Royal Financial, Inc. Announces Third Quarter and Year to Date Earnings for Fiscal Year 2018

CHICAGO, April 21, 2018 -- Royal Financial, Inc. (the “Company”) (OTCQX:RYFL), incorporated under the laws of Delaware on March 15, 2004, for the purpose of serving as the holding company of Royal Savings Bank (the “Bank”), announced earnings for the third quarter of fiscal year 2018. The Company’s fiscal year end (“FYE”) is June 30, 2018.

The Company reported net income of $865,000, or $0.35 per common share, for the quarter and $493,000, or $0.20 per common share, for the nine-month year-to-date (“YTD”) period, respectively, ended March 31, 2018. 

The Company also reported total assets of $432.0 million and stockholders’ equity of $33.3 million as of March 31, 2018.  As of the same date, the Company’s book value per share was $13.39 and tangible book value per share was $12.10.

On December 15, 2017, the Bank acquired the insured deposits of Washington Federal Bank for Savings (WaFed) (the “WaFed acquisition”) from the Federal Deposit Insurance Corporation (“FDIC”) and assumed control of its branches.  During the quarter, the Bank restructured its balance sheet to deploy the acquired deposits and continued to integrate WaFed’s customers, operations, and employees into the Bank.  Concomitantly, the Bank incurred certain acquisition and integration expenses and made adjustments to its Deferred Tax Asset (“DTA”) valuation reserve, Allowance for Loan and Lease Losses (“ALLL”), and other accounts.

Comparison of Results of Operation for the Three and Nine Months Ended March 31, 2018 and 2017

Net income of $865,000 for the quarter increased by $478,000 from $387,000 during the same period last year, and net income of $493,000 for the YTD period decreased by $788,000 from $1.3 million during the same period last year.

Net interest income for the quarter increased by $774,000 (28%) to $3.1 million from the same period last year resulting from an increase in interest income on loans (including fees) by $925,000 (34%) to $3.6 million, an increase in interest income on investment securities by $149,000 (47%) to $463,000, and an increase in federal funds sold and other sources by $128,000 (807%) to $143,000 offset by an increase in interest expense by $428,000 (146%) to $722,000.  These changes resulted from the balance sheet restructure that consisted, in part, of organic loan growth, the purchase of participations in one-to-four family loans and adjustable-rate mortgages, and the purchase of taxable agency securities.  The increase in interest expense resulted from an increased cost of funds for customer deposits and other liabilities.

Non-interest income for the quarter increased by $50,000 (35%) to $192,000 from the same period last year resulting from an increase in income from service charges on deposit accounts of $29,000 (23%) to $153,000, an increase in secondary mortgage market fees of $30,000 (704%) to $35,000, and an increase in rental income from $600.00 to $41,000 offset by a loss on the sale of securities of $36,000 versus a gain of $112,000 during the same period last year.  The Company also provided $375,000 to the ALLL in response to growth in the loan portfolio.  These changes resulted from changes in the Company’s earnings structure resulting from organic activities, the WaFed acquisition, and the restructure of the balance sheet.

Non-interest expense for the quarter increased by $345,000 (16%) to $2.5 million from the same period last year resulting principally from WaFed acquisition and integration expenses:  FDIC insurance expense increased by $16,000 (66%) to $41,000; data processing expense increased by $81,000 (49%) to $247,000; and one-time merger-related expenses of $50,000.  The Bank completed the conversion of core data processing systems on April 20, 2018, which will improve customer service and eliminate the expense associated with the operation of duplicate data processing systems.   

Comparison of Financial Condition at March 31, 2018 and June 30, 2017

The Company’s total assets increased by $114.9 million (36%) from $317.1 million on June 30, 2017, to $432.0 million on March 31, 2018.

Cash and cash equivalents decreased by $5.9 million (40%) from $14.8 million on June 30, 2017, to $8.9 million on March 31, 2018.

Securities available for sale increased by $47.3 million (182%) $26.0 million at June 30, 2017, to $73.4 million at March 31, 2018, resulting from the purchase of $90.0 million in taxable Government Sponsored Entity (“GSE”) securities to utilize excess liquidity from the WaFed acquisition offset by the sale of $40 million in taxable GSE bonds to fund loan growth.  

Loans, net of the allowance for loan losses, increased by $70.1 million (29%) from $245.7 million on June 30, 2017, to $315.7 million on March 31, 2018, resulting from organic growth of $25.0 million in the commercial loan portfolio during the quarter and the purchase of $43.3 million of participations in adjustable-rate mortgage loans in February 2018.

Other real estate owned (“OREO”) decreased by $142,000 (31%) from $452,000 on June 30, 2017, to $310,000 on March 31, 2018, resulting from the sale of one one-to-four family residential property.  As of March 31, 2018, the OREO portfolio consists of one property recorded at fair value, less estimated costs to sell.

The allowance for loan losses increased by $631,000 (38%) from $1.7 million on June 30, 2017, to $2.3 million on March 31, 2018.  Non-performing loans decreased by $222,000 (68%) from $327,000 (0.13% of loans outstanding) to $105,000 (0.03% of loans outstanding).  The net purchase discount on acquired loans decreased by $300,000 (21%) from $1.4 million to $1.1 million.  The Company accretes purchase discounts to interest income by individual loan over the life of purchased loans.  Those discounts can offset loan losses in the event of loan default.

The DTA decreased by $1.4 million (12%) from $12.0 million on June 30, 2017, to $10.6 million on March 31, 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.  During the quarter ended March 31, 2018, the Company reversed $300,000 of its $600,000 valuation allowance for State of Illinois DTA resulting from the change in earnings structure from organic activities and the WaFed acquisition.

The Core Deposit Intangible increased by $260,000 (28%) from $919,000 on June 30, 2017, to $1.2 million on March 31, 2018.  As part of the continuing integration of the WaFed acquisition, the Company recorded a Preliminary Intangible Asset of $1.8 million during the quarter to account for the assumption of WaFed insured deposits and the acquisition of certain WaFed assets. The Company continues its evaluation of intangible assets and expects to finalize entries by fiscal year-end on June 30, 2018.

Total deposits increased by $99.4 million (37%) from $266.5 million on June 30, 2017, to $365.9 million on March 31, 2018, resulting principally from the WaFed acquisition.

Notes Payable increased by $9.1 million (186%) from $4.9 million on June 30, 2017, to $14.0 million on March 31, 2018, 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.

Short-term advances by the Federal Home Loan Bank increased by $7.0 million (88%) from $8.0 million on June 30, 2017, to $15.0 million on March 31, 2018.

Stockholders’ equity decreased by $382,000 (1%) from $33.7 million on June 30, 2017, to $33.3 million on March 31, 2018.  The Unrealized Loss in Equity increased by $918,000 from $123,000 to $1.0 million resulting from rising interest rates and was offset by the YTD Net Income increase of $493,000 (5%) from $10.9 million to $11.4 million.

The Bank paid cash dividends of $889,000 during the quarter.

The Bank is required to maintain regulatory capital sufficient to meet the Tier 1 capital leverage ratio and risk-based ratios for Common Equity Tier 1 capital, Tier 1 capital, and Total capital of at least 4.0%, 4.5%, 6.0%, and 8.0%, respectively.  At March 31, 2018, the Bank satisfied all regulatory capital requirements with ratios of 8.49%, 14.46%, 14.56% and 15.39%, respectively.

The book value per common share decreased by $0.15 (1%) from $13.45 on June 30, 2017, to $13.30 on March 31, 2018, based on 2,507,112 shares outstanding.  The tangible book value per common share decreased by $0.98 (7%) from $13.08 to $12.10.

The complete audited consolidated financial statements for 2017 and 2016 are available at www.royalbankweb.com

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
Royal Financial, Inc.
Telephone:  (773) 382-2111
E-mail:  [email protected]