SECURITY AND EXCHANGE COMMSSION
WASHNGTON, D.C. 20549
FORM IO-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-29276
FIRST ROBINSON FINANCIAL CORPORATION
(Exact name of registrant as specified its charter)
DELAWARE 36-4145294
(State or other jurisdiction I.R.S. Employer ID Number
of incorporation or organization)
501 EAST MAIN STREET, ROBINSON. ILLINOIS 62454
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (618) 544-8621
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
As of November 13, 1998, the Registrant had 859,625 shares of Common Stock, par
value $0.01, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
YES ___ NO _X_
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION
Index to Form 10-QSB
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
And March 31, 1998 3
Consolidated Statements of Income for the Three-Month
And Six Month Periods Ended September 30, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity for the Six Month
Period Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Three-Month
And Six Month Periods Ended September 30, 1998 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Unaudited
9/30/98 3/31/98
-------- --------
ASSETS ($1,000's)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and due from banks $ 740 $ 609
Interest bearing deposits 5,045 5,965
-------- --------
Total Cash and Cash Equivalents 5,785 6,574
Securities available for sale, amortized cost of $10,974and $4,065
at Sept. 30, 1998 and March 31, 1998 respectively 11,096 4,119
Securities held to maturity, estimated market value of $210 and
$967 at Sept. 30, 1998 and March 31, 1998, respectively 210 955
Loans receivable, net 63,666 64,234
Accrued interest receivable 724 715
Premises and equipment, net 2,951 2,897
Foreclosed real estate 24 221
Prepaid income tax 86 29
Other assets 188 224
-------- --------
Total Assets $ 84,730 $ 79,968
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 68,512 $ 62,630
Advances from Federal Home Loan Bank 2,000 2,000
Repurchase agreements 2,021 1,644
Advances from Borrowers for taxes and insurance 48 75
Accrued interest payable 361 348
Deferred income taxes 184 157
Other liabilities 98 219
-------- --------
Total Liabilities 73,224 67,073
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $ .01 par value; authorized 2,000,000 shares
859,625 shares issued and outstanding 9 9
Preferred stock, $.01 par value; authorized 500,000 shares,
No shares issued and outstanding
Paid-in capital 8,256 8,232
Retained earnings 5,104 5,223
Treasury stock at cost (747) 0
Accumulated other comprehensive income, net of related tax
Of $48 and $19 at Sept. 30, 1998 and March 31, 1998, respectively 74 33
Unearned employee stock ownership plan and recognition and retention plan (1,190) (602)
-------- --------
Total Stockholders' Equity 11,506 12,895
-------- --------
Total Liabilities and Stockholders' Equity $ 84,730 $ 79,968
-------- --------
</TABLE>
3
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month and Six Month Periods Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
Three Month Period Six Month Period
-------------------------- -------------------------
1998 1997 1998 1997
------- ------- ------- -------
($1,000's)
<S> <C> <C> <C> <C>
Interest Income:
Interest on Loans $ 1,465 $ 1,456 $ 2,922 $ 2,857
Interest and dividends on securities 182 101 339 225
------- ------- ------- -------
Total interest income 1,647 1,557 3,261 3,082
------- ------- ------- -------
Interest expense:
Interest on deposits 769 742 1,506 1,502
Interest on FHLB advances 26 0 51 57
Interest on repurchase agreements 31 0 60 1
------- ------- ------- -------
Total interest expense 826 742 1,617 1,560
------- ------- ------- -------
Net interest income 821 815 1,644 1,522
Provision for loan losses 45 118 115 136
------- ------- ------- -------
Net interest income after provision 776 697 1,529 1,386
------- ------- ------- -------
Non-interest income:
Service charges 70 47 135 94
Loan fees 30 39 61 85
Gain on sale of loans 0 20 0 133
Other non-interest income 14 19 31 37
------- ------- ------- -------
Total other income 114 125 227 349
------- ------- ------- -------
Non-interest expense:
Compensation and employee benefits 564 293 886 598
Occupancy and equipment 113 91 222 179
Foreclosed property expense 15 13 29 27
Data Processing 22 15 41 30
Audit, legal and other professional 50 14 76 21
SAIF deposit insurance 15 10 25 20
Advertising 16 23 31 39
Telephone and postage 23 19 45 41
Other 98 94 183 169
------- ------- ------- -------
Total other expenses 916 572 1,538 1,124
------- ------- ------- -------
Income (Loss) before income tax (26) 250 218 611
Provision for (benefit from) income taxes (16) 97 79 238
------- ------- ------- -------
Net Income (Loss) $ (10) $ 153 $ 139 $ 373
------- ------- ------- -------
Earnings Per Share-Basic $ (0.01) $ 0.19 $ 0.18 $ 0.47
Earnings Per Share-Diluted $ (0.01) $ 0.19 $ 0.18 $ 0.47
</TABLE>
4
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Three Period Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Unallocated Accumulated
ESOP Other
Common Paid-in Retained Treasury and Comprehensive
Stock Capital Earnings Stock RRP Income Total
-----------------------------------------------------------------------------------------
($1,000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $ 9 $ 8,232 $ 5,223 $ 0 $ (602) $ 33 $ 12,895
Net Income (Loss) 139 139
Other Comprehensive Income 41 41
Allocation of ESOP shares 24 35 59
Treasury Stock at cost (747) (747)
Dividends Paid (258) (258)
Recognition and Retention Plan (623) (623)
-----------------------------------------------------------------------------------------
Balance at Sept. 30, 1998 $ 9 $ 8,256 $ 5,104 $ (747) $ (1,190) $ 74 $ 11,506
-------- -------- -------- -------- -------- -------- --------
<CAPTION>
Unallocated
Employee Accumulated
Stock Other
Common Paid-in Retained Ownership Comprehensive
Stock Capital Earnings Plan Income Total
------------------------------------------------------------------------------------
($1,000's)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $ 0 $ 0 $ 4,850 $ 0 $ 30 $ 4,880
Issuance of Common Stock 9 8,178 (688) 7,499
Net Income 373 373
Other Comprehensive Income (4) (4)
Comprehensive Income
------------------------------------------------------------------------------------
Balance at September 30, 1997 $ 9 $ 8,178 $ 5,223 $ (688) $ 26 $12,748
------- ------- ------- ------- ------- -------
</TABLE>
5
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH
FLOWS For the Three Month and Six Month Periods
Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1998 1997 1998 1997
------- ------- ------- -------
($1,000's)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ (10) $ 153 $ 139 $ 373
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for depreciation 57 43 113 87
Provision for loan losses 45 118 115 136
Net amortization and accretion on investments 7 2 13 4
(Increase) decrease in accrued interest receivable (33) (112) (9) (176)
(Increase) decrease in prepaid income taxes (86) 0 (57) 0
Decrease (Increase) in other assets (58) (66) 36 57
(Decrease) increase in accrued interest payable 64 29 13 17
(Decrease) increase in accrued income taxes (67) 46 0 142
(Decrease) increase in deferred income taxes 0 0 0 0
Increase (decrease) in accrued expenses (7) (4) (121) 84
Gain on sale of loans 0 (20) 0 (133)
Gain on sale of premises and equipment 0 0 0 0
Loss on sale of mortgage-backed securities 0 0 0 0
------- ------- ------- -------
Net cash provided by operating activities (88) 189 242 591
------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 0 0 0 0
Proceeds from maturities of securities available for sale 0 200 0 200
Proceeds from sale of mortgage-backed securities
Available for sale 0 0 0 0
Proceeds from maturities of securities held to maturity 0 0 15 15
Purchase of securities held to maturity 0 (501) (35) (677)
Purchase of securities available for sale (2,216) 0 (6,869) 0
Repayment of principal on mortgage-backed securities 405 231 712 334
Decrease (increase) in loans receivable 321 (2,608) (978) (4,928)
Purchase of loans and participations 0 0 0 0
Sale or participation of originated loans 0 534 1,431 1,714
Decrease (increase) in foreclosed real estate 136 (44) 197 (23)
Purchase of premises and equipment (71) (105) (167) (193)
------- ------- ------- -------
Net cash used in investing activities (1,425) (2,293) (5,694) (3,558)
------- ------- ------- -------
</TABLE>
6
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLDIATED STATEMENT OF CASH FLOWS For
the Quarters Ended June 30, 1998 and
1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
1998 1997 1998 1997
------- ------- ------- -------
($1,000's)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 5,493 $(1,926) $ 5,882 $(1,465)
Increase (decrease) in repurchase agreements (50) 49 377 (365)
Advances from Federal Home Loan Bank 0 0 0 1,750
Repayment of FHLB advances 0 0 0 (5,500)
Increase in advances from borrowers
for taxes and insurance (54) (35) (27) (27)
Proceeds from issuance of common stock 0 0 0 8,187
Purchase of employee stock ownership plan 0 0 0 (688)
ESOP shares released 28 0 59 0
Dividends paid 0 0 (258) 0
Purchase of stock for Recognition & Retention Plan (746) 0 (746) 0
Funding of recognition and retention plan 123 0 123 0
Purchase of treasury stock (747) 0 (747) 0
------- ------- ------- -------
Net cash provided by financing activities 4,047 (1,912) 4,663 1,892
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 2,534 (4,016) (789) (1,075)
Cash and cash equivalents at beginning of period 3,251 7,110 6,574 4,169
------- ------- ------- -------
Cash and cash equivalents at end of period $ 5,785 $ 3,094 $ 5,785 $ 3,094
------- ------- ------- -------
Supplemental Disclosures:
Additional Cash Flows Information:
Cash paid for:
Interest on deposits, advances and
repurchase agreements $ 762 $ 713 $ 1,604 $ 1,543
Income taxes:
Federal 72 37 128 74
State 4 11 17 18
Schedule of Non-Cash Investing Activities:
Change in unrealized gain on securities available for sale 142 0 68 (7)
Change in deferred income taxes attributed to
Unrealized gain on securities available for sale (56) 0 (27) 3
</TABLE>
7
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements include the accounts of First Robinson
Financial Corporation (the Company) and its wholly owned subsidiary, First
Robinson Savings Bank, National Association (the Bank). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are unaudited and should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report dated April 22, 1998. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not include information
or footnotes necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. In the opinion of management of the Company the unaudited
consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position of the
Company at September 30, 1998 and the results of its operations and cash flows
for the three months and six months ended September 30, 1998 and 1997. The
results of operations for those months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
(2) Stock Conversion
On June 27, 1997, the predecessor of the Bank, First Robinson Savings and Loan,
F.A. completed its conversion from a Federally chartered mutual savings and loan
to a National Bank and was simultaneously acquired by the Company, which was
formed to act as the holding company of the Bank. At the date of the conversion,
the Company completed the sale of 859,625 shares of common stock $.01 par value,
to its Eligible Account Holders and Employee Stock Ownership Plan (ESOP), at
$10.00 per share. Net proceeds from the above transactions, after deducting
offering expenses, underwriting fees, and amounts retained to fund the ESOP,
totaled $7,504,657.
(3) Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," which requires entities with complex capital
structures to present both basic earnings per share ("EPS") and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities of other contracts to issue common stock (such as stock options) were
exercised or converted into common stock or resulted in the issuance of common
stock that would then share in the earnings of the entity. Diluted EPS is
computed by dividing net income by the weighted average number of common shares
outstanding for the period, plus common-equivalent shares computed using the
treasury stock method. The Company's weighted average common shares outstanding
was 778,510 and 789,410 for the three and six month periods ending September 30,
1998. The Company's operations did not start until June 27, 1997, earnings per
share calculations are presented as if the Company was operating for both the
three and six month periods ended September 30, 1997. Weighted average common
shares outstanding for these 1997 periods was 791,237. The Company approved a
stock option plan during the current three month period. This plan had no
dilutive effect on the earnings per share since current stock price was less
than option price.
8
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Employee Stock Ownership Plan
In connection with the conversion to the stock form of ownership, the Board of
Directors established an employee stock ownership plan (ESOP) for the exclusive
benefit of participating employees. Employees age 21 or older who have completed
one year of service are eligible to participate. Upon the issuance of the common
stock, the ESOP acquired 68,770 shares of $0.01 par value common stock at the
subscription price of $10.00 per share. The Bank makes contributions to the ESOP
equal to the ESOP's debt service less dividends received by the ESOP. All
dividends received by the ESOP are used to pay debt service. As the debt is
repaid, shares are released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year. The Bank accounts for
its ESOP in accordance with Statement of Position 93-6. Accordingly, the debt of
the ESOP is recorded as debt and the shares pledged as collateral are reported
as unearned ESOP shares in the consolidated balance sheets. As shares are
released from collateral, the Bank reports compensation expense equal to the
current market price of the shares, and the shares become outstanding for
earnings-per-share calculations. Dividends on allocated shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt or accrued interest. ESOP compensation expense
for the three months ended September 30, 1998 was $38,000 and for the six months
ended September 30, 1998 was $80,000.
The ESOP shares at September 30, 1998 were as follows:
Allocated shares 6,877
Shares released for allocation 5,157
Unallocated shares 56,736
Total ESOP shares 68,770
Fair value of unallocated shares $936,144
(5) Comprehensive Income
The company has adopted FASB Statement No. 130, Reporting Comprehensive Income.
The statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes net income and other
comprehensive income, which for the Company includes unrealized gains and losses
on securities available for sale. Comprehensive income, unaudited, for the three
and six month periods ended September 30, 1998 and 1997 are as follows:
Three Month Period Six Month Period
------------------ ----------------
1998 1997 1998 1997
----- ----- ----- -----
($1,000)
Net Income (Loss) $ (10) $ 153 $ 139 $ 373
----- ----- ----- -----
Other Comprehensive Income
Unrealized gains (losses) on securities 142 0 68 (7)
Related tax effects (56) 0 (27) 3
----- ----- ----- -----
Other Comprehensive Income (Losses) 86 0 41 (4)
----- ----- ----- -----
Comprehensive Income $ 76 $ 153 $ 180 $ 369
----- ----- ----- -----
9
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
General
The principal business of the Company, through its operating subsidiary,
the Bank, consists of accepting deposits from the general public and investing
these funds primarily in loans, mortgage-backed securities and other securities.
The Company's loans consist primarily of loans secured by residential real
estate located in its market area, consumer loans and commercial loans.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest earned on interest-eaming assets and
the interest paid on interest-bearing liabilities. Net interest income is a
function of the Company's "interest rate spread," which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on interest-bearing liabilities. The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Company's net income also is
affected by the level of general and administrative expenses and the level of
other income, which primarily consists of service charges and other fees.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of government agencies. Lending activities are influenced by the demand
for and supply of housing, competition among lenders, the level of interest
rates and the availability of funds. Deposit flows and costs of funds are
influenced by prevailing market rates of interest, competing investments,
account maturities and the levels of personal income and savings in the
Company's market area.
Historically, the Company's mission has been to originate loans on a
profitable basis to the communities it serves. In seeking to accomplish its
mission, the Board of Directors and management have adopted a business strategy
designed (i) to maintain the Bank's capital level in excess of regulatory
requirements; (ii) to maintain the Company's asset quality, (iii) to maintain,
and if possible, increase the Company's earnings; and (iv) to manage the
Company's exposure to changes in interest rates.
Forward-Looking Statements
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
10
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer systems to
identify applications that could be affected by the "Year 2000" issue, and has
developed an implementation plan to address the issue. The Company's data
processing is performed primarily in-house; however software and hardware
utilized is under maintenance agreements with third party vendors, consequently
the Company is very dependent on those vendors to conduct its business. The
Company has already contacted each vendor to request time tables for year 2000
compliance and expected costs, if any, to be passed along to the Company. To
date, the Company has been informed that its primary service providers
anticipate that all reprogramming efforts will be completed by December 31,
1998, allowing the Company adequate time for testing. Certain other vendors have
not yet responded, however, the Company will pursue other options if it appears
that these vendors will be unable to comply. Management does not expect these
costs to have a significant impact on its financial position or results of
operations however, there can be no assurance that the vendors systems will be
Year 2000 compliant, consequently the Company could incur incremental costs to
convert to another vendor. The Company identified certain of its hardware and
software equipment that was not Year 2000 compliant. The Company purchased new
equipment and software totaling approximately $90,000. However the Company has
projected an additional $140,000 for capital expenditures as a safeguard for
future contingencies. The Company projects that expenses should not exceed
$78,000 for the fiscal year ending March 31, 1999. The Company is expensing all
costs associated with Year 2000 required system changes as costs are incurred,
and such costs are being funded through operating cash flows. The cost of
internal resources for compliance has not been estimated. The Company does not
expect significant increases in future data processing costs or other expenses
related to its Year 2000 compliance. The Company has also contacted its
commercial borrowers, with indebtedness to the Company of $100,000 or more
concerning their compliance with the "Year 2000" issue.
Business Strategy
The Company's mission statement is "To provide the BEST financial products
and services, with friendly courteous PEOPLE, while increasing shareholder value
and remaining locally-owned." This mission statement fully supports the
Company's business strategy, which is to continue to be a community-oriented
locally owned financial institution offering financial services to residents and
businesses of Crawford County, Illinois (the primary market area). Strategic
planning continues to be a vital ingredient of the Company's future. The Board
of Directors and management have recently reviewed and updated the Company's
strategic plan. Some new products and services that support the Company's
strategic plan will be implemented within the next six to twelve months. These
products should assist the Company in maintaining a strong presence in the
one-to four- family real estate market. A marketing committee has been formed to
make recommendations and help implement services which will help the Bank
increase its market share in a manner consistent with the Company's strategic
plan
Financial Condition
Comparison at September 30, 1998 and March 31, 1998
The Company's total assets increased by approximately $4.8 million or 6.0%,
to $84.7 million at September 30, 1998 from $80.0 million at March 31, 1998.
This increase in total assets was primarily the result of a $7 million increase
in securities available for sale offset primarily by a $789,000 decrease in cash
and cash equivalents a $568,000 decrease in loans receivable, net, a $197,000
decrease foreclosed real estate and a $745,000 decrease in securities held to
maturity. The decrease in securities held to maturity was primarily the result
of a reclassification of the securities to available for sale by implementing
the Statement of Financial Accounting Standards No. 133. The overall increase in
assets was primarily due to the purchase of additional securities. This increase
was primarily funded by increases in deposits and repurchase agreements
11
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition - Continued
Liabilities increased approximately $6.2 million or 9.2% to $73.2 million
at September 30, 1998 from $67.1 million at March 31, 1998. This increase in
liabilities was primarily the result of a $5.9 million increase in deposits, a
$377,000 increase in repurchase agreements offset by a $121, 000 decrease in
other liabilities.
Stockholders' equity decreased $1.4 million or 10.8% to $11.5 million as of
September 30, 1998 from $12.9 million as of March 31, 1998. This decrease was
primarily from the payment of $258,000 in dividends, the purchase of $747,000 in
treasury stock and $588,000 in costs associated with the Company's Employee
Stock Ownership Plan and its Recognition and Retention Plan offset by earnings
for the six month period.
Results of Operation
Comparison of the Three Months ended September 30, 1998 and 1997
Net Income
The Company reported a net loss of $10,000 during the three months ended
September 30, 1998 as compared to net income of $153,000 during the three months
ended September 30, 1997. The $163,000 decrease in net income during the three
months ended September 30, 1998, as compared to the same period in the prior
year, was primarily attributable to an increase of $344,000 or 60.1% in non
interest expense combined with a decrease of $11,000 or 8.8% in non-interest
income offset by an increase of $79,000 or 11.3% in net interest income after
provision for loan losses and a decrease $113,000 or 116.5% in provision for
income taxes.
Net Interest Income
Net interest income increased by $6, 000 or 0.7% to $821,000 during the
three months ended September 30, 1998, as compared to $815,000 during the same
period in the prior year. The increase was caused by an increase of $90,000 or
5.8% in total interest income offset by an increase of $84,000 or 11.3% in total
interest expense. The increase in interest income was from a $9,000 or 0.6%
increase in loan interest income and an $81,000 or 80.2% increase in investment
interest income. The increase in total interest expense was from a $27,000 or
3.6% increase in interest on deposits, a $26,000 increase in interest in FHLB
advances and a $31,000 increase in interest on repurchase agreements. Interest
rate spread for the three months ended September 30, 1998 was 3.46% compared to
3.78% for the same period in 1997.
Non-Interest Income
Total non-interest income decreased by $11,000 or 8.8% to $114,000 during
the three months ended September 30, 1998, as compared to $125,000 during the
same period in the prior year. The decrease in other non-interest income was
primarily caused by a decrease of $9,000 or 23.1% in loan fees, a decrease of
$20,000 on sale of loans and a decrease of $5,000 or 26.3% in other non-interest
income partially offset by an increase of $23,000 or 48.9% in service charges.
12
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Non-Interest Expense
Total non-interest expense increased by $344,000 or 60.1% to $916,000
during the three months ended September 30, 1998, as compared to $572,000 during
the same period in the prior year. This increase was due primarily from an
increases of $271,000 or 92.5% in compensation and employee benefits, an
increase of $22,000 or 24.2% in occupancy and equipment expense, an increase of
$7,000 or 46.7% in data processing expense and an increase of $36,000 or 257.1%
in audit and legal expenses associated with being a public company partially
offset by a decrease of $7,000 or 30.4% in advertising expense. The significant
increase in compensation and employee benefits was primarily from the initial
costs associated with the implementation of the Company's Recognition and
Retention Plan approved by shareholders at their annual meeting July 29, 1998.
Provision for Loan Losses
During the three months ended September 30, 1998, the Company recorded
provision for loan losses of $45,000 as compared to $118,000 for the same period
of the prior year. The Company recorded such provisions to adjust the Company's
allowance for loan losses to a level deemed appropriate based on an assessment
of the volume and lending presently being conducted by the Company, industry
standards, past due loans, economic conditions in the Company's market area
generally and other factors related to the collectability of the Company's loan
portfolio. The Company's non-performing assets as a percentage of total assets
was 0.15% at September 30, 1998, as compared to 0.51 % at June 30, 1998.
Provision for (Benefit from) Income Taxes
The Company recognized a benefit from income taxes of $16,000 for the three
months ended September 30, 1998 as compared to a provision for income taxes of
$97,000 for the same period in the prior year. The effective tax rate during the
three months ended September 30, 1998 was 61.5% (federal and state) as compared
to 38.8% during the same period in the prior year. The effective tax rate for
the three months ended was affected by annualized taxable income at the various
federal income tax rates based on the operating results for the quarter.
Comparison of the Six Months ended September 30, 1998 and 1997
Net Income
The Company reported a net income of $139,000 during the six months ended
September 30, 1998 as compared to $373,000 during the six months ended September
30, 1997. The $234,000 or 62.7% decrease in net income for the six months ended
September 30, 1998, as compared to the same period in the prior year was
primarily attributable to an increase of $143,000 or 10.3% in net interest
income after provision for loan losses and a decrease of $159,000 or 66.8% in
provision for income taxes offset by a decrease of $122,000 or 35.0% in
non-interest income and an increase of $414,000 or 36.8% in non-interest
expense.
13
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Net Interest Income
Net interest income increased by $122,000 or 8.0% during the six months
ended September 30, 1998, as compared to the same period in the prior year. This
increase was caused by a $179,000 or 5.8% increase in total interest income
offset by a $57,000 or 3.7% increase in total interest expense. The increase in
total interest income was from a $65,000 or 2.3% increase in interest on loans
and a $114,000 or 50.7% increase in investment income. The increase in total
interest expense was from a $4,000 or 0.3% increase in interest on deposits and
a $59,000 increase in interest on repurchase agreements offset by a $6,000 or
10.5% decrease in Federal Home Loan Bank borrowings. Interest rate spread for
the six months ended September 30, 1998 was 3.45% compared to 3.72% for the same
period in 1997.
Non-Interest Income
Total non-interest income decreased by $122,000 or 35.0% during the six
months ended September 30, 1998, as compared to the same period in the prior
year. The decrease in non-interest income was primarily the result of a $41,000
or 43.6% increase in service charges offset by a $24,000 or 28.2% decrease in
loan fees, a $6,000 or 16.2% decrease in other non-interest income and a
decrease of $133,000 in sale of loans. The significant decrease in sale of loans
was caused by a one-time sale of the government guaranteed portion of commercial
loans during the six months ended September 30, 1997.
Non-Interest Expense
Total non-interest expense increased by $414,000 or 36.8% during the six
months ended September 30, 1998, as compared to the same period in the prior
year. This increase was due primarily from an increase of $288,000 or 48.2% in
compensation and employee benefits, an increase of $43,000 or 24.0% in occupancy
and equipment expense, an increase of $11,000 or 36.7% in data processing
expense, an increase of $55,000 or 261.9% in audit and legal expense and an
increase of $14,000 or 8.3% in other expenses offset by a decrease of $8,000 or
20.5% in advertising expense. The significant increase in compensation and
employee benefits was primarily the result of initial costs associated with the
Company's Recognition and Retention Plan approved by the shareholders at their
annual meeting July 29, 1998 and increased personnel costs. The increase in
audit and legal fees was a direct result of the increased costs associated with
being a publicly traded company.
Provision for Loan Losses
During the six months ended September 30, 1998, the Company recorded
provision for loan losses of $115,000 as compared to $136,000 for the same
period of the prior year. The Company recorded such provisions to adjust the
Company's allowance for loan losses to a level deemed appropriate based on an
assessment of the volume and lending presently being conducted by the Company,
industry standards, past due loans, economic conditions in the Company's market
area generally and other factors related to the collectability of the Company's
loan portfolio. The Company's non-performing assets as a percentage of total
assets was 0.15% at September 30, 1998, as compared to 0.55% at March 31, 1998.
14
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Provision for Income Taxes
The Company recognized provision for income taxes of $79,000 for the six
months ended September 30, 1998 as compared to $238,000 for the same period in
the prior year. The effective tax rate during the three months ended September
30, 1998 was 36.2% (federal and state) and 39% for the six months ending
September 30, 1997.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits and principal and
interest payments collected on loans, investments and related securities. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by interest rates,
general economic conditions and competition. Additionally, the Company may
borrow funds from the FHLB of Chicago or utilize other borrowings of funds based
on need, comparative costs and availability at the time. The Company has
developed a correspondent relationship and has borrowing capabilities with Cole
Taylor Bank in Chicago.
At September 30, 1998 the Company had $2.0 million in advances from the
FHLB of Chicago outstanding with no change from the amount of advances as of
March 31, 1998. The Company uses its liquidity resources principally to meet
outstanding commitments on loans, to fund maturing certificates of deposit and
deposit withdrawals and to meet operating expenses. The Company anticipates that
it will have sufficient funds available to meet current loan commitments. At
September 30, 1998, the Company had outstanding commitments to extend credit,
which amounted to $2.8 million (including $1.9 million, in available revolving
commercial lines of credit). Management believes that loan repayments and other
sources of funds will be adequate to meet the Company's foreseeable liquidity
needs.
Liquidity management is both a daily and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing investments and (iv) the
objectives of its asset/liability management program. Excess liquidity generally
is invested in interest-earning overnight deposits and other short-term
government and agency obligations.
Regulatory Capital
The Bank is subject to capital requirements of the Office of the
Comptroller of the Currency ("OCC"). The OCC requires the Bank to maintain
minimum ratios of Tier I capital to total risk-weighted assets and total capital
to risk-weighted assets of 4% and 8% respectively. Tier I capital consists of
total stockholders' equity calculated in accordance with generally accepted
accounting principals less intangible assets, and total capital is comprised of
Tier I capital plus certain adjustments, the only one of which is applicable to
the Bank is the allowance for loan losses. Risk-weighted assets refer to the on-
and off-balance sheet exposures of the Bank adjusted for relative risk levels
using formulas set forth by OCC regulations. The Bank is also subject to an OCC
leverage capital requirement, which calls for a minimum ratio of Tier I capital
to quarterly average total assets of 3% to 5%, depending on the institution's
composite ratings as determined by its regulators.
15
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Regulatory Capital
At September 30, 1998, the Bank was in compliance with all of the
aforementioned capital requirements as summarized below:
September 30, 1998
------------------
(1,000's)
Tier I Capital:
Common stockholders' equity 9,627
Unrealized loss (gain) on securities available for sale (74)
Total Tier I Capital 9,553
Tier II Capital:
Total Tier I capital 9,553
Qualifying allowance for loan losses 701
Total capital 10,254
Risk-weighted assets 56,115
Quarter average assets 81,993
<TABLE>
<CAPTION>
To be Well Capitalized
Under the Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) 10,254 18.27% 4,489 8.00% 5,612 10.00%
Tier I Capital
(to Risk-Weighted Assets) 9,553 17.02% 2,245 4.00% 3,367 6.00%
Tier I Capital
(to Average Assets) 9,553 11.65% 3,280 4.00% 4,100 5.00%
</TABLE>
At the time of the conversion of the Bank to a stock organization, a special
liquidation account was established for the benefit of eligible account holders
and the supplemental account holders in an amount equal to the net worth of the
Bank. This special liquidation account will be maintained for the benefit of
eligible account holders and the supplemental account holders who continue to
maintain their accounts in the Bank after the conversion on June 27, 1997. In
the event of a complete liquidation, each eligible and the supplemental eligible
account holders will be entitled to receive a liquidation distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. With the reorganization completed on
June 27, 1997, this liquidation account became part of stockholders' equity for
the Company under the same terms and conditions as if the reorganization had not
occurred. The Bank may not declare or pay cash dividends on or repurchase any of
its common stock if stockholders' equity would be reduced below applicable
regulatory capital requirements or below the special liquidation account.
16
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Executives
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On July 29, 1998, the Company held its Annual Meeting of
Stockholders.
(b) At the meeting, Clell T. Keller was elected as a director for a
term to expire in 2000. Also, Scott F. Pulliam and William K.
Thomas were elected as directors for terms to expire on 2001.
(c) Stockholders voted on the following matters:
(i) The election of the following three directors of the
Corporation;
<TABLE>
<CAPTION>
BROKER
VOTES: FOR WITHHELD ABSTAIN NON-VOTES
------ --- -------- ------- ---------
<S> <C> <C> <C> <C>
Clell T. Keller 732,094 18,727 0 0
Scott F. Pulliam 718,147 32,674 0 0
William K. Thomas 726,644 24,177 0 0
</TABLE>
(ii) The approval of the 1998 Stock Option and Incentive Plan;
<TABLE>
<CAPTION>
BROKER
VOTES: FOR AGAINST ABSTAIN NON-VOTES
------ --- ------- ------- ---------
<S> <C> <C> <C> <C>
573,452 68,946 5,080 103,343
</TABLE>
(iii) The approval of the Recognition and Retention Plan;
<TABLE>
<CAPTION>
BROKER
VOTES: FOR AGAINST ABSTAIN NON-VOTES
------ --- ------- ------- ---------
<S> <C> <C> <C> <C>
486,302 150,496 10,680 103,343
</TABLE>
(iv) The ratification of the appointment of Larsson, Woodyard &
Henson, LLP as auditors for the Company for the fiscal year
ending March 31, 1999.
<TABLE>
<CAPTION>
BROKER
VOTES: FOR AGAINST ABSTAIN NON-VOTES
------ --- ------- ------- ---------
<S> <C> <C> <C> <C>
742,128 5,893 2,800 0
</TABLE>
17
<PAGE>
PART II OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits: I. Statement Regarding Computation of Earnings
II. Financial Data Schedule
Reports on Form 8-K
First Robinson Financial Corporation filed an 8-K on August 17,
1998, announcing the completion of the Stock Repurchase Plan.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST ROBINSON FINANCIAL
CORPORATION
Date: November 13, 1998 /s/ Rick L. Catt
------------------------------------------
Rick L. Catt
President and Chief Executive Officer
Date: November 13, 1998 /s/ Jamie E. McReynolds
------------------------------------------
Jamie E. McReynolds
Chief Financial Officer and Vice President
19
Exhibit 11
Statement Regarding Computation of Earnings per Share
<TABLE>
<CAPTION>
Three Months Six Months
September 30, September 30,
1998 1997 1998 1997 (1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings (in thousands) $ (10) $ 153 $ 139 $ 373
Basic earnings per share:
Weighted average shares outstanding 859,625 859,625 859,625 859,625
Less unearned employee stock ownership plan shares (57,308) (68,388) (58,311) (68,388)
Less shares repurchased (23,807) 0 (11,904) 0
Average option shares granted 0 0 0 0
Less assumed purchase of shares using treasury method 0 0 0 0
--------- --------- --------- ---------
Common and common equivalent shares outstanding 778,510 791,237 789,410 791,237
--------- --------- --------- ---------
Earnings per common share - basic $ (0.01) $ 0.19 $ 0.17 $ 0.47
--------- --------- --------- ---------
Diluted earnings per share:
Weighted average shares outstanding 859,625 859,625 859,625 859,625
Less unearned employee stock ownership plan shares (57,308) (68,388) (58,311) (68,388)
Less shares repurchased (23,807) 0 (11,904) 0
Average option shares granted(2) 17,538 0 17,538 0
Less assumed purchase of shares using treasury method (17,538) 0 (17,538) 0
--------- --------- --------- ---------
Common and common equivalent shares outstanding 778,510 791,237 789,410 791,237
--------- --------- --------- ---------
Earnings per common share - diluted $ (0.01) $ 0.19 $ 0.17 $ 0.47
--------- --------- --------- ---------
</TABLE>
(1) See page 8 for Earnings per Share
(2) Option price exceeds market price
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of First Robinson Financial Corporation for
the quarterly period ended September 30, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 740
<INT-BEARING-DEPOSITS> 5,045
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,096
<INVESTMENTS-CARRYING> 210
<INVESTMENTS-MARKET> 210
<LOANS> 64,370
<ALLOWANCE> (704)
<TOTAL-ASSETS> 84,730
<DEPOSITS> 68,512
<SHORT-TERM> 4,021
<LIABILITIES-OTHER> 691
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 11,497
<TOTAL-LIABILITIES-AND-EQUITY> 84,730
<INTEREST-LOAN> 1,465
<INTEREST-INVEST> 182
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,647
<INTEREST-DEPOSIT> 769
<INTEREST-EXPENSE> 826
<INTEREST-INCOME-NET> 821
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 916
<INCOME-PRETAX> (26)
<INCOME-PRE-EXTRAORDINARY> (26)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<YIELD-ACTUAL> 4.20
<LOANS-NON> 59
<LOANS-PAST> 10
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (685)
<CHARGE-OFFS> 43
<RECOVERIES> (17)
<ALLOWANCE-CLOSE> (704)
<ALLOWANCE-DOMESTIC> 483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 221
</TABLE>
