Royal Bancshares of Pennsylvania, Inc. Reports Profit for Full Year and Fourth Quarter 2016

Quality Loan Growth Boosts Earnings; Balance of "TARP" Shares Retired

BALA CYNWYD, PA--(Marketwired - January 30, 2017) - 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 $4.1 million, or $0.13 per diluted share, and $10.4 million, or $0.31 per diluted share, for the three and twelve months ended December 31, 2016, respectively. Comparatively, net income was $6.4 million, or $0.20 per diluted share, and $11.0 million, or $0.31 per diluted share, for the three and twelve months ended December 31, 2015, respectively. During the fourth quarter of 2016, the Company reversed $1.9 million of the valuation allowance related to net deferred tax assets which contributed to a net tax benefit of $1.8 million. This transaction positively affected both the fourth quarter and full year 2016 results.

Excluding the net tax benefit of $1.9 million, net income attributable to the Company was $2.2 million, or $0.07 per diluted share, for the three months ended December 31, 2016, and excluding the net tax benefit of $1.8 million, net income attributable to the Company was $8.6 million, or $0.25 per diluted share, for the full year 2016. In 2015, the Company reversed $5.4 million of the valuation allowance related to net deferred tax assets, which contributed to a net tax benefit of $5.1 million.

The Company's President and Chief Executive Officer, Kevin Tylus, noted, "Quality loan growth and expense discipline drove our increase in earnings for 2016. Throughout the year, as we received regulatory approval, we repurchased all of the remaining Series A Preferred stock ("TARP"). We have fully retired the $30.4 million in original principal and avoid future dividends at a rate of 9%. During 2016, to meet the needs of our growing customer base, we broadened our online customer technologies, implemented enhancements to our website, and added residential mortgages to our suite of products. Recently, we completed extensive renovations of our Narberth retail location, which brings a modern experience to our customers."

Highlights for the three months and year ended December 31, 2016 included:

Balance Sheet Trends:

  • At December 31, 2016, total assets were $832.5 million and grew $21.1 million, or 2.6%, from $811.4 million at September 30, 2016, and increased $44.2 million, or 5.6%, from $788.3 million at December 31, 2015.
  • Total loans were $602.0 million at December 31, 2016, an increase of $26.2 million, or 4.5%, from $575.8 million at September 30, 2016. In 2016, total loans grew $102.9 million, or 20.6%, from $499.1 million at December 31, 2015. Increases were recognized in multiple commercial loan portfolio classes.
  • Total deposits were $629.5 million at December 31, 2016 and increased $37.3 million, or 6.3%, from $592.2 million at September 30, 2016. In 2016, total deposits increased $51.6 million, or 8.9%, from $577.9 million at December 31, 2015.
  • Total Company equity was $51.6 million at December 31, 2016, a decrease of $17.7 million, or 25.5%, from $69.3 million at September 30, 2016 and declined $20.3 million, or 28.2%, from $71.9 million at December 31, 2015. The Company repurchased or redeemed the remaining 18,856 shares of Series A preferred stock from time to time during 2016 as shares became available for purchase and the Company received the required regulatory approvals to repurchase such shares. The Company paid $29.5 million to repurchase the outstanding shares and eliminated future dividends on these shares.

Asset Quality:

  • The ratio of non-performing loans to total loans improved from 1.10% at December 31, 2015 to 1.00% at December 31, 2016. Excluding tax certificates, the ratio of non-performing loans to total loans was 0.69% and 0.88% at December 31, 2016 and 2015, respectively.
  • Non-performing loans of $6.0 million at December 31, 2016 increased $515 thousand, or 9.4%, from $5.5 million at December 31, 2015.
  • The ratio of non-performing assets to total assets was 1.15% and 1.64% at December 31, 2016 and 2015, respectively. Excluding the tax lien assets, the ratio of non-performing assets to total assets was 0.53% and 0.59% at December 31, 2016 and 2015, respectively.
  • Non-performing assets of $9.5 million at December 31, 2016, decreased $3.4 million, or 26.2%, from $12.9 million at December 31, 2015. During the fourth quarter of 2016, the Company sold the largest tax lien property in the other real estate owned ("OREO") portfolio.
  • For the three months and year ended December 31, 2016, we recorded a provision to the allowance for loan and lease losses of $255 thousand and $1.2 million, respectively. For the three months and year ended December 31, 2015, we recorded a provision to the allowance for loan and lease losses of $634 thousand and a credit of $748 thousand, respectively. The 2016 provision was primarily attributable to loan 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 months and year ended December 31, 2016 was 2.01% and 1.29%, respectively, compared to 3.30% and 1.49% for the three months and year ended December 31, 2015, respectively. The return on average assets for the fourth quarters of 2016 and 2015 was directly impacted by reversals of a portion of the DTA valuation allowance. We reversed $1.9 million in 2016 and $5.4 million in 2015. Excluding the net tax benefit of $1.9 million, the return on average assets was 1.09% for the fourth quarter of 2016. For 2016, excluding the net tax benefit of $1.8 million, the return on average assets was 1.06%. Excluding the net tax benefit of $5.1 million, the return on average assets was 0.65% and 0.79% for the three months and year ended December 31, 2015, respectively.
  • The return on average equity for the three months and year ended December 31, 2016 was 28.78% and 15.19%, respectively, compared to 37.95% and 16.81% for the three months and year ended December 31, 2015. The return on average equity for the fourth quarters of 2016 and 2015 was directly impacted by reversals of a portion of the DTA valuation allowance. Excluding the net tax benefit of $1.9 million, the return on average equity was 15.65% for the fourth quarter of 2016. For 2016, excluding the net tax benefit of $1.8 million, the return on average equity was 12.56%. Excluding the net tax benefit of $5.1 million, the return on average equity was 7.51% and 8.95% for the three months and year ended December 31, 2015, respectively.
  • At December 31, 2016, the Company's Tier 1 leverage and Total Risk Based Capital ratios were 8.49% and 13.30%, respectively, compared to 12.44% and 18.57%, respectively, at December 31, 2015. The Common Equity Tier 1 ratio was 7.99% at December 31, 2016 compared to 9.37% at December 31, 2015. Impacting the 2016 capital ratios is the repurchase of 18,856 shares of the Series A Preferred stock during 2016. With the retirement of the Series A Preferred we have eliminated future dividends at a rate of 9%.
  • Net interest income increased $477 thousand, or 7.7%, from $6.2 million for the three months ended December 31, 2015 to $6.6 million for the three months ended December 31, 2016. Net interest income increased $2.6 million, or 11.0%, from $23.5 million for the year ended December 31, 2015 to $26.1 million for the year ended December 31, 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 fourth quarter of 2016 was 3.43% compared to 3.36% for the fourth quarter in 2015 and was 3.44% for the year ended December 31, 2016 compared to 3.38% for the year ended December 31, 2015. The increase in net interest margin was directly related to an increase in the yield on average interest-earning assets due to a change in the composition of such assets.
  • Non-interest income for the fourth quarter of 2016 was $838 thousand and decreased $214 thousand from $1.1 million for the fourth quarter of 2015. Income from Company owned life insurance and service charges and fees increased $194 thousand and $78 thousand, respectively. The increase in service charges and fees were mostly related to the leasing portfolio. More than offsetting these positive items was a decline of $324 thousand in gains on the sale of premises and equipment and a $199 thousand decrease in gains on the sale of investment securities. During the fourth quarter of 2015, we sold a Company owned building. There were no sales of premises and equipment in 2016.
  • Non-interest income was $4.3 million for the year ended December 31, 2016 and grew $1.2 million from $3.1 million for the year ended December 31, 2015. Income from Company owned life insurance and net gains on the sale of investment securities increased $669 thousand and $531 thousand, respectively, from 2015. Additionally, we received a $273 thousand beneficiary payment from a life insurance policy. Service charges and fees increased $235 thousand and were mostly related to the leasing portfolio. Partially offsetting these positive items was an increase in other-than-temporary impairment ("OTTI") charges on the investment portfolio of $176 thousand related to investments in private equity real estate funds and the previously mentioned decrease in gain on sale of premises and equipment.
  • Non-interest expense was $4.7 million for the quarter ended December 31, 2016 and declined $548 thousand from $5.3 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for the fourth quarter of 2016 was a $525 thousand decrease in net other real estate owned ("OREO") expenses. During the fourth quarter of 2016, we sold an OREO tax lien property with a carrying value of $3.2 million and recorded a gain of $645 thousand. Salaries and benefits declined $254 thousand. Additionally in the 2016 quarter, we benefited from a $97 thousand credit for unfunded loan commitments due to a decline in the historical loss rates associated with such commitments compared to a $143 thousand provision for unfunded loan commitments during the fourth quarter of 2015. Partially offsetting the decrease in non-interest expense were increases of $239 thousand, $65 thousand and $45 thousand in professional and legal fees, communications and data processing and occupancy and equipment expenses, respectively, during the fourth quarter of 2016.
  • Non-interest expense was $20.0 million for the year ended December 31, 2016 and decreased $988 thousand from $21.0 million for the comparable period in 2015. Contributing to the decrease in non-interest expense for 2016 was a $758 thousand decline in the provision for unfunded loan commitments and a $427 thousand decline in net OREO expenses. In 2016, the Company benefited from a $333 thousand credit for unfunded loan commitments due to a decline in the historical loss rates associated with such commitments compared to a $425 thousand provision for unfunded loan commitments during 2015. As mentioned previously, in 2016 we sold an OREO tax lien property with a carrying value of $3.2 million and recorded a gain of $645 thousand. Additionally, in 2016 we reversed a $200 thousand contingency accrual related to an OREO property that was sold in a previous reporting period. During 2016, Management determined that the contingency no longer exists and therefore was reversed. Partially offsetting the decrease in non-interest expense were increases of $246 thousand and $206 thousand in professional and legal fees and communications and data processing expenses, 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 year     
                                  ended December 31,    ended December 31,  
                                    2016       2015       2016       2015   
                                 ---------  ---------  ---------  --------- 
Interest income                  $   8,561  $   7,844  $  33,416  $  29,993 
Interest expense                     1,926      1,686      7,315      6,484 
                                 ---------  ---------  ---------  --------- 
Net Interest Income                  6,635      6,158     26,101     23,509 
Provision (credit) for loan and                                             
 lease losses                          255        634      1,242       (748)
                                 ---------  ---------  ---------  --------- 
Net interest income after                                                   
 provision (credit) for loan and                                            
 lease losses                        6,380      5,524     24,859     24,257 
Non-interest income                    838      1,052      4,307      3,113 
Non-interest expense                 4,729      5,277     19,997     20,985 
                                 ---------  ---------  ---------  --------- 
Income before taxes                  2,487      1,299      9,167      6,385 
Income tax benefit                  (1,881)    (5,139)    (1,796)    (5,139)
                                 ---------  ---------  ---------  --------- 
Net Income                           4,370      6,438     10,965     11,524 
Less net income attributable to                                             
 noncontrolling interest               248         31        590        531 
                                 ---------  ---------  ---------  --------- 
Net Income Attributable to Royal                                            
 Bancshares                      $   4,122  $   6,407  $  10,375  $  10,993 
                                 =========  =========  =========  ========= 
  Less Preferred stock Series A                                             
   accumulated dividend and                                                 
   accretion                     $     119  $     434  $   1,133  $   1,721 
                                 =========  =========  =========  ========= 
Net income to common                                                        
 shareholders                    $   4,003  $   5,973  $   9,242  $   9,272 
                                 =========  =========  =========  ========= 
Income Per Common Share - Basic                                             
 and Diluted                     $    0.13  $    0.20  $    0.31  $    0.31 
                                 =========  =========  =========  ========= 
                                                                            

SELECTED PERFORMANCE RATIOS:

                                                                            
                                 For the three months      For the year     
                                  ended December 31,    ended December 31,  
                                    2016       2015       2016       2015   
                                 ---------  ---------  ---------  --------- 
Return on Average Assets              2.01%      3.30%      1.29%      1.49%
Return on Average Equity             28.78%     37.95%     15.19%     16.81%
Average Equity to Average Assets      6.99%      8.69%      8.48%      8.84%
Book Value Per Share             $    1.72  $    1.77  $    1.72  $    1.77 
                                                                            
                                                                            
                                     At December 31,       At December 31,  
Capital ratios (US GAAP):                 2016                  2015        
                                 --------------------  -------------------- 
Company Tier 1 Leverage                          8.49%                12.44%
Company Total Risk Based Capital                13.30%                18.57%
Company Common Equity Tier 1                     7.99%                 9.37%
                                                                            
                                                                            
NON-GAAP MEASURES:                                                          
(Unaudited, dollars in thousands, except per share data)                    
                                                                            
                                 For the three months      For the years    
                                  ended December 31,    ended December 31,  
                                    2016       2015       2016       2015   
                                 ---------  ---------  ---------  --------- 
Net income attributable to Royal                                            
 Bancshares                      $   4,122  $   6,407  $  10,375  $  10,993 
  Less net tax benefit               1,881      5,139      1,796      5,139 
                                 ---------  ---------  ---------  --------- 
Net income attributable to Royal                                            
 Bancshares (non-GAAP)           $   2,241  $   1,268  $   8,579  $   5,854 
                                 =========  =========  =========  ========= 
  Less Preferred stock Series A                                             
   accumulated dividend and                                                 
   accretion                     $     119  $     434  $   1,133  $   1,721 
                                 =========  =========  =========  ========= 
Net income to common                                                        
 shareholders (non-GAAP)         $   2,122  $     834  $   7,446  $   4,133 
                                 =========  =========  =========  ========= 
Income per common share-basic                                               
 and diluted (non-GAAP)          $    0.07  $    0.03  $    0.25  $    0.14 
                                 =========  =========  =========  ========= 
Return on Average Assets              1.09%      0.65%      1.06%      0.79%
Return on Average Equity             15.65%      7.51%     12.56%      8.95%
                                                                            
                                                                            
ROYAL BANCSHARES OF PENNSYLVANIA, INC.                                      
CONSOLIDATED BALANCE SHEETS                                                 
                                                                            
                                                At December    At December  
(Unaudited, in thousands)                         31, 2016       31, 2015   
                                               -------------  ------------- 
Cash and cash equivalents                      $      21,230  $      25,420 
Investment securities, at fair value                 169,854        224,067 
Other investment, at cost                              2,250          2,250 
Federal Home Loan Bank stock                           3,216          2,545 
Loans and leases                                                            
  Commercial real estate and multi-family            248,950        241,928 
  Construction and land development                   83,369         47,984 
  Commercial and industrial                          108,146         85,980 
  Residential real estate                             56,899         51,588 
  Leases                                              61,838         64,341 
  Tax certificates                                     3,705          4,755 
  Consumer                                             3,102          2,527 
                                               -------------  ------------- 
Loans and leases                                     602,009        499,103 
Allowance for loan and lease losses                  (10,420)        (9,689)
                                               -------------  ------------- 
Loans and leases, net                                591,589        489,414 
Company owned life insurance                          20,781         19,899 
Premises and equipment, net                            5,398          3,959 
Other real estate owned, net                           3,536          7,435 
Accrued interest receivable                            3,968          4,149 
Other assets                                          10,633          9,145 
                                               -------------  ------------- 
  Total Assets                                 $     832,485  $     788,283 
                                               =============  ============= 
                                                                            
Deposits                                       $     629,546  $     577,892 
Borrowings                                           104,000         90,970 
Other liabilities                                     20,892         21,349 
Subordinated debentures                               25,774         25,774 
Royal Bancshares shareholders' equity                 51,648         71,904 
Noncontrolling interest                                  625            394 
                                               -------------  ------------- 
  Total Equity                                        52,273         72,298 
                                               -------------  ------------- 
  Total Liabilities and Equity                 $     832,485  $     788,283 
                                               =============  ============= 
                                                                            
                                                                            
ROYAL BANCSHARES OF PENNSYLVANIA, INC.                                      
NET INTEREST INCOME AND MARGIN                                              
(Unaudited, in thousands, except percentages)                               
                                                                            
                     For the three months ended  For the three months ended 
                          December 31, 2016           December 31, 2015     
                     --------------------------  -------------------------- 
                       Average                     Average                  
                       Balance   Interest Yield    Balance   Interest Yield 
                     ---------- --------- -----  ---------- --------- ----- 
Cash and cash                                                               
 equivalents         $    9,942 $      15  0.60% $   14,542 $      11  0.30%
Investment                                                                  
 securities             168,054       889  2.10%    224,086     1,367  2.42%
Loans                   591,384     7,657  5.15%    488,389     6,466  5.25%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 earning assets         769,380     8,561  4.43%    727,017     7,844  4.28%
Non-interest earning                                                        
 assets                  45,300                      43,776                 
                     ----------                  ----------                 
Total average assets $  814,680                  $  770,793                 
                     ==========                  ==========                 
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets           $  222,225 $     217  0.39% $  227,960 $     207  0.36%
  Savings                83,404       151  0.72%     45,627        68  0.59%
  Certificates of                                                           
   deposit              223,811       764  1.36%    209,153       735  1.39%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 bearing deposits       529,440     1,132  0.85%    482,740     1,010  0.83%
Borrowings              130,176       794  2.43%    116,815       676  2.30%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 bearing liabilities    659,616     1,926  1.16%    599,555     1,686  1.12%
Non-interest bearing                                                        
 deposits                74,356                      81,473                 
Other liabilities        23,726                      22,792                 
Shareholders' equity     56,982                      66,973                 
                     ----------                  ----------                 
Total average                                                               
 liabilities and                                                            
 equity              $  814,680                  $  770,793                 
                     ==========                  ==========                 
  Net interest                                                              
   income                       $   6,635                   $   6,158       
                                =========                   =========       
  Net interest                                                              
   margin                                  3.43%                       3.36%
                                                                            
                                                                            
ROYAL BANCSHARES OF PENNSYLVANIA, INC.                                      
NET INTEREST INCOME AND MARGIN                                              
(Unaudited, in thousands, except percentages)                               
                                                                            
                         For the year ended          For the year ended     
                          December 31, 2016           December 31, 2015     
                     --------------------------  -------------------------- 
                       Average                     Average                  
                       Balance   Interest Yield    Balance   Interest Yield 
                     ---------- --------- -----  ---------- --------- ----- 
Cash and cash                                                               
 equivalents         $   12,416 $      63  0.51% $   16,197 $      32  0.20%
Investment                                                                  
 securities             194,108     4,528  2.33%    228,779     5,617  2.46%
Loans                   551,161    28,825  5.23%    450,094    24,344  5.41%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 earning assets         757,685    33,416  4.41%    695,070    29,993  4.32%
Non-interest earning                                                        
 assets                  47,868                      44,851                 
                     ----------                  ----------                 
Total average assets $  805,553                  $  739,921                 
                     ==========                  ==========                 
Interest-bearing                                                            
 deposits                                                                   
  NOW and money                                                             
   markets           $  222,626 $     811  0.36% $  211,271 $     716  0.34%
  Savings                74,520       529  0.71%     30,023       120  0.40%
  Certificates of                                                           
   deposit              212,166     2,985  1.41%    217,688     2,970  1.36%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 bearing deposits       509,312     4,325  0.85%    458,982     3,806  0.83%
Borrowings              121,301     2,990  2.46%    116,547     2,678  2.30%
                     ---------- ---------        ---------- ---------       
Total interest-                                                             
 bearing liabilities    630,613     7,315  1.16%    575,529     6,484  1.13%
Non-interest bearing                                                        
 deposits                83,215                      77,052                 
Other liabilities        23,436                      21,938                 
Shareholders' equity     68,289                      65,405                 
                     ----------                  ----------                 
Total average                                                               
 liabilities and                                                            
 equity              $  805,553                  $  739,921                 
                     ==========                  ==========                 
  Net interest                                                              
   income                       $  26,101                   $  23,509       
                                =========                   =========       
  Net interest                                                              
   margin                                  3.44%                       3.38%
                                                                            
                                                                            
ROYAL BANCSHARES OF PENNSYLVANIA, INC.                                      
ASSET QUALITY TRENDS                                                        
(Unaudited, in thousands, except percentages)                               
                                                                            
                                                       At December 31,      
                                                 -------------------------- 
                                                     2016          2015     
                                                 ------------  ------------ 
                                                                            
Non-performing loans                             $      4,100  $      4,367 
Non-performing tax certificates                         1,907         1,125 
                                                 ------------  ------------ 
Total non-performing loans                              6,007         5,492 
                                                                            
Other real estate owned-loans                             236           220 
Other real estate owned-tax certificates                3,300         7,215 
                                                 ------------  ------------ 
Total other real estate owned                           3,536         7,435 
                                                 ------------  ------------ 
Total non-performing assets                      $      9,543  $     12,927 
                                                 ============  ============ 
                                                                            
Ratio of non-performing loans to total loans             1.00%         1.10%
Ratio of non-performing assets to total assets           1.15%         1.64%
Ratio of allowance for loan and lease losses to                             
 total loans                                             1.73%         1.94%
Ratio of allowance for loan and lease losses to                             
 non-performing loans                                  173.46%       176.42%
                                                                            

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

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