UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended: ~~September~~March 3031, ~~2016~~2017


☐	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.

(Exact name of the registrant as specified in its charter)


PENNSYLVANIA		23-2812193
(State or other jurisdiction of incorporation or organization)		(IRS Employer identification No.)

One Bala Plaza, Suite 522, 231 St. Asaph’s Road, Bala Cynwyd, PA 19004

(Address of principal Executive Offices)

(610) 668-4700

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (do not check if a smaller reporting company) Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class A Common Stock		Outstanding at ~~October~~April 3130, ~~2016~~2017
$2.00 par value		27,~~880~~913,024

Class B Common Stock		Outstanding at ~~October~~April 3130, ~~2016~~2017
$0.10 par value		1,924,629

Table of Contents

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL STATEMENTS
Item 1	Financial Statements
	Consolidated Balance Sheets-unaudited	2
	Consolidated Statements of Income-unaudited	3
	Statements of Consolidated Comprehensive Income-unaudited	4
	Consolidated Statements of Changes in Shareholders’ Equity-unaudited	5
	Consolidated Statements of Cash Flows-unaudited	7
	Notes to Consolidated Financial Statement (unaudited)	9
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4744
Item 3	Quantitative and Qualitative Disclosures about Market Risk	7869
Item 4	Controls and Procedures	7869
PART II	OTHER INFORMATION	7869
Item 1	Legal Proceedings	7869
Item 1A	Risk Factors	7970
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7970
Item 3	Defaults Upon Senior Securities	7970
Item 4	Mine Safety Disclosures	7970
Item 5	Other Information	7970
Item 6	Exhibits	7970
	SIGNATURES	8071

Table of Contents

PART I — FINANCIAL STATEMENTS

Item 1.Financial Statements

ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets-unaudited

	September 30,		December 31,
	March 31,		December 31,
	2016		2015
	2017		2016
ASSETS	(Dollars in thousands, except share data)
Cash and due from banks	$	10,~~753~~187	$	1013,~~394~~146
Interest-earning deposits		175,~~638~~087		158,~~026~~084
Total cash and cash equivalents		2815,~~391~~274		2521,~~420~~230
Investment securities available for sale (“AFS”), at fair value		~~168~~163,~~321~~737		~~224~~169,~~067~~854
Other investment, at cost		2,250		2,250
Federal Home Loan Bank (“FHLB”) stock		3,~~018~~145		23,~~545~~216
Loans and leases (“LHFI”)		575,818		499,103
Loans and leases held for sale (“LHFS”), at lower of cost or fair value		205		—
Less allowance for loan and lease losses		10,254		9,689
Loans and leases (“LHFI”)		618,784		602,009
Net loans and leases		565,564		489,414
Less allowance for loan and lease losses		10,558		10,420
Company owned life insurance		20,458		19,899
Net loans and leases		608,226		591,589
Accrued interest receivable		3,770		4,149
Company owned life insurance		21,069		20,781
Other real estate owned (“OREO”), net		7,236		7,435
Accrued interest receivable		3,810		3,968
Premises and equipment, net		4,714		3,959
Other real estate owned (“OREO”), net		2,131		3,536
Other assets		7,646		9,145
Premises and equipment, net		5,026		5,398
Total assets	$	811,368	$	788,283
Other assets		11,829		10,663
Total assets	$	836,702	$	832,485
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits
Non-interest bearing	$	9098,~~709~~391	$	8397,~~529~~859
Interest-bearing		~~501~~546,~~530~~034		~~494~~531,~~363~~687
Total deposits		~~592~~644,~~239~~425		~~577~~629,~~892~~546
Short-term borrowings		1521,000		919,000
Long-term borrowings		8570,000		8185,~~970~~000
Subordinated debentures		25,774		25,774
Accrued interest payable		21,~~240~~273		~~709~~711
Other liabilities		2119,~~313~~403		20,~~640~~181
Total liabilities		~~741~~781,~~566~~875		~~715~~780,~~985~~212
Shareholders’ equity
Royal Bancshares of Pennsylvania, Inc. equity:
Preferred stock, Series A perpetual, $1,000 liquidation value per share, 500,000 shares authorized, 12,205 and 18,856 shares outstanding at September 30, 2016 and December 31, 2015		12,205		18,856
Class A common stock, par value $2 per share, authorized 40,000,000 shares; issued 28,244,055 and 28,242,055 at March 31, 2017 and December 31, 2016, respectively,and outstanding 27,913,024 and 27,887,024 at March 31, 2017 and December 31, 2016, respectively		56,488		56,484
Class A common stock, par value $2 per share, authorized 40,000,000 shares; issued and outstanding, 28,228,389 and 28,204,182 at September 30, 2016 and December 31, 2015 respectively		56,457		56,408
Class B common stock, par value $ 0.10 per share, authorized 3,000,000 shares; issued and outstanding, 1,924,629 at March 31, 2017 and December 31, 2016, respectively		193		193
Class B common stock, par value $ 0.10 per share, authorized 3,000,000 shares; issued and outstanding, 1,924,629 and 1,928,289 at September 30, 2016 and December 31, 2015 respectively		192		193
Additional paid in capital		99,444		99,667
Additional paid in capital		106,975		110,494
Accumulated deficit		(92,700)		(94,512)
Accumulated deficit		(98,634)		(104,879)
Accumulated other comprehensive loss		(4,529)		(5,219)
Accumulated other comprehensive loss		(2,916)		(3,919)
Treasury stock - at cost, shares of Class A, 331,031 and 355,031 at March 31, 2017 and December 31, 2016, respectively		(4,629)		(4,965)
Treasury stock - at cost, shares of Class A, 356,072 and 375,333 at September 30, 2016 and December 31, 2015 respectively		(4,979)		(5,249)
Total Royal Bancshares of Pennsylvania, Inc. shareholders’ equity		54,267		51,648
Total Royal Bancshares of Pennsylvania, Inc. shareholders’ equity		69,300		71,904
Noncontrolling interest		560		625
Noncontrolling interest		502		394
Total equity		54,827		52,273
Total equity		69,802		72,298
Total liabilities and shareholders’ equity	$	836,702	$	832,485
Total liabilities and shareholders’ equity	$	811,368	$	788,283

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Income-unaudited

	For the three months ended				~~For the nine months ended~~
	September 30,				September 30,
	March 31,
(In thousands, except per share data)	~~2016~~2017		~~2015~~2016		~~2016~~		~~2015~~
Interest Income
Loans and leases, including fees	$	7,~~346~~916	$	6,~~456~~864	$	~~21,168~~	$	~~17,878~~
Investment securities		1,~~099~~026		1,334		~~3,639~~		~~4,250~~
Deposits in banks		1516		816		48		21
Total Interest Income		8,~~460~~958		78,~~798~~214		~~24,855~~		~~22,149~~
Interest Expense
Deposits		1,~~086~~117		~~968~~1,040		~~3,193~~		~~2,796~~
Short-term borrowings		5366		512		85		5
Long-term borrowings		~~763~~758		~~663~~671		~~2,111~~		~~1,997~~
Total Interest Expense		1,~~902~~941		1,~~636~~723		~~5,389~~		~~4,798~~
Net Interest Income		67,~~558~~017		6,~~162~~491		~~19,466~~		~~17,351~~
Provision (credit) for loan and lease losses		578		(216)		987		(1,382)
Provision for loan and lease losses		297		212
Net Interest Income after Provision (Credit) for Loan and Lease Losses		5,980		6,378		18,479		18,733
Net Interest Income after Provision for Loan and Lease Losses		6,720		6,279
Non-interest Income
Service charges and fees		~~396~~363		~~298~~316		~~989~~		~~832~~
Net gains on sales of loans and leases		71		—		71		—
Net losses on sales of loans and leases		(50)		—
Income from company owned life insurance		~~192~~112		~~124~~467		~~847~~		~~372~~
Net gains on the sale of AFS investment securities		280		80		1,382		652
Gains on sales of premises and equipment		73		—
Total other-than-temporary impairment on AFS investment securities		(35)		—		(181)		—
Net gains on the sale of AFS investment securities		—		367
Other income		~~285~~13		7557		~~361~~		~~205~~
Total Non-interest Income		~~1,189~~511		~~577~~1,207		~~3,469~~		~~2,061~~
Non-interest Expense
Employee salaries and benefits		2,~~710~~780		2,~~655~~718		~~8,036~~		~~7,825~~
Loss contingency		(200)		—		(200)		—
Occupancy and equipment		767		724
Occupancy and equipment		705		736		2,093		2,212
Professional and legal fees		385		392
Professional and legal fees		415		380		1,321		1,314
Net OREO (income) expenses		(189)		219
Net OREO expenses		256		263		469		371
Pennsylvania shares tax expense		169		113
Pennsylvania shares tax expense		154		113		393		338
FDIC and state assessments		222		173
FDIC and state assessments		111		158		455		533
Communications and data processing		247		247
Communications and data processing		257		214		748		607
Provision (credit) for credit losses on off-balance sheet credit exposures		8		(150)
(Credit) provision for credit losses on off-balance sheet credit exposures		(65)		(68)		(236)		282
Directors’ fees		216		141
Directors’ fees		95		114		335		349
Insurance		100		90
Marketing and advertising		65		38		209		185
Merger expenses		243		—
Insurance		87		78		270		244
Other operating expenses		428		554
Loan collection expenses		21		138		128		273
Total Non-interest Expense		5,376		5,221
Other operating expenses		390		423		1,247		1,175
Income Before Tax Expense		1,855		2,265
Total Non-interest Expense		5,001		5,242		15,268		15,708
Income Tax Expense		—		—
Income Before Tax Expense		2,168		1,713		6,680		5,086
Net Income	$	1,855	$	2,265
Income Tax Expense		25		—		85		—
Less Net Income Attributable to Noncontrolling Interest	$	43	$	76
Net Income	$	2,143	$	1,713	$	6,595	$	5,086
Net Income Attributable to Royal Bancshares of Pennsylvania, Inc.	$	1,812	$	2,189
Less Net Income Attributable to Noncontrolling Interest	$	113	$	179	$	342	$	500
Less Preferred Stock Series A Accumulated Dividend and Accretion	$	—	$	334
Net Income Attributable to Royal Bancshares of Pennsylvania, Inc.	$	2,030	$	1,534	$	6,253	$	4,586
Net Income Available to Common Shareholders	$	1,812	$	1,855
Less Preferred Stock Series A Accumulated Dividend and Accretion	$	342	$	434	$	1,014	$	1,287
Per Common Share Data:
Net Income Available to Common Shareholders	$	1,688	$	1,100	$	5,239	$	3,299
Net Income — Basic and Diluted	$	0.06	$	0.06
Per Common Share Data:
Net Income — Basic and Diluted	$	0.06	$	0.04	$	0.17	$	0.11

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Statements of Consolidated Comprehensive Income-unaudited

	For the three months ended				~~For the nine months ended~~
	September 30,				September 30,
	March 31,
(In thousands)	~~2016~~2017		~~2015~~2016		~~2016~~		~~2015~~
Net income	$	21,~~143~~855	$	12,~~713~~265	$	~~6,595~~	$	~~5,086~~
Other comprehensive income, net of tax
Unrealized (losses) gains on investment securities:
Unrealized gains on investment securities:
Unrealized holding (losses) gains arising during period, net of tax		(877)		1,190		2,342		1,320
Unrealized holding gains arising during period, net of tax (1)		632		2,333
Less adjustment for impaired investments, net of tax (1)		(23)		—		(119)		—
Less reclassification adjustment for gains realized in net income, net of tax (2)		—		242
Less reclassification adjustment for gains realized in net income, net of tax (2)		185		52		912		430
Unrealized gains on investment securities		632		2,091
Unrealized (losses) gains on investment securities		(1,039)		1,138		1,549		890
Unrecognized benefit obligation:
Unrecognized benefit obligation:
Reclassification adjustment for amortization (3)		13		(103)
Reclassification adjustment for amortization (3)		(78)		(17)		(232)		(51)
Unrecognized benefit obligation		13		(103)
Unrecognized benefit obligation expense		(78)		(17)		(232)		(51)
Unrealized gain (loss) on derivative instrument, net of tax (4)		45		(322)
Unrealized gain (loss) on derivative instrument, net of tax		131		(282)		(314)		(467)
Other comprehensive income		690		1,666
Other comprehensive (loss) income		(986)		839		1,003		372
Comprehensive income		2,545		3,931
Comprehensive income		1,157		2,552		7,598		5,458
Less net income attributable to noncontrolling interest		43		76
Less net income attributable to noncontrolling interest		113		179		342		500
Comprehensive income attributable to Royal Bancshares of Pennsylvania, Inc.	$	2,502	$	3,855
Comprehensive income attributable to Royal Bancshares of Pennsylvania, Inc.	$	1,044	$	2,373	$	7,256	$	4,958

(1) ~~Gross~~Net ~~amounts are included in total other-than-temporary impairment on AFS investment securities on the Consolidated Statements~~ of ~~Income in total non-interest income; amounts in the above table are net of~~ $12326 thousand and $621.2 ~~thousand~~million in ~~taxes~~tax expense for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016.~~2017 ~~See~~and ~~Note~~2016, 15respectively. ~~Comprehensive Income.~~

(2) Gross amounts are included in net gains on the sale of AFS investment securities on the Consolidated Statements of Income in total non-interest income; amounts in the above table are net of $95125 thousand ~~and $470 thousand~~ in income taxes for the three ~~and nine~~ months ended ~~September~~March 3031, 2016 ~~and $28 thousand and $222 thousand for the three and nine months ended September 30, 2015~~. See Note 1514. Comprehensive Income.

(3)

Gross amounts are included in salaries and benefits on the Consolidated Statements of Income in non-interest expense.

(4)

Net of $23 thousand in tax expense and $166 thousand tax benefit for the three months ended March 31, 2017 and 2016, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

~~Nine~~Three months ended ~~September~~ 30March 31, ~~2016~~2017-unaudited

													Accumulated
	Preferred								Additional				other						Total
									Additional				other						Total
	stock		Class A common stock			Class B common stock			paid in		Accumulated		comprehensive		Treasury		Noncontrolling		Shareholders’
			Class A common stock			Class B common stock			paid in		Accumulated		comprehensive		Treasury		Noncontrolling		Shareholders’
(In thousands, except share data)	~~Series A~~		Shares	Amount		Shares	Amount		capital		deficit		loss		stock		Interest		Equity
Balance January 1, 2016	$	18,856	28,204	$	56,408	1,928	$	193	$	110,494	$	(104,879)	$	(3,919)	$	(5,249)	$	394	$	72,298
Balance January 1, 2017			28,242	$	56,484	1,925	$	193	$	99,667	$	(94,512)	$	(5,219)	$	(4,965)	$	625	$	52,273
Net income												61,~~253~~812						~~342~~43		61,~~595~~855
Other comprehensive income, net of reclassifications and taxes														~~1,003~~690						~~1,003~~690
Distributions to noncontrolling interests																		(~~234~~108)		(~~234~~108)
Common stock conversion from Class B to Class A			4		9	(3)		(1)				(8)								—
Treasury shares issued for compensation (24,000 shares)										(239)						336				97
Repurchase of 6,651 shares of preferred stock		(6,651)								(3,341)										(9,992)
Stock options exercised (2,000 shares)			2		4					(1)										3
Treasury shares issued for compensation (19,261 shares)										(231)						270				39
Stock option expense										17										17
Stock options exercised (20,000 shares)			20		40					(11)										29
Balance March 31, 2017			28,244	$	56,488	1,925	$	193	$	99,444	$	(92,700)	$	(4,529)	$	(4,629)	$	560	$	54,827
Stock option expense										64										64
Balance September 30, 2016	$	12,205	28,228	$	56,457	1,925	$	192	$	106,975	$	(98,634)	$	(2,916)	$	(4,979)	$	502	$	69,802

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

~~Nine~~Three months ended ~~September~~ 30March 31, ~~2015~~ 2016-unaudited

													Accumulated
	Preferred								Additional				other						Total
	stock		Class A common stock			Class B common stock			paid in		Accumulated		comprehensive		Treasury		Noncontrolling		Shareholders’
(In thousands, except share data)	Series A		Shares	Amount		Shares	Amount		capital		deficit		loss		stock		Interest		Equity
Balance January 1, 2015	$	18,856	28,200	$	56,400	1,932	$	193	$	110,697	$	(115,864)	$	(2,492)	$	(5,571)	$	387	$	62,606
Balance January 1, 2016	$	18,856	28,204	$	56,408	1,928	$	193	$	110,494	$	(104,879)	$	(3,919)	$	(5,249)	$	394	$	72,298
Net income												42,~~586~~189						~~500~~76		52,~~086~~265
Other comprehensive loss, net of reclassifications and taxes														372						372
Other comprehensive income, net of reclassifications and taxes														1,666						1,666
Distributions to noncontrolling interests																		(~~411~~45)		(~~411~~45)
Treasury shares issued for compensation (16,382 shares)										(252)						288				36
Repurchase of 4,000 shares of preferred stock		(4,000)								(1,800)										(5,800)
Stock option expense										57										57
Treasury shares issued for compensation (15,836 shares)										(189)						222				33
Balance September 30, 2015	$	18,856	28,200	$	56,400	1,932	$	193	$	110,502	$	(111,278)	$	(2,120)	$	(5,283)	$	476	$	67,746
Stock options exercised (20,000 shares)			20		40					(11)										29
Stock option expense										21										21
Balance March 31, 2016	$	14,856	28,224	$	56,448	1,928	$	193	$	108,515	$	(102,690)	$	(2,253)	$	(5,027)	$	425	$	70,467

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows-unaudited

~~Nine~~Three months ended ~~September~~ 30March 31,

(In thousands)	~~2016~~2017		~~2015~~2016
Cash flows from operating activities:
Net income	$	61,~~595~~855	$	52,~~086~~265
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		~~394~~152		~~459~~132
Stock compensation expense		6417		5721
Provision (credit) for loan and lease losses		987		(1,382)
Provision for loan and lease losses		297		212
(Credit) provision for credit losses on off-balance sheet credit exposures		(236)		282
Provision (credit) for credit losses on off-balance sheet credit exposures		8		(150)
Impairment charge for OREO		~~143~~106		~~659~~58
Net amortization of premiums on AFS investment securities		~~1,123~~357		~~1,164~~348
Net accretion of net deferred fees on loans		(~~439~~161)		(~~471~~144)
Gains on sales of loans and leases		(71)		—
Net gains on sales of premises and equipment		(73)		—
Net gains on sales of OREO		(7)		(769)
Losses on sales of loans and leases		50		—
Net gains on sales of investment securities		(1,382)		(652)
Net (gains) losses on sales of OREO		(387)		18
Income from company owned life insurance		(847)		(372)
Net gains on sales of investment securities		—		(367)
Other-than-temporary impairment on AFS investment securities		181		—
Income from company owned life insurance		(112)		(467)
Changes in assets and liabilities:
Decrease in accrued interest receivable		379		934
Decrease (increase) in accrued interest receivable		158		(71)
Increase in other assets		(~~533~~1,434)		(~~225~~297)
Increase in accrued interest payable		~~1,531~~562		~~1,442~~529
Increase in other liabilities		909		497
(Decrease) increase in other liabilities		(786)		391
Net cash provided by operating activities		~~8,791~~609		62,~~709~~478
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns of AFS investment securities		477,~~659~~883		2817,~~084~~308
Proceeds from sales of AFS investment securities		~~36,427~~—		3310,~~653~~022
Purchase of AFS investment securities		(251,~~687~~165)		(411,~~134~~277)
(Purchase) redemption of Federal Home Loan Bank stock		(473)		77
Redemption of Federal Home Loan Bank stock		71		—
Proceeds from sales of loans and leases		~~2,036~~387		—
Net increase in loans		(7917,~~484~~459)		(5931,~~106~~967)
Additions to OREO		(~~243~~33)		(~~418~~91)
Proceeds from life insurance policies		748		—
Proceeds from the sales of premises and equipment		297		—
Purchase of premises and equipment		(~~1,149~~4)		(~~460~~155)
Proceeds from sales of OREO		1,~~127~~763		~~4,436~~461
Net cash used in investing activities		(19,039)		(34,868)
Payments for life insurance policies		(176)		(180)
Net cash used in investing activities		(8,436)		(5,879)

Statement is continued on the next page.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows-unaudited (continued)

~~Nine~~Three months ended ~~September~~ 30March 31,

	2016		2015
	2017		2016
Cash flows from financing activities:
Net (decrease) increase in demand and NOW accounts	$	(181,~~083~~476)	$	198,~~915~~684
Net increase in money market and savings accounts		213,~~779~~785		182,~~079~~873
Net increase (decrease) in certificates of deposit		1012,~~651~~570		(~~14,655~~118)
Net increase in short-term borrowings		62,000		~~9,000~~—
Repayments of long-term borrowings		(1115,~~970~~000)		(~~10,342~~113)
Proceeds from long-term borrowings		15,000		—
Distributions to noncontrolling interest		(108)		(45)
Distributions to noncontrolling interest		(234)		(411)
Issuance of treasury stock		97		33
Issuance of treasury stock		39		—
Repurchase of preferred stock		—		(5,800)
Repurchase of preferred stock		(9,992)		—
Proceeds from stock options exercised		3		29
Proceeds from stock options exercised		29		—
Net cash provided by financing activities		1,871		5,543
Net cash provided by financing activities		13,219		21,586
Net (decrease) increase in cash and cash equivalents		(5,956)		2,142
Net increase (decrease) in cash and cash equivalents		2,971		(6,573)
Cash and cash equivalents at the beginning of the period		21,230		25,420
Cash and cash equivalents at the beginning of the period		25,420		30,790
Cash and cash equivalents at the end of the period	$	15,274	$	27,562
Cash and cash equivalents at the end of the period	$	28,391	$	24,217
Supplemental Disclosure:
Income taxes paid	$	85	$	—
Interest paid	$	1,379	$	1,194
Interest paid	$	3,858	$	3,356
Transfers from loans to OREO	$	44	$	107
Transfers from loans to OREO	$	821	$	3,968
Transfers to LHFS	$	205	$	—
Transfers from OREO to loans	$	—	$	995

The accompanying notes are an integral part of these consolidated financial statements.

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ROYAL BANCSHARES OF PENNSYLVANIA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1.Summary of Significant Accounting Policies

Nature of Operations

Royal Bancshares of Pennsylvania, Inc. (“Royal Bancshares”, the “Company”, “We” or “Our”), through its wholly-owned subsidiary Royal Bank America (“Royal Bank”) offers a full range of banking services to individual and corporate customers primarily located in the Mid-Atlantic states. Royal Bank competes with other banking and financial institutions in certain markets, including financial institutions with resources substantially greater than its own. Commercial banks, savings banks, savings and loan associations, credit unions, and brokerage firms actively compete for savings and time deposits and for various types of loans. Such institutions, as well as consumer finance and insurance companies, may be considered competitors of Royal Bank with respect to one or more of the services it renders.

On January 30, 2017, the Company and Bryn Mawr Bank Corporation (“Bryn Mawr”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Bryn Mawr, with Bryn Mawr as the surviving corporation (the “Merger”). Immediately following the Merger, Royal Bank will merge with the Bryn Mawr Trust Company, the wholly owned subsidiary of Bryn Mawr. Upon completion of the Merger, holders of Class A common stock of the Company will receive 0.1025 shares of Bryn Mawr common stock, par value of $1.00 per share (the “Bryn Mawr common stock”) for each share of Class A common stock they hold, and holders of Class B common stock of the Company will receive 0.1179 shares of Bryn Mawr common stock for each share of Class B common stock they hold. The Merger, which is subject to a number of closing conditions including receipt of required regulatory approvals and approval by the Company’s shareholders, is expected to be completed in the third quarter of 2017.

Basis of Financial Presentation

The accompanying unaudited consolidated financial statements include the accounts of Royal Bancshares of Pennsylvania, Inc. and its wholly-owned subsidiaries, Royal Investments of Delaware, Inc., including Royal Investments of Delaware, Inc.’s wholly owned subsidiary, Royal Preferred, LLC, and Royal Bank, including Royal Bank’s subsidiaries, Royal Real Estate of Pennsylvania, Inc., Royal Investments America, LLC, RBA Property LLC, Narberth Property Acquisition LLC, Rio Marina LLC, and Royal Tax Lien Services, LLC (“RTL”). Royal Bank also has an 80% and 60% ownership interest in Crusader Servicing Corporation (“CSC”) and Royal Bank America Leasing, LP, respectively. The two Delaware trusts, Royal Bancshares Capital Trust I and Royal Bancshares Capital Trust II are not consolidated per requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation” (“ASC Topic 810”). These consolidated financial statements reflect the historical information of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Applications of the principles in our preparation of the consolidated financial statements in conformity with U.S. GAAP require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from those estimates. The interim financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016. The results of operations for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2016~~2017 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain items in the 2015 consolidated financial statements and accompanying notes have been reclassified to conform to the current year’s presentation format. There was no effect on net income for the periods presented herein as a result of the reclassification.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 14-09”), which establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts

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to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP. In August 2015, the FASB Issued ASU 2015-14 which deferred the effective date to December 31, 2017 and the initial application date (e.g. January 1, 2018.) We do not believe ASU 2014-09 will have a material effect on its financial statements. Reclassifications

InCertain ~~June~~items 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). The amendments in ~~ASU 2014-12 require that a performance target that affects vesting and that could be achieved after~~ the ~~requisite~~2016 ~~service~~consolidated ~~period~~financial bestatements treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and ~~should~~accompanying ~~represent~~notes ~~the~~have ~~compensation cost attributable to the period(s) for which the requisite service has already~~ been ~~rendered.~~reclassified If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to ~~vest~~conform ~~and should be adjusted~~ to ~~reflect those awards that ultimately vest. The requisite service period ends when~~ the ~~employee~~current ~~can~~year’s ~~cease~~presentation ~~rendering service and still be eligible to vest in the award if the performance target is achieved~~format. There ~~The~~was ~~amendments~~no ineffect ~~ASU~~on ~~2014-12~~net ~~are~~income ~~effective~~ for ~~annual~~the periods, ~~and~~presented ~~interim~~herein ~~periods~~as ~~within those annual periods, beginning after December 15, 2015. Early adoption was permitted. Entities may apply the amendments in this ASU either: (~~a) ~~prospectively~~result ~~to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as~~ of the ~~beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter~~reclassification. ~~The adoption of ASU 2014-12 did not have a significant impact on our consolidated financial statements.~~

InAccounting ~~January~~Policies ~~2016,~~Recently ~~the~~Adopted ~~FASB issued ASU 2016-01, “Financial Instruments – Overall (Topic 825-10): “Recognition~~ and ~~Measurement~~Pending ofAccounting Financial Assets and Financial Liabilities.” ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. ASU 2016-01 also clarifies that an entity should assess the need for a valuation allowance on a deferred tax asset related to unrealized losses of investments in debt instruments recognized in OCI in combination with the entity’s other deferred tax assets. Prior to this guidance, the alternative approach used in practice evaluated the need for a valuation allowance for a deferred tax asset related to unrealized losses on debt instruments recognized in other comprehensive income separately from other deferred tax assets. This alternative approach will no longer be acceptable. For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not believe ASU 2016-01 will have a material effect on our financial statements. Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which establishes a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available – full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is prohibited under U.S. GAAP. In August 2015, the FASB Issued ASU 2015-14 which deferred the effective date to December 15, 2017 and the initial application date (e.g. January 1, 2018.) The majority of our revenue is comprised of net interest income on financial assets and liabilities, which is explicitly excluded from the scope of ASU 2014-09. We continue to analyze this update and do not believe that ASU 2014-09 will have a material effect on our financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Topic 825-10): “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. ASU 2016-01 also clarifies that an entity should assess the need for a valuation allowance on a deferred tax asset related to unrealized losses of investments in debt instruments recognized in other comprehensive income in combination with the entity’s other deferred tax assets. Prior to this guidance, the alternative approach used in practice evaluated the need for a valuation allowance for a deferred tax asset related to unrealized losses on debt instruments recognized in other comprehensive income separately from other deferred tax assets. This alternative approach will no longer be acceptable. For public business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. As of December 31, 2016 we do not hold a material amount of equity investments for which fair value is accounted through other comprehensive income. Consequently, we continue to analyze ASU 2016-01 and do not believe that it will have a material effect on our financial statements.

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In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” (“ASU 2016-02”). From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessees. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Our leases are operating leases and ASU 2016-02 will require us to add them to our balance sheet. Our operating leases are predominantly related to real estate. We are currently evaluating ~~the~~other impacts ~~impact~~ of the pending adoption of the new standard on ~~its~~our consolidated financial statements.

In March 2016, ~~the~~ FASB issued Accounting Standards Update No. 2016-0509, “~~Derivatives~~Compensation ~~and~~- ~~Hedging~~Stock Compensation (Topic ~~815~~718): ~~Effect~~Improvements ofto ~~Derivative~~Employee ~~Contract~~Share-Based ~~Novations~~Payment ~~on Existing Hedge~~ Accounting ~~Relationships~~” (“ASU 2016-0509”). ~~The~~FASB ~~term~~issued ~~novation~~ASU ~~refers~~2016-09 toas ~~replacing~~part ~~one~~of ~~counterparty~~its initiative to areduce ~~derivative~~complexity ~~instrument~~in ~~with~~accounting ~~a new counterparty~~standards. ~~That~~The ~~change~~areas ~~occurs~~ for asimplification variety of reasons, including financial institution mergers, intercompany transactions, an entity exiting a particular derivatives business or relationship, an entity managing against internal credit limits, or in ~~response~~this ~~to laws or regulatory requirements. The amendments in~~ ASU 2016-0509 ~~clarify~~involve ~~that~~several aaspects ~~change~~of in the ~~counterparty~~accounting tofor aemployee ~~derivative~~share-based ~~instrument~~payment ~~that~~transactions, ~~has~~including ~~been~~the ~~designated~~income astax ~~the~~consequences, ~~hedging~~classification ~~instrument~~of ~~under~~awards ~~Topic~~as ~~815,~~either ~~does~~equity ~~not~~or liabilities, in and ofclassification ~~itself,~~on ~~require~~the ~~dedesignation~~statement of ~~that~~cash ~~hedging~~flows. ~~relationship~~Some ~~provided~~of ~~that~~the ~~all~~areas ~~other~~for ~~hedge~~simplification ~~accounting~~apply ~~criteria~~only ~~continue~~ to benonpublic ~~met~~entities. For public business entities, the amendments in ~~this~~ ASU 2016-0509 ~~are~~were effective for ~~financial~~annual ~~statements~~periods ~~issued for fiscal years~~ beginning after December 15, 2016, and interim periods within those ~~fiscal~~annual ~~years~~periods. AnWe ~~entity~~adopted ~~has an option to apply the amendments in~~ ASU 2016-0509 onin ~~either~~the afirst ~~prospective~~quarter ~~basis~~of ~~or a modified retrospective basis~~2017. ~~Early~~ ~~adoption is permitted, including adoption in an interim period. We do not believe~~ ASU 2016-0509 ~~will~~did not have a material effect on our financial statements.

In March 2016, FASB issued Accounting Standards Update No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). FASB is issuing ASU 2016-09 as part of its initiative to reduce complexity in accounting standards. The areas for simplification in this ASU 2016-09 involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, the amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. We do not believe ASU 2016-09 will have a material effect on our financial statements.

In June 2016, FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The amendments in ASU 2016-13 affect an entity to varying degrees depending on the credit quality of the assets held by the entity, their duration, and how the entity applies current GAAP. There is diversity in practice in applying the incurred loss methodology, which means that before transition some entities may be more aligned, under current GAAP, than others to the new measure of expected credit losses.

The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition.

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loss methodology, which means that before transition some entities may be more aligned, under current GAAP, than others to the new measure of expected credit losses.

Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The amendments in ASU 2016-13 require that credit losses be presented as an allowance rather than as a writedown. This approach is an improvement to current GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur. Current GAAP prohibits reflecting those improvements in current period earnings.

For public business entities that are SEC filers, the amendments in ASU 2016-13 are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. All entities may adopt the amendments in ASU 2016-13 earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of ASU 2016-13. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. We are currently evaluating the impact of the amendments in ASU 2016-13 on our consolidated financial statements.

In August 2016, FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The following eight specific cash flow issues are addressed in ASU 2016-15: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (“COLI”s) (including bank-owned life insurance policies (“BOLI”s)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. For public business entities, the amendments in this ASU 2016-15 are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments in ASU 2016-15 should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. We intend to adopt ASU 2016-15 during the first quarter of 2018 and it will have no effect on our results of operations because it only impacts the presentation of certain information on the statement of cash flows.

In December 2016, FASB issued Accounting Standards Update No. 2016-19, “Technical Corrections and Improvements” (“ASU 2016-19”). The amendments in ASU 2016-19 cover a wide range of Topics in the Accounting Standards Codification. The amendments generally fall into one of four categories: (1) amendments related to differences between original guidance and the codification, (2) guidance clarification and reference corrections, (3) simplification, and (4) minor improvements. Most of the amendments in ASU 2016-19 do not require transition guidance and were effective upon issuance. The amendments that require transition guidance are not applicable to the Company. The amendments that require transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. FASB does not expect the changes to affect current accounting practice or result in any significant

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~~business~~costs. The ~~entities,~~adoption ~~the~~of ~~amendments in this~~ ASU 2016-1519 ~~are~~ effective ~~for~~January ~~financial statements issued for fiscal years beginning after December 15~~1, 2017, ~~and~~did interim periods within those fiscal years. The amendments in ASU 2016-15 should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. We do not ~~believe ASU 2016-05 will~~ have a material ~~effect~~impact on our consolidated financial statements.

~~Note~~In 2February 2017, FASB issued Accounting Standards Update No.~~Regulatory~~ ~~Matters~~2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and ~~Significant~~Net ~~Risks~~Periodic Postretirement Benefit Cost” (“ASU 2017-07”). To improve the consistency, transparency, and usefulness of financial information for users, the amendments in ASU 2017-07 require that an employer disaggregate the service cost component from the other components of net benefit cost and report the service cost component in the same line item or ~~Uncertainties~~items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments in ASU 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments in ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We intend to adopt ASU 2017-07 during the first quarter of 2018 and it will have no effect on our results of operations because it only impacts the presentation of certain information on the statements of income.

~~Federal~~In ~~Reserve~~March ~~Agreement~~2017, FASB issued Accounting Standards Update No. 2017-08, “Receivables —Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-08”). ASU 2017-08 amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The effect of ASU 2017-08 would be lower interest income and a corresponding lower yield as the amortization period would be shortened. As of March 31, 2017 we do not hold any callable debt securities that were purchased at a premium. We intend to adopt ASU 2017-08 during the first quarter of 2019.

In March 2010, we agreed to enter into a written agreement (the “Federal Reserve Agreement”) with the Federal Reserve Bank of Philadelphia (the “Federal Reserve Bank”). In July 2013, the Board of Governors of the Federal Reserve System terminated the enforcement action under the Federal Reserve Agreement, and it was replaced with an informal non-public agreement, a memorandum of understanding (“MOU”), with the Federal Reserve Bank, effective July 17, 2013. Included in this MOU are certain continued reporting requirements and a requirement that we receive the prior approval of the Federal Reserve Bank and the Director of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System prior to declaring or paying any dividends on our capital stock, making interest payments related to our outstanding trust preferred securities or subordinate securities, incurring or guaranteeing certain debt with an original maturity date greater than one year, and purchasing or redeeming any shares of stock. The MOU will remain in effect until stayed, modified, terminated or suspended in writing by the Federal Reserve Bank. During the first nine months of 2016, we requested and received approval to repurchase 6,651 shares of our Series A preferred stock. As disclosed in our Current Report on Form 8-K filed on October 7, 2016, we received regulatory approval to repurchase or redeem the remaining 12,205 shares. We intend to retire all of the remaining shares of Series A preferred stock outstanding as a result of receipt of such approvals, including purchases in privately negotiated transactions or in accordance with the redemption provisions of the Series A preferred stock.

Dividend and Interest Restrictions

Due to the MOU, our ability to obtain lines of credit, to receive attractive collateral treatment from funding sources, and to pursue all attractive funding alternatives in this current low interest rate environment could be impacted and thereby limit liquidity alternatives.

On August 13, 2009, the Company’s Board suspended the regular quarterly cash dividends on the Series A Preferred Stock. We made the decision to suspend the preferred cash dividends in order to support the liquidity position of Royal Bank. The dividend in arrears on the outstanding shares of Series A preferred stock is approximately $7.1 million and includes additional dividends on arrearages. As disclosed above, we intend to retire all of the remaining shares of the Series A Preferred stock by the end of 2016, which will eliminate future dividends.

Under the MOU, we may not declare or pay any dividends on our capital stock or make interest payments related to our outstanding trust preferred securities or subordinate securities without the prior written approval of the Federal Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System. During the first three quarters of 2016, we received approval from the Federal Reserve Bank and paid the respective quarterly interest payments on the trust preferred securities in March, June, and September 2016.

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Note 32.Investment Securities

The carrying value and fair value of investment securities available-for-sale (“AFS”) at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

As of September 30, 2016

As of March 31, 2017

Gross

Amortized

unrealized

(In thousands)

cost

gains

losses

Fair value

U.S. government agencies

32,~~498~~126

2—

—(26)

32,~~500~~100

Mortgage-backed securities-residential

76,~~373~~527

~~342~~135

—

76,~~715~~662

Collateralized mortgage obligations:

Issued or guaranteed by U.S. government agencies

~~138~~139,~~137~~296

21,~~372~~036

(~~469~~1,352)

~~140~~138,~~040~~980

Non-agency

43,~~514~~752

52—

—(71)

43,~~566~~681

Corporate bonds

1,700

7425

—

1,~~774~~725

Municipal bonds

8,~~706~~676

~~216~~130

(5564)

8,~~867~~742

Other securities

1,~~833~~821

—

1,~~833~~821

Common stocks

—

Total available for sale

~~165~~163,~~787~~924

31,~~058~~326

(~~524~~1,513)

~~168~~163,~~321~~737

As of December 31, 2015

As of December 31, 2016

Gross

Amortized

unrealized

(In thousands)

cost

gains

losses

Fair value

U.S. government agencies

~~26,127~~988

—

(~~564~~22)

~~25,563~~966

Mortgage-backed securities-residential

116,~~002~~985

~~106~~70

(5017)

117,~~058~~038

Collateralized mortgage obligations:

Issued or guaranteed by U.S. government agencies

~~170~~146,~~764~~666

1,~~524~~022

(12,~~554~~129)

~~170~~145,~~734~~559

Non-agency

24,~~729~~121

1—

(2686)

24,~~704~~035

Corporate bonds

1,~~500~~700

561

—

1,~~556~~701

Municipal bonds

98,~~910~~691

7392

(5275)

98,~~931~~708

Other securities

21,~~050~~821

~~445~~—

—

21,~~495~~821

Common stocks

—

Total available for sale

~~224~~170,~~108~~998

21,~~205~~185

(2,~~246~~329)

~~224~~169,~~067~~854

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The amortized cost and fair value of investment securities at ~~September~~March 3031, ~~2016~~2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of September 30, 2016
	As of March 31, 2017
	Amortized
(In thousands)	cost		Fair value
Within 1 year	$	—1,638	$	—1,625
After 1 but within 5 years		76,~~802~~852		76,~~798~~904
After 5 but within 10 years		53,~~102~~012		53,~~269~~013
After 10 years		1,000		1,~~074~~025
Mortgage-backed securities-residential		76,~~373~~527		76,~~715~~662
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies		~~138~~139,~~137~~296		~~140~~138,~~040~~980
Non-agency		43,~~514~~752		43,~~566~~681
Total available for sale debt securities		~~163~~162,~~928~~077		~~166~~161,~~462~~890
No contractual maturity		1,~~859~~847		1,~~859~~847
Total available for sale securities	$	~~165~~163,~~787~~924	$	~~168~~163,~~321~~737

Proceeds from the sales of AFS investments during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016 were~~2017 ~~$25.7 million~~ and ~~$36.4~~ ~~million. Proceeds~~2016 ~~from the sales of AFS investments during the three and nine months ended September 30, 2015~~ were $~~9.2~~0 ~~million~~ and $3310.70 million, respectively. The following table summarizes gross realized gains and losses on the sale of securities recognized in earnings in the periods indicated:

For the three months ended

~~For the nine months ended~~

September 30,

March 31,

(In thousands)

~~2016~~2017

~~2015~~2016

~~2016~~

~~2015~~

Gross realized gains

~~280~~—

~~104~~367

~~1,426~~

~~676~~

Gross realized losses

—

~~(24)~~—

~~(44)~~

~~(24)~~

Net realized gains

~~280~~—

80367

~~1,382~~

~~652~~

The tables below indicate the length of time individual AFS securities have been in a continuous unrealized loss position at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016:

September 30, 2016	Less than 12 months					12 months or longer					Total
March 31, 2017	Less than 12 months					12 months or longer					Total
			Gross		Number			Gross		Number			Gross		Number
			unrealized		of			unrealized		of			unrealized		of
(In thousands)	Fair value		losses		positions	Fair value		losses		positions	Fair value		losses		positions
U.S. government agencies	$	2,100	$	(26)	2	$	—	$	—	—	$	2,100	$	(26)	2
Collateralized mortgage obligations:
Issued or guaranteed by U.S. government agencies	$	2274,~~424~~956	$	(~~224~~896)	831	$	1011,~~458~~654	$	(~~245~~456)	34	$	3286,~~882~~610	$	(~~469~~1,352)	1135
Municipal bonds		2,026		(49)	2		1,324		(6)	2		3,350		(55)	4
Non-agency		3,681		(71)	3		—		—	—		3,681		(71)	3
Total available for sale	$	24,450	$	(273)	10	$	11,782	$	(251)	5	$	36,232	$	(524)	15
Municipal bonds		665		(2)	2		3,330		(62)	4		3,995		(64)	6
Total available for sale	$	81,402	$	(995)	38	$	14,984	$	(518)	8	$	96,386	$	(1,513)	46

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December 31, 2015

Less than 12 months

12 months or longer

Total

December 31, 2016

Less than 12 months

12 months or longer

Total

Gross

Number

Gross

Number

Gross

Number

unrealized

(In thousands)

Fair value

losses

positions

Fair value

losses

positions

Fair value

losses

positions

U.S. government agencies

~~6,681~~966

(5722)

~~18,882~~—

~~(507)~~—

6—

~~25,563~~966

(~~564~~22)

Mortgage-backed securities-residential

54,~~140~~237

(517)

~~2,574~~—

~~(45)~~—

1—

74,~~714~~237

(5017)

Collateralized mortgage obligations:

Issued or guaranteed by U.S. government agencies

8773,~~020~~864

(~~994~~1,630)

1512,~~644~~045

(~~560~~499)

~~102~~85,~~664~~909

(12,~~554~~129)

3635

Non-agency

14,~~101~~035

(2686)

—

14,~~101~~035

(2686)

Municipal bonds

61,~~080~~678

(5245)

—2,314

—(30)

—3

63,~~080~~992

(5275)

Total available for sale

~~106~~84,~~022~~780

(1,~~134~~800)

4340

3714,~~100~~359

(~~1,112~~529)

127

~~143~~99,~~122~~139

(2,~~246~~329)

5547

We evaluate declines in the fair value of securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis. We assess whether OTTI is present when the fair value of a security is less than its amortized cost. Under ASC Topic 320, OTTI is considered to have occurred with respect to debt securities (1) if an entity intends to sell the security; (2) if it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. During the first three quarters of 2016, we recorded impairment charges of $181 thousand on two private equity funds as a result of analyses performed on recent financial information. We did not record OTTI charges to earnings during the first three quarters of 2015. There were no credit-related impairment losses on debt securities held at ~~September~~March 3031, ~~2016~~ 2017 and ~~September~~March 3031, ~~2015~~2016 for which a portion of OTTI was recognized in other comprehensive income.

For all debt security types discussed below the fair value is based on prices provided by brokers and safekeeping custodians.

U.S. government ~~issued or~~ -sponsored ~~collateralized~~agencies ~~mortgage obligations~~ (“~~Agency~~U.S. ~~CMOs~~Agency”): As of ~~September~~March 3031, ~~2016~~2017, we had 11two U.S. Agency ~~CMOs~~securities with a fair value of $322.91 million and a gross unrealized ~~losses~~loss of $~~469~~26 thousand. ~~Three~~The ofbonds ~~the Agency CMOs~~ have been in an unrealized loss position for ~~twelve months or longer and the remaining eight Agency CMOs have been in an unrealized loss position for~~ less than twelve months~~. The~~ ~~unrealized~~at ~~loss~~March ~~is attributable to a combination of factors~~31, ~~including relative changes in interest rates since the time of purchase~~2017. ~~The~~ ~~contractual~~Management ~~cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management~~ believes that the unrealized ~~losses~~loss on these debt securities are a function of changes in investment spreads ~~and interest rate movements and not as a result of changes in credit quality~~. Management expects to recover the entire amortized cost basis of these securities. We do not intend to sell these securities before recovery of their cost basis and have not determined that it is not more likely than not that weit will be required to sell these securities before recovery of their cost basis. Therefore, management has determined that these securities are not other-than-temporarily impaired at ~~September~~March 3031, ~~2016~~2017.

~~Municipal~~U.S. ~~bonds~~government issued or sponsored collateralized mortgage obligations (“Agency CMOs”): As of ~~September~~March 3031, ~~2016~~2017, we had ~~four municipal~~35 ~~bonds~~Agency CMOs with a fair value of $386.36 million and gross unrealized losses of $551.4 ~~thousand~~million. ~~Two~~ Four of the ~~municipal~~Agency ~~bonds~~CMOs have been in an unrealized loss position for ~~less than~~ twelve months or longer and ~~two~~the ~~bonds~~remaining 31 Agency CMOs have been in an unrealized loss position for less than twelve months. The orunrealized ~~longer~~loss atis ~~September~~attributable 30to a combination of factors, ~~2016~~including relative changes in interest rates since the time of purchase. The ~~Because~~contractual wecash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not as a result of changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. We do not intend to sell ~~the~~these ~~bonds~~securities before recovery of their cost basis and have not determined that it is not more likely than not that we will be required to sell ~~the~~these ~~bonds~~securities before recovery of their ~~amortized~~ cost basis. Therefore, ~~which~~management ~~may~~has bedetermined ~~maturity,~~that wethese dosecurities are not ~~consider the bonds to be~~ other-than-temporarily impaired at ~~September~~March 3031, ~~2016~~2017.

Non-agency collateralized mortgage obligations (“Non-agency CMOs”): As of March 31, 2017, we had three non-agency CMOs with a fair value of $3.7 million and gross unrealized losses of $71 thousand. The bonds have been in an unrealized loss position for less than twelve months. We ~~will~~do ~~continue~~not intend to ~~monitor~~sell these ~~investments~~securities tobefore ~~determine~~recovery ifof ~~the~~their ~~discounted~~cost ~~cash~~basis, ~~flow~~and ~~analysis,~~it ~~continued~~is ~~negative~~not ~~trends,~~more ~~market~~likely ~~valuations,~~than ornot ~~credit~~we ~~defaults~~will ~~result~~be inrequired ~~impairment~~to sell this security before recovery of its cost basis. Therefore, management has determined that this security is ~~other~~not other-than-temporarily ~~temporary~~impaired at March 31, 2017.

Municipal bonds: As of March 31, 2017 we had six municipal bonds with a fair value $4.0 million and gross unrealized losses of $64 thousand. Two of the municipal bonds have been in an unrealized loss position for less than twelve months

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~~Note~~and 4four bonds have been in an unrealized loss position for twelve months or longer at March 31, 2017.~~Loans~~ Because we do not intend to sell the bonds and ~~Leases~~it is not more likely than not that we will be required to sell the bonds before recovery of their amortized cost basis, which may be maturity, we do not consider the bonds to be other-than-temporarily impaired at March 31, 2017.

~~Major~~We ~~classifications~~will ofcontinue ~~loans~~to ~~are~~monitor asthese ~~follows:~~investments to determine if the discounted cash flow analysis, continued negative trends, market valuations, or credit defaults result in impairment that is other than temporary.

	September 30,		December 31,
(In thousands)	2016		2015
Commercial real estate	$	253,074	$	225,679
Construction and land development		74,885		47,984
Commercial and industrial		106,254		85,980
Multi-family		23,831		16,249
Residential real estate		49,061		51,588
Leases		62,671		64,341
Tax certificates		3,803		4,755
Consumer		2,239		2,527
Total loans, net of unearned income	$	575,818	$	499,103

Note 3.Loans and Leases

At March 31, 2017 and December 31, 2016, the Company’s LHFS were $205 thousand and $0, respectively. During the first quarter of 2017, we transferred one non-accrual loan to loans held for sale. As a result of this transfer we recorded a charge-off to the allowance of $20 thousand.

Major classifications of LHFI are as follows:


	March 31,		December 31,
(In thousands)	2017		2016
Commercial real estate	$	266,421	$	261,561
Construction and land development		88,561		83,369
Commercial and industrial		115,131		108,146
Multi-family		27,069		23,389
Residential real estate		56,790		56,899
Leases		58,733		61,838
Tax certificates		3,114		3,705
Consumer		2,965		3,102
Total loans, net of unearned income	$	618,784	$	602,009

We use a nine point grading risk classification system commonly used in the financial services industry as the credit quality indicator. The first four classifications are rated Pass. The riskier classifications include Pass-Watch, Special Mention, Substandard, Doubtful and Loss. The risk rating is related to the underlying credit quality and probability of default. These risk ratings are used in the calculation of the allowance for loan and lease losses.

Pass: includes credits that demonstrate a low probability of default;

Pass-watch: a classification which includes currently performing credits that are beginning to demonstrate above average risk through declining earnings, strained cash flows, increased leverage and/or weakening market fundamentals. This class may also include new loan originations which warrant approval but may contain certain risks that require closer than usual monitoring and supervision, such as construction loans;

Special mention: includes credits that have potential weaknesses that if left uncorrected could weaken the credit or result in inadequate protection of our position at some future date. While potentially weak, credits in this classification are marginally acceptable and loss of principal or interest is not anticipated;

Substandard accrual: includes credits that exhibit a well-defined weakness which currently jeopardizes the repayment of debt and liquidation of collateral even though they are currently performing. These credits are characterized by the distinct possibility that we may incur a loss in the future if these weaknesses are not corrected;

· Non-accrual (substandard non-accrual, doubtful, loss): includes credits that demonstrate serious problems to the point that it is probable that interest and principal will not be collected according to the contractual terms of the loan agreement.

All loans are assigned an initial loan risk rating by the Underwriting and Credit Administration Officer (“UCAO”). The initial loan risk rating is approved by another member of executive management or by the appropriate loan committee approving the loan request. From time to time, and at the general direction of any of the various loan committees, the ratings may be changed based on the findings of that committee. Items considered in assigning ratings include the financial strength of the borrower and/or guarantors, the type of collateral, the collateral lien position, the type of loan and loan structure, any potential risk inherent in the specific loan type, higher than normal monitoring of the loan or any other factor deemed appropriate by any of the various committees for changing the rating of the loan. Any such change in rating is reflected in the minutes of that committee.

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~~The~~· ~~following~~Non-accrual ~~tables~~(substandard ~~present~~non-accrual, ~~risk~~doubtful, ~~ratings~~loss): ~~for~~includes ~~each~~credits ~~loan~~that ~~portfolio~~demonstrate ~~classification~~serious atproblems ~~September~~to ~~30,~~the ~~2016~~point that it is probable that interest and ~~December~~principal ~~31,~~will ~~2015~~not be collected according to the contractual terms of the loan agreement.

As of September 30, 2016
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	216,295	$	35,601	$	346	$	—	$	832	$	253,074
Construction and land development		10,068		64,673		—		—		144		74,885
Commercial and industrial		94,137		9,426		329		1,688		674		106,254
Multi-family		17,373		6,458		—		—		—		23,831
Residential real estate		48,371		106		—		—		584		49,061
Leases		60,567		197		431		—		1,476		62,671
Tax certificates		3,058		—		—		—		745		3,803
Consumer		2,166		73		—		—		—		2,239
Total loans, net of unearned income	$	452,035	$	116,534	$	1,106	$	1,688	$	4,455	$	575,818

As of December 31, 2015
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	191,320	$	31,994	$	870	$	—	$	1,495	$	225,679
Construction and land development		4,429		43,410		—		—		145		47,984
Commercial and industrial		68,998		13,971		195		2,065		751		85,980
Multi-family		15,982		267		—		—		—		16,249
Residential real estate		50,699		—		—		—		889		51,588
Leases		62,896		319		39		—		1,087		64,341
Tax certificates		3,630		—		—		—		1,125		4,755
Consumer		2,439		88		—		—		—		2,527
Total loans, net of unearned income	$	400,393	$	90,049	$	1,104	$	2,065	$	5,492	$	499,103

The following tables present risk ratings for each LHFI portfolio classification at March 31, 2017 and December 31, 2016.

The following tables present an aging analysis of past due payments for each loan portfolio classification at September 30, 2016 and December 31, 2015.


As of March 31, 2017
(In thousands)	Pass		Pass-Watch		Special Mention		Substandard		Non-accrual		Total
Commercial real estate	$	226,674	$	38,390	$	—	$	—	$	1,357	$	266,421
Construction and land development		9,687		78,746		—		—		128		88,561
Commercial and industrial		94,268		18,340		14		1,693		816		115,131
Multi-family		18,620		8,449		—		—		—		27,069
Residential real estate		56,133		103		—		—		554		56,790
Leases		56,419		154		259		—		1,901		58,733
Tax certificates		1,380		—		—		—		1,734		3,114
Consumer		2,853		112		—		—		—		2,965
Total loans, net of unearned income	$	466,034	$	144,294	$	273	$	1,693	$	6,490	$	618,784

As of September 30, 2016

30-59 Days

60-89 Days

Accruing

As of December 31, 2016

(In thousands)

~~Past Due~~Pass

~~Past Due~~Pass-Watch

~~90+~~Special ~~Days~~Mention

~~Non-accrual~~Substandard

~~Current~~Non-accrual

Total

Commercial real estate

—221,862

—38,814

—

~~832~~—

~~252,242~~885

~~253~~261,~~074~~561

Construction and land development

—9,643

—73,582

—

~~144~~—

~~74,741~~144

7483,~~885~~369

Commercial and industrial

~~346~~92,174

813,308

—320

~~674~~1,692

~~105,226~~652

~~106~~108,~~254~~146

Multi-family

—16,974

—6,415

—

~~23,831~~—

23,~~831~~389

Residential real estate

~~139~~56,225

~~107~~104

—

~~584~~—

~~48,231~~570

4956,~~061~~899

Leases

~~197~~59,641

~~431~~348

—

~~1,476~~—

601,~~567~~849

6261,~~671~~838

Tax certificates

—1,798

—

~~745~~—

31,~~058~~907

3,~~803~~705

Consumer

—2,891

—211

—

~~2,239~~—

23,~~239~~102

Total loans, net of unearned income

~~682~~461,208

~~546~~132,782

—320

41,~~455~~692

~~570~~6,~~135~~007

~~575~~602,~~818~~009

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As of December 31, 2015	30-59 Days		60-89 Days		Accruing
(In thousands)	Past Due		Past Due		90+ Days		Non-accrual		Current		Total
Commercial real estate	$	96	$	—	$	—	$	1,495	$	224,088	$	225,679
Construction and land development		507		—		—		145		47,332		47,984
Commercial and industrial		910		592		—		751		83,727		85,980
Multi-family		—		—		—		—		16,249		16,249
Residential real estate		724		159		—		889		49,816		51,588
Leases		319		39		—		1,087		62,896		64,341
Tax certificates		—		—		—		1,125		3,630		4,755
Consumer		—		—		—		—		2,527		2,527
Total loans, net of unearned income	$	2,556	$	790	$	—	$	5,492	$	490,265	$	499,103

The following tables present an aging analysis of past due payments for each LHFI portfolio classification at March 31, 2017 and December 31, 2016.

If interest had accrued on non-accrual loans, such income would have been approximately $135 thousand and $450 thousand for the three and nine months ended September 30, 2016 and $142 thousand and $539 thousand for the three and nine months ended September 30, 2015, respectively.


As of March 31, 2017	30-59 Days		60-89 Days		90+ Days*
(In thousands)	Past Due		Past Due		Past Due		Current		Total
Commercial real estate	$	1,475	$	—	$	1,357	$	263,589	$	266,421
Construction and land development		—		—		128		88,433		88,561
Commercial and industrial		255		—		574		114,302		115,131
Multi-family		—		—		—		27,069		27,069
Residential real estate		1,072		—		349		55,369		56,790
Leases		171		934		1,195		56,433		58,733
Tax certificates		—		—		1,734		1,380		3,114
Consumer		—		—		—		2,965		2,965
Total loans, net of unearned income	$	2,973	$	934	$	5,337	$	609,540	$	618,784


As of December 31, 2016	30-59 Days		60-89 Days		90+ Days*
(In thousands)	Past Due		Past Due		Past Due		Current		Total
Commercial real estate	$	—	$	507	$	886	$	260,168	$	261,561
Construction and land development		—		—		144		83,225		83,369
Commercial and industrial		416		367		173		107,190		108,146
Multi-family		—		—		—		23,389		23,389
Residential real estate		978		—		355		55,566		56,899
Leases		348		104		1,577		59,809		61,838
Tax certificates		—		—		1,907		1,798		3,705
Consumer		—		—		—		3,102		3,102
Total loans, net of unearned income	$	1,742	$	978	$	5,042	$	594,247	$	602,009

*All loans categorized as “90+ Days Past Due” are non-accrual.

If interest had accrued on non-accrual loans held for investment, such income would have been approximately $118 thousand and $158 thousand for the three months ended March 31, 2017 and 2016, respectively.

Impaired Loans

Total cash collected on all impaired loans during the ~~September~~three 30months ended March 31, ~~2016~~2017 and ~~2015~~2016 was $~~1.4~~133 ~~million~~thousand and $~~5.9~~257 ~~million~~thousand respectively, of which $~~1.3 million~~109 thousand and $~~4.8~~257 ~~million~~thousand was credited to the principal balance outstanding on such loans, respectively. Interest income recognized on a cash basis on impaired loans and leases was $0 ~~and~~ ~~$97 thousand~~ for the three months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015, respectively and $0 and $232 thousand for the nine months ended September 30,~~ 2016 ~~and 2015, respectively~~.

Troubled Debt Restructurings (“TDRs”)

The following table details our TDRs that are on an accrual status and non-accrual status at September 30, 2016 and December 31, 2015.

	As of September 30, 2016
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	20	$	—	$	20
Construction and land development	1		—		144		144
Commercial and industrial	2		1,688		177		1,865
Residential real estate	1		84		—		84
Total	5	$	1,792	$	321	$	2,113

Table of Contents

	As of December 31, 2015
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	24	$	—	$	24
Construction and land development	1		—		145		145
Commercial and industrial	3		2,315		—		2,315
Residential real estate	1		—		92		92
Total	6	$	2,339	$	237	$	2,576

Troubled Debt Restructurings (“TDRs”)

AtThe ~~September~~following ~~30,~~table ~~2016,~~details ~~there~~our ~~were no~~ TDRs ~~modified~~that ~~within~~are ~~the~~on ~~past~~an 12accrual ~~months,~~status ~~for~~and ~~which~~non-accrual ~~there~~status ~~was~~at aMarch ~~payment~~31, ~~default.~~2017 Weand ~~did~~December ~~not~~31, ~~classify any loan modifications as TDRs during the first three quarters of~~ 2016 ~~and 2015~~.

We may obtain physical possession of real estate collateralizing residential mortgage loans or home equity loans through or in lieu of, foreclosure. As of September 30, 2016, we have a foreclosed residential real estate property with a carrying value of $28 thousand as a result of physical possession. In addition, as of September 30, 2016, we had residential mortgage loans with a carrying value of $317 thousand collateralized by residential real estate property for which formal foreclosure proceedings were in process.


	As of March 31, 2017
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	18	$	—	$	18
Construction and land development	1		—		128		128
Commercial and industrial	2		1,693		173		1,866
Residential real estate	1		82		—		82
Total	5	$	1,793	$	301	$	2,094

Note 5.Allowance for Loan and Lease Losses


	As of December 31, 2016
				Non-
	Number of	Accrual		Accrual
(In thousands)	loans	Status		Status		Total TDRs
Commercial real estate	1	$	19	$	—	$	19
Construction and land development	1		—		144		144
Commercial and industrial	2		1,692		173		1,865
Residential real estate	1		83		—		83
Total	5	$	1,794	$	317	$	2,111

~~The~~At ~~following~~March ~~tables~~31, ~~present~~2017, ~~the~~there ~~detail~~were ofno ~~the~~TDRs ~~allowance~~modified ~~and~~within the ~~loan~~past ~~portfolio~~12 ~~disaggregated~~months, byfor ~~loan~~which ~~portfolio~~there ~~classification~~was asa ofpayment ~~September~~default. ~~30,~~We ~~2016, December~~did ~~31,~~not ~~2015,~~classify ~~and~~any ~~September~~loan ~~30,~~modifications ~~2015~~as TDRs during the first quarters of 2017 and 2016.

~~Allowance~~We may obtain physical possession of real estate collateralizing residential mortgage loans or home equity loans through or in lieu of, foreclosure. As of March 31, 2017, we have no foreclosed residential real estate properties as a result of physical possession. In addition, as of March 31, 2017, we had residential mortgage loans with a carrying value of $88 thousand collateralized by residential real estate property for ~~Loan~~which ~~and~~formal ~~Lease~~foreclosure ~~Losses~~proceedings were in process.

As of and for the three months ended September 30, 2016

			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	3,342	$	1,991	$	1,365	$	231	$	647	$	2,052	$	358	$	22	$	—	$	10,008
Charge-offs		(7)		—		—		—		—		(310)		(108)		—		—		(425)
Recoveries		17		15		32		—		4		18		6		1		—		93
(Credit) provision		(12)		160		17		36		(76)		426		29		(2)		—		578
Ending balance	$	3,340	$	2,166	$	1,414	$	267	$	575	$	2,186	$	285	$	21	$	—	$	10,254
Ending balance: related to loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	18	$	168	$	—	$	—	$	—	$	186
Ending balance: related to loans collectively evaluated for impairment	$	3,340	$	2,166	$	1,414	$	267	$	557	$	2,018	$	285	$	21	$	—	$	10,068

Table of Contents

Note 4.Allowance for Loan and Lease Losses

The following tables present the detail of the allowance and the LHFI portfolio disaggregated by loan portfolio classification as of March 31, 2017, December 31, 2016, and March 31, 2016.

Allowance for Loan and Lease Losses

As of and for the ~~nine~~three months ended ~~September~~March 3031, ~~2016~~2017

			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	3,~~622~~295	$	12,~~674~~294	$	1,~~513~~346	$	~~171~~263	$	~~586~~656	$	12,~~749~~295	$	~~347~~242	$	2729	$	—	$	910,~~689~~420
Charge-offs		(8420)		—		~~(108)~~—		—		~~(40)~~—		(~~757~~497)		(~~139~~9)		—		—		(~~1,128~~526)
Recoveries		~~201~~—		~~273~~351		~~159~~—		—		237		359		14—		1—		—		~~706~~367
(Credit) provision		(399)		219		(150)		96		6		1,159		63		(7)		—		987
Provision (credit)		91		(240)		32		50		(12)		432		(54)		(2)		—		297
Ending balance	$	3,~~340~~366	$	2,~~166~~405	$	1,~~414~~378	$	~~267~~313	$	~~575~~651	$	2,~~186~~239	$	~~285~~179	$	2127	$	—	$	10,~~254~~558
Ending balance: related to loans individually evaluated for impairment	$	—59	$	—	$	—	$	—	$	1817	$	~~168~~175	$	—	$	—	$	—	$	~~186~~251
Ending balance: related to loans collectively evaluated for impairment	$	3,~~340~~307	$	2,~~166~~405	$	1,~~414~~378	$	~~267~~313	$	~~557~~634	$	2,~~018~~064	$	~~285~~179	$	2127	$	—	$	10,~~068~~307

Loans Evaluated for Impairment

As of ~~September~~March 3031, ~~2016~~ 2017

			Construction	~~Construction~~
	Commercial		and land	~~and land~~		Commercial	~~Commercial~~		Multi-	~~Multi-~~		Residential	~~Residential~~					Tax	~~Tax~~
	real estate		development	~~development~~		and industrial	~~and industrial~~		family	~~family~~		real estate	~~real estate~~		Leases	~~Leases~~		certificates	~~certificates~~		Consumer	~~Consumer~~		Unallocated	~~Unallocated~~		Total	~~Total~~
(In thousands)
Ending balance	$	~~253~~266,~~074~~421	$	$88,561	~~74,885~~	$	$115,131	~~106,254~~	$	$27,069	~~23,831~~	$	$56,790	~~49,061~~	$	$58,733	~~62,671~~	$	$3,114	~~3,803~~	$	$2,965	~~2,239~~	$	$—	—	$	$618,784	~~575,818~~
Ending balance: individually evaluated for impairment	$	~~852~~1,374	$	$128	~~144~~	$	$1,875	~~2,120~~	$	$—	—	$	$636	~~668~~	$	$1,192	~~806~~	$	$1,734	~~745~~	$	$—	—	$	$—	—	$	$6,939	~~5,335~~
Ending balance: collectively evaluated for impairment	$	~~252~~265,~~222~~047	$	$88,433	~~74,741~~	$	$113,256	~~104,134~~	$	$27,069	~~23,831~~	$	$56,154	~~48,393~~	$	$57,541	~~61,865~~	$	$1,380	~~3,058~~	$	$2,965	~~2,239~~	$	$—	—	$	$611,845	~~570,483~~

Allowance for Loan and Lease Losses and Loans Evaluated for Impairment

As of and for the year ended December 31, 2015

			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	4,452	$	2,292	$	1,780	$	285	$	616	$	1,429	$	667	$	38	$	149	$	11,708
Charge-offs		(622)		(264)		(566)		—		—		(612)		(471)		—		—		(2,535)
Recoveries		380		503		282		—		20		26		53		—		—		1,264
(Credit) provision		(588)		(857)		17		(114)		(50)		906		98		(11)		(149)		(748)
Ending balance	$	3,622	$	1,674	$	1,513	$	171	$	586	$	1,749	$	347	$	27	$	—	$	9,689
Ending balance: related to loans individually evaluated for impairment	$	77	$	—	$	100	$	—	$	27	$	194	$	—	$	—	$	—	$	398
Ending balance: related to loans collectively evaluated for impairment	$	3,545	$	1,674	$	1,413	$	171	$	559	$	1,555	$	347	$	27	$	—	$	9,291
Loan Balances
Ending balance	$	225,679	$	47,984	$	85,980	$	16,249	$	51,588	$	64,341	$	4,755	$	2,527	$	—	$	499,103
Ending balance: individually evaluated for impairment	$	1,469	$	145	$	2,687	$	—	$	889	$	876	$	1,125	$	—	$	—	$	7,191
Ending balance: collectively evaluated for impairment	$	224,210	$	47,839	$	83,293	$	16,249	$	50,699	$	63,465	$	3,630	$	2,527	$	—	$	491,912

Table of Contents

Allowance for Loan and Lease Losses and Loans Evaluated for Impairment

As of and for the year ended December 31, 2016


			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	3,622	$	1,674	$	1,513	$	171	$	586	$	1,749	$	347	$	27	$	—	$	9,689
Charge-offs		(84)		—		(107)		—		(40)		(930)		(139)		—		—		(1,300)
Recoveries		201		306		174		—		35		57		14		2		—		789
(Credit) provision		(444)		314		(234)		92		75		1,419		20		—		—		1,242
Ending balance	$	3,295	$	2,294	$	1,346	$	263	$	656	$	2,295	$	242	$	29	$	—	$	10,420
Ending balance: related to loans individually evaluated for impairment	$	3	$	—	$	—	$	—	$	17	$	340	$	8	$	—	$	—	$	368
Ending balance: related to loans collectively evaluated for impairment	$	3,292	$	2,294	$	1,346	$	263	$	639	$	1,955	$	234	$	29	$	—	$	10,052
Loan Balances
Ending balance	$	261,561	$	83,369	$	108,146	$	23,389	$	56,899	$	61,838	$	3,705	$	3,102	$	—	$	602,009
Ending balance: individually evaluated for impairment	$	904	$	144	$	2,105	$	—	$	653	$	1,242	$	1,907	$	—	$	—	$	6,955
Ending balance: collectively evaluated for impairment	$	260,657	$	83,225	$	106,041	$	23,389	$	56,246	$	60,596	$	1,798	$	3,102	$	—	$	595,054

Allowance for Loan and Lease Losses

As of and for the three months ended ~~September~~March 3031, ~~2015~~2016

			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	43,~~208~~622	$	1,~~358~~674	$	1,~~705~~513	$	~~300~~171	$	~~584~~586	$	1,~~405~~749	$	~~317~~347	$	3527	$	~~124~~—	$	109,~~036~~689
Charge-offs		—(77)		~~(39)~~—		—(108)		—		—		(~~138~~283)		—(6)		—		—		(~~177~~474)
Recoveries		—176		~~150~~194		4123		—		511		48		—2		—		—		~~163~~514
Provision (credit)		(344)		133		(301)		(113)		67		316		38		(6)		(6)		(216)
(Credit) provision		(151)		52		(109)		3		(11)		519		(91)		—		—		212
Ending balance	$	3,~~864~~570	$	1,~~602~~920	$	1,~~408~~419	$	~~187~~174	$	~~656~~586	$	1,~~587~~993	$	~~355~~252	$	2927	$	~~118~~—	$	9,~~806~~941
Ending balance: related to loans individually evaluated for impairment	$	—	$	~~145~~—	$	—	$	—	$	2825	$	~~131~~185	$	18—	$	—	$	—	$	~~322~~210
Ending balance: related to loans collectively evaluated for impairment	$	3,~~864~~570	$	1,~~457~~920	$	1,~~408~~419	$	~~187~~174	$	~~628~~561	$	1,~~456~~808	$	~~337~~252	$	2927	$	~~118~~—	$	9,~~484~~731

Allowance for Loan and Lease Losses

As of and for the nine months ended September 30, 2015

			Construction
	Commercial		and land		Commercial		Multi-		Residential				Tax
(In thousands)	real estate		development		and industrial		family		real estate		Leases		certificates		Consumer		Unallocated		Total
Beginning balance	$	4,452	$	2,292	$	1,780	$	285	$	616	$	1,429	$	667	$	38	$	149	$	11,708
Charge-offs		(231)		(119)		(541)		—		—		(315)		(433)		—		—		(1,639)
Recoveries		351		402		278		—		16		20		52		—		—		1,119
Provision (credit)		(708)		(973)		(109)		(98)		24		453		69		(9)		(31)		(1,382)
Ending balance	$	3,864	$	1,602	$	1,408	$	187	$	656	$	1,587	$	355	$	29	$	118	$	9,806
Ending balance: related to loans individually evaluated for impairment	$	—	$	145	$	—	$	—	$	28	$	131	$	18	$	—	$	—	$	322
Ending balance: related to loans collectively evaluated for impairment	$	3,864	$	1,457	$	1,408	$	187	$	628	$	1,456	$	337	$	29	$	118	$	9,484

Loans Evaluated for Impairment

As of ~~September~~March 3031, ~~2015~~2016

Construction

Commercial

and land

Commercial

Multi-

Residential

Tax

real estate

development

and industrial

family

real estate

Leases

certificates

Consumer

Unallocated

Total

(In thousands)

Ending balance

~~210~~237,~~883~~343

3861,~~864~~095

8292,~~414~~189

1516,~~222~~576

5449,~~025~~370

6167,~~954~~267

54,~~294~~820

2,~~560~~487

—

~~471~~531,~~216~~147

Ending balance: individually evaluated for impairment

41,~~040~~368

~~290~~145

32,~~024~~317

—

~~918~~843

~~640~~755

1,~~206~~038

—

106,~~118~~466

Ending balance: collectively evaluated for impairment

~~206~~235,~~843~~975

3860,~~574~~950

7989,~~390~~872

1516,~~222~~576

5348,~~107~~527

6166,~~314~~512

43,~~088~~782

2,~~560~~487

—

~~461~~524,~~098~~681

Table of Contents

The following tables detail the loans that were evaluated for impairment by loan classification at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016.

	At September 30, 2016
	At March 31, 2017
	Unpaid
	principal		Recorded		Related
(In thousands)	balance		investment		allowance
With no related allowance recorded:
Commercial real estate	$	~~1,273~~349	$	~~852~~349	$	—
Construction and land development		~~546~~531		~~144~~128		—
Commercial and industrial		41,~~564~~915		21,~~120~~875		—
Residential real estate		~~135~~132		8482		—
Tax certificates		56,~~170~~166		~~745~~1,734		—
Total:	$	119,~~688~~093	$	34,~~945~~168	$	—

With an allowance recorded:
Residential real estate	$	674	$	584	$	18
Commercial real estate	$	1,422	$	1,025	$	59
Leasing		806		806		168
Residential real estate	$	660	$	554	$	17
Total:	$	1,480	$	1,390	$	186
Leasing		1,191		1,192		175
Total:	$	3,273	$	2,771	$	251

	At and for the year ended December 31, 2015
	At and for the year ended December 31, 2016
	Unpaid						Average		Interest		Interest income
	principal		Recorded		Related		recorded		income		recognized
(In thousands)	balance		investment		allowance		investment		recognized		cash basis
With no related allowance recorded:
Commercial real estate	$	~~1,323~~362	$	~~931~~362	$	—	$	~~4,144~~923	$	~~335~~—	$	—
Construction and land development		546		~~145~~144		—		~~376~~145		—		—
Commercial and industrial		2,~~662~~209		2,~~576~~105		—		42,~~314~~296		~~233~~107		—
Tax certificates		5,666		1,125		—		904		—
Residential real estate		133		83		—		45		4		—
Total:	$	10,197	$	4,777	$	—	$	9,738	$	568
Tax certificates		2,165		1,752		—		1,019		—		—
Total:	$	5,415	$	4,446	$	—	$	4,428	$	111	$	—
With an allowance recorded:
Commercial real estate	$	936	$	542	$	3	$	168	$	—	$	—
Commercial and industrial		—		—		—		17		—		—
Residential real estate		668		570		17		695		—		—
Leases		1,242		1,242		340		910		—		—
Tax certificates		4,202		155		8		26		—		—
Total:	$	7,048	$	2,509	$	368	$	1,816	$	—	$	—

With an allowance recorded:
Commercial real estate	$	926	$	538	$	77	$	334	$	—
Construction and land development		—		—		—		90		—
Commercial and industrial		2,500		111		100		172		—
Residential real estate		1,033		889		27		938		—
Leases		876		876		194		243		—
Tax certificates		—		—		—		188		—
Total:	$	5,335	$	2,414	$	398	$	1,965	$	—

The following tables present the average recorded investment in impaired loans and the related interest income recognized for the three and nine months ended September 30, 2016 and 2015.

Table of Contents

	For the three months ended September 30, 2016						For the nine months ended September 30, 2016
	Average		Interest		Interest income		Average		Interest		Interest income
	recorded		income		recognized		recorded		income		recognized
(In thousands)	investment		recognized		cash basis		investment		recognized		cash basis
Commercial real estate	$	867	$	—	$	—	$	1,185	$	—	$	—
Construction and land development		144		—		—		145		—		—
Commercial and industrial		2,258		28		—		2,373		85		—
Residential real estate		670		—		—		765		—		—
Leasing		993		—		—		873		—		—
Tax certificates		903		—		—		991		—		—
Total:	$	5,835	$	28	$	—	$	6,332	$	85	$	—

The following tables present the average recorded investment in impaired loans and the related interest income recognized for the three months ended March 31, 2017 and 2016.

	For the three months ended September 30, 2015						For the nine months ended September 30, 2015
	For the three months ended March 31, 2017
	Average		Interest		Interest income		~~Average~~		~~Interest~~		~~Interest income~~
	recorded		income		recognized		~~recorded~~		~~income~~		~~recognized~~
(In thousands)	investment		recognized		cash basis		~~investment~~		~~recognized~~		~~cash basis~~
Commercial real estate	$	41,~~256~~267	$	33—	$	97—	$	~~5,599~~	$	97	$	~~232~~
Construction and land development		~~471~~140		—		—		~~562~~		—		—
Commercial and industrial		32,~~570~~099		4425		—		~~4,740~~		~~142~~		—
Residential real estate		~~927~~645		—2		—		~~952~~		—		—
Leasing		~~289~~1,051		—		—		~~146~~		—		—
Tax certificates		1,~~109~~850		—		—		~~1,078~~		—		—
Total:	$	107,~~622~~052	$	7727	$	97—	$	~~13,077~~	$	~~239~~	$	~~232~~

Note 6.Other Real Estate Owned


	For the three months ended March 31, 2016
	Average		Interest		Interest income
	recorded		income		recognized
(In thousands)	investment		recognized		cash basis
Commercial real estate	$	1,418	$	—	$	—
Construction and land development		145		—		—
Commercial and industrial		2,516		30		—
Residential real estate		860		—		—
Leasing		894		—		—
Tax certificates		1,051		—		—
Total:	$	6,884	$	30	$	—

AtNote September 30, 2016, OREO was comprised of two real estate properties acquired through, or in lieu of foreclosure in settlement of loans and 47 real estate properties acquired through foreclosure related to tax liens5. ~~Set~~Other ~~forth~~Real ~~below~~Estate ~~are tables which detail the changes in OREO from January 1, 2016 to September 30, 2016 and January 1, 2015 to December 31, 2015.~~Owned

	For the nine months ended September 30, 2016
(In thousands)	Loans		Tax Liens		Total
Beginning balance	$	220	$	7,215	$	7,435
Net proceeds from sales		(6)		(1,121)		(1,127)
Net gains on sales		1		6		7
Transfers in		28		793		821
Cash additions		—		243		243
Impairment charge		—		(143)		(143)
Ending balance	$	243	$	6,993	$	7,236

At March 31, 2017, OREO was comprised of one real estate property acquired through, or in lieu of foreclosure in settlement of a loan and 30 real estate properties acquired through foreclosure related to tax liens. Set forth below are tables which detail the changes in OREO from January 1, 2017 to March 31, 2017 and January 1, 2016 to December 31, 2016.


	For the three months ended March 31, 2017
(In thousands)	Loans		Tax Liens		Total
Beginning balance	$	236	$	3,300	$	3,536
Net proceeds from sales		(33)		(1,730)		(1,763)
Net gains on sales		5		382		387
Transfers in		—		44		44
Cash additions		—		33		33
Impairment charge		—		(106)		(106)
Ending balance	$	208	$	1,923	$	2,131

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	For the year ended December 31, 2015
	For the year ended December 31, 2016
(In thousands)	Loans		Tax Liens		Total
Beginning balance	$	~~349~~220	$	97,~~430~~215	$	97,~~779~~435
Net proceeds from sales		(~~1,735~~7)		(45,~~730~~458)		(65,465)
Net gain on sales		601		~~859~~677		~~919~~678
Transfers in		~~1,671~~28		~~2,671~~831		~~4,342~~859
Cash additions		—		~~558~~290		~~558~~290
Transfer to loans		—		(995)		(995)
Impairment charge		(6)		(255)		(261)
Impairment charge		(125)		(578)		(703)
Ending balance	$	236	$	3,300	$	3,536
Ending balance	$	220	$	7,215	$	7,435

At ~~September~~March 3031, ~~2016~~2017, OREO was comprised of $~~215~~208 thousand in land, and $71.09 million in tax liens~~, and $28 thousand in residential real estate related to a single family home~~. The properties acquired through the tax lien portfolio were primarily located in New Jersey.

Note 76.Deposits

Our deposit composition as of ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 is presented below:

	September 30,		December 31,
	March 31,		December 31,
(In thousands)	~~2016~~2017		~~2015~~2016
Non-interest bearing checking	$	9098,~~709~~391	$	8397,~~529~~859
NOW		42,295		42,558
Interest checking		45,827		47,835
Interest-bearing brokered deposits		—		25,000
Money Market		162,511		165,305
Money Market		159,532		165,251
Savings		91,749		85,170
Savings		81,331		53,833
Certificates of deposit ($250 and over)		21,576		19,520
Time deposits ($250 and over)		14,211		18,066
Certificates of deposit (less than $250)		187,368		192,368
Time deposits (less than $250)		204,161		189,655
Brokered deposits		37,003		21,489
Total deposits	$	~~592~~644,~~239~~425	$	~~577~~629,~~892~~546

Note 87.Borrowings and Subordinated Debentures

Advances from the Federal Home Loan Bank

As of ~~September~~March 3031, ~~2016~~2017, Royal Bank had $~~283~~248.31 million of available borrowing capacity at the FHLB, which is based on qualifying collateral. Total advances from the FHLB were $6556.0 million at ~~September~~March 3031, ~~2016~~2017 and $5469.0 million at December 31, ~~2015~~2016. The advances and the line of credit are collateralized by FHLB stock, government agency securities mortgage-backed securities, and a blanket lien on certain real estate loans. As of ~~September~~March 3031, ~~2016~~2017, investment securities with a market value of $1319.20 million were pledged as collateral to the FHLB for the borrowings.

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

	As of				As of
	September 30, 2016				December 31, 2015
	March 31, 2017				December 31, 2016
(Dollars in thousands)	Amount		Rate		Amount		Rate
Advances maturing in
2016	$	15,000	0.57	%	$	19,000	0.85	%
2017	$	31,000	1.24	%	$	44,000	1.19	%
2017		25,000	1.46	%		25,000	1.46	%
2018		10,000	2.01	%		10,000	2.01	%
2021		15,000	1.40	%		—15,000	—1.40	%
Total FHLB borrowings	$	6556,000			$	5469,000

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Other borrowings

WeAt ~~had~~March a31, ~~note~~2017 ~~payable~~and ~~with~~December ~~PNC~~31, ~~Bank~~2016, ~~(“PNC”)~~we inhad ~~the~~additional ~~amount~~borrowings of $235.0 million atfrom ~~December~~PNC ~~31,~~which ~~2015. The~~will ~~note~~mature ~~was paid~~ on ~~its maturity date of August~~January 257, ~~2016~~2018. ~~The~~These ~~interest~~borrowings ~~rate~~have ~~was~~ a ~~variable~~weighted average interest rate ~~equal~~of to3.65%. ~~one~~The ~~month~~borrowings ~~LIBOR~~are +secured 15by ~~basis~~government ~~points~~agency securities and ~~adjusted~~mortgage-backed ~~monthly~~securities.

AtRoyal ~~September~~Bank ~~30,~~has ~~2016~~an ~~and December 31, 2015, we had~~ additional ~~borrowings of~~ $3520.0 million ~~from~~in ~~PNC~~lines ~~which~~of ~~will~~credit ~~mature~~with ontwo ~~January 7,~~local ~~2018. These~~financial ~~borrowings~~institutions, ~~have~~of awhich ~~weighted~~$0 ~~average~~was ~~interest~~outstanding ~~rate~~at ofMarch ~~3.65%.~~31, ~~The~~2017 ~~note payable~~ and ~~the~~December ~~borrowings~~31, ~~are~~2016, ~~secured by government agency securities and mortgage-backed securities~~respectively.

Royal Bank has an additional $20.0 million in lines of credit with two local financial institutions, of which $0 was outstanding at September 30, 2016 and December 31, 2015, respectively.

Subordinated debentures

We have outstanding $25.8 million of Trust Preferred Securities issued through two Delaware trust affiliates, Royal Bancshares Capital Trust I (“Trust I”) and Royal Bancshares Capital Trust II (“Trust II”) (collectively, the “Trusts”). We issued an aggregate principal amount of $12.9 million of floating rate junior subordinated debt securities to Trust I and an aggregate principal amount of $12.9 million of fixed/floating rate junior subordinated debt securities to Trust II. Both debt securities bear an interest rate of 3.0028% at ~~September~~March 3031, ~~2016~~2017, and reset quarterly at 3-month LIBOR plus 2.15%.

Each of Trust I and Trust II issued an aggregate principal amount of $12.5 million of capital securities initially bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust to an unaffiliated investment vehicle and issued to the Company an aggregate principal amount of $387 thousand of common securities bearing fixed and/or fixed/floating interest rates corresponding to the debt securities held by each trust. We have fully and unconditionally guaranteed all of the obligations of the Trusts, including any distributions and payments on liquidation or redemption of the capital securities.

~~Under the MOU as described in “~~Note 2 — Regulatory Matters and Significant Risks or Uncertainties” to the Consolidated Financial Statements, the Company and its non-bank subsidiaries may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Federal Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System8. WeDerivative ~~received~~Instruments ~~approval~~ and ~~paid~~Hedging ~~the required interest payments in March, June, and September of 2016.~~Activity

~~Note~~In 92014 we entered into a forward-starting interest rate swap agreement to hedge the risk of variability in cash flows attributable to changes in the 3 month LIBOR rate.~~Derivative~~ ~~Instruments~~This particular hedging objective was to reduce the interest rate risk associated with our forecasted issuances of 3 month fixed rate debt arising from a rollover strategy of an FHLB advance, which matured in June 2016. We have and ~~Hedging~~will ~~Activity~~continue to rollover the FHLB advance through the swap expiration of June 2021. This derivative was used as part of the asset/liability management process, is linked to a specific liability and has a high correlation between the contract and the underlying item being hedged, both at inception and throughout the hedge period. The derivative was designated as a cash flow hedge with the change in fair value recorded as an adjustment through other comprehensive income (loss) until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. As of March 31, 2017, an investment security with a fair value of $650 thousand was pledged as collateral to the counterparty of this transaction.

InThe ~~the~~effects ~~fourth quarter~~ of ~~2014, we entered into a forward-starting interest rate swap agreement to hedge~~ the ~~risk~~derivative ofinstrument ~~variability~~on ~~in cash flows attributable to changes in~~ the 3Consolidated ~~month~~Financial ~~LIBOR~~Statements ~~rate.~~at ~~This~~March ~~particular hedging objective was to reduce the interest rate risk associated with our forecasted issuances of 3 month fixed rate debt arising from a rollover strategy of an FHLB advance~~31, ~~which~~2017 ~~matured in June 2016. We have~~ and ~~will~~December ~~continue to rollover the FHLB advance through the swap expiration of June 2021. This derivative was used as part of the asset/liability management process~~31, is2016 ~~linked to a specific liability~~ and ~~has~~for ~~a high correlation between~~ the ~~contract~~three ~~and~~months ~~the~~ended ~~underlying~~March ~~item being hedged~~31, ~~both~~2017 atwere ~~inception and throughout the hedge period. The derivative was designated~~ as a cash flow hedge with the change in fair value recorded as an adjustment through other comprehensive income (loss) until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. follows:


	As of March 31, 2017
	Notional
	Contract				Balance Sheet	Expiration
(In thousands)	Amount		Fair Value		Location	Date
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	15,000	$	(426)	Other liabilities	June 24, 2021
Total:	$	15,000	$	(426)

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The effects of the derivative instrument on the Consolidated Financial Statements at September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016 and 2015 were as follows:


	As of December 31, 2016
	Notional
	Contract				Balance Sheet	Expiration
(In thousands)	Amount		Fair Value		Location	Date
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	15,000	$	(494)	Other liabilities	June 24, 2021
Total:	$	15,000	$	(494)

	As of September 30, 2016
	For the three months ended March 31, 2017
	Notional
	Amount of Gain		Location of Loss		Amount of Loss
	Contract				Balance Sheet		Expiration
	Recognized		Recognized		Recognized
(In thousands)	Amount		Fair Value		Location		Date
	in OCI		in Income		in Income
Derivatives designated as hedging instruments
	on Derivatives		on Derivatives		on Derivatives
Interest rate swaps:
(In thousands)	(Effective Portion)		(Ineffective Portion)		(Ineffective Portion)
Effective June 24, 2016	$	15,000	$	(1,030)	Other liabilities		June 24, 2021
Derivatives designated as hedging instruments
Total:	$	15,000	$	(1,030)
Interest rate swaps:
Effective June 24, 2016	$	45	Not Applicable		$	—
Total:	$	45			$	—

	As of December 31, 2015
	For the year ended December 31, 2016
	Notional
	Amount of Gain		Location of Loss		Amount of Loss
	Contract				Balance Sheet		Expiration
	Recognized		Recognized		Recognized
(In thousands)	Amount		Fair Value		Location		Date
	in OCI		in Income		in Income
Derivatives designated as hedging instruments
	on Derivatives		on Derivatives		on Derivatives
Interest rate swaps:
(In thousands)	(Effective Portion)		(Ineffective Portion)		(Ineffective Portion)
Effective June 24, 2016	$	15,000	$	(555)	Other liabilities		June 24, 2021
Derivatives designated as hedging instruments
Total:	$	15,000	$	(555)
Interest rate swaps:
Effective June 24, 2016	$	40	Not Applicable		$	—
Total:	$	40			$	—

	For the three months ended September 30, 2016
	For the three months ended March 31, 2016
	Amount of Gain		Location of Loss	Amount of Loss
	Amount of Loss		Location of Loss	Amount of Loss
	Recognized		Recognized	Recognized
	in OCI		in Income	in Income
	on Derivatives		on Derivatives	on Derivatives
(In thousands)	(Effective Portion)		(Ineffective Portion)	(Ineffective Portion)
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	~~131~~(322)	Not Applicable	$	—
Total:	$	~~131~~(322)		$	—

	For the nine months ended September 30, 2016
	Amount of Loss		Location of Loss	Amount of Loss
	Recognized		Recognized	Recognized
	in OCI		in Income	in Income
	on Derivatives		on Derivatives	on Derivatives
(In thousands)	(Effective Portion)		(Ineffective Portion)	(Ineffective Portion)
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	(314)	Not Applicable	$	—
Total:	$	(314)		$	—

Note 9.Commitments, Contingencies, and Concentrations

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance

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	For the year ended December 31, 2015
	Amount of Loss		Location of Loss	Amount of Loss
	Recognized		Recognized	Recognized
	in OCI		in Income	in Income
	on Derivatives		on Derivatives	on Derivatives
(In thousands)	(Effective Portion)		(Ineffective Portion)	(Ineffective Portion)
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	(366)	Not Applicable	$	—
Total:	$	(366)		$	—

sheets. The contract amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

	For the three months ended September 30, 2015
	Amount of Loss		Location of Loss	Amount of Loss
	Recognized		Recognized	Recognized
	in OCI		in Income	in Income
	on Derivatives		on Derivatives	on Derivatives
(In thousands)	(Effective Portion)		(Ineffective Portion)	(Ineffective Portion)
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	(282)	Not Applicable	$	—
Total:	$	(282)		$	—

	For the nine months ended September 30, 2015
	Amount of Loss		Location of Loss	Amount of Loss
	Recognized		Recognized	Recognized
	in OCI		in Income	in Income
	on Derivatives		on Derivatives	on Derivatives
(In thousands)	(Effective Portion)		(Ineffective Portion)	(Ineffective Portion)
Derivatives designated as hedging instruments
Interest rate swaps:
Effective June 24, 2016	$	(467)	Not Applicable	$	—
Total:	$	(467)		$	—

Note 10.Commitments, Contingencies, and Concentrations

Our exposure to credit loss in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

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The contract amounts are as follows:

	September 30,		December 31,
	March 31,		December 31,
(In thousands)	~~2016~~2017		~~2015~~2016
Financial instruments whose contract amounts represent credit risk:
Open-end lines of credit	$	7585,~~620~~443	$	7274,~~988~~858
Commitments to extend credit		3113,~~745~~886		843,~~497~~344
Standby letters of credit and financial guarantees written		~~257~~37		~~515~~37

In March 2016, we commenced renovations on our 3-story building in Narberth, Pennsylvania. It is the site of Royal Bank’s main branch location. The branch will remain open during construction. We expect the project to be completed later this year for an approximate cost of $1.4 million. It is our intention to lease the second and third floors as a revenue source.

Legal Proceedings

From time to time, we are a party to routine legal proceedings within the normal course of business. Such routine legal proceedings in the aggregate are believed by management to be immaterial to our financial condition or results of operations.

~~Note~~On January 30, 2017, the Company and Bryn Mawr Bank Corporation, (“BMBC”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, upon satisfaction of the conditions set forth in the Merger Agreement, the Company will merge with and into BMBC, with BMBC being the surviving corporation (the “Merger”). On April 11, 2017, a purported shareholder filed a lawsuit in the United States District Court, Eastern District of Pennsylvania, against members of the Company’ board of directors, BMBC and the Company.~~Shareholders~~ The lawsuit, which is captioned Parshall v. Royal Bancshares of Pennsylvania, Inc., et al., Case No. 2:17-cv-01641-PBT alleges class claims on behalf of all Company shareholders and based on allegations of material misstatements and omissions in this proxy statement/prospectus and violations of the Securities Exchange Act of 1934. The lawsuit seeks, among other remedies, to enjoin the Merger or, in the event the Merger is completed, rescission of the Merger or rescissory damages; to direct defendants to account for unspecified damages; and costs of the lawsuit, including attorneys’ ~~Equity~~and experts’ fees. As of the date of this filing, the Company cannot reasonably predict the outcome of the lawsuit or, in the event of an adverse outcome, the potential loss or range of possible loss relating to the lawsuit.

1 Note 10.Shareholders’ ~~Preferred Stock~~Equity

On February 20, 2009, as part of the Capital Purchase Program (“CPP”) established by the U.S. Department of the Treasury (“Treasury”), we issued to Treasury 30,407 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, without par value per share (the “Series A preferred stock”), and a liquidation preference of $1~~,000 per share~~. In ~~conjunction~~Common with the purchase of the Series A preferred stock, Treasury received a warrant to purchase 1,104,370 shares of our Class A common stock. The aggregate purchase price for the Series A preferred stock and warrant was $30.4 million in cash. The Series A preferred stock qualifies as Tier 1 capital and originally paid cumulative dividends at a rate of 5% per annum. In February 2014, the cumulative dividend rate on the Series A Preferred Stock increased to 9% per annum. The Series A preferred stock may generally be redeemed by us at any time following consultation with our primary banking regulators. The warrant issued to Treasury has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $4.13 per share of the common stock. As a result of the shareholders’ rights offering in 2014, the number of warrants to purchase the Company’s Class A common stock adjusted to 1,368,040 and the warrant exercise price decreased to $3.33 per share of the common stock.

In the second quarter of 2014, we received approval from the Federal Reserve Bank to bid up to $14.0 million, which was raised in a private placement, to purchase shares of the Series A preferred stock in an auction of such shares conducted by the Treasury. The Series A preferred stock was priced in the auction at $1,207.11 per share for all 30,407 shares of Series A preferred stock outstanding. We were allocated 11,551 shares of Series A preferred stock for repurchase at the clearing price of $1,207.11.

During the first nine months of 2016, we received approval from the Federal Reserve Bank to repurchase 6,651 shares of the outstanding Series A preferred stock for $10.0 million or a weighted average price of $1,502.39 per share. We utilized existing cash on-hand to complete the repurchase, and after taking into consideration the repurchase price, we eliminated approximately $260 thousand in dividends in arrears. As disclosed previously, we have received regulatory approval to repurchase or redeem the remaining 12,205 shares. We intend to retire all of the remaining shares of Series A preferred stock outstanding as a result of receipt of such approvals, including purchases in privately negotiated transactions or in accordance with the redemption provisions of the Series A preferred stock.

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2. Common Stock

Our Class A common stock trades on the NASDAQ Global Market under the symbol RBPAA. There is no market for our Class B common stock. The Class B shares may not be transferred in any manner except to the holder’s immediate family. Class B shares may be converted to Class A shares at the rate of 1.15 to 1. Shareholders are entitled to one vote for each Class A share and ten votes for each Class B share held. Holders of either class of common stock are entitled to conversion equivalent per share dividends when declared.

32. Payment of Dividends

Under the Pennsylvania Business Corporation Law, the Company may pay dividends only if it is solvent and would not be rendered insolvent by the dividend payment. There are also restrictions set forth in the Pennsylvania Banking Code of 1965 (the “Code”) and in the Federal Deposit Insurance Act (“FDIA”) affecting the payment of dividends to the Company by Royal Bank. Under the Code, no dividends may be paid by a bank except from “accumulated net earnings” (generally retained earnings). In addition, dividends paid by Royal Bank to the Company would be prohibited if the effect thereof would cause Royal Bank’s capital to be reduced below applicable minimum capital requirements.

On August 13, 2009, the Company’s Board suspended the regular quarterly cash dividends on the Series A preferred stock. The Company’s Board took this action in consultation with the Federal Reserve Bank of Philadelphia as required by regulatory policy guidance. In February 2014, the preferred cumulative dividend rate prospectively increased to 9% per annum. As of September 30, 2016, the Series A preferred stock dividend in arrears, which includes additional dividends on arrearages, was approximately $7.1 million and has not been recognized in the consolidated financial statements. In the event we declared the preferred dividend in arrears our capital ratios would be negatively affected; however, they would remain above the required minimum ratios. Under the Federal Reserve Bank MOU as described in “Note 2 — Regulatory Matters and Significant Risks or Uncertainties” to the Consolidated Financial Statements, the Company may not declare or pay any dividends without the prior written approval of the Federal Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System. As mentioned previously, we intend to retire all of the remaining shares of the Series A Preferred stock by the end of 2016, thus eliminating future dividends.28

~~Note~~Table ~~12.Regulatory~~of ~~Capital Requirements~~Contents

retained earnings). In addition, dividends paid by Royal Bank to the Company would be prohibited if the effect thereof would cause Royal Bank’s capital to be reduced below applicable minimum capital requirements.

Note 11.Regulatory Capital Requirements

The Company and Royal Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Royal Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

In July 2013, the federal bank regulatory agencies adopted the final ~~rules~~reforms toon ~~revise the agencies’~~ capital ~~adequacy~~and ~~guidelines~~liquidity ~~and~~generally ~~prompt~~referred ~~corrective~~to ~~action~~as ~~rules~~“Basel III”, which were ~~designed~~published toby ~~enhance~~the ~~such~~Basel ~~requirements~~Committee ~~and~~on ~~implement~~Banking Supervision and the ~~revised~~Financial ~~standards~~Stability ofBoard. The agencies view the ~~Basel~~new ~~Committee~~capital onrequirements ~~Banking~~as ~~Supervision~~a better reflection of banking organizations’ risk profiles, ~~commonly~~thereby ~~referred~~improving tothe asoverall ~~Basel~~resiliency ~~III.~~of ~~The~~the ~~July~~banking ~~2013~~system. ~~final~~The rules generally implement higher minimum capital requirements, add a new common equity tier 1 capital requirement or “CET1”, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital, or tier 2 capital. Basel ~~The~~III ~~new~~also ~~minimum~~introduced ~~capital~~a ~~to risk~~non-risk adjusted ~~assets requirements are a common equity~~ tier 1 ~~capital~~leverage ratio of ~~4.5~~3%, ~~(6.5%~~based toon ~~be considered “well capitalized”) and~~ a ~~tier~~measure ~~1 capital ratio~~ of ~~6.0%,~~total ~~increased~~exposure ~~from~~rather ~~4.0%~~than ~~(and increased from 6.0% to 8.0% to be considered “well capitalized”); the~~ total ~~capital~~assets, ~~ratio~~and ~~remains at 8.0% under the~~ new ~~rules~~liquidity ~~(10~~requirements.~~0% to be considered “well capitalized”).~~

Under the ~~new~~ rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of ~~common~~CET1 ~~equity tier 1 capital~~ above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The new minimum capital requirements ~~were~~became effective on January 1, 2015. The capital conservation buffer requirements phase in over a three-year period beginning January 1, 2016. Effective January 1, 2019 the capital conservation buffer will effectively raise the minimum required common equity tier 1 capital ratio to 7.0%, the tier 1 capital ratio to 8.5%, and the total capital to 10.0%. Management believes that as of March 31, 2017, the Company and Royal Bank would meet all capital adequacy requirements under the Basel III rules on a fully phased in basis as if all such requirements were currently in effect. As of March 31, 2017, the Company and Royal Bank satisfied the criteria for a well-capitalized institution.

30In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Call Report instructions and under regulatory accounting principles (“RAP”), that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis. Royal Bank’s current accrual method is in accordance with U.S. GAAP. Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for March 31, 2017 and the previous 26 quarters in accordance with U.S. GAAP. The change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s and the Company’s capital ratios as shown below. The resolution of this matter will be decided by additional joint regulatory agency guidance which includes the Federal Reserve Bank, the FDIC, and the OCC.

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conservation buffer requirements phase in over a three-year period beginning January 1, 2016. Effective January 1, 2019 the capital conservation buffer will effectively raise the minimum required common equity tier 1 capital ratio to 7.0%, the tier 1 capital ratio to 8.5%, and the total capital to 10.0%. Management believes that as of September 30, 2016, the Company and Royal Bank would meet all capital adequacy requirements under the Basel III rules on a fully phased in basis as if all such requirements were currently in effect. As of September 30, 2016, the Company and Royal Bank satisfied the criteria for a well-capitalized institution.

In connection with a prior bank regulatory examination, the FDIC concluded, based upon its interpretation of the Call Report instructions and under regulatory accounting principles (“RAP”), that income from Royal Bank’s tax lien business should be recognized on a cash basis, not an accrual basis. Royal Bank’s current accrual method is in accordance with U.S. GAAP. Royal Bank disagrees with the FDIC’s conclusion and filed the Call Report for September 30, 2016 and the previous 24 quarters in accordance with U.S. GAAP. The change in the method of revenue recognition for the tax lien business for regulatory accounting purposes affects Royal Bank’s and the Company’s capital ratios as shown below. The resolution of this matter will be decided by additional joint regulatory agency guidance which includes the Federal Reserve Bank, the FDIC, and the OCC.

The table below sets forth Royal Bank’s capital ratios under RAP based on the FDIC’s interpretation of the Call Report instructions:

	At September 30, 2016
	At March 31, 2017
									To be well capitalized
					For capital				under prompt corrective
	Actual				adequacy purposes				action provision
(Dollars in thousands)	Amount		Ratio		Amount		Ratio*		Amount		Ratio
Total capital (to risk-weighted assets)	$	9079,~~551~~130	1412.~~794~~320	%	$	5259,~~792~~411	89.~~625~~250	%	$	6164,~~208~~228	10.000	%
Tier 1 capital (to risk-weighted assets)	$	8270,~~868~~998	1311.~~539~~054	%	$	4046,~~550~~566	67.~~625~~250	%	$	4851,~~966~~383	8.000	%
Tier 1 capital (to average assets, leverage)	$	8270,~~868~~998	108.~~354~~619	%	$	32,~~015~~950	4.000	%	$	4041,~~019~~188	5.000	%
Common equity Tier 1 (to risk-weighted assets)	$	6570,~~242~~437	10.~~659~~967	%	$	3136,~~369~~931	5.~~125~~750	%	$	3941,~~785~~748	6.500	%

*Ratios related to risk-weighted assets include the capital conservation buffer of 01.~~625~~25%.

The tables below reflect the adjustments to the net income as well as the capital ratios for Royal Bank under U.S. GAAP:

	For the nine
	For the three months ended
	months ended
(In thousands)	March 31, 2017
(In thousands)	September 30, 2016
RAP net income	$	757
RAP net income	$	4,410
Tax lien adjustment, net of noncontrolling interest		1,298
Tax lien adjustment, net of noncontrolling interest		1,560
U.S. GAAP net income	$	2,055
U.S. GAAP net income	$	5,970


	At March 31, 2017
	As reported		As adjusted
	under RAP		for U.S. GAAP
Total capital (to risk-weighted assets)	12.320	%	12.502	%
Tier 1 capital (to risk-weighted assets)	11.054	%	11.236	%
Tier 1 capital (to average assets, leverage)	8.619	%	8.765	%
Common equity Tier 1 (to risk-weighted assets)	10.967	%	11.148	%

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	At September 30, 2016
	As reported		As adjusted
	under RAP		for U.S. GAAP
Total capital (to risk-weighted assets)	14.794	%	15.016	%
Tier 1 capital (to risk-weighted assets)	13.539	%	13.761	%
Tier 1 capital (to average assets, leverage)	10.354	%	10.530	%
Common equity Tier 1 (to risk-weighted assets)	10.659	%	10.889	%

The tables below reflect the Company’s capital ratios:

At September 30, 2016

At March 31, 2017

To be well capitalized

For capital

under the Federal

Actual

adequacy purposes

Reserve's regulations

(Dollars in thousands)

Amount

Ratio

Amount

Ratio*

Amount

Ratio

Total capital (to risk-weighted assets)

~~100~~86,~~544~~088

1613.~~361~~341

5359,~~003~~689

89.~~625~~250

6164,~~453~~529

10.00

Tier 1 capital (to risk-weighted assets)

9070,~~606~~816

1410.~~744~~974

4046,~~713~~783

67.~~625~~250

3638,~~872~~717

6.00

Tier 1 capital (to average assets, leverage)

9070,~~606~~816

118.~~220~~529

3233,~~303~~211

4.000

N/A

Common equity Tier 1 (to risk-weighted assets)

5552,~~124~~431

8.~~970~~125

3137,~~495~~104

5.~~125~~750

N/A

*Ratios related to risk-weighted assets include capital conservation buffer of 0.625%. 30

The Company has filed the Consolidated Financial Statements for Bank Holding Companies-FR Y-9C (“FR Y-9C”) as of September 30, 2016 consistent with U.S. GAAP and the FR Y-9C instructions. In the event that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the nine
	months ended
(In thousands)	September 30, 2016
U.S. GAAP net income	$	6,253
Tax lien adjustment, net of noncontrolling interest		(1,560)
RAP net income	$	4,693

	At September 30, 2016
	As reported		As adjusted
	under U.S. GAAP		for RAP
Total capital (to risk-weighted assets)	16.361	%	16.143	%
Tier 1 capital (to risk-weighted assets)	14.744	%	14.439	%
Tier 1 capital (to average assets, leverage)	11.220	%	10.981	%
Common equity Tier 1 (to risk-weighted assets)	8.970	%	8.736	%

Note 13.Pension Plan

We have a noncontributory nonqualified defined benefit pension plan (“Pension Plan”) covering certain eligible employees. Our Pension Plan provides retirement benefits under pension trust agreements. The benefits are based on

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~~years~~ *Ratios ofrelated ~~service~~to ~~and~~risk-weighted ~~the~~assets ~~employee’s~~include ~~compensation~~capital ~~during~~conservation ~~the~~buffer ~~highest three consecutive years during the last 10 years~~ of ~~employment~~1.25%.

~~Net~~The ~~periodic~~Company ~~defined~~has ~~benefit~~filed ~~pension~~the ~~expense~~Consolidated Financial Statements for ~~the~~Bank ~~three~~Holding ~~and~~Companies-FR ~~nine~~Y-9C ~~months~~(“FR ~~ended~~Y-9C”) ~~September~~as 30of March 31, ~~2016~~2017 consistent with U.S. GAAP and ~~2015~~the ~~included~~FR Y-9C instructions. In the ~~following~~event ~~components:~~that a similar adjustment for RAP purposes would be required by the Federal Reserve on the holding company level, the adjusted ratios are shown in the table below.

	For the three months ended				~~For the nine months ended~~
	September 30,				September 30,
(In thousands)	March 31, 2017
(In thousands)	2016		2015		2016		2015
U.S. GAAP net income	$	1,812
Service cost	$	11	$	17	$	35	$	49
Tax lien adjustment, net of noncontrolling interest		(1,298)
Interest cost		143		135		428		403
RAP net income	$	514
Amortization of prior service cost		—		22		—		68
Amortization of actuarial loss		43		46		129		140
Net periodic benefit cost	$	197	$	220	$	592	$	660

We plan to fund a substantial portion of the pension plan obligations through existing Company owned life insurance policies. The cash surrender value for these policies was approximately $4.4 million and $3.8 million as of September 30, 2016 and December 31, 2015, respectively. The accumulated benefit obligation was $15.1 million as of September 30, 2016 compared to $14.9 million at December 31, 2015.


	At March 31, 2017
	As reported		As adjusted
	under U.S. GAAP		for RAP
Total capital (to risk-weighted assets)	13.341	%	13.162	%
Tier 1 capital (to risk-weighted assets)	10.974	%	10.727	%
Tier 1 capital (to average assets, leverage)	8.529	%	8.333	%
Common equity Tier 1 (to risk-weighted assets)	8.125	%	7.938	%

Note 1412.~~Earnings~~Pension ~~Per Common Share~~Plan

We ~~follow~~have ~~the~~a ~~provisions~~noncontributory ofnonqualified ~~FASB~~defined ~~ASC~~benefit ~~Topic~~pension ~~260,~~plan ~~“Earnings per Share”~~ (“~~ASC~~Pension ~~Topic 260~~Plan”)~~. Basic~~ ~~earnings~~covering ~~per~~certain ~~share~~eligible ~~(“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period~~employees. WeOur ~~have~~Pension ~~two~~Plan ~~classes~~provides ofretirement ~~common~~benefits ~~stock~~under ~~currently~~pension ~~outstanding.~~trust agreements. The ~~classes~~benefits are Abased ~~and~~on B,years of ~~which~~service one share of Class B is convertible into 1.15 shares of Class A. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and ~~converted into common stock using~~ the ~~if-converted~~employee’s ~~method.~~compensation ~~For~~during the highest three ~~and~~consecutive ~~nine~~years ~~months~~during ~~ended September 30, 2016 and 2015, 68,139 and 101,655 options to purchase shares of common stock, respectively, were anti-dilutive in~~ the ~~computation~~last of10 years ~~diluted EPS, as the exercise price exceeded average market price in each~~ of ~~those periods~~employment. ~~Additionally, warrants to purchase 1,368,040 shares of Class A common stock were also anti-dilutive.~~

~~Basic~~Net ~~and~~periodic ~~diluted~~defined ~~EPS~~benefit ~~are~~pension ~~calculated~~expense asfor ~~follows~~the three months ended March 31, 2017 and 2016 included the following components:

	For the three months ended September 30, 2016
	For the three months ended
	Income		Average shares		Per share
	March 31,
(In thousands, except for per share data)	(numerator)		(denominator)		Amount
(In thousands)	2017		2016
Basic EPS
Service cost	$	13	$	12
Income available to common shareholders	$	1,688	30,086		$	0.06
Interest cost		138		142
Diluted EPS
Amortization of actuarial loss		50		43
Income available to common shareholders	$	1,688	30,158		$	0.06
Net periodic benefit cost	$	201	$	197

	For the three months ended September 30, 2015
	Income		Average shares	Per share
(In thousands, except for per share data)	(numerator)		(denominator)	Amount
Basic EPS
ncome available to common shareholders	$	1,100	30,043	$	0.04
Diluted EPS
Income available to common shareholders	$	1,100	30,074	$	0.04

We plan to fund a substantial portion of the pension plan obligations through existing Company owned life insurance policies. The cash surrender value for these policies was approximately $4.8 million and $4.7 million as of March 31, 2017 and December 31, 2016, respectively. The accumulated benefit obligation was $15.2 million at March 31, 2017 and December 31, 2016.

33Note 13.Earnings Per Common Share

We follow the provisions of FASB ASC Topic 260, “Earnings per Share” (“ASC Topic 260”). Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholders by the weighted average

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	For the nine months ended September 30, 2016
	Income		Average shares	Per share
(In thousands, except for per share data)	(numerator)		(denominator)	Amount
Basic EPS
Income available to common shareholders	$	5,239	30,077	$	0.17
Diluted EPS
Income available to common shareholders	$	5,239	30,157	$	0.17

common shares outstanding during the period. We have two classes of common stock currently outstanding. The classes are A and B, of which one share of Class B is convertible into 1.15 shares of Class A. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the if-converted method. For the three months ended March 31, 2017 and 2016, 58,139 and 245,875 options to purchase shares of common stock, respectively, were anti-dilutive in the computation of diluted EPS, as the exercise price exceeded average market price in each of those periods. Additionally, warrants to purchase 1,368,040 shares of Class A common stock were also anti-dilutive.

	For the nine months ended September 30, 2015
	Income		Average shares	Per share
(In thousands, except for per share data)	(numerator)		(denominator)	Amount
Basic EPS
Income available to common shareholders	$	3,299	30,038	$	0.11
Diluted EPS
Income available to common shareholders	$	3,299	30,045	$	0.11

Basic and diluted EPS are calculated as follows:

Note 15.Comprehensive Income


	For the three months ended March 31, 2017
	Income		Average shares	Per share
(In thousands, except for per share data)	(numerator)		(denominator)	Amount
Basic EPS
Income available to common shareholders	$	1,812	30,122	$	0.06

Diluted EPS
Income available to common shareholders	$	1,812	30,207	$	0.06


	For the three months ended March 31, 2016
	Income		Average shares	Per share
(In thousands, except for per share data)	(numerator)		(denominator)	Amount
Basic EPS
Income available to common shareholders	$	1,855	30,061	$	0.06

Diluted EPS
Income available to common shareholders	$	1,855	30,108	$	0.06

Note 14.Comprehensive Income

FASB ASC Topic 220, “Comprehensive Income” (“ASC Topic 220”), requires the reporting of all changes in equity during the reporting period except investments from and distributions to shareholders. Net income is a component of comprehensive income (loss) with all other components referred to in the aggregate as other comprehensive income. Unrealized gains and losses on AFS securities is an example of another comprehensive income (loss) component.

	For the nine months ended September 30, 2016
	For the three months ended March 31, 2017
			Tax
	Before tax		Tax		Net of tax
	Before tax		expense		Net of tax
(In thousands)	amount		expense		amount
(In thousands)	amount		(benefit)		amount
Unrealized losses on investment securities:
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	958	$	326	$	632
Unrealized holding gains arising during period	$	3,776	$	1,434	$	2,342
Unrealized gains on investment securities		958		326		632
Less adjustment for impaired investments		(181)		(62)		(119)
Less reclassification adjustment for gains
realized in net income		1,382		470		912
Unrealized gains on investment securities		2,575		1,026		1,549
Unrecognized benefit obligation expense:
Reclassification adjustment for amortization		~~(232)~~13		—		~~(232)~~13
Unrecognized benefit obligation		~~(232)~~13		—		~~(232)~~13
Unrealized loss on derivative instrument		(475)		(161)		(314)
Unrealized gain on derivative instrument		68		23		45
Other comprehensive income, net	$	1,~~868~~039	$	~~865~~349	$	~~1,003~~690

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	For the nine months ended September 30, 2015
	For the three months ended March 31, 2016
			Tax
	Before tax		expense		Net of tax
(In thousands)	amount		(benefit)		amount
Unrealized gains on investment securities:
Unrealized holding gains arising during period	$	23,~~011~~562	$	~~691~~1,229	$	12,~~320~~333
Less reclassification adjustment for gains
realized in net income		~~652~~367		~~222~~125		~~430~~242
Unrealized gains on investment securities		13,~~359~~195		~~469~~1,104		~~890~~2,091
Unrecognized benefit obligation expense:
Reclassification adjustment for amortization		(51103)		—		(51103)
Unrecognized benefit obligation		(51103)		—		(51103)
Unrealized loss on derivative instrument		(~~708~~488)		(~~241~~166)		(~~467~~322)
Other comprehensive income, net	$	~~600~~2,604	$	~~228~~938	$	~~372~~1,666

The other components of accumulated other comprehensive loss included in shareholders’ equity at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

	September 30,		December 31,
	March 31,		December 31,
(In thousands)	~~2016~~2017		~~2015~~2016
Unrecognized benefit obligation	$	(34,~~909~~125)	$	(34,~~677~~138)
Unrealized gains on AFS investments		1,673		124
Unrealized loss on AFS investments		(123)		(755)
Unrealized loss on derivative instrument		(~~680~~281)		(~~366~~326)
Accumulated other comprehensive loss	$	(24,~~916~~529)	$	(35,~~919~~219)

Note 1615.Fair Value of Financial Instruments

Under FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”), fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, management uses quoted market prices to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques such as matrix pricing or other models that use, where possible, current market-based or independently sourced market parameters, such as interest rates. If observable market-based inputs are not available, we use unobservable inputs to determine appropriate valuation adjustments using discounted cash flow methodologies.

Management uses its best judgment in estimating the fair value of our financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts we could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each period-end.

ASC Topic 820 provides guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly declined and for identifying circumstances when a transaction is not orderly. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are as follows:


Level 1:	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

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Level 2:	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 includes debt securities with quoted prices that are traded less frequently then exchange-traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Level 3:	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. We did not have transfers of financial instruments within the fair value hierarchy during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2016~~2017 and ~~2015~~2016.

Items Measured on a Recurring Basis

Our available for sale investment securities are recorded at fair value on a recurring basis.

Fair value for Level 1 securities are determined by obtaining quoted market prices on nationally recognized securities exchanges. Level 1 securities include common stocks.

Level 2 securities include obligations of U.S. government-sponsored agencies and debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The prices were obtained from third party vendors. This category generally includes our mortgage-backed securities and CMOs issued by U.S. government and government-sponsored agencies, non-agency CMOs, and corporate and municipal bonds. Additionally, Level 2 includes derivative instruments whose valuations are based on observable market data.

Level 3 securities include investments in five private equity funds which are predominantly invested in real estate. The value of the private equity funds are derived from the funds’ financials and K-1 filings. We also review the funds’ asset values and its near-term projections.

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For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

As of September 30, 2016

Assets

Inputs

As of March 31, 2017

Assets

Inputs

(In thousands)

Level 1

Level 2

Level 3

Fair Value

Assets:

Investment securities available for sale

U.S. government agencies

—

32,~~500~~100

—

32,~~500~~100

Mortgage-backed securities-residential

—

76,~~715~~662

—

76,~~715~~662

Collateralized mortgage obligations:

Issued or guaranteed by U.S. government agencies

—

~~140~~138,~~040~~979

—

~~140~~138,~~040~~979

Non-agency

—

43,~~566~~681

—

43,~~566~~681

Corporate bonds

—

1,~~774~~726

—

1,~~774~~726

Municipal bonds

—

8,~~867~~742

—

8,~~867~~742

Other securities

—

1,~~833~~821

Common stocks

—

Total investment securities available for sale

~~166~~161,~~462~~890

1,~~833~~821

~~168~~163,~~321~~737

Liabilities:

Derivative instruments

Interest rate swaps

—

~~1,030~~426

—

~~1,030~~426

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Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

As of December 31, 2015

Assets

Inputs

As of December 31, 2016

Assets

Inputs

(In thousands)

Level 1

Level 2

Level 3

Fair Value

Assets:

Investment securities available for sale

U.S. government agencies

—

~~25,563~~966

—

~~25,563~~966

Mortgage-backed securities-residential

—

117,~~058~~038

—

117,~~058~~038

Collateralized mortgage obligations:

Issued or guaranteed by U.S. government agencies

—

~~170~~145,~~734~~559

—

~~170~~145,~~734~~559

Non-agency

—

24,~~704~~035

—

24,~~704~~035

Corporate bonds

—

1,~~556~~701

—

1,~~556~~701

Municipal bonds

—

98,~~931~~708

—

98,~~931~~708

Other securities

—

21,~~495~~821

Common stocks

—

Total investment securities available for sale

~~221~~168,~~546~~007

21,~~495~~821

~~224~~169,~~067~~854

Liabilities:

Derivative instruments

Interest rate swaps

—

~~555~~494

—

~~555~~494

The following tables present additional information about assets measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value for the three ~~and nine~~ months ended ~~September~~ 30March 31, ~~2016~~2017 and ~~2015~~2016:

(In thousands)	Other securities
Investment Securities Available for Sale	~~2016~~2017		~~2015~~2016
Beginning balance July 1,	$	1,877	$	3,006
Beginning balance January 1,	$	1,821	$	2,495
Total gains/(losses) - (realized/unrealized):
Included in earnings-net gains on sale and OTTI		10—		4301
Included in other comprehensive income		—		(9130)
Purchases		—		—73
Sales and calls		~~(54)~~—		(4308)
Transfers in and/or out of Level 3		—		—
Ending balance September 30,	$	1,833	$	2,997
Ending balance March 31,	$	1,821	$	2,431

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(In thousands)	Other securities
Investment Securities Available for Sale	2016		2015
Beginning balance January 1,	$	2,495	$	4,034
Total gains/(losses) - (realized/unrealized):
Included in earnings-net gains on sale and OTTI		945		319
Included in other comprehensive income		(445)		(551)
Purchases		104		4
Sales and calls		(1,266)		(809)
Transfers in and/or out of Level 3		—		—
Ending balance September 30,	$	1,833	$	2,997

Items Measured on a Nonrecurring Basis

Non-accrual loans and TDRs are evaluated for impairment on an individual basis under FASB ASC Topic 310 “Receivables”. The impairment analysis includes current collateral values, known relevant factors that may affect loan collectability, and risks inherent in different kinds of lending. When the collateral value or discounted cash flows less costs to sell is less than the carrying value of the loan a specific reserve (valuation allowance) is established. Loans held for sale are carried at the lower of cost or fair value. OREO is carried at the lower of cost or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the real estate. Additionally, for collateral acquired from tax liens, fair value may be established using brokers opinions due to their lower carrying value. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 are as follows:

Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

As of September 30, 2016

Assets

Inputs

As of March 31, 2017

Assets

Inputs

(In thousands)

Level 1

Level 2

Level 3

Fair Value

Assets

Impaired loans and leases

—

12,~~950~~660

Other real estate owned

—

~~1,308~~909

Loans and leases held for sale

—

205

Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

As of December 31, 2016

Assets

Inputs

(In thousands)

Level 1

Level 2

Level 3

Fair Value

Assets

Impaired loans and leases

—

6,102

Other real estate owned

—

1,471

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Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

As of December 31, 2015

Assets

Inputs

(In thousands)

Level 1

Level 2

Level 3

Fair Value

Assets

Impaired loans and leases

—

5,946

Other real estate owned

—

2,384

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at March 31, 2017 and December 31, 2016:

Filing Compare · ROYAL BANCSHARES OF PENNSYLVANIA INC