Royal Financial, Inc. Announces Earnings for First Quarter of Fiscal Year 2019

CHICAGO, Oct. 13, 2018 — Royal Financial, Inc. (the “Company”) (OTCQX: RYFL), incorporated under the laws of Delaware on December 15, 2004, for the purpose of serving as the holding company of Royal Savings Bank (the “Bank”), announced earnings for the first quarter end of fiscal year 2019.

Net Income for the first quarter of fiscal year 2019 was $968,000, or $0.39 per common share, compared to $1.4 million, or $0.54 per common share, in the same period of fiscal 2018.

The Company also reported total assets of $408.5 million and stockholders’ equity of $35.3 million as of September 30, 2018. As of the same date, the Company’s book value per share was $14.08 and tangible book value per share was $13.01.

Comparison of Results of Operation for the Three Months Ended September 30, 2018 and 2017

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The Company reported net income of $968,000 for the first three months of fiscal 2019 compared to $1.4 million in the same period of fiscal 2018, a decrease of $387,000 (29%). The decrease was caused by the change in the State of Illinois tax rate having a positive effect on the Company’s Deferred Tax Asset (“DTA”) which provided a benefit for income taxes during the first quarter of fiscal year 2018.

Total interest income for the quarter ended September 30, 2018, increased $1.0 million (30%) from September 30, 2017. Total interest income for loans, including fees, for the quarter ended September 30, 2018, increased $968,000 (30%) from the quarter ended September 30, 2017. Total securities income increased $79,000 (41%) from September 30, 2017 due to the increase of securities in the portfolio from the prior year. This increase in interest income is offset by the increase in total interest expense due to higher cost of funds for borrowings and deposit accounts balances. Total deposit interest expense increased $399,000 (67%) from the prior year due to the rising rate environment and the addition of the Washington Federal Bank for Savings (“WashFed”) deposits from the failed Bank purchase on December 15, 2017. Total borrowing expense increased $146,000 (207%) due to the additional borrowings from CIBC Bank for the bank level capital injection for the acquisition of WashFed and additional borrowings from the Federal Home Loan Bank (“FHLB”) to fund loan growth.

Total non-interest income increased $30,000 (13%) from September 30, 2017. This increase was due to an increase of $45,000 (34%) in service charges on deposit accounts, an increase of $38,000 (280%) in secondary mortgage market fees, offset by a decrease of $53,000 (99%) in other income.

Total non-interest expense increased $158,000 (7%) from September 30, 2017. The increase in non-interest expense is due to the increase in occupancy and equipment of $114,000 (28%), an increase in data processing charges of $20,000 (13%), and an increase in professional services of $25,000 (15%). The increase in occupancy and equipment costs was the result of additional expense with the acquisition of two new branch locations from WashFed and an increase in real estate taxes. The increase in data processing charges was also related to the increase in customer base due to the WashFed acquisition. The increase in professional services is a result of hiring additional employees for the Company’s Commercial Lending team. These increases were offset by a decrease in other real estate owned (“OREO”) expenses of $46,000 (82%). The Company only has one OREO property at the end of the quarter.

The provision for loan losses at the quarter end of September 30, 2018, was $150,000, a decrease of $30,000 (17%) from the same period of fiscal 2018. In addition to the $150,000 provision, the Company experienced net recoveries of $26,000 during the first quarter of fiscal year 2019.

For quarter end September 30, 2018, the provision for income taxes was $427,000 compared to the benefit for income taxes of $511,000 for September 30, 2017. During the first quarter of fiscal year 2018, the State of Illinois enacted its first budget since 2015, which increased the corporate income tax rate from 5.25% to 7.00%. The Illinois replacement tax remains unchanged at 2.50%. Due to the State of Illinois tax changes, the Company recognized $809,000 (the DTA increased $909,000 which was offset by an increase to the DTA valuation allowance of $100,000) during the first quarter of fiscal year 2018.

Comparison of Financial Condition at September 30, 2018 and June 30, 2018

The Company’s total assets decreased $4.8 million (1%), to $408.5 million at September 30, 2018, from $413.3 million at June 30, 2018.

Cash and cash equivalents decreased $4.4 million (31%) to $9.8 million at September 30, 2018, from $14.2 million at June 30, 2018, due to the pay-down of FHLB advances.

Loans, net of allowance, increased $1.0 million to $323.9 million at September 30, 2018, from $322.9 million at June 30, 2018, primarily due to an increase in commercial loan growth.

The allowance for loan losses was $2.6 million, or 0.78% of total loans, at September 30, 2018, as compared to $2.4 million, or 0.73% of total loans, at June 30, 2018. In addition to the allowance for loan losses, net purchase discount on acquired loans was $938,000 at September 30, 2018 compared to $1.0 million at June 30, 2018. Individual loan discounts are being accreted into interest income over the life of the loans; however, they can offset loan losses upon loan default. Nonperforming loans totaled $465,000, or 0.14% of outstanding loans, at September 30, 2018 compared to $899,000 or 0.28%, at June 30, 2018. 

OREO increased to $308,000 at September 30, 2018, from $305,000 at June 30, 2018. The property is recorded at fair value, less estimated costs to sell.  

The DTA decreased $400,000 (4%) to $10.0 million at September 30, 2018, from $10.4 million at June 30, 2018. The Bank has a $200,000 valuation allowance for the State of Illinois DTA as of September 30, 2018.

Total deposits increased $3.7 million (1%) to $345.0 million at September 30, 2018, from $341.2 million at June 30, 2018. The increase was primarily due to the increase in money market accounts, offset by a decrease in time deposits.

FHLB advances decreased $7.0 million (37%), to $12.0 million at September 30, 2018, from $19.0 million at June 30, 2018. All FHLB advances are limited to short term maturities. Notes payable decreased $500,000 due to principal repayments on holding company debt, which totaled $13.0 million at quarter end. The loan is structured to amortize in full over eight years with quarterly payments of $450,000 in principal reduction and interest at the rate of 0.15% below the Wall Street Journal Prime Rate. An additional payment of $50,000 was made in efforts to pay-down the loan.

Total stockholders’ equity increased $764,000 (2%), to $35.3 million at September 30, 2018, from $34.5 million at June 30, 2018, which was primarily a result of the net income of $968,000 earned in the period, offset by the unrealized loss in equity of $219,000.

In the quarter ended September 30, 2018, the Bank paid a cash dividend to the Company of $952,000.

The Bank is “well capitalized” under prompt corrective action regulations. This classification requires the Bank to maintain regulatory capital that meets or exceeds the following ratios: Tier 1 Capital leverage of 5.00%, Common Equity Tier 1 Capital of 6.50%, Tier 1 Capital of 8.00%, and Total Capital of 10.00%. At September 30, 2018, the Bank exceeded each of these requirements with ratios of 9.54%, 14.34%, 14.34% and 15.31%, respectively.

At September 30, 2018, the book value per common share was $14.08 compared to the book value per common share of $13.77 at June 30, 2018, for shares outstanding of 2,507,112 for both periods. The tangible book value per share was $13.01 at September 30, 2018, compared to tangible book value per share of $12.69 at June 30, 2018. 

The complete audited consolidated financial statements for 2018 and 2017 are available at www.royalbankweb.com

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 Chicagoland area since 1887, and currently has nine branches 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.

Contact: Mr. Leonard Szwajkowski President and CEO Telephone: (773) 382-2111 E-mail: [email protected]

 
Royal Financial, Inc. and Subsidiary
Consolidated Statements of Financial Condition
September 30, 2018 and June 30, 2018
(Unaudited)
    
 September 30, 2018 June 30, 2018
    
Assets   
    
Cash and non-interest bearing balances in financial institutions$  3,359,990 $  2,825,543
Interest Bearing Financial Institutions  6,323,275   11,357,538
Federal Funds Sold  130,884   45,159
Total Cash and Cash Equivalents$  9,814,149 $  14,228,240
    
Investment Certificates of Deposit$  1,844,000 $  1,844,000
Securities available for sale  42,466,391   42,863,407
Loans Receivable, net of Allowance for loan losses   323,873,557   322,859,548
of $2,564,189 at September 30, 2018, $2,388,428 at June 30, 2018   
Federal Home Loan Bank Stock  724,100   724,100
Premises & Equipment, net  14,668,877   14,810,797
Accrued Interest Receivable  1,485,198   1,354,267
Other Real Estate Owned  308,099   305,311
Deferred Tax Asset  10,006,732   10,406,528
Core Deposit Intangible  1,108,298   1,143,504
Goodwill  1,572,344   1,572,344
Other Assets  600,340   1,116,626
Total Assets$  408,472,085 $  413,228,672
    
    
Liabilities & Stockholders Equity   
Total Deposits$  344,967,287 $  341,228,412
Advances from Borrowers for Taxes and Insurance  2,082,958   3,691,202
FHLB Advances  12,000,000   19,000,000
Notes Payable  13,000,000   13,500,000
Accrued Interest Payable and Other Liabilities  1,126,939   1,277,951
Total Liabilities$  373,177,184 $  378,697,565
    
Stockholder’s Equity   
Common Stock$  26,450 $  26,450
Additional Paid-In Capital  24,027,340   24,012,821
Retained Earnings  13,576,892   12,609,097
Treasury Stock  (1,012,924)   (1,012,924)
Unrealized G/L in Equity  (1,322,857)   (1,104,337)
Total Capital$  35,294,901 $  34,531,107
    
Total Liabilities and Stockholder’s Equity$  408,472,085 $  413,228,672
    
    
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 Months Ended September 30, 2018 and 2017 
(Unaudited)
    
 2018 2017
    
Interest income   
Loans, including fees$ 4,232,844 $ 3,264,457
Securities  269,713   191,142
Federal funds sold and other  16,342   16,923
Total interest income$ 4,518,899 $ 3,472,523
    
Interest expense   
Deposits  628,095   375,240
Borrowings  216,206   70,405
Total interest expense$  844,301 $  445,644
    
Net interest income$ 3,674,598 $ 3,026,878
    
Provision/(Credit) for loan losses  150,000   180,000
    
Net interest income after provision/ (credit) for loan losses$ 3,524,598 $ 2,846,878
    
Non-interest income   
Service charges on deposit accounts$  179,668 $  134,419
Secondary mortgage market fees  51,411   13,530
Rental Income  31,371   31,691
Other  292   53,283
Total non-interest income$  223,957 $  232,924
    
Non-interest expense   
Salaries and employee benefits$ 1,116,804 $ 1,121,826
Occupancy and equipment  513,172   399,650
Data processing  174,279   154,351
Professional services  188,786   163,472
Director fees  46,200   36,000
Marketing  16,870   18,288
FDIC insurance expense  38,275   30,667
Insurance premiums  23,994   25,848
Other Real Estate Owned Expense (income), net  9,821   60,003
Acquisition Expense  7,510   2,954
Core Deposit Intangibles Amortization  35,207   26,499
Other  222,098   195,787
Total non-interest expense$ 2,393,015 $ 2,235,345
    
Income before income taxes$ 1,394,325 $  844,457
    
Provision (Benefit) for income taxes  426,530   (510,636)
Net Income (Loss)$  967,795 $ 1,355,093
    
Basic earnings per share$  0.39 $  0.54
Diluted earnings per share$  0.38 $  0.53
    
    
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. 

 

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