SOURCE: Royal Bancshares of Pennsylvania

Royal Bancshares of Pennsylvania

October 22, 2014 08:00 ET

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

Core Earnings Growth Drives Financial Results

Shareholder Rights Offering Raises Additional Tangible Common Equity

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 %