UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year endedDecember 31, 2010
 or
 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.
  Pennsylvania
    
    23-2812193(State of other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)732 Montgomery Avenue, Narberth, Pennsylvania
    
    19072(Address of principal executive offices)
    
    (Zip Code)
 (610) 668-4700  (Issuers telephone number, including area code)
 (Former name, former address and former year, if changed since last report)
  Name of Each Exchange on Which Registered
    
    Title of Each ClassThe NASDAQ Stock Market, LLC
    
    Class A Common Stock ($2.00 par value)
  Name of Each Exchange on Which Registered
    
    Title of Each ClassNone
    
    Class B Common Stock ($0.10 par value)
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Small reporting company þ(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated by Reference




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Forward Looking Statements
  2




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PART I
 ITEM 1. BUSINESS
 Royal Bancshares of Pennsylvania, Inc.
     Regulatory Actions
 FDIC Orders
  3




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1.
    
    Board Oversight and Senior ManagementA Regulatory Compliance Committee comprised of outside directors and management
was created in the third quarter of 2009. The purpose of the Committee is to monitor
compliance with the Orders. Royal Bank had previously completed an internal assessment of
senior managements qualifications and had submitted the report to the FDIC and the
Department for their review.2.
    
    Reduction of Classified AssetsRoyal Bank has eliminated from its books via charge-off all assets classified as Loss.
Royal Bank submitted to the FDIC and the Department a Plan for the Reduction of Classified
Assets (classified assets plan) required under the Orders. The FDIC and the Department
approved the classified assets plan. No material advances were made on any classified loan
unless approved by the board of directors and determined to be in Royal Banks best
interest. Royal Bank was successful in reducing classified loans, which includes loans held
for sale, and OREO from $149.6 million at June 30, 2009 to $109.9 million at December 31,
2010.3.
    
    Reduction of DelinquenciesRoyal Bank submitted to the FDIC and the Department a Plan for the Reduction of
Delinquencies (delinquency reduction plan) required under the Orders. The FDIC and the
Department approved the delinquency reduction plan. No advances were made on any delinquent
loan unless approved by the board of directors and determined to be in Royal Banks best
interest. Royal Banks delinquent loans (30 to 90 days) amounted to $36.3 million at June
30, 2009 versus $12.2 million at December 31, 2010. Royal Banks non-accrual loans held for
investment were $80.8 million and $43.2 million at June 30, 2009 and December 31, 2010,
respectively.4.
    
    Reduction of Commercial Real Estate ConcentrationsRoyal Bank submitted to the FDIC and the Department a Plan for the Reduction of Commercial
Real Estate Concentrations (CRE concentration plan) required under the Orders. The FDIC
and the Department approved the CRE concentration plan. Management has been working
diligently to reduce the concentration in commercial real estate loans (CRE loans). Royal
Bank was successful in reducing the CRE concentration, which includes loans held for sale,
from $289.1 million at June 30, 2009 to $214.1 million at December 31, 2010, which amounted
to 207.7% of total capital and 225.9% of Tier 1 capital,
 4




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respectively as of such dates. At December 31, 2010, total construction/land loans (CL
loans), which includes loans held for sale, amounted to $93.2 million, or 90.5%, of total
capital and 98.4% of Tier 1 capital. CL loans were approximately $20 million less than what
was projected under the CRE concentration plan at year end 2010. Based on capital levels
calculated under US GAAP, Royal Bank no longer has 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 (Guidance). Based on
capital levels calculated under regulatory accounting principles (RAP), (see discussion
under Capital Adequacy in Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations.), CRE loans and CL loans as a percentage of total
capital and Tier 1 capital, respectively, are 239.6%, 263.5%, 104.3% and 114.8%. Under RAP,
Royal Bank would have a concentration in CL loans as defined in the Guidance.5.
    
    Capital MaintenanceUnder the Orders, Royal Bank must maintain a minimum total risk-based capital ratio and a
minimum Tier 1 leverage ratio of 12% and 8%, respectively. At December 31, 2010, based on
capital levels calculated under RAP, Royal Banks total risk-based capital and Tier 1
leverage ratios were 13.76% and 8.03%, respectively. At December 31, 2010, based on capital
levels calculated under US GAAP, Royal Banks total risk-based capital and Tier 1 leverage
ratios were 15.86% and 9.24%, respectively. Please see discussion in Capital Adequacy in
Item 7  Managements Discussion and Analysis of Financial Condition and Results of
Operations.6.
    
    Budget PlanRoyal Bank submitted to the FDIC and the Department a revised 2010 budget and
profit plan required under the Orders. The FDIC and the Department approved the 2010
budget and profit plan. In addition, Royal Bank has submitted to the FDIC and the
Department a 2011 budget and profit plan.7.
    
    Strategic PlanRoyal Bank submitted to the FDIC and the Department a three-year strategic plan
required under the Orders. The FDIC and the Department approved the three-year strategic
plan. The Board of Directors and senior management are executing the strategic plan and
will incorporate any modifications as deemed necessary by our regulators. Additionally,
Royal Bank submitted a three-year strategic plan to the FDIC and Department covering 2011
through 2013.8.
    
    Liquidity and Funds ManagementRoyal Bank submitted to the FDIC and the Department a liquidity and funds management plan
(liquidity plan) required under the Orders. The FDIC and the Department have approved the
liquidity plan. At December 31, 2010, Royal Bank had $51.7 million in cash on hand and $95.0
million in unpledged agency securities. At December 31, 2010, the liquidity to deposits
ratio was 31.4% compared to Royal Banks 12% target and the liquidity to total liabilities
ratio was 24.2% compared to Royal Banks 10% target.9.
    
    Brokered Deposits and BorrowingsRoyal Bank submitted to the FDIC and the Department a plan for reduction of reliance on
non-core deposits and wholesale funding sources plan (brokered deposit plan) required
under the Orders. The FDIC and the Department approved the brokered deposit plan. Since
entering the Orders Royal Bank has not renewed, accepted, or rolled over any maturing
brokered certificates of deposit (CDs); nor has Royal Bank issued new brokered CDs.
Brokered CDs declined $137.8 million from $226.9 million at June 30, 2009 to $89.1 million
at December 31, 2010. Borrowings declined $129.0 million from $283.9 million at June 30,
2009 to $154.9 million at December 31, 2010.
 5




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10.
    
    Cash Dividends and other Payments to the CompanyRoyal Bank will seek approval from the FDIC and the Department prior to declaring a cash
dividend to the Company and prior to making payments or entering into new contracts with our
affiliates.11.
    
    Executive CompensationRoyal Bank submitted to the FDIC an executive compensation plan (compensation plan)
required under the Orders. The FDIC approved the compensation plan. Royal Bank was not
required to submit the compensation plan to the Department.
  Federal Reserve Agreement
   6




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Royal Bank America
         Service Area:
 Competition:
  7




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Employees:
 Deposits:
  Lending:
 Royal Asian Bank
    Non-Bank Subsidiaries
  8




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9




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Website Access to Company Reports
 www.royalbankamerica.com
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Products and Services with Reputation Risk
  Future Acquisitions
  Concentrations, Seasonality
  Environmental Compliance
  Supervision and Regulation
    Holding Company
  11




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Royal Bank
  12




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13




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Federal Deposit Insurance Corporation Improvement Act of 1991
 General:
      Real Estate Lending Guidelines:
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Loan Category
    
    LTV limitRaw land
    
    
    65
    %Land development
    
    
    65
    %Construction:Commercial, multifamily (includes condos and co-ops) and other nonresidential
    
    
    80
    %Improved property
    
    
    85
    %Owner occupied 1-4 family and home equity (without credit enhancements)
    
    
    90
    %
  Truth in Savings Act:
 Gramm-Leach-Bliley Act of 1999
   Privacy provision:
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USA Patriot Act of 2001
  Sarbanes-Oxley Act of 2002
  Emergency Economic Stabilization Act of 2008
  16




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American Recovery and Reinvestment Act of 2009
   §
    
    Limits on compensation incentives for risks by senior executive officers;§
    
    A requirement for recovery of any compensation paid based on inaccurate financial
information;§
    
    A prohibition on golden parachute payments to specified officers or employees,
which term is generally defined as any payment for departure from a company for any
reason;§
    
    A prohibition on compensation plans that would encourage manipulation of reported
earnings to enhance the compensation of employees;§
    
    A prohibition on bonus, retention award, or incentive compensation to designated
employees, except in the form of long-term restricted stock;§
    
    A requirement that the board of directors adopt a luxury expenditures policy;§
    
    A requirement that shareholders be permitted a separate nonbinding vote on executive
compensation;§
    
    A requirement that the chief executive officer and the chief financial officer
provide a written certification of compliance with the standards, when established, to
the SEC.
  Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
  17




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Regulation W
  §
    
    To an amount equal to 10% of Royal Banks capital and surplus, in the case of
covered transactions with any one affiliate; and§
    
    To an amount equal to 20% of Royal Banks capital and surplus, in the case of
covered transactions with all affiliates.
  §
    
    A loan or extension of credit to an affiliate;§
    
    A purchase of, or an investment in, securities issued by an affiliate;§
    
    A purchase of assets from an affiliate, with some exceptions;§
    
    The acceptance of securities issued by an affiliate as collateral for a loan or
extension of credit to any party; and§
    
    This issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
  §
    
    A bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
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§
    
    Covered transactions and other specified transactions between a bank or its
subsidiaries and an affiliate must be on terms and conditions that are consistent with
safe and sound banking practices; and§
    
    With some exceptions, each loan or extension of credit by a bank to an affiliate
must be secured by collateral with a market value ranging from 100% to 130%, depending
on the type of collateral, of the amount of the loan or extension of credit.
   FDIC Insurance Assessments
      19




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Other Legislation/Regulatory Requirements
 Capital Framework and Basel III
    Monetary Policy
  20




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Effects of Inflation
  Available Information
 www.royalbankamerica.com
 ITEM 1A. RISK FACTORS
 An investment in our common stock involves risks. Before making an investment decision, investors
should carefully consider the risks described below in conjunction with the other information in
this Report, including our consolidated financial statements and related notes. If any of the
following risks or other risks, which have not been identified or which we may believe are
immaterial or unlikely, actually occurs, our business, financial condition and results of
operations could be harmed. In such a case, the trading price of our common stock could decline,
and investors may lose all or part of their investment.
 Risks Related to Our Business
 Our business may be impacted by the existence of the Orders for Royal Bank and the Federal Reserve
Agreement with the Federal Reserve Bank of Philadelphia.
  21




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Our business is subject to the success of the local economies and real estate markets in which we
operate.
  Our concentration of non-residential real estate and construction loans is subject to unique risks
that could adversely affect our earnings.
   Our allowance for loan and lease losses may not be adequate to cover actual losses.
  Our current level of non-performing loans and future growth may require us to raise additional
capital but that capital may not be available.
  22




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We may suffer losses in our loan portfolio despite our underwriting practices.
  Holders of our Series A Preferred Stock have certain voting rights that may adversely affect our
common shareholders, and the holders of the Series A Preferred Stock may have interests different
from our common shareholders.
    Our ability to pay dividends depends primarily on dividends from our banking subsidiary, which are
subject to regulatory limits and we are subject to other dividend limitations.
  23




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Competition from other financial institutions may adversely affect our profitability.
    The Company has a lower level of core deposits and a higher level of wholesale funding relative
to our peer institutions.
  24




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Our ability to manage liquidity is always critical in our operation, but more so today given the
uncertainty within the capital markets.
  Negative publicity could damage our reputation and adversely impact our business and financial
results.
  Risks Related to Our Industry
 Recent legislative and regulatory initiatives to address difficult market and economic conditions
may not stabilize the U.S. banking system.
   25




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Difficult market conditions and economic trends have adversely affected our industry and our
business.
  §
    
    We expect to face increased regulation of our industry. Compliance with such
regulation may increase our costs and limit our ability to pursue business
opportunities.§
    
    Our ability to assess the creditworthiness of customers and to estimate the losses
inherent in our credit exposure is made more complex by these difficult market and
economic conditions.§
    
    We also may be required to pay even higher Federal Deposit Insurance Corporation
premiums than the recently increased level, because financial institution failures
resulting from the depressed market conditions have depleted and may continue to
deplete the deposit insurance fund and reduce its ratio of reserves to insured
deposits.§
    
    Our ability to borrow from other financial institutions or the Federal Home Loan
Bank on favorable terms or at all could be adversely affected by further disruptions in
the capital markets or other events.§
    
    We may experience a prolonged decrease in dividend income from our investment in
Federal Home Loan Bank stock.
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§
    
    We may experience increases in foreclosures, delinquencies and customer
bankruptcies, as well as more restricted access to funds.§
    
    The unrealized losses in our investment portfolio may increase or be deemed other
than temporary.
 Our business is subject to interest rate risk and variations in interest rates may negatively
affect our financial performance.
  Future governmental regulation and legislation could limit our future growth.
  Changes in consumer use of banks and changes in consumer spending and saving habits could adversely
affect the Companys financial results.
  Acts or threats of terrorism and political or military actions taken by the United States or other
governments could adversely affect general economic or industry conditions.
  Other Risks
 Our directors, executive officers and principal shareholders own a significant portion of our
common stock and can influence shareholder decisions .
  27




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  ITEM 2. PROPERTIES
  15th Street Office
    
    Bala Plaza Office (3)
    
    Bridgeport Office (1)30 South Street
    
    231 St. Asaph's Road
    
    105 W. 4th StreetPhiladelphia, PA 19102
    
    Bala Cynwyd, PA 19004
    
    Bridgeport, PA 19406Castor Office (1)
    
    Fairmont Office (1)
    
    Grant Avenue Office (1)6331 Castor Avenue
    
    401 Fairmont Avenue
    
    1650 Grant AvenuePhiladelphia, PA 19149
    
    Philadelphia, PA 19123
    
    Philadelphia, PA 19115Henderson Road Office
    
    Jenkintown Office (1)
    
    King of Prussia Office (1)Biedler and Henderson Roads
    
    600 Old York Road
    
    655 West DeKalb PikeKing of Prussia, PA 19406
    
    Jenkintown, PA 19046
    
    King of Prussia, PA 19406Narberth Office (1)
    
    Narberth Training Center (1)(2)
    
    Phoenixville Office (1)732 Montgomery Avenue
    
    814 Montgomery Avenue
    
    808 Valley Forge RoadNarberth, PA 19072
    
    Narberth, PA 19072
    
    Phoenixville, PA 19460Shillington Office
    
    Trooper Office (1)
    
    Turnersville Office516 East Lancaster Avenue
    
    Trooper and Egypt Roads
    
    3501 Black Horse PikeShillington, PA 19607
    
    Trooper, PA 19401
    
    Turnersville, NJ 08012Villanova Office
    
    Walnut Street Office
    
    Storage Facility (1)801 East Lancaster Avenue
    
    1230 Walnut Street
    
    3836 Spring Garden StreetVillanova, PA 19085
    
    Philadelphia, PA 19107
    
    Philadelphia, PA 19104
 
 (1)
    
    Owned(2)
    
    Used for employee training(3)
    
    Loan production office  ITEM 3. LEGAL PROCEEDINGS
   28




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ITEM 4. (REMOVED AND RESERVED)
 PART II
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
   Closing Prices2010
    
    High
    
    LowFirst Quarter
    
    $
    2.77
    
    
    $
    1.24Second Quarter
    
    
    4.17
    
    
    
    2.46Third Quarter
    
    
    3.01
    
    
    
    1.74Fourth Quarter
    
    
    2.04
    
    
    
    1.29
 2009
    
    High
    
    LowFirst Quarter
    
    $
    4.25
    
    
    $
    2.05Second Quarter
    
    
    2.65
    
    
    
    1.71Third Quarter
    
    
    2.10
    
    
    
    1.40Fourth Quarter
    
    
    1.80
    
    
    
    1.05
  Title of Class
    
    Number of record holdersClass A Common stock
    
    
    275Class B Common stock
    
    
    138
 Dividends
  29




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Stock dividends:
 Cash Dividends:
     30




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COMMON STOCK PERFORMANCE GRAPH
  §
    
    Royal Bancshares of Pennsylvania, Inc. Class A common stock;§
    
    The stock of all United States companies trading on the NASDAQ Global Market;§
    
    Common stock of 2010 Peer Group consists of twenty banks headquartered in the
Mid-Atlantic region, trade on the major exchange and have total assets between $750
million and $1.5 billion.§
    
    SNL Bank and Thrift Index
 
 Period EndingIndex
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09
    
    
    12/31/10Royal Bancshares of Pennsylvania, Inc.
    
    
    
    100.00
    
    
    
    
    124.45
    
    
    
    
    55.01
    
    
    
    
    17.11
    
    
    
    
    6.68
    
    
    
    
    7.19NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    110.39
    
    
    
    
    122.15
    
    
    
    
    73.32
    
    
    
    
    106.57
    
    
    
    
    125.91SNL Bank and Thrift
    
    
    
    100.00
    
    
    
    
    116.85
    
    
    
    
    89.10
    
    
    
    
    51.24
    
    
    
    
    50.55
    
    
    
    
    56.44Royal Bancshares Peer Group*
    
    
    
    100.00
    
    
    
    
    111.18
    
    
    
    
    85.91
    
    
    
    
    70.56
    
    
    
    
    63.63
    
    
    
    
    68.05
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ITEM 6. SELECTED FINANCIAL DATA
  Statement of Operations Data
    
    For the years ended December 31,(In thousands, except share data)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Interest income
    
    $
    57,262
    
    
    $
    66,043
    
    
    $
    72,764
    
    
    $
    86,736
    
    
    $
    93,006Interest expense
    
    
    25,994
    
    
    
    37,439
    
    
    
    38,109
    
    
    
    48,873
    
    
    
    46,372Net interest income
    
    
    31,268
    
    
    
    28,604
    
    
    
    34,655
    
    
    
    37,863
    
    
    
    46,634Provision for loan and lease losses
    
    
    22,140
    
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026
    
    
    
    1,803Net interest income after loan and lease losses
    
    
    9,128
    
    
    
    7,999
    
    
    
    12,814
    
    
    
    24,837
    
    
    
    44,831Gain on sale of premises & equipment
    
    
    156
    
    
    
    
    
    
    
    1,991
    
    
    
    
    
    
    
    Gain on sale of premises & equipment related
to real estate owned via equity investments
    
    
    667
    
    
    
    1,817
    
    
    
    1,679
    
    
    
    1,860
    
    
    
    3,036Income from bank owned life insurance
    
    
    379
    
    
    
    1,099
    
    
    
    1,233
    
    
    
    875
    
    
    
    847Service charges and fees
    
    
    1,266
    
    
    
    1,419
    
    
    
    1,186
    
    
    
    1,348
    
    
    
    1,404Gains on sales related to real estate joint
ventures
    
    
    
    
    
    
    
    
    
    
    1,092
    
    
    
    350
    
    
    
    Income related to real estate owned
via equity investments
    
    
    564
    
    
    
    1,302
    
    
    
    965
    
    
    
    1,384
    
    
    
    3,591Gains on sale of real estate
    
    
    1,019
    
    
    
    294
    
    
    
    429
    
    
    
    1,111
    
    
    
    2,129Gains on sale of loans
    
    
    510
    
    
    
    914
    
    
    
    190
    
    
    
    404
    
    
    
    379Gains (loss) on investment securities
    
    
    1,290
    
    
    
    1,892
    
    
    
    (1,313
    )
    
    
    5,358
    
    
    
    383Gain on sale of security claim
    
    
    1,656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    737
    
    
    
    578
    
    
    
    148
    
    
    
    198
    
    
    
    202Other income, excluding other-than-temporary
impairment losses
    
    
    8,244
    
    
    
    9,315
    
    
    
    7,600
    
    
    
    12,888
    
    
    
    11,971Total other than-temporary-impairment losses on
investment securities
    
    
    (566
    )
    
    
    (13,431
    )
    
    
    (23,388
    )
    
    
    
    
    
    
    Portion of loss recognized in other comprehensive loss
    
    
    87
    
    
    
    2,390
    
    
    
    
    
    
    
    
    
    
    
    Net impairment losses recognized in earnings
    
    
    (479
    )
    
    
    (11,041
    )
    
    
    (23,388
    )
    
    
    
    
    
    
    Total other income (loss)
    
    
    7,765
    
    
    
    (1,726
    )
    
    
    (15,788
    )
    
    
    12,888
    
    
    
    11,971(Loss) income before other expenses & income taxes
    
    
    16,893
    
    
    
    6,273
    
    
    
    (2,974
    )
    
    
    37,725
    
    
    
    56,802Non-interest expenseSalaries and benefits
    
    
    11,591
    
    
    
    12,235
    
    
    
    15,044
    
    
    
    12,215
    
    
    
    13,451Impairment related to OREO
    
    
    7,374
    
    
    
    4,537
    
    
    
    
    
    
    
    
    
    
    
    Impairment related to real estate owned via
equity investments
    
    
    2,600
    
    
    
    
    
    
    
    1,500
    
    
    
    8,500
    
    
    
    Expenses related to real estate owned via
equity investments
    
    
    529
    
    
    
    907
    
    
    
    966
    
    
    
    1,590
    
    
    
    1,606Impairment related to real estate joint venture
    
    
    1,552
    
    
    
    
    
    
    
    
    
    
    
    5,927
    
    
    
    Other
    
    
    17,097
    
    
    
    24,514
    
    
    
    15,023
    
    
    
    11,800
    
    
    
    9,595Total other expense
    
    
    40,743
    
    
    
    42,193
    
    
    
    32,533
    
    
    
    40,032
    
    
    
    24,652(Loss) income before tax expense (benefit)
    
    
    (23,850
    )
    
    
    (35,920
    )
    
    
    (35,507
    )
    
    
    (2,307
    )
    
    
    32,150Income tax expense (benefit)
    
    
    
    
    
    
    474
    
    
    
    2,643
    
    
    
    (1,568
    )
    
    
    10,015Net (loss) income
    
    $
    (23,850
    )
    
    $
    (36,394
    )
    
    $
    (38,150
    )
    
    $
    (739
    )
    
    $
    22,135Less net income (loss) attributable to noncontrolling interest
    
    
    243
    
    
    
    1,402
    
    
    
    (68
    )
    
    
    (1,303
    )
    
    
    567Net (loss) income attributable to Royal Bancshares
    
    
    (24,093
    )
    
    
    (37,796
    )
    
    
    (38,082
    )
    
    
    564
    
    
    
    21,568Less Series A Preferred stock accumulated dividend
and accretion
    
    
    (1,970
    )
    
    
    (1,672
    )
    
    
    
    
    
    
    
    
    
    
    Net (loss) income available to common shareholders
    
    
    (26,063
    )
    
    
    (39,468
    )
    
    
    (38,082
    )
    
    
    564
    
    
    
    21,568Basic (loss) earnings per common share
    
    $
    (1.97
    )
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04
    
    
    $
    1.60Diluted (loss) earnings per common share
    
    $
    (1.97
    )
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04
    
    
    $
    1.59
 32




---



##### 



Balance Sheet Data
    
    For the years ended December 31,(In thousands)
    
    2010
    
    2009
    
    2008
    
    2007
    
    2006Total Assets
    
    
    980,626
    
    
    
    1,292,726
    
    
    
    1,175,586
    
    
    
    1,278,475
    
    
    
    1,356,311Total average assets (2)
    
    
    1,177,922
    
    
    
    1,295,126
    
    
    
    1,189,518
    
    
    
    1,314,361
    
    
    
    1,317,688Loans, net
    
    
    475,725
    
    
    
    656,533
    
    
    
    671,814
    
    
    
    625,193
    
    
    
    580,759Total deposits
    
    
    693,913
    
    
    
    881,755
    
    
    
    760,068
    
    
    
    770,152
    
    
    
    859,457Total average deposits
    
    
    791,026
    
    
    
    857,742
    
    
    
    724,384
    
    
    
    869,884
    
    
    
    761,267Total borrowings (1)
    
    
    180,723
    
    
    
    283,601
    
    
    
    313,805
    
    
    
    339,251
    
    
    
    301,203Total average borrowings (1)
    
    
    256,688
    
    
    
    307,225
    
    
    
    307,597
    
    
    
    254,757
    
    
    
    377,139Total shareholders equity (3)
    
    
    84,093
    
    
    
    101,156
    
    
    
    79,687
    
    
    
    146,367
    
    
    
    163,254Total average shareholders equity
    
    
    103,895
    
    
    
    107,511
    
    
    
    131,155
    
    
    
    158,695
    
    
    
    158,372Return on average assets
    
    
    2.04
    %
    
    
    (3.20
    %)
    
    
    0.04
    %
    
    
    1.64
    %
    
    
    1.68
    %Return on average equity
    
    
    (23.19
    %)
    
    
    (29.04
    %)
    
    
    0.36
    %
    
    
    13.62
    %
    
    
    22.01
    %Average equity to average assets
    
    
    8.82
    %
    
    
    8.30
    %
    
    
    11.03
    %
    
    
    12.10
    %
    
    
    12.02
    %Dividend payout ratio
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    (10.52
    %)
    
    
    2743.40
    %
    
    
    66.10
    %
 
 (1)
    
    Includes obligations through VIE equity investments and subordinated debt.(2)
    
    Includes premises and equipment of VIE.(3)
    
    Excludes noncontrolling interest ITEM 7.
    
    MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Critical Accounting Policies, Judgments and Estimates
  Investment Securities
   33




---



##### 



-
 Allowance for Loan and Lease Losses
  Deferred Tax Assets
  RECENT ACCOUNTING PRONOUNCEMENTS
  34




---



##### 



Results of Operations
 General:
 Net Loss:
   35




---



##### 



Net Loss for 2010
    
    $
    (24.1) millionIncreased provision (loans)
    
    11.4   millionIncreased impairment charge (OREO)
    
    2.8   millionTotal asset sale impact
    
    14.2   millionLoss for 2010 without asset pool sale (non-GAAP)
    
    $
    (9.9)  million
     Net Interest Income and Margin:
  36




---



##### 



37




---



##### 



38




---



##### 



Average Balances
  For the years ended December 31,2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest bearing deposits
    
    $
    57,377
    
    
    $
    154
    
    
    
    0.27
    %
    
    $
    51,578
    
    
    $
    164
    
    
    
    0.32
    %
    
    $
    23,788
    
    
    $
    495
    
    
    
    2.08
    %Federal funds
    
    
    562
    
    
    
    1
    
    
    
    0.13
    %
    
    
    553
    
    
    
    1
    
    
    
    0.18
    %
    
    
    1,323
    
    
    
    24
    
    
    
    1.81
    %Investment securitiesHeld to maturity
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    56,658
    
    
    
    3,241
    
    
    
    5.72
    %Available for sale
    
    
    381,804
    
    
    
    14,464
    
    
    
    3.79
    %
    
    
    426,829
    
    
    
    20,121
    
    
    
    4.71
    %
    
    
    341,982
    
    
    
    19,141
    
    
    
    5.60
    %Total investment securities
    
    
    381,804
    
    
    
    14,464
    
    
    
    3.79
    %
    
    
    426,829
    
    
    
    20,121
    
    
    
    4.71
    %
    
    
    398,640
    
    
    
    22,382
    
    
    
    5.61
    %Loans & LeasesCommercial demand loans
    
    
    307,515
    
    
    
    15,857
    
    
    
    5.16
    %
    
    
    384,831
    
    
    
    18,439
    
    
    
    4.79
    %
    
    
    395,109
    
    
    
    25,270
    
    
    
    6.40
    %Real estate secured
    
    
    291,205
    
    
    
    23,195
    
    
    
    7.97
    %
    
    
    294,414
    
    
    
    24,285
    
    
    
    8.25
    %
    
    
    256,124
    
    
    
    22,153
    
    
    
    8.65
    %Other loans and leases
    
    
    44,730
    
    
    
    3,591
    
    
    
    8.03
    %
    
    
    36,276
    
    
    
    3,032
    
    
    
    8.36
    %
    
    
    25,528
    
    
    
    2,440
    
    
    
    9.56
    %Total loans
    
    
    643,450
    
    
    
    42,643
    
    
    
    6.63
    %
    
    
    715,521
    
    
    
    45,756
    
    
    
    6.39
    %
    
    
    676,761
    
    
    
    49,863
    
    
    
    7.37
    %Total interest earnings assets
    
    
    1,083,193
    
    
    
    57,262
    
    
    
    5.29
    %
    
    
    1,194,481
    
    
    
    66,042
    
    
    
    5.53
    %
    
    
    1,100,512
    
    
    
    72,764
    
    
    
    6.61
    %Non interest earnings assetsCash & due from banks
    
    
    16,465
    
    
    
    
    
    
    
    
    
    
    
    11,752
    
    
    
    
    
    
    
    
    
    
    
    7,552Other assets
    
    
    105,013
    
    
    
    
    
    
    
    
    
    
    
    115,173
    
    
    
    
    
    
    
    
    
    
    
    106,447Allowance for loan loss
    
    
    (25,919
    )
    
    
    
    
    
    
    
    
    
    
    (25,061
    )
    
    
    
    
    
    
    
    
    
    
    (23,301
    )Unearned discount
    
    
    (830
    )
    
    
    
    
    
    
    
    
    
    
    (1,219
    )
    
    
    
    
    
    
    
    
    
    
    (1,692
    )Total non-interest earning assets
    
    
    94,729
    
    
    
    
    
    
    
    
    
    
    
    100,645
    
    
    
    
    
    
    
    
    
    
    
    89,006Total assets
    
    $
    1,177,922
    
    
    
    
    
    
    
    
    
    
    $
    1,295,126
    
    
    
    
    
    
    
    
    
    
    $
    1,189,518Liabilities & Shareholders EquityDepositsSavings
    
    $
    15,959
    
    
    $
    90
    
    
    
    0.56
    %
    
    $
    14,802
    
    
    $
    83
    
    
    
    0.56
    %
    
    $
    15,125
    
    
    $
    76
    
    
    
    0.50
    %NOW
    
    
    42,990
    
    
    
    395
    
    
    
    0.92
    %
    
    
    46,046
    
    
    
    478
    
    
    
    1.04
    %
    
    
    48,414
    
    
    
    894
    
    
    
    1.85
    %Money market
    
    
    166,386
    
    
    
    1,754
    
    
    
    1.05
    %
    
    
    153,146
    
    
    
    2,797
    
    
    
    1.83
    %
    
    
    168,972
    
    
    
    4,947
    
    
    
    2.93
    %Time deposits
    
    
    503,217
    
    
    
    14,683
    
    
    
    2.92
    %
    
    
    581,202
    
    
    
    21,984
    
    
    
    3.78
    %
    
    
    434,662
    
    
    
    19,497
    
    
    
    4.49
    %Total interest bearing deposits
    
    
    728,552
    
    
    
    16,922
    
    
    
    2.32
    %
    
    
    795,196
    
    
    
    25,342
    
    
    
    3.19
    %
    
    
    667,173
    
    
    
    25,414
    
    
    
    3.81
    %Borrowings
    
    
    229,515
    
    
    
    8,403
    
    
    
    3.66
    %
    
    
    271,000
    
    
    
    10,717
    
    
    
    3.95
    %
    
    
    266,284
    
    
    
    11,008
    
    
    
    4.13
    %Obligation through VIE equity investments
    
    
    1,399
    
    
    
    22
    
    
    
    1.57
    %
    
    
    10,451
    
    
    
    243
    
    
    
    2.33
    %
    
    
    15,539
    
    
    
    251
    
    
    
    1.62
    %Subordinated debt
    
    
    25,774
    
    
    
    647
    
    
    
    2.51
    %
    
    
    25,774
    
    
    
    1,136
    
    
    
    4.41
    %
    
    
    25,774
    
    
    
    1,436
    
    
    
    5.57
    %Total interest bearing liabilities
    
    
    985,240
    
    
    
    25,994
    
    
    
    2.64
    %
    
    
    1,102,421
    
    
    
    37,438
    
    
    
    3.40
    %
    
    
    974,770
    
    
    
    38,109
    
    
    
    3.91
    %Non interest bearing deposits
    
    
    62,474
    
    
    
    
    
    
    
    
    
    
    
    62,546
    
    
    
    
    
    
    
    
    
    
    
    57,211Other liabilities
    
    
    26,313
    
    
    
    
    
    
    
    
    
    
    
    22,648
    
    
    
    
    
    
    
    
    
    
    
    26,382Total liabilities
    
    
    1,074,027
    
    
    
    
    
    
    
    
    
    
    
    1,187,615
    
    
    
    
    
    
    
    
    
    
    
    1,058,363Shareholders equity
    
    
    103,895
    
    
    
    
    
    
    
    
    
    
    
    107,511
    
    
    
    
    
    
    
    
    
    
    
    131,155Total liabilities and shareholders equity
    
    $
    1,177,922
    
    
    
    
    
    
    
    
    
    
    $
    1,295,126
    
    
    
    
    
    
    
    
    
    
    $
    1,189,518Net interest income
    
    
    
    
    
    $
    31,268
    
    
    
    
    
    
    
    
    
    
    $
    28,604
    
    
    
    
    
    
    
    
    
    
    $
    34,655Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.89
    %
    
    
    
    
    
    
    
    
    
    
    2.39
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %
 
 (1)
    
    Non-accrual loans have been included in the appropriate average loan balance category, but
interest on these loans has not been included.(2)
    
    Portions of interest related to obligations through VIE are capitalized on the VIEs books.  39




---



##### 



2010 versus 2009
    
    
    2009 versus 2008Changes due to:
    
    
    Changes due to:(In thousands)
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest incomeShort term earning assetsInterest bearing deposits in banks
    
    $
    16
    
    
    $
    (26
    )
    
    $
    (10
    )
    
    $
    88
    
    
    $
    (419
    )
    
    $
    (331
    )Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (22
    )
    
    
    (23
    )Total short term earning assets
    
    
    16
    
    
    
    (26
    )
    
    
    (10
    )
    
    
    87
    
    
    
    (441
    )
    
    
    (354
    )Investments securitiesHeld to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,241
    )
    
    
    
    
    
    
    (3,241
    )Available for sale
    
    
    (1,730
    )
    
    
    (3,927
    )
    
    
    (5,657
    )
    
    
    4,023
    
    
    
    (3,043
    )
    
    
    980Total Investments securities
    
    
    (1,730
    )
    
    
    (3,927
    )
    
    
    (5,657
    )
    
    
    782
    
    
    
    (3,043
    )
    
    
    (2,261
    )LoansCommercial demand loans
    
    
    (3,536
    )
    
    
    1,180
    
    
    
    (2,356
    )
    
    
    (551
    )
    
    
    (4,339
    )
    
    
    (4,890
    )Commercial mortgages
    
    
    (156
    )
    
    
    (724
    )
    
    
    (880
    )
    
    
    1,250
    
    
    
    (1,223
    )
    
    
    27Residential and home equity loans
    
    
    (95
    )
    
    
    (103
    )
    
    
    (198
    )
    
    
    (77
    )
    
    
    (127
    )
    
    
    (204
    )Lease receivables
    
    
    693
    
    
    
    (135
    )
    
    
    558
    
    
    
    987
    
    
    
    (366
    )
    
    
    621Real estate tax liens
    
    
    127
    
    
    
    (160
    )
    
    
    (33
    )
    
    
    2,945
    
    
    
    (637
    )
    
    
    2,308Other loans
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    (15
    )
    
    
    (14
    )
    
    
    (29
    )Loan fees
    
    
    (205
    )
    
    
    
    
    
    
    (205
    )
    
    
    (1,939
    )
    
    
    
    
    
    
    (1,939
    )Total loans
    
    
    (3,167
    )
    
    
    53
    
    
    
    (3,114
    )
    
    
    2,600
    
    
    
    (6,706
    )
    
    
    (4,106
    )Total (decrease) increase in interest income
    
    $
    (4,881
    )
    
    $
    (3,900
    )
    
    $
    (8,781
    )
    
    $
    3,469
    
    
    $
    (10,190
    )
    
    $
    (6,721
    )Interest expenseDepositsNOW and money market
    
    $
    160
    
    
    $
    (1,286
    )
    
    $
    (1,126
    )
    
    $
    (456
    )
    
    $
    (2,109
    )
    
    $
    (2,565
    )Savings
    
    
    6
    
    
    
    1
    
    
    
    7
    
    
    
    (2
    )
    
    
    9
    
    
    
    7Time deposits
    
    
    (2,699
    )
    
    
    (4,602
    )
    
    
    (7,301
    )
    
    
    5,871
    
    
    
    (3,385
    )
    
    
    2,486Total deposits
    
    
    (2,533
    )
    
    
    (5,887
    )
    
    
    (8,420
    )
    
    
    5,413
    
    
    
    (5,485
    )
    
    
    (72
    )BorrowingsBorrowings
    
    
    (1,558
    )
    
    
    (757
    )
    
    
    (2,315
    )
    
    
    192
    
    
    
    (482
    )
    
    
    (290
    )Trust preferred
    
    
    
    
    
    
    (489
    )
    
    
    (489
    )
    
    
    
    
    
    
    (300
    )
    
    
    (300
    )Total Borrowings
    
    
    (1,558
    )
    
    
    (1,246
    )
    
    
    (2,804
    )
    
    
    192
    
    
    
    (782
    )
    
    
    (590
    )Total (decrease) increase in interest expense
    
    
    (4,091
    )
    
    
    (7,133
    )
    
    
    (11,224
    )
    
    
    5,605
    
    
    
    (6,267
    )
    
    
    (662
    )Total (decrease) increase in net interest income
    
    $
    (790
    )
    
    $
    3,233
    
    
    $
    2,443
    
    
    $
    (2,136
    )
    
    $
    (3,923
    )
    
    $
    (6,059
    )
 Provision for Loan and Lease Losses
    Total Other (Loss) Income
  40




---



##### 



Total Other Expense
  41




---



##### 



42




---



##### 



Accounting for Income Tax Expense (Benefit)
    Results of Operations by Business Segments
  §
    
    Community Bank segment: At December 31, 2010, the Community Bank segment had
total assets of $836.4 million, a decrease of $304.9 million or 27% from $1.1
billion at December 31, 2009. Total deposits declined $187.8 million or 21% from
$881.8 million at December 31, 2009 to $693.9 million at December 31, 2010. Net
interest income for 2010 was $22.3 million compared to $21.1 million for 2009
representing an increase of $1.2 million, or 6%. The improvement in net interest
income was primarily related to lower rates paid on deposits due to the maturities
of brokered and retail certificates of deposits, redeemed FHLB advances, and a
non-recurring adjustment to net interest income. The loan loss provision was $21.2
million for 2010 compared to $18.7 million for 2009. For 2010, total other income
was $6.2 million compared to a total other loss of $4.8 million for 2009. The
improvement is mostly attributed to a $10.5 million reduction in impairment charges
recorded on the available-for-sale investment portfolio in 2010 compared to 2009.
In 2010 total other expense was $35.1 million, an increase of $1.6 million, or 5%,
from $33.5 million in 2009. The increase is mostly associated with an increase in
OREO impairment charges of $2.8 million and impairment of $1.6 million in real
estate joint ventures. The net loss for 2010 was $25.1 million compared to a net
loss of $34.7 million for 2009.§
    
    Tax Lien segment: At December 31, 2010, the Tax Lien segment had total assets
of $100.6 million compared to $105.0 million at December 31, 2009 representing a
decrease of $4.4 million, or 4%. Net interest income increased $536,000, or 9%,
from $6.0 million in 2009 to $6.5 million in 2010. The provision for losses
declined from $624,000 in 2009 to $129,000 in 2010. The 2009
 43




---



##### 



provision was related to a specific reserve for a non-accrual loan with a tax lien
portfolio located in Alabama. Total other income was $389,000 in 2010 compared to
$313,000 in 2009. Total other income is derived mostly from the gains on sale of
OREO property. Total other expense decreased $1.2 million, or 42%, from $2.9
million for 2009 to $1.7 million for 2010. The decrease in other total expense was
related to a decline in legal and professional fees. Net income was $1.8 million in
2010 compared to $1.0 million for 2009.§
    
    Equity Investment segment: At December 31, 2010 the Equity Investment segment
had total assets of $5.6 million compared to $8.7 million at December 31, 2009
representing a decline of $3.1 million, or 35%. The decline was primarily related
to a $2.6 million impairment charge as a result of a slow-down in condominium
unit sales following the end of the tax credit incentive that was being offered by
the government. The measurement and recognition of the impairment was based on
estimated future discounted operating cash flows. As a result of the impairment
charge, the net loss for 2010 was $1.2 million compared to net income for 2009 of
$179,000.
 Financial Condition
  Cash and Cash Equivalents:
 Investment Securities Available for Sale (AFS) :
 Loans :
 44




---



##### 



Allowance for loan and lease losses:
   45




---



##### 



For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Total Loans
    
    $
    496,854
    
    
    $
    686,864
    
    
    $
    700,722
    
    
    $
    644,475
    
    
    $
    602,958Daily average loan balance
    
    $
    643,450
    
    
    $
    715,521
    
    
    $
    676,761
    
    
    $
    636,612
    
    
    $
    618,591Allowance for loan and lease losses:Balance at the beginning of the year
    
    $
    30,331
    
    
    $
    28,908
    
    
    $
    19,282
    
    
    $
    11,455
    
    
    $
    10,276Charge-offs by loan type:Real Estate  residential
    
    
    731
    
    
    
    1,361
    
    
    
    37
    
    
    
    195
    
    
    
    631Real Estate  residential-mezzanine
    
    
    2,480
    
    
    
    
    
    
    
    2,220
    
    
    
    
    
    
    
    Construction and land development
    
    
    13,413
    
    
    
    6,231
    
    
    
    3,852
    
    
    
    2,408
    
    
    
    Construction and land develop-mezzanine
    
    
    
    
    
    
    2,756
    
    
    
    1,540
    
    
    
    1,579
    
    
    
    Real Estate  non-residential
    
    
    7,352
    
    
    
    7,404
    
    
    
    1,330
    
    
    
    294
    
    
    
    5Real Estate  non-residential-mezzanine
    
    
    
    
    
    
    1,132
    
    
    
    1,675
    
    
    
    
    
    
    
    Real Estate  multi-family
    
    
    787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Leases
    
    
    972
    
    
    
    676
    
    
    
    642
    
    
    
    286
    
    
    
    11Commercial and industrial
    
    
    5,930
    
    
    
    258
    
    
    
    1,009
    
    
    
    704
    
    
    
    Tax certificates
    
    
    49
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    25Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73Total charge-offs
    
    
    31,714
    
    
    
    19,818
    
    
    
    12,327
    
    
    
    5,466
    
    
    
    745Recoveries by loan type:Construction and land development
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    Real Estate  residential
    
    
    313
    
    
    
    190
    
    
    
    6
    
    
    
    28
    
    
    
    100Real Estate  non-residential
    
    
    684
    
    
    
    431
    
    
    
    
    
    
    
    4
    
    
    
    14Real Estate  multi-family
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and industrial
    
    
    81
    
    
    
    15
    
    
    
    106
    
    
    
    201
    
    
    
    2Leases
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Total recoveries
    
    
    1,300
    
    
    
    636
    
    
    
    112
    
    
    
    267
    
    
    
    121Net loan charge-offs
    
    
    (30,414
    )
    
    
    (19,182
    )
    
    
    (12,215
    )
    
    
    (5,199
    )
    
    
    (624
    )Provision for loan and lease losses
    
    
    22,140
    
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026
    
    
    
    1,803Allowance related to disposed assets
    
    
    (928
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    21,129
    
    
    $
    30,331
    
    
    $
    28,908
    
    
    $
    19,282
    
    
    $
    11,455Net charge-offs to average loans
    
    
    (4.73
    %)
    
    
    (2.68
    %)
    
    
    (1.80
    %)
    
    
    (0.82
    %)
    
    
    (0.10
    %)Allowance to total loans at year-end
    
    
    4.25
    %
    
    
    4.42
    %
    
    
    4.13
    %
    
    
    2.99
    %
    
    
    1.90
    %
 46




---



##### 



As of December 31,2010
    
    2009
    
    2008
    
    2007
    
    2006Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent of
    
    
    
    
    
    Percent ofoutstanding
    
    
    
    
    
    outstanding
    
    
    
    
    
    outstanding
    
    
    
    
    
    outstanding
    
    
    
    
    
    outstandingloans in each
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in each
    
    
    
    
    
    loans in eachReserve
    
    category to
    
    Reserve
    
    category to
    
    Reserve
    
    category to
    
    Reserve
    
    category to
    
    Reserve
    
    category to(In thousands, except percentages)
    
    Amount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loans
    
    Amount
    
    total loansCommercial and industrial
    
    $
    3,797
    
    
    
    14.9
    %
    
    $
    6,542
    
    
    
    15.1
    %
    
    $
    2,403
    
    
    
    12.3
    %
    
    $
    2,124
    
    
    
    12.0
    %
    
    $
    559
    
    
    
    7.0
    %Construction
    
    
    1,117
    
    
    
    5.8
    %
    
    
    4,713
    
    
    
    7.6
    %
    
    
    11,548
    
    
    
    23.8
    %
    
    
    7,674
    
    
    
    14.4
    %
    
    
    4,117
    
    
    
    29.0
    %Land development (1)
    
    
    2,859
    
    
    
    10.2
    %
    
    
    3,182
    
    
    
    9.7
    %
    
    
    2,359
    
    
    
    10.6
    %
    
    
    
    
    
    
    12.2
    %
    
    
    
    
    
    
    0.0
    %Construction and land development -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    1,415
    
    
    
    0.3
    %
    
    
    2,493
    
    
    
    1.0
    %
    
    
    409
    
    
    
    1.0
    %Real Estate  residential
    
    
    1,106
    
    
    
    5.9
    %
    
    
    2,762
    
    
    
    7.1
    %
    
    
    747
    
    
    
    3.9
    %
    
    
    1,014
    
    
    
    6.5
    %
    
    
    845
    
    
    
    7.0
    %Real Estate  residential  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    1,000
    
    
    
    0.4
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Real Estate  non-residential
    
    
    9,534
    
    
    
    39.0
    %
    
    
    9,824
    
    
    
    40.3
    %
    
    
    5,172
    
    
    
    33.4
    %
    
    
    4,746
    
    
    
    40.5
    %
    
    
    4,941
    
    
    
    46.0
    %Real Estate  non-residential -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    1,188
    
    
    
    0.6
    %
    
    
    204
    
    
    
    1.4
    %
    
    
    224
    
    
    
    1.0
    %Real Estate  multi-family
    
    
    652
    
    
    
    2.1
    %
    
    
    215
    
    
    
    3.2
    %
    
    
    133
    
    
    
    2.0
    %
    
    
    59
    
    
    
    1.1
    %
    
    
    36
    
    
    
    1.0
    %Real Estate  multi-family  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    6
    
    
    
    0.5
    %
    
    
    20
    
    
    
    1.0
    %Tax certificates
    
    
    380
    
    
    
    14.2
    %
    
    
    290
    
    
    
    10.6
    %
    
    
    2,735
    
    
    
    9.1
    %
    
    
    185
    
    
    
    7.1
    %
    
    
    
    
    
    
    5.0
    %Lease financing
    
    
    1,670
    
    
    
    7.8
    %
    
    
    1,757
    
    
    
    5.7
    %
    
    
    1,183
    
    
    
    3.7
    %
    
    
    763
    
    
    
    3.1
    %
    
    
    293
    
    
    
    2.0
    %Other
    
    
    12
    
    
    
    0.2
    %
    
    
    25
    
    
    
    0.3
    %
    
    
    15
    
    
    
    0.2
    %
    
    
    14
    
    
    
    0.2
    %
    
    
    11
    
    
    
    0.0
    %Unallocated
    
    
    2
    
    
    
    0.0
    %
    
    
    21
    
    
    
    0.0
    %
    
    
    10
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total
    
    $
    21,129
    
    
    
    100.0
    %
    
    $
    30,331
    
    
    
    100.0
    %
    
    $
    28,908
    
    
    
    100.0
    %
    
    $
    19,282
    
    
    
    100.0
    %
    
    $
    11,455
    
    
    
    100.0
    %
 
 (1)
    
    Beginning in 2008, the Company began segregating land development loans from the rest of
the loan portfolio.    47




---



##### 



Deposits:
 FHLB Borrowings:
 Other Borrowings:
  Other Liabilities:
 Shareholders Equity :
 48




---



##### 



Asset Liability Management
  Liquidity:
   Contractual Obligations and Other Commitments:
 For the year ended December 31, 2010Less than one
    
    
    One to three
    
    
    Four to five
    
    
    More than five(In thousands)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsFHLB advances
    
    $
    110,719
    
    
    $
    22,000
    
    
    $
    88,719
    
    
    $
    
    
    
    $
    Operating leases
    
    
    3,135
    
    
    
    771
    
    
    
    1,286
    
    
    
    495
    
    
    
    583PNC Bank
    
    
    44,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,230Benefit obligations
    
    
    9,346
    
    
    
    583
    
    
    
    1,307
    
    
    
    1,660
    
    
    
    5,796Standby letters of credit
    
    
    2,755
    
    
    
    2,755
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debt
    
    
    25,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,774Non-interest bearing deposits
    
    
    52,872
    
    
    
    52,872
    
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits
    
    
    237,668
    
    
    
    103,943
    
    
    
    133,725
    
    
    
    
    
    
    
    Time deposits
    
    
    403,373
    
    
    
    273,414
    
    
    
    108,616
    
    
    
    9,926
    
    
    
    11,417Total
    
    $
    889,872
    
    
    $
    456,338
    
    
    $
    333,653
    
    
    $
    12,081
    
    
    $
    87,800
 49




---



##### 



Interest-Rate Sensitivity:
   50




---



##### 



For the year ended December 31, 201091  365
    
    One to five
    
    Over five
    
    Non-rate(In millions)
    
    0  90 days
    
    days
    
    years
    
    years
    
    sensitive
    
    TotalAssets (1)Interest-bearing deposits in banks
    
    $
    24.9
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26.8
    
    
    $
    51.7Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment securities
    
    
    20.8
    
    
    
    36.4
    
    
    
    166.7
    
    
    
    87.3
    
    
    
    6.0
    
    
    
    317.2Loans: (2)Fixed rate
    
    
    87.5
    
    
    
    22.8
    
    
    
    162.2
    
    
    
    11.9
    
    
    
    
    
    
    
    284.4Variable rate
    
    
    169.4
    
    
    
    38.1
    
    
    
    22.6
    
    
    
    11.9
    
    
    
    (21.1
    )
    
    
    220.9Total loans
    
    
    256.9
    
    
    
    60.9
    
    
    
    184.8
    
    
    
    23.8
    
    
    
    (21.1
    )
    
    
    505.3Other assets (3)
    
    
    
    
    
    
    19.0
    
    
    
    
    
    
    
    
    
    
    
    87.4
    
    
    
    106.4Total Assets
    
    $
    302.6
    
    
    $
    116.3
    
    
    $
    351.5
    
    
    $
    111.1
    
    
    $
    99.1
    
    
    $
    980.6Liabilities & CapitalDeposits:Non interest bearing deposits
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    52.9
    
    
    $
    52.9Interest bearing deposits
    
    
    26.0
    
    
    
    78.0
    
    
    
    133.6
    
    
    
    
    
    
    
    
    
    
    
    237.6Certificate of deposits
    
    
    66.3
    
    
    
    207.1
    
    
    
    118.6
    
    
    
    11.4
    
    
    
    
    
    
    
    403.4Total deposits
    
    
    92.3
    
    
    
    285.1
    
    
    
    252.2
    
    
    
    11.4
    
    
    
    52.9
    
    
    
    693.9Borrowings (1)
    
    
    53.6
    
    
    
    4.9
    
    
    
    82.2
    
    
    
    40.0
    
    
    
    
    
    
    
    180.7Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21.9
    
    
    
    21.9Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84.1
    
    
    
    84.1Total liabilities & capital
    
    $
    145.9
    
    
    $
    290.0
    
    
    $
    334.4
    
    
    $
    51.4
    
    
    $
    158.9
    
    
    $
    980.6Net interest rate GAP
    
    $
    156.7
    
    
    $
    (173.7
    )
    
    $
    17.1
    
    
    $
    59.7
    
    
    $
    (59.8
    )Cumulative interest rate GAP
    
    $
    156.7
    
    
    $
    (17.0
    )
    
    $
    0.1
    
    
    $
    59.8GAP to total assets
    
    
    16
    %
    
    
    (18
    %)GAP to total equity
    
    
    186
    %
    
    
    (207
    %)Cumulative GAP to total assets
    
    
    16
    %
    
    
    (2
    %)Cumulative GAP to total equity
    
    
    186
    %
    
    
    (20
    %)
 
 (1)
    
    Interest earning assets are included in the period in which the balances are expected to
be repaid and/or re-priced as a result of anticipated prepayments, scheduled rate adjustments,
and contractual maturities.(2)
    
    Reflects principal maturing within the specified periods for fixed and re-pricing for
variable rate loans; includes non-performing loans.(3)
    
    Includes FHLB stock.  Interest Rate Swaps:
 51




---



##### 



Capital Adequacy
   For the years ended December 31,2010
    
    2009
    
    2008Royal BankLeverage ratio
    
    
    8.03
    %
    
    
    8.09
    %
    
    
    7.81
    %Risk based capital ratio:Tier 1
    
    
    12.49
    %
    
    
    12.09
    %
    
    
    8.99
    %Total
    
    
    13.76
    %
    
    
    13.37
    %
    
    
    10.26
    %
  For the year ended(In thousands)
    
    December 31, 2010RAP net loss
    
    $
    (30,011
    )Tax lien adjustment, net of noncontrolling interest
    
    
    8,126US GAAP net loss
    
    $
    (21,885
    )
 52




---



##### 



As reported
    
    As adjustedunder RAP
    
    for US GAAPTotal capital (to risk-weighted assets)
    
    
    13.76
    %
    
    
    15.54
    %Tier I capital (to risk-weighted assets)
    
    
    12.49
    %
    
    
    14.27
    %Tier I capital (to average assets, leverage)
    
    
    8.03
    %
    
    
    9.24
    %
  For the years ended December 31,2010
    
    2009
    
    2008CompanyLeverage ratio
    
    
    9.68
    %
    
    
    9.78
    %
    
    
    10.30
    %Risk based capital ratio:Tier 1
    
    
    15.93
    %
    
    
    14.18
    %
    
    
    11.77
    %Total
    
    
    17.21
    %
    
    
    15.45
    %
    
    
    13.04
    %Capital performanceReturn on average assets
    
    
    (2.04
    %)
    
    
    (2.57
    %)
    
    
    (3.20
    %)Return on average equity
    
    
    (23.19
    %)
    
    
    (30.94
    %)
    
    
    (29.04
    %)
  For the year ended(In thousands)
    
    December 31, 2010US GAAP net loss
    
    $
    (24,093
    )Tax lien adjustment, net of noncontrolling interest
    
    
    (8,126
    )RAP net loss
    
    $
    (32,219
    )
 As reported
    
    As adjustedunder US GAAP
    
    for RAPTotal capital (to risk-weighted assets)
    
    
    17.21
    %
    
    
    15.48
    %Tier I capital (to risk-weighted assets)
    
    
    15.93
    %
    
    
    14.20
    %Tier I capital (to average assets, leverage)
    
    
    9.68
    %
    
    
    8.56
    %
  53




---



##### 



Management Options to Purchase Securities
    54




---



##### 



Loans
  As of December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Commercial and industrial
    
    $
    74,027
    
    
    
    14.9
    %
    
    $
    104,063
    
    
    
    15.1
    %
    
    $
    86,278
    
    
    
    12.3
    %
    
    $
    77,856
    
    
    
    12.1
    %
    
    $
    43,019
    
    
    
    7.2
    %Construction
    
    
    29,044
    
    
    
    5.8
    %
    
    
    52,196
    
    
    
    7.6
    %
    
    
    167,204
    
    
    
    23.8
    %
    
    
    92,779
    
    
    
    14.4
    %
    
    
    172,745
    
    
    
    29.1
    %Construction
and land development  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    2,421
    
    
    
    0.3
    %
    
    
    6,443
    
    
    
    1.0
    %
    
    
    5,177
    
    
    
    0.9
    %Land development (1)
    
    
    50,594
    
    
    
    10.2
    %
    
    
    66,878
    
    
    
    9.7
    %
    
    
    74,168
    
    
    
    10.6
    %
    
    
    78,874
    
    
    
    12.2
    %
    
    
    
    
    
    
    0.0
    %Real Estate  residential
    
    
    29,299
    
    
    
    5.9
    %
    
    
    48,498
    
    
    
    7.1
    %
    
    
    27,480
    
    
    
    3.9
    %
    
    
    42,286
    
    
    
    6.5
    %
    
    
    43,338
    
    
    
    7.3
    %Real Estate  non-residential
    
    
    194,203
    
    
    
    39.0
    %
    
    
    277,234
    
    
    
    40.3
    %
    
    
    234,573
    
    
    
    33.4
    %
    
    
    261,350
    
    
    
    40.5
    %
    
    
    268,162
    
    
    
    45.2
    %Real Estate
 non-residential  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    4,111
    
    
    
    0.6
    %
    
    
    8,749
    
    
    
    1.4
    %
    
    
    8,283
    
    
    
    1.4
    %Real Estate  multi-family
    
    
    10,277
    
    
    
    2.1
    %
    
    
    22,017
    
    
    
    3.2
    %
    
    
    14,059
    
    
    
    2.0
    %
    
    
    6,887
    
    
    
    1.1
    %
    
    
    3,953
    
    
    
    0.7
    %Real Estate  residential  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    2,480
    
    
    
    0.4
    %
    
    
    335
    
    
    
    0.0
    %
    
    
    3,504
    
    
    
    0.5
    %
    
    
    2,129
    
    
    
    0.4
    %Tax certificates
    
    
    70,443
    
    
    
    14.2
    %
    
    
    73,106
    
    
    
    10.6
    %
    
    
    64,168
    
    
    
    9.1
    %
    
    
    46,090
    
    
    
    7.1
    %
    
    
    32,235
    
    
    
    5.4
    %Lease financing
    
    
    38,725
    
    
    
    7.8
    %
    
    
    39,097
    
    
    
    5.7
    %
    
    
    26,123
    
    
    
    3.7
    %
    
    
    19,778
    
    
    
    3.1
    %
    
    
    13,404
    
    
    
    2.3
    %Other
    
    
    793
    
    
    
    0.2
    %
    
    
    2,173
    
    
    
    0.3
    %
    
    
    1,243
    
    
    
    0.2
    %
    
    
    1,424
    
    
    
    0.2
    %
    
    
    1,333
    
    
    
    0.2
    %Total gross loans
    
    $
    497,405
    
    
    
    100
    %
    
    $
    687,742
    
    
    
    100
    %
    
    $
    702,163
    
    
    
    100
    %
    
    $
    646,020
    
    
    
    100
    %
    
    $
    593,778
    
    
    
    100
    %Unearned income
    
    
    (551
    )
    
    
    
    
    
    
    (878
    )
    
    
    
    
    
    
    (1,441
    )
    
    
    
    
    
    
    (1,545
    )
    
    
    
    
    
    
    (1,564
    )$
    496,854
    
    
    
    
    
    
    $
    686,864
    
    
    
    
    
    
    $
    700,722
    
    
    
    
    
    
    $
    644,475
    
    
    
    
    
    
    $
    592,214Allowance for loan loss
    
    
    (21,129
    )
    
    
    
    
    
    
    (30,331
    )
    
    
    
    
    
    
    (28,908
    )
    
    
    
    
    
    
    (19,282
    )
    
    
    
    
    
    
    (11,455
    )Total net loans
    
    $
    475,725
    
    
    
    
    
    
    $
    656,533
    
    
    
    
    
    
    $
    671,814
    
    
    
    
    
    
    $
    625,193
    
    
    
    
    
    
    $
    580,759
 
 (1)
    
    Land development balances were not segregated from construction and land development for
2006. Credit Quality
  For the years ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Non-accrual loans (1)
    
    $
    43,162
    
    
    $
    73,679
    
    
    $
    85,830
    
    
    $
    25,401
    
    
    $
    6,748Other real estate owned
    
    
    29,244
    
    
    
    30,317
    
    
    
    10,346
    
    
    
    1,048
    
    
    
    924Total non-performing assets
    
    $
    72,406
    
    
    $
    103,996
    
    
    $
    96,176
    
    
    $
    26,449
    
    
    $
    7,672Non-performing assets to total assets
    
    
    7.38
    %
    
    
    8.04
    %
    
    
    8.18
    %
    
    
    2.07
    %
    
    
    0.57
    %Non-performing loans to total loans
    
    
    8.69
    %
    
    
    10.73
    %
    
    
    12.25
    %
    
    
    3.94
    %
    
    
    1.14
    %Allowance for loan loss to non-accrual loans
    
    
    48.95
    %
    
    
    41.17
    %
    
    
    33.68
    %
    
    
    75.91
    %
    
    
    169.75
    %Total Loans
    
    
    496,854
    
    
    
    686,864
    
    
    
    700,722Total Assets
    
    
    980,626
    
    
    
    1,292,726
    
    
    
    1,175,586Allowance for loan and lease losses
    
    
    21,129
    
    
    
    30,331
    
    
    
    28,908ALL / Loans & Leases (MD & A)
    
    
    4.25
    %
    
    
    4.42
    %
    
    
    4.13
    %
 
 (1)
    
    Generally, a loan is placed in non-accrual status when it has been delinquent for a period
of 90 days or more, unless the loan is both well secured and in the process of collection. 55




---



##### 



1st Quarter ActvityBalance at
    
    
    
    
    
    
    Payments andDecember 31,
    
    
    
    
    
    
    other
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    2009
    
    
    Additions
    
    
    decreases
    
    
    Charge-offs
    
    
    OREO
    
    
    March 31, 2010Construction
    
    $
    18,316
    
    
    $
    2,130
    
    
    $
    (1,543
    )
    
    $
    (55
    )
    
    $
    
    
    
    $
    18,848Land development
    
    
    5,908
    
    
    
    7,480
    
    
    
    (2,857
    )
    
    
    
    
    
    
    
    
    
    
    10,531Real Estate-non-residential
    
    
    19,584
    
    
    
    3
    
    
    
    (420
    )
    
    
    
    
    
    
    
    
    
    
    19,167Commercial & industrial
    
    
    11,779
    
    
    
    236
    
    
    
    (637
    )
    
    
    (2,031
    )
    
    
    
    
    
    
    9,347Residential real estate
    
    
    12,445
    
    
    
    1,190
    
    
    
    (427
    )
    
    
    
    
    
    
    
    
    
    
    13,208Residential
real estate  mezzanine
    
    
    2,480
    
    
    
    
    
    
    
    
    
    
    
    (1,463
    )
    
    
    
    
    
    
    1,017Multi-family
    
    
    
    
    
    
    8,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,311Leasing
    
    
    627
    
    
    
    466
    
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    914Tax certificates
    
    
    2,540
    
    
    
    
    
    
    
    (221
    )
    
    
    
    
    
    
    
    
    
    
    2,319Total
    
    $
    73,679
    
    
    $
    19,816
    
    
    $
    (6,105
    )
    
    $
    (3,728
    )
    
    $
    
    
    
    $
    83,662
 2nd Quarter ActvityPayments andBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    March 31, 2010
    
    
    Additions
    
    
    decreases
    
    
    Reclassed
    
    
    Charge-offs
    
    
    OREO
    
    
    June 30, 2010Construction
    
    $
    18,848
    
    
    $
    137
    
    
    $
    (1,932
    )
    
    $
    12,540
    
    
    $
    (4,119
    )
    
    $
    
    
    
    $
    25,474Land development
    
    
    10,531
    
    
    
    7,910
    
    
    
    (73
    )
    
    
    300
    
    
    
    (1,485
    )
    
    
    
    
    
    
    17,183Real Estate-non-residential
    
    
    19,167
    
    
    
    5,192
    
    
    
    (1,250
    )
    
    
    (4,000
    )
    
    
    (1,156
    )
    
    
    (47
    )
    
    
    17,906Commercial & industrial
    
    
    9,347
    
    
    
    96
    
    
    
    (109
    )
    
    
    
    
    
    
    (2,152
    )
    
    
    (499
    )
    
    
    6,683Residential real estate
    
    
    13,208
    
    
    
    187
    
    
    
    (14
    )
    
    
    (8,840
    )
    
    
    
    
    
    
    
    
    
    
    4,541Residential
real estate  mezzanine
    
    
    1,017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,017
    )
    
    
    
    
    
    
    Multi-family
    
    
    8,311
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    (457
    )
    
    
    (7,875
    )
    
    
    Leasing
    
    
    914
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    (427
    )
    
    
    
    
    
    
    599Tax certificates
    
    
    2,319
    
    
    
    10
    
    
    
    (268
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    2,051Total
    
    $
    83,662
    
    
    $
    13,665
    
    
    $
    (3,646
    )
    
    $
    
    
    
    $
    (10,823
    )
    
    $
    (8,421
    )
    
    $
    74,437
 3rd Quarter ActvityPayments and
    
    
    
    
    
    
    
    
    
    
    Balance atBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    Transfer to
    
    
    September 30,(In thousands)
    
    June 30, 2010
    
    
    Additions
    
    
    decreases
    
    
    Charge-offs
    
    
    OREO
    
    
    2010Construction
    
    $
    25,474
    
    
    $
    4,540
    
    
    $
    (293
    )
    
    $
    
    
    
    $
    
    
    
    $
    29,721Land development
    
    
    17,183
    
    
    
    229
    
    
    
    (1,024
    )
    
    
    (61
    )
    
    
    (1,649
    )
    
    
    14,678Real Estate-non-residential
    
    
    17,906
    
    
    
    3,846
    
    
    
    (352
    )
    
    
    (42
    )
    
    
    (911
    )
    
    
    20,447Commercial & industrial
    
    
    6,683
    
    
    
    25
    
    
    
    (478
    )
    
    
    
    
    
    
    
    
    
    
    6,230Residential real estate
    
    
    4,541
    
    
    
    620
    
    
    
    (747
    )
    
    
    
    
    
    
    
    
    
    
    4,414Multi-family
    
    
    
    
    
    
    4,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,992Leasing
    
    
    599
    
    
    
    315
    
    
    
    
    
    
    
    (310
    )
    
    
    
    
    
    
    604Tax certificates
    
    
    2,051
    
    
    
    
    
    
    
    (127
    )
    
    
    
    
    
    
    
    
    
    
    1,924Total
    
    $
    74,437
    
    
    $
    14,567
    
    
    $
    (3,021
    )
    
    $
    (413
    )
    
    $
    (2,560
    )
    
    $
    83,010
 56




---



##### 



4th Quarter ActvityBalance at
    
    
    
    
    
    
    Payments and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Royal Asian non-
    
    
    Balance atSeptember 30,
    
    
    
    
    
    
    other
    
    
    
    
    
    
    Transfer to
    
    
    Loans transferred
    
    
    accrual loans
    
    
    December 31,(In thousands)
    
    2010
    
    
    Additions
    
    
    decreases
    
    
    Charge-offs
    
    
    OREO
    
    
    to LHFS
    
    
    sold
    
    
    2010Construction
    
    $
    29,721
    
    
    $
    
    
    
    $
    (730
    )
    
    $
    (4,263
    )
    
    $
    (3,883
    )
    
    $
    (8,373
    )
    
    $
    
    
    
    $
    12,472Land development
    
    
    14,678
    
    
    
    1,210
    
    
    
    (126
    )
    
    
    (3,212
    )
    
    
    (266
    )
    
    
    (4,998
    )
    
    
    
    
    
    
    7,286Real Estate-non-residential
    
    
    20,447
    
    
    
    6,065
    
    
    
    (1,000
    )
    
    
    (4,011
    )
    
    
    (486
    )
    
    
    (8,370
    )
    
    
    (2,585
    )
    
    
    10,060Commercial & industrial
    
    
    6,230
    
    
    
    100
    
    
    
    (251
    )
    
    
    (121
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,958Residential real estate
    
    
    4,414
    
    
    
    240
    
    
    
    (228
    )
    
    
    (483
    )
    
    
    (642
    )
    
    
    (902
    )
    
    
    
    
    
    
    2,399Multi-family
    
    
    4,992
    
    
    
    2,573
    
    
    
    (4,811
    )
    
    
    (301
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,453Leasing
    
    
    604
    
    
    
    261
    
    
    
    
    
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    732Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax certificates
    
    
    1,924
    
    
    
    
    
    
    
    (84
    )
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,802Total
    
    $
    83,010
    
    
    $
    10,449
    
    
    $
    (7,230
    )
    
    $
    (12,562
    )
    
    $
    (5,277
    )
    
    $
    (22,643
    )
    
    $
    (2,585
    )
    
    $
    43,162
   First Quarter 2010 new non-accrual loans:
 
    
    A $16.1 million participation loan for a student housing rental apartment complex
comprised of twelve 2-story townhouse type buildings located in Cumberland County,
Pennsylvania became non-accrual during the first quarter of 2010. The project consists
of 182 units. Royal Bank is the lead bank and had sold 48% to one local bank. During
the second quarter of 2010, Royal Bank received a deed in lieu of foreclosure and
transferred the collateral to OREO.
    
    A $12.5 million participation acquisition and development loan to a regional real
estate developer to fund environmental remediation, site improvement and soft costs
activities on parcels in Montgomery County, Pennsylvania became non-accrual during the
first quarter of 2010. The project has final land development approvals for two office
buildings with an approved floor area ratio of 300,790 square feet. Royal Bank is the
lead bank and had sold 44% to one local bank. In the fourth quarter of 2010, the
Company included this loan in the asset pool sale and transferred the loan to LHFS from
LHFI.
    
    Three loans totaling $2.6 million to fund acquisition and soft development costs to
develop a 100,000 square foot retail project located in Bucks County, Pennsylvania
became non-accrual during the first quarter of 2010. The loan has matured by its
terms. There is a signed land lease for a 10,000 square foot stand alone retail store
to a national drug store chain which can be developed separate from the remaining
90,000 square foot planned for an in-line shopping center. During the third quarter
the loans were restructured under market rates and terms and the two smaller loans were
paid off. In the fourth quarter of 2010, the Company included the remaining loan in
the asset pool sale and transferred the loan to LHFS from LHFI.
    
    A $1.2 million construction project in Worcester County, Maryland, in which the
Company is a participant, became non-accrual during the first quarter of 2010. The
project consists of 120.7 acres of which 86.5 acres are zoned for agricultural use.
The borrower was unable to obtain county approval to
have the land use reclassified to general commercial. The borrower is pursuing
annexation through the town but the process will take time. During the fourth quarter
the Company recorded a charged-off of $715,000 through the allowance for loan and lease
losses.
 57




---



##### 



Second Quarter 2010 new non-accrual loans:
 
    
    A $5.9 million loan which was originally used for purchase money acquisition and to
fund ongoing predevelopment activity associated with a residential project in
Philadelphia, Pennsylvania became non-accrual during the second quarter of 2010. The
project consists of interconnected buildings containing 73,050 square feet of gross
area. After acquisition, the borrowers original plan was for the development of a
157,000 square foot, 97 unit condo project. The borrowers pursued and received
approvals as well as made substantial progress in the engineering and design. This was
to be ground-up construction requiring some demolition of the existing structure. In
2009, the sponsors made the decision to reposition the project to apartments given the
downturn in the for-sale residential market. Ultimately, the economic climate and the
deterioration of the sponsors financial condition led to a default in payment which
has resulted in a foreclosure action being commenced. During 2010, the Company
recorded total charge-offs of $1.9 million through the allowance for loan and lease
losses.
    
    A $4.5 million non-residential real estate loan became non-accrual during the second
quarter of 2010. The project is a hotel located in Monroe County, Pennsylvania. As a
result of deteriorating economic conditions, the loan was placed in default as a result
of non-payment. During the third quarter, the Company finalized a forbearance
agreement with the borrower and the loan is currently performing under the agreement. A
current appraisal did not indicate impairment in accordance with ASC Topic 310.
    
    A $1.6 million construction loan in Talbot County, Maryland which is collateralized
by two commercial building lots became non-accrual during the second quarter of 2010.
Both lots are approved and site improvements have been completed. The loan has matured
and the borrower failed to put forth a realistic forbearance proposal. The Company
recorded a $76,000 charge-off against the loan during the second quarter of 2010.
During the third quarter of 2010, Royal Bank foreclosed on the borrower and transferred
the collateral to OREO.
 Third Quarter 2010 new non-accrual loans:
 
    
    A $5.0 million participation in a $10.1 million loan used to finance the purchase
and renovation of a 156 unit apartment complex located in New Castle County, Delaware
became non-accrual during the third quarter of 2010. The loan is an interest only loan
for two years, with one 12-month extension option. The project is approximately 75%
occupied and unable to service interest only debt service. The original strategy of
the project was to renovate, lease up, and ultimately refinance with long term
institutional financing, which at this time, is unavailable. In the fourth quarter the
Company negotiated with the borrower to payoff the loan and recorded an $181,000
charge-off through the allowance for loan and lease losses.
    
    A project consisting of 38 whole ownership condominiums and 396 1/8th
fractional ownership interests located in Routt County, Colorado became non-accrual
during the third quarter of 2010. To date there have been 14 whole ownership sales and
82 fractional sold. The original balance of the loan was $165.0 million, with
approximately $100.0 million outstanding. Royal Banks participation rate in the loan
is 4.24%. The loan entered default status in October 2010 due to non-payment of a loan
fee; the appropriate lien waivers have not been received; and an appraisal not having
been delivered, with a value that does not exceed 70% loan to value. The current
carrying value of the loan is $4.2 million. The most recent appraisal did not indicate
impairment in accordance with ASC Topic 310.
 Fourth Quarter 2010 new non-accrual loans:
 
    
    A $1.9 million condominium development project in Philadelphia, Pennsylvania, in
which the Company is a participant, became non-accrual during the fourth quarter of
2010. The project consists of 48 residential units and one commercial unit. The lead
bank renegotiated the loan and as a result the Company has classified the loan as a
troubled debt restructuring (TDR). The Company recorded a $120,000 charge-off through
the allowance for loan and lease losses.
 58




---



##### 




    
    A $5.8 million participation in an $11.6 million loan became non-accrual in the
fourth quarter of 2010. The loan is for a 207 acre site that consists of a golf course
and club house in Montgomery County, Pennsylvania. The lead bank has begun collection
proceedings. A current appraisal indicated impairment in accordance with ASC Topic
310. Consequently, the Company established a specific reserve of $1.4 million for this
loan.
   As of December 31,(In thousands)
    
    2010
    
    
    2009Impaired loans and leases with a valuation allowance
    
    $
    9,620
    
    
    $
    46,670Impaired loans and leases without a valuation allowance
    
    
    32,805
    
    
    
    27,009Total impaired loans and leases
    
    $
    42,425
    
    
    $
    73,679Valuation allowance related to impaired loans and leases
    
    $
    1,907
    
    
    $
    10,958
 For the years ended December 31,(In thousands)
    
    2010
    
    2009
    
    2008Average investment in impaired loans and leases
    
    $
    78,225
    
    
    $
    79,754
    
    
    $
    55,134Interest income recognized on impaired loans and leases
    
    $
    335
    
    
    $
    242
    
    
    $
    302Interest income recognized on a cash basis on impaired loans and leases
    
    $
    335
    
    
    $
    242
    
    
    $
    302
      59




---



##### 



Other Real Estate Owned (OREO):
 2010(In thousands)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterBeginning balance
    
    $
    30,317
    
    
    $
    25,781
    
    
    $
    30,795
    
    
    $
    27,525Capital improvements
    
    
    
    
    
    
    697
    
    
    
    545
    
    
    
    Net proceeds from sales
    
    
    (4,391
    )
    
    
    (3,403
    )
    
    
    (5,021
    )
    
    
    (504
    )Net gain on sales
    
    
    157
    
    
    
    174
    
    
    
    404
    
    
    
    284Assets acquired on non-accrual loans
    
    
    
    
    
    
    8,421
    
    
    
    2,873
    
    
    
    5,490Other
    
    
    500
    
    
    
    85
    
    
    
    (10
    )
    
    
    Impairment charge
    
    
    (802
    )
    
    
    (960
    )
    
    
    (2,061
    )
    
    
    (3,551
    )Ending balance
    
    $
    25,781
    
    
    $
    30,795
    
    
    $
    27,525
    
    
    $
    29,244
    60




---



##### 



Loans and Lease Financing Receivables
  61




---



##### 



As of December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Loans secured by real estate:Construction and land development
    
    $
    29,044
    
    
    $
    52,196
    
    
    $
    167,204Construction and land development  mezzanine
    
    
    
    
    
    
    
    
    
    
    2,421Land development
    
    
    50,594
    
    
    
    66,878
    
    
    
    74,168Secured by 1-4 family residential properties:Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit
    
    
    1,252
    
    
    
    1,272
    
    
    
    1,322All other loans secured by 1-4 family residential properties:Secured by first liens
    
    
    26,166
    
    
    
    44,053
    
    
    
    21,607Secured by junior liens
    
    
    1,881
    
    
    
    3,173
    
    
    
    4,551Secured by junior liens  mezzaninie
    
    
    
    
    
    
    2,480
    
    
    
    Secured by multi family (5 or more) residential properties
    
    
    10,277
    
    
    
    22,017
    
    
    
    14,059Secured by multi family (5 or more) res. Properties  mezzanine
    
    
    
    
    
    
    
    
    
    
    335Secured by non-farm nonresidential properties
    
    
    194,203
    
    
    
    277,234
    
    
    
    234,573Secured by non-farm nonresidential properties  mezzanine
    
    
    
    
    
    
    
    
    
    
    4,111Tax certificates
    
    
    70,443
    
    
    
    73,106
    
    
    
    64,168Commercial and industrial loans
    
    
    74,027
    
    
    
    104,063
    
    
    
    86,278Loans to individuals for household, family, and other personal expenditures
    
    
    768
    
    
    
    1,514
    
    
    
    1,031Obligations of state and political subdivisions in the U.S.
    
    
    
    
    
    
    
    
    
    
    47Lease financing receivables (net of unearned income)
    
    
    38,725
    
    
    
    39,097
    
    
    
    26,123All other loans
    
    
    25
    
    
    
    659
    
    
    
    165Less: Net deferred loan fees
    
    
    (551
    )
    
    
    (878
    )
    
    
    (1,441
    )Total loans and leases, net of unearned income
    
    $
    496,854
    
    
    $
    686,864
    
    
    $
    700,722
 Credit Classification Process
   
    
    100% of construction loans regardless of loan size;
    
    100% of loans/relationships with balances of $1 million or greater;
    
    50% of loans with balances from $500,000 up to $1 million;
    
    25% of loans with balances from $250,000 to $499,999;
    
    5% of loans with balances up to $250,000; and
    
    Loans requested specifically by the Companys management
 62




---



##### 



Investment Securities
  Included in Accumulated OtherComprehensive Income (AOCI)Gross unrealized lossesGross
    
    
    
    
    
    
    Non-creditAs of December 31, 2010
    
    
    
    
    
    unrealized
    
    
    Non-OTTI
    
    
    related OTTI(In thousands)
    
    Amortized cost
    
    
    gains
    
    
    in AOCI
    
    
    in AOCI
    
    
    Fair valueInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    8,492
    
    
    $
    348
    
    
    $
    
    
    
    $
    
    
    
    $
    8,840U.S. government agencies
    
    
    30,492
    
    
    
    
    
    
    
    (755
    )
    
    
    
    
    
    
    29,737Common stocks
    
    
    381
    
    
    
    152
    
    
    
    (50
    )
    
    
    
    
    
    
    483Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    231,717
    
    
    
    3,640
    
    
    
    (704
    )
    
    
    
    
    
    
    234,653Non-agency
    
    
    7,026
    
    
    
    114
    
    
    
    (3
    )
    
    
    
    
    
    
    7,137Corporate bonds
    
    
    9,483
    
    
    
    
    
    
    
    (197
    )
    
    
    
    
    
    
    9,286Trust preferred securities
    
    
    16,566
    
    
    
    2,135
    
    
    
    
    
    
    
    (87
    )
    
    
    18,614Other securities
    
    
    7,974
    
    
    
    431
    
    
    
    
    
    
    
    
    
    
    
    8,405Total available-for-sale investment securities
    
    $
    312,131
    
    
    $
    6,820
    
    
    $
    (1,709
    )
    
    $
    (87
    )
    
    $
    317,155
 63




---



##### 



Included in Accumulated OtherComprehensive Loss (AOCL)Gross Unrealized LossesGross
    
    
    
    
    
    
    Non-creditAs of December 31, 2009
    
    
    
    
    
    unrealized
    
    
    Non-OTTI
    
    
    related OTTI(In thousands)
    
    Amortized cost
    
    
    gains
    
    
    in AOCL
    
    
    in AOCL
    
    
    Fair valueInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    21,393
    
    
    $
    234
    
    
    $
    (26
    )
    
    $
    
    
    
    $
    21,601U.S. government agencies
    
    
    1,150
    
    
    
    3
    
    
    
    (2
    )
    
    
    
    
    
    
    1,151Preferred stocks
    
    
    2,500
    
    
    
    
    
    
    
    (270
    )
    
    
    
    
    
    
    2,230Common stocks
    
    
    381
    
    
    
    71
    
    
    
    (8
    )
    
    
    
    
    
    
    444Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    316,911
    
    
    
    2,871
    
    
    
    (1,281
    )
    
    
    
    
    
    
    318,501Non-agency
    
    
    23,010
    
    
    
    145
    
    
    
    (875
    )
    
    
    (1,082
    )
    
    
    21,198Collateralized debt obligations
    
    
    24,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,825Corporate bonds
    
    
    7,911
    
    
    
    9
    
    
    
    (423
    )
    
    
    (630
    )
    
    
    6,867Trust preferred securities
    
    
    32,926
    
    
    
    2,064
    
    
    
    (177
    )
    
    
    (678
    )
    
    
    34,135Other securities
    
    
    7,892
    
    
    
    8
    
    
    
    (133
    )
    
    
    
    
    
    
    7,767Total available-for-sale investment securities
    
    $
    438,899
    
    
    $
    5,405
    
    
    $
    (3,195
    )
    
    $
    (2,390
    )
    
    $
    438,719
 Included in Accumulated OtherComprehensive Loss (AOCL)Gross Unrealized LossesGross
    
    
    
    
    
    
    Non-creditAs of December 31, 2008
    
    
    
    
    
    unrealized
    
    
    Non-OTTI
    
    
    related OTTI(In thousands)
    
    Amortized cost
    
    
    gains
    
    
    in AOCL
    
    
    in AOCL
    
    
    Fair valueInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    53,871
    
    
    $
    1,190
    
    
    $
    
    
    
    $
    
    
    
    $
    55,061U.S. government agencies
    
    
    48,109
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    48,191Preferred stocks
    
    
    4,000
    
    
    
    
    
    
    
    (1,703
    )
    
    
    
    
    
    
    2,297Common stocks
    
    
    19,907
    
    
    
    8
    
    
    
    (7,208
    )
    
    
    
    
    
    
    12,707Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    77,848
    
    
    
    1,649
    
    
    
    (72
    )
    
    
    
    
    
    
    79,425Non-agency
    
    
    43,711
    
    
    
    
    
    
    
    (6,221
    )
    
    
    
    
    
    
    37,490Collateralized debt obligations
    
    
    35,000
    
    
    
    
    
    
    
    (8,840
    )
    
    
    
    
    
    
    26,160Corporate bonds
    
    
    57,445
    
    
    
    641
    
    
    
    (6,748
    )
    
    
    
    
    
    
    51,338Trust preferred securities
    
    
    36,316
    
    
    
    606
    
    
    
    (6,778
    )
    
    
    
    
    
    
    30,144Other securities
    
    
    7,631
    
    
    
    54
    
    
    
    (196
    )
    
    
    
    
    
    
    7,489Total available-for-sale investment securities
    
    $
    383,838
    
    
    $
    4,230
    
    
    $
    (37,766
    )
    
    $
    
    
    
    $
    350,302
  As of December 31, 2010After one year, but
    
    
    After five years, butWithin one year
    
    
    within five years
    
    
    within ten years
    
    
    After ten years
    
    
    Total(In thousands, except percentages)
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateMortgage-backed securities-residential
    
    $
    
    
    
    
    
    
    
    $
    8,840
    
    
    
    4.97
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    8,840
    
    
    
    4.97
    %U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    10,376
    
    
    
    1.80
    %
    
    
    7,713
    
    
    
    1.87
    %
    
    
    11,648
    
    
    
    2.00
    %
    
    
    29,737
    
    
    
    1.90
    %Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    17,664
    
    
    
    4.78
    %
    
    
    216,989
    
    
    
    4.54
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234,653
    
    
    
    4.57
    %Non-agency
    
    
    554
    
    
    
    5.25
    %
    
    
    6,583
    
    
    
    4.46
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,137
    
    
    
    4.52
    %Corporate bonds
    
    
    100
    
    
    
    1.72
    %
    
    
    6,183
    
    
    
    2.51
    %
    
    
    1,978
    
    
    
    5.13
    %
    
    
    1,025
    
    
    
    3.10
    %
    
    
    9,286
    
    
    
    3.12
    %Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,614
    
    
    
    10.22
    %
    
    
    18,614
    
    
    
    10.22
    %Total AFS debt securities
    
    $
    18,318
    
    
    
    4.24
    %
    
    $
    248,971
    
    
    
    4.78
    %
    
    $
    9,691
    
    
    
    4.13
    %
    
    $
    31,287
    
    
    
    9.53
    %
    
    $
    308,267
    
    
    
    5.02
    %
 64




---



##### 



Deposits
  As of December 31,2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average(In thousands, except percentages)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateDemand depositsNon interest bearing
    
    $
    62,474
    
    
    
    
    
    
    $
    62,546
    
    
    
    
    
    
    $
    57,211
    
    
    
    Interest bearing (NOW)
    
    
    42,990
    
    
    
    0.92
    %
    
    
    46,046
    
    
    
    1.04
    %
    
    
    48,414
    
    
    
    1.85
    %Money market deposits
    
    
    166,386
    
    
    
    1.05
    %
    
    
    153,146
    
    
    
    1.83
    %
    
    
    168,972
    
    
    
    2.93
    %Savings deposits
    
    
    15,959
    
    
    
    0.56
    %
    
    
    14,802
    
    
    
    0.56
    %
    
    
    15,125
    
    
    
    0.50
    %Certificate of deposit
    
    
    503,217
    
    
    
    2.92
    %
    
    
    581,202
    
    
    
    3.78
    %
    
    
    434,662
    
    
    
    4.49
    %Total deposits
    
    $
    791,026
    
    
    
    
    
    
    $
    857,742
    
    
    
    
    
    
    $
    724,384
  As of December 31,(In thousands)
    
    2010
    
    
    2009Three months or less
    
    $
    9,483
    
    
    $
    19,960Over three months through twelve months
    
    
    52,969
    
    
    
    78,985Over twelve months through five years
    
    
    38,265
    
    
    
    40,790Over five years
    
    
    5,071
    
    
    
    1,917Total
    
    $
    105,788
    
    
    $
    141,652
 65




---



##### 



Short and Long Term Borrowings
 For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Short term borrowings
    
    $
    22,000
    
    
    $
    114,500
    
    
    $
    37,000
    
    
    $
    102,000
    
    
    $
    53,000Long term borrowingsOther borrowings
    
    
    44,230
    
    
    
    44,674
    
    
    
    45,112
    
    
    
    5,411
    
    
    
    5,587Obligations through RE owned via equity invest(1)
    
    
    
    
    
    
    3,652
    
    
    
    12,350
    
    
    
    18,566
    
    
    
    29,342Subordinated debt
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774FHLB advances
    
    
    88,719
    
    
    
    95,001
    
    
    
    193,569
    
    
    
    187,500
    
    
    
    187,500Total borrowings
    
    $
    180,723
    
    
    $
    283,601
    
    
    $
    313,805
    
    
    $
    339,251
    
    
    $
    301,203
 
 (1)
    
    This obligation is consolidated from requirements under ASC Topic 810 of which $0 is
guaranteed by the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  (In thousands, except percentages)
    
    As of December 31, 2010Market Value of
    
    Percent ofChanges in Rates
    
    Portfolio Equity
    
    Change+ 300 basis points
    
    $
    52,466
    
    
    
    (42.1
    %)+ 200 basis points
    
    
    66,793
    
    
    
    (26.2
    %)+ 100 basis points
    
    
    79,662
    
    
    
    (12.0
    %)Flat rate
    
    
    90,541
    
    
    
    0.0
    %- 100 basis points
    
    
    86,989
    
    
    
    (3.9
    %)- 200 basis points
    
    
    82,396
    
    
    
    (9.0
    %)
  66




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Report of Independent Registered Public Accounting Firm
 
     
 67




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 December 31,2010
    
    
    2009(In thousands, except share data)ASSETSCash and due from banks
    
    $
    26,811
    
    
    $
    25,289Interest bearing deposits
    
    
    24,922
    
    
    
    33,009Total cash and cash equivalents
    
    
    51,733
    
    
    
    58,298Investment securities available-for-sale (AFS) at fair value
    
    
    317,155
    
    
    
    438,719Federal Home Loan Bank (FHLB) stock, at cost
    
    
    10,405
    
    
    
    10,952Loans held for sale, at lower of cost or fair market value
    
    
    29,621
    
    
    
    2,254Loans and leases
    
    
    496,854
    
    
    
    686,864Less allowance for loan and lease losses
    
    
    21,129
    
    
    
    30,331Net loans and leases
    
    
    475,725
    
    
    
    656,533Bank owned life insurance
    
    
    8,642
    
    
    
    8,263Real estate owned via equity investment
    
    
    6,794
    
    
    
    12,492Accrued interest receivable
    
    
    16,864
    
    
    
    14,942Other real estate owned (OREO), net
    
    
    29,244
    
    
    
    30,317Premises and equipment, net
    
    
    5,735
    
    
    
    6,306Investment in real estate joint ventures
    
    
    
    
    
    
    2,520Other assets
    
    
    28,708
    
    
    
    51,130Total assets
    
    $
    980,626
    
    
    $
    1,292,726LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsNon-interest bearing
    
    $
    52,872
    
    
    $
    63,168Interest bearing
    
    
    641,041
    
    
    
    818,587Total deposits
    
    
    693,913
    
    
    
    881,755Accrued interest payable
    
    
    3,983
    
    
    
    6,150Short-term borrowings
    
    
    22,000
    
    
    
    114,500Long-term borrowings
    
    
    132,949
    
    
    
    139,675Obligations related to real estate owned via equity investment
    
    
    
    
    
    
    3,652Subordinated debentures
    
    
    25,774
    
    
    
    25,774Other liabilities
    
    
    17,914
    
    
    
    16,906Total liabilities
    
    
    896,533
    
    
    
    1,188,412Shareholders equityRoyal 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 December 31, 2010
and 2009
    
    
    28,395
    
    
    
    27,945Common stock Class A, par value $2.00 per share, authorized 18,000,000 shares;
issued, 11,355,466 and 11,352,482 at December 31, 2010 and 2009, respectively
    
    
    22,711
    
    
    
    22,705Common stock Class B, par value $0.10 per share, authorized 3,000,0000 shares;
issued, 2,086,689 and 2,089,284 at December 31, 2010 and 2009, respectively
    
    
    209
    
    
    
    209Additional paid in capital
    
    
    126,152
    
    
    
    126,117Accumulated deficit
    
    
    (91,746
    )
    
    
    (67,197
    )Accumulated other comprehensive income (loss)
    
    
    1,942
    
    
    
    (1,652
    )Treasury stock  at cost, shares of Class A, 498,488 at December 31, 2010 and 2009
    
    
    (6,971
    )
    
    
    (6,971
    )Total Royal Bancshares of Pennsylvania, Inc. shareholders equity
    
    
    80,692
    
    
    
    101,156Noncontrolling interest
    
    
    3,401
    
    
    
    3,158Total shareholders equity
    
    
    84,093
    
    
    
    104,314Total liabilities and shareholders equity
    
    $
    980,626
    
    
    $
    1,292,726
  68




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
 Year ended December 31,2010
    
    
    2009
    
    
    2008(In thousands, except per share data)Interest incomeLoans and leases, including fees
    
    $
    42,643
    
    
    $
    45,757
    
    
    $
    49,863Investment securities held to maturity, taxable
    
    
    
    
    
    
    
    
    
    
    3,241Investment securities available for sale:Taxable interest
    
    
    14,464
    
    
    
    20,102
    
    
    
    19,066Tax exempt interest
    
    
    
    
    
    
    19
    
    
    
    75Deposits in banks
    
    
    154
    
    
    
    164
    
    
    
    495Federal funds sold
    
    
    1
    
    
    
    1
    
    
    
    24Total Interest Income
    
    
    57,262
    
    
    
    66,043
    
    
    
    72,764Interest expenseDeposits
    
    
    16,922
    
    
    
    25,342
    
    
    
    25,414Short-term borrowings
    
    
    3,835
    
    
    
    169
    
    
    
    674Long-term borrowings
    
    
    5,215
    
    
    
    11,685
    
    
    
    11,770Obligations related to real estate owned via equity investments
    
    
    22
    
    
    
    243
    
    
    
    251Total Interest Expense
    
    
    25,994
    
    
    
    37,439
    
    
    
    38,109Net Interest Income
    
    
    31,268
    
    
    
    28,604
    
    
    
    34,655Provision for loan and lease losses
    
    
    22,140
    
    
    
    20,605
    
    
    
    21,841Net Interest Income after Provision for Loan and Lease Losses
    
    
    9,128
    
    
    
    7,999
    
    
    
    12,814Other income (loss)Gains on sales of premises and equipment
    
    
    
    
    
    
    
    
    
    
    1,991Gains on sale of premises and equipment related to real estate
owned via equity investments
    
    
    667
    
    
    
    1,817
    
    
    
    1,679Income from bank owned life insurance
    
    
    379
    
    
    
    1,099
    
    
    
    1,233Service charges and fees
    
    
    1,266
    
    
    
    1,419
    
    
    
    1,186Gains on sales related to real estate joint ventures
    
    
    
    
    
    
    
    
    
    
    1,092Income related to real estate owned via equity investments
    
    
    564
    
    
    
    1,302
    
    
    
    965Gains on sales of other real estate owned
    
    
    1,019
    
    
    
    294
    
    
    
    429Gains on sales of loans and leases
    
    
    666
    
    
    
    914
    
    
    
    190Gain on sale of security claim
    
    
    1,656
    
    
    
    
    
    
    
    Net gains (losses) on investment securities available for sale
    
    
    1,290
    
    
    
    1,892
    
    
    
    (1,313
    )Other income
    
    
    737
    
    
    
    578
    
    
    
    148Other income,excluding other than temporary impairment losses
    
    
    8,244
    
    
    
    9,315
    
    
    
    7,600Total other than temporary impairment losses on investment securities
    
    
    (566
    )
    
    
    (13,431
    )
    
    
    (23,388
    )Portion of loss recognized in other comprehensive loss
    
    
    87
    
    
    
    2,390
    
    
    
    Net impairment losses recognized in earnings
    
    
    (479
    )
    
    
    (11,041
    )
    
    
    (23,388
    )Total Other Income (Loss)
    
    
    7,765
    
    
    
    (1,726
    )
    
    
    (15,788
    )Other expensesEmployee salaries and benefits
    
    
    11,591
    
    
    
    12,235
    
    
    
    15,044OREO impairment charge
    
    
    7,374
    
    
    
    4,537
    
    
    
    Professional and legal fees
    
    
    4,237
    
    
    
    4,367
    
    
    
    3,783Occupancy and equipment
    
    
    3,216
    
    
    
    3,381
    
    
    
    2,860FDIC and state assessments
    
    
    3,047
    
    
    
    3,801
    
    
    
    658Impairment related to real estate owned via equity investments
    
    
    2,600
    
    
    
    
    
    
    
    1,500OREO and loan collection expenses
    
    
    2,536
    
    
    
    3,218
    
    
    
    188Impairment of real estate joint ventures
    
    
    1,552
    
    
    
    
    
    
    
    Pennsylvania shares tax
    
    
    1,320
    
    
    
    1,299
    
    
    
    1,369Expenses related to real estate owned via equity investments
    
    
    529
    
    
    
    907
    
    
    
    966Directors fees
    
    
    355
    
    
    
    676
    
    
    
    675Stock option expense
    
    
    35
    
    
    
    226
    
    
    
    703Other operating expenses
    
    
    2,351
    
    
    
    3,009
    
    
    
    4,787Total Other Expenses
    
    
    40,743
    
    
    
    37,656
    
    
    
    32,533Loss Before Income Tax
    
    
    (23,850
    )
    
    
    (31,383
    )
    
    
    (35,507
    )Income tax expense
    
    
    
    
    
    
    474
    
    
    
    2,643Net Loss
    
    $
    (23,850
    )
    
    $
    (31,857
    )
    
    $
    (38,150
    )Less net income (loss) attributable to noncontrolling interest
    
    
    243
    
    
    
    1,402
    
    
    
    (68
    )Net Loss Attributable to Royal Bancshares of Pennsylvania, Inc.
    
    $
    (24,093
    )
    
    $
    (33,259
    )
    
    $
    (38,082
    )Less Preferred stock Series A accumulated dividend and accretion
    
    $
    1,970
    
    
    $
    1,672
    
    
    $
    Net Loss to Common Shareholders
    
    $
    (26,063
    )
    
    $
    (34,931
    )
    
    $
    (38,082
    )Per common share dataNet loss  basic
    
    $
    (1.97
    )
    
    $
    (2.64
    )
    
    $
    (2.86
    )Net loss  diluted
    
    $
    (1.97
    )
    
    $
    (2.64
    )
    
    $
    (2.86
    )Cash dividends Class A shares
    
    $
    
    
    
    $
    
    
    
    $
    0.30Cash dividends Class B shares
    
    $
    
    
    
    $
    
    
    
    $
    0.35
  69




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders Equity and Comprehensive Loss
For the year ended December 31, 2010
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Class A common stock
    
    
    Class B common stock
    
    
    paid in
    
    
    Accumulated
    
    
    comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    Shareholders(In thousands, except preferred share data)
    
    Series A
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    income
    
    
    stock
    
    
    Interest
    
    
    EquityBalance January 1, 2010
    
    $
    27,945
    
    
    
    11,352
    
    
    $
    22,705
    
    
    
    2,089
    
    
    $
    209
    
    
    $
    126,117
    
    
    $
    (67,197
    )
    
    $
    (1,652
    )
    
    $
    (6,971
    )
    
    $
    3,158
    
    
    $
    104,314Comprehensive lossNet (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,093
    )
    
    
    
    
    
    
    
    
    
    
    243
    
    
    
    (23,850
    )Other comprehensive income, net of reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,594
    
    
    
    
    
    
    
    
    
    
    
    3,594Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (20,256
    )Common stock conversion from Class B to Class A
    
    
    
    
    
    
    3
    
    
    
    6
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion of discount on preferred stock
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (450
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Balance December 31, 2010
    
    $
    28,395
    
    
    
    11,355
    
    
    $
    22,711
    
    
    
    2,087
    
    
    $
    209
    
    
    $
    126,152
    
    
    $
    (91,746
    )
    
    $
    1,942
    
    
    $
    (6,971
    )
    
    $
    3,401
    
    
    $
    84,093
  70




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders Equity and Comprehensive Loss
For the year ended December 31, 2009
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Class A common stock
    
    
    Class B common stock
    
    
    paid in
    
    
    Accumulated
    
    
    comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    Shareholders(In thousands, except preferred share data)
    
    Series A
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    loss
    
    
    stock
    
    
    Interest
    
    
    EquityBalance January 1, 2009
    
    $
    
    
    
    
    11,345
    
    
    $
    22,690
    
    
    
    2,096
    
    
    $
    210
    
    
    $
    123,425
    
    
    $
    (33,561
    )
    
    $
    (26,106
    )
    
    $
    (6,971
    )
    
    $
    1,898
    
    
    $
    81,585Comprehensive lossNet (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,259
    )
    
    
    
    
    
    
    
    
    
    
    1,402
    
    
    
    (31,857
    )Transfer of noncontrolling interest related to
RBA Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    (142
    )Other comprehensive income, net of
reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,454
    
    
    
    
    
    
    
    
    
    
    
    24,454Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (7,545
    )Common stock conversion from Class B to Class A
    
    
    
    
    
    
    7
    
    
    
    15
    
    
    
    (7
    )
    
    
    (1
    )
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (359
    )Issuance of Series A perpetual preferred stock
(30,407 shares) and warrants to purchase
common stock (1,140,307 shares)
    
    
    27,582
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,407Accretion of discount on preferred stock
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226Balance December 31, 2009
    
    $
    27,945
    
    
    
    11,352
    
    
    $
    22,705
    
    
    
    2,089
    
    
    $
    209
    
    
    $
    126,117
    
    
    $
    (67,197
    )
    
    $
    (1,652
    )
    
    $
    (6,971
    )
    
    $
    3,158
    
    
    $
    104,314
  71




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders Equity and Comprehensive Loss
For the year ended December 31, 2008
 Retained
    
    
    AccumulatedAdditional
    
    
    earnings
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Class A common stock
    
    
    Class B common stock
    
    
    paid in
    
    
    (accumulated
    
    
    comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    Shareholders(In thousands, except dividend per share data)
    
    Series A
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    deficit)
    
    
    loss
    
    
    stock
    
    
    Interest
    
    
    EquityBalance, January 1, 2008
    
    $
    
    
    
    
    11,329
    
    
    $
    22,659
    
    
    
    2,097
    
    
    $
    210
    
    
    $
    122,578
    
    
    $
    8,527
    
    
    $
    (1,582
    )
    
    $
    (6,025
    )
    
    $
    1,867
    
    
    $
    148,234Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,082
    )
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    (38,051
    )Other comprehensive loss, net of reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,524
    )
    
    
    
    
    
    
    
    
    
    
    (24,524
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (62,575
    )Common stock conversion from Class B to Class A
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Cash dividends on common stock
(Class A $0.30; Class B $0.345)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,005
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,005
    )Purchase of treasury stock (100 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (946
    )
    
    
    
    
    
    
    (946
    )Stock options exercised
    
    
    
    
    
    
    15
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    703
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    703Balance December 31, 2008
    
    $
    
    
    
    
    11,345
    
    
    $
    22,690
    
    
    
    2,096
    
    
    $
    210
    
    
    $
    123,425
    
    
    $
    (33,561
    )
    
    $
    (26,106
    )
    
    $
    (6,971
    )
    
    $
    1,898
    
    
    $
    81,585
  72




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Year ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (24,093
    )
    
    $
    (33,259
    )
    
    $
    (38,082
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    686
    
    
    
    907
    
    
    
    1,059Stock compensation expense
    
    
    35
    
    
    
    226
    
    
    
    703Impairment charge for other real estate owned
    
    
    7,374
    
    
    
    4,537
    
    
    
    Provision for loan and lease losses
    
    
    22,140
    
    
    
    20,605
    
    
    
    21,841Net amortization (accretion) of discounts and premiums on loans, mortgage-backed securities and investments
    
    
    2,444
    
    
    
    518
    
    
    
    (2,242
    )(Benefit) provision for deferred income taxes
    
    
    
    
    
    
    (174
    )
    
    
    10,462Gains on sales of other real estate owned
    
    
    (1,019
    )
    
    
    (294
    )
    
    
    (429
    )Gain on sales of real estate joint ventures
    
    
    
    
    
    
    
    
    
    
    (1,092
    )Proceeds from sales of loans and leases
    
    
    4,145
    
    
    
    10,844
    
    
    
    2,613Gains on sales of premises and equipment
    
    
    
    
    
    
    
    
    
    
    (1,991
    )Gains on sales of loans and leases
    
    
    (666
    )
    
    
    (914
    )
    
    
    (190
    )Gains on sales of security claim
    
    
    (1,656
    )
    
    
    
    
    
    
    Net (gains) losses on sales of investment securities
    
    
    (1,290
    )
    
    
    (1,892
    )
    
    
    1,313Distributions from investments in real estate
    
    
    (210
    )
    
    
    (200
    )
    
    
    (241
    )Gain from sale of premises of real estate owned via equity investment
    
    
    (667
    )
    
    
    (1,817
    )
    
    
    (1,679
    )Impairment of real estate owned via equity investments
    
    
    2,600
    
    
    
    
    
    
    
    1,500Impairment of available-for-sale investment securities
    
    
    479
    
    
    
    11,041
    
    
    
    23,388Income from bank owned life insurance
    
    
    (379
    )
    
    
    (1,099
    )
    
    
    (1,233
    )Impairment of real estate joint venture
    
    
    1,552
    
    
    
    
    
    
    
    Changes in assets and liabilities:(Increase) decrease in accrued interest receivable
    
    
    (1,922
    )
    
    
    (1,362
    )
    
    
    1,676Decrease (increase) in other assets
    
    
    29,646
    
    
    
    (5,225
    )
    
    
    (10,766
    )(Decrease) increase in accrued interest payable
    
    
    (2,167
    )
    
    
    48
    
    
    
    (2,498
    )Increase in other liabilities
    
    
    1,669
    
    
    
    5,292
    
    
    
    3,364Net cash provided by operating activities
    
    
    38,701
    
    
    
    7,782
    
    
    
    7,476Cash flows from investing activitiesProceeds from calls/maturities of held-to-maturity investment securities
    
    
    
    
    
    
    
    
    
    
    105,265Proceeds from calls/maturities of investment securities available-for-sale
    
    
    118,056
    
    
    
    148,268
    
    
    
    169,901Proceeds from sales of investment securities available-for-sale
    
    
    181,334
    
    
    
    184,226
    
    
    
    15,775Purchase of investment securities available-for-sale
    
    
    (174,167
    )
    
    
    (398,312
    )
    
    
    (179,257
    )Redemption of Federal Home Loan Bank stock
    
    
    547
    
    
    
    
    
    
    
    2,510Net decrease (increase) in loans
    
    
    109,221
    
    
    
    (49,260
    )
    
    
    (81,207
    )Capital improvements to foreclosed assets
    
    
    (1,242
    )
    
    
    (2,431
    )
    
    
    Proceeds from sale of foreclosed assets
    
    
    13,319
    
    
    
    7,877
    
    
    
    1,186Net cash received in connection with the sale of Royal Asian Bank
    
    
    224
    
    
    
    
    
    
    
    Proceeds from sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    2,065Purchase of premises and equipment
    
    
    (115
    )
    
    
    (287
    )
    
    
    (692
    )Purchase of life insurance
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Proceeds from surrender of life insurance
    
    
    
    
    
    
    22,628
    
    
    
    Net proceeds from sale of premises of real estate owned via equity investments
    
    
    6,682
    
    
    
    11,354
    
    
    
    9,064Distributions from real estate owned via equity investments
    
    
    210
    
    
    
    200
    
    
    
    241Net decrease in real estate joint ventures
    
    
    
    
    
    
    
    
    
    
    5,219Net decrease in real estate owned via equity investments
    
    
    (8,615
    )
    
    
    (9,537
    )
    
    
    (8,885
    )Net cash provided by (used in) investing activities
    
    
    245,454
    
    
    
    (85,274
    )
    
    
    36,185
 73




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
 Year ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from financing activities:(Decrease) increase in non-interest bearing and interest bearing demand deposits and savings accounts
    
    
    (2,105
    )
    
    
    32,719
    
    
    
    (65,443
    )(Decrease) increase in certificates of deposit
    
    
    (185,737
    )
    
    
    88,968
    
    
    
    55,359Net decrease in short-term borrowings
    
    
    (92,500
    )
    
    
    
    
    
    
    (80,000
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    
    
    
    
    65,000Repayments of long-term borrowings
    
    
    (6,726
    )
    
    
    (21,506
    )
    
    
    (4,230
    )Repayment of mortgage debt of real estate owned via equity investments
    
    
    (3,652
    )
    
    
    (8,698
    )
    
    
    (6,216
    )Proceeds from the issuance of preferred stock
    
    
    
    
    
    
    30,407
    
    
    
    Cash dividends paid
    
    
    
    
    
    
    (359
    )
    
    
    (4,005
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (946
    )Issuance of common stock under stock option plans
    
    
    
    
    
    
    
    
    
    
    174Net cash (used in) provided by financing activities
    
    
    (290,720
    )
    
    
    121,531
    
    
    
    (40,307
    )Net (decrease) increase in cash and cash equivalents
    
    
    (6,565
    )
    
    
    44,039
    
    
    
    3,354Cash and cash equivalents at beginning of period
    
    
    58,298
    
    
    
    14,259
    
    
    
    10,905Cash and cash equivalents at end of period
    
    $
    51,733
    
    
    $
    58,298
    
    
    $
    14,259Supplemental DisclosureInterest
    
    $
    28,161
    
    
    $
    37,391
    
    
    $
    40,607Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Transfers to other real estate owned
    
    $
    18,797
    
    
    $
    29,660
    
    
    $
    10,055Carrying value of loans included in the sale of Royal Asian Bank
    
    $
    57,556
    
    
    $
    
    
    
    $
    Carrying value of investments included in the sale of Royal Asian Bank
    
    
    13,999
    
    
    
    
    
    
    
    Carrying value of other assets included in the sale of Royal Asian Bank
    
    
    2,546
    
    
    
    
    
    
    
    Total carrying value of assets included in the sale of Royal Asian Bank
    
    $
    74,101
    
    
    $
    
    
    
    $
    Carrying value of deposits included in the sale of Royal Asian Bank
    
    $
    (73,374
    )
    
    $
    
    
    
    $
    Carrying value of other liabilities included in the sale of Royal Asian Bank
    
    
    (503
    )
    
    
    
    
    
    
    Total carrying value of liabilities included in the sale of Royal Asian Bank
    
    $
    (73,877
    )
    
    $
    
    
    
    $
    
  74




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Basis of Financial Statement Presentation
 Nature of Operations
  Principles of Consolidation
  Use of Estimates
   75




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Significant Concentration of Credit Risk
    Variable Interest Entities (VIE)
 Real estate owned via equity investments: .
   76




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      77




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Trust Preferred Securities:
 US GAAP RAP Difference
  Reclassifications
  Cash and Cash Equivalents
  Investment Securities
   78




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Federal Home Loan Bank Stock
   79




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Loans Held for Sale
  Loans and Leases
   80




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Allowance for Loan and Lease Losses
   81




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     82




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Other Real Estate Owned
  Premises and Equipment
  Interest Rate Swaps
    Investments in Real Estate Joint Ventures
  83




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Bank-Owned Life Insurance
  Transfer of Financial Assets
   Advertising Costs
  Benefit Plans
  Stock Compensation
   Income Taxes
  84




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Treasury Stock
  Earnings (Losses) Per Share Information
   Comprehensive Income (Loss)
  Fair Value of Financial Instruments
  Restrictions on Cash and Amounts Due From Banks
  85




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Recent Accounting Pronouncements
      86




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     87




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  FDIC Orders
     88




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Federal Reserve Agreement
    89




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Continued Losses
      Credit Quality
  90




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      Commercial Real Estate Concentrations
  91




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Balance Sheet Reduction (Deleveraging)
   Liquidity and Funds Management
  92




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    Dividend and Interest Restrictions
   Capital Adequacy
   93




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Department of Justice Investigation (DOJ)
  Management Plans
     94




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Included in Accumulated OtherComprehensive Income (AOCI)Gross unrealized lossesNon-creditGross
    
    
    
    
    
    
    relatedAs of December 31, 2010
    
    Amortized
    
    
    unrealized
    
    
    Non-OTTI
    
    
    OTTI in(In thousands)
    
    cost
    
    
    gains
    
    
    in AOCI
    
    
    AOCI
    
    
    Fair valueInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    8,492
    
    
    $
    348
    
    
    $
    
    
    
    $
    
    
    
    $
    8,840U.S. government agencies
    
    
    30,492
    
    
    
    
    
    
    
    (755
    )
    
    
    
    
    
    
    29,737Common stocks
    
    
    381
    
    
    
    152
    
    
    
    (50
    )
    
    
    
    
    
    
    483Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    231,717
    
    
    
    3,640
    
    
    
    (704
    )
    
    
    
    
    
    
    234,653Non-agency
    
    
    7,026
    
    
    
    114
    
    
    
    (3
    )
    
    
    
    
    
    
    7,137Corporate bonds
    
    
    9,483
    
    
    
    
    
    
    
    (197
    )
    
    
    
    
    
    
    9,286Trust preferred securities
    
    
    16,566
    
    
    
    2,135
    
    
    
    
    
    
    
    (87
    )
    
    
    18,614Other securities
    
    
    7,974
    
    
    
    431
    
    
    
    
    
    
    
    
    
    
    
    8,405Total available for sale
    
    $
    312,131
    
    
    $
    6,820
    
    
    $
    (1,709
    )
    
    $
    (87
    )
    
    $
    317,155
 Included in Accumulated OtherComprehensive Loss (AOCL)Gross unrealized lossesNon-creditGross
    
    
    
    
    
    
    relatedAs of December 31, 2009
    
    Amortized
    
    
    unrealized
    
    
    Non-OTTI
    
    
    OTTI in(In thousands)
    
    cost
    
    
    gains
    
    
    in AOCL
    
    
    AOCL
    
    
    Fair valueInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    21,393
    
    
    $
    234
    
    
    $
    (26
    )
    
    $
    
    
    
    $
    21,601U.S. government agencies
    
    
    1,150
    
    
    
    3
    
    
    
    (2
    )
    
    
    
    
    
    
    1,151Preferred stocks
    
    
    2,500
    
    
    
    
    
    
    
    (270
    )
    
    
    
    
    
    
    2,230Common stocks
    
    
    381
    
    
    
    71
    
    
    
    (8
    )
    
    
    
    
    
    
    444Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    316,911
    
    
    
    2,871
    
    
    
    (1,281
    )
    
    
    
    
    
    
    318,501Non-agency
    
    
    23,010
    
    
    
    145
    
    
    
    (875
    )
    
    
    (1,082
    )
    
    
    21,198Collateralized debt obligations
    
    
    24,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,825Corporate bonds
    
    
    7,911
    
    
    
    9
    
    
    
    (423
    )
    
    
    (630
    )
    
    
    6,867Trust preferred securities
    
    
    32,926
    
    
    
    2,064
    
    
    
    (177
    )
    
    
    (678
    )
    
    
    34,135Other securities
    
    
    7,892
    
    
    
    8
    
    
    
    (133
    )
    
    
    
    
    
    
    7,767Total available for sale
    
    $
    438,899
    
    
    $
    5,405
    
    
    $
    (3,195
    )
    
    $
    (2,390
    )
    
    $
    438,719
 95




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
    As of December 31, 2010Amortized(In thousands)
    
    cost
    
    
    Fair valueWithin 1 year
    
    $
    
    
    
    $
    After 1 but within 5 years
    
    
    4,300
    
    
    
    4,289After 5 but within 10 years
    
    
    16,615
    
    
    
    16,273After 10 years
    
    
    35,626
    
    
    
    37,075Mortgage-backed securities-residential
    
    
    8,492
    
    
    
    8,840Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    231,717
    
    
    
    234,653Non-agency
    
    
    7,026
    
    
    
    7,137Total available for sale debt securities
    
    
    303,776
    
    
    
    308,267No contractual maturity
    
    
    8,355
    
    
    
    8,888Total available for sale securities
    
    $
    312,131
    
    
    $
    317,155
  For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Gross realized gains
    
    $
    1,938
    
    
    $
    4,077
    
    
    $
    176Gross realized losses
    
    
    (648
    )
    
    
    (2,185
    )
    
    
    (1,489
    )Net realized gains (losses)
    
    $
    1,290
    
    
    $
    1,892
    
    
    $
    (1,313
    )
  96




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossDecember 31, 2010
    
    
    
    
    
    unrealized
    
    
    Number of
    
    
    
    
    
    
    unrealized
    
    
    Number of
    
    
    
    
    
    
    unrealized
    
    
    Number of(In thousands)
    
    Fair value
    
    
    losses
    
    
    positions
    
    
    Fair value
    
    
    losses
    
    
    positions
    
    
    Fair value
    
    
    losses
    
    
    positionsInvestment securities available for saleU.S. government agencies
    
    $
    29,737
    
    
    $
    (755
    )
    
    
    8
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    29,737
    
    
    $
    (755
    )
    
    
    8Common stocks
    
    
    96
    
    
    
    (50
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    (50
    )
    
    
    2Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    73,169
    
    
    
    (687
    )
    
    
    19
    
    
    
    4,429
    
    
    
    (17
    )
    
    
    1
    
    
    
    77,598
    
    
    
    (704
    )
    
    
    20Non-agency
    
    
    918
    
    
    
    (3
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918
    
    
    
    (3
    )
    
    
    1Corporate bonds
    
    
    8,986
    
    
    
    (197
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,986
    
    
    
    (197
    )
    
    
    9Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,662
    
    
    
    (87
    )
    
    
    1
    
    
    
    1,662
    
    
    
    (87
    )
    
    
    1Total available for sale
    
    $
    112,906
    
    
    $
    (1,692
    )
    
    
    39
    
    
    $
    6,091
    
    
    $
    (104
    )
    
    
    2
    
    
    $
    118,997
    
    
    $
    (1,796
    )
    
    
    41
  97




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Common stocks:
 Preferred stocks:
  U.S. government-sponsored agencies (US Agencies):
 U.S. government issued or sponsored collateralized mortgage obligations (Agency CMOs):
 Non-agency collateralized mortgage obligations (Non-agency CMOs):
 98




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Corporate bonds:
  Trust preferred securities:
   99




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Other securities:
   (In thousands)
    
    2010
    
    
    2009Balance at January 1,
    
    $
    1,896
    
    
    $
    Credit-related impairment loss on debt securities for which an
other-than-temporary impairment was not previously recognized
    
    
    
    
    
    
    4,821Reductions for securities sold during the period (realized)
    
    
    (859
    )
    
    
    (1,061
    )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
    
    
    (113
    )
    
    
    (1,864
    )Balance at December 31,
    
    $
    924
    
    
    $
    1,896
  For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Mortgage-backed securities-residential
    
    $
    
    
    
    $
    
    
    
    $
    4,953Non-agency collateralized
mortgage obligations
    
    
    
    
    
    
    459
    
    
    
    3,188Corporate bonds
    
    
    58
    
    
    
    1,353
    
    
    
    11,497Trust preferred securities
    
    
    193
    
    
    
    3,009
    
    
    
    Common stocks
    
    
    
    
    
    
    4,334
    
    
    
    Preferred stocks
    
    
    165
    
    
    
    1,117
    
    
    
    3,750Other securities
    
    
    63
    
    
    
    769
    
    
    
    $
    479
    
    
    $
    11,041
    
    
    $
    23,388
 100




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
   Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossDecember 31, 2009
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized
    
    
    Number of(In thousands)
    
    Fair value
    
    
    losses
    
    
    positions
    
    
    Fair value
    
    
    losses
    
    
    positions
    
    
    Fair value
    
    
    losses
    
    
    positionsInvestment securities available for saleMortgage-backed securities-residential
    
    $
    11,922
    
    
    $
    (26
    )
    
    
    3
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    11,922
    
    
    $
    (26
    )
    
    
    3U.S. government agencies
    
    
    398
    
    
    
    (2
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    (2
    )
    
    
    4Preferred stocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,230
    
    
    
    (270
    )
    
    
    1
    
    
    
    2,230
    
    
    
    (270
    )
    
    
    1Common stocks
    
    
    41
    
    
    
    (8
    )
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    (8
    )
    
    
    3Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    111,661
    
    
    
    (1,281
    )
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,661
    
    
    
    (1,281
    )
    
    
    25Non-agency
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,487
    
    
    
    (1,957
    )
    
    
    5
    
    
    
    12,487
    
    
    
    (1,957
    )
    
    
    5Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,602
    
    
    
    (1,053
    )
    
    
    2
    
    
    
    5,602
    
    
    
    (1,053
    )
    
    
    2Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,630
    
    
    
    (855
    )
    
    
    4
    
    
    
    12,630
    
    
    
    (855
    )
    
    
    4Other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,158
    
    
    
    (133
    )
    
    
    1
    
    
    
    1,158
    
    
    
    (133
    )
    
    
    1Total available for sale
    
    $
    124,022
    
    
    $
    (1,317
    )
    
    
    35
    
    
    $
    34,107
    
    
    $
    (4,268
    )
    
    
    13
    
    
    $
    158,129
    
    
    $
    (5,585
    )
    
    
    48
    As of December 31,(In thousands)
    
    2010
    
    
    2009Loans secured by real estate:Construction
    
    $
    29,044
    
    
    $
    52,196Land development
    
    
    50,594
    
    
    
    66,878Secured by 1-4 family residential real estate:Revolving, open-end loans secured by residential real
estate and extended under lines of credit
    
    
    1,252
    
    
    
    1,272All other loans secured by 1-4 family residential real estate:Secured by first liens
    
    
    26,166
    
    
    
    44,053Secured by junior liens
    
    
    1,881
    
    
    
    3,173Secured by multi family (5 or more) residential real estate
    
    
    10,277
    
    
    
    22,017Secured by residential real estate  mezzanine
    
    
    
    
    
    
    2,480Secured by non-farm nonresidential real estate
    
    
    194,203
    
    
    
    277,234Tax certificates
    
    
    70,443
    
    
    
    73,106Commercial and industrial loans
    
    
    74,027
    
    
    
    104,063Loans to individuals for household, family, and other personal
expenditures
    
    
    768
    
    
    
    1,514Lease financing receivables (net of unearned income)
    
    
    38,725
    
    
    
    39,097All other loans
    
    
    25
    
    
    
    659Less: Deferred loan fees
    
    
    (551
    )
    
    
    (878
    )Total loans and leases, net of unearned income
    
    $
    496,854
    
    
    $
    686,864
 101




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        
    
    Pass: includes credits that demonstrate a low probability of default;
    
    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.
 102




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
    Special(In thousands)
    
    Pass
    
    
    Watch
    
    
    Mention
    
    
    Substandard
    
    
    Non-accrual
    
    
    TotalConstruction
    
    $
    992
    
    
    $
    10,089
    
    
    $
    5,491
    
    
    $
    
    
    
    $
    12,472
    
    
    $
    29,044Land development
    
    
    6,921
    
    
    
    13,967
    
    
    
    22,420
    
    
    
    
    
    
    
    7,286
    
    
    
    50,594Real Estate-non-residential
    
    
    97,142
    
    
    
    49,278
    
    
    
    37,723
    
    
    
    
    
    
    
    10,060
    
    
    
    194,203Commercial & industrial
    
    
    27,864
    
    
    
    6,488
    
    
    
    25,400
    
    
    
    8,317
    
    
    
    5,958
    
    
    
    74,027Residential real estate
    
    
    19,272
    
    
    
    7,430
    
    
    
    198
    
    
    
    
    
    
    
    2,399
    
    
    
    29,299Multi-family
    
    
    2,804
    
    
    
    4,117
    
    
    
    903
    
    
    
    
    
    
    
    2,453
    
    
    
    10,277Leasing
    
    
    37,731
    
    
    
    252
    
    
    
    10
    
    
    
    
    
    
    
    732
    
    
    
    38,725Consumer
    
    
    768
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    793Tax certificates
    
    
    68,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,802
    
    
    
    70,443Subtotal LHFI
    
    
    262,135
    
    
    
    91,646
    
    
    
    92,145
    
    
    
    8,317
    
    
    
    43,162
    
    
    
    497,405Less: Deferred loan fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (551
    )Total LHFI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    496,854
  30-59 Days
    
    
    60-89 Days
    
    
    Accruing
    
    
    Total(In thousands)
    
    Past Due
    
    
    Past Due
    
    
    90+ Days
    
    
    Non-accrual
    
    
    Current
    
    
    TotalConstruction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,472
    
    
    $
    16,572
    
    
    $
    29,044Land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,286
    
    
    
    43,308
    
    
    
    50,594Real Estate-non-residential
    
    
    9,469
    
    
    
    
    
    
    
    
    
    
    
    10,060
    
    
    
    174,674
    
    
    
    194,203Commercial & industrial
    
    
    146
    
    
    
    659
    
    
    
    
    
    
    
    5,958
    
    
    
    67,264
    
    
    
    74,027Residential real estate
    
    
    1,341
    
    
    
    341
    
    
    
    
    
    
    
    2,399
    
    
    
    25,218
    
    
    
    29,299Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,453
    
    
    
    7,824
    
    
    
    10,277Leasing
    
    
    252
    
    
    
    10
    
    
    
    
    
    
    
    732
    
    
    
    37,731
    
    
    
    38,725Consumer
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    775
    
    
    
    793Tax certificates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,802
    
    
    
    68,641
    
    
    
    70,443Subtotal LHFI
    
    
    11,226
    
    
    
    1,010
    
    
    
    
    
    
    
    43,162
    
    
    
    442,007
    
    
    
    497,405Less: Deferred loan fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (551
    )Total LHFI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    496,854
 103




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of December 31,(In thousands)
    
    2010
    
    
    2009Construction
    
    $
    12,472
    
    
    $
    18,316Land development
    
    
    7,286
    
    
    
    5,908Real Estate-non-residential
    
    
    10,060
    
    
    
    19,584Commercial & industrial
    
    
    5,958
    
    
    
    11,779Residential real estate
    
    
    2,399
    
    
    
    12,445Residential real estate  mezzanine
    
    
    
    
    
    
    2,480Multi-family
    
    
    2,453
    
    
    
    Leasing
    
    
    732
    
    
    
    627Tax certificates
    
    
    1,802
    
    
    
    2,540Total
    
    $
    43,162
    
    
    $
    73,679
    104




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of December 31,(In thousands)
    
    2010
    
    
    2009Impaired loans and leases with a valuation allowance
    
    $
    9,620
    
    
    $
    46,670Impaired loans and leases without a valuation allowance
    
    
    32,805
    
    
    
    27,009Total impaired loans and leases
    
    $
    42,425
    
    
    $
    73,679Valuation allowance related to impaired loans and leases
    
    $
    1,907
    
    
    $
    10,958
 For the years ended December 31,(In thousands)
    
    2010
    
    2009
    
    2008Average investment in impaired loans and leases
    
    $
    78,225
    
    
    $
    79,754
    
    
    $
    55,134Interest income recognized on impaired loans and leases
    
    $
    335
    
    
    $
    242
    
    
    $
    302Interest income recognized on a cash basis
on impaired loans and leases
    
    $
    335
    
    
    $
    242
    
    
    $
    302
   (In thousands)
    
    2010
    
    
    2009
    
    
    2008Balance at the beginning of the year
    
    $
    30,331
    
    
    $
    28,908
    
    
    $
    19,282Charge-offs
    
    
    (31,714
    )
    
    
    (19,818
    )
    
    
    (12,327
    )Recoveries
    
    
    1,300
    
    
    
    636
    
    
    
    112Net charge-offs
    
    
    (30,414
    )
    
    
    (19,182
    )
    
    
    (12,215
    )Reduction due to Royal Asian sale
    
    
    (928
    )
    
    
    
    
    
    
    Provision for loan losses and leases
    
    
    22,140
    
    
    
    20,605
    
    
    
    21,841Balance at the end of year
    
    $
    21,129
    
    
    $
    30,331
    
    
    $
    28,908
 105




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   
 ConstructionCommercial
    
    
    and land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax(In thousands)
    
    real estate
    
    
    development
    
    
    Commercial
    
    
    Multi-family
    
    
    Residential
    
    
    Consumer
    
    
    Leasing
    
    
    certificates
    
    
    Unallocated
    
    
    TotalAllowance for Loan and Leases LossesBeginning balance
    
    $
    10,039
    
    
    $
    7,895
    
    
    $
    6,542
    
    
    $
    
    
    
    $
    3,762
    
    
    $
    25
    
    
    $
    1,757
    
    
    $
    290
    
    
    $
    21
    
    
    $
    30,331Charge-offs
    
    
    (7,352
    )
    
    
    (13,413
    )
    
    
    (5,930
    )
    
    
    (787
    )
    
    
    (3,211
    )
    
    
    
    
    
    
    (972
    )
    
    
    (49
    )
    
    
    
    
    
    
    (31,714
    )Recoveries
    
    
    684
    
    
    
    116
    
    
    
    81
    
    
    
    18
    
    
    
    313
    
    
    
    37
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    1,300Provision
    
    
    6,796
    
    
    
    9,508
    
    
    
    3,223
    
    
    
    1,421
    
    
    
    285
    
    
    
    (47
    )
    
    
    834
    
    
    
    139
    
    
    
    (19
    )
    
    
    22,140Reduction due to Royal Asian sale
    
    
    (633
    )
    
    
    (130
    )
    
    
    (119
    )
    
    
    
    
    
    
    (43
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (928
    )Ending balance
    
    $
    9,534
    
    
    $
    3,976
    
    
    $
    3,797
    
    
    $
    652
    
    
    $
    1,106
    
    
    $
    12
    
    
    $
    1,670
    
    
    $
    380
    
    
    $
    2
    
    
    $
    21,129Ending balance: related to loans
individually evaluated for impairment
    
    $
    1,363
    
    
    $
    
    
    
    $
    
    
    
    $
    245
    
    
    $
    74
    
    
    $
    
    
    
    $
    194
    
    
    $
    31
    
    
    $
    
    
    
    $
    1,907Ending balance: related to loans
collectively evaluated for impairment
    
    $
    8,171
    
    
    $
    3,976
    
    
    $
    3,797
    
    
    $
    407
    
    
    $
    1,032
    
    
    $
    12
    
    
    $
    1,476
    
    
    $
    349
    
    
    $
    2
    
    
    $
    19,222LHFIEnding balance
    
    $
    194,203
    
    
    $
    79,638
    
    
    $
    74,027
    
    
    $
    10,277
    
    
    $
    29,299
    
    
    $
    793
    
    
    $
    38,725
    
    
    $
    70,443
    
    
    $
    (551
    )
    
    $
    496,854Ending balance: individually
evaluated for impairment
    
    $
    10,060
    
    
    $
    19,758
    
    
    $
    5,858
    
    
    $
    2,453
    
    
    $
    2,159
    
    
    $
    
    
    
    $
    335
    
    
    $
    1,802
    
    
    $
    
    
    
    $
    42,425Ending balance: collectively
evaluated for impairment
    
    $
    184,143
    
    
    $
    59,880
    
    
    $
    68,169
    
    
    $
    7,824
    
    
    $
    27,140
    
    
    $
    793
    
    
    $
    38,390
    
    
    $
    68,641
    
    
    $
    (551
    )
    
    $
    454,429
  As of December 31, 2010Unpaid
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    Interestprincipal
    
    
    Carrying
    
    
    Related
    
    
    recorded
    
    
    income(In thousands)
    
    balance
    
    
    value
    
    
    allowance
    
    
    investment
    
    
    recognizedWith no related allowance recorded:Construction
    
    $
    16,147
    
    
    $
    12,472
    
    
    $
    
    
    
    $
    19,944
    
    
    $
    Land development
    
    
    9,165
    
    
    
    7,286
    
    
    
    
    
    
    
    8,161
    
    
    
    202Real Estate-non-residential
    
    
    4,511
    
    
    
    4,255
    
    
    
    
    
    
    
    13,650
    
    
    
    42Commercial & industrial
    
    
    10,217
    
    
    
    5,858
    
    
    
    
    
    
    
    5,236
    
    
    
    2Residential real estate
    
    
    1,172
    
    
    
    1,119
    
    
    
    
    
    
    
    3,243
    
    
    
    76Multi-family
    
    
    1,935
    
    
    
    1,815
    
    
    
    
    
    
    
    458
    
    
    
    Tax certificates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    996
    
    
    
    Total:
    
    $
    43,147
    
    
    $
    32,805
    
    
    $
    
    
    
    $
    51,688
    
    
    $
    322With an allowance recorded:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,340
    
    
    $
    Land development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,172
    
    
    
    13Real Estate-non-residential
    
    
    5,805
    
    
    
    4,442
    
    
    
    1,363
    
    
    
    5,057
    
    
    
    Commercial & industrial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,782
    
    
    
    Residential real estate
    
    
    1,239
    
    
    
    966
    
    
    
    74
    
    
    
    1,153
    
    
    
    Multi-family
    
    
    638
    
    
    
    393
    
    
    
    245
    
    
    
    3,469
    
    
    
    Leasing
    
    
    335
    
    
    
    141
    
    
    
    194
    
    
    
    538
    
    
    
    Tax certificates
    
    
    4,850
    
    
    
    1,771
    
    
    
    31
    
    
    
    1,026
    
    
    
    Total:
    
    $
    12,867
    
    
    $
    7,713
    
    
    $
    1,907
    
    
    $
    26,537
    
    
    $
    13
 106




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   2010(In thousands)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterBeginning balance
    
    $
    30,317
    
    
    $
    25,781
    
    
    $
    30,795
    
    
    $
    27,525Capital improvements
    
    
    
    
    
    
    697
    
    
    
    545
    
    
    
    Net proceeds from sales
    
    
    (4,391
    )
    
    
    (3,403
    )
    
    
    (5,021
    )
    
    
    (504
    )Net gain on sales
    
    
    157
    
    
    
    174
    
    
    
    404
    
    
    
    284Assets acquired on non-accrual loans
    
    
    
    
    
    
    8,421
    
    
    
    2,873
    
    
    
    5,490Other
    
    
    500
    
    
    
    85
    
    
    
    (10
    )
    
    
    Impairment charge
    
    
    (802
    )
    
    
    (960
    )
    
    
    (2,061
    )
    
    
    (3,551
    )Ending balance
    
    $
    25,781
    
    
    $
    30,795
    
    
    $
    27,525
    
    
    $
    29,244
    107




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
       As of December 31,Estimated(In thousands)
    
    Useful Lives
    
    2010
    
    
    2009Land
    
    
    
    $
    2,396
    
    
    $
    2,396Buildings and leasehold improvements
    
    5 - 39 years
    
    
    8,071
    
    
    
    8,082Furniture, fixtures and equipment
    
    3 - 7 years
    
    
    7,048
    
    
    
    6,92217,515
    
    
    
    17,400Less accumulated depreciation and amortization
    
    
    
    
    (11,780
    )
    
    
    (11,094
    )$
    5,735
    
    
    $
    6,306
  108




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of(In thousands)
    
    December 31, 20102011
    
    $
    7712012
    
    
    6822013
    
    
    6042014
    
    
    2962015
    
    
    199Thereafter
    
    
    583Total lease commitments
    
    $
    3,135
    As of December 31,(In thousands)
    
    2010
    
    
    2009Demand
    
    $
    52,872
    
    
    $
    63,168NOW
    
    
    40,884
    
    
    
    45,248Money Market
    
    
    180,862
    
    
    
    168,893Savings
    
    
    15,922
    
    
    
    15,336Time deposits (over $100)
    
    
    105,788
    
    
    
    141,652Time deposits (under $100)
    
    
    208,534
    
    
    
    240,557Brokered deposits
    
    
    89,051
    
    
    
    206,901Total deposits
    
    $
    693,913
    
    
    $
    881,755
  As of(In thousands)
    
    December 31, 20102011
    
    $
    273,4142012
    
    
    72,7492013
    
    
    35,8672014
    
    
    4,9982015
    
    
    4,928Thereafter
    
    
    11,417Total certificates of deposit
    
    $
    403,373
 109




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
  Advances from the Federal Home Loan Bank
     As of December 31,2010
    
    
    2009(Dollars in thousands)
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateAdvances maturing in2010
    
    $
    
    
    
    
    
    
    
    $
    114,500
    
    
    
    4.41
    %2011
    
    
    22,000
    
    
    
    0.72
    %
    
    
    
    
    
    
    2012
    
    
    30,000
    
    
    
    4.32
    %
    
    
    30,000
    
    
    
    4.32
    %2013
    
    
    50,000
    
    
    
    2.64
    %
    
    
    50,000
    
    
    
    2.64
    %Amortizing advance, due April 2012,
requiring monthly principal and
interest of $558,400
    
    
    8,719
    
    
    
    3.46
    %
    
    
    15,001
    
    
    
    3.46
    %Total FHLB borrowings
    
    $
    110,719
    
    
    
    
    
    
    $
    209,501
 Other borrowings
   110




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Subordinated debentures
      For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Income tax expense (benefit)Current
    
    $
    
    
    
    $
    648
    
    
    $
    (7,819
    )Deferred
    
    
    
    
    
    
    (174
    )
    
    
    10,462Income tax expense (benefit)
    
    $
    
    
    
    $
    474
    
    
    $
    2,643
 111




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
   For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Computed tax benefit at statutory rate
    
    $
    (8,432
    )
    
    $
    (11,474
    )
    
    $
    (12,404
    )Tax-exempt income
    
    
    (28
    )
    
    
    (120
    )
    
    
    (170
    )Nondeductible expense
    
    
    29
    
    
    
    58
    
    
    
    69Bank owned life insurance
    
    
    (133
    )
    
    
    1,306
    
    
    
    (432
    )Bank owned life insurance excise penalty
    
    
    
    
    
    
    474
    
    
    
    Other non-taxable income
    
    
    
    
    
    
    
    
    
    
    (413
    )Other, net
    
    
    
    
    
    
    
    
    
    
    496Increase in valuation allowance
    
    
    8,564
    
    
    
    10,230
    
    
    
    15,497Applicable income tax expense (benefit)
    
    $
    
    
    
    $
    474
    
    
    $
    2,643
  As of December 31,(In thousands)
    
    2010
    
    
    2009Deferred tax assetsAllowance for loan and lease losses
    
    $
    7,395
    
    
    $
    10,616Tax net loss carryforward
    
    
    9,984
    
    
    
    3,164Asset valuation reserves
    
    
    431
    
    
    
    431Security writedowns
    
    
    1,943
    
    
    
    1,780OREO writedowns
    
    
    5,564
    
    
    
    1,395Investment in partnerships
    
    
    2,398
    
    
    
    3,732Accrued pension liability
    
    
    4,588
    
    
    
    4,191Accrued stock-based compensation
    
    
    780
    
    
    
    767Net operating loss carryovers from Knoblauch State Bank
    
    
    1,232
    
    
    
    1,232Non-accrual interest
    
    
    2,029
    
    
    
    Unrealized losses on investment securities available for sale
    
    
    
    
    
    
    61Other
    
    
    8
    
    
    
    5Deferred tax assets before valuation allowance
    
    
    36,352
    
    
    
    27,374Less valuation allowance
    
    
    (33,479
    )
    
    
    (25,727
    )Less valuation allowance for equity securities
    
    
    
    
    
    
    (97
    )Total deferred tax assets
    
    
    2,873
    
    
    
    1,550Deferred tax liabilitiesPenalties on delinquent tax certificates
    
    
    596
    
    
    
    559Unrealized gains on investment securities available for sale
    
    
    1,228
    
    
    
    Accretion on investments
    
    
    127
    
    
    
    395Prepaid deductions
    
    
    545
    
    
    
    212Other
    
    
    (37
    )
    
    
    (30
    )Total deferred tax liabilities
    
    
    2,459
    
    
    
    1,136Net deferred tax assets, included in other assets
    
    $
    414
    
    
    $
    414
 112




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        113




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
       As of December 31,(In thousands)
    
    2010
    
    2009Financial instruments whose contract amounts represent credit riskOpen-end lines of credit
    
    $
    30,560
    
    
    $
    44,829Commitments to extend credit
    
    
    
    
    
    
    1,630Standby letters of credit and financial guarantees written
    
    
    2,755
    
    
    
    3,477
    114




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Preferred Stock
  Common Stock
  Payment of Dividends
  115




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
         116




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    As of December 31, 2010To be wellcapitalized underFor capital
    
    
    prompt correctiveActual
    
    
    adequacy purposes
    
    
    action provisions(Dollars in thousands)
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioTotal capital
(to risk-weighted
assets)Royal Bank
    
    $
    89,547
    
    
    
    13.76
    %
    
    $
    52,057
    
    
    
    8.00
    %
    
    $
    65,071
    
    
    
    10.00
    %Tier I capital
(to risk-weighted
assets)Royal Bank
    
    $
    81,253
    
    
    
    12.49
    %
    
    $
    26,029
    
    
    
    4.00
    %
    
    $
    39,043
    
    
    
    6.00
    %Tier I Capital
(to average assets,
leverage)Royal Bank
    
    $
    81,253
    
    
    
    8.03
    %
    
    $
    40,493
    
    
    
    4.00
    %
    
    $
    50,616
    
    
    
    5.00
    %
  For the year ended(In thousands)
    
    December 31, 2010RAP net loss
    
    $
    (30,011
    )Tax lien adjustment, net of noncontrolling interest
    
    
    8,126US GAAP net loss
    
    $
    (21,885
    )
 As reported
    
    As adjustedunder RAP
    
    for US GAAPTotal capital (to risk-weighted assets)
    
    
    13.76
    %
    
    
    15.54
    %Tier I capital (to risk-weighted assets)
    
    
    12.49
    %
    
    
    14.27
    %Tier I capital (to average assets, leverage)
    
    
    8.03
    %
    
    
    9.24
    %
 117




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of December 31, 2010To be wellcapitalized underFor capital
    
    prompt correctiveActual
    
    adequacy purposes
    
    action provisions(Dollars in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to risk-weighted assets)Company (consolidated)
    
    $
    115,227
    
    
    
    17.21
    %
    
    $
    53,570
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to risk-weighted assets)Company (consolidated)
    
    $
    106,699
    
    
    
    15.93
    %
    
    $
    26,785
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier I Capital (to average assets, leverage)Company (consolidated)
    
    $
    106,699
    
    
    
    9.68
    %
    
    $
    44,075
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/A
  For the year ended(In thousands)
    
    December 31, 2010US GAAP net loss
    
    $
    (24,093
    )Tax lien adjustment, net of noncontrolling interest
    
    
    (8,126
    )RAP net loss
    
    $
    (32,219
    )
 As reported
    
    As adjustedunder US GAAP
    
    for RAPTotal capital (to risk-weighted assets)
    
    
    17.21
    %
    
    
    15.48
    %Tier I capital (to risk-weighted assets)
    
    
    15.93
    %
    
    
    14.20
    %Tier I capital (to average assets, leverage)
    
    
    9.68
    %
    
    
    8.56
    %
 118




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of December 31, 2009To be wellcapitalized underFor capital
    
    prompt correctiveActual
    
    adequacy purposes
    
    action provisions(Dollars in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioTotal capital (to
risk-weighted assets)Company (consolidated)
    
    $
    141,854
    
    
    
    15.45
    %
    
    $
    73,446
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    111,412
    
    
    
    13.37
    %
    
    
    66,685
    
    
    
    8.00
    %
    
    $
    83,357
    
    
    
    10.00
    %Tier I capital (to
risk-weighted assets)Company (consolidated)
    
    $
    130,145
    
    
    
    14.18
    %
    
    $
    36,723
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    100,772
    
    
    
    12.09
    %
    
    
    33,343
    
    
    
    4.00
    %
    
    
    50,014
    
    
    
    6.00
    %Tier I Capital (to
average assets, leverage)Company (consolidated)
    
    $
    130,145
    
    
    
    9.78
    %
    
    $
    53,255
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    100,772
    
    
    
    8.09
    %
    
    
    49,810
    
    
    
    4.00
    %
    
    
    62,262
    
    
    
    5.00
    %
   119




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   For the years ended December 31,(In thousands)
    
    2010
    
    
    2009Change in benefit obligationBenefit obligation at beginning of year
    
    $
    11,549
    
    
    $
    10,233Service cost
    
    
    301
    
    
    
    505Interest cost
    
    
    622
    
    
    
    563Benefits paid
    
    
    (484
    )
    
    
    (69
    )Actuarial loss
    
    
    538
    
    
    
    317Benefits obligation at end of year
    
    $
    12,526
    
    
    $
    11,549Unrecognized prior service cost
    
    
    449
    
    
    
    538Unrecognized actuarial loss
    
    
    1,962
    
    
    
    1,478$
    2,411
    
    
    $
    2,016
   As of December 31,2010
    
    2009Discount rate
    
    
    5.00
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
  For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Service cost
    
    $
    301
    
    
    $
    505
    
    
    $
    472Interest cost
    
    
    622
    
    
    
    563
    
    
    
    526Amortization prior service cost
    
    
    90
    
    
    
    90
    
    
    
    94Amortization net actuarial loss
    
    
    54
    
    
    
    27
    
    
    
    23Net periodic benefit cost
    
    $
    1,067
    
    
    $
    1,185
    
    
    $
    1,115
 120




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of December 31, 2010Non-Qualified(In thousands)
    
    Pension Plans2011
    
    $
    5832012
    
    
    6392013
    
    
    6682014
    
    
    6682015
    
    
    992Next five years thereafter
    
    
    5,796
  Defined Contribution Plan
     2008 (1)
    
    2008 (2)Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected life
    
    7.5 years
    
    5.5 yearsExpected volatility
    
    
    49.90
    %
    
    
    45.18
    %Risk-free interest rate
    
    
    3.51
    %
    
    
    3.51
    %
 
 (1)
    
    Amounts represent weighted average assumption for options granted during 2008 to employees
under the Long Term Incentive Plan.(2)
    
    Amounts represent weighted average assumption for options granted during 2008 to directors
under the Long Term Incentive Plan. 121




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES  Notes To Consolidated Financial Statements
   Outside Directors Stock Option Plan
   2010
    
    
    2009
    
    
    2008Weighted
    
    
    Weighted
    
    
    (1)
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Remaining
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Term (yrs)
    
    
    Value
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOptions outstanding at beginning of year
    
    
    90,197
    
    
    $
    19.15
    
    
    
    3.6
    
    
    
    
    
    
    
    95,950
    
    
    $
    18.82
    
    
    
    100,294
    
    
    $
    18.62Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (5,742
    )
    
    
    11.72
    
    
    
    
    
    
    
    
    
    
    
    (1,575
    )
    
    
    21.78
    
    
    
    (4,344
    )
    
    
    13.75Expired
    
    
    (10,369
    )
    
    
    17.09
    
    
    
    
    
    
    
    
    
    
    
    (4,178
    )
    
    
    10.57
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    74,086
    
    
    $
    20.02
    
    
    
    2.8
    
    
    $
    
    
    
    
    90,197
    
    
    $
    19.15
    
    
    
    95,950
    
    
    $
    18.82Options exercisable at the end of the year
    
    
    74,086
    
    
    $
    20.02
    
    
    
    2.8
    
    
    $
    
    
    
    
    90,197
    
    
    $
    19.15
    
    
    
    95,950
    
    
    $
    18.82
 
 (1)
    
    The aggregate intrinsic value of a stock option in the table above represents the total
pre-tax intrinsic value (the amount by which the current market value of the underlying stock
exceeds the exercise price of the option) that would have been received by the option holders had
they exercised their options on December 31, 2010. The intrinsic value varies based on the changes
in the market value in the Companys stock. Because the exercise price exceeded the market value
of the options, the average intrinsic value was $0 at December 31, 2010.  Options outstandingWeighted
    
    
    WeightedAverage
    
    
    AverageRange of
    
    Number
    
    
    Exercise
    
    
    Remainingexercise prices
    
    Outstanding
    
    
    Price
    
    
    Term (yrs)$11.00 - $12.00
    
    
    5,466
    
    
    $
    11.90
    
    
    
    0.9$17.00 - $20.00
    
    
    23,674
    
    
    
    18.11
    
    
    
    2.0$21.00 - $23.00
    
    
    44,946
    
    
    
    22.01
    
    
    
    3.574,086
    
    
    $
    20.02
    
    
    
    2.8
  122




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Employee Stock Option and Appreciation Right Plan
   2010
    
    
    2009
    
    
    2008Weighted
    
    
    Weighted
    
    
    (1)
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Remaining
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Term (yrs)
    
    
    Value
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOptions outstanding at beginning of year
    
    
    401,626
    
    
    $
    20.09
    
    
    
    4.2
    
    
    
    
    
    
    
    685,873
    
    
    $
    19.72
    
    
    
    799,831
    
    
    $
    19.64Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,588
    )
    
    
    11.89Forfeited
    
    
    (16,621
    )
    
    
    15.10
    
    
    
    
    
    
    
    
    
    
    
    (263,866
    )
    
    
    19.44
    
    
    
    (99,370
    )
    
    
    20.23Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,381
    )
    
    
    16.28
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    385,005
    
    
    $
    20.30
    
    
    
    3.3
    
    
    $
    
    
    
    
    401,626
    
    
    $
    20.09
    
    
    
    685,873
    
    
    $
    19.72Options exercisable at the end of the year
    
    
    369,448
    
    
    $
    20.24
    
    
    
    3.2
    
    
    $
    
    
    
    
    357,737
    
    
    $
    19.88
    
    
    
    525,789
    
    
    $
    19.05
 
 (1)
    
    The aggregate intrinsic value of a stock option in the table above represents the
total pre-tax intrinsic value (the amount by which the current market value of the underlying stock
exceeds the exercise price of the option) that would have been received by the option holders had
they exercised their options on December 31, 2010. The intrinsic value varies based on the changes
in the market value in the Companys stock. Because the exercise price exceeded the market value
of the options, the average intrinsic value was $0 at December 31, 2010.  Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Exercise
    
    
    Remaining
    
    
    Number
    
    
    Exerciseexercise prices
    
    Outstanding
    
    
    Price
    
    
    Term (yrs)
    
    
    Outstanding
    
    
    Price$11.00 - $12.00
    
    
    30,918
    
    
    $
    11.90
    
    
    
    0.3
    
    
    
    30,918
    
    
    $
    11.90$17.00 - $20.00
    
    
    93,036
    
    
    
    18.09
    
    
    
    1.8
    
    
    
    93,036
    
    
    
    18.09$21.00 - $23.00
    
    
    261,051
    
    
    
    22.09
    
    
    
    4.2
    
    
    
    245,494
    
    
    
    22.11385,005
    
    
    $
    20.30
    
    
    
    3.3
    
    
    
    369,448
    
    
    $
    20.24
 123




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   WeightedAverageNumber
    
    
    Exerciseof shares
    
    
    PriceNon-vested options December 31, 2009
    
    
    43,889
    
    
    $
    21.81Forfeited
    
    
    (1,514
    )
    
    
    21.80Vested
    
    
    (26,818
    )
    
    
    21.82Non-vested options December 31, 2010
    
    
    15,557
    
    
    $
    21.78
  Long-Term Incentive Plan
   124




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   2010
    
    
    2009
    
    
    2008Weighted
    
    
    Weighted
    
    
    (1)
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Remaining
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Term (yrs)
    
    
    Value
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOptions outstanding at beginning of year
    
    
    135,312
    
    
    $
    10.19
    
    
    
    8.2
    
    
    
    
    
    
    
    161,901
    
    
    $
    10.89
    
    
    
    76,940
    
    
    $
    20.08Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,450
    
    
    
    4.50Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (13,450
    )
    
    
    12.33
    
    
    
    
    
    
    
    
    
    
    
    (26,102
    )
    
    
    14.38
    
    
    
    (10,489
    )
    
    
    20.08Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )
    
    
    20.08
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    121,862
    
    
    $
    9.76
    
    
    
    7.3
    
    
    $
    
    
    
    
    135,312
    
    
    $
    10.19
    
    
    
    161,901
    
    
    $
    10.89Options exercisable at the end of the year
    
    
    68,877
    
    
    $
    11.35
    
    
    
    7.1
    
    
    $
    
    
    
    
    62,295
    
    
    $
    12.78
    
    
    
    28,340
    
    
    $
    20.08Weighted-average fair value of options
granted during the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    2.38
 
 (1)
    
    The aggregate intrinsic value of a stock option in the table above represents the total
pre-tax intrinsic value (the amount by which the current market value of the underlying stock
exceeds the exercise price of the option) that would have been received by the option holders had
they exercised their options on December 31, 2010. The intrinsic value varies based on the changes
in the market value in the Companys stock. Because the exercise price exceeded the market value
of the options, the average intrinsic value was $0 at December 31, 2010.  Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Exercise
    
    
    Remaining
    
    
    Number
    
    
    Exerciseexercise prices
    
    Outstanding
    
    
    Price
    
    
    Term (yrs)
    
    
    Outstanding
    
    
    Price$4.50
    
    
    80,700
    
    
    $
    4.50
    
    
    
    7.8
    
    
    
    38,580
    
    
    $
    4.50$20.08
    
    
    41,162
    
    
    
    20.08
    
    
    
    6.3
    
    
    
    30,297
    
    
    
    20.08121,862
    
    
    $
    9.76
    
    
    
    7.3
    
    
    
    68,877
    
    
    $
    11.35
  WeightedAverageNumber
    
    
    Exerciseof shares
    
    
    PriceNon-vested options December 31, 2009
    
    
    73,017
    
    
    $
    7.98Granted
    
    
    
    
    
    
    Forfeited
    
    
    (700
    )
    
    
    4.50Vested
    
    
    (19,332
    )
    
    
    8.88Non-vested options December 31, 2010
    
    
    52,985
    
    
    $
    7.69
 125




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        For the year ended December 31, 2010Loss
    
    
    Average shares
    
    
    Per share(In thousands, except for per share data)
    
    (numerator)
    
    
    (denominator)
    
    
    AmountBasic and Diluted EPSLoss available to common shareholders
    
    $
    (26,063
    )
    
    
    13,256
    
    
    $
    (1.97
    )
  For the year ended December 31, 2009Loss
    
    
    Average shares
    
    
    Per share(In thousands, except for per share data)
    
    (numerator)
    
    
    (denominator)
    
    
    AmountBasic and Diluted EPSLoss available to common shareholders
    
    $
    (34,931
    )
    
    
    13,256
    
    
    $
    (2.64
    )
  126




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  For the year ended December 31, 2008Loss
    
    
    Average shares
    
    
    Per share(In thousands, except for per share data)
    
    (numerator)
    
    
    (denominator)
    
    
    AmountBasic and Diluted EPSLoss available to common shareholders
    
    $
    (38,082
    )
    
    
    13,294
    
    
    $
    (2.86
    )
     Year ended December 31, 2010TaxBefore tax
    
    
    expense
    
    
    Net of tax(In thousands)
    
    amount
    
    
    (benefit)
    
    
    amountUnrealized gains on investment securities:Unrealized holding gains arising during period
    
    $
    6,102
    
    
    $
    1,764
    
    
    $
    4,338Reduction in deferred tax valuation allowance
related to preferred and common stock
    
    
    
    
    
    
    (97
    )
    
    
    97Non-credit loss portion of other-than-temporary
impairments
    
    
    (87
    )
    
    
    (30
    )
    
    
    (57
    )Less adjustment for impaired investments
    
    
    (479
    )
    
    
    (168
    )
    
    
    (311
    )Less reclassification adjustment for gains
realized in net loss
    
    
    1,290
    
    
    
    452
    
    
    
    838Unrealized gains on investment securities
    
    
    5,204
    
    
    
    1,547
    
    
    
    3,851Unrecognized benefit obligation expense:Actuarial loss
    
    
    (538
    )
    
    
    (188
    )
    
    
    (350
    )Less reclassification adjustment for amortization
    
    
    (143
    )
    
    
    (50
    )
    
    
    (93
    )(395
    )
    
    
    (138
    )
    
    
    (257
    )Other comprehensive income, net
    
    $
    4,809
    
    
    $
    1,409
    
    
    $
    3,594
 127




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Year ended December 31, 2009TaxBefore tax
    
    
    expense
    
    
    Net of tax(In thousands)
    
    amount
    
    
    (benefit)
    
    
    amountUnrealized gains on investment securities:Unrealized holding gains arising during period
    
    $
    26,597
    
    
    $
    9,269
    
    
    $
    17,328Reduction in deferred tax valuation allowance
related to preferred and common stock
    
    
    
    
    
    
    (3,022
    )
    
    
    3,022Non-credit loss portion of other-than-temporary
impairments
    
    
    (2,390
    )
    
    
    (836
    )
    
    
    (1,554
    )Less adjustment for impaired investments
    
    
    (11,041
    )
    
    
    (3,864
    )
    
    
    (7,177
    )Less reclassification adjustment for gains
realized in net loss
    
    
    1,892
    
    
    
    662
    
    
    
    1,230Unrealized gains on investment securities
    
    
    33,356
    
    
    
    14,657
    
    
    
    24,743Unrecognized benefit obligation expense:Actuarial loss
    
    
    (562
    )
    
    
    (197
    )
    
    
    (365
    )Less reclassification adjustment for amortization
    
    
    (117
    )
    
    
    (41
    )
    
    
    (76
    )(445
    )
    
    
    (156
    )
    
    
    (289
    )Other comprehensive income, net
    
    $
    32,911
    
    
    $
    14,501
    
    
    $
    24,454
 Year ended December 31, 2008TaxBefore tax
    
    
    expense
    
    
    Net of tax(In thousands)
    
    amount
    
    
    (benefit)
    
    
    amountUnrealized losses on investment securities:Unrealized holding losses arising during period
    
    $
    (54,527
    )
    
    $
    (19,084
    )
    
    $
    (35,443
    )Less deferred tax valuation allowance related to
preferred and common stock
    
    
    
    
    
    
    (3,119
    )
    
    
    3,119Market value adjustment on transfer of held-to-maturity
securities to available-for-sale
    
    
    (2,987
    )
    
    
    (1,045
    )
    
    
    (1,942
    )Less adjustment for impaired investments
    
    
    (23,388
    )
    
    
    (8,184
    )
    
    
    (15,204
    )Less reclassification adjustment for losses
realized in net loss
    
    
    (1,313
    )
    
    
    (460
    )
    
    
    (853
    )Unrealized losses on investment securities
    
    
    (32,813
    )
    
    
    (8,366
    )
    
    
    (24,447
    )Unrecognized benefit obligation expense:Actuarial loss
    
    
    (235
    )
    
    
    (82
    )
    
    
    (153
    )Less reclassification adjustment for amortization
    
    
    (117
    )
    
    
    (41
    )
    
    
    (76
    )(118
    )
    
    
    (41
    )
    
    
    (77
    )Other comprehensive loss, net
    
    $
    (32,931
    )
    
    $
    (8,407
    )
    
    $
    (24,524
    )
 128




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   (In thousands)
    
    2010
    
    
    2009
    
    
    2008Unrecognized benefit obligation
    
    $
    (1,567
    )
    
    $
    (1,478
    )
    
    $
    (1,189
    )Unrealized gains (losses) on AFS investments
    
    
    3,509
    
    
    
    (174
    )
    
    
    (24,917
    )Adjustment to net periodic pension cost
    
    
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income (loss)
    
    $
    1,942
    
    
    $
    (1,652
    )
    
    $
    (26,106
    )
     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).
  129




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Items Measured on a Recurring Basis
      Balances as of December 31, 2010
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    
    
    
    $
    8,840
    
    
    $
    
    
    
    $
    8,840U.S. government agencies
    
    
    
    
    
    
    29,737
    
    
    
    
    
    
    
    29,737Common stocks
    
    
    483
    
    
    
    
    
    
    
    
    
    
    
    483Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    
    
    
    
    234,653
    
    
    
    
    
    
    
    234,653Non-agency
    
    
    
    
    
    
    7,137
    
    
    
    
    
    
    
    7,137Corporate bonds
    
    
    
    
    
    
    9,286
    
    
    
    
    
    
    
    9,286Trust preferred securities
    
    
    3,594
    
    
    
    
    
    
    
    15,020
    
    
    
    18,614Other securities
    
    
    
    
    
    
    
    
    
    
    8,405
    
    
    
    8,405Total available for sale
    
    $
    4,077
    
    
    $
    289,653
    
    
    $
    23,425
    
    
    $
    317,155
 130




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Balances as of December 31, 2009
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    
    
    
    $
    21,601
    
    
    $
    
    
    
    $
    21,601U.S. government agencies
    
    
    
    
    
    
    1,151
    
    
    
    
    
    
    
    1,151Preferred stocks
    
    
    2,230
    
    
    
    
    
    
    
    
    
    
    
    2,230Common stocks
    
    
    444
    
    
    
    
    
    
    
    
    
    
    
    444Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    
    
    
    
    318,501
    
    
    
    
    
    
    
    318,501Non-agency
    
    
    
    
    
    
    21,198
    
    
    
    
    
    
    
    21,198Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    24,825
    
    
    
    24,825Corporate bonds
    
    
    
    
    
    
    6,867
    
    
    
    
    
    
    
    6,867Trust preferred securities
    
    
    11,895
    
    
    
    
    
    
    
    22,240
    
    
    
    34,135Other securities
    
    
    
    
    
    
    
    
    
    
    7,767
    
    
    
    7,767Total available for sale
    
    $
    14,569
    
    
    $
    369,318
    
    
    $
    54,832
    
    
    $
    438,719
  Investment SecuritiesAvailable for SaleDecember 31,(In thousands)
    
    2010
    
    
    2009AssetsBalance at the beginning of the period
    
    $
    54,832
    
    
    $
    78,257Total gains/(losses)  (realized/unrealized):Included in earnings
    
    
    (169
    )
    
    
    (3,246
    )Included in other comprehensive income
    
    
    648
    
    
    
    11,611Purchases, issuances, and settlements, net
    
    
    (31,886
    )
    
    
    (8,971
    )Transfers in and/or out of Level 3
    
    
    
    
    
    
    (22,819
    )Balance at the end of the period
    
    $
    23,425
    
    
    $
    54,832
  Items Measured on a Nonrecurring Basis
  131




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Balances as of December 31, 2010
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    Level 2
    
    Level 3
    
    Fair ValueAssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    7,713
    
    
    $
    7,713Other real estate owned
    
    
    
    
    
    
    
    
    
    
    15,226
    
    
    
    15,226Loans and leases held for sale
    
    
    
    
    
    
    
    
    
    
    29,621
    
    
    
    29,621
 Balances as of December 31, 2009
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    Level 2
    
    Level 3
    
    Fair ValueAssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    35,712
    
    
    $
    35,712Other real estate owned
    
    
    
    
    
    
    
    
    
    
    30,317
    
    
    
    30,317Loans and leases held for sale
    
    
    
    
    
    
    
    
    
    
    2,254
    
    
    
    2,254
  Cash and cash equivalents (carried at cost):
  Securities:
  Loans receivable (carried at cost):
  132




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Impaired loans (generally carried at fair value):
  Restricted investment in bank stock (carried at cost):
  Accrued interest receivable and payable (carried at cost):
  Deposit liabilities (carried at cost):
  Short-term borrowings (carried at cost):
  Long-term debt (carried at cost):
  Subordinated debt (carried at cost):
  Off-balance sheet financial instruments (disclosed at cost):
  133




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  As of December 31,2010
    
    2009Carrying
    
    Estimated
    
    Carrying
    
    Estimated(In thousands)
    
    amount
    
    fair value
    
    amount
    
    fair valueFinancial AssetsCash and cash equivalents
    
    $
    51,733
    
    
    $
    51,733
    
    
    $
    58,298
    
    
    $
    58,298Investment securities available-for-sale
    
    
    317,155
    
    
    
    317,155
    
    
    
    438,719
    
    
    
    438,719Loans, net
    
    
    475,725
    
    
    
    473,349
    
    
    
    656,533
    
    
    
    652,716Federal Home Loan Bank stock
    
    
    10,405
    
    
    
    10,405
    
    
    
    10,952
    
    
    
    10,952Accrued interest receivable
    
    
    16,864
    
    
    
    16,864
    
    
    
    14,942
    
    
    
    14,942Financial Liabilities:Demand deposits
    
    
    52,872
    
    
    
    52,872
    
    
    
    63,168
    
    
    
    63,168NOW and money markets
    
    
    221,746
    
    
    
    221,746
    
    
    
    214,141
    
    
    
    214,141Savings
    
    
    15,922
    
    
    
    15,922
    
    
    
    15,336
    
    
    
    15,336Time deposits
    
    
    403,373
    
    
    
    398,696
    
    
    
    589,110
    
    
    
    578,824Short-term borrowings
    
    
    22,000
    
    
    
    22,000
    
    
    
    114,500
    
    
    
    114,500Long-term borrowings
    
    
    132,949
    
    
    
    128,787
    
    
    
    139,675
    
    
    
    131,093Subordinated debt
    
    
    25,774
    
    
    
    15,136
    
    
    
    25,774
    
    
    
    12,617Obligations from equity investments
    
    
    
    
    
    
    
    
    
    
    3,652
    
    
    
    3,652Accrued interest payable
    
    
    3,983
    
    
    
    3,983
    
    
    
    6,150
    
    
    
    6,150
   134




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Community banking
   Tax lien operation
  Equity investments
   135




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Leasing
   (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2010
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Leasing
    
    
    ConsolidatedTotal assets
    
    $
    836,353
    
    
    $
    100,601
    
    
    $
    5,640
    
    
    $
    38,033
    
    
    $
    980,626Total deposits
    
    
    693,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    693,913Interest income
    
    $
    43,286
    
    
    $
    10,262
    
    
    $
    
    
    
    $
    3,714
    
    
    $
    57,262Interest expense
    
    
    20,968
    
    
    
    3,764
    
    
    
    22
    
    
    
    1,240
    
    
    
    25,994Net interest income (expense)
    
    
    22,318
    
    
    
    6,498
    
    
    
    (22
    )
    
    
    2,474
    
    
    
    31,268Provision for loan and lease losses
    
    
    21,177
    
    
    
    129
    
    
    
    
    
    
    
    834
    
    
    
    22,140Total other income
    
    
    6,232
    
    
    
    389
    
    
    
    780
    
    
    
    364
    
    
    
    7,765Total other expenses
    
    
    33,592
    
    
    
    1,667
    
    
    
    529
    
    
    
    803
    
    
    
    36,591Impairment -real estate joint venture
    
    
    1,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,552Impairment -real estate owned via equity investment
    
    
    
    
    
    
    
    
    
    
    2,600
    
    
    
    
    
    
    
    2,600Income tax expense (benefit)
    
    
    (2,722
    )
    
    
    2,068
    
    
    
    
    
    
    
    654
    
    
    
    Net (loss) income
    
    $
    (25,049
    )
    
    $
    3,024
    
    
    $
    (2,372
    )
    
    $
    547
    
    
    $
    (23,850
    )Noncontrolling interest
    
    
    1
    
    
    
    1,210
    
    
    
    (1,186
    )
    
    
    219
    
    
    
    243Net (loss) income attributable to Royal Bancshares
    
    $
    (25,050
    )
    
    $
    1,814
    
    
    $
    (1,186
    )
    
    $
    328
    
    
    $
    (24,093
    )
 (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2009
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Leasing
    
    
    ConsolidatedTotal assets
    
    $
    1,141,256
    
    
    $
    105,020
    
    
    $
    8,689
    
    
    $
    37,762
    
    
    $
    1,292,726Total deposits
    
    
    881,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881,755Interest income
    
    $
    52,608
    
    
    $
    10,424
    
    
    $
    
    
    
    $
    3,011
    
    
    $
    66,043Interest expense
    
    
    31,507
    
    
    
    4,462
    
    
    
    243
    
    
    
    1,227
    
    
    
    37,439Net interest income (expense)
    
    
    21,101
    
    
    
    5,962
    
    
    
    (243
    )
    
    
    1,784
    
    
    
    28,604Provision for loan and lease losses
    
    
    18,730
    
    
    
    624
    
    
    
    
    
    
    
    1,251
    
    
    
    20,605Total other (loss) income
    
    
    (4,772
    )
    
    
    313
    
    
    
    2,343
    
    
    
    390
    
    
    
    (1,726
    )Total other expenses
    
    
    33,545
    
    
    
    2,870
    
    
    
    907
    
    
    
    335
    
    
    
    37,656Income tax expense (benefit)
    
    
    (1,230
    )
    
    
    1,081
    
    
    
    417
    
    
    
    206
    
    
    
    474Net (loss) income
    
    $
    (34,715
    )
    
    $
    1,701
    
    
    $
    775
    
    
    $
    382
    
    
    $
    (31,857
    )Noncontrolling interest
    
    
    (28
    )
    
    
    680
    
    
    
    596
    
    
    
    153
    
    
    
    1,402Net (loss) income attributable to Royal Bancshares
    
    $
    (34,688
    )
    
    $
    1,021
    
    
    $
    179
    
    
    $
    229
    
    
    $
    (33,259
    )
 136




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2008
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Leasing
    
    
    ConsolidatedTotal assets
    
    $
    1,047,536
    
    
    $
    84,965
    
    
    $
    17,405
    
    
    $
    25,680
    
    
    $
    1,175,586Total deposits
    
    
    760,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760,068Interest income
    
    $
    62,071
    
    
    $
    8,289
    
    
    $
    
    
    
    $
    2,404
    
    
    $
    72,764Interest expense
    
    
    33,235
    
    
    
    3,499
    
    
    
    251
    
    
    
    1,124
    
    
    
    38,109Net interest income (expense)
    
    
    28,836
    
    
    
    4,790
    
    
    
    (251
    )
    
    
    1,280
    
    
    
    34,655Provision for loan and lease losses
    
    
    18,172
    
    
    
    2,607
    
    
    
    
    
    
    
    1,062
    
    
    
    21,841Total other income
    
    
    (18,928
    )
    
    
    560
    
    
    
    2,177
    
    
    
    403
    
    
    
    (15,788
    )Total other expenses
    
    
    24,021
    
    
    
    2,656
    
    
    
    966
    
    
    
    661
    
    
    
    28,304Impairment -real estate joint venture
    
    
    1,369
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,369Impairment -real estate owned via equity investment
    
    
    1,360
    
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    2,860Income tax expense (benefit)
    
    
    2,901
    
    
    
    (55
    )
    
    
    (189
    )
    
    
    (14
    )
    
    
    2,643Net income (loss)
    
    $
    (37,915
    )
    
    $
    142
    
    
    $
    (351
    )
    
    $
    (26
    )
    
    $
    (38,150
    )Noncontrolling interest
    
    
    (115
    )
    
    
    57
    
    
    
    
    
    
    
    (10
    )
    
    
    (68
    )Net income (loss) attributable to Royal Bancshares
    
    $
    (37,800
    )
    
    $
    85
    
    
    $
    (351
    )
    
    $
    (16
    )
    
    $
    (38,082
    )
     CONDENSED BALANCE SHEETS
 As of December 31,(In thousands)
    
    2010
    
    
    2009AssetsCash
    
    $
    2,756
    
    
    $
    2,783Investment in non-bank subsidiaries
    
    
    26,712
    
    
    
    30,722Investment in Royal Bank
    
    
    72,017
    
    
    
    75,865Investment in Royal Asian
    
    
    
    
    
    
    13,036Loans, net
    
    
    4,207
    
    
    
    3,750Other assets
    
    
    774
    
    
    
    774Total assets
    
    $
    106,466
    
    
    $
    126,930Subordinated debentures
    
    $
    25,774
    
    
    $
    25,774Stockholders equity
    
    
    80,692
    
    
    
    101,156Total liabilities and stockholders equity
    
    $
    106,466
    
    
    $
    126,930
 137




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  CONDENSED STATEMENTS OF OPERATIONS
 For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008IncomeDividends from subsidiary banks
    
    $
    
    
    
    $
    
    
    
    $
    4,005Other income
    
    
    19
    
    
    
    51
    
    
    
    222Total Income
    
    
    19
    
    
    
    51
    
    
    
    4,227ExpensesOther expenses
    
    
    776
    
    
    
    880
    
    
    
    1,172Provision for loan losses
    
    
    750
    
    
    
    809
    
    
    
    701Interest on subordinated debentures
    
    
    647
    
    
    
    1,136
    
    
    
    1,436Total Expenses
    
    
    2,173
    
    
    
    2,825
    
    
    
    3,309Income before income taxes and equity in undistributed
net loss
    
    
    (2,041
    )
    
    
    (2,774
    )
    
    
    918Income tax expense (benefit)
    
    
    
    
    
    
    109
    
    
    
    (578
    )Equity in undistributed net losses
    
    
    (21,539
    )
    
    
    (30,376
    )
    
    
    (39,578
    )Net loss
    
    $
    (24,093
    )
    
    $
    (33,259
    )
    
    $
    (38,082
    )
 138




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  CONDENSED STATEMENTS OF CASH FLOWS
 For the years ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (24,093
    )
    
    $
    (33,259
    )
    
    $
    (38,082
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Undistributed losses from subsidiaries
    
    
    22,586
    
    
    
    31,461
    
    
    
    41,014Provision for loan losses
    
    
    750
    
    
    
    809
    
    
    
    701Non-cash income tax expense (benefit)
    
    
    
    
    
    
    109
    
    
    
    (578
    )Net cash (used in) provided by operating
    
    
    (757
    )
    
    
    (880
    )
    
    
    3,055Cash flows from investing activitiesInvestment in Royal Bank
    
    
    (15,260
    )
    
    
    (39,907
    )
    
    
    Sale of Royal Asian Bank
    
    
    12,365
    
    
    
    
    
    
    
    Dividend proceeds from non-banking subsidiaries
    
    
    5,000
    
    
    
    10,000
    
    
    
    Net cash provided by (used in) investing
    
    
    2,105
    
    
    
    (29,907
    )
    
    
    Cash flows from financing activities:Loan payoffs (fundings)
    
    
    (1,207
    )
    
    
    
    
    
    
    1,229Cash dividends paid
    
    
    
    
    
    
    (359
    )
    
    
    (4,005
    )Issuance of common stock under stock option plans
    
    
    
    
    
    
    
    
    
    
    174Issuance of preferred stock
    
    
    
    
    
    
    30,407
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (946
    )Other, net
    
    
    (168
    )
    
    
    494
    
    
    
    (700
    )Net cash (used in) provided by financing activities
    
    
    (1,375
    )
    
    
    30,542
    
    
    
    (4,248
    )Net decrease in cash and cash equivalents
    
    
    (27
    )
    
    
    (245
    )
    
    
    (1,193
    )Cash and cash equivalents at beginning of period
    
    
    2,783
    
    
    
    3,028
    
    
    
    4,221Cash and cash equivalents at end of period
    
    $
    2,756
    
    
    $
    2,783
    
    
    $
    3,028
 139




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   For the year ended December 31, 2010Fourth
    
    
    Third
    
    
    Second
    
    
    First(In thousands, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterInterest income
    
    $
    12,747
    
    
    $
    13,719
    
    
    $
    15,173
    
    
    $
    15,623Net interest income
    
    
    7,352
    
    
    
    7,562
    
    
    
    8,334
    
    
    
    8,020Provision for loan and lease losses
    
    
    13,753
    
    
    
    2,194
    
    
    
    4,290
    
    
    
    1,903Net interest income (loss) after provision
    
    
    (6,401
    )
    
    
    5,368
    
    
    
    4,044
    
    
    
    6,117Other income
    
    
    2,919
    
    
    
    1,823
    
    
    
    1,718
    
    
    
    1,305Other expenses
    
    
    12,316
    
    
    
    10,333
    
    
    
    10,041
    
    
    
    8,053Loss before income tax
    
    
    (15,798
    )
    
    
    (3,142
    )
    
    
    (4,279
    )
    
    
    (631
    )Net loss
    
    $
    (15,798
    )
    
    $
    (3,142
    )
    
    $
    (4,279
    )
    
    $
    (631
    )Less net (loss) income attributable to noncontrolling interest
    
    
    (111
    )
    
    
    (347
    )
    
    
    259
    
    
    
    442Net loss attributable to Royal Bancshares
of Pennsylavania, Inc.
    
    $
    (15,687
    )
    
    $
    (2,795
    )
    
    $
    (4,538
    )
    
    $
    (1,073
    )Net loss available to common shareholders
    
    $
    (16,182
    )
    
    $
    (3,289
    )
    
    $
    (5,029
    )
    
    $
    (1,563
    )Net loss per common shareBasic
    
    $
    (1.22
    )
    
    $
    (0.25
    )
    
    $
    (0.38
    )
    
    $
    (0.12
    )Diluted
    
    $
    (1.22
    )
    
    $
    (0.25
    )
    
    $
    (0.38
    )
    
    $
    (0.12
    )
   140




---



##### 



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  For the year ended December 31, 2009Fourth
    
    
    Third
    
    
    Second
    
    
    First(In thousands, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterInterest income
    
    $
    16,320
    
    
    $
    16,799
    
    
    $
    16,570
    
    
    $
    16,354Net interest income
    
    
    7,417
    
    
    
    7,229
    
    
    
    6,889
    
    
    
    7,069Provision for loan and lease losses
    
    
    7,136
    
    
    
    3,716
    
    
    
    6,956
    
    
    
    2,797Net interest (loss) income after provision
    
    
    281
    
    
    
    3,513
    
    
    
    (67
    )
    
    
    4,272Other (loss) income
    
    
    2,556
    
    
    
    2,705
    
    
    
    (3,404
    )
    
    
    (3,583
    )Other expenses
    
    
    12,282
    
    
    
    9,829
    
    
    
    8,319
    
    
    
    7,226(Loss) income before income tax
    
    
    (9,445
    )
    
    
    (3,611
    )
    
    
    (11,790
    )
    
    
    (6,537
    )Net (loss) income
    
    $
    (9,445
    )
    
    $
    (4,085
    )
    
    $
    (11,790
    )
    
    $
    (6,537
    )Less net (loss) income attributable to noncontrolling interest
    
    
    641
    
    
    
    281
    
    
    
    264
    
    
    
    216Net (loss) income attributable to Royal Bancshares
of Pennsylavania, Inc.
    
    $
    (10,086
    )
    
    $
    (4,366
    )
    
    $
    (12,054
    )
    
    $
    (6,753
    )Net (loss) income available to common shareholders
    
    $
    (10,573
    )
    
    $
    (4,852
    )
    
    $
    (12,538
    )
    
    $
    (6,968
    )Net (loss) income per common shareBasic
    
    $
    (0.79
    )
    
    $
    (0.37
    )
    
    $
    (0.95
    )
    
    $
    (0.53
    )Diluted
    
    $
    (0.79
    )
    
    $
    (0.37
    )
    
    $
    (0.95
    )
    
    $
    (0.53
    )
 141




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
  Changes in Internal Control over Financial Reporting
  Managements Report on Internal Control Over Financial Reporting
     By: /s/ Robert R. Tabas

Robert R. Tabas
    
    By: /s/ Robert A. Kuehl

Robert A. KuehlPrincipal Executive Officer
    
    Principal Financial Officer and Principal Accounting OfficerMarch 31, 2011
    
    March 31, 2011
 142




---



##### 



ITEM 9B. OTHER INFORMATION
  PART III.
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF REGISTRANT AND CORPORATE GOVERNANCE
  ITEM 11. EXECUTIVE COMPENSATION
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
  143




---



##### 



Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securitiesremaining available forNumber of Securities to
    
    
    Weighted average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inOutside Director Stock Option Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    first column)Equity compensation plan approved by security holders
    
    
    74,086
    
    
    $
    20.02
    
    
    
    Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    74,086
    
    
    $
    20.02
    
    
    
    
 Number of securitiesremaining available forNumber of Securities to
    
    
    Weighted average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inEmployee Stock Option Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    first column)Equity compensation plan approved by security holders
    
    
    385,005
    
    
    $
    20.33
    
    
    
    Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    385,005
    
    
    $
    20.33
    
    
    
    
 Number of securitiesremaining available forNumber of Securities to
    
    
    Weighted average
    
    
    issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inLong Term Incentive Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    first column)Equity compensation plan approved by security holders
    
    
    121,862
    
    
    $
    9.76
    
    
    
    808,928Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    121,862
    
    
    $
    9.76
    
    
    
    808,928
 ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
  ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  144




---



##### 



PART IV
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 (a.)
    1.
    
    Financial StatementsThe following financial statements are included by reference in Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets.
Consolidated Statements of Operations.
Consolidated Statements of Changes in Shareholders Equity.
Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements.2.
    
    Financial Statement SchedulesFinancial Statement Schedules are omitted because the required information is either
not applicable, not required or is shown in the respective financial statements or
in the notes thereto.(b.)


    The following Exhibits are filed herewith or incorporated by reference as a part of this
Annual Report.3.1
    
    Articles of Incorporation of the Company. (Incorporated by reference to
Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008.)3.2
    
    Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2008.)4.1
    
    Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of
Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27,
2004. (Incorporated by reference to Exhibit 4.1 to Registrants Current Report on Form
8-K (included as Exhibit A to Exhibit 10.1) filed with the Commission on November 1,
2004.)4.2
    
    Junior Subordinated Debt Security Due 2034 issued by Royal Bancshares of
Pennsylvania, Inc. to JPMorgan Chase Bank, as Institutional Trustee, dated October 27,
2004. (Incorporated by reference to Exhibit 4.2 to Registrants Current Report on Form
8-K (included as Exhibit A to Exhibit 10.2) filed with the Commission on November 1,
2004.)4.3
    
    Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan
Chase Bank, as Trustee, dated October 27, 2004. (Incorporated by reference to Exhibit
10.1 to Registrants Current Report on Form 8-K filed with the Commission on November
1, 2004.)4.4
    
    Indenture by and between Royal Bancshares of Pennsylvania, Inc. and JPMorgan
Chase Bank, as Trustee, dated October 27, 2004. (Incorporated by reference to Exhibit
10.2 to Registrants Current Report on Form 8-K filed with the Commission on November
1, 2004.)4.5
    
    Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and
JPMorgan Chase Bank, as Guarantee Trustee, dated October 27, 2004. (Incorporated by
reference to Exhibit 10.3 to Registrants Current Report on Form 8-K filed with the
Commission on November 1, 2004.)4.6
    
    Guarantee Agreement by and between Royal Bancshares of Pennsylvania, Inc. and
JPMorgan Chase Bank, as Guarantee Trustee, October 27, 2004. (Incorporated by
reference to Exhibit 10.4 to Registrants Current Report on Form 8-K filed with the
Commission on November 1, 2004.)
 145




---



##### 



10.1
    
    Stock Option and Appreciation Right Plan. As amended on March 15, 2005
(Incorporated by reference to the Registrants Registration Statement N0. 333-135226,
on form S-8 filed with the Commission on June 22, 2006).*10.2
    
    Stock Option and Appreciation Right Plan. As amended on May 16, 2005
(Incorporated by reference to the Registrants Registration Statement N0. 333-129894,
on form S-8 filed with the Commission on November 22, 2005).*10.3
    
    Outside Directors Stock Option Plan. (Incorporated by reference to the
Registrants Registration Statement N0. 333-25855, on form S-8 filed with the
Commission on April 5, 1997).*10.4
    
    Employment Agreement dated September 22, 2006 by and among Royal Bancshares of Pennsylvania, Inc.
(Corporation), Royal Bank America (Bank), and James J.
McSwiggan, Jr., Chief Operating Officer of the Corporation and the Bank.
(Incorporated by reference to Exhibit 10.2 to Registrants Quarterly Report on Form
10-Q dated March 31, 2007, as filed with the Commission on May 15, 2007.)*10.5
    
    Royal Bancshares of Pennsylvania, Inc. 2007 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit A to the Companys definitive Proxy Statement
dated April 6, 2007).*10.6
    
    Letter Agreement, including Securities Purchase Agreement  Standard Terms,
dated December 19, 2008, between Royal Bancshares of Pennsylvania, Inc. and the United
States Department of the Treasury. (Incorporated by reference to exhibit 10.1 to
Registrants Current Report on Form 8-K filed with the Commission on February 26,
2009.)10.7
    
    Side Letter Agreement, dated February 20, 2009, between Royal Bancshares of
Pennsylvania, Inc. and the United States Department of the Treasury. (Incorporated by
reference to exhibit 10.2 to Registrants Current Report on Form 8-K filed with the
Commission on February 26, 2009.)10.8
    
    Royal Bancshares of Pennsylvania, Inc. 2007 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit A to the Companys definitive Proxy Statement
dated April 6, 2007).*10.9
    
    Form of Letter Agreement, dated December 19, 2008, between Royal Bancshares of
Pennsylvania, Inc. and certain of its executive officers relating to executive
compensation limitations under the United States Treasury Departments Capital Purchase
Program. (Incorporated by reference to Exhibit 10.14 to the
Companys Annual Report on Form 10-K for the year ended December
31, 2008 filed on March 30, 2009.)*10.10
    
    Employment Agreement, dated June 1, 2008, between the Company, Royal Bank
America and Robert A. Kuehl. (Incorporated by reference to Exhibit 10.15 to the
Companys Amendment No. 2 on Form 10-K/A filed on November 13, 2009.)10.11
    
    Royal Bank America Supplemental Executive Retirement Plan. (Incorporated by
reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q filed on
November 13, 2009.)10.12
    
    SERP Participation Agreement, as amended  Robert Tabas. (Incorporated by
reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q filed on
November 13, 2009.)10.13
    
    SERP Participation Agreement, as amended  James J. McSwiggan. (Incorporated
by reference to Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q filed on
November 13, 2009.)10.14
    
    SERP Participation Agreement, as amended  Murray Stempel. (Incorporated by
reference to Exhibit 10.8 to the Companys Quarterly Report on Form 10-Q filed on
November 13, 2009.)10.15
    
    FDIC Stipulation and Consent to the Issuance of an Order to Cease and Desist.
(Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed with the Commission on July 16, 2009).
 146




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10.16
    
    FDIC Order to Cease and Desist. (Incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 8-K (File No 000-26366) filed with the Commission
on July 16, 2009).10.17
    
    Pennsylvania Department of Banking Stipulation and Consent and Order to Cease
and Desist. (Incorporated by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K (File No 000-26366) filed with the Commission on July 16, 2009).10.18
    
    Form of Written Agreement between the Company and the Federal Reserve Bank of
Philadelphia dated as of March 17, 2010. (Incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed with the Commission on March 18, 2010).10.19
    
    Stock Repurchase Agreement, dated as of August 26, 2010, between Royal
Bancshares of Pennsylvania, Inc. and Edward E. Shin, individually and on behalf of a
group of Korean-American investors. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the Commission on August 27, 2010.)11.
    
    Statement re: Computation of Earnings Per Share. (Included at Item 8, hereof,
Note 18, Earnings Per Common Share.)12.
    
    Statement re: Computation of Ratios. (Included at Item 8 here of, Note 15,
Regulatory Capital Requirements.)21.
    
    Subsidiaries of Registrant.23.
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Rule 13a-14(a)/15-d-14(a) Certification of Principal Executive Officer31.2
    
    Rule 13a-14(a)/15-d-14(a) Certification of Principal Financial Officer32.1
    
    Section 1350 Certification of Principal Executive Officer.32.2
    
    Section 1350 Certification of Principal Financial Officer.99.1
    
    Certification of Principal Executive Officer pursuant to the Emergency Economic
Stabilization Act of 2008.99.2
    
    Certification of Principal Financial Officer pursuant to the Emergency Economic
Stabilization Act of 2008.
 
 *
    
    Denotes compensation plan or arrangement. 147




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##### 



SIGNATURES
  ROYAL BANCSHARES OF PENNSYLVANIA, INC.By: /s/ Robert R. Tabas

Robert R. Tabas
    
    By: /s/ Robert A. Kuehl

Robert A. KuehlChief Executive Officer
    
    Chief Financial Officer(Principal Executive Officer)
    
    (Principal Financial Officerand Principal Accounting Officer)March 31, 2011
    
    March 31, 2011
  SIGNATURES
 By: /s/ Robert R. Tabas

Robert R. Tabas
    
    By: /s/ James J. McSwiggan

James J. McSwigganChief Executive Officer/Chairman of the Board
    
    President/Chief Operating Officer/DirectorMarch 31, 2011
    
    March 31, 2011By: /s/ Edward F. Bradley

Edward F. Bradley
    
    By: /s/ William Hartman

William HartmanDirector
    
    DirectorMarch 31, 2011
    
    March 31, 2011By: /s/ Samuel Goldstein

Samuel Goldstein
    
    By: /s/ Anthony Micale

Anthony MicaleDirector
    
    DirectorMarch 31, 2011
    
    March 31, 2011By: /s/ Michael Piracci

Michael Piracci
    
    By: /s/ Jay Shah

Jay ShahDirector
    
    DirectorMarch 31, 2011
    
    March 31, 2011By: /s/ Linda Tabas Stempel
    
    By: /s/ Murray Stempel, IIILinda Tabas Stempel
    
    Murray Stempel, IIIDirector
    
    Vice Chairman of the BoardMarch 31, 2011
    
    March 31, 2011By: /s/ Edward B. Tepper
    
    By: /s/ Howard WurzakEdward B. Tepper
    
    Howard WurzakDirector
    
    DirectorMarch 31, 2011
    
    March 31, 2011
 148