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Royal Financial, Inc. Announces Second Quarter Deferred Tax Asset Adjustment and Year to Date Earnings for Fiscal Year 2018

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.

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


Royal Financial, Inc. and Subsidiary
Consolidated Statements of Financial Condition
December 31, 2017 and June 30, 2017
(Unaudited)
December 31, 2017June 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.

Source:Royal Financial, Inc.