Royal Bancshares Posts Third Quarter Profit

$5.2 Million Improvement Compared to Third Quarter 2012

Marketwired

NARBERTH, PA--(Marketwired - Nov 12, 2013) - Royal Bancshares of Pennsylvania, Inc. ("Company") (NASDAQ: RBPAA), parent company of Royal Bank America ("Royal Bank"), today announced financial results for the three and nine months ended September 30, 2013. The Company recorded net income of $342,000 for the third quarter of 2013 compared to a net loss of $4.8 million for the comparable period in 2012. Net loss for the nine months ended September 30, 2013 was $343,000 compared to a net loss of $7.6 million for the nine months ended September 30, 2012. Excluding the resolution of an outstanding legal issue in the second quarter, year to date results would have been a profit of $647,000. The loss per basic and diluted common share was 1 cent and 14 cents for the three and nine months ended September 30, 2013, respectively, compared to a loss of 40 cents and 69 cents for the comparable periods in 2012, respectively.

Royal Bank recorded net income of $586,000 for the third quarter of 2013 compared to a net loss of $4.7 million for the comparable period in 2012. Net income for the nine months ended September 30, 2013 was $93,000 compared to a net loss of $6.4 million for the nine months ended September 30, 2012.

Core business improves as recovery strengthens

For the three months ended September 30, 2013, net income attributable to the Company was $342,000 compared to a net loss of $4.8 million for the three months ended September 30, 2012. For the nine months ended September 30, 2013 and 2012, the net loss was $343,000 and $7.6 million, respectively. The quarter over quarter improvement of $5.2 million was mainly related to a $2.6 million decrease in credit related expenses as the total level of non-performing assets continues to decline, a $1.5 million decline in provision for loan and lease losses due to the improving credit quality of the loan portfolio, a $526,000 gain on the sale of a Company owned parking lot, and a $401,000 increase in net gains on sales of other real estate owned ("OREO"). The Company continues to make progress on legacy credit and legal issues, which has had a positive effect on financial results.

At September 30, 2013, loans and leases held for investment totaled $377.3 million, which represents an increase of $33.2 million, or 9.6%, despite the runoff of tax liens of $9.2 million, from the level at December 31, 2012. New business relationships spurred the growth and further diversification of the loan portfolio, improving the composition of interest earning assets. Investment securities declined $57.9 million, or 16.6%, from the level at December 31, 2012 partially due to the reinvestment of cash flows into loans. Total deposits declined $32.3 million, or 5.8%, from $554.9 million at December 31, 2012 to $522.6 million at September 30, 2013. The decline in deposits was related to the strategic re-pricing of higher cost deposit products including money market accounts and certificates of deposit. 

The $7.3 million improvement in net loss for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 was mainly related to a $3.8 million decrease in credit related expenses as the total level of non-performing assets continues to fall, a $3.6 million decline in provision for loan and lease losses as a result of the improvement in the credit quality of the loan portfolio, the absence of a net $1.2 million pre-tax accrual related to the tax lien subsidiaries, a $1.3 million decrease in professional and legal fees, $1.2 million in gains on the sale of Company owned real estate, a $913,000 reduction in employee salaries and benefits, an $864,000 increase in net gains on sales of OREO, and an $859,000 decline in other-than-temporary investment impairment. Partially offsetting these positive items was a $2.5 million drop in net interest income, a $1.8 million decrease in gains on sales of loans and leases, and the $1.65 million loss contingency accrual for a settlement of the class action lawsuit related to the Company's tax lien subsidiaries. After adjusting for the non-controlling interest, the Company's 60% share of the loss contingency amounted to $990,000 on a pre-tax basis. Excluding the loss contingency accrual the Company would have recorded net income of $647,000 for the nine months ended September 30, 2013. The Company's leasing subsidiary continued to positively contribute to financial results for the third quarter and year-to-date.

At September 30, 2013, based on capital levels calculated under regulatory accounting principles, Royal Bank's Tier 1 leverage and total risk-based capital ratios were 9.39% and 15.70%, respectively, and continue to be above required regulatory minimum ratios.

The Company's Chief Executive Officer Kevin Tylus noted, "We are now three full quarters into what has been an all-encompassing review and refresh of our business model and I am encouraged by the positive traction gained from some of our most significant changes. Positive quarterly results for both the bank and holding company reflect a diverse number of factors including continued quality loan growth, progress reducing non-performing assets and improvements in organizational efficiencies, brand reputation and management of strategic real estate assets -- all of which continue to push us further towards our goal of returning our company to consistent profitability. Much of this progress is attributable to the quality of new relationships which have helped us expand our customer base and pursue opportunities to grow our brand strategically."

Tylus added, "Efforts to reposition and reinvigorate our retail branch network continue to gather steam and we expect to hire in the 4th quarter a highly experienced retail banker to fill the newly configured Chief Retail Banking Officer position to lead account penetration, product expansion and retail sales teams. Plans are also being finalized for the relocation in the next 60-120 days of three branches to more convenient, high-traffic locations within the same markets. With the further adoption of new technologies as well as new commercial and consumer solutions, our expectations from our retail network in the months and years to come have been significantly raised."

Profitability Improvement Plan ("Plan") continues to reduce expenses and improve efficiency

Strategic efforts continued during the third quarter, including the effectuation of a unique transfer of certain employees to a key servicing vendor that will help accelerate the handling of our non-performing assets. This, coupled with other efforts throughout 2013, has resulted in a nearly 21% reduction in the workforce and an annualized reduction of approximately 10%, or $300,000, of discretionary expenses. Enhancements in products and recent automation have resulted in new revenue and improved efficiencies. The expense reductions and revenue growth, combined, are intended to bring core performance more in line with our peers.

As a result of the Plan, the Company recorded $230,000 in restructuring charges during the first nine months of 2013. As mentioned previously, credit related expenses (including OREO), professional and legal fees, and salaries and benefits declined $3.8 million, $1.3 million, and $913,000, respectively, year over year.

Credit quality continues positive trend

At September 30, 2013, non-performing loans were $13.5 million, or 3.6%, of total loans, a decrease of $9.5 million from $23.0 million at December 31, 2012, reflecting a continuation of a trend as non-performing loans have decreased by 73.8% and non-performing assets decreased by 62.2% since December 31, 2011. As a result, the provision for loan and lease losses has declined by $3.6 million for the nine-month period ended September 30, 2013 compared to the nine-month period ended September 30, 2012.

         
  At September 30,   At December 31,  
(in thousands except percentages)   2013     2012     2011  
Non-performing loans   $ 13,468     $ 23,004     $ 51,324  
Non-performing assets (which includes OREO)   $ 27,374     $ 36,439     $ 72,340  
Percentage of non-accrual loans to total loans     3.6 %     6.7 %     12.0 %
Percentage of non-performing assets to total assets     3.7 %     4.7 %     8.5 %
                         

Net Interest Margin

The quarter over quarter net interest income decline of $312,000 was primarily attributed to a reduction in interest-earning assets coupled with a decline in the yield on loans. Additionally during the third quarter of 2013, the Company paid the $3.1 million accrued interest in arrears on the trust preferred securities which included a $174,000 interest penalty that negatively impacted net interest income. Despite the decline in net interest income, the net interest margin in the third quarter of 2013 of 2.94% grew 6 basis points from the comparable quarter of 2012.

Net interest income for the nine months ended September 30, 2013 declined $2.5 million from the comparable period in 2012. The decrease was primarily attributed to a reduction in interest-earning assets coupled with a decline in the yield on loans and investments year over year. To mitigate the decline in net interest income the Company has reduced funding costs through the redemption and lower re-pricing of maturing retail CDs and the re-pricing of FHLB advances, and is continuing efforts to improve the mix of interest earning assets. The net interest margin of 2.86% for the nine month period ended September 30, 2013, declined 17 basis points from the comparable period of 2012. The decline in the yield on interest-earning assets was driven by lower yields on average loan balances mainly due to the planned significant decline of the higher yielding tax liens and the decrease in investment securities year over year.

At September 30, 2013, lower-yielding investment securities declined $57.9 million and higher-yielding loans, led by an influx of new customers and expanding relationships, grew $33.2 million from year-end 2012 leading to a net interest margin improvement of 23 basis points for the nine months ended September 30, 2013 compared to the net interest margin of 2.63% for the quarter ended December 31, 2012.

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 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  
    Three months     Nine months  
    ended Sep 30,     ended Sep 30,  
(in thousands, except for loss per common share)   2013     2012     2013     2012  
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Interest Income   $ 6,960     $ 7,761     $ 20,455     $ 24,990  
Interest Expense     1,890       2,379       5,667       7,709  
Net Interest Income     5,070       5,382       14,788       17,281  
Provision (Credit) for Loan and Lease Losses     218       1,761       (196 )     3,360  
Net Interest Income after Provision     4,852       3,621       14,984       13,921  
Non Interest Income     1,937       1,151       4,306       3,757  
Non Interest Expense     6,290       9,409       19,997       26,068  
Income (Loss) before Taxes     499       (4,637 )     (707 )     (8,390 )
Income Taxes     -       -       -       -  
Net Income (Loss)     499       (4,637 )     (707 )     (8,390 )
Less Net Income (Loss) Attributable to Noncontrolling Interest     157       175       (364 )     (759 )
Net Income (Loss) Attributable to Royal Bancshares   $ 342     $ (4,812 )   $ (343 )   $ (7,631 )
  Less Preferred Stock Series A Accumulated Dividend and Accretion   $ 520     $ 511     $ 1,553     $ 1,525  
Net Loss to Common Shareholders   $ (178 )   $ (5,323 )   $ (1,896 )   $ (9,156 )
Loss Per Common Share - Basic and Diluted   $ (0.01 )   $ (0.40 )   $ (0.14 )   $ (0.69 )
SELECTED RATIOS:                                
Return on Average Assets     0.2 %     -2.3 %     -0.1 %     -1.2 %
Return on Average Equity     2.6 %     -26.3 %     -0.8 %     -13.7 %
Average Equity to Assets     7.1 %     8.9 %     7.5 %     8.9 %
Book Value Per Share   $ 1.38     $ 2.60     $ 1.38     $ 2.60  
                                 
                                 
   
CONDENSED BALANCE SHEET  
             
(in thousands)   At Sep 30, 2013     At Dec 31, 2012  
    (unaudited)     (unaudited)  
Cash and Cash Equivalents   $ 18,854     $ 28,802  
Investment Securities     297,959       357,464  
Loans and leases held for sale ("LHFS")     -       1,572  
Loans and Leases                
  Commercial real estate     169,901       178,871  
  Construction and land development     39,594       37,215  
  Commercial and industrial     86,401       40,560  
  Residential real estate     24,830       24,981  
  Leases     40,408       37,347  
  Tax certificates     15,364       24,569  
  Other     831       622  
Loans and Leases     377,329       344,165  
Allowance for loan and lease losses     (14,679 )     (17,261 )
Loans and Leases (net)     362,650       326,904  
Premises and Equipment (net)     4,770       5,232  
Other Real Estate Owned (net)     13,906       13,435  
Accrued Interest receivable     7,869       10,256  
Other Assets     30,992       30,051  
    Total Assets   $ 737,000     $ 773,716  
                 
Deposits     522,620       554,917  
Borrowings     111,994       108,333  
Other Liabilities     24,490       26,277  
Subordinated debentures     25,774       25,774  
Royal Bancshares Shareholders' Equity     48,808       54,555  
Noncontrolling Interest     3,314       3,860  
    Total Equity     52,122       58,415  
    Total Liabilities and Equity   $ 737,000     $ 773,716  
                     
                     
   
NET INTEREST INCOME AND MARGIN  
                             
                             
    For the three months ended     For the three months ended  
    September 30, 2013     September 30, 2012  
(In thousands, except percentages)   Average Balance   Interest   Yield     Average Balance   Interest   Yield  
Cash equivalents   $ 6,072   $ 6   0.39 %   $ 24,381   $ 10   0.16 %
Investment securities     305,152     1,528   1.99 %     352,336     1,453   1.64 %
Loans     373,722     5,426   5.76 %     367,664     6,298   6.81 %
Total interest-earning assets     684,946     6,960   4.03 %     744,381     7,761   4.15 %
Non-earning assets     52,532                 73,323            
    Total average assets   $ 737,478               $ 817,704            
Interest-bearing deposits                                    
  NOW and money markets   $ 203,189   $ 149   0.29 %   $ 224,898   $ 292   0.52 %
  Savings     17,958     9   0.20 %     16,901     14   0.33 %
  Time deposits     237,689     825   1.38 %     277,878     1,134   1.62 %
Total interest-bearing deposits     458,836     983   0.85 %     519,677     1,440   1.10 %
Borrowings     134,186     907   2.68 %     135,864     939   2.75 %
Total interest-bearing liabilities     593,022     1,890   1.26 %     655,541     2,379   1.44 %
Non-interest bearing deposits     61,513                 56,963            
Other liabilities     30,669                 32,461            
Shareholders' equity     52,274                 72,739            
    Total average liabilities and equity   $ 737,478               $ 817,704            
    Net interest margin         $ 5,070   2.94 %         $ 5,382   2.88 %
                                         
                                         
                             
    For the nine months ended     For the nine months ended  
    September 30, 2013     September 30, 2012  
(In thousands, except percentages)   Average Balance   Interest   Yield     Average Balance   Interest   Yield  
Cash equivalents   $ 12,083   $ 21   0.23 %   $ 22,091   $ 28   0.17 %
Investment securities     316,474     4,103   1.73 %     343,622     5,196   2.02 %
Loans     363,909     16,331   6.00 %     396,526     19,766   6.66 %
Total interest-earning assets     692,466     20,455   3.95 %     762,239     24,990   4.38 %
Non-earning assets     55,782                 72,340            
    Total average assets   $ 748,248               $ 834,579            
Interest-bearing deposits                                    
  NOW and money markets   $ 211,529   $ 464   0.29 %   $ 227,008   $ 1,126   0.66 %
  Savings     17,911     28   0.21 %     16,911     57   0.45 %
  Time deposits     239,460     2,569   1.43 %     279,154     3,458   1.65 %
Total interest-bearing deposits     468,900     3,061   0.87 %     523,073     4,641   1.19 %
Borrowings     134,068     2,606   2.60 %     154,533     3,068   2.65 %
Total interest-bearing liabilities     602,968     5,667   1.26 %     677,606     7,709   1.52 %
Non-interest bearing deposits     59,595                 54,663            
Other liabilities     29,579                 27,723            
Shareholders' equity     56,106                 74,587            
    Total average liabilities and equity   $ 748,248               $ 834,579            
    Net interest margin         $ 14,788   2.86 %         $ 17,281   3.03 %
                                         
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