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Royal Financial, Inc. Announces Audited Fiscal Year 2017 Earnings Results and Resignation of CFO

CHICAGO, Sept. 12, 2017 (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”), announces audited earnings results and statement of condition for the fiscal year ended 2017.

Net income for the fourth quarter of 2017 was $747,000, or $0.30 per share, compared to $387,000, or $0.15 per share, for the third quarter of 2017, and a net loss of $16,000, or $(0.01) per share, for the fourth quarter of 2016. Net income for the year ended June 30, 2017, was $2.0 million, or $0.81 per share, compared to $5.4 million, or $2.15 per share in 2016.

Comparison of Results of Operations for the Quarters Ended June 30, 2017, March 31, 2017 and June 30, 2016

Net income for the quarter ended June 30, 2017 was $747,000 or $0.30 per share, an increase in net income of $360,000 from March 31, 2017, and increase in net income of $762,000 from June 30, 2016. Net interest income increased by $109,000, or 4.0%, from prior quarter and decreased by $26,000, or 0.9%, from the quarter ended June 30, 2016. Compared to the quarter ended March 31, 2017, the increase in net interest income resulted mainly from an increase in loans offset slightly by an increase in deposit cost of funds. Compared to the quarter ended June 30, 2016, the decrease in net income was driven primarily by a higher cost of funds.

Total non-interest income for the quarter ended June 30, 2017 decreased $244,000 from the quarter ended March 31, 2017 and increased $161,000 from the quarter ended June 30, 2016. Compared to the quarter ended March 31, 2017, the decrease in non-interest income was primarily driven by $257,000 of net losses on the sale of securities as the Company liquidated securities to fund loan growth. Compared to the quarter ended June 30, 2016, the increase in non-interest income was primarily the result of a $395,000 loss on acquisition in 2016. The Company increased both deposit fee income and secondary mortgage income from the quarters ended March 31, 2017 and June 30, 2016.

Total non-interest expense decreased $27,000 and $248,000 compared to the quarters ended March 31, 2017 and June 30, 2016, respectively. Compared to the quarter ended March 31, 2017, the decrease in non-interest expense was driven by a decrease in both salaries and employee benefits and occupancy and equipment costs. The decrease in salaries and employee benefits was the result of a decrease in full time-equivalent employees during the quarter. Compared to the quarter ended June 30, 2016, the decrease in non-interest expense was primarily the result of a decrease in acquisition expenses, which was offset by an increase in salaries and employee benefits.

During the quarter ended June 30, 2017, the Company recognized $500,000 of income tax benefit as a result of reversing a portion of the valuation allowance on deferred tax assets.

Comparison of Results of Operations for the Fiscal Years Ended June 30, 2017 and 2016

Net income for the fiscal year ended June 30, 2017 was $2.0 million, a decrease in net income of $3.4 million from June 30, 2016. The decrease in net income for the year ended June 30, 2017 was primarily due to a $4.6 million gain on the acquisitions of PNA Bank (“PNA”) and Park Federal Savings Bank (“Park”) in 2016. Net interest income for the year ended 2017 increased $3.1 million, to $11.1 million. The primary driver for the increase in net interest income was a $2.9 million increase in loan interest income and fees. Interest income on securities increased $656,000, to $1.2 million. The increases in interest-bearing assets were partially offset by a $403,000 increase in interest expense on deposits and an $84,000 increase in interest expense on borrowings.

The provision for loan losses in 2017 increased $365,000 over prior year. The increase in the allowance for loan losses was to provide for the increased growth in the loan portfolio. The Company ended 2017 with recoveries from previously charged off loans of $390,000, which exceeded gross charge-offs of $354,000.

Non-interest income for the year ended 2017 was $449,000, a decrease of $4.9 million from the previous year. The decrease in non-interest income was primarily a result of the recognition of a $4.6 million bargain purchase gain related to the PNA and Park acquisitions in 2016. Non-interest income for the year ended 2017 also included $145,000 of net losses on the sale of securities available for sale. The Company sold $71.2 million of securities during the year to provide funding for loan growth. For the year ended 2017, service charges on deposit accounts increased $208,000, or 64.8%, to $530,000. The increase was primarily the result of a full year’s worth of services provided to customers acquired in the PNA and Park transactions.

For the year ended 2017, non-interest expense increased $1.3 million, or 16.9%. The increase in non-interest expense is primarily due to an increase of $1.2 million in salaries and employee benefits. Besides the impact of a full year of expense related to the acquisitions, the Company made investments in its lending and credit personnel in anticipation of increased loan activity. For the year ended 2017, occupancy and equipment expense increased by $683,000, or 71.6%, reflecting a full year’s expense of owning and maintaining additional facilities acquired from PNA and Park. Data processing expense for the year ended 2017 increased $179,000, or 28.1%, from prior year. The increase was primarily the result of a full year’s worth of core processing expense for an increased number of accounts resulting from the acquisitions. The increases in non-interest expense were offset by a decrease in acquisition expenses, which decreased $1.5 million during the year ended 2017.

For the year ended 2017, the provision for income taxes was $439,000 compared to $488,000 for the same period in 2016. In the fourth quarter of 2017, the Company recognized $500,000 of income tax benefit as a result of reversing a portion of the valuation allowance on deferred tax assets. The benefit partially offset the provision for taxes on taxable earnings.

On July 6, 2017, the State of Illinois enacted its first budget since 2015, which increased the corporate income tax rate from 5.25% to 7.00%. The Illinois replacement tax remains unchanged at 2.50%. Therefore, effective July 1, 2017, the combined corporate tax rate in Illinois increased from 7.75% to 9.50%. Based on a Federal tax rate of 34.00%, the effective state income tax rate is 6.27%. Based on the increase to the effective state income tax rate, the Company’s DTA increased $909,000 which was offset by an increase to the DTA valuation allowance of $100,000. The Company recognized $809,000 into income on July 1, 2017. The change in income tax rate has a corresponding favorable impact on the Company’s equity and Tangible Book Value (“TBV”) with an increase of $0.32 from June 30, 2017 of $13.08 to July 1, 2017 of $13.40.

Comparison of Financial Condition at June 30, 2017 and June 30, 2016

The Company’s total assets increased $13.1 million, or 4.3%, to $317.1 million at June 30, 2017, from $304.0 million at June 30, 2016.

Securities available for sale decreased $40.8 million, or 61.0%, to $26.0 million at June 30, 2017 from $66.8 million at June 30, 2016. The decrease in securities available for sale was primarily to provide liquidity to fund the increase in loans during 2017. The Company sold all of its U.S. government-sponsored agency securities and U.S. treasury securities, which reduces state tax deductible interest and helps to accelerate the use of net operating loss carryforwards making up a large portion of the Company’s deferred tax assets.

Loans, net of allowance for loan losses, increased $46.1 million, or 23.1%, to $245.7 million at June 30, 2017, from $199.6 million at June 30, 2016. The Company participated in a $30.6 million of owner occupied, one to four-family residential, whole loans in June 2017. Additional organic loan growth came in the areas of one to four-family residential loans and commercial real estate loans. The Company’s percentage of commercial real estate loans to total risk-based capital was 345% at June 30, 2017. In 2017, the Company made several enhancements to its commercial real estate risk management program, including extensive stress testing. Management believes that these enhancements help to mitigate the credit risk inherent in the commercial real estate portfolio.

The allowance for loan losses was $1.7 million, or 0.67% of total loans, at June 30, 2017, as compared to $1.4 million, or 0.70% of total loans, at June 30, 2016. In addition to the allowance for loan losses, net purchase discount on acquired loans was $1.4 million at June 30, 2017 compared to $1.7 million at June 30, 2016. 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 $327,000, or 0.13% of outstanding loans, at June 30, 2017 compared to $154,000, or 0.08%, at June 30, 2016.

Premises and equipment increased $673,000, or 5.5%, to $12.9 million at June 30, 2017. The increase is primarily the result of renovations at two of the Company’s branch locations so that a portion of the buildings can be rented to third parties.

Other real estate owned (OREO) increased $436,000 to $451,000 at June 30, 2017, from $15,000 at June 30, 2016. The increase is primarily the result of three properties (two of which were Royal Bank legacy loans) that were acquired through deed in lieu of foreclosure in the Chicago metropolitan area. Two of the OREO’s are one-to-four family residential properties acquired because of job loss. The other OREO is a medical office condominium resulting from business deterioration caused by timeliness of government insurance reimbursements. All three of the properties are recorded at fair value, less estimated costs to sell.

Total deposits increased $5.0 million, or 1.9%, to $266.5 million at June 30, 2017 from $261.5 million at June 30, 2016. Growth in certificates of deposit, money market and NOW account deposits were offset by decreases in savings deposits and non-interest checking deposits.

Federal Home Loan Bank advances increased $7.5 million to supplement funding for loan growth. Notes payable decreased by $371,000 due to principal repayments on holding company debt.

Total stockholders’ equity increased $1.6 million, or 5.0%, to $33.7 million at June 30, 2017 from $32.1 million at June 30, 2016. The increase is primarily a result of net income of $2.0 million offset by a decrease in accumulated other comprehensive income of $477,000.

For the fiscal year ended June 30, 2017, the Bank paid cash dividends of $1.1 million to the Company. The upstream of funds enabled the Company to make debt and interest payments on its notes payable, as well as pay final integration expenses from 2016 acquisitions and general business expenses for 2017.

To meet the minimum requirement to be well capitalized under prompt corrective action regulations, the Bank is required to maintain regulatory capital sufficient to meet Tier 1 capital leverage ratio, and risk-based ratios for Common Equity Tier 1 capital, Tier 1 capital and Total capital of at least 5.0%, 6.5%, 8.0% and 10.0%, respectively. At June 30, 2017, the Bank exceeded each of its capital requirements with ratios of 8.72%, 14.03%, 14.03% and 14.91%, respectively.

At June 30, 2017, the book value per common share, shares outstanding of 2,507,112, was $13.45 compared to the book value per common share, shares outstanding of 2,507,112, of $12.81 at June 30, 2016. The tangible book value per share was $13.08 at June 30, 2017 compared to tangible book value per share of $12.40 at June 30, 2016.

The audited consolidated financial statements for 2017 and 2016 are available at www.royal-bank.us.

Effective August 31, 2017, William M. Morfoot resigned as SVP and Chief Financial Officer of the Company and the Bank for personal reasons. Mr. Morfoot was appointed April 19, 2017. There were no disagreements that led to Mr. Morfoot’s resignation, and no contractual payments were made. On September 1, 2017, Leonard Szwajkowski, who currently serves as President and Chief Executive Officer of the Company and Bank, reassumed the added duties of Interim CFO.

About Royal Financial, Inc.
Royal Financial, Inc. is the holding company for Royal Savings Bank which was founded in 1887. 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 Chicago since 1887, and currently has five branches in Chicago, a branch in Niles and Westmont, Illinois and lending centers in Homewood and St. Charles, Illinois.

Visit Royal Financial, Inc. and Royal Savings Bank at www.royal-bank.us

Safe–Harbor
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; 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 Operations
Quarters Ended Years Ended
June 30 March 31 June 30 June 30
2017 2017 2016 2017 2016
Interest income
Loans 2,856,511 2,695,089 2,878,221 11,009,500 8,072,225
Securities 316,881 314,234 221,125 1,221,007 565,091
Federal funds sold and other 26,729 15,816 27,933 59,565 45,210
Total interest income 3,200,121 3,025,139 3,127,279 12,290,072 8,682,526
Interest expense
Deposits 306,319 239,358 207,854 949,539 546,182
Borrowings 53,070 54,005 52,782 216,528 132,503
Total interest expense 359,389 293,363 260,636 1,166,067 678,685
Net interest income 2,840,732 2,731,776 2,866,643 11,124,005 8,003,841
Provision/(credit) for loan losses 160,000 - - 235,000 (130,000)
Net interest income after provision/ (credit) for loan losses 2,680,732 2,731,776 2,866,643 10,889,005 8,133,841
Non-interest income
Service charges on deposit accounts 131,081 123,843 127,118 529,531 321,293
Secondary mortgage market fees 23,221 4,306 3,928 37,024 20,647
Gain (loss) on sale of other real estate owned - - - - 237,071
Gain on acquisitions 987 (98,250) (394,578) 26,269 4,575,785
Gain on sale of premises and equipment - - - - 177,049
Gain on sale of investment securities (257,217) 111,865 - (145,352) -
Other 210 380 859 1,239 2,373
Total non-interest income (101,718) 142,144 (262,673) 448,711 5,334,218
Non-interest expense
Salaries and employee benefits 1,073,258 1,119,907 894,714 4,238,717 2,988,777
Occupancy and equipment 377,770 425,320 342,831 1,635,233 952,727
Data processing 167,947 165,458 213,282 813,566 634,897
Professional services 157,824 86,794 144,778 494,275 367,661
Director fees 39,000 39,000 52,400 156,000 149,600
Marketing 12,800 1,461 12,702 67,058 35,847
FDIC insurance expense 24,998 24,670 49,411 89,984 102,843
Insurance premiums 33,964 27,087 28,650 134,803 82,356
Other real estate owned expense (income), net 5,161 17,428 (10,798) 64,763 (75,178)
Merger and acquisition expense 2,915 8,516 451,581 147,860 1,659,875
Core deposit intangibles amortization 27,672 27,672 21,036 105,997 35,353
Other 236,488 243,709 207,068 922,972 653,382
Total non-interest expense 2,159,796 2,187,022 2,407,655 8,871,228 7,588,140
Income before income taxes 419,218 686,898 196,315 2,466,488 5,879,919
Provision (benefit) for income taxes (327,500) 300,000 212,000 439,000 488,000
Net income$746,718 $386,898 $(15,685) $2,027,488 $5,391,919
Basic earnings per share$0.30 $0.15 $(0.01) $0.81 $2.15
Diluted earnings per share$0.29 $0.14 $(0.01) $0.80 $2.13
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
June 30, 2017 and June 30, 2016
June 30, 2017June 30, 2016
Assets
Cash and non-interest bearing balances in financial institutions$2,803,915 $2,880,807
Interest bearing balances in financial institutions 11,867,746 3,276,628
Federal funds sold 83,078 81,583
Total cash and cash equivalents 14,754,739 6,239,018
Investment certificates of deposit 2,342,000 2,591,000
Securities available for sale 26,044,643 66,810,148
Loans receivable, net of allowance for loan losses of
$1,673,924 at June 30, 2017, $1,402,993 at June 30, 2016 245,651,278 199,605,997
Federal Home Loan Bank stock, at cost 544,700 1,786,500
Premises & equipment, net 12,911,712 12,238,322
Accrued interest receivable 1,095,586 994,342
Other real estate owned 451,655 15,307
Deferred tax asset 12,013,833 12,206,928
Core deposit intangible 918,615 1,024,612
Other assets 391,171 536,240
Total assets$317,119,932 $304,048,414
Liabilities & Stockholders' Equity
Deposits 266,465,215 261,506,502
Advances from borrowers for taxes and insurance 3,333,119 3,400,382
Federal Home Loan Bank advances 8,000,000 500,000
Notes payable 4,879,286 5,250,000
Accrued interest payable and other liabilities 725,727 1,283,162
Total liabilities 283,403,347 271,940,046
Stockholders' Equity
Preferred stock $0.01 par value per share, authorized - -
1,000,000 shares, no issues are outstanding
Common stock, $0.01 par value per share, authorized 5,000,000 26,450 26,450
shares, 2,645,000 shares issued
Additional paid-in capital 23,954,746 23,896,672
Retained earnings 10,871,096 8,843,608
Treasury stock, 137,888 shares, at cost (1,012,924) (1,012,924)
Accumulated other comprehensive income (loss) (122,783) 354,562
Total stockholders' equity 33,716,585 32,108,368
Total liabilities and stockholders' equity$317,119,932 $304,048,414
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
Telephone: (773) 382-2111
E-mail: lszwajkowski@royal-bank.us


Source:Royal Financial, Inc.