Royal Financial, Inc. Announces Audited Fiscal Year 2021 Fourth Quarter and Year End Earnings Results

CHICAGO, Aug. 27, 2021 (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 the audited earnings results and statement of condition for the fiscal year ended 2021.

Net income for the fourth quarter of fiscal 2021 was $1.3 million or $0.51 per share, compared to $1.0 million, or $0.41 per share, for the same period in fiscal 2020. Net income for the year ended June 30, 2021, was $5.2 million, or $2.01 per share, compared to $2.0 million, or $0.80 per share in 2020.

The Company also reported total assets of $533.7 million and stockholders’ equity of $48.1 million as of June 30, 2021.

At June 30, 2021, the book value per common share, shares outstanding of 2,567,573, was $18.74 compared to the book value per common share of $16.75 at June 30, 2020, for shares outstanding of 2,556,518. The tangible book value per share was $17.85 at June 30, 2021, compared to tangible book value per share of $15.80 at June 30, 2020. Total treasury shares as of June 30, 2021 is 77,427 shares, compared to 2020, with treasury shares at 88,482.

Comparison of Results of Operations for the Quarters Ended June 30, 2021 and June 30, 2020

Net income for the quarter ended June 30, 2021 was $1.3 million or $0.51 per share, an increase in net income of $273,000 (26%) from June 30, 2020.

Net interest income was $4.4 million, an increase of $921,000 (27%) from the quarter ended June 30, 2020. The increase in net interest income was the result of the decrease in interest expense by $284,000 (40%) due to lower cost of funds and an increase in total interest income of $638,000 (15%).

The Company funded the allowance for loan losses (“ALLL”) $240,000 for the quarter ended June 30, 2021 to provide for the increased growth in the loan portfolio.

Total non-interest income decreased $771,000 (78%) to $222,000, from the same period last year. The decrease was due to the gain on the sale of investment securities of $814,000 incurred during 2020, offset by increases in service charges on deposit accounts of $34,000 (25%), an increase in rental income of $1,000 (2%), and a gain on the sale of fixed assets of $8,000. During the quarter, the Bank sold three company vehicles for a small gain.

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Total non-interest expense increased $279,000 (11%) compared to the same period last year. The increase in non-interest expense was driven by increases in occupancy and equipment of $34,000 (6%), salaries and employee benefits of $193,000 (18%), data processing of $43,000 (20%), marketing of $4,000 (15%), and other expenses of $20,000 (9%). These increases were offset by decreases in professional services of $52,000 (18%). Acquisition expenses were reclassified into professional services for the quarter ended June 30, 2021 and June 30, 2020 as these expenses were primarily legal expenses incurred.

Comparison of Results of Operations for the Fiscal Years Ended June 30, 2021 and 2020

Net income for the fiscal year ended June 30, 2021 was $5.2 million, an increase of $3.1 million (153%) from June 30, 2020. Net interest income for the fiscal year ended 2021 increased $3.0 million (22%) to $16.6 million. The primary drivers for the increase were increases in loan interest income of $2.1 million (13%) and decreases in total interest expense of $1.5 million (39%), offset by decreases in security interest income of $299,000 (30%) and federal funds sold of $218,000 (84%).

The provision for loan losses in 2021 was $500,000, a decrease of $1.3 million (72%) from the prior year. In fiscal year 2020, the Company increased the provision for the ALLL in response to the COVID-19 pandemic, to provide for the increased growth in the loan portfolio due to the purchase of one-to-four family whole loans, and due to the replenishment of the ALLL for a single customer loan charge-off.

Non-interest income for the year ended 2021 was $841,000, a decrease of $794,000 (49%) from the previous year. The decrease was due to the gain on the sale of investment securities of $814,000, decreases in secondary market fees of $28,000 (99%), and rental income of $18,000 (9%), offset by increases in service charges on deposit accounts of $49,000 (8%) and increases in gains on the sale of fixed assets of $16,000 (196%).

Non-interest expense increased $118,000 (1%) during fiscal year 2021. The increase in non-interest expense is due to an increase in salaries and employee benefits of $75,000 (2%), an increase in occupancy and equipment of $142,000 (7%), an increase of $89,000 (10%) in data processing costs, increases in FDIC insurance expense of $250,000 (444%) due to the prior year receiving assessment credit refunds, and an increase in marketing costs of $14,000 (12%). These increases were offset by decreases in professional services of $334,000 (32%), decreases in foreclosed asset expenses of $34,000 (94%), and in other expenses of $82,000 (9%). Acquisition expenses were reclassified into professional services for the quarter ended June 30, 2021 and June 30, 2020 as these expenses were primarily legal expenses incurred.

For the fiscal year ended 2021, the provision for income taxes was $1.5 million compared to $1.2 million for the same period in 2020.

Comparison of Financial Condition at June 30, 2021 and June 30, 2020

The Company’s total assets increased $99.6 million (23%), to $533.7 million at June 30, 2021, from $434.1 million at June 30, 2020.

Total cash and cash equivalents decreased $1.9 million (13%) to $12.8 million from the prior year.

Investment certificates of deposit decreased $180,000 (27%), to $492,000 at June 30, 2021 from $672,000 at June 30, 2020. The decrease is the maturity of a $180,000 investment certificate of deposit.

Securities available for sale increased $533,000 (2%), to $31.8 million at June 30, 2021 from $31.3 million at June 30, 2020. The increase is the result of the purchase of a $5.0 million agency bond and a $750,000 municipal bond during the year, offset by the increase in unrealized losses in the portfolio of $250,000 and the maturity of a $5.0 million agency bond.

Loans, net of allowance for loan losses, increased $103.6 million (29%), to $460.4 million at June 30, 2021, from $359.7 million at June 30, 2020. Commercial loans increased net $74.9 million, commercial participations increased net $4.4 million, and mortgage loans increased a net $24.5 million from June 30, 2020, which was the result of the purchase of a $69.5 million single family, owner occupied ARM purchase. offset by $45.0 million in mortgage loan payoffs for all 1-4 family portfolios.

The allowance for loan losses was $3.9 million, or 0.83% of total loans, at June 30, 2021, as compared to $3.2 million, or 0.88% of total loans, at June 30, 2020. In addition to the allowance for loan losses, net purchase discount on acquired loans was $312,000 at June 30, 2021 compared to $497,000 at June 30, 2020. Individual loan discounts are being accreted into interest income over the life of the loan; however, they can offset loan losses upon loan default. Nonperforming loans totaled $1.8 million, or 0.38% of outstanding loans, at June 30, 2021 compared to $2.0 million, or 0.56%, at June 30, 2020.

Other real estate owned (“OREO”) is $157,000 at June 30, 2021. The one property is recorded at fair value, less estimated costs to sell.

The Deferred Tax Asset (“DTA”) decreased by $1.5 million (22%) from $6.7 million on June 30, 2020, to $5.3 million on June 30, 2021. The Company decreased the state tax valuation allowance $500,000 based on future forecasting and the Company’s ability to utilize the State of Illinois DTA dur
ing the upcoming fiscal years. The DTA state valuation allowance as of June 30, 2021 is $100,000. The Company reclassified the deferred income tax reserve of $1.5 million from other assets back into the DTA as of June 30, 2021.

The Core Deposit Intangibles (“CDI”) held by the Company decreased $141,000 (21%) as of June 30, 2021. The decrease was the result of a full year of amortization of the CDI of $141,000.

Total deposits increased $93.0 million (25%), to $466.3 million at June 30, 2021 from $373.3 million at June 30, 2020. The increase was $60.0 million in brokered certificates of deposits and an increase of $13.1 million in deposit listing certificates of deposit, an increase in money market accounts of $4.9 million, an increase of $15.4 million in savings accounts, an increase of $1.5 million in NOW accounts, and an increase of $23.6 million in non-interest checking accounts, offset by $24.5 million in certificate of deposit maturities and $2.0 million in retirement account roll-offs. The brokered deposits have $10.0 million blocked laddered maturities over the next five years and a weighted average rate of 0.47%; the first $10 million block will mature in July 2021.

As of June 30, 2021, the Company had $5.0 million Federal Home Loan Bank advances outstanding. The advance is 0% interest and has a maturity of May 31, 2022.

Notes payable decreased by $750,000 (10%) to $7.0 million as of June 30, 2021. The note will amortize in full over 7.75 years until October 2023 with quarterly payments of $250,000 in principal reduction and interest at the rate of 0.25% below the Wall Street Journal Prime Rate; however, the interest rate will not be below 3% per annum.

Total stockholders’ equity increased $5.3 million (12%), to $48.1 million at June 30, 2021 from $42.8 million at June 30, 2020. The increase is primarily a result of net income of $5.2 million (28%). For the fiscal year ended June 30, 2021, the Bank paid cash dividends of $409,000 to the Company. The upstream of funds enabled the Company to make debt and interest payments on its notes payable, as well as pay general business expenses and retain cash for fiscal 2021. Over the fiscal year, the Bank has up streamed to the Holding Company $1.5 million in tax payments.

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 June 30, 2021, the Bank exceeded each of its capital requirements with ratios of 9.27%, 13.00%, 13.00% and 14.03%, respectively.

Total treasury shares as of June 30, 2021 is 77,427 shares, compared to June 30, 2020, with treasury shares at 88,482.

All the vested options of the 2018 Option plan for the management team have been exercised. No purchases or sales of stock were made during the fourth quarter of fiscal year 2021.

In August 2019, the Board of Directors authorized a stock repurchase program for up to 76,849 shares of its outstanding common stock. The Company repurchased a total of 7,633 shares during fiscal year 2020. The Company repurchased 75 shares during the third quarter of fiscal year 2021 at a weighted cost of $14.15 per share. No shares were repurchased during the fourth quarter.

The audited consolidated financial statements for 2021 and 2020 are available at www.royal-bank.us.

The COVID-19 Pandemic Update on Business Operations.

In June, the Company re-opened all branch lobbies and continues to implement social distancing measures as advised by the Centers for Disease Control and Prevention (“CDC”) and continues to follow guidance from all local, state, and federal authorities.

Lending operations and accommodations to borrowers

In response to the pandemic, the Company offered fee waivers, payment deferrals for up to 120 days, and other expanded assistance for mortgage, commercial real estate, small business, and personal lending customers. Secondary payment deferral assistance was limited to 60 days requiring a hardship letter and payment of any required escrows. The Bank’s forbearance program as of June 30, 2020, assisted 8.8% of borrowers for a total of $42.2 million in loans. As of June 30, 2021, 1 borrower, totaling $114,000, remains on the forbearance program. Additionally, the Company made accommodations to 21 commercial loan customers with balances of $38.5 million in March 2020. The Company has no outstanding accommodation requests on June 30, 2021.

The Company has designated staff to assist customers to access funding provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed at the end of the first quarter, including the PPP, for which the Bank received SBA approval and has funded 153 loans totaling approximately $11.7 million. As of June 30, 2021, the Company has received forgiveness for 145 loans from round one of the PPP, totaling $11.5 million in SBA loans. The Company has booked $468,000 in fee income for round one for the current fiscal year Within the second round of the PPP, the Company has funded 94 loans totaling approximately $6.6 million. As of June 30, 2021, the Company has received forgiveness for 3 loans from round two of the PPP. The Company has booked $60,000 during the current fiscal year in additional PPP fee income from the second round. The remaining fee income of $329,000 will be accreted over the life of the remaining PPP loans.

Asset valuation

The COVID-19 pandemic has caused material economic weakness and declines in the market value of bank equity. However, the Company’s market value premium above tangible book value and the current outlook of the Company’s financial performance indicate that the Goodwill intangible assets are not impaired at June 30, 2021. Economic conditions will continue to be monitored and financial projections will be updated as the impacts of the pandemic and the fiscal and monetary stimulus are realized through the remainder of the year. Management’s assessment is that the Goodwill of $1.8 million is not impaired at June 30, 2021.

Update on Litigation Matters.

North Shore Bank, FSB Matter

In October 2019, the Company announced that the Bank entered a 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 Bank terminated the purchase and assumption agreement in April 2020. North Shore Bank, FSB subsequently filed suit against the Bank, alleging such termination was in breach of the agreement. In June 2020, the Bank filed its Answer to the Complaint along with its Counterclaim against North Shore Bank FSB, alleging multiple material violations of the purchase and assumption agreement, which ultimately led to the April 2020 termination. The Bank worked with Howard and Howard Attorneys, PLLC, to steadfastly represent the Company in this matter. Both parties have reached a confidential settlement agreement and the matter is now closed.

Fraudulent Loan Matter

From the March 31, 2020 quarter, the Company continues to monitor and work through a $1.7 million dollar commercial relationship that filed for Chapter 11 bankruptcy protection early in June. Prior to this Chapter 11 bankruptcy, collection efforts included the use of the courts in DuPage County, IL. The case was converted by the court to a full Chapter 7 whereby the Bank continues to hold senior priority lien rights on remaining assets. In addition, the Bank holds personal guarantees of the three principals. Through discovery the Company believes its collateral position was diluted through misappropriated acts by the borrower, which was identified in the first 30 days by the Bank, and is now being investigated by the US Trustee. As a result, the Company took a $1.1 million write down and made the appropri
ate provisions to the ALLL. The Company has recovered $504,000 and is working on further recovery. The Small Business Administration (“SBA”) approved and has paid the buyback of the guaranteed portion of $638,000.

Finward Bancorp and Royal Financial, Inc. Announce Signing of Definitive Merger Agreement

On July 28, 2021, Finward Bancorp (OTC Pink: FNWD) (“FNWD”), the parent of Peoples Bank, and the Company entered into an executed definitive merger agreement pursuant to which FNWD will acquire the Company and the Bank, in a stock and cash transaction. A copy of the definitive agreement is available as Exhibit 2.1 to the Form 8-K filed by FNWD with the Securities Exchange Commission (the “SEC”) at the SEC’s internet site (http://www.sec.gov).

Under the terms of the merger agreement, stockholders of the Company who hold 101 or more shares of RYFL common stock will have the right to elect to receive $20.14 per share in cash or 0.4609 shares of FNWD common stock, or a combination of both, for each outstanding share of RYFL common stock, subject to allocation provisions to assure that, in the aggregate, 65% of RYFL’s outstanding shares of common stock will receive FNWD common stock and 35% will receive cash. Stockholders of the Company holding less than 101 shares of RYFL common stock will have the right to receive $20.14 in cash and no stock consideration for each share of RYFL common stock. Based on FNWD’s closing stock price of $44.00 as of July 28, 2021, the merger consideration has an aggregate value of approximately $52.9 million, which represents approximately 115% of RYFL’s tangible book value, and which includes approximately $0.9 million paid to RYFL’s stock option holders.

The merger is expected to be completed in the first quarter of 2022, subject to approval by bank regulatory authorities and the shareholders of both FNWD and RYFL, as well as the satisfaction of other customary closing conditions. Additionally, Royal Savings Bank will be merged with and into Peoples Bank, and the combined operations will be continued under the Peoples Bank name. Integration is expected to be complete in the second quarter of 2022.

FNWD is being advised by, and received a fairness opinion from, Stephens Inc., and is being advised by Barnes & Thornburg LLP as legal counsel. The Company is being advised by, and received a fairness opinion from, Boenning & Scattergood, Inc., and is being advised by Howard & Howard Attorneys PLLC as legal counsel.

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, including but not limited to the coronavirus outbreak; 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
Telephone: (773) 382-2111
E-mail: [email protected]