CHICAGO, Feb. 06, 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”), announced earnings for the second quarter end of fiscal year 2018 and the calendar year-end deferred tax asset (the “DTA”) adjustment.
For the second quarter ended December 31, 2017, the Company reported a net loss of $1.7 million, or ($0.69) per common share, compared to $630,000 or $0.25 per common share, for the second quarter ended December 31, 2016. The net loss for the six months ended December 31, 2017 was $373,000, or ($0.15) per common share, compared to $894,000, or $0.36 per common share, for the six months ended December 31, 2016.
Comparison of Results of Operation for the Three Months Ended December 31, 2017 and 2016
The Company reported a net loss of $1.7 million for the second quarter of fiscal 2018, a decrease of $2.3 million compared to a net profit of $630,000 in the same period of fiscal 2017. The net loss for the six months ended December 31, 2017, was $373,000, a decrease of $1.3 million from the same period of fiscal 2017. The decrease was caused by the January 1, 2018 federal tax rate change having a negative effect on the DTA, increases in non-interest expense and cost of funds, offset by increases in interest income.
For the quarter end December 31, 2017, the provision for income taxes was $2.2 million compared to the provision for income taxes at the quarter end of December 30, 2016, of $260,000, an increase of $1.9 million. On December 22, 2017, President Trump signed into law H.R.1, more commonly known as the Tax Cuts and Jobs Act, which decreased the corporate income tax rate from 35.00% to 21.00%, effective January 1, 2018. Based on the decrease to the federal tax rate, the Company had a one-time downward adjustment of the DTA of $2.0 million, or a loss of $0.80 per share. This adjustment was recorded as additional income tax expense reducing net income by approximately $2.0 million in the quarter ended December 31, 2017.
Total interest income for the quarter ended December 31, 2017, increased $584,000 from December 31, 2016. Total interest income for loans, including fees, for the quarter ended December 31, 2017, increased $661,000 from the same period of fiscal 2017, which was offset by the decrease in interest income from securities. The Company liquidated securities to fund loan growth in fiscal year 2017. This increase in interest income is offset by the increase in total interest expense due to higher cost of funds for borrowings and deposit accounts.
Total non-interest income decreased $71,000 from December 31, 2016. The decrease in non-interest income is due to the one-time gain on acquisitions of $160,000 in December 2016. This gain resulted from the sale of two NHS pools that were inherited through the Park Federal Bank acquisition. This was offset by increases in secondary mortgage market fees of $44,000, an increase in service charge income of $9,000, and income of $33,000 from the leasing of excess office space in Bank branches.
The provision for loan losses at the quarter end of December 31, 2017, was $90,000, an increase of $45,000 from the prior year. The increase in the allowance for loan losses was to provide for the increased growth in the loan portfolio.
Total non-interest expenses increased $572,000 from December 31, 2016. The increase in non-interest expense was primarily caused by the increase of $580,000 in merger and acquisition expense. The Company booked a one-time expense of $650,000 at December 31, 2017 to accrue for the expected costs associated with the December 15, 2017 acquisition of the insured deposits and other assets of Washington Federal Bank for Savings, FDIC failure.
Comparison of Financial Condition at December 31, 2017 and June 30, 2017
The Company’s total assets increased $142.1 million, or 44.8%, to $459.2 million at December 31, 2017, from $317.1 million at June 30, 2017.
Cash and cash equivalents increased $120.4 million, to $135.2 million at December 31, 2017 from $14.8 million at June 30, 2017. The increase in cash was due to the acquisition of the Washington Federal Bank for Savings insured deposits and certain assets.
Loans, net of allowance for loan losses, increased $17.9 million, or 7.32%, to $263.6 million at December 31, 2017 from $245.7 million at June 30, 2017. Growth in the portfolio was the result of funding additional commercial loans, which were collateralized by commercial real estate and multi-family properties.
Other real estate owned decreased $142,000 since June 30, 2017, to one property booked at $310,000 at December 31, 2017. The change was due to the sale of a one-to-four family residential property. The property is recorded at fair value, less estimated costs to sell.
The DTA decreased $1.5 million, to $10.5 million, at December 31, 2017 from $12.0 million at June 30, 2017. The Company wrote down the DTA $2.0 million as of December 31, 2017, to comply with the new federal tax rate. The Company still holds a $600,000 State DTA valuation reserve that will be reviewed over the next two quarters as the Company re-evaluates future earnings with the increase in assets due to the recent acquisition of Washington Federal Bank for Savings.
Due to the recent and close to quarter end acquisition of the insured deposits and certain assets of Washington Federal Bank for Savings, the Company is in a transitional stage of accounting and has booked a Preliminary Intangible of $1.8 million at December 31, 2017. In addition, the Core Deposit Intangible increased $295,000, to $1.2 million at December 31, 2017 from $919,000 at June 30, 2017.
Total deposits increased $138.8 million, or 52.1%, to $405.2 million at December 31, 2017 from $266.5 million at June 30, 2017. Growth in deposits was the result of the acquisition of $136.9 million insured deposits from Washington Federal Bank for Savings.
The note payable increased $9.5 million to $14.4 million at December 31, 2017 from $4.9 million at June 30, 2017. The increase in the note payable was due to a capital injection request from the Bank to properly capitalize the Bank for the acquisition of Washington Federal Bank for Savings.
There were no Federal Home Loan Bank advances outstanding as of December 31, 2017.
Total stockholders’ equity decreased $634,000, to $33.0 million at December 31, 2016 from $33.7 million at June 30, 2017, which was primarily the result of a decrease in accumulated other comprehensive income of $291,000 for the period and the net loss of $373,000.
For the six months ended December 2017, the Bank paid cash dividends of $700,000.
The allowance for loan losses was $1.9 million, or 0.72% of total loans, at December 31, 2017, 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 $1.2 million at December 31, 2017 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 $777,000, or 0.29% of outstanding loans, at December 31, 2017 compared to $327,000 or 0.13%, at June 30, 2017.
The Bank is required to maintain regulatory capital sufficient to meet the Tier 1 capital leverage ratio, and the 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 December 31, 2016, the Bank exceeded each of its capital requirements with ratios of 10.77%, 17.73%, 17.73% and 18.67%, respectively.
At December 31, 2017, the book value per common share was $13.20 compared to the book value per common share of $13.45 at June 30, 2017, for shares outstanding of 2,507,112 for both periods. The tangible book value per share was $11.98 at December 30, 2017, compared to tangible book value per share of $13.08 at June 30, 2017. The decrease in tangible book share was the result of the addition of the Intangible Assets for the acquisition of the Washington Federal Bank for Savings insured deposits and certain assets.
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.
| Royal Financial, Inc. and Subsidiary | ||||||||
| Consolidated Statements of Financial Condition | ||||||||
| December 31, 2017 and June 30, 2017 | ||||||||
| (Unaudited) | ||||||||
| December 31, 2017 | June 30, 2017 | |||||||
| Assets | ||||||||
| Cash and non-interest bearing balances in financial institutions | $ | 2,889,623 | $ | 2,803,915 | ||||
| Interest Bearing Financial Institutions | 131,023,104 | 11,867,746 | ||||||
| Federal Funds Sold | 1,295,080 | 83,078 | ||||||
| Total Cash and Cash Equivalents | $ | 135,207,807 | $ | 14,754,739 | ||||
| Investment Certificates of Deposit | $ | 2,093,000 | $ | 2,342,000 | ||||
| Securities available for sale | 24,361,366 | 26,044,643 | ||||||
| Loans Receivable, net of Allowance for loan losses | 263,645,043 | 245,651,278 | ||||||
| of $1,929,239 at December 31, 2017, $1,673,924 at June 30, 2017 | ||||||||
| Federal Home Loan Bank Stock | 544,700 | 544,700 | ||||||
| Premises & Equipment, net | 12,909,171 | 12,911,712 | ||||||
| Accrued Interest Receivable | 1,136,033 | 1,095,586 | ||||||
| Other Real Estate Owned | 310,097 | 451,655 | ||||||
| Deferred Tax Asset | 10,469,127 | 12,013,833 | ||||||
| Core Deposit Intangible | 1,213,918 | 918,615 | ||||||
| Preliminary Intangible | 1,829,609 | - | ||||||
| Due From FDIC | 4,973,073 | - | ||||||
| Other Assets | 548,770 | 391,171 | ||||||
| Total Assets | $ | 459,241,714 | $ | 317,119,932 | ||||
| Liabilities & Stockholders Equity | ||||||||
| Total Deposits | $ | 405,241,636 | $ | 266,465,215 | ||||
| Advances from Borrowers for Taxes and Insurance | 3,501,028 | 3,333,119 | ||||||
| FHLB Advances | - | 8,000,000 | ||||||
| Notes Payable | 14,400,000 | 4,879,286 | ||||||
| Due to FDIC | 905,432 | - | ||||||
| Accrued Interest Payable and Other Liabilities | 2,111,037 | 725,727 | ||||||
| Total Liabilities | $ | 426,159,133 | $ | 283,403,347 | ||||
| Stockholder's Equity | ||||||||
| Common Stock | $ | 26,450 | $ | 26,450 | ||||
| Additional Paid-In Capital | 23,983,784 | 23,954,746 | ||||||
| Retained Earnings | 10,498,569 | 10,871,097 | ||||||
| Treasury Stock | (1,012,925 | ) | (1,012,925 | ) | ||||
| Unrealized G/L in Equity | (413,297 | ) | (122,783 | ) | ||||
| Total Capital | $ | 33,082,581 | $ | 33,716,585 | ||||
| Total Liabilities and Stockholder's Equity | $ | 459,241,714 | $ | 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 | ||||||||||||||
| Three and Six months ended December 31, 2017 and 2016 | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||
| Interest income | ||||||||||||||
| Loans, including fees | $ | 3,375,213 | $ | 2,714,420 | $ | 6,639,670 | $ | 5,457,900 | ||||||
| Securities | 189,084 | 301,066 | 380,227 | 589,893 | ||||||||||
| Federal funds sold and other | 42,221 | 7,418 | 59,144 | 17,020 | ||||||||||
| Total interest income | 3,606,518 | 3,022,904 | 7,079,041 | 6,064,813 | ||||||||||
| Interest expense | ||||||||||||||
| Deposits | 476,850 | 208,541 | 852,090 | 403,863 | ||||||||||
| Borrowings | 93,528 | 53,606 | 163,933 | 109,453 | ||||||||||
| Total interest expense | 570,378 | 262,147 | 1,016,023 | 513,316 | ||||||||||
| Net interest income | 3,036,140 | 2,760,757 | 6,063,018 | 5,551,497 | ||||||||||
| Provision/(Credit) for loan losses | 90,000 | 45,000 | 270,000 | 75,000 | ||||||||||
| Net interest income after provision/ (credit) for loan losses | 2,946,140 | 2,715,757 | 5,793,018 | 5,476,497 | ||||||||||
| Non-interest income | ||||||||||||||
| Service charges on deposit accounts | 142,795 | 133,416 | 277,214 | 274,607 | ||||||||||
| Secondary mortgage market fees | 48,904 | 4,142 | 62,434 | 9,497 | ||||||||||
| Income (loss) on other real estate owned, net | 34,672 | 1,329 | 6,360 | (4,468 | ) | |||||||||
| Gain on acquisitions | - | 160,146 | - | 123,532 | ||||||||||
| Other | 2,133 | 340 | 55,416 | 650 | ||||||||||
| Total non-interest income | 228,504 | 299,372 | 401,425 | 403,817 | ||||||||||
| Non-interest expense | ||||||||||||||
| Salaries and employee benefits | 1,047,595 | 956,288 | 2,169,421 | 2,045,552 | ||||||||||
| Occupancy and equipment | 404,156 | 432,158 | 803,806 | 844,652 | ||||||||||
| Data processing | 160,680 | 198,738 | 315,031 | 480,161 | ||||||||||
| Professional services | 79,467 | 110,873 | 242,939 | 249,656 | ||||||||||
| Director fees | 40,000 | 36,000 | 76,000 | 72,000 | ||||||||||
| Marketing | 14,913 | 6,884 | 33,201 | 52,798 | ||||||||||
| FDIC insurance expense | 36,200 | 15,077 | 66,867 | 40,316 | ||||||||||
| Insurance premiums | 26,198 | 37,890 | 52,046 | 73,752 | ||||||||||
| Acquisition Expense | 653,803 | 74,269 | 656,757 | 136,429 | ||||||||||
| Other | 234,253 | 257,440 | 456,539 | 524,627 | ||||||||||
| Total non-interest expense | 2,697,264 | 2,125,617 | 4,872,607 | 4,519,942 | ||||||||||
| Income before income taxes | 477,379 | 889,513 | 1,321,836 | 1,360,372 | ||||||||||
| Provision for income taxes | 2,205,000 | 260,000 | 1,694,364 | 466,500 | ||||||||||
| Net Income (Loss) | $ | (1,727,621 | ) | $ | 629,513 | $ | (372,528 | ) | $ | 893,872 | ||||
| Basic earnings per share | $ | (0.69 | ) | $ | 0.25 | $ | (0.15 | ) | $ | 0.36 | ||||
| Diluted earnings per share | $ | (0.68 | ) | $ | 0.25 | $ | (0.15 | ) | $ | 0.36 | ||||
| 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. | ||||||||||||||