##### Table of Contents



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 ended December 31, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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)
 
  Securities registered pursuant to Section 12(b) of the Act:Name of Each Exchange on Which Registered
    
    Title of Each ClassThe NASDAQ Stock Market, LLC
    
    Class A Common Stock ($2.00 par value)Securities registered pursuant to Section 12(g) of the Act: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 þ
(Do not check if a smaller reporting company)
    
    Small reporting company o
 o þ
   Documents Incorporated by Reference




---



TABLE OF CONTENTS  PART IITEM 1.BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. (REMOVED AND RESERVED)PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAEX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2EX-99.1EX-99.2    Table of Contents  Forward Looking Statements
  2




---



##### Table of Contents



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




---



##### Table of Contents



1.
    
    Board Oversight and Senior ManagementThe Board of Directors has increased their participation in the affairs of Royal Bank. A
new 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 has recently completed an internal assessment of senior
managements qualifications and has 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
have approved the classified assets plan. No 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 net classified loans (outstanding loan
balance less charge-offs and specific reserves) and other real estate owned (OREO) from
$149.6 million at June 30, 2009 to $106.2 million at December 31, 2009.3.
    
    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 have 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 was successful in reducing delinquent loans from $36.3
million at June 30, 2009 to $27.5 million at December 31, 2009.4.
    
    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 have 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 from $289.1 million at June 30, 2009
to $253.7 million at December 31, 2009, which amounted to 227.7% of total capital and 251.7%
of Tier 1 capital. At year end 2009, Royals total CRE loans were below 300% of capital and
were almost $49 million less than what was projected under the CRE concentration Plan.At December 31, 2009, total construction/land loans (CL loans) amounted to $114.9 million,
or 102.9% of total capital and 113.7% of Tier 1 capital. CL loans were approximately $39
million less than what was projected under the CRE concentration plan at year end 2009.5.
    
    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, 2009, Royal
Banks total risk-based capital and Tier 1 leverage ratios were 13.37% and 8.09%,
respectively.
 4




---



##### Table of Contents



6.
    
    Budget PlanRoyal Bank submitted to the FDIC and the Department a revised 2009 budget and profit plan
required under the Orders. The FDIC and the Department have approved the 2009 budget and
profit plan. In addition Royal Bank has submitted to the FDIC and the Department a 2010
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 have 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.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, 2009, Royal Bank had $56.7 million in cash on hand and
$143.5 million in unpledged agency securities. At December 31, 2009, the liquidity to
deposits ratio was 33.1% compared to Royal Banks 12% target and the liquidity to total
liabilities was 24.0% 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 have 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 $20 million from $226.9 million at June 30, 2009 to $206.9 million at
December 31, 2009. Royal Bank has redeemed an additional $23.8 million in brokered CDs
through February 2010. Borrowings declined $26.1 million from $283.9 million at June 30,
2009 to $257.8 million at December 31, 2009. The borrowing amounts do not include the
$3.8 million in obligations owned via equity investment which are not guaranteed by Royal
Bank or any of its subsidiaries.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 has approved the compensation plan. Royal Bank was not
required to submit the compensation plan to the Department.
    
    
    the Companys Board of Directors will take appropriate steps to fully utilize the
Companys financial and managerial resources to serve as a source of strength to its
subsidiary banks, including taking steps to ensure that Royal Bank complies with the
Orders previously entered into with the FDIC and the Department on July 15, 2009;
    
    the Companys Board of Directors will, within 60 days of the Federal Reserve Agreement,
submit to the Reserve Bank a written plan to strengthen board oversight of the management
and operations of the consolidated operation;
 5




---



##### Table of Contents




    
    the Company will not declare or pay any dividends without the prior written approval of
the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of
the Board of Governors of the Federal Reserve System;
    
    the Company and its non-bank subsidiaries will not make any distributions of interest,
principal, or other sums on subordinated debentures or trust preferred securities without
the prior approval of the Reserve Bank and the Director of the Division of Banking
Supervision and Regulation of the Board of Governors of the Federal Reserve System;
    
    the Company and its nonbank subsidiaries will not, directly or indirectly, incur,
increase, or guarantee any debt without the prior written approval of the Reserve Bank;
    
    the Company will not, directly or indirectly, purchase or redeem any shares of its stock
without the prior written approval of the Reserve Bank;
    
    the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve
Bank an acceptable written capital plan to maintain sufficient capital at the Company on a
consolidated basis, which plan will at a minimum address: regulatory requirements for the
Company and the Banks, the adequacy of the Banks capital taking into account the volume of
classified credits, the allowance for loan and lease losses, current and projected asset
growth, and projected retained earnings; the source and timing of additional funds
necessary to fulfill the consolidated organizations and the Banks future capital
requirements; supervisory requests for additional capital at the Banks or the requirements
of any supervisory action imposed on the Banks by federal or state regulators; and
applicable legal requirements that the Company serve as a source of strength to the Banks;
    
    the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve
Bank cash flow projections for 2010 showing planned sources and uses of cash for debt
service, operating expenses, and other purposes, and will submit similar cash flow
projections for each subsequent calendar year at least one month prior to the beginning of
such year;
    
    the Company will comply with applicable legal notice provisions in advance of
appointing any new director or senior executive officer or changing the responsibilities of
any senior executive officer such that the officer would assume a different senior
executive officer position, and comply with restrictions on indemnification and severance
payments imposed by the Federal Deposit Insurance Act; and
    
    the Companys Board of Directors will, within 30 days after the end of each quarter,
submit progress reports to the Reserve Bank detailing the form and manner of all actions
taken to secure compliance with the Agreement and the results thereof, together with a
parent company-level balance sheet, income statement, and, as applicable, report of changes
in shareholders equity.
  Royal Bank America
   6




---



##### Table of Contents



Service Area:
 Competition:
   7




---



##### Table of Contents



Employees:
 Deposits:
  Lending:
 Royal Asian Bank
    Service Area:
  8




---



##### Table of Contents



Competition:
  Employees:
 Deposits:
 Lending:
  Non-Bank Subsidiaries
    9




---



##### Table of Contents



10




---



##### Table of Contents



Website Access to Company Reports
 www.royalbankamerica.com
 Products and Services with Reputation Risk
  Future Acquisitions
  11




---



##### Table of Contents



Concentrations, Seasonality
  Environmental Compliance
  Supervision and Regulation
    Holding Company
     12




---



##### Table of Contents



Royal Bank and Royal Asian
     13




---



##### Table of Contents



Federal Deposit Insurance Corporation Improvement Act of 1991
 General:
   14




---



##### Table of Contents



Real Estate Lending Guidelines:
  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
    %
  15




---



##### Table of Contents



Truth in Savings Act:
 Gramm-Leach-Bliley Act of 1999
   Privacy provision:
   USA Patriot Act of 2001
  16




---



##### Table of Contents



Sarbanes-Oxley Act of 2002
  Emergency Economic Stabilization Act of 2008
   American Recovery and Reinvestment Act of 2009
   17




---



##### Table of Contents




    
    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.
  Regulation W
  
    
    To an amount equal to 10% of either Banks capital and surplus, in the case of
covered transactions with any one affiliate; and
    
    To an amount equal to 20% of either 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
 18




---



##### Table of Contents




    
    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;
    
    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




---



##### Table of Contents



Other Legislation
   Monetary Policy
   Effects of Inflation
  Available Information
 www.royalbankamerica.com
 20




---



##### Table of Contents



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.
  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.
  21




---



##### Table of Contents



Our allowance for loan and lease losses may not be adequate to cover actual losses.
  Our current level of nonperforming loans and future growth may require us to raise additional
capital but that capital may not be available.
  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.
  22




---



##### Table of Contents



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.
     Competition from other financial institutions may adversely affect our profitability.
  23




---



##### Table of Contents



The Company has a lower level of core deposits and a higher level of wholesale funding relative
to our peer institutions.
  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.
  24




---



##### Table of Contents



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.
    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
 25




---



##### Table of Contents



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.
    
    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.
  26




---



##### Table of Contents



Other Risks
 Our directors, executive officers and principal shareholders own a significant portion of our
common stock and can influence shareholder decisions .
  
 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 19104Royal Asian Bank has five offices located in Pennsylvania, New Jersey, and New York.Cheltenham Office
    
    Flushing
    
    Fort Lee Office418 Oak Lane
    
    136-52 37th Avenue
    
    1550 Lemoine AvenuePhiladelphia, PA 19126
    
    Flushing, NY 11354
    
    Fort Lee, NJ 07024Palisades Park
    
    Upper Darby Office232 Broad Street
    
    7001 West Chester PikePalisades Park, NJ 07650
    
    Upper Darby, PA 19082
 
 (1)
    
    Owned(2)
    
    Used for employee training 27




---



##### Table of Contents



(3)
    
    Loan production office  
 ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. (REMOVED AND RESERVED)
 28




---



##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, AND RELATED STOCKHOLDER  MATTERS, AND ISSUER
PURCHASES OF EQUITY SECURITIES
   Closing Prices2009
    
    High
    
    LowFirst Quarter
    
    $
    4.25
    
    
    $
    2.05Second Quarter
    
    
    2.65
    
    
    
    1.71Third Quarter
    
    
    2.10
    
    
    
    1.40Fourth Quarter
    
    
    1.80
    
    
    
    1.05
 2008
    
    High
    
    LowFirst Quarter
    
    $
    15.88
    
    
    $
    9.14Second Quarter
    
    
    15.34
    
    
    
    8.87Third Quarter
    
    
    9.44
    
    
    
    4.81Fourth Quarter
    
    
    6.41
    
    
    
    3.33
  Title of Class
    
    Number of record holdersClass A Common stock
    
    
    293Class B Common stock
    
    
    142
 Dividends
  Stock dividends:
  29




---



##### Table of Contents



Cash Dividends:
 Cash Dividends Per Share2008
    
    Class A
    
    
    Class BFirst Quarter
    
    $
    0.15000
    
    
    $
    0.172500Second Quarter
    
    $
    0.15000
    
    
    $
    0.172500Third Quarter
    
    $
    
    
    
    $
    Fourth Quarter
    
    $
    
    
    
    $
    
     30




---



##### Table of Contents



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 2009 Peer Group consists of nineteen 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
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09Royal Bancshares of Pennsylvania, Inc.
    
    
    100.00
    
    
    
    91.22
    
    
    
    113.52
    
    
    
    50.19
    
    
    
    15.60
    
    
    
    6.09NASDAQ Composite
    
    
    100.00
    
    
    
    101.37
    
    
    
    111.03
    
    
    
    121.92
    
    
    
    72.49
    
    
    
    104.31SNL Bank and Thrift
    
    
    100.00
    
    
    
    101.57
    
    
    
    118.68
    
    
    
    90.50
    
    
    
    52.05
    
    
    
    51.35Royal Bancshares Peer Group*
    
    
    100.00
    
    
    
    94.01
    
    
    
    104.26
    
    
    
    82.19
    
    
    
    66.74
    
    
    
    59.18
 31




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Statement of Operations Data
    
    For the years ended December 31,(In thousands, except share data)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Interest income
    
    $
    66,043
    
    
    $
    72,764
    
    
    $
    86,736
    
    
    $
    93,006
    
    
    $
    76,460Interest expense
    
    
    37,439
    
    
    
    38,109
    
    
    
    48,873
    
    
    
    46,372
    
    
    
    31,796Net interest income
    
    
    28,604
    
    
    
    34,655
    
    
    
    37,863
    
    
    
    46,634
    
    
    
    44,664Provision for loan and lease losses
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026
    
    
    
    1,803
    
    
    
    1Net interest income after loan and lease losses
    
    
    7,999
    
    
    
    12,814
    
    
    
    24,837
    
    
    
    44,831
    
    
    
    44,663Gain on sale of premises & equipment
    
    
    
    
    
    
    1,991
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of premises & equipment related to real estate owned via equity investments
    
    
    1,817
    
    
    
    1,679
    
    
    
    1,860
    
    
    
    3,036
    
    
    
    16,779Income from bank owned life insurance
    
    
    1,099
    
    
    
    1,233
    
    
    
    875
    
    
    
    847
    
    
    
    845Service charges and fees
    
    
    1,419
    
    
    
    1,186
    
    
    
    1,348
    
    
    
    1,404
    
    
    
    1,293Gains on sales related to real estate joint
ventures
    
    
    
    
    
    
    1,092
    
    
    
    350
    
    
    
    
    
    
    
    Income related to real estate owned
via equity investments
    
    
    1,302
    
    
    
    965
    
    
    
    1,384
    
    
    
    3,591
    
    
    
    747Gains on sale of real estate
    
    
    294
    
    
    
    429
    
    
    
    1,111
    
    
    
    2,129
    
    
    
    2,494Gains on sale of loans
    
    
    914
    
    
    
    190
    
    
    
    404
    
    
    
    379
    
    
    
    508(Losses) gains on investment securities
    
    
    1,892
    
    
    
    (1,313
    )
    
    
    5,358
    
    
    
    383
    
    
    
    227Gain from refinance of assets related to real
estate owned via equity investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,892Other income
    
    
    578
    
    
    
    148
    
    
    
    198
    
    
    
    202
    
    
    
    41Other income,excluding other-than-temporary
impairment losses
    
    
    9,315
    
    
    
    7,600
    
    
    
    12,888
    
    
    
    11,971
    
    
    
    24,826Total other than-temporary-impairment losses on investment securities
    
    
    (13,431
    )
    
    
    (23,388
    )
    
    
    
    
    
    
    
    
    
    
    Portion of loss recognized in other comprehensive loss
    
    
    2,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net impairment losses recognized in earnings
    
    
    (11,041
    )
    
    
    (23,388
    )
    
    
    
    
    
    
    
    
    
    
    Total other (loss) income
    
    
    (1,726
    )
    
    
    (15,788
    )
    
    
    12,888
    
    
    
    11,971
    
    
    
    24,826(Loss) income before other expenses & income taxes
    
    
    6,273
    
    
    
    (2,974
    )
    
    
    37,725
    
    
    
    56,802
    
    
    
    69,489Non-interest expenseSalaries and benefits
    
    
    12,235
    
    
    
    15,044
    
    
    
    12,215
    
    
    
    13,451
    
    
    
    13,488Impairment related to real estate owned via equity investments
    
    
    
    
    
    
    1,500
    
    
    
    8,500
    
    
    
    
    
    
    
    Expenses related to real estate owned via equity investments
    
    
    907
    
    
    
    966
    
    
    
    1,590
    
    
    
    1,606
    
    
    
    262Impairment related to real estate joint venture
    
    
    
    
    
    
    
    
    
    
    5,927
    
    
    
    
    
    
    
    Other
    
    
    24,514
    
    
    
    15,023
    
    
    
    11,800
    
    
    
    9,595
    
    
    
    10,981Total other expense
    
    
    37,656
    
    
    
    32,533
    
    
    
    40,032
    
    
    
    24,652
    
    
    
    24,731(Loss) income before tax expense (benefit)
    
    
    (31,383
    )
    
    
    (35,507
    )
    
    
    (2,307
    )
    
    
    32,150
    
    
    
    44,758Income tax expense (benefit)
    
    
    474
    
    
    
    2,643
    
    
    
    (1,568
    )
    
    
    10,015
    
    
    
    12,637Net (loss) income
    
    $
    (31,857
    )
    
    $
    (38,150
    )
    
    $
    (739
    )
    
    $
    22,135
    
    
    $
    32,121Less net income (loss) attributable to noncontrolling interest
    
    
    1,402
    
    
    
    (68
    )
    
    
    (1,303
    )
    
    
    567
    
    
    
    68Net (loss) income attributable to Royal Bancshares
    
    
    (33,259
    )
    
    
    (38,082
    )
    
    
    564
    
    
    
    21,568
    
    
    
    32,053Less Series A Preferred stock accumulated dividend and accretion
    
    
    (1,672
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income available to common shareholders
    
    
    (34,931
    )
    
    
    (38,082
    )
    
    
    564
    
    
    
    21,568
    
    
    
    32,053Basic (loss) earnings per common share (1)
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04
    
    
    $
    1.60
    
    
    $
    2.39Diluted (loss) earnings per common share (1)
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04
    
    
    $
    1.59
    
    
    $
    2.37
 
 (1)
    
    Earnings per share has the weighted average number of shares used in the calculation
adjusted to reflect a 5% stock dividend in December 2006 and a 2% stock dividend in December 2005. 32




---



##### Table of Contents



Balance Sheet Data
    
    For the years ended December 31,(In thousands)
    
    2009
    
    2008
    
    2007
    
    2006
    
    2005Total Assets
    
    
    1,292,726
    
    
    
    1,175,586
    
    
    
    1,278,475
    
    
    
    1,356,311
    
    
    
    1,301,019Total average assets (2)
    
    
    1,295,126
    
    
    
    1,189,518
    
    
    
    1,314,361
    
    
    
    1,317,688
    
    
    
    1,258,137Loans, net
    
    
    656,533
    
    
    
    671,814
    
    
    
    625,193
    
    
    
    580,759
    
    
    
    539,360Total deposits
    
    
    881,755
    
    
    
    760,068
    
    
    
    770,152
    
    
    
    859,457
    
    
    
    697,409Total average deposits
    
    
    857,742
    
    
    
    724,384
    
    
    
    869,884
    
    
    
    761,267
    
    
    
    699,540Total borrowings (1)
    
    
    283,601
    
    
    
    313,805
    
    
    
    339,251
    
    
    
    301,203
    
    
    
    427,130Total average borrowings (1)
    
    
    307,225
    
    
    
    307,597
    
    
    
    254,757
    
    
    
    377,139
    
    
    
    350,662Total shareholders equity (3)
    
    
    101,156
    
    
    
    79,687
    
    
    
    146,367
    
    
    
    163,254
    
    
    
    155,508Total average shareholders equity
    
    
    107,511
    
    
    
    131,155
    
    
    
    158,695
    
    
    
    158,372
    
    
    
    145,601Return on average assets
    
    
    (2.57
    %)
    
    
    (3.20
    %)
    
    
    0.04
    %
    
    
    1.64
    %
    
    
    2.55
    %Return on average equity
    
    
    (30.94
    %)
    
    
    (29.04
    %)
    
    
    0.36
    %
    
    
    13.62
    %
    
    
    22.01
    %Average equity to average assets
    
    
    8.30
    %
    
    
    11.03
    %
    
    
    12.07
    %
    
    
    12.10
    %
    
    
    11.57
    %Dividend payout ratio
    
    
    0.00
    %
    
    
    (10.52
    %)
    
    
    2743.40
    %
    
    
    66.10
    %
    
    
    40.10
    %
 
 (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
  Results of Operations
 General:
 Net Loss/Income:
  Impairment losses on investment securities
    
    $11.0 millionProvision for loan and lease losses
    
    $20.6 millionOREO and related expenses
    
    $7.8 millionFDIC assessments
    
    $3.8 million
 33




---



##### Table of Contents



Net Interest Income and Margin:
  34




---



##### Table of Contents



35




---



##### Table of Contents



Average Balances
  36




---



##### Table of Contents



For the years ended December 31,2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /
    
    
    Average
    
    
    
    
    
    
    Yield /(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateAssetsInterest bearing deposits
    
    $
    51,578
    
    
    $
    164
    
    
    
    0.32
    %
    
    $
    23,788
    
    
    $
    495
    
    
    
    2.08
    %
    
    $
    35,158
    
    
    $
    1,896
    
    
    
    5.39
    %Federal funds
    
    
    553
    
    
    
    1
    
    
    
    0.18
    %
    
    
    1,323
    
    
    
    24
    
    
    
    1.81
    %
    
    
    2,900
    
    
    
    147
    
    
    
    5.07
    %Investment securitiesHeld to maturity
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    56,658
    
    
    
    3,241
    
    
    
    5.72
    %
    
    
    205,686
    
    
    
    10,032
    
    
    
    4.88
    %Available for sale
    
    
    426,829
    
    
    
    20,121
    
    
    
    4.71
    %
    
    
    341,982
    
    
    
    19,141
    
    
    
    5.60
    %
    
    
    338,620
    
    
    
    18,143
    
    
    
    5.36
    %Total investment securities
    
    
    426,829
    
    
    
    20,121
    
    
    
    4.71
    %
    
    
    398,640
    
    
    
    22,382
    
    
    
    5.61
    %
    
    
    544,306
    
    
    
    28,175
    
    
    
    5.18
    %Loans & LeasesCommercial demand loans
    
    
    384,831
    
    
    
    18,439
    
    
    
    4.79
    %
    
    
    395,109
    
    
    
    25,270
    
    
    
    6.40
    %
    
    
    376,002
    
    
    
    31,874
    
    
    
    8.48
    %Real estate secured
    
    
    294,414
    
    
    
    24,285
    
    
    
    8.25
    %
    
    
    256,124
    
    
    
    22,153
    
    
    
    8.65
    %
    
    
    238,929
    
    
    
    22,187
    
    
    
    9.29
    %Other loans and leases
    
    
    36,276
    
    
    
    3,032
    
    
    
    8.36
    %
    
    
    25,528
    
    
    
    2,440
    
    
    
    9.56
    %
    
    
    21,681
    
    
    
    2,457
    
    
    
    11.33
    %Total loans
    
    
    715,521
    
    
    
    45,756
    
    
    
    6.39
    %
    
    
    676,761
    
    
    
    49,863
    
    
    
    7.37
    %
    
    
    636,612
    
    
    
    56,518
    
    
    
    8.88
    %Total interest earnings assets
    
    
    1,194,481
    
    
    
    66,042
    
    
    
    5.53
    %
    
    
    1,100,512
    
    
    
    72,764
    
    
    
    6.61
    %
    
    
    1,218,976
    
    
    
    86,736
    
    
    
    7.12
    %Non interest earnings assetsCash & due from banks
    
    
    11,752
    
    
    
    
    
    
    
    
    
    
    
    7,552
    
    
    
    
    
    
    
    
    
    
    
    12,369Other assets
    
    
    115,173
    
    
    
    
    
    
    
    
    
    
    
    106,447
    
    
    
    
    
    
    
    
    
    
    
    97,649Allowance for loan loss
    
    
    (25,061
    )
    
    
    
    
    
    
    
    
    
    
    (23,301
    )
    
    
    
    
    
    
    
    
    
    
    (12,405
    )Unearned discount
    
    
    (1,219
    )
    
    
    
    
    
    
    
    
    
    
    (1,692
    )
    
    
    
    
    
    
    
    
    
    
    (2,228
    )Total non-interest earning assets
    
    
    100,645
    
    
    
    
    
    
    
    
    
    
    
    89,006
    
    
    
    
    
    
    
    
    
    
    
    95,385Total assets
    
    $
    1,295,126
    
    
    
    
    
    
    
    
    
    
    $
    1,189,518
    
    
    
    
    
    
    
    
    
    
    $
    1,314,361Liabilities & Shareholders EquityDepositsSavings
    
    $
    14,802
    
    
    $
    83
    
    
    
    0.56
    %
    
    $
    15,125
    
    
    $
    76
    
    
    
    0.50
    %
    
    $
    16,461
    
    
    $
    85
    
    
    
    0.52
    %Now
    
    
    46,046
    
    
    
    478
    
    
    
    1.04
    %
    
    
    48,414
    
    
    
    894
    
    
    
    1.85
    %
    
    
    52,975
    
    
    
    1,185
    
    
    
    2.24
    %Money market
    
    
    153,146
    
    
    
    2,797
    
    
    
    1.83
    %
    
    
    168,972
    
    
    
    4,947
    
    
    
    2.93
    %
    
    
    199,921
    
    
    
    8,486
    
    
    
    4.24
    %Time deposits
    
    
    581,202
    
    
    
    21,984
    
    
    
    3.78
    %
    
    
    434,662
    
    
    
    19,497
    
    
    
    4.49
    %
    
    
    531,965
    
    
    
    27,384
    
    
    
    5.15
    %Total interest bearing deposits
    
    
    795,196
    
    
    
    25,342
    
    
    
    3.19
    %
    
    
    667,173
    
    
    
    25,414
    
    
    
    3.81
    %
    
    
    801,322
    
    
    
    37,140
    
    
    
    4.63
    %Federal funds
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Borrowings
    
    
    271,000
    
    
    
    10,717
    
    
    
    3.95
    %
    
    
    266,284
    
    
    
    11,008
    
    
    
    4.13
    %
    
    
    205,823
    
    
    
    9,374
    
    
    
    4.55
    %Obligation through VIE equity investments
    
    
    10,451
    
    
    
    243
    
    
    
    2.33
    %
    
    
    15,539
    
    
    
    251
    
    
    
    1.62
    %
    
    
    23,160
    
    
    
    623
    
    
    
    2.69
    %Subordinated debt
    
    
    25,774
    
    
    
    1,136
    
    
    
    4.41
    %
    
    
    25,774
    
    
    
    1,436
    
    
    
    5.57
    %
    
    
    25,774
    
    
    
    1,736
    
    
    
    6.74
    %Total interest bearing liabilities
    
    
    1,102,421
    
    
    
    37,438
    
    
    
    3.40
    %
    
    
    974,770
    
    
    
    38,109
    
    
    
    3.91
    %
    
    
    1,056,079
    
    
    
    48,873
    
    
    
    4.63
    %Non interest bearing deposits
    
    
    62,546
    
    
    
    
    
    
    
    
    
    
    
    57,211
    
    
    
    
    
    
    
    
    
    
    
    68,562Other liabilities
    
    
    22,648
    
    
    
    
    
    
    
    
    
    
    
    26,382
    
    
    
    
    
    
    
    
    
    
    
    31,025Total liabilities
    
    
    1,187,615
    
    
    
    
    
    
    
    
    
    
    
    1,058,363
    
    
    
    
    
    
    
    
    
    
    
    1,155,666Shareholders equity
    
    
    107,511
    
    
    
    
    
    
    
    
    
    
    
    131,155
    
    
    
    
    
    
    
    
    
    
    
    158,695Total liabilities and shareholders equity
    
    $
    1,295,126
    
    
    
    
    
    
    
    
    
    
    $
    1,189,518
    
    
    
    
    
    
    
    
    
    
    $
    1,314,361Net interest income
    
    
    
    
    
    $
    28,604
    
    
    
    
    
    
    
    
    
    
    $
    34,655
    
    
    
    
    
    
    
    
    
    
    $
    37,863Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.39
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %
    
    
    
    
    
    
    
    
    
    
    3.11
    %
 
 (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. 37




---



##### Table of Contents



2009 versus 2008
    
    
    2008 versus 2007Changes due to:
    
    
    Changes due to:(In thousands)
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest incomeShort term earning assetsInterest bearing deposits in banks
    
    $
    88
    
    
    $
    (419
    )
    
    $
    (331
    )
    
    $
    (237
    )
    
    $
    (1,164
    )
    
    $
    (1,401
    )Federal funds sold
    
    
    (1
    )
    
    
    (22
    )
    
    
    (23
    )
    
    
    (28
    )
    
    
    (95
    )
    
    
    (123
    )Total short term earning assets
    
    
    87
    
    
    
    (441
    )
    
    
    (354
    )
    
    
    (265
    )
    
    
    (1,259
    )
    
    
    (1,524
    )Investments securitiesHeld to maturity
    
    
    (3,241
    )
    
    
    
    
    
    
    (3,241
    )
    
    
    (8,583
    )
    
    
    1,790
    
    
    
    (6,793
    )Available for sale
    
    
    4,023
    
    
    
    (3,043
    )
    
    
    980
    
    
    
    255
    
    
    
    745
    
    
    
    1,000Total Investments securities
    
    
    782
    
    
    
    (3,043
    )
    
    
    (2,261
    )
    
    
    (8,328
    )
    
    
    2,535
    
    
    
    (5,793
    )LoansCommercial demand loans
    
    
    (551
    )
    
    
    (4,339
    )
    
    
    (4,890
    )
    
    
    1,329
    
    
    
    (6,984
    )
    
    
    (5,655
    )Commercial mortgages
    
    
    1,250
    
    
    
    (1,223
    )
    
    
    27
    
    
    
    634
    
    
    
    (2,161
    )
    
    
    (1,527
    )Residential and home equity loans
    
    
    (77
    )
    
    
    (127
    )
    
    
    (204
    )
    
    
    (267
    )
    
    
    (147
    )
    
    
    (414
    )Lease receivables
    
    
    987
    
    
    
    (366
    )
    
    
    621
    
    
    
    459
    
    
    
    (380
    )
    
    
    79Real estate tax liens
    
    
    2,945
    
    
    
    (637
    )
    
    
    2,308
    
    
    
    1,900
    
    
    
    7
    
    
    
    1,907Other loans
    
    
    (15
    )
    
    
    (14
    )
    
    
    (29
    )
    
    
    (26
    )
    
    
    (70
    )
    
    
    (96
    )Loan fees
    
    
    (1,939
    )
    
    
    
    
    
    
    (1,939
    )
    
    
    (949
    )
    
    
    
    
    
    
    (949
    )Total loans
    
    
    2,600
    
    
    
    (6,706
    )
    
    
    (4,106
    )
    
    
    3,080
    
    
    
    (9,735
    )
    
    
    (6,655
    )Total increase (decrease) in interest income
    
    $
    3,469
    
    
    $
    (10,190
    )
    
    $
    (6,721
    )
    
    $
    (5,513
    )
    
    $
    (8,459
    )
    
    $
    (13,972
    )Interest expenseDepositsNOW and money market
    
    $
    (456
    )
    
    $
    (2,109
    )
    
    $
    (2,565
    )
    
    $
    (1,227
    )
    
    $
    (2,603
    )
    
    $
    (3,830
    )Savings
    
    
    (2
    )
    
    
    9
    
    
    
    7
    
    
    
    (7
    )
    
    
    (2
    )
    
    
    (9
    )Time deposits
    
    
    5,871
    
    
    
    (3,385
    )
    
    
    2,486
    
    
    
    (4,633
    )
    
    
    (3,254
    )
    
    
    (7,887
    )Total deposits
    
    
    5,413
    
    
    
    (5,485
    )
    
    
    (72
    )
    
    
    (5,867
    )
    
    
    (5,859
    )
    
    
    (11,726
    )BorrowingsBorrowings
    
    
    192
    
    
    
    (482
    )
    
    
    (290
    )
    
    
    2,558
    
    
    
    (928
    )
    
    
    1,630Trust preferred
    
    
    
    
    
    
    (300
    )
    
    
    (300
    )
    
    
    
    
    
    
    (296
    )
    
    
    (296
    )Total Borrowings
    
    
    192
    
    
    
    (782
    )
    
    
    (590
    )
    
    
    2,558
    
    
    
    (1,224
    )
    
    
    1,334Total increase (decrease) in interest expense
    
    
    5,605
    
    
    
    (6,267
    )
    
    
    (662
    )
    
    
    (3,309
    )
    
    
    (7,083
    )
    
    
    (10,392
    )Total increase (decrease) in net interest income
    
    $
    (2,136
    )
    
    $
    (3,923
    )
    
    $
    (6,059
    )
    
    $
    (2,204
    )
    
    $
    (1,376
    )
    
    $
    (3,580
    )
 Provision for Possible Loan and Lease Losses
    38




---



##### Table of Contents



Total Other (Loss) Income
    Total Other Expense
  39




---



##### Table of Contents



Accounting for Income Tax Expense (Benefit)
   40




---



##### Table of Contents



Results of Operations by Business Segments
  
    
    Community Bank segment: At December 31, 2009, the Community Bank segment had
total assets of $1.1 billion, an increase of $100.5 million or 10% from $1.0
billion at December 31, 2008. Total deposits grew $121.7 million or 16% from
$760.1 million at December 31, 2008 to $881.8 million at December 31, 2009. Net
interest income for 2009 was $19.1 million compared to $27.4 million for 2008
representing an $8.3 million, or 30%, decline. The reduction in net interest
income was related to the increased level of non-performing loans, lower yields on
performing loans and investments and an increased level of interest bearing
deposits related to increased liquidity, which were partially offset by lower rates
paid on brokered and retail certificates of deposit. The loan loss provision was
$18.7 million for 2009 compared to $17.4 million for 2008. For 2009, total other
loss was $4.8 million compared to $19.1 million for 2008. This loss is mostly
attributed to $4.8 million in impairment charges recorded on the available-for-sale
investment portfolio for 2009 compared to $23.4 million for 2008. In 2009 total
other expense was $32.9 million, an increase of $7.5 million, or 30%, from $25.4
million in 2008. The increase is mostly  associated with FDIC
insurance rate increase, OREO costs related to foreclosed properties and legal
expense. The net loss for 2009 was $35.9 million compared to a net loss of $37.6
million for 2008.
    
    Tax Lien segment: At December 31, 2009, the Tax Lien segment had total assets
of $105.0 million compared to $85.0 million at December 31, 2008 representing an
increase of $20.1 million, or 24%. Net interest income increased $1.2 million, or
24%, from $4.8 million in 2008 to $6.0 million in 2009. The provision for losses
declined from $2.6 million in 2008 to $624,000 in 2009. The 2008 provision was
related to a specific reserve for a non-accrual loan with a tax lien portfolio
located in Alabama. Total other income was $313,000 in 2009 compared to $560,000
in 2008. Total other income is derived mostly from the gains on sale of OREO
property. Total other expense increased $214,000, or 8%, from $2.7 million for
2008 to $2.9 million for 2009. The increase in other total expense was related to
legal fees. Net income was $1.0 million in 2009 compared to $85,000 for 2008.
    
    Equity Investment segment: At December 31, 2009 the Equity Investment segment
had total assets of $8.7 million compared to $17.4 million at December 31, 2008
representing a decline of $8.7 million, or 50%. The decline was primarily related
to a significant number of condominium sales in 2009. Net income for 2009 was
$179,000 compared to net loss of $351,000 for 2008.
 41




---



##### Table of Contents



Accounting for Debt and Equity Securities
  Financial Condition
  Cash and Cash Equivalents:
 Investment Securities Available for Sale (AFS) :
 Loans :
  Allowance for loan and lease losses:
 42




---



##### Table of Contents



43




---



##### Table of Contents



For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Total Loans
    
    $
    686,864
    
    
    $
    700,722
    
    
    $
    644,475
    
    
    $
    602,958
    
    
    $
    549,636Daily average loan balance
    
    $
    715,521
    
    
    $
    676,761
    
    
    $
    636,612
    
    
    $
    618,591
    
    
    $
    510,349Allowance for loan and lease losses:Balance at the beginning of the year
    
    $
    28,908
    
    
    $
    19,282
    
    
    $
    11,455
    
    
    $
    10,276
    
    
    $
    12,519Charge-offs by loan type:Real Estate  residential
    
    
    1,361
    
    
    
    37
    
    
    
    195
    
    
    
    631
    
    
    
    142Real Estate  residential-mezzanine
    
    
    
    
    
    
    2,220
    
    
    
    
    
    
    
    
    
    
    
    Construction and land development
    
    
    6,231
    
    
    
    3,852
    
    
    
    2,408
    
    
    
    
    
    
    
    Construction and land develop-mezzanine
    
    
    2,756
    
    
    
    1,540
    
    
    
    1,579
    
    
    
    
    
    
    
    Real Estate  non-residential
    
    
    7,404
    
    
    
    1,330
    
    
    
    294
    
    
    
    5
    
    
    
    2,162Real Estate  non-residential-mezzanine
    
    
    1,132
    
    
    
    1,675
    
    
    
    
    
    
    
    
    
    
    
    Leases
    
    
    676
    
    
    
    642
    
    
    
    286
    
    
    
    11
    
    
    
    Commercial and industrial
    
    
    258
    
    
    
    1,009
    
    
    
    704
    
    
    
    
    
    
    
    28Tax certificates
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    25
    
    
    
    1Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    2Total charge-offs
    
    
    19,818
    
    
    
    12,327
    
    
    
    5,466
    
    
    
    745
    
    
    
    2,335Recoveries by loan type:Construction and land development
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    Real Estate  residential
    
    
    190
    
    
    
    6
    
    
    
    28
    
    
    
    100
    
    
    
    68Real Estate  non-residential
    
    
    431
    
    
    
    
    
    
    
    4
    
    
    
    14
    
    
    
    7Commercial and industrial
    
    
    15
    
    
    
    106
    
    
    
    201
    
    
    
    2
    
    
    
    12Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    4Total recoveries
    
    
    636
    
    
    
    112
    
    
    
    267
    
    
    
    121
    
    
    
    91Net loan (charge-offs) recoveries
    
    
    (19,182
    )
    
    
    (12,215
    )
    
    
    (5,199
    )
    
    
    (624
    )
    
    
    (2,244
    )Provision for loan and lease losses
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026
    
    
    
    1,803
    
    
    
    1Balance at end of year
    
    $
    30,331
    
    
    $
    28,908
    
    
    $
    19,282
    
    
    $
    11,455
    
    
    $
    10,276Net (charge-offs) recoveries to average loans
    
    
    (2.68
    %)
    
    
    (1.80
    %)
    
    
    (0.82
    %)
    
    
    (0.10
    %)
    
    
    (0.44
    %)Allowance to total loans at year-end
    
    
    4.42
    %
    
    
    4.13
    %
    
    
    2.99
    %
    
    
    1.90
    %
    
    
    1.87
    %
 44




---



##### Table of Contents



As of December 31,2009
    
    2008
    
    2007
    
    2006
    
    2005Percent 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
    
    $
    6,542
    
    
    
    15.1
    %
    
    $
    2,403
    
    
    
    12.3
    %
    
    $
    2,124
    
    
    
    12.0
    %
    
    $
    559
    
    
    
    7.0
    %
    
    $
    494
    
    
    
    5.0
    %Construction
    
    
    4,713
    
    
    
    7.6
    %
    
    
    11,548
    
    
    
    23.8
    %
    
    
    7,674
    
    
    
    14.4
    %
    
    
    4,117
    
    
    
    29.0
    %
    
    
    3,230
    
    
    
    31.0
    %Land development (1)
    
    
    3,182
    
    
    
    9.7
    %
    
    
    2,359
    
    
    
    10.6
    %
    
    
    
    
    
    
    12.2
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Construction and land development -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    1,415
    
    
    
    0.3
    %
    
    
    2,493
    
    
    
    1.0
    %
    
    
    409
    
    
    
    1.0
    %
    
    
    167
    
    
    
    1.0
    %Real Estate  residential
    
    
    2,762
    
    
    
    7.1
    %
    
    
    747
    
    
    
    3.9
    %
    
    
    1,014
    
    
    
    6.5
    %
    
    
    845
    
    
    
    7.0
    %
    
    
    925
    
    
    
    8.0
    %Real Estate  residential  mezzanine
    
    
    1,000
    
    
    
    0.4
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Real Estate  non-residential
    
    
    9,824
    
    
    
    40.3
    %
    
    
    5,172
    
    
    
    33.4
    %
    
    
    4,746
    
    
    
    40.5
    %
    
    
    4,941
    
    
    
    46.0
    %
    
    
    4,758
    
    
    
    41.0
    %Real Estate  non-residential -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    1,188
    
    
    
    0.6
    %
    
    
    204
    
    
    
    1.4
    %
    
    
    224
    
    
    
    1.0
    %
    
    
    374
    
    
    
    1.0
    %Real Estate  multi-family
    
    
    215
    
    
    
    3.2
    %
    
    
    133
    
    
    
    2.0
    %
    
    
    59
    
    
    
    1.1
    %
    
    
    36
    
    
    
    1.0
    %
    
    
    145
    
    
    
    4.0
    %Real Estate  multi-family  mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    6
    
    
    
    0.5
    %
    
    
    20
    
    
    
    1.0
    %
    
    
    132
    
    
    
    1.0
    %Tax certificates
    
    
    290
    
    
    
    10.6
    %
    
    
    2,735
    
    
    
    9.1
    %
    
    
    185
    
    
    
    7.1
    %
    
    
    
    
    
    
    5.0
    %
    
    
    
    
    
    
    6.0
    %Lease financing
    
    
    1,757
    
    
    
    5.7
    %
    
    
    1,183
    
    
    
    3.7
    %
    
    
    763
    
    
    
    3.1
    %
    
    
    293
    
    
    
    2.0
    %
    
    
    75
    
    
    
    1.0
    %Other
    
    
    25
    
    
    
    0.3
    %
    
    
    15
    
    
    
    0.2
    %
    
    
    14
    
    
    
    0.2
    %
    
    
    11
    
    
    
    0.0
    %
    
    
    41
    
    
    
    1.0
    %Unallocated
    
    
    21
    
    
    
    0.0
    %
    
    
    10
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (65
    )
    
    
    0.0
    %Total
    
    $
    30,331
    
    
    
    100.0
    %
    
    $
    28,908
    
    
    
    100.0
    %
    
    $
    19,282
    
    
    
    100.0
    %
    
    $
    11,455
    
    
    
    100.0
    %
    
    $
    10,276
    
    
    
    100.0
    %
 
 (1)
    
    Beginning in 2008, the Company began segregating land development loans from the rest of
the loan portfolio.    45




---



##### Table of Contents



Deposits:
 FHLB Borrowings:
 Other Borrowings:
  46




---



##### Table of Contents



Other Liabilities:
 Shareholders Equity :
 Asset Liability Management
  Liquidity:
   47




---



##### Table of Contents



Contractual Obligations and Other Commitments:
 For the year ended December 31, 2009Less than one
    
    
    One to three
    
    
    Four to five
    
    
    More than five(In thousands)
    
    Total
    
    
    year
    
    
    years
    
    
    years
    
    
    yearsFHLB advances
    
    $
    209,501
    
    
    $
    114,500
    
    
    $
    45,001
    
    
    $
    50,000
    
    
    $
    Operating leases
    
    
    3,315
    
    
    
    1,088
    
    
    
    1,494
    
    
    
    616
    
    
    
    117PNC Bank
    
    
    44,674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,674Benefit obligations
    
    
    8,672
    
    
    
    510
    
    
    
    1,208
    
    
    
    1,324
    
    
    
    5,630Commitments to extend credit
    
    
    1,630
    
    
    
    1,630
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit
    
    
    3,477
    
    
    
    3,477
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debt
    
    
    25,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,774Non-interest bearing deposits
    
    
    63,168
    
    
    
    63,168
    
    
    
    
    
    
    
    
    
    
    
    Interest bearing deposits
    
    
    229,477
    
    
    
    94,916
    
    
    
    134,561
    
    
    
    
    
    
    
    Time deposits
    
    
    589,110
    
    
    
    392,219
    
    
    
    181,564
    
    
    
    9,879
    
    
    
    5,448Total
    
    $
    1,178,798
    
    
    $
    671,508
    
    
    $
    363,828
    
    
    $
    61,819
    
    
    $
    81,643
 Interest-Rate Sensitivity:
   Interest Rate Swaps:
  48




---



##### Table of Contents



Interest Rate Sensitivity  (In millions)
 For the year ended December 31, 200991  365
    
    One to five
    
    Over five
    
    Non-rate(In millions)
    
    0  90 days
    
    days
    
    years
    
    years
    
    sensitive
    
    TotalAssets (1)Interest-bearing deposits in banks
    
    $
    33.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    25.3
    
    
    $
    58.3Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment securities
    
    
    70.4
    
    
    
    65.8
    
    
    
    197.2
    
    
    
    105.5
    
    
    
    (0.2
    )
    
    
    438.7Loans: (2)Fixed rate
    
    
    23.2
    
    
    
    64.4
    
    
    
    173.0
    
    
    
    29.2
    
    
    
    
    
    
    
    289.8Variable rate
    
    
    299.3
    
    
    
    65.4
    
    
    
    34.6
    
    
    
    
    
    
    
    (30.3
    )
    
    
    369.0Total loans
    
    
    322.5
    
    
    
    129.8
    
    
    
    207.6
    
    
    
    29.2
    
    
    
    (30.3
    )
    
    
    658.8Other assets (3)
    
    
    
    
    
    
    19.3
    
    
    
    
    
    
    
    
    
    
    
    117.6
    
    
    
    136.9Total Assets
    
    $
    425.9
    
    
    $
    214.9
    
    
    $
    404.8
    
    
    $
    134.7
    
    
    $
    112.4
    
    
    $
    1,292.7Liabilities & CapitalDeposits:Non interest bearing deposits
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    63.2
    
    
    $
    63.2Interest bearing deposits
    
    
    19.7
    
    
    
    75.2
    
    
    
    134.6
    
    
    
    
    
    
    
    
    
    
    
    229.5Certificate of deposits
    
    
    89.8
    
    
    
    302.4
    
    
    
    191.4
    
    
    
    5.5
    
    
    
    
    
    
    
    589.1Total deposits
    
    
    109.5
    
    
    
    377.6
    
    
    
    326.0
    
    
    
    5.5
    
    
    
    63.2
    
    
    
    881.8Borrowings (1)
    
    
    54.0
    
    
    
    97.3
    
    
    
    128.7
    
    
    
    
    
    
    
    3.7
    
    
    
    283.7Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.9
    
    
    
    22.9Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104.3
    
    
    
    104.3Total liabilities & capital
    
    $
    163.5
    
    
    $
    474.9
    
    
    $
    454.7
    
    
    $
    5.5
    
    
    $
    194.1
    
    
    $
    1,292.7Net interest rate GAP
    
    $
    262.4
    
    
    $
    (260.0
    )
    
    $
    (49.9
    )
    
    $
    129.2
    
    
    $
    (81.7
    )Cumulative interest rate GAP
    
    $
    262.4
    
    
    $
    2.4
    
    
    $
    (47.5
    )
    
    $
    81.7GAP to total assets
    
    
    20
    %
    
    
    (20
    %)GAP to total equity
    
    
    252
    %
    
    
    (249
    %)Cumulative GAP to total assets
    
    
    20
    %
    
    
    0
    %Cumulative GAP to total equity
    
    
    252
    %
    
    
    2
    %
 
 (1)
    
    Interest earning assets are included in the period in which the balances are expected to
be repaid and/or repriced as a result of anticipated prepayments, scheduled rate adjustments,
and contractual maturities.(2)
    
    Reflects principal maturing within the specified periods for fixed and repricing for variable
rate loans; includes non-performing loans.(3)
    
    Includes FHLB stock.  49




---



##### Table of Contents



Capital Adequacy
  For the years ended December 31,2009
    
    2008
    
    2007CompanyLeverage ratio
    
    
    9.8
    %
    
    
    10.3
    %
    
    
    13.6
    %Risk based capital ratio:Tier 1
    
    
    14.2
    %
    
    
    11.8
    %
    
    
    17.0
    %Total
    
    
    15.5
    %
    
    
    13.0
    %
    
    
    18.3
    %Royal BankLeverage ratio
    
    
    8.1
    %
    
    
    7.8
    %
    
    
    10.2
    %Risk based capital ratio:Tier 1
    
    
    12.1
    %
    
    
    9.0
    %
    
    
    13.2
    %Total
    
    
    13.4
    %
    
    
    10.3
    %
    
    
    14.5
    %Royal AsianLeverage ratio
    
    
    12.5
    %
    
    
    14.0
    %
    
    
    15.7
    %Risk based capital ratio:Tier 1
    
    
    15.7
    %
    
    
    17.4
    %
    
    
    20.2
    %Total
    
    
    17.0
    %
    
    
    18.7
    %
    
    
    21.5
    %Capital performanceReturn on average assets
    
    
    (2.57
    %)
    
    
    (3.20
    %)
    
    
    0.04
    %Return on average equity
    
    
    (30.94
    %)
    
    
    (29.04
    %)
    
    
    0.36
    %
   50




---



##### Table of Contents



Management Options to Purchase Securities
    Loans
  51




---



##### Table of Contents



As of December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Commercial and industrial
    
    $
    104,063
    
    
    
    15.1
    %
    
    $
    86,278
    
    
    
    12.3
    %
    
    $
    77,856
    
    
    
    12.1
    %
    
    $
    43,019
    
    
    
    7.2
    %
    
    $
    30,075
    
    
    
    5.5
    %Construction
    
    
    52,196
    
    
    
    7.6
    %
    
    
    167,204
    
    
    
    23.8
    %
    
    
    92,779
    
    
    
    14.4
    %
    
    
    172,745
    
    
    
    29.1
    %
    
    
    173,757
    
    
    
    31.5
    %Construction and land development -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    2,421
    
    
    
    0.3
    %
    
    
    6,443
    
    
    
    1.0
    %
    
    
    5,177
    
    
    
    0.9
    %
    
    
    3,345
    
    
    
    0.6
    %Land development (1)
    
    
    66,878
    
    
    
    9.7
    %
    
    
    74,168
    
    
    
    10.6
    %
    
    
    78,874
    
    
    
    12.2
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Real Estate  residential
    
    
    48,498
    
    
    
    7.1
    %
    
    
    27,480
    
    
    
    3.9
    %
    
    
    42,286
    
    
    
    6.5
    %
    
    
    43,338
    
    
    
    7.3
    %
    
    
    41,900
    
    
    
    7.6
    %Real Estate  non-residential
    
    
    277,234
    
    
    
    40.3
    %
    
    
    234,573
    
    
    
    33.4
    %
    
    
    261,350
    
    
    
    40.5
    %
    
    
    268,162
    
    
    
    45.2
    %
    
    
    228,222
    
    
    
    41.4
    %Real Estate  non-residential -
mezzanine
    
    
    
    
    
    
    0.0
    %
    
    
    4,111
    
    
    
    0.6
    %
    
    
    8,749
    
    
    
    1.4
    %
    
    
    8,283
    
    
    
    1.4
    %
    
    
    7,477
    
    
    
    1.4
    %Real Estate  multi-family
    
    
    22,017
    
    
    
    3.2
    %
    
    
    14,059
    
    
    
    2.0
    %
    
    
    6,887
    
    
    
    1.1
    %
    
    
    3,953
    
    
    
    0.7
    %
    
    
    22,158
    
    
    
    4.0
    %Real Estate  residential  mezzanine
    
    
    2,480
    
    
    
    0.4
    %
    
    
    335
    
    
    
    0.0
    %
    
    
    3,504
    
    
    
    0.5
    %
    
    
    2,129
    
    
    
    0.4
    %
    
    
    2,646
    
    
    
    0.5
    %Tax certificates
    
    
    73,106
    
    
    
    10.6
    %
    
    
    64,168
    
    
    
    9.1
    %
    
    
    46,090
    
    
    
    7.1
    %
    
    
    32,235
    
    
    
    5.4
    %
    
    
    35,548
    
    
    
    6.4
    %Lease financing
    
    
    39,097
    
    
    
    5.7
    %
    
    
    26,123
    
    
    
    3.7
    %
    
    
    19,778
    
    
    
    3.1
    %
    
    
    13,404
    
    
    
    2.3
    %
    
    
    2,623
    
    
    
    0.5
    %Other
    
    
    2,173
    
    
    
    0.3
    %
    
    
    1,243
    
    
    
    0.2
    %
    
    
    1,424
    
    
    
    0.2
    %
    
    
    1,333
    
    
    
    0.2
    %
    
    
    3,868
    
    
    
    0.7
    %Total gross loans
    
    $
    687,742
    
    
    
    100
    %
    
    $
    702,163
    
    
    
    100
    %
    
    $
    646,020
    
    
    
    100
    %
    
    $
    593,778
    
    
    
    100
    %
    
    $
    551,619
    
    
    
    100
    %Unearned income
    
    
    (878
    )
    
    
    
    
    
    
    (1,441
    )
    
    
    
    
    
    
    (1,545
    )
    
    
    
    
    
    
    (1,564
    )
    
    
    
    
    
    
    (1,983
    )$
    686,864
    
    
    
    
    
    
    $
    700,722
    
    
    
    
    
    
    $
    644,475
    
    
    
    
    
    
    $
    592,214
    
    
    
    
    
    
    $
    549,636Allowance for loan loss
    
    
    (30,331
    )
    
    
    
    
    
    
    (28,908
    )
    
    
    
    
    
    
    (19,282
    )
    
    
    
    
    
    
    (11,455
    )
    
    
    
    
    
    
    (10,276
    )Total net loans
    
    $
    656,533
    
    
    
    
    
    
    $
    671,814
    
    
    
    
    
    
    $
    625,193
    
    
    
    
    
    
    $
    580,759
    
    
    
    
    
    
    $
    539,360
 
 (1)
    
    Land development balances were segregated only from construction and land development for
2009, 2008, and 2007. Credit Quality
  For the years ended December 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Non-accrual loans (1)
    
    $
    73,679
    
    
    $
    85,830
    
    
    $
    25,401
    
    
    $
    6,748
    
    
    $
    4,371Other real estate owned
    
    
    30,317
    
    
    
    10,346
    
    
    
    1,048
    
    
    
    924
    
    
    
    3,834Total non-performing assets
    
    $
    103,996
    
    
    $
    96,176
    
    
    $
    26,449
    
    
    $
    7,672
    
    
    $
    8,205Non-performing assets to total assets
    
    
    8.04
    %
    
    
    8.18
    %
    
    
    2.07
    %
    
    
    0.57
    %
    
    
    0.63
    %Non-performing loans to total loans
    
    
    10.73
    %
    
    
    12.25
    %
    
    
    3.94
    %
    
    
    1.14
    %
    
    
    0.79
    %Allowance for loan loss to non-accrual loans
    
    
    41.17
    %
    
    
    33.68
    %
    
    
    75.91
    %
    
    
    169.75
    %
    
    
    235.09
    %Total Loans
    
    
    686,864
    
    
    
    700,722
    
    
    
    644,475Total Assets
    
    
    1,292,726
    
    
    
    1,175,586
    
    
    
    1,278,475Allowance for loan and lease losses
    
    
    30,331
    
    
    
    28,908
    
    
    
    19,282ALL / Loans & Leases (MD & A)
    
    
    4.42
    %
    
    
    4.13
    %
    
    
    2.99
    %
 
 (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. 52




---



##### Table of Contents



1st Quarter ActvityPayments andBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    December 31, 2008
    
    
    Additions
    
    
    decreases
    
    
    Charge-offs
    
    
    OREO
    
    
    March 31, 2009Construction
    
    $
    41,485
    
    
    $
    4,966
    
    
    $
    (14,120
    )
    
    $
    
    
    
    $
    
    
    
    $
    32,331Land development
    
    
    11,044
    
    
    
    4,442
    
    
    
    (807
    )
    
    
    (913
    )
    
    
    (7,301
    )
    
    
    6,465Construction & land development -
mezzanine
    
    
    2,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,421Real Estate-Non-Residential
    
    
    6,324
    
    
    
    2,244
    
    
    
    
    
    
    
    (1,035
    )
    
    
    (1,930
    )
    
    
    5,603Real Estate-Non-Residential -
mezzanine
    
    
    3,612
    
    
    
    
    
    
    
    
    
    
    
    (1,132
    )
    
    
    
    
    
    
    2,480Commercial & Industrial
    
    
    12,145
    
    
    
    1,530
    
    
    
    (412
    )
    
    
    (15
    )
    
    
    
    
    
    
    13,248Residential real estate
    
    
    1,472
    
    
    
    210
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    1,675Leasing
    
    
    711
    
    
    
    
    
    
    
    (33
    )
    
    
    (153
    )
    
    
    
    
    
    
    525Tax certificates
    
    
    6,616
    
    
    
    
    
    
    
    (95
    )
    
    
    (1,221
    )
    
    
    
    
    
    
    5,300Total
    
    $
    85,830
    
    
    $
    13,392
    
    
    $
    (15,474
    )
    
    $
    (4,469
    )
    
    $
    (9,231
    )
    
    $
    70,048
 2nd Quarter ActvityPayments andBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    March 31, 2009
    
    
    Additions
    
    
    decreases
    
    
    Charge-offs
    
    
    OREO
    
    
    June 30, 2009Construction
    
    $
    32,331
    
    
    $
    179
    
    
    $
    (1,509
    )
    
    $
    (4,357
    )
    
    $
    (7,551
    )
    
    $
    19,093Land development
    
    
    6,465
    
    
    
    9,882
    
    
    
    (1,471
    )
    
    
    (426
    )
    
    
    (402
    )
    
    
    14,048Construction & land development -
mezzanine
    
    
    2,421
    
    
    
    335
    
    
    
    
    
    
    
    (298
    )
    
    
    
    
    
    
    2,458Real Estate-Non-Residential
    
    
    5,603
    
    
    
    12,986
    
    
    
    (2,355
    )
    
    
    (228
    )
    
    
    
    
    
    
    16,006Real Estate-Non-Residential -
mezzanine
    
    
    2,480
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,978Commercial & Industrial
    
    
    13,248
    
    
    
    9,706
    
    
    
    (273
    )
    
    
    (239
    )
    
    
    
    
    
    
    22,442Residential real estate
    
    
    1,675
    
    
    
    1,244
    
    
    
    (143
    )
    
    
    (153
    )
    
    
    
    
    
    
    2,623Residential real estate  mezzanine
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Leasing
    
    
    525
    
    
    
    381
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    749Tax certificates
    
    
    5,300
    
    
    
    11
    
    
    
    (94
    )
    
    
    (11
    )
    
    
    
    
    
    
    5,206Total
    
    $
    70,048
    
    
    $
    35,222
    
    
    $
    (5,845
    )
    
    $
    (5,869
    )
    
    $
    (7,953
    )
    
    $
    85,603
 3rd Quarter ActvityPayments andBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    June 30, 2009
    
    
    Additions
    
    
    decreases
    
    
    Reclassed
    
    
    Charge-offs
    
    
    OREO
    
    
    September 30, 2009Construction
    
    $
    19,093
    
    
    $
    11,496
    
    
    $
    (2,480
    )
    
    $
    (5,955
    )
    
    $
    (1,444
    )
    
    $
    (76
    )
    
    $
    20,634Land development
    
    
    14,048
    
    
    
    
    
    
    
    (1,483
    )
    
    
    
    
    
    
    (380
    )
    
    
    
    
    
    
    12,185Construction & land development -
mezzanine
    
    
    2,458
    
    
    
    
    
    
    
    
    
    
    
    2,480
    
    
    
    (2,123
    )
    
    
    
    
    
    
    2,815Real Estate-Non-Residential
    
    
    16,006
    
    
    
    1,990
    
    
    
    (2,509
    )
    
    
    
    
    
    
    (727
    )
    
    
    (644
    )
    
    
    14,116Real Estate-Non-Residential -
mezzanine
    
    
    2,978
    
    
    
    
    
    
    
    
    
    
    
    (2,480
    )
    
    
    (498
    )
    
    
    
    
    
    
    Commercial & Industrial
    
    
    22,442
    
    
    
    76
    
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,031Residential real estate
    
    
    2,623
    
    
    
    15
    
    
    
    (231
    )
    
    
    5,955
    
    
    
    
    
    
    
    
    
    
    
    8,362Leasing
    
    
    749
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    928Tax certificates
    
    
    5,206
    
    
    
    
    
    
    
    (454
    )
    
    
    
    
    
    
    (1,827
    )
    
    
    
    
    
    
    2,925Total
    
    $
    85,603
    
    
    $
    13,913
    
    
    $
    (7,644
    )
    
    $
    
    
    
    $
    (7,156
    )
    
    $
    (720
    )
    
    $
    83,996
 53




---



##### Table of Contents



4th Quarter ActvityPayments andBalance at
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    Transfer to
    
    
    Balance at(In thousands)
    
    September 30, 2009
    
    
    Additions
    
    
    decreases
    
    
    Reclassed
    
    
    Charge-offs
    
    
    OREO
    
    
    December 31, 2009Construction
    
    $
    20,634
    
    
    $
    3,570
    
    
    $
    (575
    )
    
    $
    (4,901
    )
    
    $
    (50
    )
    
    $
    (362
    )
    
    $
    18,316Land development
    
    
    12,185
    
    
    
    
    
    
    
    (792
    )
    
    

    
    
    
    
    
    
    
    
    (5,485
    )
    
    
    5,908Construction & land development 
mezzanine
    
    
    2,815
    
    
    
    
    
    
    
    
    
    
    
    (2,480
    )
    
    
    (335
    )
    
    
    
    
    
    
    Real Estate-Non-Residential
    
    
    14,116
    
    
    
    2,508
    
    
    
    (395
    )
    
    
    3,871
    
    
    
    (516
    )
    
    
    
    
    
    
    19,584Real Estate-Non-Residential 
mezzanine
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial & Industrial
    
    
    22,031
    
    
    
    55
    
    
    
    (10,578
    )
    
    
    276
    
    
    
    (5
    )
    
    
    
    
    
    
    11,779Residential real estate
    
    
    8,362
    
    
    
    9,763
    
    
    
    (1,122
    )
    
    
    754
    
    
    
    (1,208
    )
    
    
    (4,104
    )
    
    
    12,445Residential real estate  mezzanine
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,480
    
    
    
    
    
    
    
    
    
    
    
    2,480Leasing
    
    
    928
    
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    627Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax certificates
    
    
    2,925
    
    
    
    
    
    
    
    (385
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,540Total
    
    $
    83,996
    
    
    $
    15,896
    
    
    $
    (13,924
    )
    
    $
    
    
    
    $
    (2,338
    )
    
    $
    (9,951
    )
    
    $
    73,679
   First Quarter 2009 new non-accrual loans:
 
    
    A $2.5 million loan, in which the bank is a participant, became
non-accrual during the first quarter of 2009. The loan is
collateralized by a first lien Deed of Trust on two parcels comprising
141.59 acres in Highland, Howard County, Maryland. The land was
purchased in August, 2005. The original plan was to build 37 single
family lots averaging over 3 acres each under contract with a national
builder to take down these lots over a minimum of two years. The
contract with the builder has been amended five times. To date, there
have been only five lots taken down. The loan has been declared in
default and judgment confessed. A foreclosure action was commenced.
During the first quarter of 2009, an impairment analysis was performed
in accordance with ASC Topic 310 and the loan was deemed impaired. As
a result, a charge-off was recorded in the amount of $913,000. During
the second quarter of 2009, the lead bank negotiated the sale of the
loan which was scheduled to close in the third quarter. Accordingly
the loan has been transferred to loans and leases held for sale. An
additional charge-off of $416,000 was recorded in the second quarter
of 2009 which was based on the expected proceeds from the sale of the
loan. The sale of the loan was delayed due to the Office of Thrift
Supervision and the FDIC closing the lead bank in late August. The
sale of the loan was finally completed in the first quarter of 2010.
    
    Two loans in the aggregate amount of $4.8 million for a construction
project in Minneapolis, Minnesota, to renovate a historic building
into a luxury hotel and to construct 86 residential condominiums
connected to the hotel became non-accrual during the first quarter of
2009. The two loans are under a forbearance agreement. These loans
are loan participations in larger loans in the aggregate of $60.3
million. The hotel is fully operational and the construction of the
condominiums is complete. As of the date of this filing,
approximately 22% percent of the condominiums have been sold. An
impairment analysis performed in accordance with ASC Topic 310
indicated impairment. Consequently, the Company established a
specific reserve of $221,000 for these loans.
    
    A $1.9 million loan for a fully leased 100,000 square foot industrial
building and 1.5 acre parcel of land located in New Morgan,
Pennsylvania became non-accrual in the first quarter of 2009. The
loan was paid in full during the second quarter of 2009.
 54




---



##### Table of Contents




    
    One loan of RBA Capital in the amount of $1.5 million was related to
one borrower extending loans to third-party buyers of single family
residences in need of rehab work. During the first quarter of 2009,
the borrower failed to meet certain loan covenants and terms and the
loan was classified as impaired. RBA Capital has taken over
management of this portfolio and is in the process of working out the
underlying assets in the portfolio. The
independent valuations showed a portfolio value of over $2.0 million and the expectation is that
all of the principal and expenses will be recovered.
 Second Quarter 2009 new non-accrual loans:
 
    
    A $9.2 million commercial participation loan became
non-accrual during the second quarter of 2009. The
borrower is located in Fort Lauderdale, Florida and
the loan is secured by aircraft. Current
appraisals of the aircraft indicated additional
impairment in accordance with ASC Topic 310. As a
result in the fourth quarter of 2009, the Company
increased the valuation allowance $2.9 million to
$4.0 million for this loan. The outstanding loan
balance at December 31, 2009 was $9.0 million.
    
    A $1.1 million loan on 5 condominium units located
in Philadelphia, Pennsylvania became non-accrual in
the second quarter of 2009. The loan was declared
in default and judgment confessed. During the
fourth quarter of 2009, the Company foreclosed on
the collateral for this loan. It was transferred to
OREO at cost or $1.0 million.
    
    A $5.3 million loan on a commercial building located
in Conshohocken, Pennsylvania became non-accrual in
the second quarter of 2009. The loan is secured by
a first mortgage on the property with assignment of
rents and leases and a $1.0 million life insurance
policy on the guarantor. The building is currently
100% leased. The Company is currently
working with the borrower to bring the loan current.
A current appraisal indicated impairment in
accordance with ASC Topic 310. Consequently, the
Company established a specific reserve of $1.2
million for this loan. As of December 31, 2009, the
outstanding loan balance was $5.1 million.
    
    A $1.9 million loan for a commercial building became
non-accrual in the second quarter of 2009. The loan
is secured by a second mortgage with assignment of
rents on a property located in Wayne, New Jersey.
The current appraisal and occupancy rate indicated
impairment in accordance with ASC Topic 310. As a
result, the Company established a valuation
allowance of $544,000 for this loan. The loan has
been declared in default and has been referred for
foreclosure.
    
    A $5.8 million land development loan comprised of a
$5.5 million loan and a $335,000 mezzanine loan
became non-accrual in the second quarter of 2009.
The loan is secured by a first mortgage on vacant
land in Brigantine, New Jersey. The site is
approved for nine single family lots. The borrower
is awaiting final approval to change the use to a
42-unit hotel condominium development. The Company
declared the loan in default and confessed judgment.
In the fourth quarter of 2009, the Company
foreclosed on the collateral for the loan. The
Company charged-off the $335,000 mezzanine loan and
transferred $5.5 million to OREO.
    
    A $1.2 million loan for a hotel became non-accrual
in the second quarter of 2009. The loan is secured
by first mortgages on a 12-unit hotel and a
commercial building in Philadelphia, Pennsylvania.
In July, the borrower brought the loan current and
agreed to list the property for sale.
    
    A $3.5 million loan for a commercial building became
non-accrual in the second quarter of 2009. The loan
is secured by a first mortgage on a commercial
building located in Jamaica, New York and a $500,000
life insurance policy on the guarantor. The loan
has been declared in default and foreclosure
commenced. As of December 31, 2009, the outstanding
loan balance was $3.3 million.
    
    A $4.6 million land development participation loan,
comprised of a $4.1 million loan and a $498,000
mezzanine loan, became non-accrual in the second
quarter of 2009. The project is a 114-unit
townhouse development located in Millville,
Delaware. Current appraisals did not indicate
impairment in accordance with ASC Topic 310. In the
third quarter, the Company charged-off the mezzanine
loan. At December 31, 2009 the balance of the loan
was $3.2 million.
 55




---



##### Table of Contents



Third Quarter 2009 new non-accrual loans:
 
    
    A $3.5 million construction project in Malvern,
Pennsylvania, in which the Company is a participant,
became non-accrual during the third quarter of 2009.
The aggregate loan balance at December 31, 2009 was
approximately $69.4 million. The loan provides financing of a 1.9MM sq. ft mixed use development
project. There is substantial pre-leasing of the project. However, plans for vertical take-out
construction financing have not materialized, the loan has matured and a satisfactory extension
has not been agreed upon. The loan has been declared in default and the lead bank is working
with the borrower on a forbearance agreement. A third quarter appraisal did not indicate
impairment in accordance with ASC Topic 310.
    
    An acquisition and development loan to develop a 133
unit age-restricted community in Richland Township,
Pennsylvania became non-accrual during the third
quarter of 2009. The borrower had contracted with a
national home builder to purchase the lots upon
completion of improvements under a take down
agreement. As the housing market began to
deteriorate, the national home builder pulled the
agreement and walked away from the project. As a
result, the Company approved a $2.0 million
construction loan to the borrower for the purpose of
constructing Townhomes and Quads on the lots
designated for the national home builder. The
current outstanding balance of the residential
construction loans is $7.8 million. The project to
date is in the process of going into a Forbearance
Agreement. A fourth quarter appraisal indicated
impairment in accordance with ASC Topic 310.
Consequently, the Company established a specific
reserve of $1.8 million for this loan.
 Fourth Quarter 2009 new non-accrual loans:
 
    
    An acquisition and construction loan to build a
ten-story condominium building which will contain
two ground floor commercial spaces and eleven
residential condominium units became non-accrual
during the fourth quarter of 2009. The projected is
located in New York, New York. The building will be
a total of 17,713 square feet, with 14,672 of
sellable space. The project is currently
approximately 76% complete. The current principal
balance is $3.4 million. A current appraisal
indicated impairment in accordance with ASC Topic
310. Consequently, the Company established a
specific reserve of $663,000 for this loan.
    
    A construction loan to develop a 36-unit condominium
project located in Kill Devil Hills, North Carolina
became non-accrual during the fourth quarter of
2009. The Borrower has sold 1 unit to date with
numerous presale agreements falling through
primarily due to end-buyers inability to secure
mortgages. A default occurred in November 2009.
The Company initiated legal proceedings against the
Borrower and Guarantors in February 2010. Attempts
to negotiate an acceptable modification or
forbearance agreement have not yet been successful
although discussions are continuing simultaneously
to the Company pursuing its legal remedies. The
current outstanding principal balance is $16.3
million of which 50% has been sold to 3rd
party banks. Royal Bank is the lead bank. A current
appraisal indicated impairment in accordance with
ASC Topic 310. Consequently, the Company established
a specific reserve of $1.2 million for this loan.
   As of December 31,(In thousands)
    
    2009
    
    
    2008Impaired loans and leases with a valuation allowance
    
    $
    46,670
    
    
    $
    69,350Impaired loans and leases without a valuation allowance
    
    
    27,009
    
    
    
    16,480Total impaired loans and leases
    
    $
    73,679
    
    
    $
    85,830Valuation allowance related to impaired loans and leases
    
    $
    10,958
    
    
    $
    12,882
 56




---



##### Table of Contents



For the years ended December 31,(In thousands)
    
    2009
    
    2008
    
    2007Average investment in impaired loans and leases
    
    $
    79,754
    
    
    $
    55,134
    
    
    $
    24,741Interest income recognized on impaired loans and leases
    
    $
    242
    
    
    $
    302
    
    
    $
    763Interest income recognized on a cash basis
on impaired loans and leases
    
    $
    242
    
    
    $
    302
    
    
    $
    763
       Other Real Estate Owned (OREO):
 2009(In thousands)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterBeginning balance
    
    $
    10,346
    
    
    $
    20,244
    
    
    $
    29,310
    
    
    $
    25,611Capital improvements
    
    
    711
    
    
    
    1,626
    
    
    
    94
    
    
    
    Sales
    
    
    
    
    
    
    
    
    
    
    (2,958
    )
    
    
    (3,625
    )Assets acquired on non-accrual loans
    
    
    9,231
    
    
    
    7,953
    
    
    
    720
    
    
    
    11,252Other
    
    
    (44
    )
    
    
    37
    
    
    
    (324
    )
    
    
    (165
    )Impairment charge
    
    
    
    
    
    
    (550
    )
    
    
    (1,231
    )
    
    
    (2,756
    )Ending balance
    
    $
    20,244
    
    
    $
    29,310
    
    
    $
    25,611
    
    
    $
    30,317
 57




---



##### Table of Contents



58




---



##### Table of Contents



Loans and Lease Financing Receivables
  As of December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Loans secured by real estate:Construction and land development
    
    $
    52,196
    
    
    $
    167,204
    
    
    $
    92,779Construction and land development  mezzanine
    
    
    
    
    
    
    2,421
    
    
    
    6,443Land development
    
    
    66,878
    
    
    
    74,168
    
    
    
    78,874Secured by 1-4 family residential properties:Revolving, open-end loans secured by 1-4 family residential
properties and extended under lines of credit
    
    
    1,272
    
    
    
    1,322
    
    
    
    2,094All other loans secured by 1-4 family residential properties:Secured by first liens
    
    
    44,053
    
    
    
    21,607
    
    
    
    32,485Secured by junior liens
    
    
    3,173
    
    
    
    4,551
    
    
    
    7,707Secured by junior liens  mezzaninie
    
    
    2,480
    
    
    
    
    
    
    
    Secured by multi family (5 or more) residential properties
    
    
    22,017
    
    
    
    14,059
    
    
    
    6,887Secured by multi family (5 or more) res. Properties  mezzanine
    
    
    
    
    
    
    335
    
    
    
    275Secured by non-farm nonresidential properties
    
    
    277,234
    
    
    
    234,573
    
    
    
    262,550Secured by non-farm nonresidential properties  mezzanine
    
    
    
    
    
    
    4,111
    
    
    
    10,778Tax certificates
    
    
    73,106
    
    
    
    64,168
    
    
    
    46,090Commercial and industrial loans
    
    
    104,063
    
    
    
    86,278
    
    
    
    77,793Loans to individuals for household, family, and other personal
expenditures
    
    
    1,514
    
    
    
    1,031
    
    
    
    1,157Obligations of state and political subdivisions in the U.S.
    
    
    
    
    
    
    47
    
    
    
    63Lease financing receivables (net of unearned income)
    
    
    39,097
    
    
    
    26,123
    
    
    
    19,778All other loans
    
    
    659
    
    
    
    165
    
    
    
    267Less: Net deferred loan fees
    
    
    (878
    )
    
    
    (1,441
    )
    
    
    (1,545
    )Total loans and leases, net of unearned income
    
    $
    686,864
    
    
    $
    700,722
    
    
    $
    644,475
 Credit Classification Process
   
  59




---



##### Table of Contents



Investment Securities
  Included in Accumulated OtherComprehensive Loss (AOCI)Gross unrealized lossesNon-creditGross
    
    
    
    
    
    
    relatedAmortized
    
    
    unrealized
    
    
    Non-OTTI
    
    
    OTTI inAs of December 31, 2009
    
    cost
    
    
    gains
    
    
    in OCI
    
    
    OCI
    
    
    Fair value(In thousands)Investment 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
 60




---



##### Table of Contents



Included in Accumulated OtherComprehensive Loss (AOCI)Gross Unrealized LossesGross
    
    
    
    
    
    
    Non-creditAmortized
    
    
    unrealized
    
    
    Non-OTTI in
    
    
    related OTTIAs of December 31, 2008
    
    cost
    
    
    gains
    
    
    AOCI
    
    
    in AOCI
    
    
    Fair value(In thousands)Investment 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
    
    $
    383,838
    
    
    $
    4,230
    
    
    $
    (37,766
    )
    
    $
    
    
    
    $
    350,302
 Included in Accumulated OtherComprehensive Loss (AOCI)Gross Unrealized LossesGross
    
    
    
    
    
    
    Non-creditunrealized
    
    
    Non-OTTI
    
    
    related OTTI
    
    
    
    
    
    
    CarryingAs of December 31, 2007
    
    Amortized cost
    
    
    gains
    
    
    in AOCI
    
    
    in AOCI
    
    
    Fair value
    
    
    value(In thousands)Investment securities held-to-maturityMortgage-backed securities-residential
    
    $
    105
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    105
    
    
    $
    105U.S. government agencies
    
    
    80,000
    
    
    
    13
    
    
    
    (234
    )
    
    
    
    
    
    
    79,779
    
    
    
    80,000Collateralized debt obligations
    
    
    60,000
    
    
    
    1,200
    
    
    
    (740
    )
    
    
    
    
    
    
    60,460
    
    
    
    60,000Corporate bonds
    
    
    2,800
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    3,112
    
    
    
    2,800Total held-to-maturity investment securities
    
    $
    142,905
    
    
    $
    1,525
    
    
    $
    (974
    )
    
    $
    
    
    
    $
    143,456
    
    
    $
    142,905Investment securities available-for-saleMortgage-backed securities-residential
    
    $
    33,090
    
    
    $
    383
    
    
    $
    (187
    )
    
    $
    
    
    
    $
    33,286U.S. government agencies
    
    
    104,982
    
    
    
    51
    
    
    
    (153
    )
    
    
    
    
    
    
    104,880Common stocks
    
    
    20,696
    
    
    
    17
    
    
    
    (821
    )
    
    
    
    
    
    
    19,892Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    40,688
    
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    41,388Non-agency
    
    
    41,629
    
    
    
    265
    
    
    
    (156
    )
    
    
    
    
    
    
    41,738Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate bonds
    
    
    86,136
    
    
    
    523
    
    
    
    (1,239
    )
    
    
    
    
    
    
    85,420Trust preferred securities
    
    
    44,117
    
    
    
    2,151
    
    
    
    (2,169
    )
    
    
    
    
    
    
    44,099Other securities
    
    
    4,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,625Total available-for-sale investment securities
    
    $
    375,963
    
    
    $
    4,090
    
    
    $
    (4,725
    )
    
    $
    
    
    
    $
    375,328
  61




---



##### Table of Contents



As of December 31, 2009After 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
    
    $
    
    
    
    
    
    
    
    $
    21,601
    
    
    
    5.31
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    21,601
    
    
    
    5.31
    %U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    1,151
    
    
    
    1.68
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,151
    
    
    
    1.68
    %Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    22,115
    
    
    
    5.57
    %
    
    
    271,233
    
    
    
    4.65
    %
    
    
    25,153
    
    
    
    4.39
    %
    
    
    
    
    
    
    
    
    
    
    318,501
    
    
    
    4.69
    %Non-agency
    
    
    
    
    
    
    
    
    
    
    19,540
    
    
    
    5.39
    %
    
    
    1,658
    
    
    
    0.65
    %
    
    
    
    
    
    
    
    
    
    
    21,198
    
    
    
    5.01
    %Collateralized debt obligations
    
    
    24,825
    
    
    
    3.15
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,825
    
    
    
    3.15
    %Corporate bonds
    
    
    732
    
    
    
    0.77
    %
    
    
    6,135
    
    
    
    5.58
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,867
    
    
    
    5.14
    %Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,135
    
    
    
    9.53
    %
    
    
    34,135
    
    
    
    9.53
    %Total AFS debt securities
    
    $
    47,672
    
    
    
    4.24
    %
    
    $
    319,660
    
    
    
    4.78
    %
    
    $
    26,811
    
    
    
    4.13
    %
    
    $
    34,135
    
    
    
    9.53
    %
    
    $
    428,278
    
    
    
    5.02
    %
   Deposits
  As of December 31,2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average(In thousands, except percentages)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateDemand depositsNon interest bearing
    
    $
    62,546
    
    
    
    
    
    
    $
    57,211
    
    
    
    
    
    
    $
    68,562
    
    
    
    Interest bearing (NOW)
    
    
    46,046
    
    
    
    1.04
    %
    
    
    48,414
    
    
    
    1.85
    %
    
    
    52,975
    
    
    
    2.24
    %Money market deposits
    
    
    153,146
    
    
    
    1.83
    %
    
    
    168,972
    
    
    
    2.93
    %
    
    
    199,921
    
    
    
    4.24
    %Savings deposits
    
    
    14,802
    
    
    
    0.56
    %
    
    
    15,125
    
    
    
    0.50
    %
    
    
    16,461
    
    
    
    0.52
    %Certificate of deposit
    
    
    581,202
    
    
    
    3.78
    %
    
    
    434,662
    
    
    
    4.49
    %
    
    
    531,965
    
    
    
    5.15
    %Total deposits
    
    $
    857,742
    
    
    
    
    
    
    $
    724,384
    
    
    
    
    
    
    $
    869,884
 62




---



##### Table of Contents



As of December 31,2009
    
    
    2008Three months or less
    
    $
    19,960
    
    
    $
    12,575Over three months through twelve months
    
    
    78,985
    
    
    
    68,825Over twelve months through five years
    
    
    40,790
    
    
    
    24,623Over five years
    
    
    1,917
    
    
    
    1,760Total
    
    $
    141,652
    
    
    $
    107,783
 Short and Long Term Borrowings
 For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Short term borrowings
    
    $
    114,500
    
    
    $
    37,000
    
    
    $
    102,000
    
    
    $
    53,000
    
    
    $
    104,500Long term borrowingsOther borrowings
    
    
    44,674
    
    
    
    45,112
    
    
    
    5,411
    
    
    
    5,587
    
    
    
    Obligations through RE owned via equity invest(1)
    
    
    3,652
    
    
    
    12,350
    
    
    
    18,566
    
    
    
    29,342
    
    
    
    47,356Subordinated debt
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774FHLB advances
    
    
    95,001
    
    
    
    193,569
    
    
    
    187,500
    
    
    
    187,500
    
    
    
    249,500Total borrowings
    
    $
    283,601
    
    
    $
    313,805
    
    
    $
    339,251
    
    
    $
    301,203
    
    
    $
    427,130
 
 (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
  As of December 31, 2009(In thousands, except percentages)
    
    Market Value of
    
    Percent ofChanges in Rates
    
    Portfolio Equity
    
    Change+ 200 basis points
    
    $
    79,554
    
    
    
    (21.56
    %)+ 100 basis points
    
    
    92,611
    
    
    
    (8.69
    %)Flat rate
    
    
    101,423
    
    
    
    0.00
    %- 100 basis points
    
    
    103,343
    
    
    
    1.89
    %- 200 basis points
    
    
    103,555
    
    
    
    2.10
    %
  63




---



##### Table of Contents



Critical Accounting Policies, Judgments and Estimates
  Investment Securities
      -
 Allowance for Loan and Lease Losses
  64




---



##### Table of Contents



Deferred Tax Assets
  RECENT ACCOUNTING PRONOUNCEMENTS
  65




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
 December 31, 2009 and 2008
 66




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    /s/ ParenteBeard LLC
 
 67




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 December 31,ASSETS
    
    2009
    
    
    2008(In thousands, except share data)Cash and due from banks
    
    $
    25,289
    
    
    $
    5,910Interest bearing deposits
    
    
    33,009
    
    
    
    7,349Federal funds sold
    
    
    
    
    
    
    1,000Total cash and cash equivalents
    
    
    58,298
    
    
    
    14,259Investment securities available-for-sale (AFS) at fair value
    
    
    438,719
    
    
    
    350,302Federal Home Loan Bank (FHLB) stock, at cost
    
    
    10,952
    
    
    
    10,952Total investment securities and FHLB stock
    
    
    449,671
    
    
    
    361,254Loans and leases held for sale
    
    
    2,254
    
    
    
    267Loans and leases
    
    
    686,864
    
    
    
    700,722Less allowance for loan and lease losses
    
    
    30,331
    
    
    
    28,908Net loans and leases
    
    
    656,533
    
    
    
    671,814Bank owned life insurance
    
    
    8,263
    
    
    
    30,016Real estate owned via equity investment
    
    
    12,492
    
    
    
    18,927Accrued interest receivable
    
    
    14,942
    
    
    
    13,580Other real estate owned (OREO), net
    
    
    30,317
    
    
    
    10,346Premises and equipment, net
    
    
    6,306
    
    
    
    6,926Investment in real estate joint ventures
    
    
    2,520
    
    
    
    2,520Other assets
    
    
    51,130
    
    
    
    45,677Total assets
    
    $
    1,292,726
    
    
    $
    1,175,586LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDepositsNon-interest bearing
    
    $
    63,168
    
    
    $
    50,886Interest bearing
    
    
    818,587
    
    
    
    709,182Total deposits
    
    
    881,755
    
    
    
    760,068Accrued interest payable
    
    
    6,150
    
    
    
    6,102Short-term borrowings
    
    
    114,500
    
    
    
    22,000Long-term borrowings
    
    
    139,675
    
    
    
    253,681Obligations related to real estate owned via equity investment
    
    
    3,652
    
    
    
    12,350Subordinated debentures
    
    
    25,774
    
    
    
    25,774Other liabilities
    
    
    16,906
    
    
    
    14,026Total liabilities
    
    
    1,188,412
    
    
    
    1,094,001Shareholders 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, 2009 and
0 shares at December 31, 2008
    
    
    27,945
    
    
    
    Common stockClass A, par value $2.00 per share, authorized
18,000,000 shares; issued,
11,352,482 and 11,345,127 at December 31, 2009 and
2008, respectively
    
    
    22,705
    
    
    
    22,690Class B, par value $0.10 per share, authorized
3,000,0000 shares; issued,
2,089,284 and 2,095,681 at December 31, 2009 and
2008, respectively
    
    
    209
    
    
    
    210Additional paid in capital
    
    
    126,117
    
    
    
    123,425Accumulated deficit
    
    
    (67,197
    )
    
    
    (33,561
    )Accumulated other comprehensive loss
    
    
    (1,652
    )
    
    
    (26,106
    )Treasury stock  at cost, shares of Class A, 498,488 at
December 31, 2009
and 2008, respectively
    
    
    (6,971
    )
    
    
    (6,971
    )Total Royal Bancshares of Pennsylvania, Inc.
shareholders equity
    
    
    101,156
    
    
    
    79,687Noncontrolling interest
    
    
    3,158
    
    
    
    1,898Total shareholders equity
    
    
    104,314
    
    
    
    81,585Total liabilities and shareholders equity
    
    $
    1,292,726
    
    
    $
    1,175,586
  68




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
 Year ended December 31,2009
    
    
    2008
    
    
    2007(In thousands, except per share data)Interest incomeLoans and leases, including fees
    
    $
    45,757
    
    
    $
    49,863
    
    
    $
    56,518Investment securities held to maturity, taxable
    
    
    
    
    
    
    3,241
    
    
    
    10,032Investment securities available for sale:Taxable interest
    
    
    20,102
    
    
    
    19,066
    
    
    
    18,068Tax exempt interest
    
    
    19
    
    
    
    75
    
    
    
    75Deposits in banks
    
    
    164
    
    
    
    495
    
    
    
    1,896Federal funds sold
    
    
    1
    
    
    
    24
    
    
    
    147Total Interest Income
    
    
    66,043
    
    
    
    72,764
    
    
    
    86,736Interest expenseDeposits
    
    
    25,342
    
    
    
    25,414
    
    
    
    37,140Short-term borrowings
    
    
    169
    
    
    
    674
    
    
    
    530Long-term borrowings
    
    
    11,685
    
    
    
    11,770
    
    
    
    10,580Obligations related to real estate owned via equity investments
    
    
    243
    
    
    
    251
    
    
    
    623Total Interest Expense
    
    
    37,439
    
    
    
    38,109
    
    
    
    48,873Net Interest Income
    
    
    28,604
    
    
    
    34,655
    
    
    
    37,863Provision for loan and lease losses
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026Net Interest Income after Provision for Loan and Lease Losses
    
    
    7,999
    
    
    
    12,814
    
    
    
    24,837Other (loss) incomeGains on sales of premises and equipment
    
    
    
    
    
    
    1,991
    
    
    
    Gains on sale of premises and equipment related to real estate owned via equity investments
    
    
    1,817
    
    
    
    1,679
    
    
    
    1,860Income from bank owned life insurance
    
    
    1,099
    
    
    
    1,233
    
    
    
    875Service charges and fees
    
    
    1,419
    
    
    
    1,186
    
    
    
    1,348Gains on sales related to real estate joint ventures
    
    
    
    
    
    
    1,092
    
    
    
    350Income related to real estate owned via equity investments
    
    
    1,302
    
    
    
    965
    
    
    
    1,384Gains on sales of other real estate owned
    
    
    294
    
    
    
    429
    
    
    
    1,111Gains on sales of loans and leases
    
    
    914
    
    
    
    190
    
    
    
    404Net gains (losses) on investment securities available for sale
    
    
    1,892
    
    
    
    (1,313
    )
    
    
    5,358Other income
    
    
    578
    
    
    
    148
    
    
    
    198Other income,excluding other than temporary impairment losses
    
    
    9,315
    
    
    
    7,600
    
    
    
    12,888Total other than temporary impairment losses on investment securities
    
    
    (13,431
    )
    
    
    (23,388
    )
    
    
    Portion of loss recognized in other comprehensive loss
    
    
    2,390
    
    
    
    
    
    
    
    Net impairment losses recognized in earnings
    
    
    (11,041
    )
    
    
    (23,388
    )
    
    
    Total Other (Loss) Income
    
    
    (1,726
    )
    
    
    (15,788
    )
    
    
    12,888Other expensesEmployee salaries and benefits
    
    
    12,235
    
    
    
    15,044
    
    
    
    12,215Professional and legal fees
    
    
    4,367
    
    
    
    3,783
    
    
    
    1,997Occupancy and equipment
    
    
    3,381
    
    
    
    2,860
    
    
    
    2,506Impairment of real estate owned via equity investments
    
    
    
    
    
    
    1,500
    
    
    
    8,500Pennsylvania shares tax
    
    
    1,299
    
    
    
    1,369
    
    
    
    1,158Expenses related to real estate owned via equity investments
    
    
    907
    
    
    
    966
    
    
    
    1,590Stock option expense
    
    
    226
    
    
    
    703
    
    
    
    657Directors fees
    
    
    676
    
    
    
    675
    
    
    
    643Impairment of real estate joint venture
    
    
    
    
    
    
    
    
    
    
    5,927FDIC and state assessments
    
    
    3,801
    
    
    
    658
    
    
    
    235OREO impairment charge
    
    
    4,537
    
    
    
    
    
    
    
    OREO and loan collection expenses
    
    
    3,218
    
    
    
    188
    
    
    
    Other operating expenses
    
    
    3,009
    
    
    
    4,787
    
    
    
    5,907Total Other Expenses
    
    
    37,656
    
    
    
    32,533
    
    
    
    41,335Loss Before Income Tax
    
    
    (31,383
    )
    
    
    (35,507
    )
    
    
    (2,307
    )Income tax expense (benefit)
    
    
    474
    
    
    
    2,643
    
    
    
    (1,568
    )Net Loss
    
    $
    (31,857
    )
    
    $
    (38,150
    )
    
    $
    (739
    )Less net income (loss) attributable to noncontrolling interest
    
    
    1,402
    
    
    
    (68
    )
    
    
    (1,303
    )Net
(loss) income attributable to Royal Bancshares of
Pennsylvania, Inc.
    
    $
    (33,259
    )
    
    $
    (38,082
    )
    
    $
    564Less Preferred stock Series A accumulated dividend and accretion
    
    $
    1,672
    
    
    $
    
    
    
    $
    Net (loss) income available to common shareholders
    
    $
    (34,931
    )
    
    $
    (38,082
    )
    
    $
    564Per common share dataNet (loss) income  basic
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04Net (loss) income  diluted
    
    $
    (2.64
    )
    
    $
    (2.86
    )
    
    $
    0.04Cash dividends- Class A shares
    
    $
    
    
    
    $
    0.30
    
    
    $
    1.15Cash dividends- Class B shares
    
    $
    
    
    
    $
    0.35
    
    
    $
    1.32
  69




---



##### Table of Contents



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
  70




---



##### Table of Contents



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
  71




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders Equity and Comprehensive Loss

For the year ended December 31, 2007
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Class A common stock
    
    
    Class B common stock
    
    
    paid in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasury
    
    
    Noncontrolling
    
    
    Shareholders(In thousands, except dividend per share data)
    
    Series A
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    loss
    
    
    stock
    
    
    Interest
    
    
    EquityBalance,
January 1,
2007
    
    $
    
    
    
    
    11,287
    
    
    $
    22,575
    
    
    
    2,108
    
    
    $
    211
    
    
    $
    121,542
    
    
    $
    23,464
    
    
    $
    (2,273
    )
    
    $
    (2,265
    )
    
    $
    3,170
    
    
    $
    166,424Comprehensive
lossNet income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    564
    
    
    
    
    
    
    
    
    
    
    
    (1,303
    )
    
    
    (739
    )Adjustment related to adoption
of FASB No. 158, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,006
    
    
    
    
    
    
    
    
    
    
    
    1,006Other comprehensive loss, net
of reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (315
    )
    
    
    
    
    
    
    
    
    
    
    (315
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (48
    )Common stock conversion from
Class B to Class A
    
    
    
    
    
    
    14
    
    
    
    28
    
    
    
    (12
    )
    
    
    (1
    )
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash in lieu of fractional
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Stock dividend
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (13
    )
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options
exercised
    
    
    
    
    
    
    28
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334Stock option
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657Tax benefit
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114Purchase of treasury stock
(183 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,760
    )
    
    
    
    
    
    
    (3,760
    )Cash dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Class A
$1.15, Class B $1.3225)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,473
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,473
    )Balance,
December 31,
2007
    
    $
    
    
    
    
    11,329
    
    
    $
    22,659
    
    
    
    2,097
    
    
    $
    210
    
    
    $
    122,578
    
    
    $
    8,527
    
    
    $
    (1,582
    )
    
    $
    (6,025
    )
    
    $
    1,867
    
    
    $
    148,234
  72




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 Year ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet loss
    
    $
    (31,857
    )
    
    $
    (38,150
    )
    
    $
    (739
    )Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization
    
    
    907
    
    
    
    1,059
    
    
    
    1,306Net (income) loss attributable to noncontrolling interest
    
    
    (1,402
    )
    
    
    68
    
    
    
    1,303Stock compensation expense
    
    
    226
    
    
    
    703
    
    
    
    657Impairment charge for other real estate owned
    
    
    4,537
    
    
    
    
    
    
    
    Provision for loan and lease losses
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026Net amortization (accretion) of discounts and premiums on loans, mortgage-backed
securities and investments
    
    
    518
    
    
    
    (2,242
    )
    
    
    (2,793
    )(Benefit) provision for deferred income taxes
    
    
    (174
    )
    
    
    10,462
    
    
    
    (4,118
    )Gains on sales of other real estate owned
    
    
    (294
    )
    
    
    (429
    )
    
    
    (1,111
    )Gain on sales of real estate joint ventures
    
    
    
    
    
    
    (1,092
    )
    
    
    (350
    )Proceeds from sales of loans and leases
    
    
    10,844
    
    
    
    2,613
    
    
    
    Gains on sales of premises and equipment
    
    
    
    
    
    
    (1,991
    )
    
    
    Gains on sales of loans and leases
    
    
    (914
    )
    
    
    (190
    )
    
    
    (404
    )Net (gains) losses on sales of investment securities
    
    
    (1,892
    )
    
    
    1,313
    
    
    
    (5,358
    )Distributions from investments in real estate
    
    
    (200
    )
    
    
    (241
    )
    
    
    (167
    )Gain from sale of premises of real estate owned via equity investment
    
    
    (1,817
    )
    
    
    (1,679
    )
    
    
    (1,860
    )Impairment of real estate owned via equity investments
    
    
    
    
    
    
    1,500
    
    
    
    8,500Impairment of available-for-sale investment securities
    
    
    11,041
    
    
    
    23,388
    
    
    
    Income from bank owned life insurance
    
    
    (1,099
    )
    
    
    (1,233
    )
    
    
    (875
    )Impairment of real estate joint venture
    
    
    
    
    
    
    
    
    
    
    5,927Changes in assets and liabilities:(Increase) decrease in accrued interest receivable
    
    
    (1,362
    )
    
    
    1,676
    
    
    
    1,238Increase in other assets
    
    
    (5,225
    )
    
    
    (10,766
    )
    
    
    (2,766
    )Increase (decrease) in accrued interest payable
    
    
    48
    
    
    
    (2,498
    )
    
    
    (2,054
    )Increase (decrease) in other liabilities
    
    
    5,292
    
    
    
    3,364
    
    
    
    (5,518
    )Net cash provided by operating activities
    
    
    7,782
    
    
    
    7,476
    
    
    
    3,844Cash flows from investing activitiesProceeds
from calls/maturities of held-to-maturity investment securities
    
    
    
    
    
    
    105,265
    
    
    
    115,024Proceeds from calls/maturities of investment securities available for sale
    
    
    148,268
    
    
    
    169,901
    
    
    
    105,041Purchases of investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Proceeds from sales of investment securities available for sale
    
    
    184,226
    
    
    
    15,775
    
    
    
    20,773Purchase of investment securities available for sale
    
    
    (398,312
    )
    
    
    (179,257
    )
    
    
    (194,839
    )Redemption (purchase) Federal Home Loan Bank stock
    
    
    
    
    
    
    2,510
    
    
    
    (2,186
    )Net increase in loans
    
    
    (49,260
    )
    
    
    (81,207
    )
    
    
    (57,524
    )Capital improvements to foreclosed assets
    
    
    (2,431
    )
    
    
    
    
    
    
    Proceeds from sale of foreclosed assets
    
    
    7,877
    
    
    
    1,186
    
    
    
    2,174Proceeds from sale of premises and equipment
    
    
    
    
    
    
    2,065
    
    
    
    Purchase of premises and equipment
    
    
    (287
    )
    
    
    (692
    )
    
    
    (728
    )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
    
    
    11,354
    
    
    
    9,064
    
    
    
    19,368Distributions from real estate owned via equity investments
    
    
    200
    
    
    
    241
    
    
    
    167Net decrease (increase) in real estate joint ventures
    
    
    
    
    
    
    5,219
    
    
    
    (2,572
    )Net decrease in real estate owned via equity investments
    
    
    (9,537
    )
    
    
    (8,885
    )
    
    
    (7,451
    )Net cash (used in) provided by investing activities
    
    
    (85,274
    )
    
    
    36,185
    
    
    
    (5,253
    )
 73




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)
 Year ended December 31,2009
    
    
    2008
    
    
    2007Cash flows from financing activities:Increase (decrease) in non-interest bearing and interest bearing demand deposits and
savings accounts
    
    
    32,719
    
    
    
    (65,443
    )
    
    
    (29,009
    )Increase (decrease) in certificates of deposit
    
    
    88,968
    
    
    
    55,359
    
    
    
    (60,296
    )Principal payments on mortgage
    
    
    
    
    
    
    
    
    
    
    (67
    )Net (decrease) increase in short-term borrowings
    
    
    
    
    
    
    (80,000
    )
    
    
    49,000Proceeds from long-term borrowings
    
    
    
    
    
    
    65,000
    
    
    
    Repayments of long-term borrowings
    
    
    (21,506
    )
    
    
    (4,230
    )
    
    
    (175
    )Repayment of mortgage debt of real estate owned via equity investments
    
    
    (8,698
    )
    
    
    (6,216
    )
    
    
    (10,776
    )Income tax benefit on stock options
    
    
    
    
    
    
    
    
    
    
    114Proceeds from the issuance of preferred stock
    
    
    30,407
    
    
    
    
    
    
    
    Cash dividends paid
    
    
    (359
    )
    
    
    (4,005
    )
    
    
    (15,473
    )Cash in lieu of fractional shares
    
    
    
    
    
    
    
    
    
    
    (14
    )Purchase of treasury stock
    
    
    
    
    
    
    (946
    )
    
    
    (3,760
    )Issuance of common stock under stock option plans
    
    
    
    
    
    
    174
    
    
    
    334Net cash (used in) provided by financing activities
    
    
    121,531
    
    
    
    (40,307
    )
    
    
    (70,122
    )Net increase (decrease) in cash and cash equivalents
    
    
    44,039
    
    
    
    3,354
    
    
    
    (71,531
    )Cash and cash equivalents at beginning of period
    
    
    14,259
    
    
    
    10,905
    
    
    
    82,436Cash and cash equivalents at end of period
    
    $
    58,298
    
    
    $
    14,259
    
    
    $
    10,905Supplemental Disclosure
Interest
    
    $
    37,391
    
    
    $
    40,607
    
    
    $
    50,927Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    6,814Transfers to other real estate owned
    
    $
    29,660
    
    
    $
    10,055
    
    
    $
    1,188
  74




---



##### Table of Contents



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
   Significant Concentration of Credit Risk
  75




---



##### Table of Contents



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




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    Trust Preferred Securities:
 Reclassifications
   77




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Cash and Cash Equivalents
  Investment Securities
       78




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Federal Home Loan Bank Stock
    Loans and Leases and Allowance for Loan and Lease Losses
  79




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        80




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    Other Real Estate Owned
  Premises and Equipment
  Interest Rate Swaps
   81




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Investments in Real Estate Joint Ventures
  Bank-Owned Life Insurance
  Transfer of Financial Assets
   Advertising Costs
  Benefit Plans
  82




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Stock Compensation
   Income Taxes
     Treasury Stock
  Earnings (Losses) Per Share Information
   83




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Comprehensive Income (Loss)
  Fair Value of Financial Instruments
  Restrictions on Cash and Amounts Due From Banks
  Recent Accounting Pronouncements
 TM TM
   84




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      85




---



##### Table of Contents



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




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     1.
    
    Board Oversight and Senior ManagementThe Board of Directors has increased their participation in the affairs of Royal Bank. A
new 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 has recently completed an internal assessment of senior
managements qualifications and has 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 have approved the classified assets plan. No 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 net classified loans
(outstanding loan balance less charge-offs and specific reserves) and other real estate
owned (OREO) from $149.6 million at June 30, 2009 to $106.2 million at December 31, 2009.
 87




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  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 have 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 was successful in reducing delinquent loans from $36.3
million at June 30, 2009 to $27.5 million at December 31, 2009.4.
    
    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 have 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 from $289.1 million at June 30, 2009
to $253.7 million at December 31, 2009, which amounted to 227.7% of total capital and 251.7%
of Tier 1 capital. At year end 2009, Royals total CRE loans were below 300% of capital and
were almost $49 million less than what was projected under the CRE concentration Plan.At December 31, 2009, total construction/land loans (CL loans) amounted to $114.9 million,
or 102.9% of total capital and 113.7% of Tier 1 capital. CL loans were approximately $39
million less than what was projected under the CRE concentration plan at year end 2009.5.
    
    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, 2009, Royal
Banks total risk-based capital and Tier 1 leverage ratios were 13.37% and 8.09%,
respectively.6.
    
    Budget PlanRoyal Bank submitted to the FDIC and the Department a revised 2009 budget and profit plan
required under the Orders. The FDIC and the Department have approved the 2009 budget and
profit plan. In addition Royal Bank has submitted to the FDIC and the Department a 2010
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 have 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.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, 2009, Royal Bank had $56.7 million in cash on hand and
$143.5 million in unpledged agency
securities. At December 31, 2009, the liquidity to deposits ratio was 33.1% compared to
Royal Banks 12% target and the liquidity to total liabilities was 24.0% 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 have 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 $20 million from $226.9 million at June 30, 2009 to $206.9 million at
December 31, 2009. Royal Bank has redeemed an additional $23.8 million in brokered CDs
through February 2010. Borrowings declined $26.1 million from $283.9 million at June 30,
2009 to $257.8 million at December 31, 2009. The borrowing amounts do not include the
$3.8 million in obligations owned via equity investment which are not guaranteed by Royal
Bank or any of its subsidiaries.
 88




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  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 has approved the compensation plan. Royal Bank was not
required to submit the compensation plan to the Department.
  NOTE 3  INVESTMENT SECURITIES
  Included in Accumulated OtherAs of December 31, 2009
    
    
    
    
    
    Comprehensive Loss (AOCI)Gross unrealized lossesNon-creditGross
    
    
    
    
    
    
    relatedAmortized
    
    
    unrealized
    
    
    Non-OTTI
    
    
    OTTI in(In thousands)
    
    cost
    
    
    gains
    
    
    in OCI
    
    
    OCI
    
    
    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
 89




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Included in Accumulated OtherAs of December 31, 2008
    
    
    
    
    
    Comprehensive Loss (AOCI)Gross Unrealized LossesGross
    
    
    
    
    
    
    Non-creditAmortized
    
    
    unrealized
    
    
    Non-OTTI in
    
    
    related OTTI(In thousands)
    
    cost
    
    
    gains
    
    
    AOCI
    
    
    in AOCI
    
    
    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
    
    $
    383,838
    
    
    $
    4,230
    
    
    $
    (37,766
    )
    
    $
    
    
    
    $
    350,302
   As of December 31, 2009Amortized(In thousands)
    
    cost
    
    
    Fair valueWithin 1 year
    
    $
    25,556
    
    
    $
    25,557After 1 but within 5 years
    
    
    8,330
    
    
    
    7,286After 5 but within 10 years
    
    
    
    
    
    
    After 10 years
    
    
    32,926
    
    
    
    34,135Mortgage-backed securities-residential
    
    
    21,393
    
    
    
    21,601Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    316,911
    
    
    
    318,501Non-agency
    
    
    23,010
    
    
    
    21,198Total available for sale debt securities
    
    
    428,126
    
    
    
    428,278No contractual maturity
    
    
    10,773
    
    
    
    10,441Total available for sale securities
    
    $
    438,899
    
    
    $
    438,719
  90




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      December 31, 2009
    
    Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossUnrealized
    
    
    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
 91




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Preferred stocks:
 Common stocks:
   92




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  U.S. government issued or sponsored collateralized mortgage obligations (Agency CMOs):
 Non-agency collateralized mortgage obligations (Non-agency CMOs):
  Collateralized debt obligations (CDOs):
 93




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Corporate bonds:
  Trust preferred securities:
 94




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    Other securities:
   95




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   (In thousands)Balance at January 1, 2009
    
    $
    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)
    
    
    (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
    
    
    (1,864
    )Balance at December 31, 2009
    
    $
    1,896
  For the years endedDecember 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Mortgage-backed securities-residential
    
    $
    
    
    
    $
    4,953
    
    
    $
    Non-agency collateralized
mortgage obligations
    
    
    459
    
    
    
    3,188
    
    
    
    Corporate bonds
    
    
    1,353
    
    
    
    11,497
    
    
    
    Trust preferred securities
    
    
    3,009
    
    
    
    
    
    
    
    Common stocks
    
    
    4,334
    
    
    
    
    
    
    
    Preferred stocks
    
    
    1,117
    
    
    
    3,750
    
    
    
    Other securities
    
    
    769
    
    
    
    
    
    
    
    $
    11,041
    
    
    $
    23,388
    
    
    $
    
  December 31, 2008
    
    Less than 12 months
    
    
    12 months or longer
    
    
    TotalGross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossUnrealized
    
    
    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
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stocks
    
    
    1,940
    
    
    
    (560
    )
    
    
    1
    
    
    
    357
    
    
    
    (1,143
    )
    
    
    1
    
    
    
    2,297
    
    
    
    (1,703
    )
    
    
    2Common stocks
    
    
    12,657
    
    
    
    (7,208
    )
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,657
    
    
    
    (7,208
    )
    
    
    7Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    5,228
    
    
    
    (72
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,228
    
    
    
    (72
    )
    
    
    2Non-agency
    
    
    25,483
    
    
    
    (5,328
    )
    
    
    8
    
    
    
    12,008
    
    
    
    (893
    )
    
    
    5
    
    
    
    37,491
    
    
    
    (6,221
    )
    
    
    13Collateralized debt obligations
    
    
    20,353
    
    
    
    (4,647
    )
    
    
    1
    
    
    
    5,807
    
    
    
    (4,193
    )
    
    
    2
    
    
    
    26,160
    
    
    
    (8,840
    )
    
    
    3Corporate bonds
    
    
    23,794
    
    
    
    (5,902
    )
    
    
    10
    
    
    
    8,643
    
    
    
    (846
    )
    
    
    2
    
    
    
    32,437
    
    
    
    (6,748
    )
    
    
    12Trust preferred securities
    
    
    22,818
    
    
    
    (6,484
    )
    
    
    9
    
    
    
    1,720
    
    
    
    (294
    )
    
    
    1
    
    
    
    24,538
    
    
    
    (6,778
    )
    
    
    10Other securities
    
    
    1,470
    
    
    
    (196
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,470
    
    
    
    (196
    )
    
    
    2Total available for sale
    
    $
    113,743
    
    
    $
    (30,397
    )
    
    
    40
    
    
    $
    28,535
    
    
    $
    (7,369
    )
    
    
    11
    
    
    $
    142,278
    
    
    $
    (37,766
    )
    
    
    51
 96




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     As of December 31,(In thousands)
    
    2009
    
    
    2008Loans secured by real estate:Construction
    
    $
    52,196
    
    
    $
    167,204Construction and land development  mezzanine
    
    
    
    
    
    
    2,421Land development
    
    
    66,878
    
    
    
    74,168Secured by 1-4 family residential real estate:Revolving, open-end loans secured by residential real
estate and extended under lines of credit
    
    
    1,272
    
    
    
    1,322All other loans secured by 1-4 family residential real
estate:Secured by first liens
    
    
    44,053
    
    
    
    21,607Secured by junior liens
    
    
    3,173
    
    
    
    4,551Secured by multi family (5 or more) residential real estate
    
    
    22,017
    
    
    
    14,059Secured by residential real estate  mezzanine
    
    
    2,480
    
    
    
    335Secured by non-farm nonresidential real estate
    
    
    277,234
    
    
    
    234,573Secured by non-farm nonresidential real estate  mezzanine
    
    
    
    
    
    
    4,111Tax certificates
    
    
    73,106
    
    
    
    64,168Commercial and industrial loans
    
    
    104,063
    
    
    
    86,278Loans to individuals for household, family, and other personal
expenditures
    
    
    1,514
    
    
    
    1,031Obligations of state and political subdivisions in the U.S.
    
    
    
    
    
    
    47Lease financing receivables (net of unearned income)
    
    
    39,097
    
    
    
    26,123All other loans
    
    
    659
    
    
    
    165Less: Deferred loan fees
    
    
    (878
    )
    
    
    (1,441
    )Total loans and leases, net of unearned income
    
    $
    686,864
    
    
    $
    700,722
   97




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     As of December 31,(In thousands)
    
    2009
    
    
    2008Impaired loans and leases with a valuation allowance
    
    $
    46,670
    
    
    $
    69,350Impaired loans and leases without a valuation allowance
    
    
    27,009
    
    
    
    16,480Total impaired loans and leases
    
    $
    73,679
    
    
    $
    85,830Valuation allowance related to impaired loans and leases
    
    $
    10,958
    
    
    $
    12,882
 For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Average investment in impaired loans and leases
    
    $
    79,754
    
    
    $
    55,134
    
    
    $
    24,741Interest income recognized on impaired loans and leases
    
    $
    242
    
    
    $
    302
    
    
    $
    763Interest income recognized on a cash basis
on impaired loans and leases
    
    $
    242
    
    
    $
    302
    
    
    $
    763
    98




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Balance at the beginning of the year
    
    $
    28,908
    
    
    $
    19,282
    
    
    $
    11,455Charge-offs
    
    
    (19,818
    )
    
    
    (12,327
    )
    
    
    (5,466
    )Recoveries
    
    
    636
    
    
    
    112
    
    
    
    267Net charge-offs
    
    
    (19,182
    )
    
    
    (12,215
    )
    
    
    (5,199
    )Provision for loan and lease losses
    
    
    20,605
    
    
    
    21,841
    
    
    
    13,026Balance at the end of year
    
    $
    30,331
    
    
    $
    28,908
    
    
    $
    19,282
   2009(In thousands)
    
    First Quarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth QuarterBeginning balance
    
    $
    10,346
    
    
    $
    20,244
    
    
    $
    29,310
    
    
    $
    25,611Capital improvements
    
    
    711
    
    
    
    1,626
    
    
    
    94
    
    
    
    Sales
    
    
    
    
    
    
    
    
    
    
    (2,958
    )
    
    
    (3,625
    )Assets acquired on non-accrual loans
    
    
    9,231
    
    
    
    7,953
    
    
    
    720
    
    
    
    11,252Other
    
    
    (44
    )
    
    
    37
    
    
    
    (324
    )
    
    
    (165
    )Impairment charge
    
    
    
    
    
    
    (550
    )
    
    
    (1,231
    )
    
    
    (2,756
    )Ending balance
    
    $
    20,244
    
    
    $
    29,310
    
    
    $
    25,611
    
    
    $
    30,317
   99




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        As of December 31,Estimated(In thousands)
    
    Useful Lives
    
    
    2009
    
    
    2008Land
    
    
    
    
    
    $
    2,396
    
    
    $
    2,396Buildings and leasehold improvements
    
    5 - 39 years
    
    
    8,082
    
    
    
    8,010Furniture, fixtures and equipment
    
    3 - 7 years
    
    
    6,922
    
    
    
    6,71117,400
    
    
    
    17,117Less accumulated depreciation and amortization
    
    
    
    
    
    
    (11,094
    )
    
    
    (10,191
    )$
    6,306
    
    
    $
    6,926
  100




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   As of(In thousands)
    
    December 31, 20092010
    
    $
    1,0882011
    
    
    8292012
    
    
    6652013
    
    
    4012014
    
    
    215Thereafter
    
    
    117Total lease commitments
    
    $
    3,315
    As of December 31,(In thousands)
    
    2009
    
    
    2008Demand
    
    $
    63,168
    
    
    $
    50,886NOW
    
    
    45,248
    
    
    
    48,431Money Market
    
    
    168,893
    
    
    
    145,438Savings
    
    
    15,336
    
    
    
    15,171Time deposits (over $100)
    
    
    141,652
    
    
    
    107,783Time deposits (under $100)
    
    
    240,557
    
    
    
    174,184Brokered deposits
    
    
    206,901
    
    
    
    218,175Total deposits
    
    $
    881,755
    
    
    $
    760,068
  As of(In thousands)
    
    December 31, 20092010
    
    $
    392,2192011
    
    
    170,3242012
    
    
    11,2402013
    
    
    5,8482014
    
    
    4,031Thereafter
    
    
    5,448Total certificates of deposit
    
    $
    589,110
 101




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Advances from the Federal Home Loan Bank
     As of December 31,(Dollars in thousands)
    
    2009
    
    
    2008Amount
    
    
    Rate
    
    
    Amount
    
    
    RateAdvances maturing in2009
    
    $
    
    
    
    
    
    
    
    $
    37,000
    
    
    
    2.63
    %2010
    
    
    114,500
    
    
    
    4.41
    %
    
    
    92,500
    
    
    
    5.30
    %2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    15,001
    
    
    
    3.46
    %
    
    
    21,069
    
    
    
    3.46
    %Total FHLB borrowings
    
    $
    209,501
    
    
    
    
    
    
    $
    230,569
 Other borrowings
   102




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Subordinated debentures
      For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Income tax expense (benefit)Current
    
    $
    648
    
    
    $
    (7,819
    )
    
    $
    2,620Deferred
    
    
    (174
    )
    
    
    10,462
    
    
    
    (4,188
    )Income tax expense (benefit)
    
    $
    474
    
    
    $
    2,643
    
    
    $
    (1,568
    )
 103




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Computed tax benefit at statutory rate
    
    $
    (11,474
    )
    
    $
    (12,404
    )
    
    $
    (351
    )Tax-exempt income
    
    
    (120
    )
    
    
    (170
    )
    
    
    (229
    )Low-income housing tax credit
    
    
    
    
    
    
    
    
    
    
    Nondeductible expense
    
    
    58
    
    
    
    69
    
    
    
    78Bank owned life insurance
    
    
    1,306
    
    
    
    (432
    )
    
    
    (306
    )Bank owned life insurance excise penalty
    
    
    474
    
    
    
    
    
    
    
    Other non-taxable income
    
    
    
    
    
    
    (413
    )
    
    
    (391
    )Other, net
    
    
    
    
    
    
    496
    
    
    
    (369
    )Increase in valuation allowance
    
    
    10,230
    
    
    
    15,497
    
    
    
    Applicable income tax expense (benefit)
    
    $
    474
    
    
    $
    2,643
    
    
    $
    (1,568
    )
  As of December 31,(In thousands)
    
    2009
    
    
    2008Deferred tax assetsAllowance
for loan and lease losses
    
    $
    10,616
    
    
    $
    10,118Tax net operating loss carryforward
    
    
    3,164
    
    
    
    Asset valuation reserves
    
    
    431
    
    
    
    431Security writedowns
    
    
    1,780
    
    
    
    OREO writedowns
    
    
    1,395
    
    
    
    Investment in partnerships
    
    
    3,732
    
    
    
    3,654Accrued pension liability
    
    
    4,191
    
    
    
    3,641Accrued stock-based compensation
    
    
    767
    
    
    
    732Net operating loss carryovers from Knoblauch State Bank
    
    
    1,232
    
    
    
    1,232Unrealized losses on investment securities available for sale
    
    
    61
    
    
    
    11,738Other
    
    
    5
    
    
    
    Deferred tax assets before valuation allowance
    
    
    27,374
    
    
    
    31,546Less valuation allowance
    
    
    (25,727
    )
    
    
    (15,497
    )Less valuation allowance for equity securities
    
    
    (97
    )
    
    
    (3,119
    )Total deferred tax assets
    
    
    1,550
    
    
    
    12,930Deferred tax liabilitiesPenalties on delinquent tax certificates
    
    
    559
    
    
    
    420Accretion on investments
    
    
    395
    
    
    
    488Prepaid deductions
    
    
    212
    
    
    
    337Other
    
    
    (30
    )
    
    
    (30
    )Total deferred tax liabilities
    
    
    1,136
    
    
    
    1,215Net deferred tax assets, included in other assets
    
    $
    414
    
    
    $
    11,715
  104




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
        105




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
       As of December 31,(In thousands)
    
    2009
    
    
    2008Financial instruments whose contract amounts represent credit riskOpen-end lines of credit
    
    $
    44,829
    
    
    $
    98,549Commitments to extend credit
    
    
    1,630
    
    
    
    1,840Standby letters of credit and financial guarantees written
    
    
    3,477
    
    
    
    4,563
    106




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
     Preferred Stock
  Common Stock
   Payment of Dividends
   107




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
         108




---



##### Table of Contents



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
    %Royal Asian
    
    
    14,085
    
    
    
    16.99
    %
    
    
    6,630
    
    
    
    8.00
    %
    
    
    8,288
    
    
    
    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
    %Royal Asian
    
    
    13,036
    
    
    
    15.73
    %
    
    
    3,315
    
    
    
    4.00
    %
    
    
    4,973
    
    
    
    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
    %Royal Asian
    
    
    13,036
    
    
    
    12.52
    %
    
    
    4,164
    
    
    
    4.00
    %
    
    
    5,205
    
    
    
    5.00
    %
 As of December 31, 2008To 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)
    
    $
    136,273
    
    
    
    13.04
    %
    
    $
    83,611
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    97,478
    
    
    
    10.26
    %
    
    
    76,007
    
    
    
    8.00
    %
    
    $
    95,008
    
    
    
    10.00
    %Royal Asian
    
    
    14,739
    
    
    
    18.65
    %
    
    
    6,322
    
    
    
    8.00
    %
    
    
    7,903
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets)Company (consolidated)
    
    $
    123,013
    
    
    
    11.77
    %
    
    $
    41,806
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    85,406
    
    
    
    8.99
    %
    
    
    38,003
    
    
    
    4.00
    %
    
    
    57,005
    
    
    
    6.00
    %Royal Asian
    
    
    13,749
    
    
    
    17.40
    %
    
    
    3,161
    
    
    
    4.00
    %
    
    
    4,742
    
    
    
    6.00
    %Tier I Capital (to average assets, leverage)Company (consolidated)
    
    $
    123,013
    
    
    
    10.30
    %
    
    $
    47,780
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ARoyal Bank
    
    
    85,406
    
    
    
    7.81
    %
    
    
    43,758
    
    
    
    4.00
    %
    
    
    54,698
    
    
    
    5.00
    %Royal Asian
    
    
    13,749
    
    
    
    13.97
    %
    
    
    3,936
    
    
    
    4.00
    %
    
    
    4,921
    
    
    
    5.00
    %
 109




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    For the years ended December 31,(In thousands)
    
    2009
    
    
    2008Change in benefit obligationBenefit obligation at beginning of year
    
    $
    10,233
    
    
    $
    9,156Service cost
    
    
    505
    
    
    
    472Interest cost
    
    
    563
    
    
    
    526Benefits paid
    
    
    (69
    )
    
    
    (56
    )Amortization of actuarial loss
    
    
    317
    
    
    
    135Benefits obligation at end of year
    
    $
    11,549
    
    
    $
    10,233Unrecognized prior service cost
    
    
    538
    
    
    
    628Unrecognized actuarial loss
    
    
    1,478
    
    
    
    1,189$
    2,016
    
    
    $
    1,817
   As of December 31,2009
    
    
    2008Discount rate
    
    
    5.50
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
 110




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007Service cost
    
    $
    505
    
    
    $
    472
    
    
    $
    513Interest cost
    
    
    563
    
    
    
    526
    
    
    
    491Amortization prior service cost
    
    
    90
    
    
    
    94
    
    
    
    94Amortization prior service loss
    
    
    27
    
    
    
    23
    
    
    
    80Net periodic benefit cost
    
    $
    1,185
    
    
    $
    1,115
    
    
    $
    1,178
  As of December 31, 2009Non-Qualified(In thousands)
    
    Pension Plans2010
    
    $
    5102011
    
    
    5782012
    
    
    6302013
    
    
    6622014
    
    
    662Next five years thereafter
    
    
    5,630
  Defined Contribution Plan
    111




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   2008 (1)
    
    
    2008 (2)
    
    
    2007 (1)
    
    
    2007 (2)Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    4.85
    %
    
    
    4.85
    %Expected life
    
    7.5 years
    
    5.5 years
    
    7.5 years
    
    5.5 yearsExpected volatility
    
    
    49.90
    %
    
    
    45.18
    %
    
    
    29.68
    %
    
    
    26.35
    %Risk-free interest rate
    
    
    3.51
    %
    
    
    3.51
    %
    
    
    4.79
    %
    
    
    4.58
    %
 
 (1)
    
    Amounts represent weighted average assumption for options granted during 2008 and 2007 to
employees under the Long Term Incentive Plan.(2)
    
    Amounts represent weighted average assumption for options granted during 2008 and 2007 to
directors under the Long Term Incentive Plan.  Outside Directors Stock Option Plan
   2009
    
    
    2008
    
    
    2007Weighted
    
    
    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
    
    
    95,950
    
    
    $
    18.82
    
    
    
    4.4
    
    
    
    
    
    
    
    100,294
    
    
    $
    18.62
    
    
    
    102,552
    
    
    $
    18.41Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,258
    )
    
    
    9.13Forfeited
    
    
    (1,575
    )
    
    
    21.78
    
    
    
    
    
    
    
    
    
    
    
    (4,344
    )
    
    
    13.75
    
    
    
    
    
    
    
    Expired
    
    
    (4,178
    )
    
    
    10.57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    90,197
    
    
    $
    19.15
    
    
    
    3.6
    
    
    $
    
    
    
    
    95,950
    
    
    $
    18.82
    
    
    
    100,294
    
    
    $
    18.41Options exercisable at the end of the year
    
    
    90,197
    
    
    $
    19.15
    
    
    
    3.6
    
    
    $
    
    
    
    
    95,950
    
    
    $
    18.82
    
    
    
    100,294
    
    
    $
    18.62
 
 (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, 2009. 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, 2009. 112




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Options outstandingWeighted
    
    
    WeightedAverage
    
    
    AverageRange of
    
    Number
    
    
    Exercise
    
    
    Remainingexercise prices
    
    Outstanding
    
    
    Price
    
    
    Term (yrs)$11.00 - $12.00
    
    
    14,944
    
    
    $
    11.81
    
    
    
    0.7$17.00 - $20.00
    
    
    27,063
    
    
    
    18.11
    
    
    
    2.6$21.00 - $22.38
    
    
    48,190
    
    
    
    22.02
    
    
    
    5.190,197
    
    
    $
    19.15
    
    
    
    3.6
  Employee Stock Option and Appreciation Right Plan
   2009
    
    
    2008
    
    
    2007Weighted
    
    
    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
    
    
    685,873
    
    
    $
    19.72
    
    
    
    3.4
    
    
    
    
    
    
    
    799,831
    
    
    $
    19.64
    
    
    
    853,804
    
    
    $
    19.47Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,588
    )
    
    
    11.89
    
    
    
    (24,718
    )
    
    
    11.83Forfeited
    
    
    (263,866
    )
    
    
    19.44
    
    
    
    
    
    
    
    
    
    
    
    (99,370
    )
    
    
    20.23
    
    
    
    (29,255
    )
    
    
    21.60Expired
    
    
    (20,381
    )
    
    
    16.28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    401,626
    
    
    $
    20.09
    
    
    
    4.2
    
    
    $
    
    
    
    
    685,873
    
    
    $
    19.72
    
    
    
    799,831
    
    
    $
    19.63Options exercisable at the end of the year
    
    
    357,737
    
    
    $
    19.88
    
    
    
    4.0
    
    
    $
    
    
    
    
    525,789
    
    
    $
    19.05
    
    
    
    479,441
    
    
    $
    18.57
 
 (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, 2009. 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, 2009. 113




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   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
    
    
    41,516
    
    
    $
    11.86
    
    
    
    1.0
    
    
    
    41,516
    
    
    $
    11.86$17.00 - $20.00
    
    
    94,642
    
    
    
    18.09
    
    
    
    2.8
    
    
    
    94,642
    
    
    
    18.09$21.00 - $22.38
    
    
    265,468
    
    
    
    22.09
    
    
    
    5.2
    
    
    
    221,579
    
    
    
    22.14401,626
    
    
    $
    20.09
    
    
    
    4.2
    
    
    
    357,737
    
    
    $
    19.88
  WeightedAverageNumber
    
    
    Exerciseof shares
    
    
    PriceNon-vested options December 31, 2008
    
    
    160,084
    
    
    $
    20.91Forfeited
    
    
    (59,551
    )
    
    
    21.95Vested
    
    
    (56,644
    )
    
    
    22.08Non-vested options December 31, 2009
    
    
    43,889
    
    
    $
    21.81
  Long-Term Incentive Plan
   114




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   2009
    
    
    2008
    
    
    2007Weighted
    
    
    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
    
    
    161,901
    
    
    $
    10.89
    
    
    
    8.4
    
    
    
    
    
    
    
    76,940
    
    
    $
    20.08
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,450
    
    
    
    4.50
    
    
    
    76,940
    
    
    
    20.08Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (26,102
    )
    
    
    14.38
    
    
    
    
    
    
    
    
    
    
    
    (10,489
    )
    
    
    20.08
    
    
    
    
    
    
    
    Expired
    
    
    (487
    )
    
    
    20.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding at the end of the year
    
    
    135,312
    
    
    $
    10.19
    
    
    
    8.2
    
    
    $
    
    
    
    
    161,901
    
    
    $
    10.89
    
    
    
    76,940
    
    
    $
    20.08Options exercisable at the end of the year
    
    
    62,295
    
    
    $
    12.78
    
    
    
    7.9
    
    
    $
    
    
    
    
    28,340
    
    
    $
    20.08
    
    
    
    
    
    
    $
    Weighted-average fair value of options
granted during the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    2.38
    
    
    
    
    
    
    $
    4.12
 
 (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, 2009. 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, 2009.  Options outstanding
    
    
    Options exercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Exercise
    
    
    Remaining
    
    
    Number
    
    
    Exerciseexercise prices
    
    Outstanding
    
    
    Price
    
    
    Term (yrs)
    
    
    Outstanding
    
    
    Price$4.50
    
    
    85,900
    
    
    $
    4.50
    
    
    
    8.8
    
    
    
    29,180
    
    
    $
    4.50$20.08
    
    
    49,412
    
    
    
    20.08
    
    
    
    7.2
    
    
    
    33,115
    
    
    
    20.08135,312
    
    
    $
    10.19
    
    
    
    8.2
    
    
    
    62,295
    
    
    $
    12.78
  WeightedAverageNumber
    
    
    Exerciseof shares
    
    
    PriceNon-vested options December 31, 2008
    
    
    133,561
    
    
    $
    8.95Granted
    
    
    
    
    
    
    Forfeited
    
    
    (25,249
    )
    
    
    14.19Vested
    
    
    (35,295
    )
    
    
    7.20Non-vested options December 31, 2009
    
    
    73,017
    
    
    $
    7.98
  115




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      2009
    
    
    2008
    
    
    2007Weighted
    
    
    Weighted
    
    
    (1)
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Remaining
    
    
    Intrinsic
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Term (yrs)
    
    
    Value
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceRestricted options at the beginning of year
    
    
    10,152
    
    
    $
    11.43
    
    
    
    
    
    
    
    
    
    
    
    18,682
    
    
    $
    11.43
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,682
    
    
    
    11.43Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (1,096
    )
    
    
    11.43
    
    
    
    
    
    
    
    
    
    
    
    (8,530
    )
    
    
    11.43
    
    
    
    
    
    
    
    Restricted options at the end of year
    
    
    9,056
    
    
    $
    11.43
    
    
    
    
    
    
    $
    
    
    
    
    10,152
    
    
    $
    11.43
    
    
    
    18,682
    
    
    $
    11.43Options exercisable at the end of the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    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
    )
  116




---



##### Table of Contents



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
    )
  For the year ended December 31, 2007Income
    
    
    Average shares
    
    
    Per share(In thousands, except for per share data)
    
    (numerator)
    
    
    (denominator)
    
    
    AmountBasic EPSIncome available to common shareholders
    
    $
    564
    
    
    
    13,433
    
    
    $
    0.04Effect of dilutive securities:Stock options
    
    
    
    
    
    
    14
    
    
    
    (0.00
    )Diluted EPSIncome available to common shareholders plus
assumed exercise of options
    
    $
    564
    
    
    
    13,447
    
    
    $
    0.04
    117




---



##### Table of Contents



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
    )
 118




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Year ended December 31, 2007TaxBefore tax
    
    
    expense
    
    
    Net of tax(In thousands)
    
    amount
    
    
    (benefit)
    
    
    amountUnrealized losses on investment securities:Unrealized holding gains arising during period
    
    $
    4,369
    
    
    $
    1,529
    
    
    $
    2,840Less reclassification adjustment for gains
realized in net income
    
    
    5,358
    
    
    
    1,875
    
    
    
    3,483Unrealized losses on investment securities
    
    
    (989
    )
    
    
    (346
    )
    
    
    (643
    )Unrecognized benefit obligation expense:Actuarial gain
    
    
    333
    
    
    
    117
    
    
    
    216Less reclassification adjustment for amortization
    
    
    172
    
    
    
    60
    
    
    
    112505
    
    
    
    177
    
    
    
    328Other comprehensive loss, net
    
    $
    (484
    )
    
    $
    (169
    )
    
    $
    (315
    )
  (In thousands)
    
    2009
    
    
    2008
    
    
    2007Unrecognized benefit obligation
    
    $
    (1,478
    )
    
    $
    (1,189
    )
    
    $
    (1,267
    )Unrealized losses on AFS investments
    
    
    (174
    )
    
    
    (24,917
    )
    
    
    (643
    )Adjustment to net periodic pension cost
    
    
    
    
    
    
    
    
    
    
    328Accumulated other comprehensive loss
    
    $
    (1,652
    )
    
    $
    (26,106
    )
    
    $
    (1,582
    )
      Level 1:
    
    Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
 119




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
 
  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. 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).
  Items Measured on a Recurring Basis
     120




---



##### Table of Contents



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
    
    $
    15,720
    
    
    $
    368,167
    
    
    $
    54,832
    
    
    $
    438,719
 Balances as of December 31, 2008
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsInvestment securities available-for-saleMortgage-backed securities-residential
    
    $
    
    
    
    $
    55,061
    
    
    $
    
    
    
    $
    55,061U.S. government agencies
    
    
    48,191
    
    
    
    
    
    
    
    
    
    
    
    48,191Preferred stocks
    
    
    
    
    
    
    
    
    
    
    2,297
    
    
    
    2,297Common stocks
    
    
    540
    
    
    
    
    
    
    
    12,167
    
    
    
    12,707Collateralized mortgage obligations:Issued or guaranteed by U.S. government agencies
    
    
    
    
    
    
    79,425
    
    
    
    
    
    
    
    79,425Non-agency
    
    
    
    
    
    
    37,490
    
    
    
    
    
    
    
    37,490Collateralized debt obligations
    
    
    
    
    
    
    
    
    
    
    26,160
    
    
    
    26,160Corporate bonds
    
    
    
    
    
    
    51,338
    
    
    
    
    
    
    
    51,338Trust preferred securities
    
    
    
    
    
    
    
    
    
    
    30,144
    
    
    
    30,144Other securities
    
    
    
    
    
    
    
    
    
    
    7,489
    
    
    
    7,489Total available for sale
    
    $
    48,731
    
    
    $
    223,314
    
    
    $
    78,257
    
    
    $
    350,302
 121




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   Investment SecuritiesAvailable-for-SaleDecember 31,(In thousands)
    
    2009
    
    
    2008AssetsBalance at the beginning of the period
    
    $
    78,257
    
    
    $
    68,969Total gains/(losses)  (realized/unrealized):Included in earnings
    
    
    (3,246
    )
    
    
    (5,578
    )Included in other comprehensive income (loss)
    
    
    11,611
    
    
    
    (19,529
    )Purchases, issuances, and settlements, net
    
    
    (8,971
    )
    
    
    (7,900
    )Transfers in and/or out of Level 3
    
    
    (22,819
    )
    
    
    42,295Balance at the end of the period
    
    $
    54,832
    
    
    $
    78,257
  Items Measured on a Nonrecurring Basis
   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 held for sale
    
    
    
    
    
    
    
    
    
    
    2,254
    
    
    
    2,254
 122




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Balances as of December 31, 2008
    
    Fair Value Measurements Using(In thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    56,468
    
    
    $
    56,468Other real estate owned
    
    
    
    
    
    
    
    
    
    
    10,346
    
    
    
    10,346Loans held for sale
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    267
   Cash and cash equivalents (carried at cost):
  Securities:
  Loans receivable (carried at cost):
  Impaired loans (generally carried at fair value):
  Restricted investment in bank stock (carried at cost):
  Accrued interest receivable and payable (carried at cost):
  123




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  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):
  As of December 31,2009
    
    
    2008Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimated(In thousands)
    
    amount
    
    
    fair value
    
    
    amount
    
    
    fair valueFinancial AssetsCash and cash equivalents
    
    $
    58,298
    
    
    $
    58,298
    
    
    $
    14,259
    
    
    $
    14,259Investment securities available for sale
    
    
    438,719
    
    
    
    438,719
    
    
    
    350,302
    
    
    
    350,302Loans, net
    
    
    656,533
    
    
    
    652,716
    
    
    
    671,814
    
    
    
    672,449Federal Home Loan Bank stock
    
    
    10,952
    
    
    
    10,952
    
    
    
    10,952
    
    
    
    10,952Accrued interest receivable
    
    
    14,942
    
    
    
    14,942
    
    
    
    13,580
    
    
    
    13,580Financial Liabilities:Demand deposits
    
    
    63,168
    
    
    
    63,168
    
    
    
    50,886
    
    
    
    50,886NOW and money markets
    
    
    214,141
    
    
    
    214,141
    
    
    
    193,869
    
    
    
    193,869Savings
    
    
    15,336
    
    
    
    15,336
    
    
    
    15,171
    
    
    
    15,171Time deposits
    
    
    589,110
    
    
    
    578,824
    
    
    
    500,142
    
    
    
    513,707Short-term borrowings
    
    
    114,500
    
    
    
    114,500
    
    
    
    22,000
    
    
    
    22,000Long-term borrowings
    
    
    139,675
    
    
    
    131,093
    
    
    
    253,681
    
    
    
    263,552Subordinated debt
    
    
    25,774
    
    
    
    12,617
    
    
    
    25,774
    
    
    
    25,774Obligations from equity investments
    
    
    3,652
    
    
    
    3,652
    
    
    
    12,350
    
    
    
    12,350Accrued interest payable
    
    
    6,150
    
    
    
    6,150
    
    
    
    6,102
    
    
    
    6,102
 124




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
    Community banking
   125




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  Tax lien operation
  Equity investments
   Other segments
  126




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
   (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2009
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Other
    
    
    ConsolidatedTotal assets
    
    $
    1,110,457
    
    
    $
    105,020
    
    
    $
    8,689
    
    
    $
    68,561
    
    
    $
    1,292,726Total deposits
    
    
    881,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881,755Interest income
    
    $
    50,589
    
    
    $
    10,424
    
    
    $
    
    
    
    $
    5,030
    
    
    $
    66,043Interest expense
    
    
    31,507
    
    
    
    4,462
    
    
    
    243
    
    
    
    1,227
    
    
    
    37,439Net interest income (expense)
    
    
    19,082
    
    
    
    5,962
    
    
    
    (243
    )
    
    
    3,803
    
    
    
    28,604Provision for loan losses
    
    
    18,730
    
    
    
    624
    
    
    
    
    
    
    
    1,251
    
    
    
    20,605Total other (loss) income
    
    
    (4,772
    )
    
    
    313
    
    
    
    2,343
    
    
    
    390
    
    
    
    (1,726
    )Total other expenses
    
    
    32,911
    
    
    
    2,870
    
    
    
    907
    
    
    
    969
    
    
    
    37,656Income tax expense (benefit)
    
    
    (1,414
    )
    
    
    1,081
    
    
    
    417
    
    
    
    390
    
    
    
    474Net (loss) income
    
    $
    (35,917
    )
    
    $
    1,701
    
    
    $
    775
    
    
    $
    1,583
    
    
    $
    (31,857
    )Noncontrolling interest
    
    
    (28
    )
    
    
    680
    
    
    
    596
    
    
    
    153
    
    
    
    1,402Net (loss) income attributable to Royal Bancshares
    
    $
    (35,889
    )
    
    $
    1,021
    
    
    $
    179
    
    
    $
    1,430
    
    
    $
    (33,259
    )
 (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2008
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Other
    
    
    ConsolidatedTotal assets
    
    $
    1,009,992
    
    
    $
    84,965
    
    
    $
    17,405
    
    
    $
    63,224
    
    
    $
    1,175,586Total deposits
    
    
    760,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760,068Interest income
    
    $
    59,001
    
    
    $
    8,289
    
    
    $
    
    
    
    $
    5,474
    
    
    $
    72,764Interest expense
    
    
    31,620
    
    
    
    3,499
    
    
    
    251
    
    
    
    2,739
    
    
    
    38,109Net interest income (expense)
    
    
    27,381
    
    
    
    4,790
    
    
    
    (251
    )
    
    
    2,735
    
    
    
    34,655Provision for loan losses
    
    
    17,424
    
    
    
    2,607
    
    
    
    
    
    
    
    1,810
    
    
    
    21,841Total other (loss) income
    
    
    (19,095
    )
    
    
    560
    
    
    
    2,177
    
    
    
    570
    
    
    
    (15,788
    )Total other expenses
    
    
    25,393
    
    
    
    2,656
    
    
    
    966
    
    
    
    2,018
    
    
    
    31,033Impairment -real estate owned via equity investment
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    1,500Income tax expense (benefit)
    
    
    3,070
    
    
    
    (55
    )
    
    
    (189
    )
    
    
    (183
    )
    
    
    2,643Net (loss) income
    
    $
    (37,601
    )
    
    $
    142
    
    
    $
    (351
    )
    
    $
    (340
    )
    
    $
    (38,150
    )Noncontrolling interest
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    (125
    )
    
    
    (68
    )Net (loss) income attributable to Royal Bancshares
    
    $
    (37,601
    )
    
    $
    85
    
    
    $
    (351
    )
    
    $
    (215
    )
    
    $
    (38,082
    )
 (In thousands)
    
    Community
    
    
    Tax Lien
    
    
    EquityDecember 31, 2007
    
    Banking
    
    
    Operation
    
    
    Investment
    
    
    Other
    
    
    ConsolidatedTotal assets
    
    $
    1,140,373
    
    
    $
    63,211
    
    
    $
    22,711
    
    
    $
    52,180
    
    
    $
    1,278,475Total deposits
    
    
    770,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    770,152Interest income
    
    $
    77,022
    
    
    $
    5,702
    
    
    $
    
    
    
    $
    4,012
    
    
    $
    86,736Interest expense
    
    
    42,649
    
    
    
    3,289
    
    
    
    623
    
    
    
    2,312
    
    
    
    48,873Net interest income (expense)
    
    
    34,373
    
    
    
    2,413
    
    
    
    (623
    )
    
    
    1,700
    
    
    
    37,863Provision for loan losses
    
    
    11,964
    
    
    
    150
    
    
    
    
    
    
    
    912
    
    
    
    13,026Total other income
    
    
    8,498
    
    
    
    1,069
    
    
    
    2,814
    
    
    
    507
    
    
    
    12,888Total other expenses
    
    
    21,283
    
    
    
    1,644
    
    
    
    1,590
    
    
    
    1,088
    
    
    
    25,605Impairment -real estate joint venture
    
    
    5,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,927Impairment -real estate owned via equity investment
    
    
    
    
    
    
    
    
    
    
    8,500
    
    
    
    
    
    
    
    8,500Income tax expense (benefit)
    
    
    60
    
    
    
    536
    
    
    
    (2,236
    )
    
    
    72
    
    
    
    (1,568
    )Net income (loss)
    
    $
    3,637
    
    
    $
    1,152
    
    
    $
    (5,663
    )
    
    $
    135
    
    
    $
    (739
    )Noncontrolling interest
    
    
    
    
    
    
    173
    
    
    
    (1,510
    )
    
    
    34
    
    
    
    (1,303
    )Net income (loss) attributable to Royal Bancshares
    
    $
    3,637
    
    
    $
    979
    
    
    $
    (4,153
    )
    
    $
    101
    
    
    $
    564
 127




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
      CONDENSED BALANCE SHEETS
 As of December 31,(In thousands)
    
    2009
    
    
    2008AssetsCash
    
    $
    2,783
    
    
    $
    3,028Investment in non-bank subsidiaries
    
    
    30,722
    
    
    
    37,336Investment in Royal Bank
    
    
    75,865
    
    
    
    45,893Investment in Royal Asian
    
    
    13,036
    
    
    
    13,798Loans, net
    
    
    3,750
    
    
    
    4,559Other assets
    
    
    774
    
    
    
    847Total assets
    
    $
    126,930
    
    
    $
    105,461Subordinated debentures
    
    $
    25,774
    
    
    $
    25,774Stockholders equity
    
    
    101,156
    
    
    
    79,687Total liabilities and stockholders equity
    
    $
    126,930
    
    
    $
    105,461
 CONDENSED STATEMENTS OF OPERATIONS
 For the years ended December 31,(In thousands)
    
    2009
    
    
    2008
    
    
    2007IncomeDividends from subsidiary banks
    
    $
    
    
    
    $
    4,005
    
    
    $
    15,474Other income
    
    
    51
    
    
    
    222
    
    
    
    98Total Income
    
    
    51
    
    
    
    4,227
    
    
    
    15,572ExpensesOther expenses
    
    
    880
    
    
    
    1,172
    
    
    
    220Provision for loan losses
    
    
    809
    
    
    
    701
    
    
    
    Interest on subordinated debentures
    
    
    1,136
    
    
    
    1,436
    
    
    
    1,736Total Expenses
    
    
    2,825
    
    
    
    3,309
    
    
    
    1,956Income before income taxes and equity in undistributed
net loss
    
    
    (2,774
    )
    
    
    918
    
    
    
    13,616Income tax expense (benefit)
    
    
    109
    
    
    
    (578
    )
    
    
    (43
    )Equity in undistributed net losses
    
    
    (30,376
    )
    
    
    (39,578
    )
    
    
    (13,095
    )Net (loss) income
    
    $
    (33,259
    )
    
    $
    (38,082
    )
    
    $
    564
 128




---



##### Table of Contents



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)
    
    2009
    
    
    2008
    
    
    2007Cash flows from operating activitiesNet (loss) income
    
    $
    (33,259
    )
    
    $
    (38,082
    )
    
    $
    564Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Undistributed losses from subsidiaries
    
    
    31,461
    
    
    
    41,014
    
    
    
    14,831Provision for loan losses
    
    
    809
    
    
    
    701
    
    
    
    Non-cash income tax expense (benefit)
    
    
    109
    
    
    
    (578
    )
    
    
    (43
    )Net cash (used in) provided by operating activities
    
    
    (880
    )
    
    
    3,055
    
    
    
    15,352Cash flows from investing activitiesInvestment in Royal Bank
    
    
    (39,907
    )
    
    
    
    
    
    
    Dividend proceeds from Royal Investments of Delaware, Inc.
    
    
    10,000
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (29,907
    )
    
    
    
    
    
    
    Cash flows from financing activities:Loan payoffs (fundings)
    
    
    
    
    
    
    1,229
    
    
    
    (590
    )Cash dividends paid
    
    
    (359
    )
    
    
    (4,005
    )
    
    
    (15,473
    )Issuance of common stock under stock option plans
    
    
    
    
    
    
    174
    
    
    
    334Issuance of preferred stock
    
    
    30,407
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (946
    )
    
    
    (3,760
    )Income tax benefit on stock options
    
    
    
    
    
    
    
    
    
    
    114Other, net
    
    
    494
    
    
    
    (700
    )
    
    
    312Net cash provided by (used in) financing activities
    
    
    30,542
    
    
    
    (4,248
    )
    
    
    (19,063
    )Net decrease in cash and cash equivalents
    
    
    (245
    )
    
    
    (1,193
    )
    
    
    (3,711
    )Cash and cash equivalents at beginning of period
    
    
    3,028
    
    
    
    4,221
    
    
    
    7,932Cash and cash equivalents at end of period
    
    $
    2,783
    
    
    $
    3,028
    
    
    $
    4,221
 129




---



##### Table of Contents



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 income (loss) after provision
    
    
    281
    
    
    
    3,513
    
    
    
    (67
    )
    
    
    4,272Other income (loss)
    
    
    2,556
    
    
    
    2,705
    
    
    
    (3,404
    )
    
    
    (3,583
    )Other expenses
    
    
    12,282
    
    
    
    9,829
    
    
    
    8,319
    
    
    
    7,226Loss before income tax
    
    
    (9,445
    )
    
    
    (3,611
    )
    
    
    (11,790
    )
    
    
    (6,537
    )Net loss
    
    $
    (9,445
    )
    
    $
    (4,085
    )
    
    $
    (11,790
    )
    
    $
    (6,537
    )Less net income attributable to noncontrolling interest
    
    
    641
    
    
    
    281
    
    
    
    264
    
    
    
    216Net loss attributable to Royal Bancshares
of Pennsylavania, Inc.
    
    $
    (10,086
    )
    
    $
    (4,366
    )
    
    $
    (12,054
    )
    
    $
    (6,753
    )Net loss available to common shareholders
    
    $
    (10,573
    )
    
    $
    (4,852
    )
    
    $
    (12,538
    )
    
    $
    (6,968
    )Net loss per common shareBasic
    
    $
    (0.79
    )
    
    $
    (0.37
    )
    
    $
    (0.95
    )
    
    $
    (0.53
    )Diluted
    
    $
    (0.79
    )
    
    $
    (0.37
    )
    
    $
    (0.95
    )
    
    $
    (0.53
    )
  130




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  For the year ended December 31, 2008Fourth
    
    
    Third
    
    
    Second
    
    
    First(In thousands, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterInterest income
    
    $
    17,358
    
    
    $
    17,632
    
    
    $
    17,702
    
    
    $
    20,072Net interest income
    
    
    7,391
    
    
    
    8,115
    
    
    
    9,250
    
    
    
    9,899Provision for loan and lease losses
    
    
    8,754
    
    
    
    5,275
    
    
    
    4,531
    
    
    
    3,281Net interest (loss) income after provision
    
    
    (1,363
    )
    
    
    2,840
    
    
    
    4,719
    
    
    
    6,618Other (loss) income
    
    
    (5,510
    )
    
    
    (14,022
    )
    
    
    2,452
    
    
    
    1,292Other expenses
    
    
    11,417
    
    
    
    7,471
    
    
    
    7,041
    
    
    
    6,604(Loss) income before income tax
    
    
    (18,293
    )
    
    
    (18,653
    )
    
    
    130
    
    
    
    1,309Net (loss) income
    
    $
    (27,835
    )
    
    $
    (11,820
    )
    
    $
    315
    
    
    $
    1,190Less net (loss) income attributable to noncontrolling interest
    
    
    (570
    )
    
    
    192
    
    
    
    163
    
    
    
    147Net (loss) income attributable to Royal Bancshares
of Pennsylavania, Inc.
    
    $
    (27,265
    )
    
    $
    (12,012
    )
    
    $
    152
    
    
    $
    1,043Net (loss) income available to common shareholders
    
    $
    (27,265
    )
    
    $
    (12,012
    )
    
    $
    152
    
    
    $
    1,043Net (loss) income per common shareBasic
    
    $
    (2.05
    )
    
    $
    (0.90
    )
    
    $
    0.01
    
    
    $
    0.08Diluted
    
    $
    (2.05
    )
    
    $
    (0.90
    )
    
    $
    0.01
    
    
    $
    0.08
    
    
    the Companys Board of Directors will take appropriate steps to fully utilize the
Companys financial and managerial resources to serve as a source of strength to its
subsidiary banks, including taking steps to
ensure that Royal Bank complies with the Orders previously entered into with the FDIC and
the Department on July 15, 2009;
    
    the Companys Board of Directors will, within 60 days of the Federal Reserve Agreement,
submit to the Reserve Bank a written plan to strengthen board oversight of the management
and operations of the consolidated operation;
    
    the Company will not declare or pay any dividends without the prior written approval of
the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of
the Board of Governors of the Federal Reserve System;
    
    the Company and its non-bank subsidiaries will not make any distributions of interest,
principal, or other sums on subordinated debentures or trust preferred securities without
the prior approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of
the Board of Governors of the Federal Reserve System;
    
    the Company and its nonbank subsidiaries will not, directly or indirectly, incur,
increase, or guarantee any debt without the prior written approval of the Reserve Bank;
    
    the Company will not, directly or indirectly, purchase or redeem any shares of its stock
without the prior written approval of the Reserve Bank;
 131




---



##### Table of Contents



ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
  
    
    the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve
Bank an acceptable written capital plan to maintain sufficient capital at the Company on a
consolidated basis, which plan will at a minimum address: regulatory requirements for the
Company and the Banks, the adequacy of the Banks capital taking into account the volume of
classified credits, the allowance for loan and lease losses, current and projected asset
growth, and projected retained earnings; the source and timing of additional funds
necessary to fulfill the consolidated organizations and the Banks future capital
requirements; supervisory requests for additional capital at the Banks or the requirements
of any supervisory action imposed on the Banks by federal or state regulators; and
applicable legal requirements that the Company serve as a source of strength to the Banks;
    
    the Company will, within 60 days of the Federal Reserve Agreement, submit to the Reserve
Bank cash flow projections for 2010 showing planned sources and uses of cash for debt
service, operating expenses, and other purposes, and will submit similar cash flow
projections for each subsequent calendar year at least one month prior to the beginning of
such year;
    
    the Company will comply with applicable legal notice provisions in advance of
appointing any new director or senior executive officer or changing the responsibilities of
any senior executive officer such that the officer would assume a different senior
executive officer position, and comply with restrictions on indemnification and severance
payments imposed by the Federal Deposit Insurance Act; and
    
    the Companys Board of Directors will, within 30 days after the end of each quarter,
submit progress reports to the Reserve Bank detailing the form and manner of all actions
taken to secure compliance with the Federal Reserve Agreement and the results thereof,
together with a parent company-level balance sheet, income statement, and, as applicable,
report of changes in shareholders equity.
  132




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
  ITEM 9A(T). CONTROLS AND PROCEDURES
  Changes in Internal Control over Financial Reporting
   Managements Report on Internal Control Over Financial Reporting
     By:
    
    /s/ Robert R. Tabas
    
    
    
    By:
    
    /s/ Robert A. KuehlRobert R. Tabas
    
    
    
    
    
    Robert A. KuehlPrincipal Executive Officer
    
    
    
    
    
    Principal Financial Officer and 
Principal Accounting OfficerMarch 29, 2010
 133




---



##### Table of Contents



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
  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 in firstOutside Director Stock Option Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    column)Equity compensation plan approved by security holders
    
    
    90,197
    
    
    $
    19.15
    
    
    
    Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    90,197
    
    
    $
    19.15
    
    
    
    
 134




---



##### Table of Contents



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 in firstEmployee Stock Option Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    column)Equity compensation plan approved by security holders
    
    
    401,626
    
    
    $
    20.09
    
    
    
    Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    401,626
    
    
    $
    20.09
    
    
    
    
 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 in firstLong Term Incentive Plan
    
    warrants and rights
    
    
    warrants and rights
    
    
    column)Equity compensation plan approved by security holders
    
    
    144,368
    
    
    $
    10.27
    
    
    
    808,928Equity compensation plan not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    144,368
    
    
    $
    10.27
    
    
    
    808,928
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  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 FirmConsolidated 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.
 135




---



##### Table of Contents



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.)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
    
    Transition Agreement dated October 10, 2008 between Royal Bancshares of
Pennsylvania, Inc. (Corporation), and Joseph P. Campbell. (Incorporated by reference
to Exhibit 10.1 to Registrants current Report on Form 8-K as filed with the Commission
on October 16, 2008.)10.5
    
    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.)*10.6
    
    Employment Agreement dated February 22, 2007 by and among Royal Bancshares of
Pennsylvania, Inc. (Corporation), Royal Bank America (Bank), and Murray Stempel, III,
 136




---



##### Table of Contents



Executive Vice President and Chief Lending Officer of the Corporation and the Bank.
(Incorporated by reference to Exhibit 10.3 to Registrants Quarterly Report on Form
10-Q dated March 31, 2007, as filed with the Commission on May 15, 2007.)*10.7
    
    Employment Agreement dated February 23, 2007 by and among Royal Bancshares of
Pennsylvania, Inc. (Corporation), Royal Bank America (Bank), and Robert R. Tabas,
Executive Vice President of the Corporation and the Bank. (Incorporated by reference
to Exhibit 10.5 to Registrants Quarterly Report on Form 10-Q dated March 31, 2007, as
filed with the Commission on May 15, 2007.)*10.8
    
    Employment agreement between Royal Bank America and Edward Shin entered into on
April 23, 2004. (Incorporated by reference to Exhibit 10.5 to Registrants Quarterly
Report on Form 10-Q filed with the Commission on November 9, 2004.)*10.9
    
    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).*10.10
    
    Amendment to Employment Agreement, dated February 18, 2009, between Royal
Bancshares of Pennsylvania, Inc., Royal Bank America, and James J. McSwiggan, Jr.
(Incorporated by reference to exhibit 10.2 to Registrants Current Report on Form 8-K
filed with the Commission on February 24, 2009.)*10.11
    
    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.)10.12
    
    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.)10.13
    
    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.*10.14
    
    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.)10.15
    
    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.)10.16
    
    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.)10.17
    
    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.)10.18
    
    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.)10.19
    
    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
(File No 000-26366) filed with the Commission on July 16, 2009).
 137




---



##### Table of Contents



10.20
    
    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).10.21
    
    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).10.22
    
    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).11.
    
    Statement re: Computation of Earnings Per Share. Included at Item 8, hereof,
Note 17, Earnings Per Common Share.12.
    
    Statement re: Computation of Ratios. (Included at Item 8 here of, Note 14,
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. 138




---



##### Table of Contents



SIGNATURES
  ROYAL BANCSHARES OF PENNSYLVANIA, INC.
 By:
    
    /s/ Robert R. Tabas
    
    
    
    By:
    
    /s/ Robert A. KuehlRobert R. Tabas
    
    
    
    
    
    Robert A. KuehlChief Executive Officer
    
    
    
    
    
    Chief Financial Officer(Principal Executive Officer)
    
    
    
    
    
    (Principal Financial Officerand Principal Accounting Officer)March 29, 2010
    
    
    
    
    
    March 29, 2010
  SIGNATURES
 By:
    
    /s/ Robert R. Tabas
    
    
    
    By:
    
    /s/ James J. McSwigganRobert R. Tabas
    
    
    
    
    
    James J. McSwigganChief Executive Officer/ Chairman of the Board
    
    
    
    
    
    President/Chief Operating Officer/DirectorMarch 29, 2010
    
    
    
    
    
    March 29, 2010By:
    
    /s/ Edward F. Bradley
    
    
    
    By:
    
    /s/ Samuel GoldsteinEdward F. Bradley
    
    
    
    
    
    Samuel GoldsteinDirector
    
    
    
    
    
    DirectorMarch 29, 2010
    
    
    
    
    
    March 29, 2010By:
    
    /s/ Anthony Micale
    
    
    
    By:
    
    /s/ Gregory ReardonAnthony Micale
    
    
    
    
    
    Gregory ReardonDirector
    
    
    
    
    
    DirectorMarch 29, 2010
    
    
    
    
    
    March 29, 2010By:
    
    /s/ Linda Tabas Stempel
    
    
    
    By:
    
    /s/ Murray Stempel, IIILinda Tabas Stempel
    
    
    
    
    
    Murray Stempel, IIIDirector
    
    
    
    
    
    Vice Chairman of the BoardMarch 29, 2010
    
    
    
    
    
    March 29, 2010By:
    
    /s/ Edward B. Tepper
    
    
    
    By:
    
    /s/ Howard WurzakEdward B. Tepper
    
    
    
    
    
    Howard WurzakDirector
    
    
    
    
    
    DirectorMarch 29, 2010
    
    
    
    
    
    March 29, 2010
 139