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

Royal Bancshares of Pennsylvania, Inc. Reports Financial Results for Fourth 
Quarter and Year Ended December 31, 2012 and Announces
Profitability Improvement Plan 
NARBERTH, PA -- (Marketwire) -- 03/27/13 --  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
unfavo
rable 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      For the three months   
                                   ended                     ended          
                             December 31, 2012         December 31, 2011    
                         ------------------------  ------------------------ 
(In thousands, except     Average                   Average                 
 percentages)             Balance  Interest Yield   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       Average                  Average                
 percentages)               Balance Interest Yield   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%
                                    ========                 ========       

  
Marc Sanders
Vice President - Marketing
Royal Bank America
Office: 610-668-47
00 
 
 
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