Royal Financial, Inc. Announces Second Quarter Earnings for Fiscal Year 2020

CHICAGO, Jan. 14, 2020 (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 2020.

Net Income for the second quarter of fiscal year 2020 was $782,000 or $0.31 per common share, compared to net income of $1.0 million, or $0.40 per common share, in the same period of fiscal 2019.

The Company also reported total assets of $407.5 million and stockholders’ equity of $41.6 million as of December 31, 2019.  As of the same date, the Company’s book value per share was $16.28 and tangible book value per share was $15.30.

Comparison of Results of Operation for the Three Months Ended December 31, 2019 and 2018

The Company reported net income of $782,000 for the second quarter of fiscal 2020, a decrease of $223,000 (22%) compared to net income of $1.0 million for the second quarter of fiscal 2019. Net income for the six months ended December 31, 2019 was $1.6 million, a decrease of $394,000 (20%) from the same period of fiscal 2019. The decrease in net income is a result of lower interest income and increases in interest expense and non-interest expense.

Net interest income for the quarter ended December 31, 2019 was $3.4 million, a decrease of $132,000 (4%) from the prior fiscal year. This decrease in net interest income is a result of a decrease in interest income for loans, including fees, by $133,000 (3%) due to decreases in the loan portfolio and a decrease in interest income for securities of $29,000 (10%) due to maturities in the securities portfolio from the prior fiscal year. These decreases in interest income were offset by an increase of $64,000 (350%) in interest income from federal funds sold due to larger cash balances retained by the Company leading to a net decrease in total interest income of $98,000 (2%). Total interest expense also increased by $34,000 (4%) for the three months ended December 31, 2019.  Interest expense for deposits increased $138,000 (18%) but was offset by a decrease in borrowings of $103,000 (47%). The decrease in borrowings is due to the Company having no outstanding FHLB borrowings and a reduction in the holding company loan. 

Total non-interest income decreased $52,000 (20%) from December 31, 2018. The decrease was caused by decreases in service charges on deposit accounts of $21,000 (12%), decreases in secondary mortgage market fees of $43,000 (76%) as a result of the Company retaining more one-to-four family mortgages, and a loss on the sale of two Company vehicles of $8,000, offset by an increase in rental income of $20,000 (64%).

The Company did not fund the allowance for loan losses this quarter.

Total non-interest expense was $2.4 million at the end of December 31, 2019, an increase of $136,000 (6%) from the prior fiscal year. This increase in expense is the result of an increase in acquisition expense of $87,000 (449%), an increase in data processing charges of $32,000 (16%), and an increase in marketing expenditures of $22,000 (333%). These increases were offset by a credit for the Federal Deposit Insurance Corporation Assessment fees during the second quarter of fiscal year 2020, which decreased the expense by $44,000 (121%) from the prior year.

For quarter end December 31, 2019, the provision for income taxes was $379,500, a decrease of $22,000 (5%) from the prior year.

Comparison of Financial Condition at December 31, 2019 and June 30, 2019

The Company’s total assets increased $2.5 million (1%) to $407.5 million at December 31, 2019, from $404.9 million at June 30, 2019.

Cash and cash equivalents increased $15.6 million (107%), to $30.2 million at December 31, 2019 from $14.6 million at June 30, 2019.  The increase in cash and cash equivalents is the result of loan pay-offs, the maturity of investment certificates of deposit throughout the quarter, and an increase in deposits.

Investment Certificates of Deposit decreased $988,000 (54%) to $852,000 at December 31, 2019 as a result of normal maturities.

Loans, net of allowance for loan losses, decreased $11.7 million (4%), to $307.6 million at December 31, 2019 from $319.3 million at June 30, 2019. Mortgage loans decreased $11.2 million, of which $9.8 million were participation loans, and commercial loans decreased $1.1 million, which was offset by an increase in commercial participations of $688,000.

The allowance for loan losses was $2.5 million, or 0.81% of total loans, at December 31, 2019, as compared to $2.6 million, or 0.82% of total loans, at June 30, 2019.  In addition to the allowance for loan losses, net purchase discount on acquired loans was $582,000 at December 31, 2019 compared to $772,000 at June 30, 2019.  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 $1.2 million, or 0.38% of outstanding loans, at December 31, 2019 compared to $1.2 million or 0.37%, at June 30, 2019. 

Other real estate owned (“OREO”) did not change from $297,000 at June 30, 2019. The property is recorded at fair value, less estimated costs to sell. 

The Deferred Tax Asset (“DTA”) decreased $773,000 (9%) to $7.4 million at December 31, 2019, from $8.2 million at June 30, 2019. The Bank has a $378,000 valuation allowance for the State of Illinois DTA as of December 31, 2019. The Company increased the DTA valuation allowance an additional $48,000 for the quarter as a result of the current year to date performance and updated forecasting.

The Core Deposit Intangibles (“CDI”) held by the Company decreased $70,000 (9%) to $749,000 as of December 31, 2019.

Total deposits increased $1.7 million to $349.6 million at December 31, 2019, from $347.9 million at June 30, 2019. The increase was primarily due to the increase in certificate of deposits of $3.4 million as a result of the Company’s new certificate product, an increase of $1.3 million in money markets, offset by a decrease of $2.0 million in non-interest checking accounts and $1.6 million in individual retirement accounts.

Notes payable decreased $1.75 million (16%) due to a special $1.0 million principal payment and normal principal repayments on holding company debt, which totaled $9.5 million at quarter end. The note is amortizing in full over eight years with quarterly payments of $375,000 in principal reduction and interest at the rate of 0.15% below the Wall Street Journal Prime Rate.

Total stockholders’ equity increased $1.8 million, to $41.6 million at December 31, 2019 from $39.8 million at June 30, 2019, which was primarily the result of an increase of $1.6 million in retained earnings and an increase of $129,000 in unrealized gain in equity.

For the six months ended December 2019, the Bank paid cash dividends of $2.2 million.  The upstream of funds enabled the Company to make debt and interest payments on its notes payable, as well as pay general business expenses for fiscal 2020.

The Bank is “well capitalized” under prompt corrective action regulations. This classification requires the Bank to maintain regulatory capital that meets or exceeds the following ratios: Tier 1 Capital leverage of 5.00%, Common Equity Tier 1 Capital of 6.50%, Tier 1 Capital of 8.00%, and Total Capital of 10.00%.  At December 31, 2019, the Bank exceeded each of these requirements with ratios of 10.33%, 15.78%, 15.78% and 16.77%, respectively.

In August, 2019, the Board of Directors authorized a stock repurchase program for up to 76,849 shares of its outstanding common stock. No repurchases were made in the first quarter of fiscal year 2020. In the second quarter of fiscal year 2020, the Company repurchased 7,633 shares at a weighted average price of $16.12 which is an average of 106.3% of tangible book value as of December 31, 2019. The repurchased shares are held in treasury stock.

In addition, during the quarter, Mr. Szwajkowski, the Company President and CEO, exercised 2,500 vested options from the 2018 Equity Plan.  The 2019 exercise of Mr. Szwajkowski’s 2,500 options was issued from the Company treasury which now totals 88,482 shares and Company outstanding shares now total 2,556,518 as of December 31, 2019.

In October, 2019, the Company announced the definitive purchase and assumption agreement to acquire two Illinois State Bank branch banking centers located in Lake in the Hills, Illinois, and McHenry, Illinois. The Company has completed the required regulatory applications and continues to work on the transaction, which is anticipated to be completed in first quarter 2020.

At December 31, 2019, the book value per common share, shares outstanding of 2,556,518, was $16.28 compared to the book value per common share of $15.65 at June 30, 2019, for shares outstanding of 2,507,112.  The tangible book value per share was $15.30 at December 31, 2019, compared to tangible book value per share of $14.64 at June 30, 2019. 

The complete audited consolidated financial statements for 2019 and 2018 are available at www.royalbankweb.com

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 Chicagoland area since 1887, and currently has nine branches 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:  [phone]
E-mail:  [e-mail]

Royal Financial, Inc. and Subsidiary
Consolidated Statements of Financial Condition
December 31, 2019 and June 30, 2019
(Unaudited)
	December 31, 2019			June 30, 2019
Assets
Cash and non-interest bearing balances in financial institutions	$	3,681,568		$	3,092,057
Interest Bearing Financial Institutions		26,368,740			11,242,481
Federal Funds Sold		147,058			271,189
Total Cash and Cash Equivalents	$	30,197,367		$	14,605,727
Investment Certificates of Deposit	$	852,000		$	1,840,000
Securities available for sale		39,191,828			39,310,395
Loans Receivable, net of Allowance for loan losses		307,628,866			319,325,977
of $2,527,551 at December 31, 2019, $2,654,045 at June 30, 2019
Federal Home Loan Bank Stock		836,300			836,300
Premises & Equipment, net		15,585,983			14,856,772
Accrued Interest Receivable		1,431,523			1,464,514
Other Real Estate Owned		297,544			297,544
Deferred Tax Asset		7,386,422			8,159,750
Core Deposit Intangible		749,419			819,833
Goodwill		1,755,189			1,755,189
Other Assets		1,620,780			1,715,633
Total Assets	$	407,533,222		$	404,987,634
Liabilities & Stockholders Equity
Total Deposits	$	349,555,800		$	347,897,715
Advances from Borrowers for Taxes and Insurance		5,042,810			4,777,979
Notes Payable		9,500,000			11,250,000
Accrued Interest Payable and Other Liabilities		1,818,387			1,225,537
Total Liabilities	$	365,916,997		$	365,151,231
Stockholder's Equity
Common Stock	$	26,450		$	26,450
Additional Paid-In Capital		23,773,586			23,676,229
Retained Earnings		17,892,590			16,313,278
Treasury Stock		(450,370	)		(424,384	)
Unrealized G/L in Equity		373,969			244,830
Total Capital	$	41,616,225		$	39,836,403
Total Liabilities and Stockholder's Equity	$	407,533,222		$	404,987,634
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, 2019 and 2018
(Unaudited)
	Three Months Ended December 31,							Six Months Ended December 31,
	2019				2018			2019				2018
Interest income
Loans, including fees	$	4,060,435			$	4,193,572		$	8,271,812			$	8,426,417
Securities		245,387				273,944			496,371				543,658
Federal funds sold and other		82,156				18,259			171,453				34,601
Total interest income		4,387,978				4,485,776			8,939,636				9,004,675
Interest expense
Deposits		904,666				766,867			1,896,943				1,394,963
Borrowings		116,258				219,596			259,182				435,801
Total interest expense		1,020,924				986,463			2,156,125				1,830,764
Net interest income		3,367,054				3,499,313			6,783,511				7,173,911
Provision for loan losses		-				75,000			-				225,000
Net interest income after provision for loan losses		3,367,054				3,424,313			6,783,511				6,948,911
Non-interest income
Service charges on deposit accounts		153,730				175,095			320,991				354,763
Secondary mortgage market fees		13,598				56,186			22,620				107,596
Rental Income		51,900				31,727			111,035				63,098
Gain (Loss) on sale of fixed assets		(8,185	)			-			(8,185	)			-
Other		304				255			466				547
Total non-interest income		211,347				263,262			446,927				526,004
Non-interest expense
Salaries and employee benefits		1,100,559				1,086,814			2,283,636				2,203,618
Occupancy and equipment		512,225				499,213			1,015,225				1,012,385
Data processing		228,770				196,987			447,642				371,265
Professional services		123,551				120,427			286,865				309,212
Director fees		42,000				46,200			84,000				92,400
Marketing		29,059				6,706			53,294				23,576
FDIC insurance expense (income)		(7,508	)			36,412			(10,695	)			74,687
Insurance premiums		23,093				24,344			45,641				48,339
Other Real Estate Owned Expense (income), net		11,390				5,862			19,269				12,970
Acquisition Expense		106,571				19,403			119,456				26,913
Core Deposit Intangibles Amortization		35,207				35,207			70,413				70,413
Other		211,699				203,483			497,380				428,292
Total non-interest expense		2,416,616				2,281,057			4,912,127				4,674,071
Income before income taxes		1,161,785				1,406,519			2,318,312				2,800,844
Provision for income taxes		379,500				401,000			739,000				827,530
Net Income (Loss)	$	782,285			$	1,005,519		$	1,579,312			$	1,973,314
Basic earnings per share	$	0.31			$	0.40		$	0.62			$	0.78
Diluted earnings per share	$	0.30			$	0.39		$	0.61			$	0.77
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.