8-K

UNITED STATESSECURITIES 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

October 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 October 20, 2016, Royal Bancshares of Pennsylvania, Inc. (“Royal”) issued a press release announcing its financial results for the three and nine months ended September 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 October 20, 2016, regarding financial results for the three and nine months ended September 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: October 20, 2016
	By:	/s/ Michael S. Thompson
		Michael S. Thompson
		Executive Vice President and Chief Financial Officer

3

EX-99.1

Exhibtit 99.1

 

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

Quality Loan Growth Boosts Earnings;

Regulatory Approval Received to Retire Balance of “TARP” Shares

BALA CYNWYD, PA - - (Marketwired – October 20, 2016) - Royal Bancshares of Pennsylvania, Inc. (“the 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 $6.3 million, or $0.17 per diluted share, for the three and nine months ended September 30, 2016, respectively.   Comparatively, net income was $1.5 million, or $0.04 per diluted share, and $4.6 million, or $0.11 per diluted share, for the three and nine months ended September 30, 2015, respectively.

The Company's President and Chief Executive Officer, Kevin Tylus, noted, "Consistent quality loan growth and expense discipline drove our increase in earnings for the 2016 third quarter and year to date.  We are achieving the goals for managing our balance sheet while meeting the challenges of low interest rates and local competition. The repurchase of another 2,651 shares of the Series A Preferred stock (“TARP”) and   regulatory approval to repurchase or redeem the remaining outstanding Series A Preferred shares mean we will fully retire the $30.4 million in original principal by year end and avoid future dividends at a rate of 9%.”

“The renovations of our Narberth retail location is nearing completion, giving our customers a first class service experience.  To meet the needs of our growing customer base, we are implementing the next phase of web and technology enhancements”, he added.

Highlights for the three and nine months ended September 30, 2016 included:

Balance Sheet Trends:

· Total assets were $811.4 million at September 30, 2016, an increase of $23.1 million, or 2.9%, from $788.3 million at December 31, 2015. Total assets were $816.5 million at June 30, 2016.

· Total loans were $575.8 million at September 30, 2016, an increase of $28.7 million, or 5.3%, from $547.1 million at June 30, 2016, and grew $76.7 million, or 15.4%, from $499.1 million at December 31, 2015.  Increases were recognized in multiple commercial loan portfolio classes.

· Total deposits were $592.2 million at September 30, 2016, an increase of $14.3 million, or 2.5%, from $577.9 million at December 31, 2015.  Total deposits were $599.2 million at June 30, 2016.

Asset Quality:

· The ratio of non-performing loans to total loans continues to show improvement and was 0.77%, 0.88%, and 1.10% at September 30, 2016, June 30, 2016, and December 31, 2015, respectfully.  Excluding tax liens, the ratio of non-performing loans to total loans was 0.65%, 0.68%, and 0.88% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively.

· Non-performing loans of $4.5 million at September 30, 2016 decreased $346 thousand, or 6.6%, from $4.8 million at June 30, 2016, and decreased $1.0 million, or 18.9%, from $5.5 million at December 31, 2015.

· The ratio of non-performing assets to total assets was 1.44%, 1.47%, and 1.64% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively.  Excluding tax lien assets, the ratio of non-performing assets to total assets was 0.49% at September 30, 2016 and June 30, 2016, and 0.59% at December 31, 2015.

· Non-performing assets of $11.7 million at September 30, 2016, decreased $318 thousand, or 2.6%, from $12.0 million at June 30, 2016, and decreased $1.2 million, or 9.6%, from $12.9 million at December 31, 2015.

· For the three and nine months ended September 30, 2016, the Company recorded a provision to the allowance for loan and lease losses of $578 thousand and $987 thousand, respectively, compared to credits of $216 thousand and $1.4 million for same periods in 2015, respectively.  The 2016 provision was primarily attributable to growth, specific reserves on the leasing portfolio, and net charge-off activity within the leasing and tax certificate portfolios.

Income Statement and Other Highlights:

· The return on average assets for the three and nine months ended September 30, 2016 increased to 0.99% and 1.04%, respectively, compared to 0.82% and 0.84% for the three and nine months ended September 30, 2015, respectively.

· The return on average equity for the three and nine months ended September 30, 2016 grew to 11.23% and 11.59%, respectively, compared to 9.24% and 9.45% for the three and nine months ended September 30, 2015.

· At September 30, 2016, the Company’s Tier 1 leverage and Total Risk Based Capital ratios were 11.22% and 16.36%, respectively, compared to 12.44% and 18.57%, respectively, at December 31, 2015.  The Common Equity Tier 1 ratio was 8.97% at September 30, 2016 compared to 9.37% at December 31, 2015. Impacting the 2016 capital ratios is the repurchase of 6,651 shares of the Preferred Series A stock which occurred during the first nine months of 2016.

· Net interest income increased $396 thousand, or 6.43%, from $6.2 million for the three months ended September 30, 2015 to $6.6 million for the three months ended September 30, 2016.  Net interest income increased $2.1 million, or 12.2%, from $17.4 million for the nine months ended September 30, 2015 to $19.5 million for the nine months ended September 30, 2016.  The growth in net interest income was primarily related to an increase in interest income on average loan balances.

· The net interest margin for the third quarter of 2016 was 3.42% compared to 3.51% for the third quarter in 2015 and was 3.45% for the nine months ended September 30, 2016 compared to 3.39% for the nine months ended September 30, 2015.  The decrease in net interest margin for the third quarter was directly related to an increase in the interest rate paid on average interest-bearing liabilities specifically due to average borrowings.

· Non-interest income for the third quarter of 2016 was $1.2 million and increased $612 thousand from $577 thousand for the third quarter of 2015.  The quarterly improvement in non-interest income was impacted by a $273 thousand beneficiary payment from a bank owned life insurance policy and a $200 thousand increase in net gains on the sale of investment securities.  Additionally, service charges and fees increased $98 thousand and were mostly related to the leasing portfolio.

· Non-interest income was $3.5 million for the nine months ended September 30, 2016 and grew $1.4 million from $2.1 million for the nine months ended September 30, 2015.  Net gains on the sale of investment securities and income from Company owned life insurance increased $730 thousand and $475 thousand, respectively, from 2015.  Additionally, the Company received a $273 thousand beneficiary payment from a life insurance policy. Partially offsetting these positive items was other-than-temporary impairment (“OTTI”) charges on the investment portfolio of $181 thousand. There was no OTTI charge in the 2015 period.

· Non-interest expense was $5.0 million for the quarter ended September 30, 2016 and declined $241 thousand from $5.2 million for the comparable period in 2015.  Contributing to the decrease in non-interest expense for the third quarter of 2016 was the reversal of a $200 thousand contingency accrual related to an other real estate owned (“OREO”) property that was sold in a previous reporting period.  As of September 30, 2016, Management determined that the contingency was no longer required.  Additionally, in the 2016 quarter, loan collection expenses declined $117 thousand due to continued improvement in credit quality.  Partially offsetting the decrease in non-interest expense was a planned increase of $55 thousand in salaries and benefits during the third quarter of 2016.

· Non-interest expense was $15.3 million for the nine months ended September 30, 2016 and decreased $440 thousand from $15.7 million for the comparable period in 2015.  Contributing to the decrease in non-interest expense for 2016 was a $518 thousand decline in the provision for unfunded loan commitments and the reversal of a $200 thousand contingency accrual for the reasons mentioned previously.  Year over year loan collection expenses and occupancy and equipment expenses declined $145 thousand and $119 thousand, respectively.  Partially offsetting the decrease in non-interest expense was a planned increase of $211 thousand in salaries and benefits.  Additionally, communications and data processing expenses and net OREO expenses increased $141 thousand and $98 thousand, respectively.

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					For the nine months
	ended September 30,					ended September 30,
	2016		2015			2016		20 15
Interest income	$	8,460	$	7,798		$	24,855	$	22,149
Interest expense		1,902		1,636			5,389		4,798
Net Interest Income		6,558		6,162			19,466		17,351
Provision (credit) for loan and lease losses		578		(216	)		987		(1,382	)
Net interest income after provision (credit) for loan and lease losses		5,980		6,378			18,479		18,733
Non-interest income		1,189		577			3,469		2,061
Non-interest expense		5,001		5,242			15,268		15,708
Income before taxes		2,168		1,713			6,680		5,086
Income tax expense		25		-			85		-
Net Income		2,143		1,713			6,595		5,086
Less net income attributable to noncontrolling interest		113		179			342		500
Net Income Attributable to Royal Bancshares	$	2,030	$	1,534		$	6,253	$	4,586
Less Preferred stock Series A accumulated dividend and accretion	$	342	$	434		$	1,014	$	1,287
Net income to common shareholders	$	1,688	$	1,100		$	5,239	$	3,299
Income Per Common Share – Basic and Diluted	$	0.06	$	0.04		$	0.17	$	0.11

SELECTED PERFORMANCE RATIOS:

	For the three months ended September 30,						For the nine months ended September 30,
	2016			2015			2016			2015
Return on Average Assets		0.99	%		0.82	%		1.04	%		0.84	%
Return on Average Equity		11.23	%		9.24	%		11.59	%		9.45	%
Average Equity to Average Assets		8.86	%		8.90	%		8.98	%		8.89	%
Book Value Per Share	$	1.90		$	1.61		$	1.90		$	1.61

	At September 30,			At December 31,
Capital ratios (US GAAP):	2016			2015
Company Tier 1 Leverage		11.22	%		12.44	%
Company Total Risk Based Capital		16.36	%		18.57	%
Company Common Equity Tier 1		8.97	%		9.37	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)	At September 30, 2016			At December 31, 2015
Cash and cash equivalents	$	28,391		$	25,420
Investment securities, at fair value		168,321			224,067
Other investment, at cost		2,250			2,250
Federal Home Loan Bank stock		3,018			2,545
Loans and leases
Commercial real estate and multi-family		276,905			241,928
Construction and land development		74,885			47,984
Commercial and industrial		106,254			85,980
Residential real estate		49,061			51,588
Leases		62,671			64,341
Tax certificates		3,803			4,755
Consumer		2,239			2,527
Loans and leases		575,818			499,103
Allowance for loan and lease losses		(10,254	)		(9,689	)
Loans and leases, net		565,564			489,414
Bank owned life insurance		16,015			16,133
Premises and equipment, net		4,714			3,959
Other real estate owned, net		7,236			7,435
Accrued interest receivable		3,770			4,149
Other assets		12,089			12,911
Total Assets	$	811,368		$	788,283
Deposits	$	592,239		$	577,892
Borrowings		100,000			90,970
Other liabilities		23,553			21,349
Subordinated debentures		25,774			25,774
Royal Bancshares shareholders’ equity		69,300			71,904
Noncontrolling interest		502			394
Total Equity		69,802			72,298
Total Liabilities and Equity	$	811,368		$	788,283

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

NET INTEREST INCOME AND MARGIN

(Unaudited, in thousands, except percentages)

	For the three months ended							For the three months ended
	September 30, 2016							September 30, 2015
	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Cash and cash equivalents	$	12,107	$	15		0.49	%	$	18,184	$	8		0.17	%
Investment securities		188,194		1,099		2.32	%		218,767		1,334		2.42	%
Loans		561,904		7,346		5.20	%		459,543		6,456		5.57	%
Total interest-earning assets		762,205		8,460		4.42	%		696,494		7,798		4.44	%
Non-interest earning assets		49,734							43,722
Total average assets	$	811,939						$	740,216
Interest-bearing deposits
NOW and money markets	$	213,926	$	185		0.34	%	$	210,652	$	182		0.34	%
Savings		79,851		143		0.71	%		32,589		35		0.43	%
Certificates of deposit		208,902		758		1.44	%		216,653		751		1.38	%
Total interest-bearing deposits		502,679		1,086		0.86	%		459,894		968		0.84	%
Borrowings		122,432		816		2.65	%		113,767		668		2.33	%
Total interest-bearing liabilities		625,111		1,902		1.21	%		573,661		1,636		1.13	%
Non-interest bearing deposits		89,749							79,791
Other liabilities		25,171							20,889
Shareholders' equity		71,908							65,875
Total average liabilities and equity	$	811,939						$	740,216
Net interest income			$	6,558						$	6,162
Net interest margin						3.42	%						3.51	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

NET INTEREST INCOME AND MARGIN

(Unaudited, in thousands, except percentages)

	For the nine months ended							For the nine months ended
	September 30, 2016							September 30, 2015
	Average Balance		Interest		Yield			Average Balance		Interest		Yield
Cash and cash equivalents	$	13,246	$	48		0.48	%	$	16,574	$	21		0.17	%
Investment securities		202,856		3,639		2.40	%		230,361		4,250		2.47	%
Loans		537,656		21,168		5.26	%		437,188		17,878		5.47	%
Total interest-earning assets		753,758		24,855		4.40	%		684,303		22,149		4.33	%
Non-interest earning assets		48,730							45,214
Total average assets	$	802,488						$	729,517
Interest-bearing deposits
NOW and money markets	$	222,761	$	595		0.36	%	$	205,646	$	508		0.33	%
Savings		71,537		377		0.70	%		24,765		52		0.28	%
Certificates of deposit		208,256		2,221		1.42	%		220,564		2,236		1.36	%
Total interest-bearing deposits		502,554		3,193		0.85	%		450,975		2,796		0.83	%
Borrowings		118,321		2,196		2.48	%		116,456		2,002		2.30	%
Total interest-bearing liabilities		620,875		5,389		1.16	%		567,431		4,798		1.13	%
Non-interest bearing deposits		86,189							75,563
Other liabilities		23,339							21,646
Shareholders' equity		72,085							64,877
Total average liabilities and equity	$	802,488						$	729,517
Net interest income			$	19,466						$	17,351
Net interest margin						3.45	%						3.39	%

ROYAL BANCSHARES OF PENNSYLVANIA, INC.

ASSET QUALITY TRENDS

(Unaudited, in thousands, except percentages)

	At September 30, 2016			At June 30, 2016			At March 31, 2016			At December 31, 2015
Non-performing loans	$	3,710		$	3,691		$	4,186		$	4,367
Non-performing tax certificates		745			1,110			1,038			1,125
Total non-performing loans		4,455			4,801			5,224			5,492
Other real estate owned-loans		243			243			243			220
Other real estate owned-tax certificates		6,993			6,965			6,853			7,215
Total other real estate owned		7,236			7,208			7,096			7,435
Total non-performing assets	$	11,691		$	12,009		$	12,319		$	12,927
Ratio of non-performing loans to total loans		0.77	%		0.88	%		0.98	%		1.10	%
Ratio of non-performing assets to total assets		1.44	%		1.47	%		1.54	%		1.64	%
Ratio of allowance for loan and lease losses to total loans		1.78	%		1.83	%		1.87	%		1.94	%
Ratio of allowance for loan and lease losses to non-performing loans		230.17	%		208.46	%		190.29	%		176.42	%

Contact Information

Michael Thompson

Executive Vice President and Chief Financial Officer

mthompson@royalbankamerica.com