letter to shareholders - april 9, 2010

2
Executive Offices 732 Montgomery Avenue Narberth, PA 19072 610.668.4700 Lending Center One Bala Plaza, Suite 522 231 St. Asaphs Road Bala Cynwyd, PA 19004 484.270.3000 NASDAQ: RBPAA www.RoyalBankAmerica.com April 9, 2010 Dear Fellow Shareholders: I am writing to you today to provide additional perspective on our 2009 results, as well as share with you our view of the region’s economy and the steps we are taking to position Royal for the future. 2009 was a year of continued challenges for Royal, and it’s disappointing to me that we are again reporting an operating loss for the year. Senior Management and our Board of Directors – myself included – have a significant ownership position in the bank, and as such our interests are strongly aligned with yours. It’s our collective goal to get through these challenging times and swiftly return our company to sustained profitability. Notwithstanding our loss, there was positive momentum to report in 2009. Most notably, we reduced our loss by 12.7 percent for the year. This nearly $5 million reduction in the year-over- year loss is directly attributable to the aggressive management of our loan portfolio, including efforts which have led to a significant reduction in non-performing and classified assets. We believe that when the economic recovery begins in earnest (and stability returns to the practice of property valuation), these efforts will lead to above-average growth on both the top and bottom line. Though we faced adversity in 2009, the Royal brand continued to resonate with customers. For over 40 years, Royal has worked hard to support the growth and development of our communities by empowering small businesses, entrepreneurs and individuals to achieve their financial goals and enrich our communities. We have long cultivated an image as a customer-focused, approachable and convenient place to do business and through initiatives like our new SpurTheEconomy.com small business lending program, we provided over $30 million in financing to approximately 100 businesses in 2009. This initiative also helped us to refocus our lending activities squarely on the small businesses that drive economic growth and job creation in our region. As we look forward, our goals are to continue to make headway in reducing classified loans, to maintain our strong capital base, and to return the bank to profitability as quickly as possible. We believe the first two goals are well within our grasp. The third goal requires some outside cooperation, and while the Federal Government is working hard to prime the pump and get the economy growing, real progress is coming in fits and starts. For our part, we are doing those things necessary to energize profitability. With the collective cost-reduction efforts of our employees, management and mitigation of credit risk and nonperforming loans, and solid asset and liability management to improve net interest margin, we believe profitability is within reach. We are augmenting our investor relations program in order to provide more opportunities for shareholders to ask questions, gain information and research our operations. Currently plans are moving forward for investor conference calls, meetings and a blog to provide easier access to more comprehensive information throughout the year.

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Letter to shareholders 4/9/10

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Page 1: Letter to shareholders - April 9, 2010

Executive Offices ♦ 732 Montgomery Avenue ♦ Narberth, PA 19072 ♦ 610.668.4700Lending Center ♦ One Bala Plaza, Suite 522 ♦ 231 St. Asaphs Road ♦ Bala Cynwyd, PA 19004 ♦ 484.270.3000

NASDAQ: RBPAA ♦ www.RoyalBankAmerica.com

April 9, 2010

Dear Fellow Shareholders:

I am writing to you today to provide additional perspective on our 2009 results, as well as share with you our view of the region’s economy and the steps we are taking to position Royal for the future.

2009 was a year of continued challenges for Royal, and it’s disappointing to me that we are again reporting an operating loss for the year. Senior Management and our Board of Directors – myself included – have a significant ownership position in the bank, and as such our interests are strongly aligned with yours. It’s our collective goal to get through these challenging times and swiftly return our company to sustained profitability.

Notwithstanding our loss, there was positive momentum to report in 2009. Most notably, we reduced our loss by 12.7 percent for the year. This nearly $5 million reduction in the year-over-year loss is directly attributable to the aggressive management of our loan portfolio, including efforts which have led to a significant reduction in non-performing and classified assets. We believe that when the economic recovery begins in earnest (and stability returns to the practice of property valuation), these efforts will lead to above-average growth on both the top and bottom line.

Though we faced adversity in 2009, the Royal brand continued to resonate with customers. For over 40 years, Royal has worked hard to support the growth and development of our communities by empowering small businesses, entrepreneurs and individuals to achieve their financial goals and enrich our communities. We have long cultivated an image as a customer-focused, approachable and convenient place to do business and through initiatives like our new SpurTheEconomy.com small business lending program, we provided over $30 million in financing to approximately 100 businesses in 2009. This initiative also helped us to refocus our lending activities squarely on the small businesses that drive economic growth and job creation in our region.

As we look forward, our goals are to continue to make headway in reducing classified loans, to maintain our strong capital base, and to return the bank to profitability as quickly as possible. We believe the first two goals are well within our grasp. The third goal requires some outside cooperation, and while the Federal Government is working hard to prime the pump and get the economy growing, real progress is coming in fits and starts. For our part, we are doing those things necessary to energize profitability. With the collective cost-reduction efforts of our employees, management and mitigation of credit risk and nonperforming loans, and solid asset and liability management to improve net interest margin, we believe profitability is within reach.

We are augmenting our investor relations program in order to provide more opportunities for shareholders to ask questions, gain information and research our operations. Currently plans are moving forward for investor conference calls, meetings and a blog to provide easier access to more comprehensive information throughout the year.

Page 2: Letter to shareholders - April 9, 2010

One investor relations initiative already underway is the utilization of the “Notice and Access” model of information dissemination which allows us to deliver shareholder materials electronically. By delivering shareholder meeting materials including the Form 10-K, proxy statement and proxy cards in this “green” manner, we can reduce paper, printing and postage expenses while being better stewards of environmental resources. Instructions are enclosed with this letter for reviewing shareholder materials online and voting electronically. For those shareholders who prefer to receive hard copies of the materials, the instruction sheet also describes how to obtain them.

In 2009, we also worked in partnership with banking industry regulators to move the bank forward and fully comply with regulatory orders. I am proud to say that we’ve made significant progress in this regard. Our management philosophy is to work closely with our regulators and to view them as part of the Royal team – experienced professionals whose collective experience and insight amplifies and complements our own. The specific action items discussed in our regulatory agreements are a prescription for the continued health of the bank, and echo initiatives identified by Royal’s management that were underway at the start of 2009. As such, we are already well along in the process of implementing our regulators’ recommendations and incorporating them into our overall strategic plan.

As I noted in our last letter to shareholders, Royal is a survivor. The banking business is notoriously cyclical, and the downturn we’ve experienced from 2008 to the present is in many ways similar, if not more severe, to earlier real estate downturns. We emerged from those time periods strong and well-positioned, and we believe that through the efforts of our dedicated employees we are on a similar trajectory. Collectively they have gone above and beyond the call of duty to increase sales, expand customer relationships and reduce operating costs while remaining active, involved and engaged in community initiatives that help generate goodwill for the bank. I thank them for their commitment and determination in this regard.

We appreciate the continued support of you, our loyal shareholders. Additionally, your confidence in recommending the banking services we offer in our branches is the highest compliment you can pay.

Best regards,

Robert R. TabasChairman and CEO

Forward-Looking Statements

The foregoing material may contain forward-looking statements. We caution that such statements may be subject to a number of uncertainties, and actual results could differ materially; therefore, readers should not place undue reliance on any forward- looking statements. Royal Bancshares of Pennsylvania, Inc. does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. For a discussion of the factors that could cause actual results to differ from the results discussed in any such forward-looking statements, see the filings made by Royal Bancshares of Pennsylvania, Inc. with the Securities and Exchange Commission, including its Annual Report -- Form 10-K for the year ended December 31, 2009.