Royal Bancshares Reports Profit for Full Year and Fourth Quarter

Royal Bancshares Reports Profit for Full Year and Fourth Quarter 
Profitability Improvement Plan and Core Customer Growth Enable
Progress 
NARBERTH, PA -- (Marketwired) -- 02/20/14 --  Royal Bancshares of
Pennsylvania, Inc. ("Company") (NASDAQ: RBPAA), parent company of
Royal Bank America ("Royal Bank"), announced net income of $2.4
million and basic and diluted earnings per share of $0.14 for the
three months ended December 31, 2013. This compares to a net loss of
$8.0 million and basic and diluted loss per share of $0.64 for the
comparable period in 2012. Net income for the full year of 2013
amounted to $2.1 million and basic and diluted earnings per share of
$0.00 compared to a net loss of $15.6 million and basic and diluted
loss per share of $1.33 for 2012.   
Royal Bank recorded net income of $2.6 million for the fourth quarter
of 2013 compared to a net loss of $6.8 million for the comparable
period in 2012. Net income for the year ended December 31, 2013 was
$2.7 million compared to a net loss of $13.2 million for the year
ended December 31, 2012. 
Selected Company highlights, explained further below, included: 


 
--  Net income improved $17.7 million in 2013 from 2012
--  Quarterly earnings per share of $0.14
--  Reduction in nonperforming assets of 45.7%
--  Non-interest expense reduction of 27.5%
--  Resolution of the Company's two significant legal matters
--  Positive impact of a designed Company owned real estate strategy

  
Significant progress in core business and asset quality  
"Comply, Reposition, Grow" was the mantra for 2013 with the result of
solidifying core earnings and reporting a profit. The Company's Chief
Executive Officer Kevin Tylus noted, "Today's announcement is due to
the execution of a multi-faceted strategic plan with the goal of a
return to profitability. During 2013 we focused on transitioning
Royal Bank into a community bank built on a solid commercial revenue
and retail delivery foundation. We achieved our goals to improve
efficiency by restructuring the organization and modernizing. Some of
those key actions included:  


 
--  Introducing new technologies
--  Automating business processes
--  Unlocking value in our owned real estate assets
--  Improving brand reputation
--  Revitalizing our retail network

  
Positive quarterly and annual results for both Royal Bank and the
Company reflect a diverse number of factors including quality loan
growth, progress in reducing non-performing assets, expense
reductions, and enhancements in organizational efficiencies. Perhaps
most significant was the revenue growth from a sizable increase in
commercial customers new to Royal Bank as well as success in
retaining important legacy customers." 
Tylus added, "With the December hiring of Lars Eller as Chief Retail
Banking Officer, we look to grow our retail customer base as we
deploy new commercial and consumer solutions, enhance our product
offerings and develop our retail sales teams. Mr. Eller has
significant experience in private and retail banking, consumer
lending and wealth management. A December retail campaign exceeded
goals for new customer acquisition and set the stage for future
cross-selling opportunities. Continuing with the objective of
refreshing our retail branch network, we relocated our Villanova
branch in January 2014. We are in the process of relocating three
additional branches to more convenient, high-traffic locations within
the same markets. Our expectation from the foundation established in
2013 is a vibrant retail network in 2014 that enhances the brand and
offers numerous new choices for individual and business customers."  
Fourth quarter 2013 results 
The $10.4 million improvement for the fourth quarter of 2013 as
compared to same period in 2012 was mainly related to the following
items:  


 
--  Credit related expenses decreased $3.6 million, or 75.1% as the total
    level of non-performing assets continues to decline
--  Provision for loan and lease losses declined $3.3 million due to the
    improved credit quality of the loan portfolio
--  Other-than-temporary investment impairment fell $1.5 million to $0 in
    2013
--  Gains on the sale of two Company owned buildings were $1.3 million
--  Net interest income increased $578,000, or 12.0%

  
Full year 2013 results 
The $17.7 million improvement for the year ended December 31, 2013 as
compared to the year ended December 31, 2012 was mainly related to
the following items: 


 
--  Credit related expenses declined $7.4 million, or 67.8%, with
    non-performing assets now at 2.7% of total assets compared to 4.7% at
    December 31, 2012
--  Provision for loan and lease losses dropped $6.9 million as a result
    of the loan portfolio's improved credit quality
--  Other-than-temporary investment impairment declined $2.4 million
--  Gains on the sale of Company owned real estate were $2.5 million
--  Salaries and benefits declined $1.3 million, or 11.2%, as a result of
    a 22% reduction in the workforce
--  Professional and legal fees decreased $1.2 million, or 29.3%
--  Net gains on sales of other real estate owned ("OREO") increased $1.1
    million

  
Partially offsetting these positive items was a $1.9 million decrease
in net interest income, a $1.4 million decrease in gains on sales of
loans and leases, and an $872,000 decline in gains on sale of
investment securities. The Company's leasing subsidiary continued to
positively contribute to the annual and fourth quarter financial
results.  
Loans and leases held for investment at December 31, 2013 totaled
$366.5 million, which represents an increase of $22.3 million, or
6.5%, from 2012 despite the $12.8 million decline in non-performing
loans and the $11.9 million runoff in tax liens. New business
relationships spurred the growth and further diversification of the
loan portfolio, improving the composition of interest earning assets.
Investment securities declined $40.5 million, or 11.6%, from the
level at December 31, 2012 partially due to the reinvestment of cash
flows from principal payments and calls into loans. Total deposits
declined $25.9 million, or 4.7%, from $554.9 million at December 31,
2012 to $529.0 million at December 31, 2013. The decline in deposits
was primarily related to the purposeful strategic re-pricing of
higher cost deposit products including money market accounts and
maturing certificates of deposit.  
In 2013 the Federal Reserve Bank of Philadelphia upgraded the Company
and terminated its written agreement. Additionally, during 2013 the
Company achieved the resolution of two legal matters, which had
presented uncertainty in their outcome. The Company was favorably
dismissed from a lawsuit related to a $25 million CDO investment
through Lehman Brothers Special Financing and the Company reached an
agreement in principle with plaintiffs to settle a class action
lawsuit involving its tax lien subsidiaries. The Company recorded a
$1.65 million loss contingency for the settlement. After adjusting
for the noncontrolling interest, the Company's 60% share of the loss
contingency amounted to $990,000 on a pre-tax basis. 
Net Interest Margin 
The $578,000 growth in net interest income quarter over quarter was
primarily attributed to a reduction in interest expense coupled with
an increase in the yield on investments. For the fourth quarter of
2013, the net interest margin of 3.12% grew 49 basis points from the
comparable quarter of 2012 and 18 basis points from the quarter ended
September 30, 2013. Average interest-earning assets declined $41.6
million and included a change in the composition as average loans
increased $30.8 million while average investments declined $56.1
million. Average interest-earning deposits decreased $38.0 million.
The yield on average interest-earning assets increased 27 basis
points quarter over quarter. The $41.3 million decrease in average
interest-bearing liabilities for the fourth quarter of 2013 from the
comparable quarter in 2012 was accompanied by a 24 basis point
reduction in average rates. 
Net interest income for the year ended December 31, 2013 declined
$1.9 million from the comparable period in 2012. The decrease was
primarily attributed to a reduction in average interest-earning
assets coupled with a decline in the yield on loans and investments
year over year. Despite the decrease in net interest income, the net
interest margin of 2.92% for 2013 decreased only 2 basis points from
2.94% for 2012. To mitigate the decline in net interest income the
Company reduced funding costs through the redemption and lower
re-pricing of maturing retail CDs and the lower re-pricing of FHLB
advances, and is continuing efforts to improve the mix of
interest-earning assets. The 26 basis point decline in the yield on
interest-earning assets was driven by lower yields on average loan
balances mainly due to the planned substantial decline of the higher
yielding tax liens and the decrease in the yield on investment
securities year over year. At December 31, 2013, average
lower-yielding investment securities fell $32.7 million and average
loans decreased $17.2 million from year-end 2012. Average
interest-bearing deposits declined $50.1 million while average
borrowings declined $16.1 million. These reductions led to a drop in
average rates on interest-bearing liabilities of 26 basis points. 
Asset quality continues improvement 
During 2013, non-performing loans and non-performing assets decreased
$12.8 million and $16.7 million, respectively. This improvement
reflects management's continued focus on improving asset quality as
non-performing loans and non-performing assets have decreased by
80.2% and 72.7%, respectively, since December 31, 2011. As a result
the provision for loan and lease losses has declined by $6.9 million
in 2013 as compared to 2012. 


 
                                                                            
                                                      At December 31,       
(in thousands except percentages)                2013      2012      2011   
                                               --------  --------  -------- 
Non-performing loans                           $ 10,157  $ 23,004  $ 51,324 
Non-performing assets (which includes OREO)    $ 19,774  $ 36,439  $ 72,340 
Percentage of non-accrual loans to total loans      2.8%      6.7%     12.0%
Percentage of non-performing assets to total                                
 assets                                             2.7%      4.7%      8.5%

 
Positive impact of the Profitability Improvement Plan  
Early in 2013, management had announced a set of sweeping initiatives
through the Company's "Profitability Improvement Plan" (the "Plan")
designed to enhance company-wide efficiency, productivity and
modernization. During 2013, the Company realized a 22% reduction in
the workforce, which included restructuring the organizational staff.
Two branches were consolidated and four Company-owned buildings were
sold pursuant to the real estate rationalization plan. The Company
launched a completely redesigned website with on-line account opening
features, debuted mobile and TouchBanking, automated select processes
and introduced new products. To support the marketing of these
enhancements the Company began refreshing its brand with new
advertising through billboards and online and print media. The
expense reductions, revenue growth and planned additional
improvements are intended to bring core performance more in line with
our peers.  
As a result of the Plan, the Company recorded $361,000 in
restructuring charges during 2013. As mentioned previously, credit
related expenses (including OREO), salaries and benefits, and
professional and legal fees declined $7.4 million, $1.3 million, and
$1.2 million, respectively, year over year. Total non-interest
expense declined $10.0 million, or 27.5%, for the year ended December
31, 2013 when compared to the comparable 2012 period. A full year's
benefit is anticipated for 2014, as these improvements were phased in
at various times during 2013. 
Royal Bank's 50th Anniversary  
On January 13, 2014, members of the Company's board of directors,
management, and staff participated in the Opening Bell ceremony of
the NASDAQ Stock Market. This event was the ceremonial kick-off to a
year-long series of events and promotions which will celebrate Royal
Bank's 50th anniversary and connection to the communities we serve. 
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                                                  
                                                                            
                                                                            
                                                                            
(in thousands, except                                                       
 for loss per common                                                        
 share)                        Three months              For the years      
                              ended Dec. 31st           ended Dec. 31st     
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
                         (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Interest Income          $     7,069  $     6,991  $    27,524  $    31,981 
Interest Expense               1,690        2,190        7,357        9,899 
                         -----------  -----------  -----------  ----------- 
Net Interest Income            5,379        4,801       20,167       22,082 
(Credit) Provision for                                                      
 Loan and Lease Losses          (676)       2,637         (872)       5,997 
                         -----------  -----------  -----------  ----------- 
Net Interest Income                                                         
 after (Credit)                                                             
 Provision                     6,055        2,164       21,039       16,085 
Non Interest Income            2,558         (148)       6,864        3,609 
Non Interest Expense           6,333       10,256       26,330       36,324 
                         -----------  -----------  -----------  ----------- 
Income (Loss) before                                                        
 Taxes                         2,280       (8,240)       1,573      (16,630)
Income Taxes                      42            -           42            - 
                         -----------  -----------  -----------  ----------- 
Net Income (Loss)              2,238       (8,240)       1,531      (16,630)
Less Net Loss                                                               
 Attributable to                                                            
 Noncontrolling Interest        (214)        (246)        (578)      (1,005)
Net Income (Loss)                                                           
 Attributable to Royal                                                      
 Bancshares              $     2,452  $    (7,994) $     2,109  $   (15,625)
                         ===========  ===========  ===========  =========== 
  Less Preferred Stock                                                      
   Series A Accumulated                                                     
   Dividend and                                                             
   Accretion             $       522  $       513  $     2,075  $     2,038 
                         ===========  ===========  ===========  =========== 
  Net Income (Loss) to                                                      
   Common Shareholders   $     1,930  $    (8,507) $        34  $   (17,663)
                         ===========  ===========  ===========  =========== 
Income (Loss) Per Common                                                    
 Share - Basic and                                                          
 Diluted                 $      0.14  $     (0.64) $         -  $     (1.33)
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
SELECTED RATIOS:                                                            
                               Three months              For the years      
                              ended Dec. 31st           ended Dec. 31st     
                             2013         2012         2013         2012    
                         -----------  -----------  -----------  ----------- 
Return on Average Assets         1.3%        -4.0%         0.3%        -1.9%
Return on Average Equity        19.9%       -50.8%         4.1%       -22.9%
Average Equity to                                                           
 Average Assets                  6.7%         8.0%         6.9%         8.3%
Book Value Per Share     $      1.41  $      1.50  $      1.41  $      1.50 
                                                                            
                              At December 31,                               
Capital ratios (US                                                          
 GAAP):                      2013         2012                              
                         -----------  -----------                           
Royal Bank Tier I                                                           
 Leverage                        9.8%         9.0%                          
Royal Bank Total Risk                                                       
 Basked Capital                 16.6%        16.9%                          
Company Tier I Leverage          9.9%         9.2%                          
Company Total Risk                                                          
 Basked Capital                 18.2%        18.6%                          
                                                                            
                                                                            
                                                                            
CONDENSED BALANCE SHEET                                                     
                                                                            
(in thousands)                             At Dec 31, 2013  At Dec 31, 2012 
                                           ---------------  --------------- 
                                             (unaudited)      (unaudited)   
Cash and Cash Equivalents                  $        16,844  $        28,802 
Investment Securities                              315,181          357,464 
Loans and leases held for sale ("LHFS")              1,446            1,572 
Loans and Leases                                                            
  Commercial real estate                           160,030          178,871 
  Construction and land development                 45,261           37,215 
  Commercial and industrial                         79,589           40,560 
  Residential real estate                           25,535           24,981 
  Leases                                            42,524           37,347 
  Tax certificates                                  12,716           24,569 
  Other                                                826              622 
                                           ---------------  --------------- 
Loans and Leases                                   366,481          344,165 
Allowance for loan and lease losses                (13,671)         (17,261)
                                           ---------------  --------------- 
Loans and Leases (net)                             352,810          326,904 
Premises and Equipment (net)                         4,475            5,232 
Other Real Estate Owned (net)                        9,617           13,435 
Accrued Interest receivable                          7,054           10,256 
Other Assets                                        25,823           25,790 
                                           ---------------  --------------- 
    Total Assets                           $       733,250  $       769,455 
                                           ---------------  --------------- 
                                                                            
Deposits                                           528,964          554,917 
Borrowings                                         107,881          108,333 
Other Liabilities                                   21,244           26,277 
Subordinated debentures                             25,774           25,774 
Royal Bancshares Shareholders' Equity               49,116           50,344 
Noncontrolling Interest                                271            3,810 
                                           ---------------  --------------- 
    Total Equity                                    49,387           54,154 
                                           ---------------  --------------- 
    Total Liabilities and Equity           $       733,250  $       769,455 
                                           ---------------  --------------- 
                                                                            
                                                                            
                                                                            
NET INTEREST INCOME AND MARGIN                                              
                                                                            
                                                                            
                  For the three months ended    For the three months ended  
                       December 31, 2013             December 31, 2012      
                 ----------------------------  ---------------------------- 
(In thousands,                                                              
 except           Average                       Average                     
 percentages)     Balance Interest Yield/Rate   Balance Interest Yield/Rate 
                 -------- -------- ----------  -------- -------- ---------- 
Cash equivalents $  7,553 $      5       0.26% $ 23,919 $     10       0.17%
Investment                                                                  
 securities       299,228    1,654       2.19%  355,314    1,481       1.66%
Loans             377,040    5,410       5.69%  346,228    5,500       6.32%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 earning assets   683,821    7,069       4.10%  725,461    6,991       3.83%
Non-earning                                                                 
 assets            45,631                        60,623                     
                 --------                      --------                     
    Total                                                                   
     average                                                                
     assets      $729,452                      $786,084                     
                 ========                      ========                     
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets       $205,770 $    153       0.29% $217,436 $    190       0.35%
  Savings          17,479        9       0.20%   17,288       10       0.23%
  Time deposits   239,953      799       1.32%  266,445    1,057       1.58%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 bearing                                                                    
 deposits         463,202      961       0.82%  501,169    1,257       1.00%
Borrowings        130,866      729       2.21%  134,174      933       2.77%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 bearing                                                                    
 liabilities      594,068    1,690       1.13%  635,343    2,190       1.37%
Non-interest                                                                
 bearing                                                                    
 deposits          61,799                        58,653                     
Other                                                                       
 liabilities       24,619                        29,505                     
Shareholders'                                                               
 equity            48,966                        62,583                     
                 --------                      --------                     
    Total                                                                   
     average                                                                
     liabilities                                                            
     and equity  $729,452                      $786,084                     
                 ========                      ========                     
    Net interest                                                            
     margin               $  5,379       3.12%          $  4,801       2.63%
                          ========                      ========            
                                                                            
                                                                            
                                                                            
                      For the year ended            For the year ended      
                       December 31, 2013             December 31, 2012      
                 ----------------------------  ---------------------------- 
(In thousands,                                                              
 except           Average                       Average                     
 percentages)     Balance Interest Yield/Rate   Balance Interest Yield/Rate 
                 -------- -------- ----------  -------- -------- ---------- 
Cash equivalents $ 10,941 $     26       0.24% $ 22,551 $     38       0.17%
Investment                                                                  
 securities       312,127    5,757       1.84%  344,862    6,677       1.94%
Loans             367,219   21,741       5.92%  384,440   25,266       6.57%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 earning assets   690,287   27,524       3.99%  751,853   31,981       4.25%
Non-earning                                                                 
 assets            50,037                        67,358                     
                 --------                      --------                     
    Total                                                                   
     average                                                                
     assets      $740,324                      $819,211                     
                 ========                      ========                     
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets       $210,077 $    617       0.29% $224,602 $  1,317       0.59%
  Savings          17,802       37       0.21%   17,006       67       0.39%
  Time deposits   239,584    3,368       1.41%  275,959    4,514       1.64%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 bearing                                                                    
 deposits         467,463    4,022       0.86%  517,567    5,898       1.14%
Borrowings        133,261    3,335       2.50%  149,416    4,001       2.68%
                 -------- -------- ----------  -------- -------- ---------- 
Total interest-                                                             
 bearing                                                                    
 liabilities      600,724    7,357       1.22%  666,983    9,899       1.48%
Non-interest                                                                
 bearing                                                                    
 deposits          59,989                        55,666                     
Other                                                                       
 liabilities       28,492                        28,182                     
Shareholders'                                                               
 equity            51,119                        68,380                     
                 --------                      --------                     
    Total                                                                   
     average                                                                
     liabilities                                                            
     and equity  $740,324                      $819,211                     
                 ========                      ========                     
    Net interest                                                            
     margin               $ 20,167       2.92%          $ 22,082       2.94%
                          ========                      ========            

  
Company Contact: 
Marc Sanders 
Vice President - Marketing 
610.668.4700 
marcsanders@royalbankamerica.com 
 
 
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