SOURCE: Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc.

February 02, 2016 16:14 ET

Royal Bancshares of Pennsylvania, Inc. Reports Profit for Full Year and Fourth Quarter 2015

Quality Loan and Core Deposit Growth, Margin Expansion Boost Earnings and Assets

Consistency in Profits Leads to First Recovery of Deferred Tax Asset Valuation Allowance

BALA CYNWYD, PA--(Marketwired - February 02, 2016) - Royal Bancshares of Pennsylvania, Inc. ("Company") (NASDAQ: RBPAA), parent company of Royal Bank America ("Royal Bank"), is pleased to report net income attributable to the Company of $6.4 million, or $0.20 per diluted share, and $11.0 million, or $0.31 per diluted share, for the three and twelve months ended December 31, 2015, respectively. This is compared to net income of $812 thousand, or $0.01 per diluted share, and $5.1 million, or $0.14 per diluted share, for the three and twelve months ended December 31, 2014, respectively. During the fourth quarter of 2015, the Company reversed $5.4 million of the valuation allowance related to net deferred tax assets which contributed to a net tax benefit of $5.1 million. This transaction positively affected both the fourth quarter and full year 2015 results. Excluding the net tax benefit of $5.1 million, net income attributable to the Company was $1.3 million, or $0.03 per diluted share, for the three months ended December 31, 2015 and $5.9 million, or $0.14 per diluted share, for the full year 2015.

The partial reversal of the valuation allowance on net deferred tax assets was based on management's judgment that it is more likely than not that a portion of the net deferred tax asset will be realized by the Company in the future. The Company has reported positive cumulative pre-tax earnings over the prior three year period ended December 31, 2015. These historical results in conjunction with management's expectations of future projected taxable income comprise the positive evidence required to reverse a portion of the valuation allowance on net deferred tax assets.

Kevin Tylus, the Company's President and Chief Executive Officer, noted, "Solid loan and core deposit growth, coupled with the growth in sustainable earnings, have positively contributed to fourth quarter and full year 2015 results. Our financial performance continues to allow us to expand the Royal Bank brand through our relationship based and private banking models. Net loan growth in commercial, consumer, and leasing segments and more economical delivery channels, including a loan production office, are helping drive customer growth. The Company's ability to generate consistent earnings has led to the partial recovery of the valuation allowance on the deferred tax assets. Our continued strong performance provides the ability to consider additional strategies that strengthen and expand the franchise."

Highlights for the three months and year ended December 31, 2015 included:

Balance Sheet Growth:

  • At December 31, 2015, total assets were $788.3 million and grew $26.4 million, or 3.5%, from $761.9 million at September 30, 2015, and $55.7 million, or 7.6%, from $732.6 million at December 31, 2014.
  • Total loans were $499.1 million at December 31, 2015, an increase of $27.9 million, or 5.9%, from $471.2 million at September 30, 2015, and an increase of $84.0 million, or 20.2%, from $415.1 million at December 31, 2014. Current quarter increases were recognized in multiple loan portfolio segments.
  • Total deposits were $577.9 million at December 31, 2015, an increase of $24.1 million, or 4.4%, from $553.8 million at September 30, 2015, and an increase of $47.5 million, or 9.0%, from $530.4 million at December 31, 2014. 

Asset Quality Trends:

  • The ratio of non-performing loans to total loans continues to show improvement and decreased to 1.10% from 2.36% at December 31, 2015 and 2014, respectively. Excluding tax liens, the ratio of non-performing loans to total loans was 0.88% and 1.99% at December 31, 2015 and 2014, respectively.
  • Non-performing loans of $5.5 million at December 31, 2015 decreased $4.3 million, or 44.0%, from $9.8 million at December 31, 2014.
  • The ratio of non-performing assets to total assets was 1.64% and 2.67% at December 31, 2015 and 2014, respectively. Excluding tax lien assets, the ratio of nonperforming assets to total assets was 0.59% and 1.19% at December 31, 2015 and 2014, respectively.
  • Non-performing assets of $12.9 million at December 31, 2015 decreased $6.7 million, or 34.0%, from December 31, 2014. The purposeful downsizing of the tax lien business, which is not core to Royal Bank's overall strategy, has seen a planned reduction from a high of over $100 million in total tax lien assets in 2009 to approximately $14.0 million in total tax lien assets at December 31, 2015.
  • During the fourth quarter of 2015, the Company recorded a provision to the allowance for loan and lease losses of $634 thousand compared to a credit of $102 thousand for the fourth quarter of 2014. The 2015 provision was effected by the net charge-offs of $751 thousand recorded in the fourth quarter of 2015 related to non-accrual loans.

Income Statement and Other Highlights:

  • The return on average assets for the three months and year ended December 31, 2015 increased to 3.30% and 1.49%, respectively, compared to 0.44% and 0.70% for the three months and year ended December 31, 2014. The return on average assets for the three months ended December 31, 2015 was directly impacted by the $5.4 million reversal of a portion of the DTA valuation allowance. Excluding the net tax benefit of $5.1 million, the return on average assets was 0.65% and 0.79% for the three months and year ended December 31, 2015, respectively.
  • The return on average equity for the three months and year ended December 31, 2015 was 37.95% and 16.81%, respectively, compared to 5.09% and 9.05% for the three months and year ended December 31, 2014. The return on average assets for the three months ended December 31, 2015 was directly impacted by the $5.4 million reversal of a portion of the DTA valuation allowance. Excluding the net tax benefit of $5.1 million, the return on average equity was 7.51% and 8.95% for the three months and year ended December 31, 2015, respectively.
  • At December 31, 2015, the Company's Tier 1 leverage and Total Risk Based Capital ratios were 12.4% and 18.6%, respectively, compared to 11.9% and 19.2%, respectively, at December 31, 2014. The Common Equity Tier 1 ratio was 9.4% at December 31, 2015.
  • Net interest income increased $539 thousand, or 9.6%, from $5.6 million for the three months ended December 31, 2014 to $6.2 million for the three months ended December 31, 2015. Net interest income increased $1.2 million, or 5.4%, from $22.3 million for the twelve months ended December 31, 2014 to $23.5 million for the twelve months ended December 31, 2015. The growth in the quarterly and year to date net interest income was primarily related to an increase in interest income and the average yields earned on average interest-earning assets.
  • The net interest margin grew to 3.36% for the fourth quarter of 2015 compared to 3.27% for the comparable period in 2014 and was 3.38% for the twelve months ended December 31, 2015 compared to 3.25% for the twelve months ended December 31, 2014. The increase in net interest margin was directly related to an increase in the yield on average interest-earning assets due to a change in the composition of such assets.
  • Non-interest income for the fourth quarter of 2015 was $1.2 million and increased $459 thousand, or 61.8%, from $743 thousand for the fourth quarter of 2014. The quarterly improvement in non-interest income was impacted by $324 thousand in gains on the sale of a Company owned building and a $201 thousand increase in net gains on the sale of investment securities.
  • Non-interest income was $4.0 million for 2015 and increased $497 thousand, or 14.1%, from $3.5 million for 2014. For 2015, net gains on the sales of investment securities, premises and equipment, and other real estate owned ("OREO") grew $523 thousand, $217 thousand and $176 thousand, respectively, from their totals in the 2014 period. These increases were partially offset by a $232 thousand decline in the net gains on sales of loans and leases when compared to the 2014 period. During 2015, the Company sold lower earning investment securities to fund the loan growth, which included selling the majority of the corporate bonds in the investment portfolio.
  • Non-interest expense was $5.4 million for the quarter ended December 31, 2015 and decreased $709 thousand from $6.1 million for the comparable period in 2014. Included in non-interest expense for 2014 was a $402 thousand penalty on the pre-payment of $5.0 million in borrowings. There was no penalty or pre-payment in 2015. Additionally, for the fourth quarter of 2015, professional and legal fees declined $219 thousand.
  • Non-interest expense was relatively flat at $21.9 million for 2015 and 2014. In addition to the reduction of $402 thousand in the pre-payment penalty described previously, in 2015 the Company recognized declines of $467 thousand, $329 thousand and $167 thousand in professional and legal fees, FDIC and state assessments, and marketing and advertising, respectively, from the 2014 amounts. Mitigating these declines were increases of $464 thousand, $419 thousand, $299 thousand, and $277 thousand in OREO expenses and impairment, provision for unfunded loan commitments due to the growth in such commitments, occupancy and equipment costs, and employee salaries and benefits, respectively. The increase in OREO expenses was directly related to the properties from the tax lien portfolio.
  • As previously stated, during the fourth quarter of 2015, the Company reversed $5.4 million of the valuation allowance related to net deferred tax assets which contributed to a net tax benefit of $5.1 million. This transaction positively affected both the fourth quarter and full year 2015 results.

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, 2014.

   
ROYAL BANCSHARES OF PENNSYLVANIA, INC.  
CONSOLIDATED INCOME STATEMENTS  
(Unaudited, dollars in thousands, except per share data)  
    For the three months     For the years  
    ended December 31,     ended December 31,  
    2015     2014     2015     2014  
Interest income   $ 7,844     $ 7,233     $ 29,993     $ 28,784  
Interest expense     1,686       1,614       6,484       6,484  
Net interest income     6,158       5,619       23,509       22,300  
Provision (credit) for loan and lease losses     634       (102 )     (748 )     (867 )
Net interest income after provision     5,524       5,721       24,257       23,167  
Non-interest income     1,202       743       4,032       3,535  
Non-interest expense     5,427       6,136       21,904       21,864  
Income before taxes     1,299       328       6,385       4,838  
Income tax benefit     (5,139 )     (654 )     (5,139 )     (654 )
Net income     6,438       982       11,524       5,492  
Less net income attributable to noncontrolling interest     31       170       531       382  
Net income attributable to Royal Bancshares   $ 6,407     $ 812     $ 10,993     $ 5,110  
Less Preferred stock Series A accumulated dividend and accretion   $ 434     $ 434     $ 1,721     $ 2,078  
Net income to common shareholders   $ 5,973     $ 378     $ 9,272     $ 3,032  
Income per common share - basic and diluted   $ 0.20     $ 0.01     $ 0.31     $ 0.14  
                                 
                         
SELECTED PERFORMANCE RATIOS:                        
        For the years         For the years  
        ended December 31,         ended December 31,  
      2015       2014       2015       2014  
Return on Average Assets     3.3 %     0.4 %     1.5 %     0.7 %
Return on Average Equity     38.0 %     5.1 %     16.8 %     9.0 %
Average Equity to Average Assets     8.7 %     8.7 %     8.8 %     7.7 %
Book Value Per Share (at period end)   $ 1.77     $ 1.44     $ 1.77     $ 1.44  
                                 
              At December 31,                  
Capital ratios (US GAAP):     2015       2014                  
Company Tier I Leverage     12.4 %     11.9 %                
Company Total Risk Based Capital     18.6 %     19.2 %                
Company Common Equity Tier 1     9.4 %     NA                  
                                 
   
NON-GAAP MEASURES:  
(Unaudited, dollars in thousands, except per share data)  
   For the three months ended   For the year ended 
    December 31, 2015      
Net income attributable to Royal Bancshares   $ 6,407     $ 10,993  
  Less net tax benefit     5,139       5,139  
Net income attributable to Royal Bancshares (non-GAAP)   $ 1,268     $ 5,854  
  Less Preferred stock Series A accumulated dividend and accretion   $ 434     $ 1,721  
Net income to common shareholders (non-GAAP)   $ 834     $ 4,133  
Income per common share - basic and diluted (non-GAAP)   $ 0.03     $ 0.14  
                 
Return on Average Assets     0.7 %     0.8 %
Return on Average Equity     7.5 %     9.0 %
                 
   
ROYAL BANCSHARES OF PENNSYLVANIA, INC.  
CONSOLIDATED BALANCE SHEETS  
(Unaudited, in thousands)  
    At December 31, 2015     At December 31, 2014  
Cash and cash equivalents   $ 25,420     $ 30,790  
Investment securities, at fair value     224,067       250,368  
Other investment, at cost     2,250       2,250  
Federal Home Loan Bank stock     2,545       2,622  
                 
Loans and leases                
  Commercial real estate     241,928       188,861  
  Construction and land development     47,984       45,662  
  Commercial and industrial     85,980       76,489  
  Residential real estate     51,588       42,992  
  Leases     64,341       51,583  
  Tax certificates     4,755       7,191  
  Consumer     2,527       2,354  
Loans and leases     499,103       415,132  
Allowance for loan and lease losses     (9,689 )     (11,708 )
Loans and leases, net     489,414       403,424  
Bank owned life insurance     16,133       15,636  
Premises and equipment, net     3,959       5,201  
Other real estate owned, net     7,435       9,779  
Accrued interest receivable     4,149       5,270  
Other assets     12,911       7,213  
    Total Assets   $ 788,283     $ 732,553  
                 
Deposits   $ 577,892     $ 530,425  
Borrowings     90,970       92,426  
Other liabilities     21,349       21,322  
Subordinated debentures     25,774       25,774  
Royal Bancshares shareholders' equity     71,904       62,219  
Noncontrolling interest     394       387  
    Total Equity     72,298       62,606  
    Total Liabilities and Equity   $ 788,283     $ 732,553  
                 
   
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  
    December 31, 2015     December 31, 2014  
    Average Balance   Interest Yield     Average Balance   Interest   Yield  
Cash and cash equivalents   $ 14,542   $ 11 0.30 %   $ 12,664   $ 6   0.19 %
Investment securities     224,086     1,367 2.42 %     258,745     1,581   2.42 %
Loans     488,389     6,466 5.25 %     411,213     5,646   5.45 %
Total interest-earning assets     727,017     7,844 4.28 %     682,622     7,233   4.20 %
Non-interest earning assets     43,776               43,790            
    Total average assets   $ 770,793             $ 726,412            
Interest-bearing deposits                                  
  NOW and money markets   $ 227,960   $ 207 0.36 %   $ 205,471   $ 160   0.31 %
  Savings     45,627     68 0.59 %     19,194     7   0.14 %
  Time deposits     209,153     735 1.39 %     223,016     725   1.29 %
Total interest-bearing deposits     482,740     1,010 0.83 %     447,681     892   0.79 %
Borrowings     116,815     676 2.30 %     123,215     722   2.32 %
Total interest-bearing liabilities     599,555     1,686 1.12 %     570,896     1,614   1.12 %
Non-interest bearing deposits     81,473               70,346            
Other liabilities     22,792               21,866            
Shareholders' equity     66,973               63,304            
    Total average liabilities and equity   $ 770,793             $ 726,412            
    Net interest income         $ 6,158             $ 5,619      
    Net interest margin             3.36 %               3.27 %
                                   
   
ROYAL BANCSHARES OF PENNSYLVANIA, INC.  
NET INTEREST INCOME AND MARGIN  
(Unaudited, in thousands, except percentages)  
    For the year ended     For the year ended  
    December 31, 2015     December 31, 2014  
    Average Balance   Interest   Yield     Average Balance   Interest   Yield  
Cash and cash equivalents   $ 16,197   $ 32   0.20 %   $ 9,897   $ 22   0.22 %
Investment securities     228,779     5,617   2.46 %     292,208     7,191   2.46 %
Loans     450,094     24,344   5.41 %     383,582     21,571   5.62 %
Total interest-earning assets     695,070     29,993   4.32 %     685,687     28,784   4.20 %
Non-interest earning assets     44,851                 45,558            
    Total average assets   $ 739,921               $ 731,245            
Interest-bearing deposits                                    
  NOW and money markets   $ 211,271   $ 716   0.34 %   $ 208,688   $ 653   0.31 %
  Savings     30,023     120   0.40 %     18,765     31   0.17 %
  Time deposits     217,688     2,970   1.36 %     228,754     2,920   1.28 %
Total interest-bearing deposits     458,982     3,806   0.83 %     456,207     3,604   0.79 %
Borrowings     116,547     2,678   2.30 %     128,628     2,880   2.24 %
Total interest-bearing liabilities     575,529     6,484   1.13 %     584,835     6,484   1.11 %
Non-interest bearing deposits     77,052                 66,221            
Other liabilities     21,935                 23,691            
Shareholders' equity     65,405                 56,498            
    Total average liabilities and equity   $ 739,921               $ 731,245            
    Net interest income         $ 23,509               $ 22,300      
    Net interest margin               3.38 %               3.25 %
                                     
             
ASSET QUALITY TRENDS            
(Unaudited, in thousands, except percentages)            
    At December 31, 2015     At December 31, 2014  
                 
Non-performing loans   $ 4,367     $ 8,113  
Non-performing tax certificates     1,125       1,700  
Total nonperforming loans     5,492       9,813  
                 
Other real estate owned-loans     220       349  
Other real estate owned-tax certificates     7,215       9,430  
Total other real estate owned     7,435       9,779  
Total nonperforming assets   $ 12,927     $ 19,592  
                 
                 
Ratio of non-performing loans to total loans     1.10 %     2.36 %
Ratio of non-performing assets to total assets     1.64 %     2.67 %
Ratio of allowance for loan and lease losses to total loans     1.94 %     2.82 %
Ratio of allowance for loan and lease losses to non-performing loans     176.42 %     119.31 %
                 

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