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 unfavorable 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: 610-668-4700
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