Royal Bank of Pennsylvania, whose earnings are running more than 50% ahead of last year's, is pinning its growth plans to takeovers and asset purchases.

Mortgage demand in its suburban Philadelphia service area has not been as strong as elsewhere in the country.

Thus, the $292 million asset bank, which Sept. 30 posted a Tier 1 capital ratio of 24.96%, has retained a merchant banker to find opportunities for external growth. Royal, founded in 1963 as Bank of King of Prussia, also will weigh the merits of offering nonbank products.

Surge in Earnings.

For the first nine months of this year, Royal reported earnings of $4.8 million, or $1.7 million more than in the same period of 1992. Chairman and president Lee Tabas says one reason for the jump was the purchase, late last year, of a performing loan portfolio.

Another was a one-time gain of $499,508 resulting from the June adoption of FAS 109.

Sales of nonperformers, workouts, and asset repossessions have resulted in the eighth straight quarterly drop in bad assets -- down to $17.1 millin.

"Fortunately, this is a very strong trend for us," Mr. Tabas said.

As of Sept. 30, Royal was returning 2.20% on assets and 11.1% on equity; at the same point last year, the ROA was 1.5% and the ROE 7.7%.

Tried to Keep Country Flavor

With performance as strong as this, the nine-office bank probably is in the sights of one or more Pennsylvania regionals, but Royal is not holding its breath for overtunes. "I think we see independence as our role, and our mission as high performance," said Mr. Tabas.

"Middle market lending always was our niche and, in 1980, when our current management took over, we sought to keep qualities of a country bank that was no longer out in the country," Mr. Tabas said.

Professionals and retailers -- rather than farmers -- now present Royal with middle market lending opportunities. But the bank has not, to this point, responded by offering nonbank investment vehicles.

"We're wrestling with that," Mr. Tabas said. "But we're not sure it's a good idea. As William Seidman said, 'It's easy to tell when you're reaching maturity in an industry, like the mutual fund industry, when it starts offering to waive administrative fees for a few months.'"

Thus, rather than trying to lure customers with nonbank investments, Royal will devote its marketing efforts to picking up middle market assets rather than potential depositors.

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