8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

July 20, 2016

Date of Report (Date of earliest event reported)

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	0-26366	23-2812193
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Ident. No.)

One Bala Plaza Suite 522, 231 St. Asaph’s Road, Bala Cynwyd, PA	19004
(Address of principal executive offices)	(Zip Code)

(610) 668-4700

Registrant’s telephone number, including area code

N/A

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Item 2.02 Results of Operation and Financial Condition.

On July 20, 2016, Royal Bancshares of Pennsylvania, Inc. (“Royal”) issued a press release announcing its financial results for the three and six months ended June 30, 2016, respectively.  A copy of the press release is furnished as Exhibit 99.1 hereto.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits:

99.1 Press release, dated July 20, 2016, regarding financial results for the three and six months ended June 30, 2016, respectively.

2

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 hereunto duly authorized.

	ROYAL BANCSHARES OF PENNSYLVANIA, INC.
Dated:  July 22, 2016
	By:	/s/ Michael S. Thompson
		Michael S. Thompson
		Executive Vice President and Chief Financial Officer

3

EX-99.1

Exhibit 99.1

 

Royal Bancshares of Pennsylvania, Inc. Reports Profit for Second Quarter 2016

Quality Core Business and Margin Growth Boost Earnings

BALA CYNWYD, PA - - (Marketwired – July 20, 2016) - Royal Bancshares of Pennsylvania, Inc. (“Company”) (NASDAQ: RBPAA), parent company of Royal Bank America (“Royal Bank”), is pleased to report net income attributable to the Company of $2.0 million, or $0.06 per diluted share, and $4.2 million, or $0.12 per diluted share, for the three and six months ended June 30, 2016, respectively.   Net income attributable to the Company was $1.5 million, or $0.03 per diluted share, and $3.1 million, or $0.07 per diluted share, for the three and six months ended June 30, 2015, respectively.

The Company's President and Chief Executive Officer, Kevin Tylus, noted, "Consistent quality loan and deposit growth drove our increase in the second quarter and 2016 year to date earnings.  Our financial performance is based on lending and customer strategies focused within our local communities.  We are successfully managing our balance sheet growth while faced with the challenges of low interest rates, local competition, and volatility in domestic and global markets.We continue to meet our commitment of providing a wide range of consumer and commercial products as we recently added first position residential mortgages through a new arrangement with a local mortgage company experienced in providing and servicing residential mortgages for community banks.”

Highlights for the three and six months ended June 30, 2016 included:

Balance Sheet Trends:

· Total assets were $816.5 million at June 30, 2016, an increase of $17.9 million, or 2.2%, from $798.5 million at March 31, 2016, and grew $28.2 million, or 3.6%, from $788.3 million at December 31, 2015.

· Total loans were $547.1 million at June 30, 2016, an increase of $15.9 million, or 3.0%, from $531.1 million at March 31, 2016, and grew $48.0 million, or 9.6%, from $499.1 million at December 31, 2015.  Increases were recognized in multiple commercial loan portfolio classes and the leasing portfolio.

· Total deposits were $599.2 million at June 30, 2016, an increase of $9.9 million, or 1.7%, from $589.3 million at March 31, 2016, and grew $21.4 million, or 3.7%, from $577.9 million at December 31, 2015.

Asset Quality:

· The ratio of non-performing loans to total loans continues to show improvement and was 0.88%, 0.98%, and 1.10% at June 30, 2016, March 31, 2016, and December 31, 2015, respectfully.  Excluding tax liens, the ratio of non-performing loans to total loans was 0.68%, 0.80% and 0.88% at June 30, 2016, March 31, 2016, and December 31, 2015, respectively.

· Non-performing loans of $4.8 million at June 30, 2016 decreased $422 thousand, or 8.1%, from $5.2 million at March 31, 2016, and decreased $691 thousand, or 12.6%, from $5.5 million at December 31, 2015.

· The ratio of non-performing assets to total assets was 1.47%, 1.54%, and 1.64% at June 30, 2016, March 31, 2016, and December 31, 2015, respectively.  Excluding tax lien assets, the ratio of non-performing assets to total assets was 0.49%, 0.56%, and 0.59% at June 30, 2016, March 31, 2016, and December 31, 2015, respectively.

· Non-performing assets of $12.0 million at June 30, 2016, decreased $310 thousand, or 2.5%, from $12.3 million at March 31, 2016, and decreased $918 thousand, or 7.1%, from $12.9 million at December 31, 2015.

· For the three and six months ended June 30, 2016, the Company recorded a provision to the allowance for loan and lease losses of $197 thousand and $409 thousand, respectively, compared to credits of $586 thousand and $1.2 million for same periods in 2015, respectively.  The 2016 provision was primarily attributable to growth, specific reserves on the tax lien and leasing portfolios, and net charge-off activity within the leasing portfolio.

Income Statement and Other Highlights:

· The return on average assets for the three and six months ended June 30, 2016 increased to 1.02% and 1.06%, respectively, compared to 0.81% and 0.85% for the three and six months ended June 30, 2015, respectively.

· The return on average equity for the three and six months ended June 30, 2016 grew to 11.54% and 11.77%, respectively, compared to 9.03% and 9.56% for the three and six months ended June 30, 2015.

· At June 30, 2016, the Company’s Tier 1 leverage and Total Risk Based Capital ratios were 11.70% and 17.39%, respectively, compared to 12.44% and 18.57%, respectively, at December 31, 2015.  The Common Equity Tier 1 ratio was 9.28% at June 30, 2016 compared to 9.37% at December 31, 2015.

· Net interest income increased $937 thousand, or 17.1%, from $5.5 million for the three months ended June 30, 2015 to $6.4 million for the three months ended June 30, 2016.  Net interest income increased $1.7 million, or 15.4%, from $11.2 million for the six months ended June 30, 2015 to $12.9 million for the six months ended June 30, 2016.  The growth in net interest income was primarily related to an increase in interest income on loans and the average yield earned on average interest-earning assets.

· The net interest margin grew to 3.41% for the second quarter of 2016 compared to 3.26% for the second quarter in 2015 and was 3.46% for the six months ended June 30, 2016 compared to 3.33% for the six months ended June 30, 2015.  The increase in net interest margin was directly related to an increase in the yield on average interest-earning assets due to a significant change in the composition of such assets.

· Non-interest income for the second quarter of 2016 was $1.1 million and increased $156 thousand from $917 thousand for the second quarter of 2015.  The quarterly improvement in non-interest income was impacted by a $350 thousand increase in net gains on the sale of investment securities and was partially offset by total other-than-temporary impairment (“OTTI”) charges on investment securities of $146 thousand.

· Non-interest income was $2.3 million for the six months ended June 30, 2016 and grew $796 thousand from $1.5 million for the six months ended June 30, 2015.  Net gains on the sale of investment securities and income from Company owned life insurance increased $530 thousand and $407 thousand, respectively, from 2015.  Partially offsetting these positive items was a $146 thousand OTTI charge. There was no OTTI charge in the 2015 period.

· Non-interest expense was $5.0 million for the quarter ended June 30, 2016 and declined $325 thousand from $5.4 million for the comparable period in 2015.  Contributing to the decrease in non-interest expense for the second quarter of 2016 was a $244 decline in the provision for unfunded loan commitments due to a decline in the historical loss rates applied in the calculation of the reserve for unfunded loan commitments.  Additionally, net other real estate owned (“OREO”) expenses and occupancy and equipment expenses declined $72 thousand and $56 thousand, respectively.  Partially offsetting the decrease in non-interest expense was a planned increase of $49 thousand in salaries and benefits during the second quarter of 2016.

· Non-interest expense was $10.3 million for the six months ended June 30, 2016 and decreased $199 thousand from $10.5 million for the comparable period in 2015.  Contributing to the decrease in non-interest expense for 2016 was a $521 thousand decline in the provision for unfunded loan commitments for the reason mentioned previously and a decrease of $88 thousand in occupancy and equipment expenses.  Partially offsetting the decrease in non-interest expense was a planned increase of $156 thousand in salaries and benefits.  Additionally, net OREO expenses and communications and data processing expenses increased $105 thousand and $98 thousand.

About Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc., headquartered in Bala Cynwyd, Pennsylvania, is the parent company of Royal Bank America, which is headquartered in Narberth, Pennsylvania. Royal Bank serves growing small and middle market businesses, commercial real estate investors, consumers, and depositors principally in Montgomery, Delaware, Chester, Bucks, Philadelphia and Berks counties in Pennsylvania, central and southern New Jersey, and Delaware. Established in 1963, Royal Bank provides an array of financial products and services through a comprehensive suite of cash management services and thirteen branches and two loan production offices. More information on Royal Bancshares of Pennsylvania, Inc., Royal Bank America, and its subsidiaries can be found at www.royalbankamerica.com.

Forward-Looking Statements

The foregoing material may contain forward-looking statements. We caution that such statements may be subject to a number of uncertainties, and actual results could differ materially; therefore, readers should not place undue reliance on any forward-looking statements. Royal Bancshares of Pennsylvania, Inc. does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. For a discussion of the factors that could cause actual results to differ from the results discussed in any such forward-looking statements, see the filings made by Royal Bancshares of Pennsylvania, Inc. with the Securities and Exchange Commission, including its Annual Report — Form 10-K for the year ended December 31, 2015.

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

CONSOLIDATED INCOME STATEMENTS

(Unaudited, dollars in thousands, except per share data)

	For the three months ended June 30,					For the six months ended June 30,
	2016		2015			2016		2015
Interest income	$	8,181	$	7,071		$	16,395	$	14,351
Interest expense		1,764		1,591			3,487		3,162
Net Interest Income		6,417		5,480			12,908		11,189
Provision (credit) for loan and lease losses		197		(586	)		409		(1,166	)
Net interest income after provision (credit) for loan and lease losses		6,220		6,066			12,499		12,355
Non-interest income		1,073		917			2,280		1,484
Non-interest expense		5,046		5,371			10,267		10,466
Income before taxes		2,247		1,612			4,512		3,373
Income tax expense		60		-			60		-
Net Income		2,187		1,612			4,452		3,373
Less net income attributable to noncontrolling interest		153		151			229		321
Net Income Attributable to Royal Bancshares	$	2,034	$	1,461		$	4,223	$	3,052
Less Preferred stock Series A accumulated dividend and accretion	$	338	$	429		$	672	$	853
Net income to common shareholders	$	1,696	$	1,032		$	3,551	$	2,199
Income Per Common Share – Basic and Diluted	$	0.06	$	0.03		$	0.12	$	0.07

SELECTED PERFORMANCE RATIOS:

	For the three months ended June 30,						For the six months ended June 30,
	2016			2015			2016			2015
Return on Average Assets		1.02	%		0.81	%		1.06	%		0.85	%
Return on Average Equity		11.54	%		9.03	%		11.77	%		9.56	%
Average Equity to Average Assets		8.82	%		9.00	%		9.05	%		8.89	%
Book Value Per Share	$	1.91		$	1.53		$	1.91		$	1.53

Capital ratios (US GAAP):	At June 30, 2016			At December 31, 2015
Company Tier 1 Leverage		11.70	%		12.44	%
Company Total Risk Based Capital		17.39	%		18.57	%
Company Common Equity Tier 1		9.28	%		9.37	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

	At June 30, 2016			At December 31, 2015
Cash and cash equivalents	$	26,603		$	25,420
Investment securities, at fair value		204,058			224,067
Other investment, at cost		2,250			2,250
Federal Home Loan Bank stock		2,778			2,545
Loans and leases
Commercial real estate and multi-family		260,786			241,928
Construction and land development		65,385			47,984
Commercial and industrial		97,270			85,980
Residential real estate		50,104			51,588
Leases		66,898			64,341
Tax certificates		4,390			4,755
Consumer		2,254			2,527
Loans and leases		547,087			499,103
Allowance for loan and lease losses		(10,008	)		(9,689	)
Loans and leases, net		537,079			489,414
Bank owned life insurance		16,370			16,133
Premises and equipment, net		4,346			3,959
Other real estate owned, net		7,208			7,435
Accrued interest receivable		4,065			4,149
Other assets		11,695			12,911
Total Assets	$	816,452		$	788,283
Deposits	$	599,244		$	577,892
Borrowings		95,744			90,970
Other liabilities		22,743			21,349
Subordinated debentures		25,774			25,774
Royal Bancshares shareholders’ equity		72,427			71,904
Noncontrolling interest		520			394
Total Equity		72,947			72,298
Total Liabilities and Equity	$	816,452		$	788,283

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

NET INTEREST INCOME AND MARGIN

(Unaudited, in thousands, except percentages)

	For the three months ended June 30, 2016							For the three months ended June 30, 2015
	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Cash and cash equivalents	$	15,183	$	17		0.45	%	$	20,278	$	8		0.16	%
Investment securities		202,857		1,206		2.39	%		223,012		1,340		2.41	%
Loans		537,862		6,958		5.20	%		431,957		5,723		5.31	%
Total interest-earning assets		755,902		8,181		4.35	%		675,247		7,071		4.20	%
Non-interest earning assets		47,463							46,056
Total average assets	$	803,365						$	721,303
Interest-bearing deposits
NOW and money markets	$	226,286	$	204		0.36	%	$	201,292	$	168		0.33	%
Savings		72,752		128		0.71	%		22,268		10		0.18	%
Certificates of deposit		207,825		735		1.42	%		220,376		742		1.35	%
Total interest-bearing deposits		506,863		1,067		0.85	%		443,936		920		0.83	%
Borrowings		116,973		697		2.40	%		117,493		671		2.29	%
Total interest-bearing liabilities		623,836		1,764		1.14	%		561,429		1,591		1.14	%
Non-interest bearing deposits		87,212							73,831
Other liabilities		21,468							21,135
Shareholders' equity		70,849							64,908
Total average liabilities and equity	$	803,365						$	721,303
Net interest income			$	6,417						$	5,480
Net interest margin						3.41	%						3.26	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

NET INTEREST INCOME AND MARGIN

(Unaudited, in thousands, except percentages)

	For the six months ended June 30, 2016							For the six months ended June 30, 2015
	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Cash and cash equivalents	$	13,823	$	33		0.48	%	$	16,028	$	13		0.16	%
Investment securities		210,267		2,540		2.43	%		236,253		2,916		2.49	%
Loans		525,399		13,822		5.29	%		425,826		11,422		5.41	%
Total interest-earning assets		749,489		16,395		4.40	%		678,107		14,351		4.27	%
Non-interest earning assets		48,222							45,971
Total average assets	$	797,711						$	724,078
Interest-bearing deposits
NOW and money markets	$	227,228	$	409		0.36	%	$	203,102	$	326		0.32	%
Savings		67,334		235		0.70	%		20,788		18		0.18	%
Certificates of deposit		207,929		1,463		1.41	%		222,552		1,484		1.34	%
Total interest-bearing deposits		502,491		2,107		0.84	%		446,442		1,828		0.83	%
Borrowings		116,243		1,380		2.39	%		117,823		1,334		2.28	%
Total interest-bearing liabilities		618,734		3,487		1.13	%		564,265		3,162		1.13	%
Non-interest bearing deposits		84,390							73,413
Other liabilities		22,413							22,031
Shareholders' equity		72,174							64,369
Total average liabilities and equity	$	797,711						$	724,078
Net interest income			$	12,908						$	11,189
Net interest margin						3.46	%						3.33	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

ASSET QUALITY TRENDS

(Unaudited, in thousands, except percentages)

	At June 30, 2016			At March 31, 2016			At December 31, 2015
Non-performing loans	$	3,691		$	4,185		$	4,367
Non-performing tax certificates		1,110			1,038			1,125
Total non-performing loans		4,801			5,223			5,492
Other real estate owned-loans		243			243			220
Other real estate owned-tax certificates		6,965			6,853			7,215
Total other real estate owned		7,208			7,096			7,435
Total non-performing assets	$	12,009		$	12,319		$	12,927
Ratio of non-performing loans to total loans		0.88	%		0.98	%		1.10	%
Ratio of non-performing assets to total assets		1.47	%		1.54	%		1.64	%
Ratio of allowance for loan and lease losses to total loans		1.83	%		1.87	%		1.94	%
Ratio of allowance for loan and lease losses to non-performing loans		208.46	%		190.33	%		176.42	%