Settlement Pushes Royal Bancshares in Pa. to Loss

Royal Bancshares of Pennsylvania (RBPAA) in Narberth recorded a second-quarter loss that it attributed to the cost of settling two long-standing legal issues.

The $749 million-asset company has been dismissed from a lawsuit related to a $25 million collateralized debt obligation through Lehman Brothers Special Financing, and it has settled a class action over bid-rigging at a subsidiary company, it announced Wednesday. Royal will pay $990,000 as part of a $1.6 million settlement of a class action against the subsidiary, Crusader Servicing Corp., in which Royal holds a 60% interest.

Lehman Brothers Special Financing sued Royal in July 2012 to recover funds that it alleged were improperly paid to the bank as part of a CDO transaction. Royal purchased a $25 million CDO from Lehman in 2005, and was repaid its principal after Lehman filed for bankruptcy in September 2008, according to Royal Bancshares' most recent annual report.

Crusader pleaded guilty in 2012 to rigging bids at auctions for tax liens from 1998 through 2009. Royal paid a fine of roughly $1.2 million to settle the matter with the Department of Justice last year, according to a regulatory filing.

The $990,000 charge for the settlement pushed Royal Bancshares to an $803,000 second-quarter loss, versus a loss of $2 million in the second quarter of 2012, it said. Net interest income fell 16%, to $4.9 million, but lower expenses related to bad assets helped reduce the company's loss. Royal Bancshares recorded a credit of $163,000 for the recovery of loan losses; it had a negative provision of $1.5 million in the second quarter of 2012.

In March, Royal instituted a plan to improve profits by cutting costs. It has since reduced its work force by 12% and plans to reduce discretionary expenses by 10%, it said Wednesday. The expense cuts cost Royal $111,000 in the second quarter, it said.

Royal Bancshares also announced Wednesday that shareholders approved the issuance of $14 million in common stock to be sold through a private placement. The company plans to use the proceeds to bid on its Troubled Asset Relief Program shares at a Treasury Department auction, it said. It received $30.4 million through Tarp in 2009.

Finally, Royal announced that it is seeking candidates to run the retail banking operations of Royal Bank America, its banking unit.

The Federal Reserve Board terminated a 2010 written agreement with Royal Bancshares last month.