NARBERTH, PA--(Marketwired - Apr 23, 2015) - Royal Bancshares of Pennsylvania, Inc. ("Company") (
Selected Company highlights for the first quarter of 2015, explained further below, included:
- Net income attributable to the Company grew 6.2%.
- Return on average assets and return on average equity were 0.9% and 10.1%, respectively.
- Net interest margin increased 16 basis points.
- Non-interest income grew 9.7%.
- The ratio of non-performing loans to total loans fell below 2.0% for the first time in six years.
- After achieving full compliance, Royal Bank's Memorandum of Understanding with the Federal Deposit Insurance Corporation (the "FDIC") and the Pennsylvania Department of Banking and Securities (the "Department") was formally ended.
Earnings Momentum and Risk Profile Improvement
The Company's Chief Executive Officer Kevin Tylus noted, "Today's announcement of our first quarter results shows ongoing progress in key metrics for our Company. As a community bank we face the same external headwinds as our competitors for less expensive core deposits. We have developed a multi-faceted plan to attract and retain consumer deposits. We are strengthening our commercial relationships and our leasing subsidiary continues to positively contribute to our financial results. We eagerly anticipate the relocation in late spring of our Jenkintown branch to the new, attractive Willow Grove location. The risk profile of the bank has strengthened again this quarter as loan quality continues to improve."
First quarter 2015 results
Positive items impacting net income attributable to the Company for the three months ended March 31, 2015, as compared to the same period in 2014, include the following:
- Net interest income grew $183,000 or 3.3%.
- Gains on the sale of other real estate owned were $280,000 and more than doubled from the first quarter in 2014.
- Gains on the sale of investment securities were $187,000.
- Professional and legal fees declined $180,000 or 29.9% due to the strengthened risk profile of the Company.
- The credit to the allowance for loan and lease losses was $580,000 due to a decline in historical loss rates and recoveries on impaired loans.
Changes quarter over quarter included increases of $231,000 and $126,000 in salaries and benefits and occupancy and equipment expenses, respectively. To enhance employee benefits, the Company reinstated the 401(k) match program in the fourth quarter of 2014 and recorded in the first quarter of 2015 a $45,000 accrual. There was no 401(k) accrual in the first quarter of 2014. Rent expense increased due to branch relocations in 2014 and the consolidation of non-retail personnel in the Bala Cynwyd Customer Center, each designed for improved marketability and future efficiency. Additionally, in the first quarter of 2014, the Company benefited from approximately $66,000 in rent abatements. Both increases in salaries and benefits and occupancy and equipment expenses were fully integrated into the Company's budget. The Company's leasing subsidiary positively contributed to the first quarter financial results.
Loans and leases held for investment at March 31, 2015 totaled $418.7 million compared to $415.1 million at December 31, 2014. The $3.6 million increase in loans was predominantly in commercial real estate and leases. The commercial loan pipeline continues to strengthen. Investment securities decreased $22.6 million while total cash and cash equivalents grew $10.8 million from the levels at December 31, 2014. During the first quarter of 2015, the Company sold investments with potential interest rate risk and extension risk if interest rates rise. While total deposits declined $10.1 million from $530.4 million at December 31, 2014 to $520.3 million at March 31, 2015, the deposit composition improved. The reduction in deposits was primarily related to declines of $8.8 million, $3.5 million, and $2.3 million in money market accounts, certificates of deposit, and NOW accounts, respectively. The Company has experienced aggressive pricing competition for money market accounts consistent with local industry trends. Demand deposit and savings accounts increased $3.1 million and $1.4 million, respectively.
Net Interest Margin
For the first quarter of 2015, the net interest margin of 3.40% grew 16 basis points from the comparable quarter of 2014 and 13 basis points from the quarter ended December 31, 2014. Net interest income increased $183,000 from the first quarter of 2014. The increase in net interest income was directly related to approximately $134,000 in interest collected on the payoff of a non-accrual loan. Additionally, during the first quarter of 2015, the Federal Home Loan Bank of Pittsburgh declared and paid a special dividend based on the 2014 average stock outstanding for each shareholder. The Company received approximately $94,000 as a result of this special dividend. Due to these two significant transactions, the average yield on interest-earning assets grew 14 basis points to 4.34% for the first quarter of 2015 compared to 4.20% for the comparable 2014 period.
Average interest-earning assets declined $9.7 million quarter over quarter and featured a significant change in composition. Average loans increased $53.5 million, or 14.6%, while average investments declined $68.5 million. The $27.8 million decrease in average interest-bearing liabilities for the first quarter of 2015 from the comparable quarter in 2014 was accompanied by a $54,000 reduction in interest expense. The average rate paid on interest-earning liabilities increased one basis point to 1.12%. Average interest-bearing deposits decreased $15.7 million while average borrowings declined $12.1 million. For the first quarter of 2015, average non-interest bearing deposits grew $9.1 million, or 14.2%, from the comparable quarter in 2014.
Asset quality trends
The ratio of non-performing loans to total loans was 1.99% and 2.36% at March 31, 2015 and December 31, 2014, respectively, and the ratio of non-performing assets to total assets was 2.61% and 2.67% at the same dates. Non-performing loans declined $1.4 million from $9.8 million at December 31, 2014 to $8.4 million at March 31, 2015. Non-performing assets, which include other real estate owned ("OREO"), were $18.9 million and $19.6 million at March 31, 2015 and December 31, 2014, respectively. During the first quarter of 2015, OREO assets associated with the tax lien portfolio increased $762,000. Tax liens comprise $834,000, or 10.0%, of non-performing loans and $11.0 million, or 58.5% of non-performing assets. The purposeful downsizing of this business not core to the bank's strategy has seen a favorable shrinkage from a high of over $100 million in tax lien assets to less than $20.0 million in assets at March 31, 2015.
In the first quarter of 2015, the Company recorded a full recovery of a prior period charge-off in the amount of $349,000 upon the payoff of a non-accrual loan. Additionally, the Company recorded a $200,000 recovery on a fully charged-off loan. Both transactions positively impacted the credit to the allowance for loan and lease losses in 2015. During the first quarter of 2015, classified and impaired loans declined $2.8 million, or 15.5%, from the level at December 31, 2014, due to pay downs, payoffs, upgrades, and transfers to OREO.
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 more than 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, 2014.
ROYAL BANCSHARES OF PENNSYLVANIA, INC.
CONDENSED INCOME STATEMENTS
(Unaudited, dollars in thousands, except per share data)
| For the three months | ||||||||
| ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Interest income | $ | 7,280 | $ | 7,151 | ||||
| Interest expense | 1,571 | 1,625 | ||||||
| Net Interest Income | 5,709 | 5,526 | ||||||
| Credit for loan and lease losses | (580 | ) | (639 | ) | ||||
| Net interest income after credit for loan and lease losses | 6,289 | 6,165 | ||||||
| Non-interest income | 847 | 772 | ||||||
| Non-interest expense | 5,375 | 5,322 | ||||||
| Income before taxes | 1,761 | 1,615 | ||||||
| Income tax (benefit) expense | - | - | ||||||
| Net Income | 1,761 | 1,615 | ||||||
| Less net income attributable to noncontrolling interest | 170 | 117 | ||||||
| Net Income Attributable to Royal Bancshares | $ | 1,591 | $ | 1,498 | ||||
| Less Preferred stock Series A accumulated dividend and accretion | $ | 424 | $ | 664 | ||||
| Net income to common shareholders | $ | 1,167 | $ | 834 | ||||
| Income Per Common Share - Basic and Diluted | $ | 0.04 | $ | 0.06 | ||||
SELECTED RATIOS:
| For the three months | |||||||
| ended March 31, | |||||||
| 2015 | 2014 | ||||||
| Return on Average Assets | 0.9 | % | 0.8 | % | |||
| Return on Average Equity | 10.1 | % | 12.0 | % | |||
| Average Equity to Average Assets | 8.8 | % | 6.9 | % | |||
| Book Value Per Share | $ | 1.53 | $ | 1.57 | |||
| At March 31, | At December 31, | ||||||
| Royal Bancshares of Pennsylvania, Inc. Capital Ratios: | 2015 | 2014 | |||||
| Tier 1 Leverage | 12.2 | % | 10.0 | % | |||
| Total Risk Based Capital | 19.4 | % | 18.6 | % | |||
| Common Equity Tier 1 | 9.4 | % | NA | ||||
CONDENSED BALANCE SHEETS
(Unaudited, in thousands)
| At March 31, 2015 | At December 31, 2014 | ||||||||
| Cash and cash equivalents | $ | 41,618 | $ | 30,790 | |||||
| Investment securities, at fair value | 227,762 | 250,368 | |||||||
| Other investment, at cost | 2,250 | 2,250 | |||||||
| Federal Home Loan Bank stock | 2,622 | 2,622 | |||||||
| Loans and leases | |||||||||
| Commercial real estate and multi-family | 211,871 | 188,861 | |||||||
| Construction and land development | 18,610 | 45,662 | |||||||
| Commercial and industrial | 83,240 | 76,489 | |||||||
| Residential real estate | 43,416 | 42,992 | |||||||
| Leases | 53,473 | 51,583 | |||||||
| Tax certificates | 5,608 | 7,191 | |||||||
| Consumer | 2,468 | 2,354 | |||||||
| Loans and leases | 418,686 | 415,132 | |||||||
| Allowance for loan and lease losses | (10,897 | ) | (11,708 | ) | |||||
| Loans and leases, net | 407,789 | 403,424 | |||||||
| Premises and equipment, net | 5,125 | 5,201 | |||||||
| Other real estate owned, net | 10,541 | 9,779 | |||||||
| Accrued interest receivable | 4,873 | 5,270 | |||||||
| Other assets | 22,625 | 22,849 | |||||||
| Total Assets | $ | 725,205 | $ | 732,553 | |||||
| Deposits | $ | 520,286 | $ | 530,425 | |||||
| Borrowings | 92,312 | 92,426 | |||||||
| Other liabilities | 21,762 | 21,322 | |||||||
| Subordinated debentures | 25,774 | 25,774 | |||||||
| Royal Bancshares shareholders' equity | 64,686 | 62,219 | |||||||
| Noncontrolling interest | 385 | 387 | |||||||
| Total Equity | 65,071 | 62,606 | |||||||
| Total Liabilities and Equity | $ | 725,205 | $ | 732,553 | |||||
NET INTEREST INCOME AND MARGIN
(Unaudited, in thousands, except percentages)
| For the three months ended | For the three months ended | |||||||||||||||||||
| March 31, 2015 | March 31, 2014 | |||||||||||||||||||
| Average Balance | Interest | Yield | Average Balance | Interest | Yield | |||||||||||||||
| Cash and cash equivalents | $ | 11,730 | $ | 5 | 0.17 | % | $ | 6,393 | $ | 5 | 0.32 | % | ||||||||
| Investment securities | 249,642 | 1,576 | 2.56 | % | 318,171 | 1,922 | 2.45 | % | ||||||||||||
| Loans | 419,628 | 5,699 | 5.51 | % | 366,166 | 5,224 | 5.79 | % | ||||||||||||
| Total interest-earning assets | 681,000 | 7,280 | 4.34 | % | 690,730 | 7,151 | 4.20 | % | ||||||||||||
| Non-interest earning assets | 45,885 | 42,625 | ||||||||||||||||||
| Total average assets | $ | 726,885 | $ | 733,355 | ||||||||||||||||
| Interest-bearing deposits | ||||||||||||||||||||
| NOW and money markets | $ | 204,932 | $ | 158 | 0.31 | % | $ | 210,233 | $ | 167 | 0.32 | % | ||||||||
| Savings | 19,291 | 8 | 0.17 | % | 17,874 | 9 | 0.20 | % | ||||||||||||
| Time deposits | 224,753 | 742 | 1.34 | % | 236,598 | 737 | 1.26 | % | ||||||||||||
| Total interest-bearing deposits | 448,976 | 908 | 0.82 | % | 464,705 | 913 | 0.80 | % | ||||||||||||
| Borrowings | 118,157 | 663 | 2.28 | % | 130,245 | 712 | 2.22 | % | ||||||||||||
| Total interest-bearing liabilities | 567,133 | 1,571 | 1.12 | % | 594,950 | 1,625 | 1.11 | % | ||||||||||||
| Non-interest bearing deposits | 72,991 | 63,913 | ||||||||||||||||||
| Other liabilities | 22,937 | 23,750 | ||||||||||||||||||
| Shareholders' equity | 63,824 | 50,742 | ||||||||||||||||||
| Total average liabilities and equity | $ | 726,885 | $ | 733,355 | ||||||||||||||||
| Net interest income | $ | 5,709 | $ | 5,526 | ||||||||||||||||
| Net interest margin | 3.40 | % | 3.24 | % | ||||||||||||||||