Royal Financial, Inc. announced the signing of a definitive agreement with a New York based asset management firm to sell $29.1 million of distressed assets consisting of $25.5 million in distressed assets currently owned by PNA Bank and $3.6 million in distressed and other assets currently owned by Royal Financial (the Company) and/or its subsidiary, Royal Savings Bank (the Bank).
In November 2014, the Company announced that it had entered into an agreement to purchase PNA Bank subject to the approval of the United States Bankruptcy Court and both banks banking regulators. In December 2014, the Company announced that the U.S. Bankruptcy Court approved the purchase agreement. The Company's agreement to purchase PNA Bank was conditioned on the execution of an agreement to sell PNA Banks distressed assets on satisfactory terms.
The Company conducted a controlled auction of PNA Banks distressed assets. FTN Financial Capital Assets, Memphis, Tennessee, advised and assisted the Company in this activity. The auction attracted multiple bids from qualified and capable parties. Currently, PNA Banks distressed assets consist of $25.5 million in unpaid principal balances (UPB) on loans secured by single-family, multi-family, and commercial real estate, which will be sold at a 34% discount to UPB. The distressed assets also include three small parcels of Other Real Estate Owned (OREO) totaling $285,000, which will be sold at an 8% premium to the book value.
The agreement also includes the sale of underperforming ($2.0 million) and other assets ($792,000) currently owned by the Company and/or the Bank. These assets consist of: one acre of land in Frankfort, Illinois, which has a book value of $265,000 and will be sold for a $148,000 gain (or 56% premium); a three-story office building in Homewood, Illinois, which has a book value of $792,000 and will be sold for a $29,000 gain (or 4% premium); and two OREO parcels which have a collective book value of $1.7 million and will be sold for a $229,000 gain (or 13% premium). On a combined basis, the Company and the Bank will sell assets with a current value of $2.8 million for a $406,000 gain (or 15% premium) and reduce annual real estate operating expense (net of revenue) by $35,000.
The Bank operates a loan production office and disaster recovery site in the office building in Homewood, Illinois, and entered into a short-term lease, with optional extensions, of 1,010 square feet to continue operations.
The sale satisfies the condition established in the Company's agreement to purchase PNA Bank, and it advances the Company's attainment of its previously-announced strategic objective to strengthen its balance sheet and dispose of underperforming assets. It is subject to regulatory approval, will close upon receipt of that approval, and is accretive to shareholder value. Upon closing, the Bank expects to have little or no OREO assets.
The Company was advised by Vedder Price P.C. as legal counsel.
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 three branches in Chicago, with lending centers in Homewood and St. Charles, Illinois.