Royal Bancshares of Pennsylvania, Inc. Reports Profit for Third Quarter 2016

Quality Loan Growth Boosts Earnings; Regulatory Approval Received to Retire Balance of "Tarp" Shares

BALA CYNWYD, PA--(Marketwired - October 20, 2016) - Royal Bancshares of Pennsylvania, Inc. ("the Company") (NASDAQ: RBPAA), parent company of Royal Bank America ("Royal Bank"), is pleased to report net income attributable to the Company of $2.0 million, or $0.06 per diluted share, and $6.3 million, or $0.17 per diluted share, for the three and nine months ended September 30, 2016, respectively. Comparatively, net income was $1.5 million, or $0.04 per diluted share, and $4.6 million, or $0.11 per diluted share, for the three and nine months ended September 30, 2015, respectively.

The Company's President and Chief Executive Officer, Kevin Tylus, noted, "Consistent quality loan growth and expense discipline drove our increase in earnings for the 2016 third quarter and year to date. We are achieving the goals for managing our balance sheet while meeting the challenges of low interest rates and local competition. The repurchase of another 2,651 shares of the Series A Preferred stock ("TARP") and regulatory approval to repurchase or redeem the remaining outstanding Series A Preferred shares mean we will fully retire the $30.4 million in original principal by year end and avoid future dividends at a rate of 9%."

"The renovations of our Narberth retail location is nearing completion, giving our customers a first class service experience. To meet the needs of our growing customer base, we are implementing the next phase of web and technology enhancements", he added.

Highlights for the three and nine months ended September 30, 2016 included:

Balance Sheet Trends:

  • Total assets were $811.4 million at September 30, 2016, an increase of $23.1 million, or 2.9%, from $788.3 million at December 31, 2015. Total assets were $816.5 million at June 30, 2016.
  • Total loans were $575.8 million at September 30, 2016, an increase of $28.7 million, or 5.3%, from $547.1 million at June 30, 2016, and grew $76.7 million, or 15.4%, from $499.1 million at December 31, 2015. Increases were recognized in multiple commercial loan portfolio classes.
  • Total deposits were $592.2 million at September 30, 2016, an increase of $14.3 million, or 2.5%, from $577.9 million at December 31, 2015. Total deposits were $599.2 million at June 30, 2016.

Asset Quality:

  • The ratio of non-performing loans to total loans continues to show improvement and was 0.77%, 0.88%, and 1.10% at September 30, 2016, June 30, 2016, and December 31, 2015, respectfully. Excluding tax liens, the ratio of non-performing loans to total loans was 0.65%, 0.68%, and 0.88% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively.
  • Non-performing loans of $4.5 million at September 30, 2016 decreased $346 thousand, or 6.6%, from $4.8 million at June 30, 2016, and decreased $1.0 million, or 18.9%, from $5.5 million at December 31, 2015.
  • The ratio of non-performing assets to total assets was 1.44%, 1.47%, and 1.64% at September 30, 2016, June 30, 2016, and December 31, 2015, respectively. Excluding tax lien assets, the ratio of non-performing assets to total assets was 0.49% at September 30, 2016, and June 30, 2016, and 0.59% at December 31, 2015.
  • Non-performing assets of $11.7 million at September 30, 2016, decreased $318 thousand, or 2.6%, from $12.0 million at June 30, 2016, and decreased $1.2 million, or 9.6%, from $12.9 million at December 31, 2015.
  • For the three and nine months ended September 30, 2016, the Company recorded a provision to the allowance for loan and lease losses of $578 thousand and $987 thousand, respectively, compared to credits of $216 thousand and $1.4 million for the same periods in 2015, respectively. The 2016 provision was primarily attributable to growth, specific reserves on the leasing portfolio, and net charge-off activity within the leasing and tax certificate portfolios.

Income Statement and Other Highlights:

  • The return on average assets for the three and nine months ended September 30, 2016 increased to 0.99% and 1.04%, respectively, compared to 0.82% and 0.84% for the three and nine months ended September 30, 2015, respectively.
  • The return on average equity for the three and nine months ended September 30, 2016 grew to 11.23% and 11.59%, respectively, compared to 9.24% and 9.45% for the three and nine months ended September 30, 2015.
  • At September 30, 2016, the Company's Tier 1 leverage and Total Risk Based Capital ratios were 11.22% and 16.36%, respectively, compared to 12.44% and 18.57%, respectively, at December 31, 2015. The Common Equity Tier 1 ratio was 8.97% at September 30, 2016 compared to 9.37% at December 31, 2015. Impacting the 2016 capital ratios is the repurchase of 6,651 shares of the Preferred Series A stock which occurred during the first nine months of 2016.
  • Net interest income increased $396 thousand, or 6.43%, from $6.2 million for the three months ended September 30, 2015 to $6.6 million for the three months ended September 30, 2016. Net interest income increased $2.1 million, or 12.2%, from $17.4 million for the nine months ended September 30, 2015 to $19.5 million for the nine months ended September 30, 2016. The growth in net interest income was primarily related to an increase in interest income on average loan balances.
  • The net interest margin for the third quarter of 2016 was 3.42% compared to 3.51% for the third quarter in 2015 and was 3.45% for the nine months ended September 30, 2016 compared to 3.39% for the nine months ended September 30, 2015. The decrease in net interest margin for the third quarter was directly related to an increase in the interest rate paid on average interest-bearing liabilities specifically due to average borrowings.
  • Non-interest income for the third quarter of 2016 was $1.2 million and increased $612 thousand from $577 thousand for the third quarter of 2015. The quarterly improvement in non-interest income was impacted by a $273 thousand beneficiary payment from a bank owned life insurance policy and a $200 thousand increase in net gains on the sale of investment securities. Additionally, service charges and fees increased $98 thousand and were mostly related to the leasing portfolio.
  • Non-interest income was $3.5 million for the nine months ended September 30, 2016 and grew $1.4 million from $2.1 million for the nine months ended September 30, 2015. Net gains on the sale of investment securities and income from Company owned life insurance increased $730 thousand and $475 thousand, respectively, from 2015. Additionally, the Company received a $273 thousand beneficiary payment from a life insurance policy. Partially offsetting these positive items was other-than-temporary impairment ("OTTI") charges on the investment portfolio of $181 thousand. There was no OTTI charge in the 2015 period.
  • Non-interest expense was $5.0 million for the quarter ended September 30, 2016 and declined $241 thousand from $5.2 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for the third quarter of 2016 was the reversal of a $200 thousand contingency accrual related to an other real estate owned ("OREO") property that was sold in a previous reporting period. As of September 30, 2016, Management determined that the contingency was no longer required. Additionally, in the 2016 quarter, loan collection expenses declined $117 thousand due to continued improvement in credit quality. Partially offsetting the decrease in non-interest expense was a planned increase of $55 thousand in salaries and benefits during the third quarter of 2016.
  • Non-interest expense was $15.3 million for the nine months ended September 30, 2016 and decreased $440 thousand from $15.7 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for 2016 was a $518 thousand decline in the provision for unfunded loan commitments and the reversal of a $200 thousand contingency accrual for the reasons mentioned previously. Year over year loan collection expenses and occupancy and equipment expenses declined $145 thousand and $119 thousand, respectively. Partially offsetting the decrease in non-interest expense was a planned increase of $211 thousand in salaries and benefits. Additionally, communications and data processing expenses and net OREO expenses increased $141 thousand and $98 thousand, respectively.

About Royal Bancshares of Pennsylvania, Inc.

Royal Bancshares of Pennsylvania, Inc., headquartered in Bala Cynwyd, Pennsylvania, is the parent company of Royal Bank America, which is headquartered in Narberth, Pennsylvania. Royal Bank serves growing small and middle market businesses, commercial real estate investors, consumers, and depositors principally in Montgomery, Delaware, Chester, Bucks, Philadelphia and Berks counties in Pennsylvania, central and southern New Jersey, and Delaware. Established in 1963, Royal Bank provides an array of financial products and services through a comprehensive suite of cash management services and thirteen branches and two loan production offices. 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, 2015.

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited, dollars in thousands, except per share data)

                                                                            
                                 For the three months  For the nine months  
                                 ended September 30,   ended September 30,  
                                   2016       2015       2016       2015    
                                ---------- ---------- ---------- ---------- 
Interest income                 $    8,460 $    7,798 $   24,855 $   22,149 
Interest expense                     1,902      1,636      5,389      4,798 
                                ---------- ---------- ---------- ---------- 
Net Interest Income                  6,558      6,162     19,466     17,351 
Provision (credit) for loan and                                             
 lease losses                          578      (216)        987    (1,382) 
                                ---------- ---------- ---------- ---------- 
Net interest income after                                                   
 provision (credit) for loan                                                
 and lease losses                    5,980      6,378     18,479     18,733 
Non-interest income                  1,189        577      3,469      2,061 
Non-interest expense                 5,001      5,242     15,268     15,708 
                                ---------- ---------- ---------- ---------- 
Income before taxes                  2,168      1,713      6,680      5,086 
Income tax expense                      25          -         85          - 
                                ---------- ---------- ---------- ---------- 
Net Income                           2,143      1,713      6,595      5,086 
Less net income attributable to                                             
 noncontrolling interest               113        179        342        500 
                                ---------- ---------- ---------- ---------- 
Net Income Attributable to                                                  
 Royal Bancshares               $    2,030 $    1,534 $    6,253 $    4,586 
                                ========== ========== ========== ========== 
  Less Preferred stock Series A                                             
   accumulated dividend and                                                 
   accretion                    $      342 $      434 $    1,014 $    1,287 
                                ========== ========== ========== ========== 
Net income to common                                                        
 shareholders                   $    1,688 $    1,100 $    5,239 $    3,299 
                                ========== ========== ========== ========== 
Income Per Common Share - Basic                                             
 and Diluted                    $     0.06 $     0.04 $     0.17 $     0.11 
                                ========== ========== ========== ========== 
                                                                            
SELECTED PERFORMANCE RATIOS:                                                
                                                                            
                                For the three months   For the nine months  
                                 ended September 30,   ended September 30,  
                                   2016       2015       2016       2015    
                                ---------- ---------- ---------- ---------- 
Return on Average Assets             0.99%      0.82%      1.04%      0.84% 
Return on Average Equity            11.23%      9.24%     11.59%      9.45% 
Average Equity to Average                                                   
 Assets                              8.86%      8.90%      8.98%      8.89% 
Book Value Per Share            $     1.90 $     1.61 $     1.90 $     1.61 
                                                                            
                                        At September 30,    At December 31, 
Capital ratios (US GAAP):                     2016               2015       
                                       ------------------ ------------------
Company Tier 1 Leverage                       11.22%             12.44%     
Company Total Risk Based Capital              16.36%             18.57%     
Company Common Equity Tier 1                   8.97%              9.37%     
                                                                            
                                                                            

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
CONSOLIDATED BALANCE SHEETS

                                                                            
                                       At September 30,    At December 31,  
(Unaudited, in thousands)                    2016                2015       
                                      ------------------ -------------------
Cash and cash equivalents             $           28,391 $            25,420
Investment securities, at fair value             168,321             224,067
Other investment, at cost                          2,250               2,250
Federal Home Loan Bank stock                       3,018               2,545
Loans and leases                                                            
    Commercial real estate and multi-                                       
     family                                      276,905             241,928
    Construction and land development             74,885              47,984
    Commercial and industrial                    106,254              85,980
    Residential real estate                       49,061              51,588
    Leases                                        62,671              64,341
    Tax certificates                               3,803               4,755
    Consumer                                       2,239               2,527
                                      ------------------ -------------------
Loans and leases                                 575,818             499,103
Allowance for loan and lease losses             (10,254)             (9,689)
                                      ------------------ -------------------
Loans and leases, net                            565,564             489,414
Bank owned life insurance                         16,015              16,133
Premises and equipment, net                        4,714               3,959
Other real estate owned, net                       7,236               7,435
Accrued interest receivable                        3,770               4,149
Other assets                                      12,089              12,911
                                      ------------------ -------------------
  Total Assets                        $          811,368 $           788,283
                                      ================== ===================
                                                                            
Deposits                              $          592,239 $           577,892
Borrowings                                       100,000              90,970
Other liabilities                                 23,553              21,349
Subordinated debentures                           25,774              25,774
Royal Bancshares shareholders' equity             69,300              71,904
Noncontrolling interest                              502                 394
                                      ------------------ -------------------
  Total Equity                                    69,802              72,298
                                      ------------------ -------------------
  Total Liabilities and Equity        $          811,368 $           788,283
                                      ================== ===================
                                                                            
                                                                            

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
NET INTEREST INCOME AND MARGIN
(Unaudited, in thousands, except percentages)

                                                                            
                            For the three months      For the three months  
                                    ended                    ended          
                             September 30, 2016        September 30, 2015   
                          ------------------------ -------------------------
                           Average                  Average                 
                           Balance  Interest Yield  Balance   Interest Yield
                          --------- -------- ----- --------- --------- -----
Cash and cash equivalents $  12,107 $     15 0.49% $  18,184 $       8 0.17%
Investment securities       188,194    1,099 2.32%   218,767     1,334 2.42%
Loans                       561,904    7,346 5.20%   459,543     6,456 5.57%
                          --------- --------       --------- ---------      
Total interest-earning                                                      
 assets                     762,205    8,460 4.42%   696,494     7,798 4.44%
Non-interest earning                                                        
 assets                      49,734                   43,722                
                          ---------                ---------                
Total average assets      $ 811,939                $ 740,216                
                          =========                =========                
                                                                            
Interest-bearing deposits                                                   
  NOW and money markets   $ 213,926 $    185 0.34% $ 210,652 $     182 0.34%
  Savings                    79,851      143 0.71%    32,589        35 0.43%
  Certificates of deposit   208,902      758 1.44%   216,653       751 1.38%
                          --------- --------       --------- ---------      
Total interest-bearing                                                      
 deposits                   502,679    1,086 0.86%   459,894       968 0.84%
Borrowings                  122,432      816 2.65%   113,767       668 2.33%
                          --------- --------       --------- ---------      
Total interest-bearing                                                      
 liabilities                625,111    1,902 1.21%   573,661     1,636 1.13%
Non-interest bearing                                                        
 deposits                    89,749                   79,791                
Other liabilities            25,171                   20,889                
Shareholders' equity         71,908                   65,875                
                          ---------                ---------                
Total average liabilities                                                   
 and equity               $ 811,939                $ 740,216                
                          =========                =========                
  Net interest income               $  6,558                 $   6,162      
                                    ========                 =========      
  Net interest margin                        3.42%                     3.51%
                                                                            
                                                                            

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
NET INTEREST INCOME AND MARGIN
(Unaudited, in thousands, except percentages)

                                                                            
                         For the nine months ended For the nine months ended
                             September 30, 2016        September 30, 2015   
                         ------------------------- -------------------------
                          Average                   Average                 
                          Balance   Interest Yield  Balance   Interest Yield
                         --------- --------- ----- --------- --------- -----
Cash and cash                                                               
 equivalents             $  13,246 $      48 0.48% $  16,574 $      21 0.17%
Investment securities      202,856     3,639 2.40%   230,361     4,250 2.47%
Loans                      537,656    21,168 5.26%   437,188    17,878 5.47%
                         --------- ---------       --------- ---------      
Total interest-earning                                                      
 assets                    753,758    24,855 4.40%   684,303    22,149 4.33%
Non-interest earning                                                        
 assets                     48,730                    45,214                
                         ---------                 ---------                
Total average assets     $ 802,488                 $ 729,517                
                         =========                 =========                
                                                                            
Interest-bearing                                                            
 deposits                                                                   
  NOW and money markets  $ 222,761 $     595 0.36% $ 205,646 $     508 0.33%
  Savings                   71,537       377 0.70%    24,765        52 0.28%
  Certificates of                                                           
   deposit                 208,256     2,221 1.42%   220,564     2,236 1.36%
                         --------- ---------       --------- ---------      
Total interest-bearing                                                      
 deposits                  502,554     3,193 0.85%   450,975     2,796 0.83%
Borrowings                 118,321     2,196 2.48%   116,456     2,002 2.30%
                         --------- ---------       --------- ---------      
Total interest-bearing                                                      
 liabilities               620,875     5,389 1.16%   567,431     4,798 1.13%
Non-interest bearing                                                        
 deposits                   86,189                    75,563                
Other liabilities           23,339                    21,646                
Shareholders' equity        72,085                    64,877                
                         ---------                 ---------                
Total average                                                               
 liabilities and equity  $ 802,488                 $ 729,517                
                         =========                 =========                
  Net interest income              $  19,466                 $  17,351      
                                   =========                 =========      
  Net interest margin                        3.45%                     3.39%
                                                                            
                                                                            

ROYAL BANCSHARES OF PENNSYLVANIA, INC.
ASSET QUALITY TRENDS
(Unaudited, in thousands, except percentages)

                                                                            
                      At September  At June 30,   At March 31,  At December 
                        30, 2016        2016          2016        31, 2015  
                     ------------- ------------- ------------- -------------
                                                                            
Non-performing loans $       3,710 $       3,691 $       4,186 $       4,367
Non-performing tax                                                          
 certificates                  745         1,110         1,038         1,125
                     ------------- ------------- ------------- -------------
Total non-performing                                                        
 loans                       4,455         4,801         5,224         5,492
                                                                            
Other real estate                                                           
 owned-loans                   243           243           243           220
Other real estate                                                           
 owned-tax                                                                  
 certificates                6,993         6,965         6,853         7,215
                     ------------- ------------- ------------- -------------
Total other real                                                            
 estate owned                7,236         7,208         7,096         7,435
                     ------------- ------------- ------------- -------------
Total non-performing                                                        
 assets              $      11,691 $      12,009 $      12,319 $      12,927
                     ============= ============= ============= =============
                                                                            
Ratio of non-                                                               
 performing loans to                                                        
 total loans                 0.77%         0.88%         0.98%         1.10%
Ratio of non-                                                               
 performing assets                                                          
 to total assets             1.44%         1.47%         1.54%         1.64%
Ratio of allowance                                                          
 for loan and lease                                                         
 losses to total                                                            
 loans                       1.78%         1.83%         1.87%         1.94%
Ratio of allowance                                                          
 for loan and lease                                                         
 losses to non-                                                             
 performing loans          230.17%       208.46%       190.29%       176.42%
                                                                            
                                                                            

Michael Thompson
Executive Vice President and Chief Financial Officer
mthompson@royalbankamerica.com

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