
Cash and cash equivalents at the beginning of the period	28,802	24,506
Cash and cash equivalents at the end of the period	21,253	24,163
Supplemental Disclosure
Interest paid	1,329	1,995
Transfers to other real estate owned	$ 1,956	$ 8,010

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Consolidated Balance Sheets (unaudited) (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Royal Bancshares of Pennsylvania, Inc
Preferred stock, liquidation value (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (in shares)	30,407	30,407
Preferred stock, shares outstanding (in shares)	30,407	30,407
Common Class A [Member]
Royal Bancshares of Pennsylvania, Inc
Common stock, par value (in dollars per share)	$ 2.00	$ 2.00
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	11,431,638	11,431,638
Treasury stock, shares (in shares)	498,488	498,488
Common Class B [Member]
Royal Bancshares of Pennsylvania, Inc
Common stock, par value (in dollars per share)	$ 0.10	$ 0.10
Common stock, shares authorized (in shares)	3,000,000	3,000,000
Common stock, shares issued (in shares)	2,020,499	2,020,499

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Shareholders' Equity

3 Months Ended

Mar. 31, 2013

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 10.    Shareholders' Equity

1.     Preferred Stock

On February 20, 2009, as part of the Capital Purchase Program ("CPP") established by the United States Department of Treasury ("Treasury"), the Company issued to Treasury 30,407 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value per share (the "Series A Preferred Stock"), and a liquidation preference of $1,000 per share.  In conjunction with the purchase of the Series A Preferred Stock, Treasury received a warrant to purchase 1,104,370 shares of the Company's Class A common stock.  The aggregate purchase price for the Series A Preferred Stock and warrant was $30.4 million in cash.  The Series A Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter.  The Series A Preferred Stock may generally be redeemed by the Company at any time following consultation with its primary banking regulators.  The warrant issued to Treasury has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $4.13 per share of the common stock.  The Company's utilized the extra capital provided by the CPP funds to support its efforts to prudently and transparently provide lending and liquidity while also balancing the goal to remain well-capitalized.

2.     Common Stock

The Company's Class A common stock trades on the NASDAQ Global Market under the symbol RBPAA.  There is no market for the Company's Class B common stock.  The Class B shares may not be transferred in any manner except to the holder's immediate family.  Class B shares may be converted to Class A shares at the rate of 1.15 to 1.  Class B common stock is entitled to one vote for each Class A share and ten votes for each Class B share held.  Holders of either class of common stock are entitled to conversion equivalent per share dividends when declared.

3.  Payment of Dividends

Under the Pennsylvania Business Corporation Law, the Company may pay dividends only if it is solvent and would not be rendered insolvent by the dividend payment. There are also restrictions set forth in the Pennsylvania Banking Code of 1965 (the "Code") and in the Federal Deposit Insurance Act ("FDIA") affecting the payment of dividends by the Company.  Under the Code, no dividends may be paid by a bank except from "accumulated net earnings" (generally retained earnings).  Under the FDIA, no dividend may be paid if a bank is in arrears in the payment of any insurance assessment due to FDIC.  In addition, dividends paid by Royal Bank to the Company would be prohibited if the effect thereof would cause Royal Bank's capital to be reduced below applicable minimum capital requirements.

On August 13, 2009, the Company's Board of Directors determined to suspend regular quarterly cash dividends on the $30.4 million in Series A Preferred Stock.  The Company's Board of Directors took this action in consultation with the Federal Reserve Bank of Philadelphia as required by regulatory policy guidance.  The Company currently has sufficient liquidity to pay the scheduled dividends on the preferred stock; however, this decision better supports the capital position of Royal Bank, a wholly owned subsidiary of the Company. As of March 31, 2013, the Series A Preferred stock dividend in arrears was $6.3 million and has not been recognized in the consolidated financial statements.  In the event the Company declared the preferred dividend the Company's capital ratios would be negatively affected however they would remain above the required minimum ratios.  In February 2014, the preferred cumulative dividend rate will prospectively increase to 9% per annum.

At March 31, 2013, as a result of significant losses within Royal Bank, the Company had negative retained earnings and therefore would not have been able to declare and pay any cash dividends.  Royal Bank must receive prior approval from the FDIC and the Department before declaring and paying a dividend to the Company.  Under the Federal Reserve Agreement as described in "Note 2 – Regulatory Matters and Significant Risks or Uncertainties" to the Consolidated Financial Statements, the Company may not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 30, 2013 Common Class A [Member]	Apr. 30, 2013 Common Class B [Member]
Entity Information [Line Items]
Entity Registrant Name	ROYAL BANCSHARES OF PENNSYLVANIA INC
Entity Central Index Key	0000922487
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,933,150	2,020,449
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013

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Regulatory Capital Requirements

3 Months Ended

Mar. 31, 2013

Regulatory Capital Requirements [Abstract]

Regulatory Capital Requirements

Note 11.    Regulatory Capital Requirements

The Company and Royal Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Royal Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  Under the informal agreement referenced in "Note 2 – Regulatory Matters and Significant Risks And Uncertainties" to the Consolidated Financial Statements, Royal Bank is required to maintain a minimum Tier 1 leverage ratio of 8% and a Total risk-based capital ratio of 12%.  As of March 31, 2013, the Company and Royal Bank met all capital adequacy requirements to which it is subject and Royal Bank met the criteria for a well capitalized institution.

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Call Report instructions and under RAP, that income from Royal Bank's tax lien business should be recognized on a cash basis, not an accrual basis.  Royal Bank's current accrual method is in accordance with U.S. GAAP.  Royal Bank disagrees with the FDIC's conclusion and filed the Call Report for March 31, 2013 and the previous ten quarters in accordance with U.S. GAAP.  The change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank's and the Company's capital ratios as shown below.  Royal Bank is in discussions with the FDIC to resolve the matter.

The table below sets forth Royal Bank's capital ratios under RAP based on the FDIC's interpretation of the Call Report instructions:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	72,906		15.92	%	$	36,625		8.00	%	$	45,782		10.00	%
Tier I capital (to risk-weighted assets)	$	67,064		14.65	%	$	18,313		4.00	%	$	27,469		6.00	%
Tier I capital (to average assets, leverage)	$	67,064		8.96	%	$	29,954		4.00	%	$	37,443		5.00	%

The tables below reflect the adjustments to the net loss as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the three
	months ended
(In thousands)	March 31, 2013
RAP net loss	$	(4,251	)
Tax lien adjustment, net of noncontrolling interest		4,454
U.S. GAAP net income	$	203

	At March 31, 2013
	As reported			As adjusted
	under RAP			for U.S. GAAP
Total capital (to risk-weighted assets)		15.92	%		17.28	%
Tier I capital (to risk-weighted assets)		14.65	%		16.01	%
Tier I capital (to average assets, leverage)		8.96	%		9.85	%

The tables below reflect the Company's capital ratios:

	As of March 31, 2013
											To be well capitalized
						For capital					capitalized under prompt
	Actual					adequacy purposes					corrective action provision
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk-weighted assets)	$	89,237		19.00	%	$	37,574		8.00	%		N/A		N/A
Tier I capital (to risk-weighted assets)	$	77,849		16.57	%	$	18,787		4.00	%		N/A		N/A
Tier I capital (to average assets, leverage)	$	77,849		10.21	%	$	30,500		4.00	%		N/A		N/A

The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C ("FR Y-9C") as of March 31, 2013 consistent with U.S. GAAP and the FR Y-9C instructions.  In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the three
	months ended
(In thousands)	March 31, 2013
U.S. GAAP net income	$	118
Tax lien adjustment, net of noncontrolling interest		(4,454	)
RAP net loss	$	(4,336	)

	At March 31, 2013
	As reported			As adjusted
	under U.S. GAAP			for RAP
Total capital (to risk-weighted assets)		19.00	%		17.68	%
Tier I capital (to risk-weighted assets)		16.57	%		14.70	%
Tier I capital (to average assets, leverage)		10.21	%		9.00	%

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Consolidated Statements of Operations - (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest income
Loans and leases, including fees	$ 5,461	$ 6,817
Investment securities available-for-sale	1,284	1,980
Deposits in banks	7	9
Total Interest Income	6,752	8,806
Interest expense
Deposits	1,073	1,628
Short-term borrowings	0	293
Long-term borrowings	907	892
Total Interest Expense	1,980	2,813
Net Interest Income	4,772	5,993
(Credit) provision for loan and lease losses	(251)	84
Net Interest Income after (Credit) Provision for Loan and Lease Losses	5,023	5,909
Other income
Gain on sale of premises and equipment	676	0
Service charges and fees	313	301
Net gains (losses) on sales of other real estate owned	162	(138)
Income from bank owned life insurance	136	138
Net gains on the sale of AFS investment securities	45	139
Gains on sales of loans and leases	16	41
Other income	60	180
Total Other Income	1,408	661
Other expenses
Employee salaries and benefits	2,789	2,869
Professional and legal fees	660	1,004
Occupancy and equipment	570	549
OREO expenses and impairment	369	804
Pennsylvania shares tax	274	315
FDIC and state assessments	267	206
Loan collection expense	136	(3)
Directors' fees	101	102
Impairment on loans held for sale	100	0
Restructuring charges	87	0
Department of Justice fine	0	1,600
Other operating expenses	787	621
Total Other Expenses	6,140	8,067
Income (Loss) Before Tax Expense (Benefit)	291	(1,497)
Income tax expense (benefit)	0	0
Net Income (Loss)	291	(1,497)
Less net income (loss) attributable to noncontrolling interest	173	(628)
Net income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	118	(869)
Less Preferred stock Series A accumulated dividend and accretion	515	506
Net loss available to common shareholders	$ (397)	$ (1,375)
Per common share data
Net loss - basic and diluted (in dollars per share)	$ (0.03)	$ (0.1)

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Allowance for Loan and Lease Losses

3 Months Ended

Mar. 31, 2013

Allowance for Loan and Lease Losses [Abstract]

Allowance for Loan and Lease Losses

Note 5.      Allowance for Loan and Lease Losses

The following tables present the detail of the allowance and the loan portfolio disaggregated by loan portfolio segment as of March 31, 2013 and March 31, 2012.

Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2013
(In thousands)	Commercial real estate			Construction and land development			Commercial & industrial			Multi-family		Residential real estate			Leases			Tax certificates			Consumer			Unallocated			Total
Beginning balance	$	8,750		$	2,987		$	1,924		$	654	$	1,098		$	1,108		$	472		$	29		$	239		$	17,261
Charge-offs		(835	)		(820	)		(173	)		-		-			(147	)		(10	)		-			-			(1,985	)
Recoveries		104			95			4			-		151			-			10			-			-			364
Provision		84			(184	)		958			4		(1,081	)		100			(88	)		(11	)		(33	)		(251	)
Ending balance	$	8,103		$	2,078		$	2,713		$	658	$	168		$	1,061		$	384		$	18		$	206		$	15,389
Ending balance: related to loans individually evaluated for impairment	$	-		$	-		$	45		$	-	$	13		$	70		$	27		$	-		$	-		$	155
Ending balance: related to loans collectively evaluated for impairment	$	8,103		$	2,078		$	2,668		$	658	$	155		$	991		$	357		$	18		$	206		$	15,234
LHFI
Ending balance	$	175,397		$	34,533		$	67,512		$	11,830	$	6,697		$	38,629		$	22,541		$	916		$	-		$	358,055
Ending balance: individually evaluated for impairment	$	8,484		$	4,466		$	8,750		$	-	$	431		$	71		$	551		$	-		$	-		$	22,753
Ending balance: collectively evaluated for impairment	$	166,913		$	30,067		$	58,762		$	11,830	$	6,266		$	38,558		$	21,990		$	916		$	-		$	335,302

Allowance for Loan and Leases Losses and Loans Held for Investment
For the three months ended March 31, 2012
(In thousands)	Commercial real estate		Construction and land development			Commercial & industrial		Multi-family		Residential real estate		Leases			Tax certificates			Consumer		Unallocated			Total
Beginning balance	$	7,744	$	2,523		$	2,331	$	531	$	1,188	$	1,311		$	425		$	20	$	307		$	16,380
Charge-offs		-		-			-		-		-		(133	)		(20	)		-		-			(153	)
Recoveries		3		104			2		-		1		8			25			-		-			143
Provision		149		(178	)		21		84		5		109			(24	)		-		(82	)		84
Ending balance	$	7,896	$	2,449		$	2,354	$	615	$	1,194	$	1,295		$	406		$	20	$	225		$	16,454
Ending balance: related to loans
individually evaluated for impairment	$	-	$	-		$	47	$	-	$	20	$	53		$	55		$	-	$	-		$	175
Ending balance: related to loans
collectively evaluated for impairment	$	7,896	$	2,449		$	2,307	$	615	$	1,174	$	1,242		$	351		$	20	$	225		$	16,279
LHFI
Ending balance	$	180,123	$	49,399		$	52,794	$	13,735	$	27,155	$	37,468		$	39,056		$	945	$	-		$	400,675
Ending balance: individually evaluated for impairment	$	12,846	$	13,728		$	6,173	$	1,688	$	1,334	$	76		$	1,025		$	-	$	-		$	36,870
Ending balance: collectively evaluated for impairment	$	167,277	$	35,671		$	46,621	$	12,047	$	25,821	$	37,392		$	38,031		$	945	$	-		$	363,805

The following tables detail the loans that were evaluated for impairment by loan segment at March 31, 2013 and December 31, 2012.

	For the three months ended March 31, 2013
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,858	$	8,484	$	-	$	8,961	$	-
Construction and land development		11,550		4,466		-		3,957		-
Commercial & industrial		7,459		6,399		-		7,313		-
Residential real estate		-		-		-		272		27
Total:	$	29,867	$	19,349	$	-	$	20,503	$	27
With an allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	1,167	$	18
Construction and land development		-		-		-		1,239		14
Commercial & industrial		2,554		2,351		45		2,979		102
Residential real estate		530		431		13		434		-
Leasing		71		71		70		74		-
Tax certificates		4,405		551		27		592		-
Total:	$	7,560	$	3,404	$	155	$	6,485	$	134

	For the year ended December 31, 2012
(In thousands)	Unpaid principal balance		Recorded investment		Related allowance		Average recorded investment		Interest income recognized
With no related allowance recorded:
Commercial real estate	$	10,417	$	8,623	$	-	$	11,163	$	78
Construction and land development		6,250		3,464		-		10,059		187
Commercial & industrial		7,790		6,820		-		5,545		73
Multi-family		-		-		-		780		-
Residential real estate		572		516		-		490		21
Tax certificates		-		-		-		583		-
Total:	$	25,029	$	19,423	$	-	$	28,620	$	359
With an allowance recorded:
Commercial real estate	$	4,136	$	2,335	$	835	$	1,526	$	-
Construction and land development		6,180		2,479		820		923		-
Commercial & industrial		9,585		3,431		255		682		-
Multi-family		-		-		-		383		-
Residential real estate		685		478		14		714		7
Leases		81		81		55		86		-
Tax certificates		4,408		601		47		288		-
Total:	$	25,075	$	9,405	$	2,026	$	4,602	$	7

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Loans and Leases

3 Months Ended

Mar. 31, 2013

Loans and Leases [Abstract]

Loans and Leases

Note 4.      Loans and Leases

Major classifications of LHFI are as follows:

	March 31,		December 31,
(In thousands)	2013		2012
Commercial real estate	$	175,397	$	167,115
Construction and land development		34,533		37,215
Commercial and industrial		67,512		40,560
Multi-family		11,830		11,756
Residential real estate		6,697		24,981
Leases		38,629		37,347
Tax certificates		22,541		24,569
Consumer		916		1,139
Total gross loans	$	358,055	$	344,682
Less: Deferred loan fees*		-		(517	)
Total LHFI, net of unearned income	$	358,055	$	344,165

*For the 2013 period net deferred fees were allocated among the loan types.

The Company grants commercial and real estate loans, including construction and land development loans primarily in the greater Philadelphia metropolitan area as well as selected locations throughout the mid-Atlantic region.  The Company also has participated with other financial institutions in selected construction and land development loans outside our geographic area. The Company has a concentration of credit risk in commercial real estate, construction and land development loans at March 31, 2013.  A substantial portion of its debtors' ability to honor their contracts is dependent upon the housing sector specifically and the economy in general.

Loans and leases are classified as LHFI when management has the intent and ability to hold the loan or lease for the foreseeable future or until maturity or payoff.  LHFI are stated at their outstanding unpaid principal balances, net of an allowance for loan and leases losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is generally amortizing these amounts over the contractual life of the loan.

At March 31, 2013 and December 31, 2012, the Company's LHFS were $1.5 million and $1.6 million, respectively, and were comprised of one non-accrual commercial real estate loan. This loan was transferred from LHFI at the lower of cost or fair market value using expected net sales proceeds.  During the first quarter of 2013, the Company recorded additional impairment of $100,000.

The Company classifies its leases as finance leases, in accordance with FASB ASC Topic 840, "Leases". The difference between the Company's gross investment in the lease and the cost or carrying amount of the leased property, if different, is recorded as unearned income, which is amortized to income over the lease term by the interest method.

The Company uses a nine point grading risk classification system commonly used in the financial services industry as the credit quality indicator.  The first five classifications are rated Pass.  The riskier classifications include Special Mention, Substandard, Doubtful and Loss.  The risk rating is related to the underlying credit quality and probability of default.  These risk ratings are used to calculate the historical loss component of the allowance.

·   Pass: includes credits that demonstrate a low probability of default;

·   Pass-watch: a warning classification which includes credits that are beginning to demonstrate above average risk through declining earnings, strained cash flows, increased leverage and/or weakening market fundamentals;

·   Special mention: includes credits that have potential weaknesses that if left uncorrected could weaken the credit or result in inadequate protection of the Company's position at some future date. While potentially weak, credits in this classification are marginally acceptable and loss of principal or interest is not anticipated;

·   Substandard accrual: includes credits that exhibit a well-defined weakness which currently jeopardizes the repayment of debt and liquidation of collateral even though they are currently performing. These credits are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

·   Non-accrual (substandard non-accrual, doubtful, loss): includes credits that demonstrate serious problems to the point that it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.

All loans, at the time of presentation to the appropriate loan committee, are given an initial loan "risk" rating by the Chief Credit Officer. From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

The following tables present risk ratings for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

As of March 31, 2013					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	80,916	$	65,135	$	18,078	$	3,389	$	7,879	$	175,397
Construction and land development		3,579		14,461		12,873		578		3,042		34,533
Commercial & industrial		38,912		12,812		730		11,035		4,023		67,512
Multi-family		9,092		2,152		586		-		-		11,830
Residential real estate		6,265		-		-		-		432		6,697
Leases		38,181		233		58		-		157		38,629
Tax certificates		21,990		-		-		-		551		22,541
Consumer		849		67		-		-		-		916
Total LHFI	$	199,784	$	94,860	$	32,325	$	15,002	$	16,084	$	358,055

As of December 31, 2012					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	64,308	$	69,510	$	19,529	$	3,423	$	10,345	$	167,115
Construction and land development		2,139		13,872		16,343		581		4,280		37,215
Commercial & industrial		14,764		10,774		92		9,969		4,961		40,560
Multi-family		9,019		2,034		703		-		-		11,756
Residential real estate		15,125		6,634		602		1,626		994		24,981
Leases		36,755		325		16		-		251		37,347
Tax certificates		23,968		-		-		-		601		24,569
Consumer		926		213		-		-		-		1,139
Subtotal LHFI		167,004		103,362		37,285		15,599		21,432		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

The following tables present an aging analysis of past due payments for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

As of March 31, 2013	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,032	$	1,486	$	-	$	7,879	$	165,000	$	175,397
Construction and land development		-		-		-		3,042		31,491		34,533
Commercial & industrial		297		46		-		4,023		63,146		67,512
Multi-family		-		-		-		-		11,830		11,830
Residential real estate		1,434		121		-		432		4,710		6,697
Leases		233		58		-		157		38,181		38,629
Tax certificates		-		-		-		551		21,990		22,541
Consumer		-		-		-		-		916		916
Total LHFI	$	2,996	$	1,711	$	-	$	16,084	$	337,264	$	358,055

As of December 31, 2012	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,548	$	1,486	$	-	$	10,345	$	153,736	$	167,115
Construction and land development		-		-		-		4,280		32,935		37,215
Commercial & industrial		200		-		-		4,961		35,399		40,560
Multi-family		-		-		-		-		11,756		11,756
Residential real estate		562		486		-		994		22,939		24,981
Leases		325		16		-		251		36,755		37,347
Tax certificates		-		-		-		601		23,968		24,569
Consumer		-		-		-		-		1,139		1,139
Subtotal LHFI		2,635		1,988		-		21,432		318,627		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

0The following tables detail the composition of the non-accrual loans at March 31, 2013 and December 31, 2012.

	As of March 31, 2013				As of December 31, 2012
(In thousands)	Loan balance		Specific reserves		Loan balance		Specific reserves
Non-accrual loans held for investment
Commercial real estate	$	7,879	$	-	$	10,345	$	835
Construction and land development		3,042		-		4,280		820
Commercial & industrial		4,023		45		4,961		255
Residential real estate		432		13		994		14
Multi-family		-		-		-		-
Leases		157		70		251		55
Tax certificates		551		27		601		47
Total non-accrual LHFI	$	16,084	$	155	$	21,432	$	2,026
Non-accrual loans held for sale
Commercial real estate	$	1,472	$	-	$	1,572	$	-
Total non-accrual LHFS	$	1,472	$	-	$	1,572	$	-
Total non-accrual loans	$	17,556	$	155	$	23,004	$	2,026

Total non-accrual loans at March 31, 2013 were $17.6 million and were comprised of $16.1 million in LHFI and $1.5 million in LHFS.  Total non-accrual loans at December 31, 2012 were $23.0 million and were comprised of $21.4 million in LHFI and $1.6 million in LHFS.  The $5.4 million decrease was the result of a $3.5 million reduction in existing non-accrual loan balances through payments and payoffs, $2.0 million in charge-offs related to specific reserves on LHFI, $100,000 write down on the LHFS and $100,000 in transfers to OREO, which were partially offset by additions of $241,000.  If interest had been accrued, such income would have been approximately $526,000 for the three months ended March 31, 2013.  The Company had no loans past due 90 days or more on which it has continued to accrue interest during the quarter.Typically, loans are restored to accrual status when the loan is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Impaired Loans

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 agreement.  Impaired loans include troubled debt restructurings ("TDRs"). The Company does not accrue interest income on impaired non-accrual loans. Excess proceeds received over the principal amounts due on impaired non-accrual loans are recognized as income on a cash basis. The Company recognizes income under the accrual 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.

Total cash collected on non-accrual and impaired loans during the three months ended March 31, 2013 and 2012 was $4.4 million and $6.1 million respectively, of which $4.2 million and $6.0 million was credited to the principal balance outstanding on such loans, respectively.

The following is a summary of information pertaining to impaired loans:

	March 31,		December 31,
(In thousands)	2013		2012
Impaired loans with a valuation allowance	$	3,404	$	9,405
Impaired loans without a valuation allowance		19,349		19,423
Impaired LHFS		1,472		1,572
Total impaired loans and leases	$	24,225	$	30,400
Valuation allowance related to impaired loans	$	155	$	2,026

Troubled Debt Restructurings

A loan modification is deemed a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower or collateral with similar credit risk characteristics.  All loans classified as TDRs are considered to be impaired.  TDRs are returned to an accrual status when the loan is brought current, has performed in accordance with the contractual restructured terms for a reasonable period of time (generally six months) and the ultimate collectibility of the total contractual restructured principal and interest is no longer in doubt.  At March 31 2013, the Company had twelve TDRs, of which seven are on non-accrual status, with a total carrying value of $17.6 million.  At the time of the modifications, seven of the loans were already classified as impaired loans.   At December 31, 2012, the Company had twelve TDRs with a total carrying value of $21.1 million.  The Company's policy for TDRs is to recognize income on currently performing restructured loans under the accrual method.  During the first quarter of 2013, the Company received pay downs and payoffs of $2.5 million and recorded specific reserve charge-offs of $1.1 million.

The following table details the Company's TDRs that are on an accrual status and a non-accrual status at March 31, 2013.

(In thousands)	As of March 31, 2013
	Number of loans		Accrual Status		Non-Accrual Status		Total TDRs
Commercial real estate		3	$	605	$	7,600	$	8,205
Construction and land development		4		1,423		529		1,952
Commercial & industrial		3		4,953		2,314		7,267
Residential real estate		2		-		141		141
Total		12	$	6,981	$	10,584	$	17,565

At March 31, 2013, all of the TDRs were in compliance with their restructured terms.

The following table presents newly restructured loans that occurred during the three months ended March 31, 2013.

	Modifications by type for the three months ended March 31, 2013
(Dollars in thousands)	Number of loans		Rate		Term		Payment		Combination of types		Total		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & industrial		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87
Total		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87

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Segment Information

3 Months Ended

Mar. 31, 2013

Segment Information [Abstract]

Segment Information

Note 16.     Segment Information

FASB ASC Topic 280, "Segment Reporting" ("ASC Topic 280") established standards for public business enterprises to report information about operating segments in their annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders.  It also established standards for related disclosure about products and services, geographic areas, and major customers.  Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision makers in deciding how to allocate and assess resources and performance.  The Company's chief operating decision makers are the CEO and the Chief  Administrative and Risk Officer ("CARO").The Company has identified its reportable operating segments as "Community Banking" and "Tax Liens".

Community banking

The Company's Community Banking segment which includes Royal Bank consists of commercial and retail banking and leasing. The Community Banking business segment is managed as a single strategic unit which generates revenue from a variety of products and services provided by Royal Bank.  For example, commercial lending is dependent upon the ability of Royal Bank to fund cash needed to make loans with retail deposits and other borrowings and to manage interest rate and credit risk.

Tax lien operation

The Company's Tax Lien Operation consists of purchasing delinquent tax certificates from local municipalities at auction and then processing those liens to either encourage the property holder to pay off the lien, or to foreclose and sell the property.   The tax lien operation earns income based on interest rates (determined at auction) and penalties assigned by the municipality along with gains on sale of foreclosed properties.

The following table presents selected financial information for reportable business segments for the three month periods ended March 31, 2013 and 2012.

	Three months ended March 31, 2013
	Community			Tax Lien
(In thousands)	Banking			Operation		Consolidated
Total assets	$	715,157		$	36,221	$	751,378
Total deposits		531,370			-		531,370
Interest income	$	5,949		$	803	$	6,752
Interest expense		1,551			429		1,980
Net interest income		4,398			374		4,772
(Credit) provision for loan and lease losses		(310	)		59		(251	)
Total other income		1,162			246		1,408
Total other expenses		5,611			529		6,140
Income tax expense (benefit)		-			-		-
Net income	$	259		$	32	$	291
Noncontrolling interest		160			13		173
Net income attributable to Royal Bancshares	$	99		$	19	$	118

	Three months ended March 31, 2012
	Community		Tax Lien
(In thousands)	Banking		Operation			Consolidated
Total assets	$	779,212	$	57,519		$	836,731
Total deposits	$	576,166	$	-		$	576,166
Interest income	$	7,217	$	1,589		$	8,806
Interest expense		1,901		912			2,813
Net interest income	$	5,316	$	677		$	5,993
Provision (credit) for loan and lease losses		109		(25	)		84
Total other  income		789		(128	)		661
Total other expenses		5,772		2,295			8,067
Income tax expense (benefit)		51		(51	)		-
Net income (loss)	$	173	$	(1,670	)	$	(1,497	)
Noncontrolling interest	$	40	$	(668	)	$	(628	)
Net income (loss) attributable to Royal Bancshares	$	133	$	(1,002	)	$	(869	)

Interest income earned by the Community Banking segment related to the Tax Lien Operation was approximately $429,000 and $912,000 for the three month periods ended March 31, 2013 and 2012, respectively.

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Pension Plan

3 Months Ended

Mar. 31, 2013

Pension Plan [Abstract]

Pension Plan

Note 12.     Pension Plan

The Company has a noncontributory nonqualified defined benefit pension plan ("Pension Plan") covering certain eligible employees.  The Company's Pension Plan provides retirement benefits under pension trust agreements.  The benefits are based on years of service and the employee's compensation during the highest three consecutive years during the last 10 years of employment.

Net periodic defined benefit pension expense for the three month periods ended March 31, 2013 and 2012 included the following components:

	Three months ended
	March 31,
(In thousands)	2013		2012
Service cost	$	19	$	68
Interest cost		133		152
Amortization of prior service cost		22		22
Amortization of actuarial loss		122		96
Net periodic benefit cost	$	296	$	338

The Company has unfunded pension plan obligations of $16.8 million as of March 31, 2013 compared to $16.9 million at December 31, 2012.  The Company plans to fund the pension plan obligations through existing Company owned life insurance policies.

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Borrowings and Subordinated Debentures

3 Months Ended

Mar. 31, 2013

Borrowings and Subordinated Debentures [Abstract]

Borrowings and Subordinated Debentures

Note 8.      Borrowings and Subordinated Debentures

1.  Advances from the Federal Home Loan Bank

The available borrowing capacity with the FHLB is based on qualified collateral.  Royal Bank has a collateralized delivery requirement of 105% with the FHLB due to the level of Royal Bank's non-performing assets and net losses. The available amount for future borrowings will be based on the amount of collateral to be pledged.  Total advances from the FHLB were $65.0 million at March 31, 2013 and December 31, 2012. Royal Bank has a $150 million line of credit with the FHLB of which $0 was outstanding as of March 31, 2013 and December 31, 2012.  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 March 31, 2013, investment securities with a market value of $58.9 million and loans with a book value of $47.3 million were pledged as collateral to the FHLB.

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

	As of March 31,					As of December 31,
(Dollars in thousands)	2013					2012
	Amount		Rate			Amount		Rate
Advances maturing in
2013	$	50,000		2.64	%	$	50,000		2.64	%
2017		15,000		1.39	%		15,000		1.39	%
Total FHLB borrowings	$	65,000				$	65,000

As of March 31, 2013, there were no FHLB advances scheduled to mature during the years 2014 through 2016.

2.  Other borrowings

The Company has a note payable with PNC Bank ("PNC") at March 31, 2013 in the amount of $3.2 million compared to $3.3 million at December 31, 2012.  The note's maturity date is August 25, 2016.  The interest rate is a variable rate using rate index of one month LIBOR + 15 basis points and adjusts monthly.  The interest rate at March 31, 2013 was 0.35%.

At March 31, 2013 and December 31, 2012, the Company had additional borrowings of $40.0 million from PNC which will mature on January 7, 2018.    These borrowings have a weighted average interest rate of 3.65%. The note payable and the borrowings are secured by government agencies and mortgage-backed securities.

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 and an aggregate principal amount of $12.9 million of fixed/floating rate junior subordinated deferrable interest to Trust II.  Both debt securities bear an interest rate of 2.43% at March 31, 2013, and reset quarterly at 3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially 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.  Under the Federal Reserve Agreement as described in "Note 2 – Regulatory Matters and Significant Risks or Uncertainties" to the Consolidated Financial Statements, the Company and its non-bank subsidiaries may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System.  As of March 31, 2013 the trust preferred interest payment in arrears was $2.6 million and has been recorded in interest expense and accrued interest payable.  The interest payment deferral period on the trust preferred securities ends after the second quarter of 2014.  After the ending of the deferral period if the interest payments are not made then it would constitute an event of default which could impact the Company's consolidated financial statements and liquidity.

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Fair Value of Financial Instruments - Balance Sheet Grouping (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Quoted Prices in Active Markets for Identical Assets Level 1 [Member]
Financial Assets [Abstract]
Cash and cash equivalents	$ 21,253	$ 28,802
Investment securities available-for-sale	47	47
Other investment	0	0
Federal Home Loan Bank stock	0	0
Loans held for sale	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Financial Liabilities [Abstract]
Demand deposits	0	0
NOW and money markets	0	0
Savings	0	0
Time deposits	0	0
Long-term borrowings	0	0
Subordinated debt	0	0
Accrued interest payable	0	0
Significant Other Observable Inputs Level 2 [Member]
Financial Assets [Abstract]
Cash and cash equivalents	0	0
Investment securities available-for-sale	316,912	344,992
Other investment	0	0
Federal Home Loan Bank stock	0	0
Loans held for sale	0	0
Loans, net	0	0
Accrued interest receivable	9,723	10,256
Financial Liabilities [Abstract]
Demand deposits	58,239	58,531
NOW and money markets	217,385	223,279
Savings	17,673	17,472
Time deposits	234,873	251,532
Long-term borrowings	103,611	102,824
Subordinated debt	24,111	23,837
Accrued interest payable	4,411	3,760
Significant Unobservable Inputs Level 3 [Member]
Financial Assets [Abstract]
Cash and cash equivalents	0	0
Investment securities available-for-sale	4,225	4,164
Other investment	2,250	2,250
Federal Home Loan Bank stock	5,127	6,011
Loans held for sale	1,472	1,572
Loans, net	344,298	330,260
Accrued interest receivable	0	0
Financial Liabilities [Abstract]
Demand deposits	0	0
NOW and money markets	0	0
Savings	0	0
Time deposits	0	0
Long-term borrowings	0	0
Subordinated debt	0	0
Accrued interest payable	0	0
Carrying Amount [Member]
Financial Assets [Abstract]
Cash and cash equivalents	21,253	28,802
Investment securities available-for-sale	321,184	349,203
Other investment	2,250	2,250
Federal Home Loan Bank stock	5,127	6,011
Loans held for sale	1,472	1,572
Loans, net	342,666	326,904
Accrued interest receivable	9,723	10,256
Financial Liabilities [Abstract]
Demand deposits	58,239	58,531
NOW and money markets	217,385	223,279
Savings	17,673	17,472
Time deposits	238,073	255,635
Long-term borrowings	108,221	108,333
Subordinated debt	25,774	25,774
Accrued interest payable	4,411	3,760
Estimated Fair Value [Member]
Financial Assets [Abstract]
Cash and cash equivalents	21,253	28,802
Investment securities available-for-sale	321,184	349,203
Other investment	2,250	2,250
Federal Home Loan Bank stock	5,127	6,011
Loans held for sale	1,472	1,572
Loans, net	344,298	330,260
Accrued interest receivable	9,723	10,256
Financial Liabilities [Abstract]
Demand deposits	58,239	58,531
NOW and money markets	217,385	223,279
Savings	17,673	17,472
Time deposits	234,873	251,532
Long-term borrowings	103,611	102,824
Subordinated debt	24,111	23,837
Accrued interest payable	$ 4,411	$ 3,760

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Other Real Estate Owned

3 Months Ended

Mar. 31, 2013

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 6.       Other Real Estate Owned

OREO declined $171,000 from $13.4 million at December 31, 2012 to $13.3 million at March 31, 2013.  Set forth below is a table which details the changes in OREO from December 31, 2012 to March 31, 2013.

	2013
(In thousands)	First Quarter
Beginning balance	$	13,435
Net proceeds from sales		(2,277	)
Net gain on sales		162
Assets acquired on loans		1,956
Impairment charge		(12	)
Ending balance	$	13,264

At March 31, 2013, OREO was comprised of $5.3 million in land, $3.7 million in commercial real estate, $3.7 million in tax liens, and residential real estate with a fair value of $588,000.  During the first quarter of 2013, the Company sold collateral related to land, received net proceeds of $1.8 million and recorded a loss of $38,000.  The Company also sold three condominiums related to a construction project in Minneapolis, Minnesota in which the Company is a participant. The Company received its pro rata share of net proceeds in the amount of $24,000 and recorded a gain of $17,000.  Additionally the Company sold four single family homes related to two loans.  The Company received net proceeds of $43,000 and recorded a small net gain of $3,000.  In addition to the sales mentioned above, the Company sold eleven properties acquired through the tax lien portfolio.  The Company received proceeds of $367,000 and recorded a net gain of $180,000 as a result of these sales.During the first quarter of 2013, the Company acquired collateral related to a residential real estate loan and transferred $100,000 to OREO.  In addition the Company acquired collateral related to the tax lien portfolio and transferred $1.9 million to OREO.The Company recorded impairment charges of $12,000 related to properties acquired through the tax lien portfolio.

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Deposits

3 Months Ended

Mar. 31, 2013

Deposits [Abstract]

Deposits

Note 7.       Deposits

The Company's deposit composition as of March 31, 2013 and December 31, 2012 is presented below:

		March 31, 2013		December 31, 2012
Demand	$	58,239	$	58,531
NOW		43,252		43,920
Money Market		174,133		179,359
Savings		17,673		17,472
Time deposits (over $100)		85,510		91,233
Time deposits (under $100)		152,563		164,402
Total deposits	$	531,370	$	554,917

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Commitments, Contingencies, and Concentrations

3 Months Ended

Mar. 31, 2013

Commitments, Contingencies, and Concentrations [Abstract]

Commitments, Contingencies, and Concentrations

Note 9.      Commitments, Contingencies, and Concentrations

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they become payable.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. These financial instruments include commitments to extend credit and standby letters of credit.  Such financial instruments are recorded in the financial statements when they become payable.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company's exposure to credit loss in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The contract amounts are as follows:

	March 31,		December 31,
(In thousands)	2013		2012
Financial instruments whose contract amounts represent credit risk:
Open-end lines of credit	$	23,182	$	20,515
Commitments to extend credit		13,010		24,030
Standby letters of credit and financial guarantees written		1,097		1,199

Litigation

From time to time, the Company is a party to routine legal proceedings within the normal course of business.  Such routine legal proceedings in the aggregate are believed by management to be immaterial to the Company's financial condition or results of operations.

Royal Bank holds a 60% equity interest in each of CSC and RTL.  The Company acquired its ownership interest in CSC in 2001.   CSC and RTL acquired, through public auction, delinquent tax liens in various jurisdictions thereby assuming a superior lien position to most other lien holders, including mortgage lien holders.   On March 4, 2009, each of CSC and RTL received grand jury subpoenas issued by the Court upon application of the Antitrust Division of the United States DOJ.  The subpoenas sought certain documents and information relating to an ongoing investigation being conducted by the DOJ relating to alleged bid-rigging at tax lien auctions in New Jersey.  Royal Bank, CSC and RTL have produced to the DOJ documents responsive to the subpoenas and have been cooperating with the DOJ throughout the investigation.  On February 23, 2012, the former President of CSC and RTL entered a plea of guilty to one count of conspiring to rig bids at certain auctions for tax liens in New Jersey from 1998 until approximately the spring of 2009.  The former President's employment with CSC and RTL was terminated in November 2010.  As previously disclosed, Royal Bank had been advised that neither CSC nor RTL were targets of the DOJ investigation, but they were subjects of the investigation.  Based on discussions with the DOJ and the plea entered by the former President of CSC and RTL, the Company believed that the outcome of the investigation would result in fines and penalties being assessed against CSC, RTL or both.  As a result, the Company accrued $2.0 million during 2012 for a DOJ fine relating to the DOJ investigation.  After adjusting for the noncontrolling interest, the Company's 60% share of the fine amounted to $1.2 million.  On September 26, 2012, as a result of the former President's guilty plea and pursuant to a plea agreement with the DOJ, CSC entered a guilty plea in the United States District Court for the District of New Jersey to one count of conspiracy to commit bid-rigging at certain auctions for tax liens in New Jersey.  Under the terms of the plea agreement, which the Court accepted at the September 26, 2012 plea hearing, the DOJ agreed not to bring further criminal charges against CSC and not to bring criminal charges against RTL, or any current or former director, officer, or employee of CSC and/or RTL, for any act or offense committed prior to the date of the plea agreement that was in furtherance of any agreement to rig bids at municipal tax lien sales or auctions in the State of New Jersey. The former President of CSC and RTL and any person who bid at any time at a tax lien auction on behalf of CSC and/or RTL are excluded from this non-prosecution protection.  At the sentencing hearing held in December 2012, the sentencing judge agreed with the DOJ's recommendation and imposed a $2.0 million fine for CSC, which, as stated above, had been previously recognized in the Company's consolidated financial statements.  The Company is evaluating appropriate legal action against the former President of CSC and RTL to attempt to recover legal expenses and any fines or penalties ultimately levied against CSC.

On March 13, 2012, March 30, 2012, April 20, 2012, May 2, 2012, May 11, 2012, May 18, 2012, June 18, 2012 and June 29, 2012, the former President of CSC and RTL, CSC, RTL and the Company were named defendants, among others, in putative class action lawsuits filed in the U.S. District Court for the District of New Jersey ("Court") on behalf of a proposed class of taxpayers who became delinquent in paying their municipal tax obligations: Boyer v. Robert W.Stein, Crusader Servicing Corp, Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al., Superior Court of New Jersey, Chancery Division) ("the Boyer Action"), Contarino v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; MSC LLC v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; English v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; Ledford v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; T&B Associates v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; Jacobs et al v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey; Senatore Builders, LLC  v Robert W. Stein, Crusader Servicing Corp. Royal Tax Lien Services LLC, Royal Bancshares of Pennsylvania, Inc., et al.,U.S. District Court for the District of New Jersey, respectively alleging a conspiracy to rig bids in municipal tax lien auctions.   On June 11, 2012, the Court entered an Order consolidating for pretrial purposes the above actions with all subsequently filed or transferred related actions, collectively referred to as In re New Jersey Tax Sale Certificates Antitrust Litigation.  On October 22, 2012, the Court appointed two law firms as interim class counsel and another law firm as liaison class counsel and further ordered appointed counsel to file on or before November 21, 2012 a master complaint for the consolidated action.  On December 21, 2012, plaintiffs filed a Consolidated Master Class Action Complaint (the "Complaint") against numerous defendants, including the former President of CSC and RTL, Royal Bancshares of Pennsylvania, Inc., Royal Bank America, CSC and RTL. The Company filed a motion to dismiss the Complaint on March 8, 2013, which is currently pending before the Court.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from these class action lawsuits.

On or about March 15, 2012, CSC, RTL and the Company were named defendants, among others, in a complaint filed by Marina Bay Towers Urban Renewal II, LP ("MBT") in the Superior Court of New Jersey, Law Division, Cape May County.  The complaint alleges essentially the same claims as asserted in the Boyer Action.  However MBT does not seek to represent a class and only seeks remedies related to itself.  As of the date of this filing, the Company cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

In 2005, the Company purchased $25.0 million in Class B-1 Notes of a collateralized debt obligation ("CDO") offered by Lehman Brothers, Inc.  Concurrently with the issuance of the notes, the issuer entered into a credit swap with LBSF.  Lehman Brothers Holdings, Inc. ("LBHI") guaranteed LBSF's obligations to the issuer under the credit swap. When LBHI filed for bankruptcy in September 2008, an event of default under the indenture occurred, and the trustee declared the notes to be immediately due and payable.  The Company was repaid its principal on the notes in September 2008.  In September 2010, LBSF filed suit in the United States Bankruptcy court for the Southern District of New York against certain indenture trustees, certain special-purpose entities (issuers) and a class of noteholders and trust certificate holders who received distributions from the trustees, to recover funds that were allegedly improperly paid to the noteholders in forty-seven separate CDO transactions.  In July 2012, LBSF added the Company as a defendant in the proceeding. As of the date of this filing, the Company cannot determine whether this proceeding will have a material adverse effect on its results of operations and cannot reasonably estimate the possible loss or range of loss that may result from this proceeding.

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Pension Plan (Tables)

3 Months Ended

Mar. 31, 2013

Pension Plan [Abstract]

Components of Net Pension Cost

Net periodic defined benefit pension expense for the three month periods ended March 31, 2013 and 2012 included the following components:

	Three months ended
	March 31,
(In thousands)	2013		2012
Service cost	$	19	$	68
Interest cost		133		152
Amortization of prior service cost		22		22
Amortization of actuarial loss		122		96
Net periodic benefit cost	$	296	$	338

The Company has unfunded pension plan obligations of $16.8 million as of March 31, 2013 compared to $16.9 million at December 31, 2012.  The Company plans to fund the pension plan obligations through existing Company owned life insurance policies.

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Commitments, Contingencies, and Concentrations (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2005
Schedule of Equity Method Investments [Line Items]
Loss contingency accrual	$ 0	$ 1,600,000	$ 2,000,000
Percentage of entity's share in loss contingency (in hundredths)			60.00%
Loss contingency, entity's share amount			1,200,000
Payments To Acquire Collateralized Debt Obligation offered by Lehman Brothers, Inc.				25,000,000
CSL [Member]
Schedule of Equity Method Investments [Line Items]
Percentage of equity interest hold (in hundredths)	60.00%
RTL [Member]
Schedule of Equity Method Investments [Line Items]
Percentage of equity interest hold (in hundredths)	60.00%
Open-end lines of credit [Member]
Contracts of financial instruments represent credit risk [Abstract]
Financial instruments whose contract amounts represent credit risk	23,182,000		20,515,000
Commitments to Extend Credit [Member]
Contracts of financial instruments represent credit risk [Abstract]
Financial instruments whose contract amounts represent credit risk	13,010,000		24,030,000
Standby letters of credit and financial guarantees written [Member]
Contracts of financial instruments represent credit risk [Abstract]
Financial instruments whose contract amounts represent credit risk	$ 1,097,000		$ 1,199,000

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Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2013

Comprehensive Income (Loss) [Abstract]

Comprehensive Income (Loss)

Note 14.    Comprehensive Income (Loss)

FASB ASC Topic 220, "Comprehensive Income" ("ASC Topic 220"), requires the reporting of all changes in equity during the reporting period except investments from and distributions to shareholders.  Net income (loss) is a component of comprehensive income (loss) with all other components referred to in the aggregate as other comprehensive income.  Unrealized gains and losses on AFS securities is an example of an other comprehensive income component.

	Three months ended March 31, 2013
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	285		$	50		$	235
Less reclassification adjustment for gains realized in net income		45			15			30
Unrealized gains on investment securities		240			35			205
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(142	)		(48	)		(94	)
Other comprehensive income, net	$	382		$	83		$	299

	Three months ended March 31, 2012
(In thousands)	Before tax amount			Tax expense (benefit)			Net of tax amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	518		$	154		$	364
Less reclassification adjustment for gains realized in net loss		139			49			90
Unrealized gains on investment securities		379			105			274
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization		(78	)		(27	)		(51	)
Other comprehensive income, net	$	457		$	132		$	325

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2013

Investment Securities [Abstract]

Amortized cost, gross unrealized gains and losses, and fair value of available-for-sale investment securities

The carrying value and fair value of investment securities available-for-sale ("AFS") at March 31, 2013 and December 31, 2012 are as follows:

As of March 31, 2013			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	69,358	$	92	$	(77	)	$	-	$	69,373
Mortgage-backed  securities-residential		31,653		573		(61	)		-		32,165
Collateralized mortgage obligations:											-
Issued or guaranteed by U.S. government agencies		196,521		4,844		(378	)		-		200,987
Non-agency		874		30		-			-		904
Corporate bonds		7,868		70		(49	)		-		7,889
Municipal bonds		5,640		1		(47	)		-		5,594
Other securities		3,673		695		(143	)		-		4,225
Common stocks		33		14		-			-		47
Total available for sale	$	315,620	$	6,319	$	(755	)	$	-	$	321,184

			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	66,371	$	151	$	(78	)	$	-	$	66,444
Mortgage-backed  securities-residential		30,038		518		(47	)		-		30,509
Collateralized mortgage obligations:									-		-
Issued or guaranteed by U.S. government agencies		229,556		5,031		(611	)				233,976
Non-agency		1,007		4		-			-		1,011
Corporate bonds		7,477		32		(72	)		-		7,437
Municipal bonds		5,645		-		(30	)		-		5,615
Other securities		3,752		520		(108	)		-		4,164
Common stocks		33		14		-			-		47
Total available for sale	$	343,879	$	6,270	$	(946	)	$	-	$	349,203

Amortized cost and fair value of investment securities, by contractual maturity

The amortized cost and fair value of investment securities at March 31, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2013
(In thousands)	Amortized cost		Fair value
Within 1 year	$	19,905	$	19,975
After 1 but within 5 years		4,682		4,724
After 5 but within 10 years		31,841		31,708
After 10 years		26,438		26,449
Mortgage-backed  securities-residential		31,653		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		196,521		200,987
Non-agency		874		904
Total available for sale debt securities		311,914		316,912
No contractual maturity		3,706		4,272
Total available for sale securities	$	315,620	$	321,184

Gross realized gains and losses realized on sale of securities

Proceeds from the sales of AFS investments during the three months ended March 31, 2013 and 2012 were $12.1 million and $11.8 million, respectively.  The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:

	For the three months
	ended March 31,
(In thousands)	2013			2012
Gross realized gains	$	138		$	311
Gross realized losses		(93	)		(172	)
Net realized gains	$	45		$	139

Schedule of credit related impairment losses on debt securities held, for portion of OTTI was recognized in other comprehensive income

The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at March 31, 2013 and 2012 for which a portion of OTTI was recognized in other comprehensive income:

(In thousands)	2013		2012
Balance at January 1,	$	173	$	173
Reductions for securities sold during the period (realized)		-		-
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Balance at March 31,	$	173	$	173

Investment securities in a continuous unrealized loss position

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012:

March 31, 2013	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	24,560	$	(77	)	$	-	$	-		$	24,560	$	(77	)
Mortgage-backed securities-residential		10,664		(61	)		-		-			10,664		(61	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		43,889		(372	)		2,885		(6	)		46,774		(378	)
Corporate bonds		995		(5	)		956		(44	)		1,951		(49	)
Municipal bonds		5,458		(47	)		-		-			5,458		(47	)
Other securities		276		(44	)		226		(99	)		502		(143	)
Total available-for-sale	$	85,842	$	(606	)	$	4,067	$	(149	)	$	89,909	$	(755	)

December 31, 2012	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	23,818	$	(78	)	$	-	$	-		$	23,818	$	(78	)
Mortgage-backed securities-residential		7,280		(47	)		-		-			7,280		(47	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		44,937		(592	)		3,975		(19	)		48,912		(611	)
Corporate bonds		2,165		(13	)		941		(59	)		3,106		(72	)
Municipal bonds		4,597		(21	)		882		(9	)		5,479		(30	)
Other securities		289		(38	)		255		(70	)		544		(108	)
Total available-for-sale	$	83,086	$	(789	)	$	6,053	$	(157	)	$	89,139	$	(946	)

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Deposits (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012
Deposits [Abstract]
Demand	$ 58,239	$ 58,531
NOW	43,252	43,920
Money Market	174,133	179,359
Savings	17,673	17,472
Time deposits (over $100)	85,510	91,233
Time deposits (under $100)	152,563	164,402
Total deposits	$ 531,370	$ 554,917	$ 576,166

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Investment Securities (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	$ 315,620,000		$ 343,879,000
Gross unrealized gains	6,319,000		6,270,000
Gross unrealized losses, Non-OTTI in AOCI	(755,000)		(946,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	321,184,000		349,203,000
Amortized cost [Abstract]
Within 1 year	19,905,000
After 1 but within 5 years	4,682,000
After 5 but within 10 years	31,841,000
After 10 years	26,438,000
Mortgage-backed securities-residential	31,653,000
Collateralized mortgage obligations Issued or guaranteed by U.S. government agencies	196,521,000
Collateralized mortgage obligations Non-agency	874,000
Total available for sale debt securities	311,914,000
No contractual maturity	3,706,000
Total available for sale securities	315,620,000
Fair value [Abstract]
Within 1 year	19,975,000
After 1 but within 5 years	4,724,000
After 5 but within 10 years	31,708,000
After 10 years	26,449,000
Mortgage-backed securities residential	32,165,000
Collateralized mortgage obligations issued or guaranteed by U.S. government agencies	200,987,000
Collateralized mortgage obligations Non-agency	904,000
Total available for sale debt securities	316,912,000
No contractual maturity	4,272,000
Total available for sale securities	321,184,000
Proceeds from sales of AFS investment securities	12,135,000	11,827,000
Gross realized gains and losses on the sale of securities recognized in earnings [Abstract]
Gross realized gains	138,000	311,000
Gross realized losses	(93,000)	(172,000)
Net realized gains	45,000	139,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	85,842,000		83,086,000
12 months or longer, Fair value	4,067,000		6,053,000
Total, Fair value	89,909,000		89,139,000
Less than 12 months, Gross unrealized losses	(606,000)		(789,000)
12 months or longer, Gross unrealized losses	(149,000)		(157,000)
Total, Gross unrealized losses	(755,000)		(946,000)
Decrease in gross unrealized losses from year to end	191,000
Gain recorded by common stock investment sold		112,000
Other than Temporary Impairment Losses, Investments, Available-for-sale Securities [Abstract]
Balance at beginning of year	173,000	173,000
Reductions for securities sold during the period (realized)	0	0
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company does not expect to recover the entire amortized cost	0	0
Balance at end of year	173,000	173,000
U.S. Government Agencies [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	69,358,000		66,371,000
Gross unrealized gains	92,000		151,000
Gross unrealized losses, Non-OTTI in AOCI	(77,000)		(78,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	69,373,000		66,444,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	24,560,000		23,818,000
12 months or longer, Fair value	0		0
Total, Fair value	24,560,000		23,818,000
Less than 12 months, Gross unrealized losses	(77,000)		(78,000)
12 months or longer, Gross unrealized losses	0		0
Total, Gross unrealized losses	(77,000)		(78,000)
Number of securities in an unrealized loss position for less than twelve months	8
Mortgage-backed Securities-residential [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	31,653,000		30,038,000
Gross unrealized gains	573,000		518,000
Gross unrealized losses, Non-OTTI in AOCI	(61,000)		(47,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	32,165,000		30,509,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	10,664,000		7,280,000
12 months or longer, Fair value	0		0
Total, Fair value	10,664,000		7,280,000
Less than 12 months, Gross unrealized losses	(61,000)		(47,000)
12 months or longer, Gross unrealized losses	0		0
Total, Gross unrealized losses	(61,000)		(47,000)
Number of securities in an unrealized loss position for less than twelve months	3
Collateralized Mortgage Obligations, Issued or Guaranteed by U.S. Government Agencies [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	196,521,000		229,556,000
Gross unrealized gains	4,844,000		5,031,000
Gross unrealized losses, Non-OTTI in AOCI	(378,000)		(611,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0
Fair value	200,987,000		233,976,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	43,889,000		44,937,000
12 months or longer, Fair value	2,885,000		3,975,000
Total, Fair value	46,774,000		48,912,000
Less than 12 months, Gross unrealized losses	(372,000)		(592,000)
12 months or longer, Gross unrealized losses	(6,000)		(19,000)
Total, Gross unrealized losses	(378,000)		(611,000)
Number of investment securities	17
Number of securities in an unrealized loss position for less than twelve months	16
Number of securities in an unrealized loss position for more than twelve months	1
Collateralized Mortgage Obligations, Non-agency [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	874,000		1,007,000
Gross unrealized gains	30,000		4,000
Gross unrealized losses, Non-OTTI in AOCI	0		0
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	904,000		1,011,000
Available for sale securities, continuous unrealized loss position [Abstract]
Number of investment securities	1
Corporate Bonds [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	7,868,000		7,477,000
Gross unrealized gains	70,000		32,000
Gross unrealized losses, Non-OTTI in AOCI	(49,000)		(72,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	7,889,000		7,437,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	995,000		2,165,000
12 months or longer, Fair value	956,000		941,000
Total, Fair value	1,951,000		3,106,000
Less than 12 months, Gross unrealized losses	(5,000)		(13,000)
12 months or longer, Gross unrealized losses	(44,000)		(59,000)
Total, Gross unrealized losses	(49,000)		(72,000)
Number of securities at or above investment grade	2
Municipal Bonds [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	5,640,000		5,645,000
Gross unrealized gains	1,000		0
Gross unrealized losses, Non-OTTI in AOCI	(47,000)		(30,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	5,594,000		5,615,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	5,458,000		4,597,000
12 months or longer, Fair value	0		882,000
Total, Fair value	5,458,000		5,479,000
Less than 12 months, Gross unrealized losses	(47,000)		(21,000)
12 months or longer, Gross unrealized losses	0		(9,000)
Total, Gross unrealized losses	(47,000)		(30,000)
Number of investment securities	6
Common Stocks [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	33,000		33,000
Gross unrealized gains	14,000		14,000
Gross unrealized losses, Non-OTTI in AOCI	0		0
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	47,000		47,000
Available for sale securities, continuous unrealized loss position [Abstract]
Number of investment securities sold		1
Number of investment securities	2
Other Securities [Member]
Carrying value and fair value of available for sale investment securities [Abstract]
Amortized cost	3,673,000		3,752,000
Gross unrealized gains	695,000		520,000
Gross unrealized losses, Non-OTTI in AOCI	(143,000)		(108,000)
Gross unrealized losses, Non-credit related OTTI in AOCI	0		0
Fair value	4,225,000		4,164,000
Available for sale securities, continuous unrealized loss position [Abstract]
Less than 12 months, Fair value	276,000		289,000
12 months or longer, Fair value	226,000		255,000
Total, Fair value	502,000		544,000
Less than 12 months, Gross unrealized losses	(44,000)		(38,000)
12 months or longer, Gross unrealized losses	(99,000)		(70,000)
Total, Gross unrealized losses	$ (143,000)		$ (108,000)
Number of securities invested in real estate funds	7
Number of securities considered not to be other than temporarily impaired	2
Number of securities recording an impairment charge	2

XML

Statements of Consolidated Comprehensive Income (Loss) - (unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013		Mar. 31, 2012
Statements of Consolidated Comprehensive Income (Loss) - (unaudited) [Abstract]
Net income (loss)	$ 291		$ (1,497)
Unrealized gains on investment securities:
Unrealized holding gains arising during period	235		364
Less reclassification adjustment for gains realized in net income (loss)	30	[1]	90	[1]
Unrealized gains on investment securities	205		274
Unrecognized benefit obligation expense:
Less reclassification adjustment for amortization	(94)	[2]	(51)	[2]
Other comprehensive income	299		325
Comprehensive income (loss)	590		(1,172)
Less comprehensive income (loss) attributable to noncontrolling interest	173		(628)
Comprehensive income (loss) attributable to Royal Bancshares of Pennsylvania, Inc.	$ 417		$ (544)

[1] Amounts are included in net gains on the sale of available for sale investment securities on the Consolidated Statements of Operations in total non-interest income.

[2] Amounts are included in salaries and benefits on the Consolidated Statements of Operations in non-interest expense.

XML

Investment Securities

3 Months Ended

Mar. 31, 2013

Investment Securities [Abstract]

Investment Securities

Note 3.     Investment Securities

The carrying value and fair value of investment securities available-for-sale ("AFS") at March 31, 2013 and December 31, 2012 are as follows:

As of March 31, 2013			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	69,358	$	92	$	(77	)	$	-	$	69,373
Mortgage-backed  securities-residential		31,653		573		(61	)		-		32,165
Collateralized mortgage obligations:											-
Issued or guaranteed by U.S. government agencies		196,521		4,844		(378	)		-		200,987
Non-agency		874		30		-			-		904
Corporate bonds		7,868		70		(49	)		-		7,889
Municipal bonds		5,640		1		(47	)		-		5,594
Other securities		3,673		695		(143	)		-		4,225
Common stocks		33		14		-			-		47
Total available for sale	$	315,620	$	6,319	$	(755	)	$	-	$	321,184

			Included in Accumulated Other Comprehensive Income (AOCI)
					Gross unrealized losses
(In thousands)	Amortized cost		Gross unrealized gains		Non-OTTI in AOCL			Non-credit related OTTI in AOCL		Fair value
U.S. government agencies	$	66,371	$	151	$	(78	)	$	-	$	66,444
Mortgage-backed  securities-residential		30,038		518		(47	)		-		30,509
Collateralized mortgage obligations:									-		-
Issued or guaranteed by U.S. government agencies		229,556		5,031		(611	)				233,976
Non-agency		1,007		4		-			-		1,011
Corporate bonds		7,477		32		(72	)		-		7,437
Municipal bonds		5,645		-		(30	)		-		5,615
Other securities		3,752		520		(108	)		-		4,164
Common stocks		33		14		-			-		47
Total available for sale	$	343,879	$	6,270	$	(946	)	$	-	$	349,203

The amortized cost and fair value of investment securities at March 31, 2013, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of March 31, 2013
(In thousands)	Amortized cost		Fair value
Within 1 year	$	19,905	$	19,975
After 1 but within 5 years		4,682		4,724
After 5 but within 10 years		31,841		31,708
After 10 years		26,438		26,449
Mortgage-backed  securities-residential		31,653		32,165
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		196,521		200,987
Non-agency		874		904
Total available for sale debt securities		311,914		316,912
No contractual maturity		3,706		4,272
Total available for sale securities	$	315,620	$	321,184

Proceeds from the sales of AFS investments during the three months ended March 31, 2013 and 2012 were $12.1 million and $11.8 million, respectively.  The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:

	For the three months
	ended March 31,
(In thousands)	2013			2012
Gross realized gains	$	138		$	311
Gross realized losses		(93	)		(172	)
Net realized gains	$	45		$	139

The Company evaluates securities for OTTI at least on a quarterly basis.  The Company assesses whether OTTI is present when the fair value of a security is less than its amortized cost.  All investment securities are evaluated for OTTI under FASB ASC Topic 320, "Investments-Debt & Equity Securities" ("ASC Topic 320").  The non-agency collateralized mortgage obligations that are rated below AA are evaluated under FASB ASC Topic 320 Subtopic 40, "Beneficial Interests in Securitized Financial Assets" under FASB ASC Topic 325, "Investments-Other".  In determining whether OTTI exists, management considers numerous factors, including but not limited to: (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company's intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.

Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis.  In addition, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell or will more likely than not be required to sell the security.  If an entity intends to sell the security or will be required to sell the security, the OTTI shall be recognized in earnings equal to the entire difference between the fair value and the amortized cost basis at the balance sheet date.  If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before the recovery of its amortized cost basis, the OTTI shall be separated into two amounts, the credit-related loss and the noncredit-related loss. The credit-related loss is based on the present value of the expected cash flows and is recognized in earnings.  The noncredit-related loss is based on other factors such as illiquidity and is recognized in other comprehensive income.  The Company did not record OTTI charges to earnings during the first quarters of 2013 and 2012.

The following table presents a roll-forward of the balance of credit-related impairment losses on debt securities held at March 31, 2013 and 2012 for which a portion of OTTI was recognized in other comprehensive income:

(In thousands)	2013		2012
Balance at January 1,	$	173	$	173
Reductions for securities sold during the period (realized)		-		-
Reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the Company intends to sell the security		-		-
Balance at March 31,	$	173	$	173

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at March 31, 2013 and December 31, 2012:

March 31, 2013	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	24,560	$	(77	)	$	-	$	-		$	24,560	$	(77	)
Mortgage-backed securities-residential		10,664		(61	)		-		-			10,664		(61	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		43,889		(372	)		2,885		(6	)		46,774		(378	)
Corporate bonds		995		(5	)		956		(44	)		1,951		(49	)
Municipal bonds		5,458		(47	)		-		-			5,458		(47	)
Other securities		276		(44	)		226		(99	)		502		(143	)
Total available-for-sale	$	85,842	$	(606	)	$	4,067	$	(149	)	$	89,909	$	(755	)

December 31, 2012	Less than 12 months					12 months or longer					Total
(In thousands)	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government agencies	$	23,818	$	(78	)	$	-	$	-		$	23,818	$	(78	)
Mortgage-backed securities-residential		7,280		(47	)		-		-			7,280		(47	)
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		44,937		(592	)		3,975		(19	)		48,912		(611	)
Corporate bonds		2,165		(13	)		941		(59	)		3,106		(72	)
Municipal bonds		4,597		(21	)		882		(9	)		5,479		(30	)
Other securities		289		(38	)		255		(70	)		544		(108	)
Total available-for-sale	$	83,086	$	(789	)	$	6,053	$	(157	)	$	89,139	$	(946	)

The AFS portfolio had gross unrealized losses of $755,000 and $946,000 at March 31, 2013 and December 31, 2012, respectively.  In determining the Company's intent not to sell and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, management considers the following factors: current liquidity and availability of other non-pledged assets that permits the investment to be held for an extended period of time but not necessarily until maturity, capital planning, and any specific investment committee goals or guidelines related to the disposition of specific investments.

Common stocks:  As of March 31, 2013, the Company had two common stocks of financial institutions with a total fair value of $47,000 and an unrealized gain of $14,000.  During the first quarter of 2012 the Company sold one common stock investment and recorded a gain of $112,000.

For all debt security types discussed below the fair value is based on prices provided by brokers and safekeeping custodians with the exception of trust preferred securities which are described below. 

U.S. government-sponsored agencies ("U.S. Agencies"):  As of March 31, 2013, the Company had eight U.S. Agencies with a fair value of $24.6 million and gross unrealized losses of $77,000.  All of these U.S. Agencies have been in an unrealized loss position for twelve months or less.  Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

Mortgage-backed securities issued by U.S. government agencies and U.S. government sponsored enterprises:As of March 31, 2013, the Company had three mortgage-backed securities with a fair value of $10.7 million and gross unrealized losses of $61,000. The three mortgage-backed securities had been in an unrealized loss position for twelve months or less. The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase.  The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

U.S. government issued or sponsored collateralized mortgage obligations ("Agency CMOs"):  As of March 31, 2013, the Company had seventeen Agency CMOs with a fair value of $46.8 million and gross unrealized losses of $378,000.  Sixteen of the Agency CMOs have been in an unrealized loss position for twelve months or less. The one Agency CMO that has been in an unrealized loss position for more than twelve months has a fair market value of $2.9 million and an unrealized loss of $6,000 at March 31, 2013.  The unrealized loss is attributable to a combination of factors, including relative changes in interest rates since the time of purchase.  The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality.  Management expects to recover the entire amortized cost basis of these securities.  The Company does not intend to sell these securities before recovery of their cost basis and will not more likely than not be required to sell these securities before recovery of their cost basis.  Therefore, management has determined that these securities are not other-than-temporarily impaired at March 31, 2013.

Non-agency collateralized mortgage obligations ("Non-agency CMOs"):  As of March 31, 2013, the Company had one non-agency CMO with a fair value of $904,000 and gross unrealized gains of $30,000.  The non-agency CMO is rated CCC.

Corporate bonds:  As of March 31, 2013, the Company had two corporate bonds with a fair value of $2.0 million and gross unrealized losses of $49,000.  One bond has been in an unrealized loss position for twelve months or less and one bond has been in an unrealized loss position for more than twelve months.  The two bonds are above investment grade.  The Company's unrealized losses in investments in corporate bonds represent interest rate risk and not credit risk of the underlying issuers. As previously mentioned management also considered (1) the length of time and the extent to which the fair value is less than the amortized cost, (2) the Company's intent to hold or sell the security, (3) the financial condition and results of the issuer including changes in capital, (4) the credit rating of the issuer, (5) analysts earnings estimate, (6) industry trends specific to the security, and (7) timing of debt maturity and status of debt payments.  Management utilized discounted cash flow analysis based upon the credit ratings of the securities, liquidity risk premiums, and the recent corporate spreads for similar securities to arrive at the credit risk component as required under ASC Topic 320 to determine the credit risk component of the corporate bonds.  Based on these analyses, there was no credit-related loss on the two bonds. Because the Company does not intend to sell the corporate bonds and it is not more likely than not that the Company will be required to sell the bonds before recovery of their amortized cost basis, which may be maturity, the Company does not consider the two bonds to be other-than-temporarily impaired at March 31, 2013.

Municipal bonds:  As of March 31, 2013, the Company had six municipal bond with a fair value $5.5 million and an unrealized loss of $47,000.  These six municipal bonds have been in an unrealized loss position for twelve months or less.  Because the Company does not intend to sell the bonds and it is not more likely than not that the Company will be required to sell the bond before recovery of its amortized cost basis, which may be maturity, the Company does not consider the bonds to be other-than-temporarily impaired at March 31, 2013.

Other securities:  As of March 31, 2013, the Company had seven investments in private equity funds which were predominantly invested in real estate.  In determining whether or not OTTI exists, the Company reviews the funds' financials, asset values, and its near-term projections.  At March 31, 2013, two of the private equity funds had a combined fair value of $502,000 and an unrealized loss of $143,000.  OTTI charges were recorded in a prior period on these two funds.  Management concluded that there was no additional impairment on these two funds as of March 31, 2013.

The Company will continue to monitor these investments to determine if the discounted cash flow analysis, continued negative trends, market valuations or credit defaults result in impairment that is other than temporary.

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Fair Value of Financial Instruments - Unobservable Input Reconciliation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Assets measured at fair value on recurring basis Level 3 inputs [Roll Forward]
Beginning balance		$ 19,521
Total gains/(losses) - (realized/unrealized) [Abstract]
Included in earnings		32
Included in other comprehensive income		84
Purchases		334
Sales and calls		(133)
Amortization of premium		(7)
Transfers in and/or out of Level 3		0
Ending balance		19,831
Trust Preferred Securities [Member]
Assets measured at fair value on recurring basis Level 3 inputs [Roll Forward]
Beginning balance		12,603
Total gains/(losses) - (realized/unrealized) [Abstract]
Included in earnings		0
Included in other comprehensive income		(18)
Purchases		0
Sales and calls		0
Amortization of premium		(7)
Transfers in and/or out of Level 3		0
Ending balance		12,578
Other Securities [Member]
Assets measured at fair value on recurring basis Level 3 inputs [Roll Forward]
Beginning balance	4,164	6,918
Total gains/(losses) - (realized/unrealized) [Abstract]
Included in earnings	5	32
Included in other comprehensive income	140	102
Purchases	0	334
Sales and calls	(84)	(133)
Amortization of premium		0
Transfers in and/or out of Level 3	0	0
Ending balance	$ 4,225	$ 7,253

XML

Loans and Leases (Tables)

3 Months Ended

Mar. 31, 2013

Loans and Leases [Abstract]

Major classifications of loans held for investment

Major classifications of LHFI are as follows:

	March 31,		December 31,
(In thousands)	2013		2012
Commercial real estate	$	175,397	$	167,115
Construction and land development		34,533		37,215
Commercial and industrial		67,512		40,560
Multi-family		11,830		11,756
Residential real estate		6,697		24,981
Leases		38,629		37,347
Tax certificates		22,541		24,569
Consumer		916		1,139
Total gross loans	$	358,055	$	344,682
Less: Deferred loan fees*		-		(517	)
Total LHFI, net of unearned income	$	358,055	$	344,165

*For the 2013 period net deferred fees were allocated among the loan types.

Risk ratings for loan portfolio segment

The following tables present risk ratings for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

As of March 31, 2013					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	80,916	$	65,135	$	18,078	$	3,389	$	7,879	$	175,397
Construction and land development		3,579		14,461		12,873		578		3,042		34,533
Commercial & industrial		38,912		12,812		730		11,035		4,023		67,512
Multi-family		9,092		2,152		586		-		-		11,830
Residential real estate		6,265		-		-		-		432		6,697
Leases		38,181		233		58		-		157		38,629
Tax certificates		21,990		-		-		-		551		22,541
Consumer		849		67		-		-		-		916
Total LHFI	$	199,784	$	94,860	$	32,325	$	15,002	$	16,084	$	358,055

As of December 31, 2012					Special
(In thousands)	Pass		Pass-Watch		Mention		Substandard		Non-accrual		Total
Commercial real estate	$	64,308	$	69,510	$	19,529	$	3,423	$	10,345	$	167,115
Construction and land development		2,139		13,872		16,343		581		4,280		37,215
Commercial & industrial		14,764		10,774		92		9,969		4,961		40,560
Multi-family		9,019		2,034		703		-		-		11,756
Residential real estate		15,125		6,634		602		1,626		994		24,981
Leases		36,755		325		16		-		251		37,347
Tax certificates		23,968		-		-		-		601		24,569
Consumer		926		213		-		-		-		1,139
Subtotal LHFI		167,004		103,362		37,285		15,599		21,432		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

Aging analysis of past due payments for loan portfolio segment

The following tables present an aging analysis of past due payments for each loan portfolio segment at March 31, 2013 and December 31, 2012, excluding LHFS.

As of March 31, 2013	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,032	$	1,486	$	-	$	7,879	$	165,000	$	175,397
Construction and land development		-		-		-		3,042		31,491		34,533
Commercial & industrial		297		46		-		4,023		63,146		67,512
Multi-family		-		-		-		-		11,830		11,830
Residential real estate		1,434		121		-		432		4,710		6,697
Leases		233		58		-		157		38,181		38,629
Tax certificates		-		-		-		551		21,990		22,541
Consumer		-		-		-		-		916		916
Total LHFI	$	2,996	$	1,711	$	-	$	16,084	$	337,264	$	358,055

As of December 31, 2012	30-59 Days		60-89 Days		Accruing		Total
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	1,548	$	1,486	$	-	$	10,345	$	153,736	$	167,115
Construction and land development		-		-		-		4,280		32,935		37,215
Commercial & industrial		200		-		-		4,961		35,399		40,560
Multi-family		-		-		-		-		11,756		11,756
Residential real estate		562		486		-		994		22,939		24,981
Leases		325		16		-		251		36,755		37,347
Tax certificates		-		-		-		601		23,968		24,569
Consumer		-		-		-		-		1,139		1,139
Subtotal LHFI		2,635		1,988		-		21,432		318,627		344,682
Less: Deferred loan fees												(517	)
Total LHFI											$	344,165

Composition of the non-accrual loans

0The following tables detail the composition of the non-accrual loans at March 31, 2013 and December 31, 2012.

	As of March 31, 2013				As of December 31, 2012
(In thousands)	Loan balance		Specific reserves		Loan balance		Specific reserves
Non-accrual loans held for investment
Commercial real estate	$	7,879	$	-	$	10,345	$	835
Construction and land development		3,042		-		4,280		820
Commercial & industrial		4,023		45		4,961		255
Residential real estate		432		13		994		14
Multi-family		-		-		-		-
Leases		157		70		251		55
Tax certificates		551		27		601		47
Total non-accrual LHFI	$	16,084	$	155	$	21,432	$	2,026
Non-accrual loans held for sale
Commercial real estate	$	1,472	$	-	$	1,572	$	-
Total non-accrual LHFS	$	1,472	$	-	$	1,572	$	-
Total non-accrual loans	$	17,556	$	155	$	23,004	$	2,026

Information pertaining to impaired Loans

The following is a summary of information pertaining to impaired loans:

	March 31,		December 31,
(In thousands)	2013		2012
Impaired loans with a valuation allowance	$	3,404	$	9,405
Impaired loans without a valuation allowance		19,349		19,423
Impaired LHFS		1,472		1,572
Total impaired loans and leases	$	24,225	$	30,400
Valuation allowance related to impaired loans	$	155	$	2,026

Troubled debt restructurings that are on an accrual status and a non-accrual status

The following table details the Company's TDRs that are on an accrual status and a non-accrual status at March 31, 2013.

(In thousands)	As of March 31, 2013
	Number of loans		Accrual Status		Non-Accrual Status		Total TDRs
Commercial real estate		3	$	605	$	7,600	$	8,205
Construction and land development		4		1,423		529		1,952
Commercial & industrial		3		4,953		2,314		7,267
Residential real estate		2		-		141		141
Total		12	$	6,981	$	10,584	$	17,565

Newly restructured loans

The following table presents newly restructured loans that occurred during the three months ended March 31, 2013.

	Modifications by type for the three months ended March 31, 2013
(Dollars in thousands)	Number of loans		Rate		Term		Payment		Combination of types		Total		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial & industrial		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87
Total		1	$	-	$	-	$	-	$	85	$	85	$	87	$	87

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2013

Segment Information [Abstract]

Selected segment information and reconciliations to consolidated financial information

The following table presents selected financial information for reportable business segments for the three month periods ended March 31, 2013 and 2012.

	Three months ended March 31, 2013
	Community			Tax Lien
(In thousands)	Banking			Operation		Consolidated
Total assets	$	715,157		$	36,221	$	751,378
Total deposits		531,370			-		531,370
Interest income	$	5,949		$	803	$	6,752
Interest expense		1,551			429		1,980
Net interest income		4,398			374		4,772
(Credit) provision for loan and lease losses		(310	)		59		(251	)
Total other income		1,162			246		1,408
Total other expenses		5,611			529		6,140
Income tax expense (benefit)		-			-		-
Net income	$	259		$	32	$	291
Noncontrolling interest		160			13		173
Net income attributable to Royal Bancshares	$	99		$	19	$	118

	Three months ended March 31, 2012
	Community		Tax Lien
(In thousands)	Banking		Operation			Consolidated
Total assets	$	779,212	$	57,519		$	836,731
Total deposits	$	576,166	$	-		$	576,166
Interest income	$	7,217	$	1,589		$	8,806
Interest expense		1,901		912			2,813
Net interest income	$	5,316	$	677		$	5,993
Provision (credit) for loan and lease losses		109		(25	)		84
Total other  income		789		(128	)		661
Total other expenses		5,772		2,295			8,067
Income tax expense (benefit)		51		(51	)		-
Net income (loss)	$	173	$	(1,670	)	$	(1,497	)
Noncontrolling interest	$	40	$	(668	)	$	(628	)
Net income (loss) attributable to Royal Bancshares	$	133	$	(1,002	)	$	(869	)

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Loss Per Common Share

3 Months Ended

Mar. 31, 2013

Loss Per Common Share [Abstract]

Loss Per Common Share

Note 13.    Loss Per Common Share

The Company follows the provisions of FASB ASC Topic 260, "Earnings per Share" ("ASC Topic 260").  Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period.  The Company has two classes of common stock currently outstanding. The classes are A and B, of which one share of Class B is convertible into 1.15 shares of Class A.  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 using the treasury stock method. For the three months ended March 31, 2013, 248,132 options to purchase shares of common stock were anti-dilutive in the computation of diluted EPS, as exercise price exceeded average market price.  For the three months ended March 31, 2012, 520,979 options to purchase shares of common stock were anti-dilutive in the computation of diluted EPS, as exercise price exceeded average market price and as a result of the net loss for the three months ended March 31, 2012.  Additionally 30,407 warrants were also anti-dilutive.

Basic and diluted EPS are calculated as follows:

	Three months ended March 31, 2013
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(397	)		13,257	$	(0.03	)

	Three months ended March 31, 2012
	Loss			Average shares		Per share
(In thousands, except for per share data)	(numerator)			(denominator)		Amount
Basic and Diluted EPS
Loss available to common shareholders	$	(1,375	)		13,257	$	(0.10	)