NOTE 10 – 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. Additionally during the fourth quarter of 2013 the FHLB released Royal Bank from loan-level listing status. As of December 31, 2013, Royal Bank had approximately $190.0 million of available borrowing capacity at the FHLB as a result of the two collateral restrictions being removed. Total advances from the FHLB were $65.0 million at December 31, 2013 and 2012. The FHLB advances had a weighted average interest rate of 1.19%. The advances and the line of credit are collateralized by FHLB stock, government agencies and mortgage-backed securities. As of December 31, 2013, investment securities with a market value of $70.4 million were pledged as collateral to the FHLB. The average balance of advances with the FHLB during 2013 was $64.4 million.

At December 31, 2012, advances from FHLB totaled $65.0 million with maturities within five years. These advances had a weighted average interest rate of 2.35%. The average balance of advances with the FHLB during 2012 was $80.1 million.

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

	As of December 31,
(Dollars in thousands)	2013					2012
	Amount		Rate			Amount		Rate
Advances maturing in
2013	$	-		-		$	50,000		2.64	%
2014		10,000		0.24	%
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	$	65,000				$	65,000

2. Other borrowings

The Company has a note payable with PNC Bank (“PNC”) at December 31, 2013 in the amount of $2.9 million with a maturity date of August 25, 2016. The note payable balance at December 31, 2012 was $3.3 million. The interest rate is a variable rate using rate index of one month LIBOR + 15 basis points and adjusts monthly. The interest rate at December 31, 2013 and 2012 was 0.32% and 0.36%, respectively.

At December 31, 2013 and 2012, the Company had other borrowings of $40.0 million from PNC which will mature on January 7, 2018. These borrowings are secured by government agencies and mortgaged-backed securities. These borrowings have a weighted average interest rate of 3.65%. As of December 31, 2013, investment securities with a market value of $49.7 million were pledged as collateral to secure all borrowings with PNC.

3. Subordinated debentures

The Company has outstanding $25.0 million of Trust Preferred Securities issued through two Delaware trust affiliates, Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”). The Company issued an aggregate principal amount of $12.9 million of floating rate junior subordinated debt securities to Trust I 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 2.39% at December 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 suspended the 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. The Company received approval and paid the fourth quarter interest payment in December 2013.