Royal Bancshares of Pennsylvania, Inc. Reports Third

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News Desk 2018

Oct 22, 2014 at 8:15 AM

Royal Bancshares of Pennsylvania, Inc. Reports Third Quarter Profit and Completes Shareholder Rights Offering

NARBERTH, PA--(Marketwired - Oct 22, 2014) - Royal Bancshares of Pennsylvania, Inc. ("Company") ( NASDAQ : RBPAA ), parent company of Royal Bank America ("Royal Bank"), is pleased to report net income of $1.4 million, or earnings attributable to the Company of $0.05 per diluted common share, for the third quarter of 2014 compared to net income of $342,000, or a loss attributable to the Company of $0.01 per diluted common share, for the third quarter of 2013. For the nine months ended September 30, 2014, the Company earned net income of $4.3 million, or earnings attributable to the Company of $0.15 per diluted common share, compared to a net loss of $343,000, or a loss attributable to the Company of $0.14 per diluted common share, for the same period in 2013.

Third quarter financial highlights include:

Net income improved $1.1 million from the comparable 2013 period.
Net interest margin grew 31 basis points from the comparable period in 2013.
Return on average assets and return on average equity were 0.78% and 9.67%, respectively.
Net interest income increased 10% from the comparable 2013 period.
Non-interest expenses declined 15% from the equivalent period in 2013.
Loan growth was 5% from June 30, 2014.

Financial highlights for the first nine months of 2014 include:

Net income improved $4.6 million from the comparable 2013 period.
Net interest margin grew 39 basis points from the comparable period in 2013.
Return on average assets and return on average equity were 0.78% and 10.60%, respectively.
Net interest income increased 13% from the comparable 2013 period.
Non-interest expenses declined 21% from the equivalent period in 2013.
Loan growth was 8% from December 31, 2013.

Financial results reflect continued evolvement in core business

The Company's Chief Executive Officer Kevin Tylus noted, "The announcement today of our third quarter results demonstrates the commitment and focus of Royal Bank in creating sustainable growth and continued improvement in our financial results. Loan growth, cost control discipline, and progress in overall asset quality have contributed to core earnings growth. We are experiencing success in expanding our commercial and retail relationships, while promoting our new brand through redesigned products and modern technology. Also, we are pleased that the additional common equity raised through the shareholder rights offering improved tangible common equity."

The $1.1 million quarterly improvement was mainly related to the following items:

Net interest income grew $498,000, or 10%.
Due to the improvement in overall credit quality, the Company was able to record a credit for loan and lease losses of $51,000 compared to a provision for loan and lease losses of $218,000 for the comparable period in 2013.
Other real estate owned ("OREO") expenses and impairment decreased $690,000, or 82%.
Problem loan expenses declined $60,000, or 46%.
The 2014 third quarter included $238,000 in net gains on the sale of investment securities.

The $4.6 million improvement for the first nine months of 2014 from the same period in 2013 was mainly related to the following items:

Net interest income grew $1.9 million, or 13%.
The credit for loan and lease losses improved $569,000 (from a credit of $196,000 to a credit of $765,000) due to the continued positive progress in loan credit quality.
Salaries and benefits declined $493,000, or 6%.
OREO expenses and impairment fell $849,000, or 49%.
Professional and legal fees dropped $475,000, or 23%.
Problem loan expenses declined $334,000, or 60%.
The first nine months of 2013 included a legal settlement expense related to a tax lien subsidiary, of which the Company's share was $990,000 and $230,000 in restructuring charges.

Partially offsetting these noteworthy items for the quarter and nine months ended September 30, 2014 were reductions of $419,000 and $1.1 million, respectively, in gains on the sale of premises and equipment and decreases of $456,000 and $576,000, respectively, in net gains on the sale of OREO. The Company's leasing subsidiary again contributed positively to the quarterly and year-to-date financial results.

Loans and leases held for investment at September 30, 2014 totaled $397.2 million compared to $366.5 million at December 31, 2013. The 8% net loan growth of $30.7 million was achieved notwithstanding an approximate $28.7 million decline in classified loans due to payoffs and pay downs, including payoffs of out of market loans. The commercial loan pipeline continues to strengthen. Investment securities available for sale decreased $43.3 million while total cash and cash equivalents grew $5.1 million from the levels at December 31, 2013. While deposits declined $13.2 million from $529.0 million at December 31, 2013, the deposit composition improved. Total checking and savings accounts increased $5.4 million while money market accounts and certificates of deposit declined $18.6 million. Total borrowings decreased $10.3 million since December 31, 2013. Shareholders' equity increased $14.7 million as a result of the $6.0 million completion of the shareholder rights offering, a $4.3 million recovery in the accumulated other comprehensive loss, and the 2014 year-to-date net income.

Net Interest Margin

For the third quarter of 2014, the net interest margin of 3.25% grew 31 basis points from the equivalent quarter in 2013. Net interest income increased $498,000 and $1.9 million for the three and nine months ended September 30, 2014, respectively, from their comparable periods in 2013. The quarterly and yearly increase in net interest income was primarily attributed to an increase in the interest income earned on investments, improvement in the mix of earning assets and a reduction in interest expense. Quarter over quarter average interest-bearing deposits declined $6.0 million and included a $12.0 million reduction in higher-cost time deposits partially offset by a $4.5 million increase in NOW and money market accounts. Average non-interest bearing demand deposits grew $4.7 million. While average interest-earning assets for the quarter ended September 30, 2014 decreased $5.9 million from the comparable quarter in 2013, the average yield on such assets increased 17 basis points. Average loans increased $12.6 million and average investments decreased $24.6 million. Average interest-earning cash increased $6.1 million in anticipation of future loan fundings. For the third quarter of 2014, the average rate paid on interest-bearing liabilities was 1.12% compared to 1.26% for the 2013 comparable quarter.

For the nine months ended September 30, 2014 the net interest margin was 3.25% compared to 2.86% for the same period in 2013. For the nine months ended September 30, 2014 average interest-earning assets declined $5.7 million from the same period in 2013; however, the average yield on such assets grew 25 basis points. Period over period average loans increased $10.4 million while average cash and investments declined $3.1 million and $13.0 million, respectively, primarily to fund the growth in loans. Despite the decline in average investments, the average yield on such investments grew 74 basis points. This increase in the investment average yield resulted from a decrease in premium amortization due to a reduction in principal prepayments. Period over period the average interest rate paid on interest-bearing liabilities declined 16 basis points.

Asset quality trends

Nonperforming loans were $10.8 million, $10.2 million and $13.5 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively, and the ratio of nonperforming loans to total loans was 2.7%, 2.8%, and 3.6% for the same periods. Asset quality trends led to a reduction in credit quality expenses, which include OREO and loan collection expenses, of $750,000 in the third quarter of 2014 when compared to the third quarter of 2013 and a reduction of $1.2 million for the nine months ended September 30, 2014 from the comparable period in 2013. Additionally for the first nine months of 2014, the credit for loan and lease losses increased $569,000 from a credit of $196,000 for the first nine months of 2013 to a credit of $765,000. During 2014, classified and impaired loans declined nearly $29.1 million due to pay downs, payoffs and upgrades. Non-performing assets were $20.4 million, $19.8 million and $27.4 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

Shareholder rights offering completed

In August, the Company successfully completed a shareholder rights offering that was over-subscribed by nearly three times in the oversubscription portion of the offering. The Company issued approximately 5,000,000 shares of its Class A common stock in the offering and received gross proceeds from the offering of approximately $6.0 million, which improved tangible common equity.

Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc., headquartered in Narberth, Pennsylvania, is the parent company of Royal Bank America, which for the past 50 years has played a lead role in the growth and development of our region by empowering small businesses, entrepreneurs and individuals to achieve their financial goals and enrich our communities. More information on Royal Bancshares of Pennsylvania, Inc., Royal Bank America and its subsidiaries can be found at www.royalbankamerica.com .

Forward-Looking Statements

The foregoing material may contain forward-looking statements. We caution that such statements may be subject to a number of uncertainties, and actual results could differ materially; therefore, readers should not place undue reliance on any forward-looking statements. Royal Bancshares of Pennsylvania, Inc. does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. For a discussion of the factors that could cause actual results to differ from the results discussed in any such forward-looking statements, see the filings made by Royal Bancshares of Pennsylvania, Inc. with the Securities and Exchange Commission, including its Annual Report -- Form 10-K for the year ended December 31, 2013.

ROYAL BANCSHARES OF PENNSYLVANIA, INC. CONDENSED INCOME STATEMENTS (unaudited, dollars in thousands, except per share data)



		Three months						Nine months
		ended September 30th						ended September 30th
		2014			2013			2014			2013
Interest income		$	7,191		$	6,960		$	21,551		$	20,455
Interest expense			1,623			1,890			4,870			5,667
Net Interest Income			5,568			5,070			16,681			14,788
(Credit) provision for loan and lease losses			(51	)		218			(765	)		(196	)
Net interest income after provision			5,619			4,852			17,446			14,984
Non-interest income			1,204			1,937			2,792			4,306
Non-interest expense			5,375			6,290			15,728			19,997
Income (loss) before taxes			1,448			499			4,510			(707	)
Income taxes			-			-			-			-
Net Income (Loss)			1,448			499			4,510			(707	)
Less net income (loss) attributable to noncontrolling interest			25			157			212			(364	)
Net Income (Loss) Attributable to Royal Bancshares		$	1,423		$	342		$	4,298		$	(343	)
	Less Preferred stock Series A accumulated dividend and accretion	$	152		$	520		$	1,644		$	1,553
Net income (loss) to common shareholders		$	1,271		$	(178	)	$	2,654		$	(1,896	)
Income (Loss) Per Common Share - Basic and Diluted		$	0.05		$	(0.01	)	$	0.15		$	(0.14	)

SELECTED RATIOS:



	Three months						Nine months
	ended September 30th						ended September 30th
	2014			2013			2014			2013
Return on Average Assets		0.78	%		0.18	%		0.78	%		-0.06	%
Return on Average Equity		9.67	%		2.60	%		10.60	%		-0.82	%
Average Equity to Assets		8.06	%		7.09	%		7.40	%		7.49	%
Book Value Per Share	$	1.45		$	1.38		$	1.45		$	1.38

	At			At
	September 30,			December 31,
Capital ratios (US GAAP):	2014			2013
Royal Bank Tier I Leverage		10.4	%		9.8	%
Royal Bank Total Risk Based Capital		16.6	%		16.6	%
Company Tier I Leverage		11.8	%		9.9	%
Company Total Risk Based Capital		19.4	%		18.2	%

CONDENSED BALANCE SHEETS (unaudited, in thousands)



			At September 30, 2014			At December 31, 2013
Cash and cash equivalents			$	21,933		$	16,844
Investment securities, at fair value				265,390			308,727
Other investment, at cost				2,250			2,250
Federal Home Loan Bank stock				3,678			4,204
Loans and leases held for sale				1,018			1,446
Loans and leases
	Commercial real estate			181,415			160,030
	Construction and land development			41,676			45,261
	Commercial and industrial			70,743			79,589
	Residential real estate			44,261			25,535
	Leases			48,588			42,524
	Tax certificates			8,230			12,716
	Consumer			2,263			826
Loans and leases				397,176			366,481
Allowance for loan and lease losses				(11,482	)		(13,671	)
Loans and leases (net)				385,694			352,810
Premises and equipment (net)				4,803			4,475
Other real estate owned (net)				9,593			9,617
Accrued interest receivable				5,554			7,054
Other assets				23,556			24,827
		Total Assets	$	723,469		$	732,254

Deposits			$	515,786		$	528,964
Borrowings				97,540			107,881
Other liabilities				21,836			21,830
Subordinated debentures				25,774			25,774
Royal Bancshares shareholders' equity				62,258			47,534
Noncontrolling interest				275			271
		Total Equity		62,533			47,805
		Total Liabilities and Equity	$	723,469		$	732,254

NET INTEREST INCOME AND MARGIN (unaudited, in thousands except percentages)



			For the three months ended						For the three months ended
			September 30, 2014						September 30, 2013
			Average Balance		Interest		Yield		Average Balance		Interest		Yield
Cash equivalents			$	12,152	$	6	0.20	%	$	6,072	$	6	0.39	%
Investment securities				280,579		1,734	2.45	%		305,152		1,528	1.99	%
Loans				386,308		5,451	5.60	%		373,722		5,426	5.76	%
Total interest-earning assets				679,039		7,191	4.20	%		684,946		6,960	4.03	%
Non-interest earning assets				45,335						52,532
		Total average assets	$	724,374					$	737,478
Interest-bearing deposits
	NOW and money markets		$	207,731	$	161	0.31	%	$	203,189	$	149	0.29	%
	Savings			19,449		8	0.16	%		17,958		9	0.20	%
	Time deposits			225,679		731	1.29	%		237,689		825	1.38	%
Total interest-bearing deposits				452,859		900	0.79	%		458,836		983	0.85	%
Borrowings				123,743		723	2.32	%		134,186		907	2.68	%
Total interest-bearing liabilities				576,602		1,623	1.12	%		593,022		1,890	1.26	%
Non-interest bearing deposits				66,251						61,513
Other liabilities				23,150						30,669
Shareholders' equity				58,371						52,274
		Total average liabilities and equity	$	724,374					$	737,478
		Net interest margin			$	5,568	3.25	%			$	5,070	2.94	%




			For the nine months ended						For the nine months ended
			September 30, 2014						September 30, 2013
			Average Balance		Interest		Yield		Average Balance		Interest		Yield
Cash equivalents			$	8,964	$	16	0.24	%	$	12,083	$	21	0.23	%
Investment securities				303,485		5,610	2.47	%		316,474		4,103	1.73	%
Loans				374,270		15,925	5.69	%		363,909		16,331	6.00	%
Total interest-earning assets				686,719		21,551	4.20	%		692,466		20,455	3.95	%
Non-interest earning assets				46,165						55,782
		Total average assets	$	732,884					$	748,248
Interest-bearing deposits
	NOW and money markets		$	209,772	$	494	0.31	%	$	211,529	$	464	0.29	%
	Savings			18,620		24	0.17	%		17,911		28	0.21	%
	Time deposits			230,688		2,194	1.27	%		239,460		2,569	1.43	%
Total interest-bearing deposits				459,080		2,712	0.79	%		468,900		3,061	0.87	%
Borrowings				130,452		2,158	2.21	%		134,068		2,606	2.60	%
Total interest-bearing liabilities				589,532		4,870	1.10	%		602,968		5,667	1.26	%
Non-interest bearing deposits				64,832						59,595
Other liabilities				24,316						29,579
Shareholders' equity				54,204						56,106
		Total average liabilities and equity	$	732,884					$	748,248
		Net interest margin			$	16,681	3.25	%			$	14,788	2.86	%