Royal Bank America Resolves Legal Issues, Turnaround Moves Forward

Royal Bank America Resolves Legal Issues, Turnaround Moves Forward 
Second Quarter Reflects Further Strengthening of Core Business;
Regulatory Upgrade; Shareholder Approval for Capital Raise 
NARBERTH, PA -- (Marketwired) -- 08/14/13 --  Royal Bancshares of
Pennsylvania, Inc. ("Company") (NASDAQ: RBPAA), parent company of
Royal Bank America ("Royal Bank"), today announced financial results
for the three and six months ended June 30, 2013. The Company
resolved two outstanding legal issues which resulted in a net loss of
$803,000 and $685,000 for the quarter and six months ended June 30,
2013, respectively. The net losses for the comparable periods in 2012
were $2.0 million and $2.8 million, respectively. Excluding these
noteworthy items, results would have been a profit of $187,000 for
the quarter and $305,000 for the six months.  
Resolution of two significant legal matters; Written agreement
terminated 
Two previously disclosed legal matters, which had presented
significant uncertainty in their outcome, were resolved in the second
quarter. The Company was dismissed from a lawsuit related to a $25
million CDO investment through Lehman Brothers Special Financing.
Additionally, the Company reached an agreement in principle with
plaintiffs to settle a class action lawsuit involving its tax lien
subsidiaries. As a result of these legal proceedings being finalized
and coming to a conclusion soon, the Company anticipates legal
expenses to decline. Further, the Company was notified by the Federal
Reserve Bank of Philadelphia that it has terminated the written
agreement, which had been in effect since March 17, 2010. 
Financial results reflect further strengthening of core business 
For the three and six months ended June 30, 2013, net loss
attributable to the Company was $803,000 and $685,000, respectively
compared to a net loss of $2.0 million and $2.8 million for the
comparable periods in 2012. The loss per basic and diluted common
share was 10 cents and 13 cents for the three and six months ended
June 30, 2013, respectively, compared to a loss of 19 cents and 29
cents for the comparable periods in 2012. Contributing to the 2013
net loss for the three and six month periods was a $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 $187,000 and $305,000 for the three and six months ended June 30,
2013, respectively. The $1.2 million improvement in net loss for the
quarterly period was related to a $1.7 million decline in the
provision for loan and lease losses, a $943,000 decrease in credit
related expenses and an $859,000 decline in other-than-temporary
impairment on investment securities. Additionally, salaries and
benefits and professional and legal fees declined $505,000 and
$498,000, respectively, quarter over quarter. The Company continues
to make progress on legacy credit and legal issues, which has had a
positive effect on financial results. Partially offsetting these
positive items was a $2.0 million reduction in gains on the sales of
loans and leases and a $960,000 decline in net interest income
quarter over quarter. The Company's leasing subsidiary positively
contributed to the second quarter's results.  
The $2.1 million improvement in the net loss year over year for the
first six months was related to a $2.0 million reduction in the
provision for loan and lease losses, a $1.1 million decrease in
credit related expenses, an $859,000 decline in other-than-temporary
impairment on investment securities, and $678,000 in gains primarily
on the sales of two premises. In addition, gains on the sale of OREO
increased $463,000 while professional and legal fees and salaries and
benefits declined $842,000 and $600,000, respectively. Partially
offsetting these improvements were a $2.2 million reduction in net
interest income and a $2.0 million decrease in gains on the sales of
loans and leases. The Company's leasing subsidiary continues to
positively contribute to the 2013 results. At June 30, 2013, based on
capital levels calculated under regulatory accounting principles,
Royal Bank's Tier 1 leverage and total risk-based capital ratios were
9.09% and 15.45%, respectively, and continue to be above required
regulatory minimum ratios. 
The Company's Chief Executive Officer Kevin Tylus noted, "Our
announcement today of second quarter results highlights the success
to-date in repositioning the Company and Royal Bank. The resolution
of the two legacy legal matters eliminates significant uncertainty.
We are encouraged by the Federal Reserve Bank's termination of the
written agreement and by the positive results from our core
businesses. Strong new commercial and consumer loan growth, the
excellent credit quality of the new loans and our expense reduction
efforts are combining to improve our profitability run rate from core
operations."  
He added, "Non-performing assets improved again this quarter and
intensive efforts continue in that regard. Our leasing group
continued its strong performance. We continue to address legacy
credit and legal issues, though their volume and potential impact
diminished in the quarter. A strategy to enhance retail banking has
commenced and we continue to rationalize our company-owned real
estate to more prudently apply their value to our core businesses. I
remain optimistic that we can continue the momentum we have built the
past six months. The Royal Bank brand is significantly evolving and
creating better banking convenience for commercial, consumer and
retail customers." 
Continuing positive impact of profitability improvement plan 
Specific initiatives of the Profitability Improvement Plan ("Plan")
are reducing expenses and improving efficiency. These efforts have
resulted in a nearly 12% reduction in the workforce and an annualized
reduction of approximately 10% of discretionary expenses.
Enhancements in products and procedures have resulted in new revenue
that has exceeded expectations year-to-date. 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 $111,000 in
restructuring charges during the first six months of 2013. As
mentioned previously credit related expenses (including OREO),
professional and legal fees, and salaries and benefits declined $1.1
million, $842,000, and $600,000, respectively, year over year.  
The Company has also announced a unique approach to further improve
productivity while reducing expenses. Certain of the Company's
employees will become employees under a servicing agreement with a
vendor specializing in asset resolution and asset maximization. The
arrangement, in addition to reducing expenses, provides a new "home"
for the affected employees and is intended to accelerate the
reduction of the Company's troubled loans.  
Shareholders approve preferred stock strategy; Plans developing for
public rights offering 
At the Company's annual meeting held in June, shareholders approved
the issuance of 11,667,000 Class A common shares for the purpose of
raising up to $14,000,000 in a private placement. The additional
capital raise will position the Company to bid at an anticipated
United States Department of Treasury auction of its Series A
Preferred shares.  
A successful 
redemption of a portion of the preferred shares will
provide advantages to the Company's shareholder and capital base and
includes the ability to partially eliminate preferred dividends in
arrears.  
The shareholders also approved subsequent shareholders' rights
offering giving existing shareholders the opportunity to increase
their investment in the Company at a discount comparable to the
private placement.  
Search underway for proven retail leader 
The Company has engaged a leading executive search firm to identify
experienced candidates to lead Royal Bank's retail banking operation.
The new head of retail will further develop Royal Bank's deposit and
consumer products and delivery channels, including options for
realigning and invigorating the branch footprint. The Company
anticipates a new leader being in place prior to January 1, 2014. 
Technology Enhancements Include New Website; Rebranding Continues 
Royal Bank launched an expanded and enhanced version of its website,
www.royalbankamerica.com. The new site presents a dramatically
improved user-experience and features responsive design elements that
address the consumer's desire for "any time/anywhere/any device"
access to custom-tailored views utilized. New site navigation
provides faster access to online banking, a secure online home equity
application, social media and current rates. Expanded marketing and
advertising are utilizing the customer convenient, on-line banking
theme. 
Non-performing loans and non-performing assets continue to decline 
At June 30, 2013, non-performing loans of $17.8 million decreased
$5.2 million from $23.0 million at December 31, 2012, reflecting a
continuation of a trend as non-performing loans have decreased by
65.4% and non-performing assets decreased by 57.5% since December 31,
2011.  


 
                                                                            
                                          At June 30,     At December 31,   
(in millions except percentages)              2013        2012       2011   
                                          -----------  ---------  --------- 
Non-performing loans                      $      17.8  $    23.0  $    51.3 
Non-performing assets (which includes                                       
 OREO)                                    $      30.8  $    36.4  $    72.3 
Percentage of non-accrual loans to total                                    
 loans                                            4.8%       6.7%      12.0%
Percentage of non-performing assets to                                      
 total assets                                     4.1%       4.7%       8.5%

 
Net Interest Margin 
The quarterly and yearly decline in net interest income was primarily
attributed to a reduction in interest-earning assets coupled with a
decline in the yield on loans and investments. The net interest
margin declined 22 and 28 basis points from 3.12% and 3.10% for the
three and six months ended June 30, 2012, respectively, to 2.90% and
2.82% for the three and six months ended June 30, 2013, respectively.
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), the re-pricing
of FHLB advances, and improving the mix of interest earning assets by
replacing lower-yielding investment securities with higher-yielding
loans. As a result of these actions, at June 30, 2013, investment
securities declined $45.1 million and loans grew $23.7 million from
year end 2012 leading to a net interest margin increase of 19 basis
points for the six months ended June 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 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                                                       
 for loss per common           Three months               Six months        
 share)                       ended Jun. 30th           ended Jun. 30th     
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
                         (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Interest Income          $     6,743  $     8,423  $    13,495  $    17,229 
Interest Expense               1,797        2,517        3,777        5,330 
                         -----------  -----------  -----------  ----------- 
Net Interest Income            4,946        5,906        9,718       11,899 
(Credit) Provision for                                                      
 Loan and Lease Losses          (163)       1,515         (414)       1,599 
                         -----------  -----------  -----------  ----------- 
Net Interest Income                                                         
 after Provision               5,109        4,391       10,132       10,300 
Non Interest Income              961        1,945        2,369        2,606 
Non Interest Expense           7,567        8,592       13,707       16,659 
                         -----------  -----------  -----------  ----------- 
Income (Loss) before                                                        
 Taxes                        (1,497)      (2,256)      (1,206)      (3,753)
Income Taxes                       -            -            -            - 
                         -----------  -----------  -----------  ----------- 
Net Loss                      (1,497)      (2,256)      (1,206)      (3,753)
Less Net Loss                                                               
 attributable to                                                            
 noncontrolling interest        (694)        (306)        (521)        (934)
Net Loss attributable to                                                    
 Royal Bancshares        $      (803) $    (1,950) $      (685) $    (2,819)
                         ===========  ===========  ===========  =========== 
  Less Preferred stock                                                      
   Series A accumulated                                                     
 
   dividend and                                                             
   accretion             $       518  $       508  $     1,033  $     1,014 
                         ===========  ===========  ===========  =========== 
Net loss to common                                                          
 shareholders            $    (1,321) $    (2,458) $    (1,718) $    (3,833)
                         ===========  ===========  ===========  =========== 
Loss per common share -                                                     
 basic and diluted       $     (0.10) $     (0.19) $     (0.13) $     (0.29)
                         ===========  ===========  ===========  =========== 
                                                                            
SELECTED RATIOS:                                                            
                                                                            
Return on Average Assets        -0.4%        -0.9%        -0.2%        -0.7%
Return on Average Equity        -5.6%       -10.4%        -2.4%        -7.5%
Average Equity to Assets         7.7%         9.0%         7.7%         9.0%
Book Value Per Share     $      1.48  $      2.88  $      1.48  $      2.88 
                                                                            
                                                                            
CONDENSED BALANCE SHEET                                                     
                                                                            
                                                      At Jun 30,  At Dec 31,
(in thousands)                                           2013        2012   
                                                     ----------- -----------
                                                     (unaudited) (unaudited)
Cash and Cash Equivalents                            $    24,782 $    28,802
Investment Securities                                    310,961     357,464
Loans & Leases (net)                                     354,107     328,476
Premises and Equipment (net)                               4,709       5,232
Other Real Estate Owned (net)                             13,002      13,435
Accrued Interest receivable                                8,733      10,256
Other Assets                                              32,307      30,051
                                                     ----------- -----------
    Total Assets                                     $   748,601 $   773,716
                                                     ----------- -----------
                                                                            
Deposits                                                 525,670     554,917
Borrowings                                               108,108     108,333
Other Liabilities                                         35,774      26,277
Subordinated debentures                                   25,774      25,774
Royal Bancshares Shareholders' Equity                     50,033      54,555
Noncontrolling Interest                                    3,242       3,860
                                                     ----------- -----------
    Total Equity                                          53,275      58,415
                                                     ----------- -----------
    Total Liabilities and Equity                     $   748,601 $   773,716
                                                     ----------- -----------
                                                                            
                                                                            
NET INTEREST INCOME AND MARGIN                                              
                                                                            
                                                                            
                          For the three months       For the three months   
                                 ended                      ended           
                             June 30, 2013              June 30, 2012       
                       -------------------------  ------------------------- 
(In thousands, except   Average                    Average                  
 percentages)           Balance   Interest Yield   Balance   Interest Yield 
                       --------- --------- -----  --------- --------- ----- 
Cash equivalents       $  14,774 $       8  0.22% $  22,140 $       9  0.16%
Investment securities    307,216     1,291  1.69%   339,489     1,763  2.09%
Loans                    363,183     5,444  6.01%   400,557     6,651  6.68%
                       --------- --------- -----  --------- --------- ----- 
Total interest-earning                                                      
 assets                  685,173     6,743  3.95%   762,186     8,423  4.43%
Non-earning assets        59,864                     74,390                 
                       ---------                  ---------                 
    Total average                                                           
     assets            $ 745,037                  $ 836,576                 
                       =========                  =========                 
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets             $ 210,778 $     153  0.29% $ 229,958 $     410  0.72%
  Savings                 18,189        10  0.22%    17,132        21  0.49%
  Time deposits          235,508       842  1.43%   277,294     1,142  1.66%
                       --------- --------- -----  --------- --------- ----- 
Total interest-bearing                                                      
 deposits                464,475     1,005  0.87%   524,384     1,573  1.21%
Borrowings               133,952       792  2.37%   155,971       944  2.43%
                       --------- --------- -----  --------- --------- ----- 
Total interest-bearing                                                      
 liabilities             598,427     1,797  1.20%   680,355     2,517  1.48%
Non-interest bearing                                                        
 deposits                 58,865                     52,337                 
Other liabilities         30,310                     28,672                 
Shareholders' equity      57,435                     75,212                 
                       ---------                  ---------                 
    Total average                                                           
     liabilities and                                                        
     equity            $ 745,037                  $ 836,576                 
                       =========                  =========                 
    Net interest                                                            
     margin                      $   4,946  2.90%           $   5,906  3.12%
                                 =========                  =========       
                                                                            
                                                                            
                        For the six months ended   For the six months ended 
                             June 30, 2013              June 30, 2012       
                       -------------------------  ------------------------- 
(In thousands, except   Average                    Average                  
 percentages)           Balance   Interest Yield   Balance   Interest Yield 
                       --------- --------- -----  --------- --------- ----- 
Cash equivalents       $  15,139 $      15  0.20% $  20,934 $      18  0.17%
Investment securities    322,229     2,575  1.61%   339,218     3,743  2.22%
Loans                    358,058    10,905  6.14%   411,115    13,468  6.59%
                       --------- --------- -----  --------- --------- ----- 
Total interest-earning                                                      
 assets                  695,426    13,495  3.91%   771,267    17,229  4.49%
Non-earning assets        57,975                     71,942                 
                       ---------                  ---------                 
  Total average assets $ 753,401                  $ 843,209                 
                       =========                  =========                 
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets             $ 215,768 $     315  0.29% $ 228,074 $     834  0.74%
  Savings                 17,887        19  0.21%    16,916        43  0.51%
  Time deposits          240,361     1,744  1.46%   279,799     2,324  1.67%
           
            --------- --------- -----  --------- --------- ----- 
Total interest-bearing                                                      
 deposits                474,016     2,078  0.88%   524,789     3,201  1.23%
Borrowings               134,008     1,699  2.56%   163,971     2,129  2.61%
                       --------- --------- -----  --------- --------- ----- 
Total interest-bearing                                                      
 liabilities             608,024     3,777  1.25%   688,760     5,330  1.56%
Non-interest bearing                                                        
 deposits                 58,620                     53,504                 
Other liabilities         28,704                     25,285                 
Shareholders' equity      58,053                     75,660                 
                       ---------                  ---------                 
    Total average                                                           
     liabilities and                                                        
     equity            $ 753,401                  $ 843,209                 
                       =========                  =========                 
    Net interest                                                            
     margin                      $   9,718  2.82%           $  11,899  3.10%
                                 =========                  =========       

  
Company Contact:
Marc Sanders
Vice President - Marketing
Royal Bank America
Office: 610-668-4700