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Royal Financial, Inc. Announces Second Quarter Earnings for Fiscal Year 2019

CHICAGO, Jan. 18, 2019 (GLOBE NEWSWIRE) -- Royal Financial, Inc. (the “Company”) ( 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 2019.

Net Income for the second quarter of fiscal year 2019 was $1.0 million or $0.40 per common share, compared to a net loss of $1.7 million, or $(0.69) per common share, in the same period of fiscal 2018.

The Company also reported total assets of $409.1 million and stockholders’ equity of $36.8 million as of December 31, 2018.  As of the same date, the Company’s book value per share was $14.46 and tangible book value per share was $13.42.

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

The Company reported net income of $1.0 million for the second quarter of fiscal 2019, an increase of $2.7 million (158%) compared to a net loss of $1.7 million for the second quarter of fiscal 2018. Net income for the six months ended December 31, 2018 was $1.9 million, an increase of $2.3 million (630%) from the same period of fiscal 2018. The increase in net income is a result of lower non-interest expenses and provision for taxes and an increase in net interest income and non-interest income.

For the quarter end December 31, 2018, the provision for income taxes was $401,000 compared to the provision for income taxes at the quarter end of December 31, 2017, of $2.2 million, a decrease of $1.8 million (82%). The Company had a one-time downward adjustment of the Deferred Tax Asset (“DTA”) of $2.0 million due to the new federal income tax rate change enacted in December 2017.

Total interest income for the quarter ended December 31, 2018, increased $879,000 (24%) from December 31, 2017. Total interest income for loans, including fees, increased $818,000 (24%) due to increases in the loan portfolio. Interest income for securities increased $85,000 (45%) due to an increase in the securities portfolio from the prior fiscal year. These increases in interest income were offset by a decrease of $24,000 (57%) in interest income from federal funds sold and by the increase in total interest expense of $416,000 (73%) due to higher cost of funds for borrowings and deposit accounts.

Total non-interest income increased $39,000 (18%) from December 31, 2017. The increase was caused by an increase in service charges on deposit accounts of $32,000 (23%) as a result of the Company’s new fee structure and an increase in secondary mortgage market fees of $7,000 (15%) as the Company continues to increase lending.

The provision for loan losses at the quarter end of December 31, 2018, was $75,000, a decrease of $15,000 (17%) from the prior year.

Total non-interest expense decreased $412,000 (15%) from December 31, 2017. The decrease in non-interest expense was primarily caused by the decrease of $634,000 (97%) 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 (“WaFed”), FDIC failure. The decrease was offset by increases in occupancy and equipment of $95,000 (24%), data processing of $41,000 (52%), and salaries and employee benefits of $39,000 (4%). These increases were a result of acquiring the branches of WaFed and the increase in the customer base of WaFed.

Comparison of Financial Condition at December 31, 2018 and June 30, 2018

The Company’s total assets decreased $4.1 million (1%) to $409.1 million at December 31, 2018, from $413.2 million at June 30, 2018.

Cash and cash equivalents decreased $8.1 million (57%), to $6.1 million at December 31, 2018 from $14.2 million at June 30, 2018.  The decrease in cash and cash equivalents is the result of loan funding and general business operations.

Loans, net of allowance for loan losses, increased $4.9 million (2%), to $327.8 million at December 31, 2018 from $322.9 million at June 30, 2018, primarily due to an increase in commercial loan growth.

The allowance for loan losses was $2.7 million, or 0.82% of total loans, at December 31, 2018, as compared to $2.4 million, or 0.73% of total loans, at June 30, 2018. In addition to the allowance for loan losses, net purchase discount on acquired loans was $904,000 at December 31, 2018 compared to $1.0 million at June 30, 2018. 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 $715,000, or 0.22% of outstanding loans, at December 31, 2018 compared to $899,000 or 0.28%, at June 30, 2018.

Other real estate owned remains at $308,000 as of December 31, 2018, an increase of $3,000 (1%) from June 30, 2018. The property is recorded at fair value, less estimated costs to sell.

The DTA decreased $904,000 (9%), to $9.5 million, at December 31, 2018 from $10.4 million at June 30, 2018. The Bank has a $200,000 valuation allowance for the State of Illinois DTA as of December 31, 2018.

The Core Deposit Intangibles (“CDI”) held by the Company decreased $253,000 (22%) as of December 31, 2018. The decrease in the CDI was due to the fair value re-evaluation of the acquisition WaFed deposits which increased Goodwill by $183,000 (12%) to $1.8 million as of December 31, 2018.

Total deposits increased $1.2 million to $342.4 million at December 31, 2018, from $341.2 million at June 30, 2018. The increase was primarily due to the increase in money market accounts, offset by a decrease in time deposits.

The note payable decreased $1.5 million to $12.0 million at December 31, 2018 from $13.0 million at June 30, 2018. In addition to the normal $500,000 monthly principal payment, an additional payment of $1.0 million was made in efforts to pay-down the loan and restructure the note. In October, the loan was restructured from two separate notes payable into one note. The new note will amortize 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.

Federal Home Loan Bank (“FHLB”) advances decreased $7.0 million (37%), to $12.0 million at December 31, 2018, from $19.0 million at June 30, 2018. All FHLB advances are limited to short term maturities.

Total stockholders’ equity increased $2.3 million, to $36.8 million at December 31, 2018 from $34.5 million at June 30, 2018, which was primarily the result of an increase of $1.9 million in retained earnings and a decrease of $170,000 in unrealized loss in equity.

For the six months ended December 2018, the Bank paid cash dividends of $1.9 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 2019.

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, 2018, the Bank exceeded each of these requirements with ratios of 9.80%, 14.94%, 14.94% and 15.98%, respectively.

In November, 2018, the Board of Directors, thru the Compensation Committee, approved the Royal Financial, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The purpose of the 2018 Plan is to promote the long-term financial success of Royal Financial by providing a means to attract, retain, and reward individuals who can and do contribute to such success and to further align interest with those of the Company’s shareholders. The effective date of the plan was November 20, 2018 with a ten year life.

The 2018 Plan was omnibus in nature and capped at 350,000 equity awards. On December 31, 2018, the Board of Directors, thru the Compensation Committee, approved 78,600 non-qualified option awards and 26,400 grants to be issued for a total of 105,000 awards or 30% of the plan cap of 350,000 awards. The vesting period for both types of awards was four years. The expense per option, using the Black Scholes method, was determined to be $4.57 with a strike price of $14.30. The grant expense was also determined to be $14.30, based on the trade value on the issuance date. The awards were granted in various amounts to the Board of Directors and to named executive officers of the Company. The full 2018 Plan will be published to the Company investor site and made part of the 2019 proxy.

In addition, during the quarter, Mr. Szwajkowski, the Company President and CEO, exercised 10,740 vested options from the 2005 Plan. Also, Mr. Morua, the Company Senior Vice President and Chief Lending Officer, exercised 800 vested options form the 2005 Plan.

The 2018 grant awards of 26,400 and the exercise of Mr. Szwajkowski’s and Mr. Morua’s options of 10,740 and 800 respectively were issued from the Company treasury which now totals 99,948 shares and Company outstanding shares now total 2,545,052 as of December 31, 2018.

At December 31, 2018, the book value per common share, shares outstanding of 2,545,052, was $14.46 compared to the book value per common share of $13.77 at June 30, 2018, for shares outstanding of 2,507,112. The tangible book value per share was $13.42 at December 31, 2018, compared to tangible book value per share of $12.69 at June 30, 2018.

The complete audited consolidated financial statements for 2018 and 2017 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
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Royal Financial, Inc. and Subsidiary
Consolidated Statements of Operations
Three and Six months ended December 31, 2018 and 2017
(Unaudited)
Three Months Ended
December 31,
Six Months Ended
December 31,
2018 2017 2018 2017
Interest income
Loans, including fees $ 4,193,572 $ 3,375,213 $ 8,426,417 $ 6,639,670
Securities 273,944 189,084 543,658 380,227
Federal funds sold and other 18,259 42,221 34,601 59,144
Total interest income 4,485,776 3,606,518 9,004,675 7,079,041
Interest expense
Deposits 766,867 476,850 1,394,963 852,090
Borrowings 219,596 93,528 435,801 163,933
Total interest expense 986,463 570,378 1,830,764 1,016,023
Net interest income 3,499,313 3,036,140 7,173,911 6,063,018
Provision/(Credit) for loan losses 75,000 90,000 225,000 270,000
Net interest income after provision/ (credit) for loan losses 3,424,313 2,946,140 6,948,911 5,793,018
Non-interest income
Service charges on deposit accounts 175,095 142,795 354,763 277,214
Secondary mortgage market fees 56,186 48,904 107,596 62,434
Rental Income 31,727 34,672 63,098 61,878
Other 255 2,133 547 55,416
Total non-interest income 263,262 228,504 526,004 456,943
Non-interest expense
Salaries and employee benefits 1,086,814 1,047,595 2,203,618 2,169,421
Occupancy and equipment 499,213 404,156 1,012,385 803,806
Data processing 196,987 160,680 371,265 315,031
Professional services 120,427 79,467 309,212 242,939
Director fees 46,200 40,000 92,400 76,000
Marketing 6,706 14,913 23,576 33,201
FDIC insurance expense 36,412 36,200 74,687 66,867
Insurance premiums 24,344 26,198 48,339 52,046
Other Real Estate Owned Expense (income), net 5,862 (5,408 ) 12,970 50,491
Acquisition Expense 19,403 653,803 26,913 656,757
Core Deposit Intangibles Amortization 35,207 26,499 70,413 52,998
Other 203,483 208,677 428,292 408,568
Total non-interest expense 2,281,057 2,692,780 4,674,071 4,928,125
Income before income taxes 1,406,519 477,379 2,800,844 1,321,836
Provision for income taxes 401,000 2,205,000 827,530 1,694,364
Net Income (Loss) $ 1,005,519 $ (1,727,621 ) $ 1,973,314 $ (372,528 )
Basic earnings per share $ 0.40 $ (0.69 ) $ 0.78 $ (0.15 )
Diluted earnings per share $ 0.39 $ (0.68 ) $ 0.77 $ (0.15 )
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 Financial Condition
December 31, 2018 and June 30, 2018
December 31, 2018 June 30, 2018
Assets
Cash and non-interest bearing balances in financial institutions $ 3,199,173 $ 2,825,543
Interest Bearing Financial Institutions 2,813,674 11,357,538
Federal Funds Sold 102,283 45,159
Total Cash and Cash Equivalents $ 6,115,130 $ 14,228,240
Investment Certificates of Deposit $ 1,844,000 $ 1,844,000
Securities available for sale 42,959,192 42,863,407
Loans Receivable, net of Allowance for loan losses 327,792,481 322,859,548
of $2,697,347 at December 31, 2018, $2,388,428 at June 30, 2018
Federal Home Loan Bank Stock 724,100 724,100
Premises & Equipment, net 14,685,073 14,810,797
Accrued Interest Receivable 1,488,153 1,354,267
Other Real Estate Owned 308,099 305,311
Deferred Tax Asset 9,502,423 10,406,528
Core Deposit Intangible 890,246 1,143,504
Goodwill 1,755,189 1,572,344
Other Assets 1,061,419 1,116,626
Total Assets $ 409,125,504 $ 413,228,672
Liabilities & Stockholders Equity
Total Deposits $ 342,412,488 $ 341,228,412
Advances from Borrowers for Taxes and Insurance 4,556,437 3,691,202
FHLB Advances 12,000,000 19,000,000
Notes Payable 12,000,000 13,500,000
Accrued Interest Payable and Other Liabilities 1,350,726 1,277,951
Total Liabilities $ 372,319,650 $ 378,697,565
Stockholder's Equity
Common Stock $ 26,450 $ 26,450
Additional Paid-In Capital 23,555,596 24,012,821
Retained Earnings 14,582,411 12,609,097
Treasury Stock (424,384 ) (1,012,924 )
Unrealized G/L in Equity (934,219 ) (1,104,337 )
Total Capital $ 36,805,854 $ 34,531,107
Total Liabilities and Stockholder's Equity $ 409,125,504 $ 413,228,672
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.


Contact:  Mr. Leonard Szwajkowski
President and CEO
Royal Financial, Inc.
Telephone:  (773) 382-2111
E-mail: lszwajkowski@royal-bank.us