SOURCE: Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc.

October 20, 2016 08:00 ET

Royal Bancshares of Pennsylvania, Inc. Reports Profit for Third Quarter 2016

Quality Loan Growth Boosts Earnings; Regulatory Approval Received to Retire Balance of "Tarp" Shares

BALA CYNWYD, PA--(Marketwired - October 20, 2016) - Royal Bancshares of Pennsylvania, Inc. ("the Company") (NASDAQ: RBPAA), parent company of Royal Bank America ("Royal Bank"), is pleased to report net income attributable to the Company of $2.0 million, or $0.06 per diluted share, and $6.3 million, or $0.17 per diluted share, for the three and nine months ended September 30, 2016, respectively. Comparatively, net income was $1.5 million, or $0.04 per diluted share, and $4.6 million, or $0.11 per diluted share, for the three and nine months ended September 30, 2015, respectively.

The Company's President and Chief Executive Officer, Kevin Tylus, noted, "Consistent quality loan growth and expense discipline drove our increase in earnings for the 2016 third quarter and year to date. We are achieving the goals for managing our balance sheet while meeting the challenges of low interest rates and local competition. The repurchase of another 2,651 shares of the Series A Preferred stock ("TARP") and regulatory approval to repurchase or redeem the remaining outstanding Series A Preferred shares mean we will fully retire the $30.4 million in original principal by year end and avoid future dividends at a rate of 9%."

"The renovations of our Narberth retail location is nearing completion, giving our customers a first class service experience. To meet the needs of our growing customer base, we are implementing the next phase of web and technology enhancements", he added.

Highlights for the three and nine months ended September 30, 2016 included:

Balance Sheet Trends:

  • Total assets were $811.4 million at September 30, 2016, an increase of $23.1 million, or 2.9%, from $788.3 million at December 31, 2015. Total assets were $816.5 million at June 30, 2016.
  • Total loans were $575.8 million at September 30, 2016, an increase of $28.7 million, or 5.3%, from $547.1 million at June 30, 2016, and grew $76.7 million, or 15.4%, from $499.1 million at December 31, 2015. Increases were recognized in multiple commercial loan portfolio classes.
  • Total deposits were $592.2 million at September 30, 2016, an increase of $14.3 million, or 2.5%, from $577.9 million at December 31, 2015. Total deposits were $599.2 million at June 30, 2016.

Asset Quality:

  • The ratio of non-performing loans to total loans continues to show improvement and was 0.77%, 0.88%, and 1.10% at September 30, 2016, June 30, 2016, and December 31, 2015, respectfully. Excluding tax liens, the ratio of non-performing loans to total loans was 0.65%, 0.68%, and 0.88% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively.
  • Non-performing loans of $4.5 million at September 30, 2016 decreased $346 thousand, or 6.6%, from $4.8 million at June 30, 2016, and decreased $1.0 million, or 18.9%, from $5.5 million at December 31, 2015.
  • The ratio of non-performing assets to total assets was 1.44%, 1.47%, and 1.64% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively. Excluding tax lien assets, the ratio of non-performing assets to total assets was 0.49% at September 30, 2016, and June 30, 2016, and 0.59% at December 31, 2015.
  • Non-performing assets of $11.7 million at September 30, 2016, decreased $318 thousand, or 2.6%, from $12.0 million at June 30, 2016, and decreased $1.2 million, or 9.6%, from $12.9 million at December 31, 2015.
  • For the three and nine months ended September 30, 2016, the Company recorded a provision to the allowance for loan and lease losses of $578 thousand and $987 thousand, respectively, compared to credits of $216 thousand and $1.4 million for the same periods in 2015, respectively. The 2016 provision was primarily attributable to growth, specific reserves on the leasing portfolio, and net charge-off activity within the leasing and tax certificate portfolios.

Income Statement and Other Highlights:

  • The return on average assets for the three and nine months ended September 30, 2016 increased to 0.99% and 1.04%, respectively, compared to 0.82% and 0.84% for the three and nine months ended September 30, 2015, respectively.
  • The return on average equity for the three and nine months ended September 30, 2016 grew to 11.23% and 11.59%, respectively, compared to 9.24% and 9.45% for the three and nine months ended September 30, 2015.
  • At September 30, 2016, the Company's Tier 1 leverage and Total Risk Based Capital ratios were 11.22% and 16.36%, respectively, compared to 12.44% and 18.57%, respectively, at December 31, 2015. The Common Equity Tier 1 ratio was 8.97% at September 30, 2016 compared to 9.37% at December 31, 2015. Impacting the 2016 capital ratios is the repurchase of 6,651 shares of the Preferred Series A stock which occurred during the first nine months of 2016.
  • Net interest income increased $396 thousand, or 6.43%, from $6.2 million for the three months ended September 30, 2015 to $6.6 million for the three months ended September 30, 2016. Net interest income increased $2.1 million, or 12.2%, from $17.4 million for the nine months ended September 30, 2015 to $19.5 million for the nine months ended September 30, 2016. The growth in net interest income was primarily related to an increase in interest income on average loan balances.
  • The net interest margin for the third quarter of 2016 was 3.42% compared to 3.51% for the third quarter in 2015 and was 3.45% for the nine months ended September 30, 2016 compared to 3.39% for the nine months ended September 30, 2015. The decrease in net interest margin for the third quarter was directly related to an increase in the interest rate paid on average interest-bearing liabilities specifically due to average borrowings.
  • Non-interest income for the third quarter of 2016 was $1.2 million and increased $612 thousand from $577 thousand for the third quarter of 2015. The quarterly improvement in non-interest income was impacted by a $273 thousand beneficiary payment from a bank owned life insurance policy and a $200 thousand increase in net gains on the sale of investment securities. Additionally, service charges and fees increased $98 thousand and were mostly related to the leasing portfolio.
  • Non-interest income was $3.5 million for the nine months ended September 30, 2016 and grew $1.4 million from $2.1 million for the nine months ended September 30, 2015. Net gains on the sale of investment securities and income from Company owned life insurance increased $730 thousand and $475 thousand, respectively, from 2015. Additionally, the Company received a $273 thousand beneficiary payment from a life insurance policy. Partially offsetting these positive items was other-than-temporary impairment ("OTTI") charges on the investment portfolio of $181 thousand. There was no OTTI charge in the 2015 period.
  • Non-interest expense was $5.0 million for the quarter ended September 30, 2016 and declined $241 thousand from $5.2 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for the third quarter of 2016 was the reversal of a $200 thousand contingency accrual related to an other real estate owned ("OREO") property that was sold in a previous reporting period. As of September 30, 2016, Management determined that the contingency was no longer required. Additionally, in the 2016 quarter, loan collection expenses declined $117 thousand due to continued improvement in credit quality. Partially offsetting the decrease in non-interest expense was a planned increase of $55 thousand in salaries and benefits during the third quarter of 2016.
  • Non-interest expense was $15.3 million for the nine months ended September 30, 2016 and decreased $440 thousand from $15.7 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for 2016 was a $518 thousand decline in the provision for unfunded loan commitments and the reversal of a $200 thousand contingency accrual for the reasons mentioned previously. Year over year loan collection expenses and occupancy and equipment expenses declined $145 thousand and $119 thousand, respectively. Partially offsetting the decrease in non-interest expense was a planned increase of $211 thousand in salaries and benefits. Additionally, communications and data processing expenses and net OREO expenses increased $141 thousand and $98 thousand, respectively.

About Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc., headquartered in Bala Cynwyd, Pennsylvania, is the parent company of Royal Bank America, which is headquartered in Narberth, Pennsylvania. Royal Bank serves growing small and middle market businesses, commercial real estate investors, consumers, and depositors principally in Montgomery, Delaware, Chester, Bucks, Philadelphia and Berks counties in Pennsylvania, central and southern New Jersey, and Delaware. Established in 1963, Royal Bank provides an array of financial products and services through a comprehensive suite of cash management services and thirteen branches and two loan production offices. 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, 2015.

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

         
   For the three months  For the nine months  
   ended September 30,  ended September 30,  
   2016  2015  2016  2015  
Interest income  $8,460  $7,798  $24,855  $22,149  
Interest expense   1,902   1,636   5,389   4,798  
Net Interest Income   6,558   6,162   19,466   17,351  
Provision (credit) for loan and lease losses   578   (216)   987   (1,382)  
Net interest income after provision (credit) for loan and lease losses   5,980   6,378   18,479   18,733  
Non-interest income   1,189   577   3,469   2,061  
Non-interest expense   5,001   5,242   15,268   15,708  
Income before taxes   2,168   1,713   6,680   5,086  
Income tax expense   25   -   85   -  
Net Income   2,143   1,713   6,595   5,086  
Less net income attributable to noncontrolling interest   113   179   342   500  
Net Income Attributable to Royal Bancshares  $2,030  $1,534  $6,253  $4,586  
 Less Preferred stock Series A accumulated dividend and accretion  $342  $434  $1,014  $1,287  
Net income to common shareholders  $1,688  $1,100  $5,239  $3,299  
Income Per Common Share - Basic and Diluted  $0.06  $0.04  $0.17  $0.11  
              
SELECTED PERFORMANCE RATIOS:             
              
  For the three months For the nine months 
  ended September 30, ended September 30, 
  2016 2015 2016 2015 
Return on Average Assets  0.99%  0.82%  1.04%  0.84% 
Return on Average Equity  11.23%  9.24%  11.59%  9.45% 
Average Equity to Average Assets  8.86%  8.90%  8.98%  8.89% 
Book Value Per Share $1.90 $1.61 $1.90 $1.61 
              
   At September 30,  At December 31,
Capital ratios (US GAAP):  2016  2015
Company Tier 1 Leverage  11.22 % 12.44 %
Company Total Risk Based Capital  16.36 % 18.57 %
Company Common Equity Tier 1  8.97 % 9.37 %
          
       

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
CONSOLIDATED BALANCE SHEETS

       
(Unaudited, in thousands)  At September 30, 2016  At December 31, 2015
Cash and cash equivalents  $28,391  $25,420
Investment securities, at fair value   168,321   224,067
Other investment, at cost   2,250   2,250
Federal Home Loan Bank stock   3,018   2,545
Loans and leases        
  Commercial real estate and multi-family   276,905   241,928
  Construction and land development   74,885   47,984
  Commercial and industrial   106,254   85,980
  Residential real estate   49,061   51,588
  Leases   62,671   64,341
  Tax certificates   3,803   4,755
  Consumer   2,239   2,527
Loans and leases   575,818   499,103
Allowance for loan and lease losses   (10,254)   (9,689)
Loans and leases, net   565,564   489,414
Bank owned life insurance   16,015   16,133
Premises and equipment, net   4,714   3,959
Other real estate owned, net   7,236   7,435
Accrued interest receivable   3,770   4,149
Other assets   12,089   12,911
 Total Assets  $811,368  $788,283
         
Deposits  $592,239  $577,892
Borrowings   100,000   90,970
Other liabilities   23,553   21,349
Subordinated debentures   25,774   25,774
Royal Bancshares shareholders' equity   69,300   71,904
Noncontrolling interest   502   394
 Total Equity   69,802   72,298
 Total Liabilities and Equity  $811,368  $788,283
         
       

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
NET INTEREST INCOME AND MARGIN
(Unaudited, in thousands, except percentages)

       
   For the three months ended  For the three months ended
   September 30, 2016  September 30, 2015
   Average Balance  Interest  Yield  Average Balance  Interest  Yield
Cash and cash equivalents  $12,107  $15  0.49%  $18,184  $8  0.17%
Investment securities   188,194   1,099  2.32%   218,767   1,334  2.42%
Loans   561,904   7,346  5.20%   459,543   6,456  5.57%
Total interest-earning assets   762,205   8,460  4.42%   696,494   7,798  4.44%
Non-interest earning assets   49,734          43,722       
Total average assets  $811,939         $740,216       
                       
Interest-bearing deposits                      
 NOW and money markets  $213,926  $185  0.34%  $210,652  $182  0.34%
 Savings   79,851   143  0.71%   32,589   35  0.43%
 Certificates of deposit   208,902   758  1.44%   216,653   751  1.38%
Total interest-bearing deposits   502,679   1,086  0.86%   459,894   968  0.84%
Borrowings   122,432   816  2.65%   113,767   668  2.33%
Total interest-bearing liabilities   625,111   1,902  1.21%   573,661   1,636  1.13%
Non-interest bearing deposits   89,749          79,791       
Other liabilities   25,171          20,889       
Shareholders' equity   71,908          65,875       
Total average liabilities and equity  $811,939         $740,216       
 Net interest income      $6,558         $6,162   
 Net interest margin          3.42%          3.51%
                 
                 

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
NET INTEREST INCOME AND MARGIN
(Unaudited, in thousands, except percentages)

       
   For the nine months ended  For the nine months ended
   September 30, 2016  September 30, 2015
   Average Balance  Interest  Yield  Average Balance  Interest  Yield
Cash and cash equivalents  $13,246  $48  0.48%  $16,574  $21  0.17%
Investment securities   202,856   3,639  2.40%   230,361   4,250  2.47%
Loans   537,656   21,168  5.26%   437,188   17,878  5.47%
Total interest-earning assets   753,758   24,855  4.40%   684,303   22,149  4.33%
Non-interest earning assets   48,730          45,214       
Total average assets  $802,488         $729,517       
                 
Interest-bearing deposits                      
 NOW and money markets  $222,761  $595  0.36%  $205,646  $508  0.33%
 Savings   71,537   377  0.70%   24,765   52  0.28%
 Certificates of deposit   208,256   2,221  1.42%   220,564   2,236  1.36%
Total interest-bearing deposits   502,554   3,193  0.85%   450,975   2,796  0.83%
Borrowings   118,321   2,196  2.48%   116,456   2,002  2.30%
Total interest-bearing liabilities   620,875   5,389  1.16%   567,431   4,798  1.13%
Non-interest bearing deposits   86,189          75,563       
Other liabilities   23,339          21,646       
Shareholders' equity   72,085          64,877       
Total average liabilities and equity  $802,488         $729,517       
 Net interest income      $19,466         $17,351   
 Net interest margin          3.45%          3.39%
                  
                  

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
ASSET QUALITY TRENDS
(Unaudited, in thousands, except percentages)

             
   At September 30, 2016  At June 30, 2016  At March 31, 2016  At December 31, 2015
             
Non-performing loans  $3,710  $3,691  $4,186  $4,367
Non-performing tax certificates   745   1,110   1,038   1,125
Total non-performing loans   4,455   4,801   5,224   5,492
                 
Other real estate owned-loans   243   243   243   220
Other real estate owned-tax certificates   6,993   6,965   6,853   7,215
Total other real estate owned   7,236   7,208   7,096   7,435
Total non-performing assets  $11,691  $12,009  $12,319  $12,927
                 
Ratio of non-performing loans to total loans   0.77%   0.88%   0.98%   1.10%
Ratio of non-performing assets to total assets   1.44%   1.47%   1.54%   1.64%
Ratio of allowance for loan and lease losses to total loans   1.78%   1.83%   1.87%   1.94%
Ratio of allowance for loan and lease losses to non-performing loans  230.17%  208.46%  190.29%  176.42%
             
             

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