Borrowings and Subordinated Debentures

9 Months Ended

Sep. 30, 2013

Borrowings and Subordinated Debentures [Abstract]

Borrowings and Subordinated Debentures

Note 8.Borrowings and Subordinated Debentures

1.  Advances from the Federal Home Loan Bank

While Royal Bank has a $150 million line of credit with the FHLB, the available borrowing capacity with the FHLB is based on qualified collateral.  During the third quarter, the FHLB released Royal Bank from the over collateralized delivery requirement of 105% subject to reevaluation on a quarterly basis. Total borrowings from the FHLB were $69.0 million at September 30, 2013 compared to $65.0 million at December 31, 2012.  The FHLB advances are collateralized by FHLB stock, government agencies and mortgage-backed securities, residential loans, and commercial real estate loans.  As of September 30, 2013, investment securities with a market value of $74.3 million and loans with a book value of $28.9 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					As of
(Dollars in thousands)	September 30, 2013					December 31, 2012
	Amount		Rate			Amount		Rate
Advances maturing in
2013	$	14,000		0.23	%		50,000		2.64	%
2015		10,000		0.71	%		-		-
2016		10,000		1.11	%		-		-
2017		25,000		1.46	%		15,000		1.39	%
2018		10,000		2.01	%		-		-
Total FHLB borrowings	$	69,000				$	65,000

As of September 30, 2013, there were no FHLB advances scheduled to mature in 2014.

2.  Other borrowings

The Company has a note payable with PNC Bank (“PNC”) at September 30, 2013 in the amount of $3.0 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 September 30, 2013 was 0.33%.

At September 30, 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 2.40% at September 30, 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 determined to suspend interest payments on the trust preferred securities.  Under the Federal Reserve MOU 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.  During the third quarter of 2013, the Company received approval from the Federal Reserve Bank to pay the $3.1 million interest payment in arrears on the trust preferred securities.  On September 16, 2013, the Company became current on the trust preferred interest payments which included an interest penalty of $174,000.