Royal Financial, Inc. Announces Record Third Quarter Earnings and Year to Date Earnings for Fiscal Year 2021

CHICAGO, April 14, 2021 (GLOBE NEWSWIRE) — Royal Financial, Inc. (the �Company”) (OTCQX: RYFL), incorporated under the laws of Delaware on March 15, 2004, for the purpose of serving as the holding company of Royal Savings Bank (the “Bank”), announced record earnings for the third quarter of fiscal year 2021.

The Company reported net income of $1.8 million, or $0.69 per common share, for the quarter and $3.9 million or $1.50 per common share, for the nine-month year-to-date (“YTD”) period, respectively, ended March 31, 2021.

The Company also reported total assets of $523.9 million and stockholders’ equity of $46.8 million as of March 31, 2021. As of the same date, the Company’s book value per share was $18.22 and tangible book value per share was $17.31.

Comparison of Results of Operation for the Three and Nine Months Ended March 31, 2021 and 2020

The Company reported net earnings of $1.8 million, compared to a net loss of $578,000 in the same period of fiscal 2020, an increase of $2.4 million (408%). The Company recorded YTD net income of $3.9 million, which increased by $2.9 million during the same period of last year. The loss in income recorded for March 2020 quarter end was a result of increased provisions to the Allowance for Loan Losses (“ALLL”) because of the COVID-19 pandemic, a replenishment to the ALLL for a single customer loan charge-off and an increase to the valuation reserve for the State Deferred Tax Asset due to the net loss incurred for the quarter.

Total net interest income for the quarter increased by $831,000 (25%) to $4.1 million from March 31, 2020. Total interest income on loans (including fees) increased by $581,000 (15%) to $4.5 million and decreases in interest expense by $391,000 (43%) to $510,000 due to the low interest rate environment, offset by decreases in federal funds sold and other sources by $69,000 (87%), and a decrease in investment security interest income by $72,000 (31%). The decrease in interest income on investment securities was the result of taxable agency security maturing. The decrease in interest expense resulted from a decreased cost of funds for customer deposits and other liabilities.

Total non-interest income for the quarter increased by $9,000 (4%) to $203,000 from March 31, 2020. This increase in income was from service charges on deposit accounts of $14,000 (10%) to $156,000, offset by a decrease in secondary mortgage market fees of $5,000 (100%).

The Company recorded a credit of $300,000 in the ALLL based on the total quarter recoveries of $508,000.

Total non-interest expense for the quarter decreased by $273,000 (10%) to $2.5 million from the same period last year resulting from a decrease in professional services by $86,000 (31%) to $194,000, a decrease in salaries and employee benefits of $43,000 (3%) to $1.2 million, and a decrease in acquisition expense of $237,000 (306%) due to the repayment of legal costs incurred due to the North Shore litigation matter by the insurance company. This decrease is offset by an increase in data processing expenses of $5,000 (2%) to $227,000, increases in Federal Deposit Insurance Corporation (“FDIC”) insurance expense of $53,000 (210%) and in marketing expenses of $10,000 (33%). The increase in the FDIC expense was due to the increase in asset size of the Bank and a result of the FDIC assessment credits received that were issued last fiscal year as the FDIC reserve requirement was met as of June 30, 2019.

Comparison of Financial Condition at March 31, 2021 and June 30, 2020

The Company’s total assets increased $89.8 million (21%), to $523.9 million at March 31, 2021, from $434.1 million at June 30, 2020.

Cash and cash equivalents increased $12.3 million (83%) to $27.0 million at March 31, 2021, from $14.8 million at June 30, 2020, due to the increase in deposits and maturity of an agency bond, offset by the funding of loans.

Securities available for sale decreased $4.2 million (13%), to $27.1 million at March 31, 2021 from $31.3 million at June 30, 2020. During the quarter, a $5.0 million agency bond matured, and a $750,000 taxable municipal bond was purchased.

Loans, net of allowance, increased $84.1 million (24%) to $440.8 million at March 31, 2021, from $356.7 million at June 30, 2020. Commercial loans increased $50.8 million and mortgage loans increased $33.1 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 $36.4 million in mortgage loan payoffs.

The allowance for loan losses was $3.7 million, or 0.84% of total loans, at December 31, 2020, as compared to $3.2 million, or 0.87% of total loans, at June 30, 2020. In addition to the allowance for loan losses, net purchase discount on acquired loans was $385,000 at March 31, 2021 compared to $478,000 at June 30, 2020.  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 $2.2 million, or 0.50% of outstanding loans, at March 31, 2021 compared to $2.0 million or 0.56%, at June 30, 2020. 

Other real estate owned (“OREO”) decreased $297,000 (100%) from June 30, 2020 to $780. The remaining balance of OREO is the small portion of the Neighborhood Housing Services of Chicago (“NHS”) owned by the Bank that was acquired in 2016 from the Park Federal Bank for Savings merger and acquisition. The Bank sold off one OREO property for a gain of $13,000, offset by the sale of NHS OREO for a loss of $7,000.

The Deferred Tax Asset (“DTA”) decreased $2.0 million (30%) to $4.7 million at March 31, 2021, from $6.7 million at June 30, 2020. During the current quarter, the Bank reversed out $200,000 of the valuation allowance for the State of Illinois DTA, due to updated projections and higher income recognized throughout the year. As of March 31, 2021, the Bank has a remaining $300,000 valuation allowance for the State of Illinois DTA, as it is more likely than not that Company will be unable to utilize the State Net Operating Losses (“NOLs”) that expire in fiscal years 2023 and 2024, which are NOLs of $17.0 million and $10.4 million, respectively. The Bank paid $800,000 in federal taxes to the Holding Company as of March 31, 2021. The Bank has no remaining Federal DTA.

The Core Deposit Intangibles (“CDI”) held by the Company decreased $106,000 (16%) as of March 31, 2021. The decrease was the result of three quarters of amortization.

Total deposits increased $91.9 million (25%) to $465.2 million at March 31, 2021, from $373.3 million at June 30, 2020. The increase was $60.0 million in brokered certificates of deposits and an increase of $21.0 million in deposit listing certificates of deposit, an increase in money market accounts of $2.7 million, an increase of $10.5 million in savings accounts, an increase of $1.9 million in NOW accounts, and an increase of $15.1 million in non-interest checking accounts, offset by $19.4 million in certificate of deposit maturities. 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 March 31, 2021, the Company had no Federal Home Loan Bank advances outstanding.

Notes payable decreased $500,000 (6%) due to the Company’s quarterly payments. The Company currently has outstanding $7.3 million on the amortizing note payable. Per the agreement, the Company made an interest only payment in August for the note. The note will amortize in full over 7.75 years 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 $4.0 million (9%), to $46.8 million at March 31, 2021, from $42.8 million at June 30, 2020, which was primarily a result of the net income of $3.9 million earned in the period, an increase in accumulated other comprehensive income of $187,000 (19%), an increase in additional paid in capital of $437,000 (2%), and an increase in treasury stock of $666,000 (48%). The Bank paid a cash dividend of $144,000 to the Company in the quarter ended March 31, 2021.

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 March 31, 2021, the Bank exceeded each of these requirements with ratios of 9.08%, 13.20%, 13.20% and 14.26%, respectively.

At March 31, 2021, the book value per common share was $18.22 compared to the book value per common share of $16.75 at June 30, 2020, for shares outstanding of 2,567,573 and 2,556,518, respectively. The tangible book value per share was $17.31 at March 31, 2021, compared to tangible book value per share of $15.80 at June 30, 2020.

Total treasury shares as of March 31, 2021 is 77,427 shares, compared to June 30, 2020, with treasury shares at 88,482.

During the third quarter of fiscal year 2021, Mr. Szwajkowski, the Company President and CEO, exercised 400 options from the 2018 Option plan; Mr. Morua, Senior Vice President and Chief Lending Officer, exercised 400 options from the 2018 Option plan; Mr. Nichols, Senior Vice President an Commercial Loan Officer, exercised 415 options from the 2018 Option plan; Ms. Gonzalez, Senior Vice President and Chief Operations Officer, exercised 370 options from the 2018 Option plan; and Ms. Thomiszer, Senior Vice President and Chief Financial Officer, exercised 400 options from the 2018 Option plan. All the vested options of the 2018 Option plan for the management team have been exercised.

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.

During the third quarter of fiscal year 2021, Mr. Szwajkowski purchased a total of 1,100 shares at a weighted average price of $15.93.

The complete audited consolidated financial statements for fiscal years ended 2020 and 2019 are available at www.royalbankweb.com

The COVID-19 Pandemic Update on Business Operations.

As of March 1, 2021, the Company has reopened 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 is 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 March 31, 2021, a total of 5 borrowers, totaling $1.7 million in loans, remain 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 at March 31, 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 March 31, 2021, the Company has received forgiveness for 124 loans from round one of the PPP, totaling $8.8 million in SBA loans. The Company has booked $411,000 in fee income for round one for the current fiscal year. The remaining fee income will be accreted over the life of the remaining PPP loans. Within the second round of the PPP, the Company has funded 83 loans totaling approximately $5.7 million and has received approval for 89 loans, totaling $6.5 million. The Company anticipates $375,000 in additional PPP fee income from the second round.

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 continues to work with Howard and Howard Attorneys, PLLC, to steadfastly represent the Company in this matter and seek breach damages of $500,000, legal fees, along with other monetary damages to the Bank and Company in the mid to high seven figure range.

The Bank is continuing the discovery phase of the claim and believes that the likelihood of an adverse event occurring is remote. As a result of the limited knowledge of the facts and circumstances of the situation to date and that a loss is neither considered probable or estimable at this point, a loss contingency does not need to be recorded, nor disclosed, in the financial statements. Accounting guidance supports the accrual of probable and reasonably estimable legal fees that relate to loss contingencies. Management concludes that it is probable that legal fees will be incurred, and those fees are reasonably estimable (based on communications from the attorney’s handing the matter). The Bank has been receiving updated estimates monthly from Howard and Howard and continues to accrue for those expenses monthly. As of June 30, 2020, the Bank has met its $50,000 deductible and the expense has been recorded with the year end June 30, 2020 financial statements. The Company received reimbursement from the insurance bond, for previous period accruals, for a total of $235,000. Any future legal costs for defense expense are expected to be reimbursed by the Company bond.

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 has taken $1.1 million in write downs and made the appropriate provisions to the ALLL. The Company has received recoveries of $504,000 during the current quarter end and believes there will be further recoveries in the future as the situation continues resolution through the court process. The remaining $639,000, which the Bank holds, is guaranteed by the Small Business Administration (“SBA”). The Bank is in the process of an SBA buyback of that remaining $639,000 balance. The SBA has been cooperative, has approved their portion of legal fees, and is seeking a referral to the SBA Office of Inspector General for further criminal investigation. Concurrently, since February 2020, the Company is a Plaintiff in DuPage County, Illinois, for the personal guarantees.

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 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, 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
Royal Financial, Inc.
Telephone: (773) 382-2111
E-mail: lszwajkowski@royal-bank.us

Royal Financial, Inc. and Subsidiary
Consolidated Statements of Operations
Three and Nine Months Ended March 31, 2021 and 2020
(Unaudited)
	Three Months Ended March 31,								Nine Months Ended March 31,
	2021				2020				2021				2020
Interest income
Loans, including fees	$	4,489,697			$	3,908,286			$	13,562,026			$	12,180,098
Securities		163,292				235,452				517,315				731,824
Federal funds sold and other		10,615				79,931				31,535				251,384
Total interest income		4,663,604				4,223,669				14,110,876				13,163,306
Interest expense
Deposits		455,362				807,916				1,709,401				2,704,859
Borrowings		54,652				93,579				171,850				352,761
Total interest expense		510,014				901,495				1,881,251				3,057,620
Net interest income		4,153,590				3,322,175				12,229,625				10,105,686
Provision (credit) for loan losses		(300,000	)			1,290,000				260,000				1,290,000
Net interest income after provision for loan losses		4,453,590				2,032,175				11,969,625				8,815,686
Non-interest income
Service charges on deposit accounts		156,053				141,903				477,788				462,894
Secondary mortgage market fees		–				5,365				348				27,985
Rental Income		46,527				47,044				139,288				158,079
Loss on sale of premises and equipment		–				–				–				(8,185	)
Other		554				249				1,005				715
Total non-interest income		203,134				194,560				618,428				641,488
Non-interest expense
Salaries and employee benefits		1,203,737				1,246,268				3,411,492				3,529,904
Occupancy and equipment		542,996				512,967				1,604,623				1,497,075
Data processing		226,605				221,648				715,730				669,291
Professional services		194,383				280,198				449,812				567,062
Director fees		42,000				42,000				126,000				126,000
Marketing		39,461				29,747				92,536				83,041
FDIC insurance expense		77,600				25,000				227,534				14,305
Insurance premiums		27,517				31,887				76,454				77,528
Other real estate owned expense, net		7,230				9,847				(4,477	)			29,117
Acquisition Expense		(159,839	)			77,547				31,887				197,004
Amortization on Core Deposit Intangibles		35,207				35,207				105,620				105,620
Other		214,886				212,026				638,468				740,522
Total non-interest expense		2,451,784				2,724,343				7,475,678				7,636,470
Income (loss) before income taxes		2,204,940				(497,608	)			5,112,375				1,820,704
Provision for income taxes		428,000				80,000				1,257,000				819,000
Net Income (Loss)	$	1,776,940			$	(577,608		)	$	3,855,375			$	1,001,704
Basic earnings (loss) per share	$	0.69			$	(0.23	)		$	1.50			$	0.39
Diluted earnings (loss) per share	$	0.68			$	(0.23	)		$	1.48			$	0.39
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
March 31, 2021 and June 30, 2020
(Unaudited)
	March 31, 2021				June 30, 2020
Assets
Cash and non-interest bearing balances in financial institutions	$	3,341,573			$	3,757,301
Interest bearing balances in financial institutions		23,579,980				10,872,461
Federal funds sold		106,265				133,515
Total cash and cash equivalents	$	27,027,819			$	14,763,277
Investment certificates of deposit	$	492,000			$	672,000
Securities available for sale		27,133,753				31,355,841
Loans Receivable, net of Allowance for loan losses		440,848,191				356,735,349
of $3,738,215 at March 31, 2021, $3,150,808 at June 30, 2020
Federal Home Loan Bank Stock, at cost		836,300				836,300
Premises and equipment, net		15,479,859				15,694,976
Accrued interest receivable		2,225,247				1,788,867
Other real estate owned		780				297,544
Deferred tax asset		4,708,504				6,736,969
Core deposit intangibles		573,386				679,006
Goodwill		1,755,189				1,755,189
Other assets		2,807,413				2,799,407
Total Assets	$	523,888,442			$	434,114,725
Liabilities & Stockholders Equity
Deposits	$	465,211,097			$	373,340,219
Advances from borrowers for taxes and insurance		4,106,046				4,876,363
Federal Home Loan Bank advances		–				4,000,000
Notes payable		7,250,000				7,750,000
Accrued interest payable and other liabilities		537,050				1,333,685
Total Liabilities	$	477,104,193			$	391,300,267
Stockholder’s 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 June 30, 2020 and 2019		26,450				26,450
Additional Paid-In Capital		24,362,134				23,924,787
Retained Earnings		22,208,315				18,352,940
Treasury Stock, 77,427 shares as of March 31, 2021 and
88,482 shares as of June 30, 2020, at cost		(665,954	)			(450,370	)
Accumulated other comprehensive income		853,303				960,651
Total Capital	$	46,784,249			$	42,814,458
Total Liabilities and Stockholder’s Equity	$	523,888,442			$	434,114,725
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.