Royal Financial, Inc. Announces Third Quarter and Year to Date Earnings for Fiscal Year 2017 and 2016 Annual Meeting Results

CHICAGO, April 20, 2017 (GLOBE NEWSWIRE) — Royal Financial, Inc. (the “Company”) (OTCQX:RYFL), incorporated under the laws of Delaware on March 15, 2004, for the purpose of serving as the holding company of Royal Savings Bank (the “Bank”), announced earnings for the third quarter end of fiscal year 2017 and the results of its 2016 Annual Meeting.

For the third quarter ended March 31, 2017, the Company reported net income of $387,000, or $0.15 per common share, compared to $52,000, or $0.02 per common share, for the third quarter ended March 31, 2016. Net income for the nine months ended March 31, 2017 was $1.3 million, or $0.51 per common share, compared to $5.4 million, or $2.16 per common share, for the nine months ended March 31, 2016. The decrease in net income for the nine months ended March 31, 2017 was primarily due to the PNA Bank merger which was finalized on September 30, 2015 and generated a $5.0 million of bargain purchase gain.

Comparison of Financial Condition at March 31, 2017 and June 30, 2016

The Company’s total assets increased $12.1 million, or 4.0%, to $316.2 million at March 31, 2017, from $304.1 million at June 30, 2016.

Cash and cash equivalents increased $4.7 million, or 74.6%, to $10.9 million at March 31, 2017 from $6.2 million at June 30, 2016. The increased liquidity is the result of increased deposit funding for the quarter.

Securities available for sale increased $1.3 million, or 2.0%, to $68.2 million at March 31, 2017 from $66.8 million at June 30, 2016. During the nine months ended March 31, 2017, the Company has purchased $29.5 million in federal and state taxable securities while selling $21 million of state non-taxable bonds and allowing another $6.5 million of non-taxable bonds to run-off through maturity or call. Management’s intent is to accelerate the use of net operating losses to reduce the related deferred tax asset.    

Loans, net of allowance for loan losses, increased $6.8 million, or 3.4%, to $206.4 million at December 31, 2016 from $199.6 million at June 30, 2016.  Growth in the portfolio was the result of funding additional commercial loans, which were collateralized by commercial real estate and multi-family properties.

Federal Home Loan Bank (FHLB) stock decreased $1.1 million, to $0.7 million at March 31, 2017 as the Company redeemed all excess stock not required for borrowing FHLB advances.

Premises and equipment increased $481,000, or 3.9%, to $12.7 million at March 31, 2017 from $12.2 million at June 30, 2016.

Other real estate owned increased to $100,000 at March 31, 2017 from $16,000 at June 30, 2016.     

Total deposits increased $14.8 million, or 5.7%, to $276.3 million at March 31, 2017 from $261.5 million at June 30, 2016.  Much of the growth in deposits was during the third quarter. Non-interest bearing deposits increased $2.0 million and money market accounts increased $11.9 million.

There were no FHLB advances at March 31, 2017.  FHLB advances of $500,000 outstanding at June 30, 2016 were repaid during the quarter ended March 31, 2017.   

Management converted $4.0 million of the line of credit to an amortizing note payable during the nine month period. The terms call for principal payments of $142,857 per quarter based on a seven year amortization period.

Total stockholders’ equity increased $250,000, to $32.4 million at March 31, 2017 from $32.1 million at June 30, 2016, which was primarily the result of an increase in net income of $1.3 million for the period offset by a decrease in accumulated other comprehensive income of $1.1 million for the period.

For the nine months ended March 31, 2017, the Bank paid cash dividends to the Company of $815,000.

The allowance for loan losses was $1.5 million, or 0.70% of gross loans at March 31, 2017, as compared to $1.4 million, or 0.70% of gross loans at June 30, 2016.  Acquired loans included in the loan portfolio as of March 31, 2017 were recorded at fair value and reflect a purchase discount of $1.4 million. The allowance for loan losses as a percent of gross loans, excluding acquired loans, is 1.14%. The Company believes that as of March 31, 2017, its allowance for loan losses was adequate to cover probable incurred losses.  Nonperforming assets, including restructured loans, were $1.0 million, or 0.33% of gross loans, at March 31, 2017 compared to $751,000, or 0.25% of gross loans, at June 30, 2016.

The Bank is required to maintain regulatory capital sufficient to meet the Tier 1 capital leverage ratio, and the risk-based ratios for Common Equity Tier 1 capital, Tier 1 capital and Total capital of at least 4.0%, 4.5%, 6.0% and 8.0%, respectively. The Bank’s capital conservation buffer on common equity tier 1 capital is 0.625% for calendar year 2016. At March 31, 2017, the Bank exceeded each of its capital requirements with ratios of 8.84%, 14.85%, 14.85% and 15.67%, respectively.

At March 31, 2017, the tangible book value per common share based on shares outstanding of 2,507,112, was $12.53 compared to the tangible book value per common share of $12.40 at June 30, 2016.

Comparison of Results of Operation for the Three and Nine Months Ended March 31, 2017 and 2016

Net income for the three months ended March 31, 2017 was $387,000, an increase of net income of $335,000 from the same period in 2016. The increase in net income for the three months ended March 31, 2017 resulted primarily from an increase in net interest income of $777,000 and an increase in non-interest income of $36,000, offset by an increase in non-interest expense of $225,000 and additional provision for income tax of $223,000.

Net income for the nine months ended March 31, 2017 was $1.3 million, a decrease of $4.1 million, from the same period in 2016. The decrease in net income for the nine months ended March 31, 2017 was primarily related to a $5.1 million decrease in non-interest income, an increase of $1.5 million in non-interest expense, a decrease of $205,000 in the credit for loan losses, an increase of $491,000 in provision for income taxes, partially offset by an increase in net interest income of $3.1 million.

The decrease in non-interest income is primarily a result of the recognition of a $5.0 million bargain purchase gain related to the PNA Bank merger recognized in September 2015, partially offset by an increase of $112,000 in the sale of investment securities and an increase of $204,000 in service charges on deposit accounts.

The increase in non-interest expense of $2.0 million was primarily the result of having PNA Bank and Park Federal Savings Banks’ expenses incorporated in the consolidated results for a full period.  The PNA Bank merger was effective September 2015 and the Park Federal Savings Bank merger was effective in April 2016.  For the nine months ended March 31, 2017, salaries and employee benefits increased $1.1 million, occupancy and equipment increased $687,000, and data processing expenses increased $224,000. The increases in non-interest expense were offset by a decrease of $1.1 million in merger and acquisition expenses. 

For the nine months ended March 31, 2017, the provision for loan losses was increased by $75,000 to address growth in the loan portfolio. For the same period ended March 31, 2016, a credit for loan losses of $130,000 was recorded, resulting from an increase in the allowance for loan losses related to recoveries of previously charged off loans. The increase of $491,000 in the provision for income taxes for the nine months ended March 31, 2016 is primarily related to increased core earnings of the Bank. 

2016 Annual Meeting Results

The 2016 Annual Meeting of Stockholders was held on January 31, 2017, at the Company’s main location. Mr. Fitch, Chairman of the Board of Directors, led the meeting and highlighted the recent growth through the two acquisitions, PNA Bank and Park Bancorp, and the financial operating results of the second quarter of fiscal year 2017.

Submission of Matters to a Vote of Security Holders

At the Company’s Annual Meeting of Stockholders, the following matters were submitted to and approved by a vote of the stockholders:

1)     The election of two Class III directors for a three-year term expiring at the Annual Meeting of Stockholders to be held in 2019:

Directors    John T. Dempsey   Leonard Szwajkowski
         
Total votes for    1,613,633   1,613,633
         
Total votes withheld   7,000   7,000
         
The following directors continue to serve after the Annual Meeting:
         
Continuing Director        Term Expires
         
C. Michael McLaren       2017
         
Philip J. Timyan       2017
         
James A. Fitch, Jr.        2018
         
Roger L. Hupe       2018

2)     Ratification of the appointment of Crowe Horwath LLP as the Company’s independent accountants for the fiscal year ending June 30, 2017:

Total votes for    2,175,086
     
Total votes against   95,523
     
Total votes abstaining   427

The complete audited consolidated financial statements for 2016 and 2015 are available at www.royalbankweb.com

About Royal Financial, Inc.

Royal Savings Bank offers a range of checking and savings products and a full line of home and commercial lending solutions.  Royal Savings Bank has been operating continuously in the south and southeast communities of Chicago since 1887, and currently has five branches in Chicagoland, one branch in Westmont, one branch in Niles, and lending centers in Homewood and St. Charles, Illinois. Visit Royal Financial, Inc. and Royal Savings Bank at www.royalbankweb.com.

Safe-Harbor
Forward Looking Statements: This press release may include forward-looking statements.  These forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions.  Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ materially from those predicted in such forward-looking statements.  Factors that could have a material adverse effect on the operations and future prospects of the Company and the Bank include, but are not limited to, changes in interest rates; the economic health of the local real estate market; general economic conditions; continued credit deterioration in our loan portfolio that would cause us to further increase our allowance for loan losses; legislative/regulatory changes; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan and securities portfolios; demand for loan products in our market areas; deposit flows; competition; demand for financial services in our market areas; and changes in accounting principles, policies, and guidelines.  These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements.

Royal Financial, Inc.
Consolidated Statements of Financial Condition
March 31, 2017 and June 30, 2016
(Unaudited)
       
  March 31, 2017   June 30, 2016
       
Assets      
Cash and non-interest bearing balances in financial institutions $ 2,666,196     $ 2,880,807  
Interest bearing balances in financial institutions   7,098,403       3,276,628  
Federal funds sold   1,126,957       81,583  
Total cash and cash equivalents   10,891,556       6,239,018  
       
Investment Certificates of Deposit   2,591,000       2,591,000  
Securities available for sale   68,154,784       66,810,148  
Loans receivable, net of allowance for loan losses of      
$1,460,214 at March 31, 2017; $1,402,993 at June 30, 2016   206,414,864       199,605,997  
Federal Home Loan Bank stock, at cost   704,300       1,786,500  
Premises & equipment, net   12,719,431       12,238,322  
Accrued interest receivable   1,207,188       994,342  
Other real estate owned   100,008       15,307  
Deferred tax asset   11,995,749       12,206,928  
Core deposit intangible   945,114       1,024,612  
Other assets   469,467       536,240  
       
Total assets $ 316,193,461     $ 304,048,414  
       
Liabilities & Stockholders’ Equity      
Deposits $ 276,294,981     $ 261,506,502  
Advances from borrowers for taxes and insurance   1,876,960       3,400,382  
Federal Home Loan Bank advances         500,000  
Line of Credit   1,200,000       5,250,000  
Note Payable   3,857,143        
Accrued interest payable and other liabilities   606,227       1,283,162  
Total liabilities   283,835,310       271,940,046  
       
Stockholders’ equity      
Preferred stock $0.01 par value per share, authorized      
1,000,000 shares, no issues are outstanding          
Common stock, $0.01 par value per share, authorized 5,000,000      
shares, 2,645,000 shares issued   26,450       26,450  
Additional paid-in capital   23,943,661       23,896,672  
Retained earnings   10,124,379       8,843,608  
Treasury stock, 137,888 shares, at cost   (1,012,924 )     (1,012,924 )
Accumulated other comprehensive income (deficit)   (723,415 )     354,562  
Total stockholders’ equity   32,358,151       32,108,368  
       
Total liabilities and stockholders’ equity $ 316,193,461     $ 304,048,414  
       
This report has not been prepared in accordance with Securities and Exchange Commission (“SEC”)
rules applicable to SEC registrant companies and is not intended to comply with such rules. 

Royal Financial, Inc and Subsidiary
Consolidated Statements of Operations
Three and Nine months ended March 31, 2017 and 2016
(Unaudited)
               
  Three Months Ended   Nine Months Ended
  March 31,   March 31,
    2017       2016       2017       2016  
               
Interest income              
Loans, including fees $ 2,695,089     $ 1,988,295     $ 8,152,989     $ 5,194,004  
Securities   314,234       128,185       904,127       343,967  
Federal funds sold and other   15,816       6,088       32,836       17,277  
Total interest income   3,025,139       2,122,568       9,089,952       5,555,248  
               
Interest expense              
Deposits   239,357       120,261       643,220       338,329  
Borrowings   54,005       47,585       163,458       79,721  
Total interest expense   293,363       167,846       806,679       418,050  
               
Net interest income   2,731,776       1,954,722       8,283,273       5,137,198  
               
Provision/(credit) for loan losses               75,000       (130,000 )
               
Net interest income after provision/ (credit) for loan losses   2,731,776       1,954,722       8,208,273       5,267,198  
               
Non-interest income              
Service charges on deposit accounts   123,843       74,402       398,450       194,175  
Secondary mortgage market fees   4,306       5,807       13,803       16,718  
Income (loss) on other real estate owned, net   (17,428 )     10,028       (21,896 )     422,258  
Bargain purchase gain (loss)   (98,250 )           25,282       4,969,907  
Gain on sale of securities available for sale   111,865             111,865        
Gain on sale of premises and equipment                     29,202  
Other   380       (1,265 )     1,029       1,968  
Total non-interest income   124,716       88,972       528,533       5,634,228  
               
Non-interest expense              
Salaries and employee benefits   1,119,907       742,091       3,165,460       2,094,062  
Occupancy and equipment   425,320       214,751       1,269,972       582,857  
Data processing   165,458       160,822       645,618       421,615  
Professional services   86,794       3,317       336,450       225,133  
Director fees   36,000       32,400       108,000       97,200  
Marketing   1,461       2,953       54,259       23,144  
FDIC insurance expense   24,670       9,121       64,986       53,432  
Insurance premiums   27,087       22,995       100,839       53,705  
Merger and acquisition expense   8,516       542,728       144,946       1,206,045  
Other   274,380       183,804       799,007       460,630  
Total non-interest expense   2,169,594       1,914,982       6,689,537       5,217,823  
               
Income before income taxes   686,898       128,712       2,047,270       5,683,603  
               
Provision for income taxes   300,000       77,000       766,500       276,000  
Net income $ 386,898     $ 51,712     $ 1,280,770     $ 5,407,603  
               
Basic and diluted earnings per share $ 0.15     $ 0.02     $ 0.51     $ 2.16  
               
               
               
This report has not been prepared in accordance with Securities and Exchange Commission (“SEC”)
rules applicable to SEC registrant companies and is not intended to comply with such rules. 

CONTACT: Contact:  Mr. Leonard Szwajkowski
President and CEO
Royal Financial, Inc.
Telephone:  (773) 382-2111
E-mail:  lszwajkowski@royal-bank.us

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