Royal Bancshares of Pennsylvania, Inc. Reports Financial Results for Fourth Quarter and Year Ended December 31, 2012 and Announces Profitability Improvement Plan

Marketwired

NARBERTH, PA--(Marketwire - Mar 27, 2013) - Royal Bancshares of Pennsylvania, Inc. ("Royal" or "Company") (NASDAQ: RBPAA) today announced financial results for the fourth quarter and year ended December 31, 2012, as well as the launch of a comprehensive profitability improvement plan.

For the three-month period ended December 31, 2012, net loss attributable to Royal was $8.0 million or 64 cents per basic and diluted common share, as compared to a net loss of $934,000, or 11 cents per basic and diluted common share for the three-month period ended December 31, 2011.

The $7.1 million increase in net loss was primarily related to a $2.4 million increase in other real estate owned (OREO) impairment, a $943 thousand decrease in net interest income, a $1.5 million other-than-temporary impairment (OTTI) charge, and a $1.1 million increase in impairment on loans held for sale (LHFS). The additional OREO impairment was primarily due to a decline in value of four vacant land properties in the portfolio. The decrease in interest income was primarily driven by the combination of a decline in average loan balances coupled with a decline in the yield on investment securities. The $1.5 million increase in OTTI was entirely related to the complete write down of one private equity security. Increases in the impairment on LHFS were related to challenges with the final remaining non-accrual LHFS.

For the year ended December 31, 2012, net loss attributable to Royal was $15.6 million or $1.33 per basic and diluted common share, as compared to a net loss of $8.6 million or 80 cents per basic and diluted common share for the year ended December 31, 2011.

The increase in net loss of $7.0 million for the year was primarily related to a $3.2 million reduction in net interest income, a $2.0 million Department of Justice (DOJ) fine related to a tax lien subsidiary, a $1.8 million reduction in income related to real estate joint ventures, a $1.3 million reduction in net gains on OREO, a $1.2 million increase in OREO impairment charges, and a $1.7 million increase in impairment on LHFS. Partially offsetting these unfavorable changes were a $1.7 million decline in the provision for loan and lease losses and a $934 thousand decline in FDIC and state assessments.

Launch of profitability improvement plan

In conjunction with the financial results for 2012, Royal Chief Executive Officer Kevin Tylus announced the launch of the company's "Profitability Improvement Plan," a comprehensive set of initiatives designed to reposition Royal for efficiency and competitiveness in the marketplace. 

Tylus noted, "Since joining Royal on December 18, 2012, I have worked closely with our Board of Directors and Executive Management to craft an actionable plan to identify and address critical areas for improvement which we believe provide the clearest path to more positive results and a reinvigorated Royal Bank America brand.

"We have taken actions which we believe help reposition the franchise for future success based on very specific priorities. We continue our emphasis on high quality, commercial loans and are encouraged by the increasing volume of loan opportunities in recent months. We have gone to market with our recently implemented home equity loan products and consumer services as well as fee generating ancillary products that help our customers run their businesses more efficiently. We will imminently roll-out new technology that will expand sales channels, including our mobile banking application and home equity loan application submissions through our website."

Another major initiative is to more properly size the expenses of the company, which effected a 2013 reduction of approximately 9 percent of the workforce and an annualized reduction of approximately 10 percent of discretionary expenses. We have implemented a reorganization of the management team, various salary reductions, the closure of one branch while retaining most deposits and accounts, a phasing out of various employee benefits not essential to the business and better controls on spending for professional and support services.

"We have the goal to achieve an efficiency ratio that shows improvement more in-line with the industry and we believe the combination of new revenue activity we are experiencing and expense reductions combine in our efforts to accomplish that critical goal," commented Tylus. He stated further that the company is rationalizing its company-owned real estate assets, having sold an off-site storage facility and soon to be selling a second similar off-site location, while having staff specifically aligned to its priorities of continued loan quality improvement and resolution of risks primarily associated with prior-year items.

"The Board of Directors and I are extremely encouraged by the opportunities for improvement and the progress due to Kevin's leadership and the team's intense focus," stated Chairman Robert R. Tabas.

Tylus further commented that actions are underway that are designed to further enhance the capital base and continue to improve regulatory compliance. Separately, the Company's majority-owned leasing subsidiary continues its favorable and important performance. 

Continued decrease in non-performing assets

At December 31, 2012, non-performing loans of $23.0 million decreased $28.3 million from $51.3 million at December 31, 2011, reflecting a continuation of a trend wherein non-performing loans decreased by 68.8% and non-performing assets decreased by 65.0% since December 31, 2009.

    At December 31,  
(in millions)   2012   2011     2010     2009  
Non-performing loans   $ 23.0   $ 51.3     $ 65.8     $ 73.7  
Non-performing assets (which includes OREO)   $ 36.4   $ 72.3     $ 95.0     $ 104.0  
                               
       
    At December 31,  
    2012     2011     2010  
Percentage of non-accrual loans to total loans     6.7 %     12.0 %     12.5 %
Percentage of non-performing assets to total assets     4.7 %     8.5 %     9.7 %
                               

Maintaining Capital Ratios

Tylus noted, "By carefully and purposefully managing our balance sheet we have maintained capital levels above required regulatory minimums and have positioned the bank to take advantage of opportunities for market growth."

Capital Ratios as reported under Regulatory Accounting Principles (RAP) for Royal Bank America

       
    At December 31,  
    2012     2011     2010  
Total capital (to risk-weighted assets)   16.10 %   15.04 %   13.76 %
Tier I capital (to risk-weighted assets)   14.81 %   13.77 %   12.49 %
Tier I capital (to average assets, leverage)   8.53 %   9.09 %   8.03 %
                   

Net Interest Margin Compression

The year over year decline in net interest income was attributed to a $7.4 million reduction in interest income partially offset by a reduction in interest expense of $4.2 million. The net interest margin declined twelve basis points from 3.06% for the year ended December 31, 2011 to 2.94% for the year ended December 31, 2012. The significant decline in average loan balances, coupled with the accelerated amortization of premiums on the investment portfolio and the reinvestment of cash flows into lower yielding government agency securities had a significant adverse impact on the yield on interest earning assets.

Management has taken steps to mitigate the decline in net interest income including reducing funding costs through the intentional runoff of higher priced certificates of deposit (CDs) and the repayment of Federal Home Loan Bank (FHLB) advances. The company's goal in 2013 is to improve the mix of interest earning assets by replacing lower-yielding investment securities with higher-yielding loans.

About 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 nearly 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, 2012.

                     
ROYAL BANCSHARES OF PENNSYLVANIA, INC.          
CONDENSED INCOME STATEMENT            
             
(in thousands, except     Three months     For the years  
for loss per common   ended Dec. 31st     ended Dec. 31st  
share)   2012     2011     2012     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Interest Income   $ 6,991     $ 8,754     $ 31,981     $ 39,377  
Interest Expense     2,190       3,010       9,899       14,086  
Net Interest Income     4,801       5,744       22,082       25,291  
Provision for Loan Losses     2,637       2,160       5,997       7,728  
Net Interest Income after Provision     2,164       3,584       16,085       17,563  
Non Interest (Loss) Income     (148 )     2,594       3,609       6,818  
Non Interest Expense     10,256       7,206       36,324       32,069  
Loss before Taxes     (8,240 )     (1,028 )     (16,630 )     (7,688 )
Income Taxes     0       0       0       0  
Net Loss     (8,240 )     (1,028 )     (16,630 )     (7,688 )
Less Net (Loss) Income attributable to noncontrolling interest     (246 )     (94 )     (1,005 )     875  
Net Loss attributable to Royal Bancshares   $ (7,994 )   $ (934 )   $ (15,625 )   $ (8,563 )
Loss per common share - basic and diluted   $ (0.64 )   $ (0.11 )   $ (1.33 )   $ (0.80 )
SELECTED RATIOS:                                
Return on Average Assets     -4.0 %     -0.4 %     -1.9 %     -0.9 %
Return on Average Equity     -47.4 %     -4.8 %     -21.5 %     -10.5 %
Average Equity to Assets     8.5 %     9.1 %     8.8 %     9.0 %
Book Value Per Share   $ 1.82     $ 3.07     $ 1.82     $ 3.07  
                                 
         
         
CONDENSED BALANCE SHEET        
    For the years ended December 31,
(in thousands)   2012   2011
    (unaudited)   (unaudited)
Cash and Cash Equivalents   $ 28,802   $ 24,506
Investment Securities     357,464     339,018
Loans & Leases (net)     328,476     410,432
Premises and Equipment (net)     5,232     5,394
Other Real Estate Owned (net)     13,435     21,016
Accrued Interest receivable     10,256     15,463
Other Assets     30,051     32,619
   Total Assets   $ 773,716   $ 848,448
             
Deposits     554,917     575,916
Borrowings     108,333     148,000
Other Liabilities     26,277     22,813
Subordinated debentures     25,774     25,774
Royal Bancshares Shareholders' Equity     54,555     71,080
Noncontrolling Interest     3,860     4,865
  Total Equity     58,415     75,945
  Total Liabilities and Equity   $ 773,716   $ 848,448
               
               
               
AVERAGE BALANCE SHEET  
Net Interest Margin - 4Q 
 
    For the three months ended     For the three months ended  
    December 31, 2012     December 31, 2011  
(In thousands, except percentages)   Average Balance   Interest   Yield     Average Balance   Interest   Yield  
Cash equivalents   $ 23,919   $ 10   0.17 %   $ 19,811   $ 9   0.18 %
Investment securities     355,314     1,481   1.66 %     307,904     2,076   2.67 %
Loans     346,228     5,500   6.32 %     441,429     6,669   5.99 %
    Total interest earning assets     725,461     6,991   3.83 %     769,144     8,754   4.52 %
Non-earning assets     64,884                 85,596            
Total average assets   $ 790,345               $ 854,740            
Interest-bearing deposits                                    
  NOW and money markets   $ 217,436     190   0.35 %   $ 226,682     451   0.79 %
  Savings     17,288     10   0.23 %     15,779     21   0.53 %
  Time deposits     266,445     1,057   1.58 %     277,958     1,272   1.82 %
Total interest bearing deposits     501,169     1,257   1.00 %     520,419     1,744   1.33 %
Borrowings     134,174     933   2.77 %     174,919     1,266   2.87 %
Total interest bearing liabilities     635,343     2,190   1.37 %     695,338     3,010   1.72 %
Non-interest bearing deposits     58,653                 54,924            
Other liabilities     29,505                 26,471            
Shareholders' equity     66,844                 78,007            
    Total average liabilities and equity   $ 790,345               $ 854,740            
    Net interest margin         $ 4,801   2.63 %         $ 5,744   2.96 %
                                     
                                     
                                     
AVERAGE BALANCE SHEET
Net Interest Margin - YTD     
 
    For the year ended     For the year ended  
    December 31, 2012     December 31, 2011  
(In thousands, except percentages)   Average Balance   Interest   Yield     Average Balance   Interest   Yield  
Cash equivalents   $ 22,551   $ 38   0.17 %   $ 31,838   $ 81   0.25 %
Investments securities     344,862     6,677   1.94 %     320,362     9,645   3.01 %
Loans     384,440     25,266   6.57 %     475,047     29,651   6.24 %
    Total interest earning assets     751,853     31,981   4.25 %     827,247     39,377   4.76 %
Non-earning assets     71,619                 79,255            
    Total average assets   $ 823,472               $ 906,502            
Interest-bearing deposits                                    
  NOW and money markets   $ 224,602     1,317   0.59 %   $ 221,158     1,958   0.89 %
  Savings     17,006     67   0.39 %     15,727     86   0.55 %
  Time deposits     275,959     4,514   1.64 %     327,583     6,906   2.11 %
    Total interest bearing deposits     517,567     5,898   1.14 %     564,468     8,950   1.59 %
Borrowings     149,416     4,001   2.68 %     177,517     5,136   2.89 %
    Total interest bearing liabilities     666,983     9,899   1.48 %     741,985     14,086   1.90 %
Non-interest bearing deposits     55,666                 57,241            
Other liabilities     28,182                 26,092            
Shareholders' equity     72,641                 81,184            
    Total average liabilities and equity   $ 823,472               $ 906,502            
    Net interest margin         $ 22,082   2.94 %         $ 25,291   3.06 %
                                         
Contact:
Marc Sanders
Vice President - Marketing
Royal Bank America
Office: 610-668-4700

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