Royal Financial, Inc. Announces Audited Fiscal Year 2018 Earnings Results

CHICAGO, Sept. 07, 2018 (GLOBE NEWSWIRE) -- 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"), announces the audited earnings results and statement of condition for the fiscal year ended 2018.

Net income for the fourth quarter of fiscal 2018 was $1.2 million, or $0.50 per share, compared to $747,000, or $0.30 per share, for the same period in 2017.  Net income for the year ended June 30, 2018, was $1.7 million, or $0.69 per share, compared to $2.0 million, or $0.81 per share in 2017.

The Company also reported total assets of $413.2 million and stockholders' equity of $34.5 million as of June 30, 2018.  As of the same date, the Company's book value per share was $13.77 and tangible book value per share was $12.69.

Comparison of Results of Operations for the Quarters Ended June 30, 2018 and June 30, 2017

Net income for the quarter ended June 30, 2018 was $1.2 million or $0.50 per share and increase in net income of $497,000 (66%) from June 30, 2017.  Net interest income increased by $777,000 (27%) from the quarter ended June 30, 2017.  The increase in net interest income resulted mainly from an increase in loan income by $1.1 million (40%) to $4.0 million, offset by an increase in deposit and borrowings cost of funds of $384,000 (107%) to $744,000. The increase in loan income was a result of a full year of the Company's participation in $30.6 million of owner-occupied, one to four-family residential loans from June 2017 as well as organic loan growth in commercial loans of $32.0 million from the prior year.  

Total non-interest income for the quarter ended June 30, 2018 increased $324,000 (324%) to $224,000, from the same period last year.  During the quarter ended June 30, 2017, the Company incurred a loss of $257,000 for the sale of securities as the Company liquidated securities to fund loan growth, which the Company did not incur during the quarter ended June 30, 2018.  The Company recognized an increase in deposit fee income of $31,000 (24%), secondary mortgage income of $3,000 (14%), and rental income of $33,000 from the quarter ended June 30, 2017.

Total non-interest expense increased $72,000 (3%) compared to the same period last year. The increase in non-interest expense was driven by an increase in occupancy and equipment costs of $128,000 (34%), data processing expense of $22,000 (13%), and FDIC insurance expense of $23,000 (91%). These increases were due to the acquisition of Washington Federal Bank for Savings ("WaFed") in December 2017. These increases were offset by decreases in professional services of $51,000 (33%), insurance premiums of $10,000 (29%), and a recovery in acquisition expenses of $33,000.

During the quarter ended June 30, 2018, the Company recognized $100,000 of income tax benefit as a result of reversing a portion of the State of Illinois valuation allowance on deferred tax assets. A valuation allowance of $200,000 remains.      

Comparison of Results of Operations for the Fiscal Years Ended June 30, 2018 and 2017

Net income for the fiscal year ended June 30, 2018 was $1.7 million, a decrease in net income of $304,000 (15%) from June 30, 2017. The decrease in net income for the year ended June 30, 2018 was due to the $2.1 million tax expense due to the passing of the Tax and Jobs Act in December 2017. Net interest income for the year ended 2018 increased $2.0 million (19%), to $13.1 million.  The primary driver for the increase in net interest income was a $3.2 million (29%) increase in loan interest income and fees.  The increases in interest-bearing assets were partially offset by a $962,000 (101%) increase in interest expense on deposits and a $354,000 (163%) increase in interest expense on borrowings.      

The provision for loan losses in 2018 increased $485,000 (206%) over prior year.  The increase in the allowance for loan losses was to provide for the increased growth in the loan portfolio.

Non-interest income for the year ended 2018 was $873,000, a increase of $410,000 (89%) from the previous year. The increase in non-interest income was primarily a result of the increase in service charges of $63,000 (12%), secondary mortgage market income of 86,000 (233%), and rental income of $123,000 (851%).  The increase in service charges was a result of a change in fees made by the Company and the addition of WaFed. Secondary mortgage market income increased due to the hiring of additional business bankers to grow the portfolio. Rental income increased as the Company rented out unused space in the Bank's branches. Non-interest income for the year ended 2018 also included $36,000 of net losses on the sale of securities available for sale.  The Company sold $39.8 million of securities during the year to provide funding for loan growth and deposit run-off.      

Non-interest expense increased $821,000 (9%) for fiscal year 2018.  The increase in non-interest expense is primarily due to an increase of $526,000 in acquisition expenses and an increase of $212,000 in occupancy and equipment costs. The Company acquired the insured deposits of WaFed in December 2017 and converted all accounts over to the Company's data processor as of April 2018. Occupancy and equipment expense increased due to the additional maintenance cost from the acquisition of the two WaFed branches. Salaries and employee benefits increased $189,000 (4%) from the prior year. This increase is a result of new hires from the acquisition and additions to loan personnel due to the increase in loan growth. The increases in non-interest expense were offset by a decrease in data processing and professional services, which decreased $61,000 each during the year ended 2018.

For the fiscal year ended 2018, the provision for income taxes was $1.9 million compared to $439,000 for the same period in 2017.  The Company had a one-time downward adjustment of the DTA of $2.0 million due to the new federal income tax rate change enacted in December 2017. 

Comparison of Financial Condition at June 30, 2018 and June 30, 2017

The Company's total assets increased $96.1 million (30%), to $413.2 million at June 30, 2018, from $317.1 million at June 30, 2017.

Securities available for sale increased $16.8 million (65%), to $42.9 million at June 30, 2018 from $26.0 million at June 30, 2017.  The increase in securities available for sale resulted from the purchase of $90.0 million in taxable Government Sponsored Entity ("GSE") securities to use the excess liquidity acquired from WaFed, offset by the sale of $39.8 million of securities to fund loan growth.

Loans, net of allowance for loan losses, increased $77.2 million (31%), to $322.8 million at June 30, 2018, from $245.7 million at June 30, 2017.  The Company participated in $43.3 million of 100% adjustable-rate mortgages in February 2018.  Additional organic loan growth came from $32.0 million of commercial loans throughout the year.

The allowance for loan losses was $2.4 million, or 0.73% of total loans, at June 30, 2018, as compared to $1.7 million, or 0.67% of total loans, at June 30, 2017.  In addition to the allowance for loan losses, net purchase discount on acquired loans was $1.0 million at June 30, 2018 compared to $1.4 million at June 30, 2017.  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 $899,000, or 0.28% of outstanding loans, at June 30, 2018 compared to $327,000, or 0.13%, at June 30, 2017.  

Premises and equipment increased $1.9 million (15%) to $14.8 million at June 30, 2018. The increase is primarily the result of the acquisition of the two branches from the Federal Deposit Insurance Corporation as receiver for WaFed. 

Other real estate owned (OREO) decreased $146,000 to $305,000 at June 30, 2018, from $452,000 at June 30, 2017.  The decrease is the result of the sale of three one-to-four family residential properties. The remaining OREO is a medical office condominium resulting from business deterioration caused by timeliness of government insurance reimbursements.  The property is recorded at fair value, less estimated costs to sell. 

The DTA decreased by $1.6 million (13%) from $12.0 million on June 30, 2017, to $10.4 million on June 30, 2018.  In December 2017, the Company reduced the DTA by $2.0 million to record the change in estimated value resulting from federal income tax rate changes enacted into law.  The Company reversed $300,000 of the valuation allowance for the State of Illinois DTA during the quarter ended March 31, 2018. The Company reversed an additional $100,000 of the valuation allowance for State of Illinois DTA during the quarter ended June 30, 2018 based on new earnings results. The remaining valuation allowance as of June 30, 2018 is $200,000.

The Core Deposit Intangibles ("CDI") held by the Company increased $225,000 (24%) as of June 30, 2018. The increase in the CDI was due to acquisition of WaFed deposits.

Total deposits increased $74.8 million (28%), to $341.2 million at June 30, 2018 from $266.4 million at June 30, 2017. Total deposit growth was the result of the acquisition of insured deposits from WaFed. 

Federal Home Loan Bank advances increased $11.0 million (138%) to supplement funding for loan growth. Notes payable increased by $8.6 million (177%), resulting from a favorable response by the lender to the Company's request to increase and restructure its loan to provide funds to support a capital injection to capitalize the Bank properly in support of the WaFed acquisition.  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.

Total stockholders' equity increased $815,000 (2%), to $34.5 million at June 30, 2018 from $33.7 million at June 30, 2017. The increase is primarily a result of net income of $1.7 million (16%) offset by a decrease in accumulated other comprehensive income of $982,000 (799%).

For the fiscal year ended June 30, 2018, the Bank paid cash dividends of $1.6 million to the Company. The upstream of funds enabled the Company to make debt and interest payments on its notes payable, as well as pay general business expenses for fiscal 2018.

To meet the minimum requirement to be well capitalized under prompt corrective action regulations, the Bank is required to maintain regulatory capital sufficient to meet Tier 1 capital leverage ratio, and risk-based ratios for Common Equity Tier 1 capital, Tier 1 capital and Total capital of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively.  At June 30, 2018, the Bank exceeded each of its capital requirements with ratios of 9.11%, 14.45%, 14.45% and 15.37%, respectively.

At June 30, 2018, the book value per common share, shares outstanding of 2,507,112, was $13.77 compared to the book value per common share, shares outstanding of 2,507,112, of $13.45 at June 30, 2017. The tangible book value per share was $12.69 at June 30, 2018 compared to tangible book value per share of $13.08 at June 30, 2017.  

The audited consolidated financial statements for 2018 and 2017 are available at www.royal-bank.us.

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 nine branches in Chicagoland 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:  lszwajkowski@royal-bank.us

Royal Financial, Inc. and Subsidiary    
Consolidated Statements of Financial Condition    
June 30, 2018 and June 30, 2017    
     
  June 30, 2018 June 30, 2017    
Assets        
         
Cash and non-interest bearing balances in financial institutions $ 2,825,543   $ 2,803,915      
Interest Bearing Financial Institutions   11,357,538     11,867,746      
Federal Funds Sold   45,159     83,078      
Total Cash and Cash Equivalents $ 14,228,240   $ 14,754,739      
         
Investment Certificates of Deposit $ 1,844,000   $ 2,342,000      
Securities available for sale   42,863,407     26,044,643      
Loans Receivable, net of Allowance for loan losses   322,859,548     245,651,278      
of $2,388,428 at June 30, 2018, $1,673,924 at June 30, 2017        
Federal Home Loan Bank Stock   724,100     544,700      
Premises & Equipment, net   14,810,797     12,911,712      
Accrued Interest Receivable   1,354,267     1,095,586      
Other Real Estate Owned   305,311     451,655      
Deferred Tax Asset   10,406,528     12,013,833      
Core Deposit Intangible   1,143,504     918,615      
Goodwill   1,572,344     -      
Other Assets   1,116,626     391,171      
Total Assets $   413,228,672   $   317,119,932      
         
         
Liabilities & Stockholders Equity        
Total Deposits $ 341,228,412   $ 266,465,215      
Advances from Borrowers for Taxes and Insurance   3,691,202     3,333,119      
FHLB Advances   19,000,000     8,000,000      
Notes Payable   13,500,000     4,879,286      
Accrued Interest Payable and Other Liabilities   1,277,951     725,727      
Total Liabilities $ 378,697,565   $ 283,403,347      
         
Stockholder's Equity        
Common Stock $ 26,450   $ 26,450      
Additional Paid-In Capital   24,012,821     23,954,746      
Retained Earnings   12,609,097     10,871,097      
Treasury Stock   (1,012,924 )   (1,012,925 )    
Unrealized G/L in Equity   (1,104,337 )   (122,783 )    
Total Capital $ 34,531,107   $ 33,716,585      
         
Total Liabilities and Stockholder's Equity $   413,228,672   $   317,119,932      
         
         
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
Quarters and Year Ended June 30, 2018 and 2017
 
                               
  Quarters Ended
June 30,

  Years Ended
June 30,

    2018       2017       2018       2017  
               
Interest income              
Loans, including fees $ 3,990,242     $ 2,856,511     $ 14,250,158     $ 11,009,500  
Securities   353,806       316,881       1,197,494       1,221,007  
Federal funds sold and other   17,523       26,729       220,046       59,565  
Total interest income   4,361,571       3,200,121       15,667,698       12,290,072  
               
Interest expense              
Deposits   507,908       306,319       1,911,337       949,539  
Borrowings   235,879       53,070       570,116       216,528  
Total interest expense   743,787       359,389       2,481,453       1,166,067  
               
Net interest income   3,617,784       2,840,732       13,186,245       11,124,005  
               
Provision/(Credit) for loan losses   75,000       160,000       720,000       235,000  
               
Net interest income after provision/ (credit) for loan losses   3,542,784       2,680,732       12,466,245       10,889,005  
               
Non-interest income              
Service charges on deposit accounts   162,311       131,081       592,389       529,531  
Secondary mortgage market fees   26,402       23,221       123,466       37,024  
Income (loss) on other real estate owned, net   34,987       1,809       137,443       14,459  
Gain on sale of other real estate owned   -       -       5,442       -  
Gain (loss) on sale of investment securities   -       (257,217 )     (36,067 )     (145,352 )
Gain on acquisitions   -       987       -       26,269  
Other   257       210       55,934       1,239  
Total non-interest income   223,957       (99,909 )     878,607       463,170  
               
Non-interest expense              
Salaries and employee benefits   1,070,409       1,073,258       4,427,479       4,238,717  
Occupancy and equipment   505,747       377,770       1,846,528       1,649,692  
Data processing   190,349       167,947       752,162       813,566  
Professional services   106,507       157,824       433,016       494,275  
Director fees   45,000       39,000       172,000       156,000  
Marketing   11,623       12,800       49,824       67,058  
FDIC insurance expense   47,794       24,998       155,595       89,984  
Insurance premiums   23,994       33,964       101,098       134,803  
Foreclosed Asset expense   4,882       6,970       71,697       64,763  
Acquisition Expense   (33,132 )     2,915       673,968       147,860  
Core Deposit Intangibles Amortization   35,207       27,672       123,412       105,997  
Other   223,148       236,488       890,877       922,972  
Total non-interest expense   2,231,528       2,161,605       9,697,656       8,885,687  
               
Income before income taxes   1,535,213       419,218       3,647,196       2,466,488  
               
Provision (Benefit) for income taxes   289,831       (327,500 )     1,909,195       439,000  
Net Income (Loss) $ 1,245,382     $ 746,718     $ 1,738,001     $ 2,027,488  
               
Basic earnings per share $ 0.50     $ 0.30     $ 0.69     $ 0.81  
Diluted earnings per share $ 0.49     $ 0.30     $ 0.68     $ 0.80  
               
               
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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