Royal Financial, Inc. Releases First Quarter 2012 Earnings and Annual Meeting Results

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Nov 16, 2011, 04:00 ET

CHICAGO, Nov. 16, 2011 /PRNewswire/ -- Royal Financial, Inc. (the "Company") (OTCBB: RYFL.OB), incorporated under the laws of Delaware on September 15, 2004, for the purpose of serving as the holding company of Royal Savings Bank (the "Bank"), announced the Company's net income of $37,000 for the three months ended September 30, 2011 as compared to net income of $49,000 for the three months ended September 30, 2010.

Comparison of Financial Condition at September 30, 2011 and June 30, 2011

The Company's total assets decreased $695,000, or 0.75%, to $92.5 million at September 30, 2011, from $93.2 million at June 30, 2011.

Federal funds sold increased to $2.5 million at September 30, 2011, as there were no federal funds sold at June 30, 2011.

Securities available for sale decreased $3.3 million, or 12.37%, to $23.0 million at September 30, 2011 from $26.3 million at June 30, 2011. The decrease resulted from the call of $4.0 million in securities issued by U.S. government sponsored entities, partially offset by an increase in market valuation of approximately $700,000.

Loans, net of allowance, decreased $1.1 million, or 2.02%, to $53.0 million at September 30, 2011, from $54.1 million at June 30, 2011. The decrease in loans was a result of loan pay downs of $984,000, net of originations, loan charge offs of $22,000 and the transfers of assets from the loan portfolio to other real estate owned of $94,000 during the period.

Other real estate owned increased $44,000 to $5.4 million at September 30, 2011, from $5.3 million at June 30, 2011. An increase of $94,000 was a result of property acquired through loan defaults, partially offset by write down valuations on other real estate owned properties of $50,000.

Total deposits reflect a decrease of $472,000, or 0.67%, to $69.6 million at September 30, 2011 from $70.1 million at June 30, 2011. The decrease was primarily due to a reduction in time deposits of $1.3 million, partially off set by an increase in non-interest bearing transaction accounts of $800,000.

Federal Home Loan Bank advances decreased $1.4 million, or 25.48%, to $4.0 million at September 30, 2011 from $5.4 million at June 30, 2011, as pay downs on the loan portfolio were applied towards outstanding borrowings.

Total stockholders' equity increased $470,000, or 2.79%, to $17.3 million at September 30, 2011 from $16.8 million at June 30, 2011. The increase is primarily a result of the increase in accumulated other comprehensive income of $422,000, net of deferred taxes.

Comparison of Results of Operations for the Three Months Ended September 30, 2011 and 2010

General. The net income for the three months ended September 30, 2011 was $37,000, a decrease of $12,000, from the same period in 2010. The decrease in the income for the three months ended September 30, 2011 resulted primarily from an increase in net interest income of $30,000 and an increase in non-interest income of $11,000, offset by an increase in non-interest expense of $53,000.

Net Interest Income. Net interest income increased $30,000 for the three months ended September 30, 2011, compared to the same period in 2010. The net interest rate spread increased to 4.52% from 4.13% for the three months ended September 30, 2011 and 2010. The net interest margin increased to 4.60% from 4.31% for the three months ended September 30, 2011 and 2010. The increase in the net interest margin was primarily due to the slight increase in the average yields, partially offset by the decrease in the volume of average earning assets.

Interest Income. Total interest income was $1.0 million for the three months ended September 30, 2011, a slight decrease of $24,000 from the same period in 2010. For the three months ended September 30, 2011, average interest-earning assets decreased to $83.9 million from $86.8 million for the same period in 2010. The increase in interest income was primarily the result of the increase in the average balances of the investment security portfolio which reflects a higher average yield, partially offset by the decrease in the average balances of the loan portfolio. The yield on interest-earning assets was 4.98% for the three months ended September 30, 2011, compared to 4.93% for the same period in 2010.

Interest Expense. Total interest expense decreased $54,000 to $81,000 for the three months ended September 30, 2011 as compared to $135,000 for the three months ended September 30, 2010. The average cost of funds decreased to 0.47% for the three months ended September 30, 2011, compared to 0.80% for the same period in 2010. The reduction in interest expense is a direct result of the decreasing rate environment.

The following tables show average balances with corresponding interest income and interest expense as well as average yield and cost information for the three months ending September 30, 2011 and 2010, dollars presented in thousands. Average balances are derived from daily balances, and nonaccrual loans are included as interest-bearing loans for purposes of these tables.



	Three months ended September 30,
	2011			2010
	Average		Average	Average		Average
	Balance	Interest	Yield/Rate(1)	Balance	Interest	Yield/Rate(1)
Interest- earning assets:
Loans receivable, net(2)	$ 56,171	$ 825	5.87%	$ 69,779	$ 957	5.49%
Securities available-for-sale	24,876	219	3.52%	15,274	112	2.93%
Interest-bearing balances in financial institutions(3)	1,264	1	0.14%	1,120	-	0.10%
Federal funds sold	1,039	-	0.16%	83	-	0.27%
Federal Home Loan Bank stock(4)	520	—	0.10%	520	—	—%
Total interest-earning assets	83,870	1,045	4.98%	86,776	1,069	4.93%
Noninterest-earning assets	8,677			3,493
Total assets	$ 92,547			$ 90,270
Interest-bearing liabilities:
Interest-bearing deposits	64,484	79	0.49%	58,997	125	0.71%
FHLB advances	4,598	2	0.14%	7,641	9	0.45%
Federal funds purchased	46	-	0.56%	293	-	0.56%
Total interest-bearing liabilities	69,128	81	0.47%	66,931	134	0.68%
Noninterest-bearing liabilities	6,341			7,084
Total equity capital(5)	17,078			16,255
Total liabilities and equity capital	$ 92,547			$ 90,270

Net average interest-earning assets	$ 14,742			$ 19,846
Net interest income; interest rate spread(6)		$ 964	4.52%		$ 935	4.30%
Net interest margin(7)			4.60%			4.45%

(1)	Yields and rates have been annualized where appropriate.
(2)	Includes non accrual loans.
(3)	Includes interest-bearing demand deposits and repurchase agreements.
(4)	The FHLB Chicago discontinued the payment of dividends on its stock in the third quarter of 2007. The FHLB Chicago resumed paying cash dividends in the fourth quarter of 2010.
(5)	Includes retained earnings (deficit) and accumulated other comprehensive income.
(6)	Interest rate spread represents the differences between the weighted average yield on interest-earning assets and the weighted average rate on interest-bearing liabilities.
(7)	Net interest margin is net interest income divided by average interest-earning assets.

Allowance for Loan Loss. The allowance for loan losses was $2.4 million, or 4.29% of total loans, at September 30, 2011, as compared to $2.4 million, or 4.25% of total loans, at June 30, 2011. The Company believes, as of September 30, 2011, its allowance for loan losses was adequate to cover probable incurred losses.

No additional loan loss provisions were recorded during the three months ended September 30, 2011 and 2010. Gross charge-offs recorded were $45,000 which were partially offset by gross recoveries of $24,000 for the three months ended September 30, 2011. Gross charge-offs recorded were $280,000 which were partially offset by gross recoveries of $169,000 for the three months ended September 30, 2010.

Impaired Loans. As of September 30, 2011, total impaired loans were $3.5 million. Non accrual impaired loans were $2.9 million and troubled debt restructured loans, still accruing interest, were $628,000. As of June 30, 2011, total impaired loans were $3.8 million. Non accrual impaired loans were $3.1 million and troubled debt restructured loans, still accruing interest, were $631,000.

Non-interest Income. Non-interest income increased $11,000 to $83,000 for the three month period ended September 30, 2011 compared to $72,000 for the same period in 2010. The increase is primarily related to a higher level of activity in secondary mortgage market lending.

Non-interest Expense. Non-interest expense increased $53,000 to $1.0 million for the three month period ended September 30, 2011 compared to $957,000 for the same period in 2010. The increase was primarily due to elevated costs related to foreclosed asset expense and professional services, partially offset by a decrease salaries and employee benefits, occupancy and equipment and in data processing.

Foreclosed asset expense increased $80,000 to $79,000 for the three month period ended September 30, 2011 from ($1,000) for the same period in 2010. The increase was related to repairs and maintenance, appraisals, legal fees and real estate taxes accrued for the real estate owned property held by the Bank. A gain on the sale of other real estate owned of $15,000 was recognized in 2010. Professional services increased $16,000 to $116,000 for the three month period ended September 30, 2011 from $100,000 for the same period in 2010. The increase was related to loan origination consulting services. Salaries and employee benefits decreased $11,000 to $477,000 for the three month period ended September 30, 2011 from $488,000 for the same period in 2010. The reduction in salaries and employee benefits was primarily due to the roll-off of stock based compensation benefits and the termination of the Employee Stock Ownership Plan ("ESOP") in May, 2011. Occupancy and equipment decreased $26,000 to $115,000 for the three month period ended September 30, 2011 from $141,000 for the same period in 2010. The expenses decreased due to a property tax reduction and decreased depreciation due to the expiration of certain fixed assets. Data processing decreased $11,000 to $69,000 for the three month period ended September 30, 2010 from $80,000 for the same period in 2010. The decrease was primarily related to renegotiated data processing contracts.

Provision for Income Taxes. At September 30, 2011 the Company has a valuation allowance on 100% of the deferred tax asset as the Company believes it is more likely than not that the deferred tax asset will not be recognized. The Company recognized no income tax provision or benefit for the three months ended September 30, 2011. The Company will continue to evaluate its deferred tax position and make adjustments as necessary.

Liquidity and Capital Resources

At September 30, 2011 the Bank had $4.0 million in outstanding advances with the Federal Home Loan Bank. The Bank had $13.8 million in additional available credit with the FHLB based on parameters set by the FHLB. Additional stock and collateral may be purchased or provided to increase overall potential advance availability. At June 30, 2011, the outstanding advances from the Federal Home Loan Bank were $5.0 million.

At September 30, 2011, the Bank had $5.8 million available to borrow through the Federal Reserve Bank of Chicago's Discount Window. The funding capacity is calculated on the value of the collateral pledged for borrowing. This relationship was established to provide an additional source for short-term funding needs to maintain adequate liquidity.

Capital. The Bank is required to maintain regulatory capital sufficient to meet Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0%, and 8.0%, respectively. At September 30, 2011, the Bank exceeded each of its capital requirements with ratios of 16.65%, 26.66%, and 27.95%, respectively.

Selected Financial Data

The following tables set forth selected historical financial and other data of the Company for the periods and at the dates indicated.



	At September 30, 2011 (unaudited)	At June 30, 2011	At June 30, 2010
	(In thousands, except per share data)
Selected Financial Condition Data:
Total assets	$92,460	$93,155	$92,079
Cash and cash equivalents	5,523	1,913	3,030
Securities available for sale	23,085	26,345	16,084
Loans receivable, net	53,018	54,112	66,124
Deposits	69,636	70,108	64,197
FHLB advances and other borrowings	4,000	5,368	10,400
Total stockholders' equity	17,305	16,836	16,341
Book value per common share(1)	$6.96	$6.78	$6.59



	For the three months ended September 30, 2011 (unaudited)	For the year ended June 30, 2011		For the year ended June 30, 2010
	(In thousands, except per share data)
Selected Operating Data:
Total interest income	$1,045	$4,192		$4,611
Total interest expense	81	426		684
Net interest income	964	3,766		3,927
Provision for loan losses	-	(300)		2,653
Net interest income after provision for loan losses	964	4,066		1,274
Total non-interest income	83	271		271
Total non-interest expense	1,010	4,131		4,428
Income/(loss) before provision for income taxes	37	206		(2,883)
Provision (benefit) for income taxes	—	—		—
Net income/(loss)	37	206		(2,883)
Basic earnings/(loss) per share	0.01	0.08		(1.18)

	At, or for the three months ended September 30, 2011 (unaudited)		At, or for the year ended June 30, 2011 (unaudited)	At, or for the year ended June 30, 2010 (unaudited)
Key Financial Ratios:
*Performance Ratios:*
Return on average assets	0.04%		0.23%	(3.22)%
Return on average equity	0.22		1.28	(18.28)
Interest rate spread(2)	4.52		4.36	4.26
Net interest margin(3)	4.60		4.49	4.53
Total non-interest expense to average total assets	1.09		4.59	4.94
Efficiency ratio(4)	91.69		94.71	105.48
*Asset Quality Ratios:*
Non-performing loans to total loans at end of period(5)	7.46%		7.28%	13.24%
Non-performing assets to total assets at end of period(6)	10.30		10.16	11.38
Allowance for loan losses to total loans at end of period	4.29		4.25	5.52
Allowance for loan losses to total nonperforming loans at end of period	57.52		58.32	41.73
*Capital Ratios:*
Total risk-based capital ratio(7)	27.95%		27.10%	22.22%
Tier 1 risk-based capital ratio(7)	26.66		25.82	20.91
Tier 1 leverage ratio(7)	16.65		16.91	15.15
Equity to assets at end of period	18.72		18.07	17.75

(1)	Outstanding common shares as of September 30, 2011, June 30, 2011 and June 30, 2010 were 2,485,256, 2,482,082 and 2,477,966, respectively.
(2)	Yield on average interest-earning assets less rate on average interest-bearing liabilities.
(3)	Net interest income divided by average interest-earning assets.
(4)	Non-interest expense, excluding the expenses related to impairment charges, divided by the sum of net interest income, plus non-interest income, excluding net gain on sales of securities.
(5)	Non-performing loans include impaired loans, accruing and non-accruing loans, and loans past due 90 days or more
(6)	Non-performing assets include non-performing loans and other real estate owned.
(7)	Regulatory capital ratios are disclosed at the Bank level

Submission of Matters to a Vote of Security Holders

At the Company's Annual Meeting of Stockholders held on September 28, 2011, the following matters were submitted to and approved by a vote of stockholders:

(1)	The election of two Class I directors for a three-year term ending at the Annual Meeting of Stockholders to be held in 2014:


Directors	Votes For	Votes Withheld
C. Michael McLaren	1,379,422	113,741
Philip J. Timyan	1,402,521	90,642

The following directors continue to serve after the Annual Meeting:


Continuing Director	Term Expires
Alan W. Bird	2012
James A. Fitch, Jr.	2012
Roger L. Hupe	2012
John T. Dempsey	2013
Leonard Szwajkowski	2013

(2)	Ratification of the appointment of Crowe Horwath LLP as the Company's independent accountants for the fiscal year ending June 30, 2012.


Total votes for	1,462,562
Total votes against	28,501
Total votes abstaining	2,100

Consolidated Statements of Financial Condition
September 30, 2011 and June 30, 2011
(Unaudited)

	September 30, 2011	June 30, 2011
	(in thousands)	(in thousands)
Assets
Cash and non-interest bearing balances in financial institutions	$ 930	$ 1,068
Interest bearing balances in financial institutions	2,122	845
Federal funds sold	2,471	0
Total cash and cash equivalents	5,523	1,913

Securities available for sale	23,085	26,345
Loans receivable, net of allowance for loan losses of $2,378,278
at September 30, 2011 and $2,400,000 at June 30, 2011	53,018	54,112
Federal Home Loan Bank stock	520	520
Premises & equipment, net	3,577	3,603
Land available for sale	576	576
Accrued interest receivable	495	441
Other real estate owned	5,391	5,347
Other assets	275	298
Total assets	$ 92,460	93,155

Liabilities & Stockholders' Equity
Deposits	$ 69,636	$ 70,108
Advances from borrowers for taxes and insurance	634	394
Federal Home Loan Bank advances and other borrowings	4,000	5,368
Accrued interest payable and other liabilities	885	450
Total liabilities	75,155	76,320

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 shares, 2,645,000 shares issued at
September 30, 2011 and June 30, 2010	26	26
Additional paid-in capital	24,029	24,065
Retained deficit	(6,066)	(6,103)
Treasury stock, 159,744 and 162,918 shares, at cost	(1,336)	(1,383)
Accumulated other comprehensive income (loss) net of tax	652	230
Unearned ESOP shares	0	0
Total stockholders' equity	17,305	16,835

Total liabilities and stockholders' equity	$ 92,460	$ 93,155


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.

Consolidated Statements of Operations
Three months ended September 30, 2011 and 2010
(Unaudited)

	Three Months Ended
	September 30,
	2011	2010
	(in thousands)	(in thousands)

Interest income
Loans	$ 825	$ 957
Securities	219	112
Federal funds sold and other	1	-
Total interest income	1,045	1,069

Interest expense
Deposits	79	126
Borrowings	2	9
Total interest expense	81	135

Net interest income	964	934

Provision for loan losses	-	-
Net interest income after provision for loan losses	964	934

Non-interest income
Service charges on deposit accounts	60	61
Other	23	11
Total non-interest income	83	72

Non-interest expense
Salaries and employee benefits	477	488
Occupancy and equipment	115	141
Data processing	69	80
Professional services	116	100
Director fees	33	34
Marketing	4	6
FDIC insurance expense	25	33
Insurance premiums	16	17
Foreclosed asset expense	79	(1)
Other	76	59
Total non-interest expense	1,010	957

Income before income taxes	37	49
Provision for income taxes	0	0

Net income	$ 37	$ 49



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.