Royal Bancshares of Pennsylvania in Narbeth, back on track after three years of painstaking restoration, is eager to take advantage of disruption in its home state.
The $788 million-asset company, which is operating with its lowest level of nonperforming assets in a decade, recaptured a $5.4 million slice of its deferred-tax asset last month. As a result, Royal's 2015 profit more than doubled that of a year earlier, reaching $11 million. Its Tier 1 common equity ratio ended the year at a healthy 9.4%.
At the same time, a wave of consolidation has hit the Keystone State, with 52 banks selling since 2010, including 14 last year. BB&T in Winston-Salem, N.C., has been a big disruptor, acquiring the $19 billion-asset Susquehanna Bancshares last year and agreeing to buy the $9.6 billion-asset National Penn Bancshares in a deal expected to close next month.
Royal could eventually take part in that wave, but for now management is keen on stealing market share by poaching bankers and clients, said Kevin Tylus, the company's president and chief executive.
Royal agreed in June to buy a branch in Media, Pa. — with $39 million of deposits — from First Cornerstone Bank in King of Prussia, Pa., but Tylus' company withdrew its application in September.
The change of heart had a lot to do with the success of loan production offices opened in Princeton, N.J., and Bala Cynwyd, Pa. Tylus said those offices have been instrumental in advancing the new private banking model his team is eager to implement.
The new model is "an important component of our value proposition," Tylus said. "For customers who feel the need to meet with a professional banker that's highly trained, we're willing to sit down and spend time with them."
Royal, meanwhile, said in a recent quarterly filing that its loan production offices, along with continuing investments in technology such as mobile banking, remote deposit capture and a suite of cash management products, were doing as much or more to drive growth than its traditional branches.
Those investments have translated into growth elsewhere.
Total loans increased 20% last year, totaling $499 million on Dec. 31. Nonperforming loans as a percentage of total loans fell from 2.36% to 1.1%.
"We're seeing very strong credit quality," Tylus said. "The average risk rating on our loans continues to strengthen."
So far, it is an encouraging turnaround for a company that lost nearly $116 million from 2008 to 2013. There is more opportunity ahead, as Royal continues to tap into a $36.4 million deferred-tax asset that Tylus referred to as "a silver lining" following five years of post-crisis losses.
Royal's steady-as-she-goes strategy is serving the company well, said Ted Peters, chairman and chief executive of Bluestone Financial Institutions Fund and a former chairman and CEO of Bryn Mawr Bank in Pennsylvania. "I don't think they want to do anything too radical," Peters said, adding that Tylus has done "a terrific job."
The recaptured deferred-tax asset has already helped goose Royal's book value to $1.77 a share at the end of 2015, compared with $1.44 a year earlier. Share price typically follows book value, so Royal's stock price should eventually appreciate as more DTA benefits hit its books, Peters said.
"I'm surprised it hasn't moved more already," Peters said of Royal's share price, which ended last week at $1.91 a share.