<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
_____ to _____
Commission file number 0-29276
FIRST ROBINSON FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
Delaware 36-4145294
- ------------------------------------------------------------- ----------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
501 East Main Street, Robinson, Illinois 62454
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (618) 544-8621
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
None
----
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ].
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State the issuer's revenues for its most recent fiscal year:
$5,915,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the average of the bid and ask price
of such stock as of October 31, 1997, was approximately $10.7 million.
As of October 31, 1997, there were 859,625 shares issued and
outstanding of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II of Form 10-KSB - Annual Report to Stockholders for the fiscal
year ended October 31, 1997.
Part III of Form 10-KSB - Portions of Proxy Statement for 1997 Annual
Meeting of Stockholders.
Forward-Looking Statements
<PAGE>
When used in this Annual Report on Form 10-KSB or 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
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project", "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. 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 to advise readers that various factors--including regional
and national economic conditions, changes in levels of market interest rates,
credit risks of lending 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 publicly release the result of any revisions which 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.
PART I
Item 1. Description of Business
General
The Company. First Robinson Financial Corporation (the "Company") was
incorporated under the laws of the State of Delaware in March 1997, at the
direction of the Board of Directors of First Robinson Savings and Loan
Association (the "Association"), the predecessor institution to First Robinson
Savings Bank, National Association (the "Bank") for the purpose of serving as a
holding company of the Bank. The Company has no significant assets other than
the outstanding capital stock of the Bank. Unless otherwise indicated, all
activities discussed below are of the Bank.
The Bank. The Bank is a community-oriented financial institution. The
Bank seeks to serve the financial needs of the residents and businesses in its
market area. The principal business of the Bank has historically consisted of
attracting retail deposits from the general public and investing those funds in
primarily one-to four-family residential real estate loans and, to a lesser
extent, consumer loans, commercial real estate loans and commercial business
loans. At October 31, 1997, substantially all of the Bank's real estate mortgage
loans, were secured by properties located in the Bank's market area. The Bank
also invests in investment and equity securities and mortgage-backed securities,
and other permissible investments.
2
<PAGE>
The Bank currently offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits include passbook savings,
NOW accounts, certificate accounts, IRA accounts and non-interest bearing
accounts. The Bank generally solicits deposits in its primary market area. The
Bank does not accept any brokered deposits.
The Bank's revenues are derived principally from interest income,
including primarily interest on loans, deposits in other banks and
mortgage-backed securities and other investments.
Market Area
The Bank primarily serves Crawford County, Illinois. The Bank currently
has three offices located in Robinson, Palestine and Oblong, Illinois.
Robinson, Palestine and Oblong, Illinois are located in Crawford
County, Illinois, approximately 150 miles east of St. Louis, Missouri and 35
miles northwest of Vincennes, Indiana. The major employers in the Bank's primary
market area include: Marathon Oil Company, Hershey Chocolate, USA, Briggs
Industries, Robinson Correctional Facility, Dana Corporation, Fair Rite
Products, Crawford Memorial Hospital and E.H. Baare Corporation.
The Bank, and therefore the Company, is dependent upon the economy of
its market share for continued success, since the vast majority of its loans are
located in the Bank's market area. See Note L of Notes To Consolidated Financial
Statements.
Lending Activities
General. The Bank's loan portfolio consists primarily of conventional,
first mortgage loans secured by one- to four-family residences and, to a lesser
extent, consumer loans, commercial real estate loans, commercial business loans
and multi-family real estate and construction loans. At October 31, 1997, the
Bank's gross loans outstanding totaled $64.7 million, of which $29.9 million or
46.2% were one-to four-family residential mortgage loans. Of the one- to
four-family mortgage loans outstanding at that date, 6.4% were fixed-rate loans,
and 93.6% were adjustable-rate loans. At that same date, consumer loans totaled
$12.5 million or 19.4% of the Bank's total loan portfolio, all of which were
fixed-rate loans. Also at that date, the Bank's commercial real estate loans
totaled $12.4 million or 19.2% of the Bank's total loan portfolio of which 90.3%
were adjustable-rate loans. At October 31, 1997, commercial business loans
totaled $9.1 million or 14.1% of the Bank's total loan portfolio, of which 43.6%
were fixed-rate loans and 56.4% were adjustable-rate loans. At that same date,
multi-family real estate and construction loans totaled $702,000 or 1.1% of the
Bank's total loan portfolio. See Notes A and C To Consolidated Financial
Statements.
The Bank also invests in mortgage-backed securities, Government
securities, obligations of states or political subdivisions and other debt
securities. At October 31, 1997, mortgage-backed securities totaled $3.2 million
or 66.7% of the Bank's total investment and mortgage-backed securities
portfolio, government securities and obligations of states and political
subdivisions and
3
<PAGE>
other debt securities totaled $1.6 million, or 33.3% of the Bank's total
investment and mortgage-backed securities portfolio.
The Bank's loans-to-one borrower limit is generally limited to the
greater of 15% of unimpaired capital and surplus or $500,000. See "Regulation -
Federal Regulation of National Banks." At October 31, 1997, the maximum amount
which the Bank could have lent under this limit to any one borrower and the
borrower's related entities was approximately $1.4 million. At October 31, 1997,
the Bank had no loans or groups of loans to related borrowers with outstanding
balances in excess of this amount. The Bank's five largest lending relationships
at October 31, 1997 were as follows: (i) $3.8 million in loans to a heavy
equipment contractor, of which $2.9 million was participated to other lenders,
secured by real estate, equipment, inventory and accounts receivable as well as
certificates of deposit and personal guarantees; (ii) a $1.7 million loan to a
grain elevator operator, of which $600,000 was participated to other lenders,
secured by real estate, equipment and inventory, personal guarantees and
warehouse receipts; (iii) a $1.0 million loan to a custom sludge application
contractor, secured by real estate, equipment, inventory, accounts receivable as
well as personal guarantees; (iv) a $800,000 line of credit to a heavy equipment
operator secured by equipment, stock, personal guarantees and certificates of
deposit; and (v) a $728,000 loan to a pest control company, secured by real
estate. At October 31, 1997, all of these loans totaling $4.5 million in the
aggregate were performing in accordance with their terms.
4
<PAGE>
Loan Portfolio Composition. The following information concerning the
composition of the Bank's rates loan portfolios in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
October 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994
---------------- ---------------- ----------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family..................... $29,894 46.22% $27,784 50.61% $23,448 51.80% $21,058 61.04%
Multi-family............................ 124 .19 141 .26 174 .38 190 .55
Commercial.............................. 12,420 19.20 9,594 17.47 5,560 12.29 3,961 11.48
Construction or development............. 578 .89 76 .14 514 1.14 140 .41
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans............. 43,016 66.50 37,595 68.48 29,696 65.61 25,349 73.48
------- ------ ------- ------ ------- ------ ------- ------
Other Loans:
Consumer Loans:
Deposit account........................ 657 1.01 571 1.04 1,069 2.36 442 1.28
Automobile............................. 9,480 14.66 8,764 15.96 7,273 16.07 5,133 14.88
Other.................................. 2,392 3.70 2,717 4.95 2,591 5.73 1,412 4.09
------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans................ 12,529 19.37 12,052 21.95 10,933 24.16 6,987 20.25
------- ------ ------- ------ ------- ------ ------- ------
Commercial business loans............... 9,140 14.13 5,257 9.57 4,628 10.23 2,164 6.27
------- ------ ------- ------ ------- ------ ------- ------
Total other......................... 21,669 33.50 17,309 31.52 15,561 34.39 9,151 26.52
------- ------ ------- ------ ------- ------ ------- ------
Total loans......................... 64,685 100.00% 54,904 100.00% 45,257 100.00% 34,500 100.00%
------- ====== ------- ====== ------- ====== ------- ======
Less:
Loans in process........................ (243) (43) (148) (119)
Unearned discounts...................... -- -- -- --
Allowance for losses.................... (482) (413) (255) (288)
------- ------- ------- -------
Total loans receivable, net............. 63,960 $54,448 $44,854 $34,093
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
October 31,
----------------
1993
----------------
Amount Percent
------ -------
<S> <C> <C>
Real Estate Loans:
One- to four-family..................... $19,225 61.26%
Multi-family............................ 169 .54
Commercial.............................. 3,261 10.39
Construction or development............. 409 1.30
------- ------
Total real estate loans............. 23,064 73.49
------- ------
Other Loans:
Consumer Loans:
Deposit account........................ 510 1.62
Automobile............................. 4,228 13.47
Other.................................. 1,256 4.00
------- ------
Total consumer loans................ 5,994 19.09
------- ------
Commercial business loans............... 2,329 7.42
------- ------
Total other......................... 8,323 26.51
------- ------
Total loans......................... 31,387 100.00%
------- ======
Less:
Loans in process........................ (135)
Unearned discounts...................... --
Allowance for losses.................... (367)
-------
Total loans receivable, net............. $30,885
=======
</TABLE>
5
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at October 31, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------
One- to Four-Family Multi-family and Commercial
and Construction Commercial Consumer Business
--------------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
-------- ------ -------- -------- -------- ------- -------- -------
(Dollars in Thousands)
Due During
Years Ending
October 31,
------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998(1)................ $12,394 8.88% $ 8,423 9.35% $ 2,195 10.41% $6,821 9.13%
1999 and 2000.......... 11,304 8.89 2,813 8.65 4,590 10.81 988 8.89
2001 and 2002.......... 1,123 8.73 779 7.54 5,532 10.06 751 9.48
After 2002............. 5,651 7.88 529 7.93 212 9.48 580 8.69
------- ---- ------- ---- ------- ----- ------ ----
Total.................. $30,472 8.69% $12,544 9.02% $12,529 10.39% $9,140 9.10%
======= ==== ======= ==== ======= ===== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Total
------------------
Weighted
Average
Amount Rate
-------- -------
Due During
Years Ending
October 31,
------------
<S> <C> <C>
1998(1)................ $29,833 9.18%
1999 and 2000.......... 19,695 9.30
2001 and 2002.......... 8,185 9.58
After 2002............. 6,972 8.00
------- ----
Total.................. $64,685 9.14%
======= ====
</TABLE>
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
The total amount of loans due after October 31, 1998 which have
predetermined interest rates is $14.3 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $20.6
million.
6
<PAGE>
Underwriting Standards. All of the Bank's lending is subject to its
written underwriting standards and loan origination procedures. Decisions on
loan applications are made on the basis of detailed applications and, if
applicable, property valuations. Properties securing real estate loans made by
the Bank are generally appraised by Board-approved independent appraisers. In
the loan approval process, the Bank assesses the borrower's ability to repay the
loan, the adequacy of the proposed security, the employment stability of the
borrower and the credit-worthiness of the borrower.
The Bank requires evidence of marketable title and lien position or
appropriate title insurance on all loans secured by real property. The Bank also
requires fire and extended coverage casualty insurance in amounts at least equal
to the lesser of the principal amount of the loan or the value of improvements
on the property, depending on the type of loan. As required by federal
regulations, the Bank also requires flood insurance to protect the property
securing its interest if such property is located in a designated flood area.
Management reserves the right to change the amount or type of lending
in which it engages to adjust to market or other factors.
One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Bank's marketing efforts, its present
customers, walk-in customers, referrals from real estate brokers. Historically,
the Bank has focused its lending efforts primarily on the origination of loans
secured by one- to four-family residential mortgages in its market area. At
October 31, 1997, the Bank's one- to four-family residential mortgage loans
totaled $29.9 million, or 46.2%, of the Bank's gross loan portfolio of which
$67,000 was non-performing at that date.
The Bank generally offers only adjustable rate mortgage loans, but has
in the past also offered fixed-rate mortgage loans. For the year ended October
31, 1997, the Bank originated $19.9 million of real estate loans, of which $12.6
million were secured by one- to four-family residential real estate, and $7.3
million was secured by commercial real estate. Substantially all of the Bank's
one- to four-family residential mortgage originations are secured by properties
located in its market area.
The Bank offers adjustable-rate mortgage loans at rates and on terms
determined in accordance with market and competitive factors. The Bank currently
originates adjustable-rate mortgage loans with a term of up to 25 years. The
Bank currently offers one-year and three-year adjustable-rate mortgage loans
with a stated interest rate margin generally over the one-year Treasury Bill
Index, which adjusts at one and three year terms, respectively. Increases or
decreases in the interest rate of the Bank's adjustable-rate loans is generally
limited to 100 basis points at any adjustment date for a one-year adjustable
rate loan, 200 basis points for a three-year adjustable rate loan, and 600 basis
points over the life of the loan. As a consequence of using caps, the interest
rates on these loans may not be as rate sensitive as are the Bank's liabilities.
The Bank qualifies borrowers for adjustable-rate loans based on the initial
interest rate of the loan. As a result, the risk of default on these loans may
increase as interest rates increase. See "Asset Quality - Non-Performing
Assets." At October 31, 1997, the total balance of one-to four-family
7
<PAGE>
adjustable-rate loans was $28 million or 43.3% of the Bank's gross loan
portfolio. See "- Originations, Purchases and Sales of Loans."
The Bank also offers fixed-rate mortgage loans but with only short-term
maturities of up to 5 years. At October 31, 1997, the total balance of one- to
four-family fixed-rate loans was $1.9 million or 2.9% of the Bank's gross loan
portfolio. See "- Originations, Purchases and Sales of Loans."
Currently, the Bank will generally lend up to 80% of the lesser of the
sales price or appraised value of the security property on owner occupied one-
to four-family loans. Residential loans do not include prepayment penalties, are
non-assumable (other than government-insured or guaranteed loans), and do not
produce negative amortization. Real estate loans originated by the Bank contain
a "due on sale" clause allowing the Bank to declare the unpaid principal balance
due and payable upon the sale of the security property. The Bank does not
utilize private mortgage insurance.
The loans currently originated by the Bank are not typically
underwritten and documented pursuant to the guidelines of the FHLMC. Under
current policy, the Bank originates these loans for portfolio. See "-
Originations, Purchases and Sales of Loans and Mortgage-Backed Securities."
Consumer Lending. The Bank offers secured and unsecured consumer loans.
Secured loans may be collateralized by a variety of asset types, including
automobiles, mobile homes and deposits. The Bank currently originates
substantially all of its consumer loans in its primary market area. At October
31, 1997, the Bank's consumer loan portfolio totaled $12.5 million, or 19.4% of
its gross loan portfolio, substantially all of which were fixed rate loans.
Under federal law, the Bank's consumer loan portfolio, when aggregated with
investments in investment grade corporate debt, cannot exceed 35% of assets. A
national bank has no consumer loan portfolio limitations.
A significant component of the Bank's consumer loan portfolio consists
of new and used automobile loans. These loans generally have terms that do not
exceed five years. Generally, loans on vehicles are made in amounts up to 80% of
the sales price. At October 31, 1997, the Bank's automobile loans totaled $9.5
million or 14.7% of the Bank's gross loan portfolio. Of this amount
approximately $8.5 million or 89.5% and $1.0 million or 10.5% were originated on
a direct and indirect basis, respectively.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by the Bank for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.
8
<PAGE>
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. Further, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At October 31, 1997, $16,000 of the Bank's consumer loans were
non-performing. There can be no assurances that additional delinquencies will
not occur in the future.
Commercial Real Estate Lending. The Bank also originates commercial
real estate loans. At October 31, 1997 approximately $12.4 million, or 19.2% of
the Bank's gross loan portfolio, was comprised of commercial real estate loans
of which $241,000 were non-performing at that date. Of this amount,
approximately $1.2 million or 9.7% of these loans were fixed-rate commercial
real estate loans and approximately $11.2 million or 90.3% were adjustable rate
loans. The largest commercial real estate loan was for $728,000 secured by real
estate.
The Bank will generally lend up to 80% of the value of the collateral
securing the loan with a maturity of up to five-years for fixed rate loans and
varying maturities up to 20 years for adjustable rate loans generally with
repricing of one year or less. In underwriting these loans, the Bank currently
analyzes the financial condition of the borrower, the borrower's credit history,
and the reliability and predictability of the cash flow generated by the
property securing the loan. The Bank requires personal guaranties of corporate
borrowers. Appraisals on properties securing commercial real estate loans
originated by the Bank are performed by independent appraisers. The Bank also
offers small business loans, which are generally guaranteed up to 90% by various
governmental agencies. The Bank has typically sold the guaranteed portion of
such loans and retained the uninsured portion as well as the servicing.
Commercial real estate loans generally present a higher level of risk
than loans secured by one- to four-family residences. This greater risk is due
to several factors, including the concentration of principal in a limited number
of loans and borrowers, the effect of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced (for example,
if leases are not obtained or renewed, or a bankruptcy court modifies a lease
term, or a major tenant is unable to fulfill its lease obligations), the
borrower's ability to repay the loan may be impaired.
Commercial Business Lending. The Bank also originates commercial
business loans. At October 31, 1997 approximately $9.1 million, or 14.1% of the
Bank's gross loan portfolio, was comprised of commercial business loans of which
$20,000 were non-performing at that date. Of this amount, approximately $4
million or 43.6% were fixed rate loans and approximately $5.1 million or 56.4%
were adjustable rate loans. The largest commercial business loans are loans of
$3.8 million
9
<PAGE>
to a heavy equipment contractor, of which $2.9 million was participated to other
lenders. At October 31, 1997, this borrower had approximately $900,000
outstanding to the Bank.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, is likely to be dependent upon the general economic
environment). The Bank's commercial business loans are usually, but not always,
secured by business assets and generally by personal assets as well. However,
the collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business. A
small portion of the Bank's commercial business loans are unsecured.
The Bank's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Analysis of the borrower's
past, present and future cash flows is also an important aspect of the Bank's
current credit analysis. Nonetheless, such loans, are believed to carry higher
credit risk than more traditional investments.
Construction Lending. The Bank had $578,000 in construction loans for
one- to four-family residences or .89% of the total loan portfolio at October
31, 1997. No construction loans for commercial property existed as of October
31, 1997.
The Bank offers construction loans to individuals for the construction
of one- to four-family residences or commercial buildings. Such loans are
offered with fixed and adjustable rates of interest. Following the construction
period, these loans may become permanent loans.
Construction lending is generally considered to involve a higher level
of credit risk since the risk of loss on construction loans is dependent largely
upon the accuracy of the initial estimate of the individual property's value
upon completion of the project and the estimated cost (including interest) of
the project. If the cost estimate proves to be inaccurate, the Bank may be
required to advance funds beyond the amount originally committed to permit
completion of the project.
Multi-Family Lending. The Bank offers one- to three-year
adjustable-rate multi-family loans for terms of up to 20 years. The Bank will
generally lend up to 80% of the value of the collateral securing the loan. At
October 31, 1997, the Bank had $124,000 of multi-family real estate loans or
.19% of the Bank's gross loan portfolio was comprised of such loans of which
none were non-performing at that date.
Multi-family lending is generally considered to involve a higher level
of credit risk than one- to four-family residential lending. This greater risk
in multi-family lending is due to several factors, including the concentration
of principal in a limited number of loans and borrowers, the
10
<PAGE>
effect of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multi-family real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed, or a bankruptcy court modifies a lease term, or a
major tenant is unable to fulfill its lease obligations), the borrower's ability
to repay the loan may be impaired.
Originations, Purchases and Sales of Loans
Loan originations are developed from continuing business with
depositors and borrowers, soliciting realtors, builders, walk-in customers.
While the Bank currently originates adjustable-rate and fixed-rate
loans, its ability to originate loans to a certain extent is dependent upon the
relative customer demand for loans in its market, which is affected by the
interest rate environment, among other factors. For the year ended October 31,
1997, the Bank originated $20.4 million in fixed-rate loans and $20.5 million in
adjustable-rate loans.
The Bank sold through participations with other lenders, $360,000 in
commercial business loans and $1.7 million in commercial real estate loans for
the year ended October 31, 1997. Sales of these loans generally are beneficial
to the Bank since these sales may produce future servicing income, provide funds
for additional lending and other investments and increase liquidity. The Bank
does not sell loans pursuant to forward sales commitments and, therefore, an
increase in interest rates after loan origination and prior to sale may
adversely affect the Bank's income at the time of sale.
During the year ended October 31, 1997, the Bank purchased $617,000 in
loans from other lenders, $100,000 of which was originated by the other lenders,
$517,000 of which, were originated by the Bank, participated to other lenders,
and then repurchased by the Bank.
11
<PAGE>
The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.
Year Ended October 31,
---------------------------------
1997 1996 1995
Originations by type:
Real estate:
One to four family................... 12,592 $11,883 $ 8,069
Multi-family......................... --- --- ---
Commercial........................... 7,265 4,703 5,915
------- ------- -------
Other:
Consumer............................. 11,760 12,391 11,885
Commercial business.................. 9,291 7,717 5,889
------- ------- -------
Total loans originated............ 40,908 36,694 31,758
------- ------- -------
Purchases:
Real Estate:
Commercial........................... 119 --- ---
Other:
Commercial business.................. 498 --- ---
------ ------- -------
Total loan purchases............... 617 --- ---
------- ------- -------
Mortgage-backed securities................ --- 2,174 ---
------- ------- -------
Total purchases...................... --- 2,174 ---
------- ------- -------
Sales and Repayments:
Real estate:
Commercial........................... 1,727 990 3,081
Other:
Commercial business....................... 360 754 ---
------- ------- -------
Total sales.......................... 2,087 1,744 3,081
------- -------
Principal reductions
Loans................................ 29,315 23,917 16,443
-------
Mortgaged-backed securities.......... 854 1,136 346
------- ------- -------
Total Reductions.................... 30,169 26,797 19,870
------- ------- -------
Decreases in other items, net (342) (1,386) (1,477)
------- ------- -------
Net Increase.............................. $ 8,927 $10,685 $10,411
======= ======= =======
12
<PAGE>
Asset Quality
Delinquencies. When a borrower fails to make a required payment on a
loan, the Bank attempts to cause the delinquency to be cured by contacting the
borrower. In the case of loans secured by real estate, reminder notices are sent
to borrowers. If payment is late, appropriate late charges are assessed and a
notice of late charges is sent to the borrower. If the loan is in excess of 60
days delinquent, the loan will generally be referred to the Bank's legal counsel
for collection.
When a loan becomes more than 90 days delinquent or is otherwise
impaired, the Bank will generally place the loan on non-accrual status and
previously accrued interest income on the loan is charged against current
income.
Delinquent consumer loans are handled in a similar manner as to those
described above; however, shorter time frames for each step apply due to the
type of collateral generally associated with such types of loans. The Bank's
procedures for repossession and sale of consumer collateral are subject to
various requirements under applicable consumer protection laws.
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at October 31, 1997.
<TABLE>
<CAPTION>
Loans Delinquent For:
------------------------------------------------------------------------------------
60-89 Days(1) 90 Days and Over(1) Nonaccrual
------------------------- ------------------------ -------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family... 3 $47 .16 --- $--- ---% 2 $ 67 .22%
Commercial real estate 1 10 .08 --- --- --- 2 231 1.86
Consumer................ 4 4 .03 --- --- --- 2 16 .13
Commercial business..... 2 12 .13 --- --- --- 2 20 .22
-- --- --- --- --- --- - ----
Total.............. 10 $73 .11% --- $--- ---% 8 $334 .52%
== === === ==== ==== ==== = ==== ===
</TABLE>
<TABLE>
<CAPTION>
Total Delinquent Loans
------------------------
Percent
of Loan
Number Amount Category
------ ------ --------
<S> <C> <C> <C>
Real Estate:
One- to four-family... 5 $114 .38%
Commercial real estate 3 241 1.94
Consumer................ 6 20 .16
Commercial business..... 4 32 .35
-- ---- ----
Total.............. 18 $407 .63%
== ==== ====
</TABLE>
- -------------
(1) Loans are still accruing.
13
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful. Foreclosed assets include assets acquired in settlement of
loans.
October 31,
--------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
One- to four-family.................... $ 67 $ 44 $--- $--- $---
Commercial real estate................. 231 --- --- --- ---
Consumer............................... 16 24 --- --- ---
Commercial business.................... 20 --- --- --- ---
---- ---- ---- ---- ----
Total............................... 334 68 --- --- ---
---- ---- ---- ---- ----
Accruing loans delinquent more
than 90 days:
One- to four-family.................... --- 15 10 --- ---
Commercial real estate................. --- 21 --- --- ---
Consumer............................... --- --- 2 5 1
Commercial business.................... --- --- --- 8 ---
---- ---- ---- ---- ----
Total............................... --- 36 12 13 1
---- ---- --- ---- ---
Foreclosed assets:
One- to four-family.................... 287 278 18 19 129
Commercial real estate................. 48 --- --- --- ---
Consumer............................... 55 7 6 --- 8
---- ----- ----- ----- -----
Total............................... 390 285 24 19 137
---- ---- ---- ---- ----
Total non-performing assets.............. $724 $389 $ 36 $ 32 $138
==== ==== ==== ==== ====
Total as a percentage of total assets.... .96% .61% .07% .07% .33%
=== === === === ===
For the year ended October 31, 1997, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to approximately $7,000. There was $2,000 that was
included in interest income on such loans for the year ended October 31, 1997.
Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities, considered by the
OCC to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full" on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets
14
<PAGE>
classified as "loss" are those considered "uncollectible" and of such little
value that their continuance as assets without the establishment of a specific
loss reserve is not warranted.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for losses in an
amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances. Following the Bank
Conversion, the Bank will continue to be subject to these asset classification
requirements.
In connection with the filing of its periodic reports with the OCC and
in accordance with its classification of assets policy, the Bank regularly
reviews loans in its portfolio to determine whether such assets require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at October 31, 1997, the Bank had classified
a total of $1.0 million of its assets as substandard and none as doubtful or
loss. At October 31, 1997, total classified assets comprised $1.0 million, or
10.9% of the Bank's capital, or 1.4% of the Bank's total assets.
Other Loans of Concern. As of October 31, 1997, there were $1.0 million
loans identified, but not classified, by the Bank with respect to which known
information about the possible credit problems of the borrowers or the cash
flows of the security properties have caused management to have some doubts as
to the ability of the borrowers to comply with present loan repayment terms and
which may result in the future inclusion of such items in the non-performing
asset categories.
Allowance for Loan Losses. The allowance for loan losses is maintained
at a level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a provision
for loan losses, which is charged to expense and reduced by charge-offs, net of
recoveries.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value minus estimated cost to sell. If fair value at the
date of foreclosure is lower than the balance of the related loan, the
difference will be charged-off to the allowance for loan losses at the time of
transfer. Valuations are periodically updated by management and if the value
declines, a specific provision for losses on such property is established by a
charge to operations. At
15
<PAGE>
October 31, 1997, the Bank had five real estate properties acquired through
foreclosure totalling $335,000.
Although management believes that it uses the best information
available to determine the allowance, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Bank's allowance for loan losses will be
the result of periodic loan, property and collateral reviews and thus cannot be
predicted in advance. In addition, federal regulatory agencies, as an integral
part of the examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to increase the allowance based
upon their judgment of the information available to them at the time of their
examination. At October 31, 1997, the Bank had a total allowance for loan losses
of $482,000, representing .75% of the Bank's loans. See Note A of Notes To
Consolidated Financial Statements.
16
<PAGE>
The distribution of the Bank's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
October 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------ -------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-
family......... $100 $29,894 46.22% $ 77 $27,784 50.61% $ 80 $23,448 51.80%
Multi-family.... --- 124 .19 --- 141 .26 --- 174 .38
Commercial
real estate... 110 12,420 19.20 61 9,594 17.47 43 5,560 12.29
Construction or
development.... --- 578 .89 --- 76 .14 --- 514 1.14
Consumer........ 57 12,529 19.37 58 12,052 21.95 72 10,933 24.16
Commercial
business....... 66 9,140 14.13 58 5,257 9.57 51 4,628 10.23
Unallocated..... 149 --- --- 159 --- --- 9 --- ---
---- ------- ------- ---- ------- ------- ---- ------- -------
Total...... $482 $64,685 100.00% $413 $54,904 100.00% $255 $45,257 100.00%
==== ======= ======= ==== ======= ======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
October 31,
-----------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
---------- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One- to four-
family......... $ 82 $21,058 61.04% $ 96 $19,225 61.25%
Multi-family.... --- 190 .55 2 169 .54
Commercial
real estate... 34 3,961 11.48 32 3,261 10.39
Construction or
development.... --- 140 .41 --- 409 1.30
Consumer........ 39 6,987 20.25 51 5,994 19.10
Commercial
business....... 24 2,164 6.27 26 2,329 7.42
Unallocated..... 109 --- --- 160 --- ---
---- ------- ------ ---- ------- ------
Total...... $288 $34,500 100.00% $367 $31,387 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
17
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- ---------- ---------- ---------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $413 $ 255 $ 288 $ 367 $ 361
Charge-offs:
One- to four-family............................. 25 2 --- --- 6
Commercial real estate.......................... 26
Consumer........................................ 110 94 44 59 32
Commercial business............................. --- 26 --- 157 ---
----- -------- -------- ------- --------
161 122 44 216 38
---- ------- ------- ------- -------
Recoveries:
One- to four-family............................. --- --- --- 30 4
Consumer........................................ 24 10 2 2 7
Commercial business............................. --- --- --- 81 ---
------ -------- ------- ------- --------
24 10 2 113 11
----- ------- ------ ------- -------
Net charge-offs................................... 137 112 42 103 27
Additions charged to operations................... 206 270 9 24 33
----- ------- ------- ------- -------
Balance at end of period.......................... $482 $ 413 $ 255 $ 288 $ 367
==== ======= ====== ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period(1)... .23% .23% .11% .32% .08%
=== === === === ===
Ratio of net charge-offs during the period to
average non-performing assets.................... 32.31% 54.90% 84.00% 97.17% 14.84%
===== ===== ===== ===== =====
</TABLE>
Investment Activities
General. Historically, the Bank has generally maintained liquid assets
at levels believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit outflows. Cash flows
projections are regularly reviewed and updated to assure that adequate liquidity
is maintained. A national bank is not subject to prescribed requirements. At
October 31, 1997, the Bank's liquidity ratio (liquid assets as a percentage of
net withdrawable savings deposits and current borrowings) was 5.2%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Regulation - Liquidity."
National banking associations have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certain certificates of deposit of insured banks
and savings institutions, certain bankers' acceptances, repurchase agreements
and federal funds. Subject to various restrictions, national banks may also
invest their assets in commercial paper, investment grade corporate debt
securities and mutual
18
<PAGE>
funds whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Generally, the investment policy of the Bank, as established by the
Board of Directors, is to invest funds among various categories of investments
and maturities based upon the Bank's liquidity needs, asset/liability management
policies, investment quality, marketability and performance objectives.
Investment Securities. At October 31, 1997, the Bank's investment
securities (including a $317,000 investment in the common stock of the FHLB of
Chicago and Federal Reserve stock of $123,000) totaled $4.8 million, or 6.4% of
its total assets. It has been the Bank's general policy to invest in obligations
of state and political subdivisions, federal agency obligations and other
investment securities.
National banks are restricted in investments in corporate debt and
equity securities by the Bank. These restrictions include prohibitions against
investments in the debt securities of any one issuer in excess of 15% of the
Bank's unimpaired capital and unimpaired surplus as defined by federal
regulations, which totaled $1.4 million as of October 31, 1997, plus an
additional 10% if the investments are fully secured by readily marketable
collateral. At October 31, 1997, the Bank was in compliance with this
regulation. See "Regulation - Federal Regulation of National Banks" for a
discussion of additional restrictions on the Bank's investment activities. See
Notes A and B of Notes To Consolidated Financial Statements.
19
<PAGE>
The following table sets forth the composition of the Bank's investment
and mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
October 31,
-----------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------- ---------------
Book % of Book % of Book % of
Value Total Value Total Value Total
------ ------- ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
Equity Securities:
FHLB stock..................................... $ 317 8.33% $ 264 6.39 $ 240 8.30%
FHLMC stock.................................... --- --- 205 4.96 208 7.20
------ ------- ------- ------ ----- ------
Federal Reserve Bank stock..................... 123 3.24
------ -------
Total equity securities...................... 440 11.57 469 11.35 448 15.50
------ ------- ------- ------ ----- ------
Investments securities:
FHLB agency.................................... 499 13.12 --- --- --- ---
------ ------- ------- ------ ----- ------
Total investment securities................. 499 13.12 --- --- --- ---
Mortgage-backed Securities:
GNMA........................................... 161 4.23 209 5.06 309 10.69
FNMA........................................... 2,138 56.22 2,730 66.05 1,139 39.42
FHLMC.......................................... 565 14.86 725 17.54 994 34.39
------ ------- ------- ------ ----- ------
Total mortgage-backed securities............. $2,864 75.31 $ 3,664 88.6% $2,442 84.50%
------ ------- ------- ------ ----- ------
Total available for sale..................... $3,803 100.00% $ 4,133 100.00% $2,890 100.00%
------ ------ ======= ====== ===== ======
HELD TO MATURITY
Investment Securities:
FHLMC step up.................................. $ --- ---% $ --- ---% $ 500 38.58%
Municipal bonds................................ 210 21.06 245 41.39 265 20.45
------ ------- ------- ------ ----- ------
U.S. Treasury notes............................ 500 50.15
Total investment securities.................. 710 71.21 245 41.39 765 59.03
------ ------- ------- ------ ----- ------
Mortgage-backed Securities:
FHLMC........................................... $ 287 28.79% $ 347 58.61% $ 531 40.97%
------ ------- ------- ------ ----- ------
Total held to maturity....................... $ 997 100.00% $ 592 100.00% $1,296 100.00%
------ ------- ======= ====== ===== ======
Average remaining life of investment securities... 3.96 Years 3.31 Years 3.49 years
Other interest-earning assets:
Total interest-bearing deposits with banks... $2,662 100.00% $ 868 100.00% $2,472 100.00%
====== ======= ======= ====== ===== ======
</TABLE>
20
<PAGE>
The Bank's investment securities portfolio at October 31, 1997,
contained no securities of any issuer with an aggregate book value in excess of
10% of the Bank's retained earnings, excluding those issued by the U.S.
government, or its agencies.
First Robinson's investments, including the mortgage-backed securities
portfolio, are managed in accordance with a written investment policy adopted by
the Board of Directors.
OCC guidelines, as well as those of the other federal banking
regulators, regarding investment portfolio policy and accounting require Banks
to categorize securities and certain other assets as held for "investment,"
"sale," or "trading." In addition, effective April 1, 1994, the Bank adopted
SFAS 115 which states that securities available for sale are accounted for at
fair value and securities which management has the intent and the Bank has the
ability to hold to maturity are accounted for on an amortized cost basis. The
Bank's investment policy has strategies for each type of security. At October
31, 1997, the Bank classified $3.8 million of its investments as available for
sale and $997,000 as held to maturity.
Mortgage-backed Securities. The Bank invests primarily in federal
agency obligations. At October 31, 1997, the Bank's investment in
mortgage-backed securities totaled $3.2 million or 4.2% of its total assets. Of
this amount, $287,000 was held to maturity and $2.9 million was available for
sale. At October 31, 1997, the Bank did not have a trading portfolio.
21
<PAGE>
The following table sets forth the maturities of the Bank's
mortgage-backed securities at October 31, 1997.
<TABLE>
<CAPTION>
Due in
------------------------------------------------------------------------------
6 Months 6 Months 1 to 3 to 5 5 to 10 10 to 20 Over 20
or Less to 1 Year 3 Years Years Years Years Years Total
---------- --------- -------- --------- --------- --------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation... $ --- $ --- $ 287 $--- $ --- $391 $ 168 $ 846
Federal National
Mortgage Company....... --- --- --- --- --- 297 807 2,104
Government National
Mortgage Company....... --- --- --- --- --- --- 156 156
----- ----- ----- ----- ----- ----- ------ ------
Total.............. $ --- $ --- $ 287 $--- $ --- $688 $2,131 $3,106
===== ===== ===== ===== ===== ===== ====== ======
</TABLE>
22
<PAGE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, receipt of
principal and interest on loans and securities, interest earned on deposits with
other banks, and other funds provided from operations.
The Bank has used FHLB advances to support lending activities and to
assist in the Bank's asset/liability management strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Asset\Liability Management." At October 31, 1997, the Bank had no FHLB advances,
but had the capacity to borrow up to $16.9 million from the FHLB. See
"-Borrowings." See Note G of Notes To Consolidated Financial Statements.
Deposits. The Bank offers a variety of deposit accounts having a wide
range of interest rates and terms. The Bank's deposits consist of passbook,
money market deposit, IRA accounts, and certificate accounts. The certificate
accounts currently range in terms from 90 days to five years. The Bank has a
significant amount of deposits that will mature within one year. However,
management expects that virtually all of the deposits will be renewed.
The Bank relies primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits. Currently, the Bank
solicits deposits from its market area only, and does not use brokers to obtain
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition.
The Bank has become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. The Bank
endeavors to manage the pricing of its deposits in keeping with its
profitability objectives giving consideration to its asset/liability management.
The ability of the Bank to attract and maintain savings accounts and
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions. See Note F of Notes
To Consolidated Financial Statements.
23
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
Year Ended October 31,
------------------------------------
1997 1996 1995
-------- -------- ---------
(Dollars in Thousands)
Opening balance...................... $ 56,691 $ 49,404 $ 39,208
Deposits............................. 231,602 185,451 156,675
Withdrawals.......................... 228,418 179,660 147,580
Interest credited.................... 1,840 1,496 1,101
-------- -------- --------
Ending balance....................... $61,715 $56,691 $49,404
======= ======= =======
Net increase......................... $5,024 $7,287 $10,196
====== ====== =======
Percent increase..................... 8.86% 14.75% 26.00%
==== ===== =====
24
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank for the periods
indicated.
<TABLE>
<CAPTION>
October 31,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
Non-interest bearing demand 0%...................... $ 3,494 5.66% $ 2,265 4.00% $ 1,873 3.79%
Passbook Accounts 3.10%............................. 5,882 9.53 5,540 9.77 4,124 8.35
NOW Accounts 3.11%.................................. 8,381 13.58 6,717 11.85 6,055 12.25
--------- ------ -------- ------- ------- ------
Total Non-Certificates.............................. 17,757 28.77 14,522 25.62 12,052 24.39
-------- ------ -------- ------- -------- ------
Certificates:
2.00 - 3.99%....................................... $ 122 .20 $ 94 .17% $ 11 .02%
4.00 - 5.99%....................................... 22,280 36.10 22,958 40.49 21,810 44.15
6.00 - 7.99%....................................... 21,556 34.93 19,117 33.72 15,531 31.44
Total Certificates.................................. 43,958 71.23% 42,169 74.38 37,352 75.61
-------- ------ -------- ------- -------- ------
Total Deposits...................................... $61,715 100.00% $56,691 100.00% $49,404 100.00%
======= ====== ======= ======= ======== ======
</TABLE>
25
<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of October 31, 1997.
<TABLE>
<CAPTION>
Weighted
2.00- 4.00- 6.00- Percent Average
3.99% 5.99% 7.99% Total of Total Rate
-------- -------- --------------------- -------- -----
(Dollars in Thousands)
Certificate accounts
maturing
in quarter ending:
<S> <C> <C> <C> <C> <C> <C>
January 31, 1998............... $122 $ 7,299 $ 3,051 $10,472 23.82% 5.60%
April 30, 1998................. --- 5,096 1,367 6,463 14.70 5.18
July 31, 1998.................. --- 2,597 1,731 4,328 9.85 5.54
October 31, 1998............... --- 2,738 1,648 4,386 9.98 5.72
January 31, 1999............... --- 1,278 1,648 2,926 6.66 5.83
April 30, 1999................. --- 950 2,105 3,055 6.95 5.90
July 31, 1999.................. --- 335 1,183 1,518 3.45 6.11
October 31, 1999............... --- 1,129 2,971 4,100 9.33 6.03
January 31, 2000............... --- 352 1,460 1,812 4.12 6.10
April 30, 2000................. --- 206 817 1,023 2.33 5.95
July 31, 2000.................. --- 127 1,171 1,298 2.95 6.09
Thereafter..................... --- 173 2,404 2,577 5.86 6.30
------ --------- -------- -------- ----- ----
Total....................... $122 $22,280 $21,556 $43,958 100.00% 5.72%
==== ======= ======= ======= ====== ====
Percent of total............ .28% 50.68% 49.04%
=== ===== =====
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of October 31,
1997.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
---------- ------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000....... $ 7,075 $5,436 $6,442 $13,900 $32,853
Certificates of deposit of $100,000 or more...... 1,548 667 2,100 4,266 8,581
Public funds of $100,000 or more (1)............. 1,849 360 172 143 2,524
-------- -------- ------- ---------- --------
Total certificates of deposit.................... $10,472 $6,463 $8,714 $18,309 $43,958
======= ====== ====== ======= =======
</TABLE>
- ---------------
(1) Deposits from governmental and other public entities.
26
<PAGE>
Subsidiary Activities
As a national bank, the Bank is able to invest unlimited amounts in
subsidiaries that are engaged in activities in which the parent bank may engage.
In addition, a national bank may invest limited amounts in subsidiaries that
provide banking services, such as data processing, to other financial
institutions. At October 31, 1997, the Bank had one subsidiary, First Robinson
Service Corporation, Inc.
Competition
The Bank faces strong competition, both in originating real estate,
commercial and consumer loans and in attracting deposits. Competition in
originating loans comes primarily from commercial banks and credit unions
located in the Bank's market area. Commercial banks provide vigorous competition
in consumer lending. The Bank competes for real estate and other loans
principally on the basis of the quality of services it provides to borrowers,
the interest rates and loan processing fees it charges, and the types of loans
it originates. See "- Lending Activities."
The Bank attracts all of its deposits through its retail banking
office. Therefore, competition for those deposits is principally from retail
brokerage offices, commercial banks and credit unions located in the community.
The Bank competes for these deposits by offering a variety of account
alternatives at competitive rates and by providing convenient business hours.
The Bank primarily serves Crawford County, Illinois. There are four
commercial banks which compete for deposits and loans in the Bank's market area.
REGULATION
General. The Bank is a registered bank holding company, subject to
broad federal regulation and oversight by the FRB. First Robinson Savings Bank,
N.A. (the "Bank") is a national bank, the deposits of which are federally
insured and backed by the full faith and credit of the United States Government.
Accordingly, the Bank is subject to broad federal regulation and oversight
extending to all its operations by the OCC, the FDIC and the FRB. The Bank is
also a member of the FHLB of Chicago. The Bank is a member of the SAIF and the
deposits of the Bank are insured by the FDIC.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document. See Note H of Notes To Consolidated
Financial Statements.
Federal Regulation of National Banks
The OCC has extensive authority over the operations of national banks.
As part of this authority, the Bank is required to file periodic reports with
the OCC and is subject to periodic examinations by the OCC. All national banks
are subject to a semi-annual assessment, based upon the bank's total assets, to
fund the operations of the OCC.
27
<PAGE>
The OCC also has extensive enforcement authority over all national
banks, including The Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease-and-desist
or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated for violations of laws and regulations and
unsafe or unsound practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely reports filed with the
OCC. Except under certain circumstances, public disclosure of final enforcement
actions by the OCC is required.
The Bank's loans-to-one borrower limit is generally limited to 15% of
unimpaired capital and surplus. At October 31, 1997, the maximum amount which
the Bank could have lent under this limit to any one borrower and the borrower's
related entities was approximately $1.4 million. At October 31, 1997, the Bank
had no loans or groups of loans to related borrowers with outstanding balances
in excess of this amount. The Bank's five largest lending relationships at
October 31, 1997 totaled $4.5 million in the aggregate and were performing in
accordance with their terms.
The OCC, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan. A
failure to submit a plan or to comply with an approved plan will subject the
institution to further enforcement action. The OCC and the other federal banking
agencies have also proposed additional guidelines on asset quality and earnings
standards. No assurance can be given as to whether or in what form the proposed
regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against banks after
giving the OCC an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
28
<PAGE>
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
In order to equalize the deposit insurance premium schedules for BIF
and SAIF insured institutions, the FDIC imposed a one-time special assessment on
all SAIF-assessable deposits pursuant to federal legislation passed on September
30, 1996. The Bank's special assessment, which was $281,000, was paid in
November 1996, but accrued for the fiscal year ended October 31, 1997. Effective
January 1, 1997, the premium schedule for BIF and SAIF insured institutions
ranged from 0 to 27 basis points. However, SAIF-insured institutions are
required to pay a Financing Corporation (FICO) assessment, in order to fund the
interest on bonds issued to resolve thrift failures in the 1980s, equal to 6.48
basis points for each $100 in domestic deposits, while BIF-insured institutions
pay an assessment equal to 1.52 basis points for each $100 in domestic deposits.
The assessment is expected to be reduced to 2.43 no later than January 1, 2000,
when BIF insured institutions fully participate in the assessment. These
assessments, which may be revised based upon the level of BIF and SAIF deposits
will continue until the bonds mature in the year 2017.
National Banks. The Bank is subject to the capital regulations of the
OCC. The OCC's regulations establish two capital standards for national banks: a
leverage requirement and a risk- based capital requirement. In addition, the OCC
may, on a case-by-case basis, establish individual minimum capital requirements
for a national bank that vary from the requirements which would otherwise apply
under OCC regulations. A national bank that fails to satisfy the capital
requirements established under the OCC's regulations will be subject to such
administrative action or sanctions as the OCC deems appropriate.
The leverage ratio adopted by the OCC requires a minimum ratio of "Tier
1 capital" to adjusted total assets of 3% for national banks rated composite 1
under the CAMEL rating system for banks. National banks not rated composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their operations. For purposes of the OCC's leverage
requirement, Tier 1 capital generally consists of common stockholders' equity
and retained income and certain non-cumulative perpetual preferred stock and
related income, except that no intangibles and certain purchased mortgage
servicing rights and purchased credit card relationships may be included in
capital.
The risk-based capital requirements established by the OCC's
regulations require national banks to maintain "total capital" equal to at least
8% of total risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" means Tier 1 capital (as described above) plus
"Tier 2 capital," provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital, less certain assets. The components of Tier 2 capital
include certain permanent and maturing capital instruments that do not qualify
as core capital and general valuation loan and lease loss allowances up to a
maximum of 1.25% of risk-weighted assets.
The OCC has revised its risk-based capital requirements to permit the
OCC to require higher levels of capital for an institution in light of its
interest rate risk. In addition, the OCC has
29
<PAGE>
proposed that a bank's interest rate risk exposure would be quantified using
either the measurement system set forth in the proposal or the institution's
internal model for measuring such exposure, if such model is determined to be
adequate by the institution's examiner. Small institutions that are highly
capitalized and have minimal interest rate risk, such as the Bank, would be
exempt from the rule unless otherwise determined by the OCC. Management of the
Bank has not determined what effect, if any, the OCC's proposed interest rate
risk component would have on the National Bank's capital if adopted as proposed.
Prompt Corrective Action. The OCC is authorized and, under certain
circumstances required, to take certain actions against national banks that fail
to meet their capital requirements. The OCC is generally required to take action
to restrict the activities of an "undercapitalized Company" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such Company
must submit a capital restoration plan and until such plan is approved by the
OCC may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OCC is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized Companys.
Any national banking Company that fails to comply with its capital plan
or is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the Bank. An Company that becomes "critically
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized Companys. In addition, the OCC must appoint a
receiver (or conservator with the concurrence of the FDIC) for an Company, with
certain limited exceptions, within 90 days after it becomes critically
undercapitalized. Any undercapitalized Company is also subject to the general
enforcement authority of the OCC, including the appointment of a conservator or
a receiver.
The OCC is also generally authorized to reclassify a bank into a lower
capital category and impose the restrictions applicable to such category if the
institution is engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The imposition by the OCC of any of these measures on the Bank may have
a substantial adverse effect on the Bank's operations and profitability and the
value of the Bank's Common Stock.
Limitations on Dividends and Other Capital Distributions
The Bank's ability to pay dividends is governed by the National Bank
Act and OCC regulations. Under such statute and regulations, all dividends by a
national bank must be paid out of current or retained net profits, after
deducting reserves for losses and bad debts. The National Bank Act further
restricts the payment of dividends out of net profits by prohibiting a national
bank from declaring a cash dividend on its shares of common stock until the
surplus fund equals
30
<PAGE>
the amount of capital stock or, if the surplus fund does not equal the amount of
capital stock, until one-tenth of the Bank's net profits for the preceding half
year in the case of quarterly or semi-annual dividends, or the preceding two
half-year periods in the case of annual dividends, are transferred to the
surplus fund. In addition, the prior approval of the OCC is required for the
payment of a dividend if the total of all dividends declared by a national bank
in any calendar year would exceed the total of its net profits for the year
combined with its net profits for the two preceding years, less any required
transfers to surplus or a fund for the retirement of any preferred stock.
The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, the Bank would be prohibited by federal statute
and the OCC's prompt corrective action regulations from making any capital
distribution if, after giving effect to the distribution, the Bank would be
classified as "undercapitalized" under the OCC's regulations. See "-- Prompt
Corrective Action." Finally, the Bank would not be able to pay dividends on its
capital stock if its capital would thereby be reduced below the remaining
balance of the liquidation account established in connection with the Bank's
Conversion.
Accounting
The OCC requires that investment activities of a national bank be in
compliance with approved and documented investment policies and strategies, and
must be accounted for in accordance with generally accepted accounting
principles ("GAAP"). Accordingly, management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
requirements.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OCC, in connection with the examination of the
Bank, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OCC.
The federal banking agencies, including the OCC, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for CRA
compliance in 1996 and received a rating of satisfactory.
31
<PAGE>
Transactions with Affiliates
Generally, transactions between a national bank or its subsidiaries and
its affiliates are required to be on terms as favorable to the Bank as
transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the Bank's
capital. Affiliates of the Bank include any company which is under common
control with the Bank. In addition, the Bank may not acquire the securities of
most affiliates. Subsidiaries of the Bank are not deemed affiliates. However,
the FRB has the discretion to treat subsidiaries of national banks as affiliates
on a case by case basis.
Certain transactions with directors, officers or controlling persons
("Insiders") are also subject to conflict of interest rules enforced by the OCC.
These conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related interests. Among other
things, as a general matter, loans to Insiders must be made on terms
substantially the same as for loans to unaffiliated individuals.
Federal Reserve System
The FRB requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts). At October 31, 1997,
the Bank had $123,000 FRB stock, which was in compliance with these reserve
requirements.
National banks are authorized to borrow from the Federal Reserve Bank
"discount window," but FRB regulations require Companys to exhaust other
reasonable alternative sources of funds, including FHLB borrowings, before
borrowing from the Federal Reserve Bank.
The Bank is a member of the Federal Reserve System.
Holding Company Regulation
General. The Bank is a bank holding company, registered with the FRB.
Bank holding companies are subject to comprehensive regulation by the FRB under
the BHCA, and the regulations of the FRB. As a bank holding company, the Bank is
required to file reports with the FRB and such additional information as the FRB
may require, and will be subject to regular examinations by the FRB. The FRB
also has extensive enforcement authority over bank holding companies, including,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices.
Under FRB policy, a bank holding company must serve as a source of
strength for its subsidiary banks. Under this policy the FRB may require, and
has required in the past, a holding company to contribute additional capital to
an undercapitalized subsidiary bank.
32
<PAGE>
Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control more than 5% of such shares (unless it already owns or controls the
majority of such shares); (ii) acquiring all or substantially all of the assets
of another bank or bank holding company; or (iii) merging or consolidating with
another bank holding company.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the FRB includes,
among other things, operating a savings institution, mortgage company, finance
company, credit card company or factoring company; performing certain data
processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. The Holding Company has no present plans to
engage in any of these activities.
Interstate Banking and Branching. On September 29, 1994, the
Riegle-Neal Interstate Banking and Branching Act of 1994 (the "Act") was enacted
to ease restrictions on interstate banking. Effective September 29, 1995, the
Act allows the FRB to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The FRB may not approve the acquisition of
the bank that has not been in existence for the minimum time period (not
exceeding five years) specified by the statutory law of the host state. The Act
also prohibits the FRB from approving an application if the applicant (and its
depository institution affiliates) controls or would control more than 10% of
the insured deposits in the United States or 30% or more of the deposits in the
target bank's home state or in any state in which the target bank maintains a
branch. The Act does not affect the authority of states to limit the percentage
of total insured deposits in the state which may be held or controlled by a bank
or bank holding company to the extent such limitation does not discriminate
against out-of-state banks or bank holding companies. Individual states may also
waive the 30% state-wide concentration limit contained in the Act. The State of
Illinois does not currently have any deposit concentration limits or age
protection for new banks.
Additionally, on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks opts out of the Act by adopting a law after the date of
enactment of the Act and prior to June 1, 1997 which applies equally to all
out-of-state
33
<PAGE>
banks and expressly prohibits merger transactions involving out-of-state banks.
Interstate acquisitions of branches will be permitted only if the law of the
state in which the branch is located permits such acquisitions. Interstate
mergers and branch acquisitions will also be subject to the nationwide and
statewide insured deposit concentration amounts described above. The State of
Illinois has authorized interstate merger transactions effective June 1, 1997.
The Act authorizes the OCC and FDIC to approve interstate branching de
novo by national and state banks, respectively, only in states which
specifically allow for such branching. The Act also requires the appropriate
federal banking agencies to prescribe regulations by June 1, 1997 which prohibit
any out-of-state bank from using the interstate branching authority primarily
for the purpose of deposit production. These regulations must include guidelines
to ensure that interstate branches operated by an out-of-state bank in a host
state are reasonably helping to meet the credit needs of the communities which
they serve.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that the Holding
Company's net income for the past year is sufficient to cover both the cash
dividends and a rate of earning retention that is consistent with the Holding
Company's capital needs, asset quality and overall financial condition. The FRB
also indicated that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, under the
prompt corrective action regulations adopted by the FRB, the FRB may prohibit a
bank holding company from paying any dividends if the holding company's bank
subsidiary is classified as "undercapitalized". See " -- Regulatory Capital
Requirements -- Prompt Corrective Action."
Bank holding companies are required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that meets
the well-capitalized standard for commercial banks, has a safety and soundness
examination rating of at least a "2" and is not subject to any unresolved
supervisory issues.
Capital Requirements. The FRB has established capital requirements for
bank holding companies that generally parallel the capital requirements for
national banks. For bank holding companies with consolidated assets of less than
$150 million, such as the Bank, compliance is measured on a bank-only basis. See
"-- Regulatory Capital Requirements - National Banks." The Bank's capital
exceeds such requirements.
34
<PAGE>
Federal Home Loan Bank System
The Bank is a member of the FHLB of Chicago, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
Companys. Each FHLB serves as a reserve or central bank for its members within
its assigned region. It is funded primarily from proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures, established by the board
of directors of the FHLB which are subject to the oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Chicago. At October 31, 1997, the Bank had $317,000 in FHLB stock, which
was in compliance with this requirement. In the past year, the Bank has received
substantial dividends on its FHLB stock.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings Companys and to contribute to low- and moderately
priced housing programs through direct loans or interest subsidies on advances
targeted for community investment and low- and moderate-income housing projects.
These contributions have affected adversely the level of FHLB dividends paid and
could continue to do so in the future. These contributions could also have an
adverse effect on the value of FHLB stock in the future. A reduction in value of
The Bank's FHLB stock may result in a corresponding reduction in the Bank's
capital.
For the year ended October 31, 1997, dividends paid by the FHLB of
Chicago to the Bank totaled $20,000, which constitute a $3,000 increase over the
amount of dividends received in calendar year 1996.
Federal and State Taxation
Federal Taxation. In addition to the regular income tax, corporations,
including the Bank, generally are subject to a minimum tax. An alternative
minimum tax is imposed at a minimum tax rate of 20% on alternative minimum
taxable income, which is the sum of a corporation's regular taxable income (with
certain adjustments) and tax preference items, less any available exemption. The
alternative minimum tax is imposed to the extent it exceeds the corporation's
regular income tax and net operating losses can offset no more than 90% of
alternative minimum taxable income. For taxable years beginning after 1986 and
before 1996, corporations, such as the Bank, are also subject to an
environmental tax equal to 0.12% of the excess of alternative minimum taxable
income for the taxable year (determined without regard to net operating losses
and the deduction for the environmental tax) over $2 million.
The Bank has recorded a deferred tax liability of approximately
$240,000, relating to unrealized gains on available-for-sale securities,
accumulated depreciation and cash-accrual conversions.
35
<PAGE>
The Company and the Bank file a consolidated income tax return on the
cash basis of accounting. The Company will be filing the next income tax on the
accrual basis of accounting because the total revenue exception has been
exceeded for the cash basis filing requirement.
Neither the Company nor the Bank have never been audited by the IRS
with respect to federal income tax returns.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed
at an effective rate equal to 7.18% of Illinois taxable income. For these
purposes, "Illinois Taxable Income" generally means federal taxable income,
subject to certain adjustments (including the addition of interest income on
state and municipal obligations and the exclusion of interest income on United
States Treasury obligations). The exclusion of income on United States Treasury
obligations has had the effect of eliminating Illinois taxable income for the
Bank.
The Bank's accounting activities are maintained on an in-house computer
system and its record-keeping activities are maintained on an on-line basis with
an independent service bureau.
Competition
The Bank faces strong competition, both in originating real estate,
commercial and consumer loans and in attracting deposits. Competition in
originating loans comes primarily from commercial banks, credit unions and
savings institutions located in the Bank's market area. Commercial banks, credit
unions and savings institutions provide vigorous competition in consumer
lending. The Bank competes for real estate and other loans principally on the
basis of the quality of services it provides to borrowers, the interest rates
and loan processing fees it charges, and the types of loans it originates. See
"- Lending Activities."
The Bank attracts all of its deposits through its retail banking
offices. Therefore, competition for those deposits is principally from retail
brokerage offices, commercial banks, credit unions and savings institutions
located in the community. The Bank competes for these deposits by offering a
variety of account alternatives at competitive rates and by providing convenient
business hours.
The Bank primarily serves Crawford County, Illinois and surrounding
counties. There are four commercial banks and two credit unions, other than The
Bank, which compete for deposits and loans in the Bank's primary market area.
Employees
At October 31, 1997, the Bank had a total of 36 full-time and 9
part-time employees. The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
36
<PAGE>
Item 2. Description of Properties
The Bank conducts its business through its main office and three branch
offices, which are located in Crawford County, Illinois. The Bank owns its main
office and branch offices. The following table sets forth information relating
to the Bank's office as of October 31, 1997. The total net book value of the
Bank's premises and equipment (including land, buildings and leasehold
improvements and furniture, fixtures and equipment) at October 31, 1997 was
approximately $2.7 million.
<TABLE>
<CAPTION>
Total
Approximate
Date Square Net Book Value at
Location Acquired Footage October 31, 1997
- -------------------------------- -------- -------------- ----------------
<S> <C> <C> <C>
Main Office:
501 East Main Street 1985 12,420 $1.6 million
Robinson, Illinois
Branch Offices:
119 East Grand Prairie 1995 1,800 399,000
Palestine, Illinois
102 West Main Street 1995 2,260 141,000
Oblong, Illinois
Outer East Main Street 1997 1,000 209,000
Oblong, Illinois
</TABLE>
The Bank believes that its current facilities are adequate to meet the
present and foreseeable needs of the Bank and the Holding Company. See Note E of
Notes To Consolidated Financial Statements.
Item 3. Legal Proceedings
The Bank is involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of its businesses. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing the Bank
in the proceedings, that the resolution of these proceedings should not have a
material effect on Holding Company's results of operations on a consolidated
basis.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended October 31, 1997.
37
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Page 41 of the attached 1997 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Pages 4 through 15 of the attached 1997 Annual Report to Stockholders
are herein incorporated by reference.
Item 7. Financial Statements
The following information appearing in the Bank's Annual Report to
Stockholders for the year ended October 31, 1997, is incorporated by reference
in this Annual Report on Form 10-KSB as Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Pages 12 through 13 of the attached 1997 Annual Report to Stockholders
are herein incorporated by reference.
38
<PAGE>
<TABLE>
<CAPTION>
Pages in
Annual
Annual Report Section Report
- --------------------- ------
<S> <C>
Report of Independent Auditors........................................................................ 16
Consolidated Statements of Financial Condition as of October 31, 1997 and 1996........................ 17
Consolidated Statements of Income for the Years Ended October 31, 1997,
1996 and 1995........................................................................................ 18
Consolidated Statements of Stockholders' Equity for Years Ended October 31,
1997, 1996 and 1995.................................................................................. 19
Consolidated Statements of Cash Flows for Years Ended October 31, 1997,
1996 and 1995........................................................................................ 20 to 21
Notes to Consolidated Financial Statements............................................................ 22 to 40
</TABLE>
With the exception of the aforementioned information, the Bank's Annual
Report to Stockholders for the year ended October 31, 1997, is not deemed filed
as part of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There have been no changes in or disagreements with the Bank's
accountants on accounting and financial disclosure matters.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
Directors
Information concerning Directors of the Bank is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.
39
<PAGE>
Executive Officers
Information concerning Executive Officers of the Bank is incorporated
herein by reference from the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in February 24, 1998, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Bank's directors and executive officers, and persons who own more than 10% of a
registered class of the Bank's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Bank. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Bank with copies of
all Section 16(a) forms they file.
To the Bank's knowledge, based solely on a review of the copies of such
reports furnished to the Bank and written representations that no other reports
were required, during the fiscal year ended October 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10
percent beneficial owners were complied with.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive Proxy
Statement for the Annual Meeting of Stockholders to be held in 1998, a copy of
which will be filed not later than 120 days after the close of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed
not later than 120 days after the close of the fiscal year.
40
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Regulation Reference to
S-B Prior Filing or
Exhibit Exhibit Number
Number Document Attached Hereto
- ----------- --------------------------------------- -----------------
<S> <C> <C> <C>
2 Plan of acquisition, reorganization,
arrangement, liquidation or succession None
3(i) Certificate of Incorporation *
3(ii) By-Laws *
4 Instruments defining the rights of security *
holders, including debentures
9 Voting Trust Agreement None
10 Material Contracts None
11 Statement re: computation of per share None
earnings
13 Annual Report to Stockholders 13
16 Letter re: change in certifying accountants None
18 Letter re: change in accounting principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to None
vote of security holders
23 Consents of Experts and Counsel None
24 Power of Attorney Not required
27 Financial Data Schedule 27
99 Additional Exhibits None
</TABLE>
- ----------------
* Filed as exhibits to the Company's Form S-1 registration statement filed on
March 19, 1997 (File No. 333-23625) of the Securities Act of 1933. All of
such previously filed documents are hereby incorporated herein by reference
in accordance with Item 601 of Regulation S-B.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on October 1, 1997 (File No.
0-29276) regarding a change in fiscal year end.
41
<PAGE>
SIGNATURES
In accordance with Section 13 of 15(d) of the Exchange Act, the Issuer
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST ROBINSON FINANCIAL
CORPORATION
Date: January 29, 1998 By: /s/ Rick L. Catt
--------------------------- ----------------
Rick L. Catt
(Duly Authorized Representative)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Issuer and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/ Rick L. Catt By: /s/ Jamie E. McReynolds
---------------------------------- ------------------------------------------
Rick L. Catt, Director, President Jamie E. McReynolds, Vice
and Chief Executive Officer President, Chief Financial Officer
(Principal Executive and Operating and Secretary (Chief Financial
Officer) and Accounting Officer)
Date: January 29, 1998 Date: January 29, 1998
---------------------------------- ------------------------------------------
By: /s/ Scott F. Pulliam By: /s/ James F. Goodwine
---------------------------------- ------------------------------------------
Scott F. Pulliam, Director James F. Goodwine, Director
Date: January 29, 1998 Date: January 29, 1998
---------------------------------- ------------------------------------------
By: /s/ Clell T. Keller By: /s/ Rick L. Catt
---------------------------------- ------------------------------------------
Clell T. Keller, Director Rick L. Catt, Director
Date: January 29, 1998 Date: January 29, 1998
---------------------------------- ------------------------------------------
By: /s/ William K. Thomas By: /s/ Donald K. Inboden
---------------------------------- ------------------------------------------
William K. Thomas, Director Donald K. Inboden, Director
Date: January 29, 1998 Date: January 29, 1998
---------------------------------- ------------------------------------------
</TABLE>
42
<PAGE>
TABLE OF CONTENTS
President's Message..................................................... 1
Selected Financial Information.......................................... 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 4
Financial Statements.................................................... 16
Stockholder Information................................................. 41
Corporate Information................................................... 42
i
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION
501 E. MAIN ST. P.O. BOX 152 ROBINSON, IL 62454 TELEPHONE 618-544-8621
Dear Stockholder,
It is a pleasure to present to you the Annual Report of First Robinson
Financial Corporation for the fiscal year ended October 31, 1997, our first
report as a publicly held corporation. It has been an eventful and exciting
year, filled with challenges and opportunities.
During the year ended October 31, 1997, total assets increased from
$63.9 million to $75.6 million, an increase of $11.7 million or 18.3%. Net
income for the fiscal year increased to $647,000 as compared to $123,000 for the
previous fiscal year. This increase is attributed to an increase in net interest
income of $666,000, an increase in non-interest income of $124,000, a decrease
in provision for loan losses of $64,000, a decrease in non-interest expense of
$45,000, offset by an increase in provision for income tax of $375,000.
The commitment and performance of our employees, management and board
of directors in addition to the invaluable support of our customers has made
1997 a successful year. We are indeed appreciative of this support.
First Robinson, with approval from the board of directors, intends to
change to a March 31 year end. Management believes this will result in a more
efficient use of staff, particularly in the area of regulatory reporting, and
will also put your Company on a more traditional quarterly system, in line with
other public companies. This change will result in an initial fiscal year
consisting of five months, ending March 31, 1998.
The company has been, and intends to continue to be, a
community-oriented financial institution serving the residents and businesses of
Crawford County and surrounding counties. The board of directors and management
continue to plan for the future of First Robinson. As we build value in our
Company, we will maintain the high quality customer service that demonstrates
our commitment to our customers and the communities we serve.
On behalf of all of us at First Robinson, we thank you for your
continued support.
Sincerely,
/s/ RICK L. CATT
- ----------------
Rick L. Catt
President and Chief Executive Officer
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial data of
First Robinson Financial Corporation at and for the periods indicated. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been included. The consolidated
financial data is derived in part from, and should be read in conjunction with,
the Financial Statements and Notes thereto presented elsewhere in this Annual
Report.
<TABLE>
<CAPTION>
October 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ----------------------------------
Total assets........................................ $75,559 $63,869 $54,708 $43,824 $41,299
Loans receivable, net............................... 63,960 54,448 44,854 34,093 30,885
Mortgage-backed securities.......................... 3,151 4,011 2,973 3,284 3,792
Interest bearing deposits........................... 2,662 868 2,472 2,602 2,575
Investment securities............................... 1,649 714 1,213 1,221 1,448
Deposits............................................ 61,715 56,691 49,404 39,208 36,976
Total borrowings.................................... 92 1,500 --- --- ---
Stockholders' equity................................ 12,804 4,658 4,536 4,111 3,747
Year Ended October 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- --------
(In Thousands)
Selected Operations Data:
- -------------------------
Total interest income................................. $ 5,915 $ 4,827 $ 3,755 $ 2,985 $ 3,160
Total interest expense................................ (3,077) (2,655) (1,971) (1,446) (1,563)
-------- ------- ------- -------- -------
Net interest income................................ 2,838 2,172 1,784 1,539 1,597
Provision for loan losses............................. (206) (270) (9) (24) (33)
--------- -------- ---------- ---------- ----------
Net interest income after provision for loan losses... 2,632 1,902 1,775 1,515 1,564
--------- -------- -------- --------- ---------
Fees and service charges.............................. 320 295 241 223 188
Gain (loss) on sales of loans, securities and
fixed assets........................................ 133 60 1 --- 2
Other non-interest income............................. 63 37 29 21 39
----------- --------- --------- ---------- -----------
Total non-interest income............................. 516 392 271 244 229
---------- -------- -------- --------- ----------
Total non-interest expense............................ (2,075) (2,120) (1,414) (1,176) (1,175)
-------- ------- ------- ------- --------
Income (loss) before taxes and extraordinary item..... 1,073 174 632 583 618
Income tax provision.................................. (426) (51) (233) (221) (219)
Extraordinary item.................................... --- --- --- --- 48
------------ ---------- ---------- ---------- ----------
Net income............................................ $ 647 $ 123 $ 399 $ 362 $ 447
========= ======= ======= ======= ========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
- -----------------------------------------
Performance Ratios:
Return on assets (ratio of net income to average total
assets)........................................ .90% .21% .82% .86% .97%
Return on retained earnings (ratio of net income to
average equity)................................. 8.54 2.60 9.68 9.08 11.24
Interest rate spread information:
Average during period........................... 3.71 3.49 3.52 3.60 3.79
End of period................................... 3.64 3.76 3.51 3.29 3.70
Net interest margin(1)........................... 4.20 3.86 3.90 3.88 4.09
Ratio of operating expense to average total assets 2.90 3.54 2.91 2.80 2.84
Ratio of average interest-earning assets to average
interest-bearing liabilities................... 110.58 108.01 108.83 107.78 107.84
Quality Ratios:
Non-performing assets to total assets at end of period .96 .61 .07 .07 .33
Allowance for loan losses to non-performing loans. 144.31 430.21 2,125.00 2,215.00 3,670.00
Allowance for loan losses to loans receivable, net .75 .76 .57 .84 1.19
Capital Ratios:
Retained earnings to total assets at end of period 16.95 7.29 8.29 9.38 9.07
Average retained earnings to average assets....... 10.57 7.91 8.49 9.45 8.59
Other Data:
Number of full-service offices.................... 3 3 3 1 1
Number of full-time employees..................... 36 34 30 20 21
Number of deposit accounts........................ 8,775 7,279 5,885 5,284 5,006
Number of loan accounts........................... 3,838 3,625 2,897 2,375 2,234
- --------------------
(1) Net interest income divided by average interest-earning assets.
</TABLE>
3
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The principal business of First Robinson Financial Corporation (the
"Company"), through its operating subsidiary, First Robinson Savings Bank,
National Association (the "Bank"), consists of accepting deposits from the
general public and investing these funds primarily in loans, mortgage-backed
securities and other securities. The Bank'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-earning
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, primarily on 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 capital level in excess of regulatory requirements;
(ii) to maintain asset quality; (iii) to maintain, and if possible, increase
earnings; and (iv) to manage exposure to changes in interest rates.
Business Strategy
The Company's business strategy 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) . The Board of Directors and management are strategically planning
the Company's future. New products and services are being discussed and reviewed
for their effect on profitability and customer service. In the past year, the
Bank opened a new drive-up facility in Oblong and two new drive-up ATMs; one in
Robinson and one in Oblong. The Board of Directors intends to maintain a strong
presence in the one- to-four family real estate market and plans to institute
new programs to increase the Company's market share.
4
<PAGE>
The Board of Directors approved changing the Company's fiscal year from
October 31 to March 31, effective March 31, 1998.
Financial Condition
Comparison at October 31, 1997 and October 31, 1996
The Company's total assets increased by approximately $11.7 million, or
18.3%, to $75.6 million at October 31,1997 from $63.9 million at October 31,
1996. This increase in total assets was primarily the result of a $1.7 million
increase in cash and cash equivalents and a $9.5 million increase in loans
receivable, net.
Loans receivable, net increased $9.5 million, or 17.5%, to $64.0
million at October 31, 1997 from $54.4 million at October 31, 1996. This
increase was primarily due to competitive rates and terms, utilization of the
proceeds from the conversion to stock form of ownership and to a national bank
charter, continued customer desire to do business with a locally-owned
institution, and attracting new customer relationships. These increases were
also funded by an increase in deposits of approximately $5.0 million.
Investment securities held to maturity increased $405,000, or 68.4%, to
$997,000 at October 31, 1997 from $592,000 at October 31, 1996. This increase
was due to the purchase of a government security. Investment securities
available for sale decreased by $330,000, or 8.0%, to $3.8 million at October
31, 1997 from $4.1 million at October 31, 1996. This decrease was due primarily
to principal reduction of mortgage-backed securities which was partially offset
by purchase of government securities.
Liabilities increased approximately $3.6 million, or 6.0%, to $62.8
million at October 31, 1997 from $59.2 million at October 31, 1996. This
increase in liabilities was primarily the result of a $5.0 million, or 8.9%,
increase in deposits to $61.7 million at October 31, 1997 from $56.7 million at
October 31, 1996 and an increase of $241,000 in accrued and deferred income
taxes which was partially offset by the elimination of Federal Home Loan Bank
("FHLB") advances at October 31, 1997 from $1.5 million at October 31, 1996, and
a decrease in accrued expense of $329,000. Deposits have increased due to the
Bank's focus on providing competitive pricing and service in its market area.
Stockholders' equity increased $8.1 million to $12.8 million as of
October 31, 1997 from $4.7 million as of October 31, 1996. This increase was
primarily from the net proceeds from the sale of the Company's stock, and to a
lesser extent from net income of $647,000.
5
<PAGE>
Operating Results
Comparison of Operating Results for the Years ended October 31, 1997 and October
31, 1996
Performance Summary
The Company reported net income of $647,000 during the year ended
October 31, 1997, as compared to $123,000 during the year ended October 31,
1996. The $524,000 increase in net income during the year ended October 31,
1997, as compared to the same period in the prior year, was primarily
attributable to an increase of $730,000 or 38.4% in net interest income after
provision for loan losses, an increase of $124,000, or 31.6%, in non-interest
income and a decrease of $45,000, or 2.1%, in non-interest expense offset by an
increase of $375,000 in provision for income tax. For the years ended October
31, 1997 and 1996, the returns on average assets were 0.9% and 0.2%
respectively, while the returns on average equity were 8.5% and 2.6%,
respectively.
Net Interest Income
Net interest income increased by $666,000, or 30.7%, at year ended
October 31, 1997 from October 31, 1996. This reflects an increase of $1.1
million, or 22.5%, in interest income to $5.9 million from $4.8 million and an
increase in interest expense of $422,000, or 15.9%, to $3.1 million from $2.7
million. The increase in net interest margin was primarily increases in the
balances and rates of interest earning assets, particularly loans receivable,
offset by increases of balances and rates of interest bearing deposits,
primarily certificates of deposit.
For the year ended October 31, 1997, the average yield on
interest-earning assets was 8.8%compared to 8.6% for 1996. The average cost of
interest-bearing liabilities was 5.0% for the year ended October 31, 1997, a
decrease from 5.1% for 1996. The average balance of interest-earning assets
increased by $11.3 million, or 20.1%, to $67.6 million for the year ended
October 31, 1997, compared to $56.3 million for 1996. The average balance of
interest-bearing liabilities increased by $9.1 million, or 17.5%, to $61.2
million for the year ended October 31, 1997 from $52.1 million for the year
ended October 31, 1996.
The average interest rate spread was 3.71% for the year ended October
31, 1997 compared to 3.49% for the year ended October 31, 1996. The average net
interest margin was 4.2% for the year ended October 31, 1997 compared to 3.9%
for 1996.
Non-Interest Income
For the year ended October 31, 1997, non-interest income increased by
$124,000, or 31.6%, to $516,000 from $392,000 at October 31, 1996. This increase
is primarily from an increase in service charges on deposits of $25,000, or
16.0%, an increase in gain on sale of assets of $73,000, or 121.7%, and an
increase in other non-interest income of $26,000, or 70.3%. The increase in gain
on sale of assets resulted primarily from gains on the sale of the SBA
guaranteed portion of three commercial loans. The increase in other non-interest
income resulted primarily from fees charged for Internet service provided to the
community.
6
<PAGE>
Non-Interest Expense
Non-interest expense decreased by $45,000, or 2.1%, to $2.1 million for
the year ended October 31, 1997 from $2.1 million for the year ended October 31,
1996. Compensation and employee benefits increased $89,000, or 8.8%, to $1.1
million for the year ended October 31, 1997 from $1.0 million for 1996. This
increase is attributed to normal salary increases and increased personnel costs
during the stock conversion. SAIF deposit insurance expense decreased by
$347,000, or 88.3%, to $46,000 for the year ended October 31, 1997 from $393,000
for 1996. This decrease is attributed primarily to a one-time assessment to all
SAIF institutions which was $261,000 for the year ended October 31,1996 and to a
significant reduction in the rate of deposit insurance assessment. Other
non-interest expense increased by $115,000, or 71.0%, to $277,000 for the year
ended October 31, 1997 from $162,000 for 1996. This increase is attributed
primarily to increased costs associated with the providing of Internet service
to the community. Occupancy expense increased $42,000, or 11.7%, to $400,000 for
the year ended October 31, 1997 from $358,000 for 1996. This increase is mainly
attributed to increased expenses of a new drive-up facility in Oblong
constructed during 1997.
Provision for Loan Losses
During the year ended October 31, 1997, the Company recorded provision
for loan losses of $206,000, as compared to $270,000 for the same period of the
prior year. The Bank recorded such provisions to adjust the Bank's allowance for
loan losses to a level deemed appropriate based on an assessment of the volume
and lending presently being conducted by the Bank, industry standards, past due
loans, economic conditions in the Bank's market area generally and other factors
related to the collectibility of the Bank's loan portfolio. The Bank's
non-performing assets as a percentage of total assets was .96% at October 31,
1997, as compared to .61% at October 31, 1996.
Management will continue to monitor its allowance for loan losses and
make additions to the allowance through the provision for loan losses as
economic conditions and other factors dictate. Although the flank maintains its
allowance for loan losses at a level which it considers to be adequate to
provide for loan losses, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in the future.
Provision for Income Taxes
The Company recognized provision for income taxes of $426,000 for the
year ended October 31, 1997, as compared to $51,000 for the same period in the
prior year. The effective tax rate during the year ended October 31, 1997 was
40.0% (federal and state), as compared to 29.3% during the same period in the
prior year.
7
<PAGE>
Comparison of Operating Results for the Years ended October 31, 1996 and October
31, 1995
Performance Summary
Net income decreased by $276,000, or 69.2%, to $123,000 at October 31,
1996 from $399,000 at October 31, 1995. The decrease was primarily due to an
increase of net interest income of $388,000 and an increase of non-operating
income of $121,000 and a reduction in income tax expense of $182,000, offset by
an increase of provision for loan losses of $261,000, an increase of
non-interest expense of $706,000. For the years ended October 31, 1996 and 1995,
the returns on average assets were 0.2% and 0.8% respectively, while the returns
on average equity were 2.6% and 9.7%, respectively.
Net Interest Income
Net interest income increased by $388,000 at year ended October 31,
1996 from October 31, 1995. This reflects an increase of $1.1 million, or 28.6%,
in interest income to $4.8 million from $3.8 million and an increase in interest
expense of $684,000, or 34.7%, to $2.7 million from $2.0 million. The increase
in net interest margin was primarily from increases in the balances and rates of
interest earning assets, particularly loans receivable, offset by increases of
balances and rates of interest bearing deposits, primarily certificates of
deposit. The Company maintained approximately the same interest rate spread for
both years.
For the year ended October 31, 1996, the average yield on
interest-earning assets was 8.6% compared to 8.2% for 1995. The average cost of
interest-bearing liabilities was 5.1% for the year ended October 31, 1996, an
increase from 4.7% for 1995. The average balance of interest-earning assets
increased by $10.6 million, or 23.1%, to $56.3 million for the year ended
October 31, 1996, compared to $45.7 million for 1995. The average balance of
interest-bearing liabilities increased by $10.1 million, or 24.0%, to $52.1
million for the year ended October 31, 1996 from $42.0 million for the year
ended October 31, 1995.
The average interest rate spread was 3.5% for the year ended October
31, 1996 compared to 3.5% for the year ended October 31, 1995. The average net
interest margin was 3.9% for the year ended October 31, 1996 compared to 3.9%
for 1995.
Non-Interest Income
For the year ended October 31, 1996, non-interest income increased by
$121,000, or 44.7%, to $392,000 from $271,000 at October 31, 1995. This increase
is primarily from an increase in loan fees of $19,000, or 15.8%, an increase in
service charges on deposits of $35,000, or 28.9%, and an increase in gain on
sale of assets of $59,000. The increase in gain on sale of assets resulted from
a $45,000 gain on the sale of an SBA guaranteed portion of a commercial loan and
a $8,000 gain on the sale of real estate held for investment.
8
<PAGE>
Non-Interest Expense
Non-interest expense increased by $706,000, or 49.9%, to $2.1 million
for the year ended October 31, 1996 from $1.4 million for the year ended October
31, 1995. Compensation and employee benefits increased $274,000, or 36.9%, to
$1.0 million for the year ended October 31, 1996 from $743,000 for 1995. This
increase is attributed to a directors retirement plan, which amounted to $94,000
including prior service award, additional employees for the staffing of the two
branches started in late 1995, and normal salary increases. The SAIF made a one
time assessment to all associations which increased the SAIF insurance cost by
$281,000 during 1996. The rate of deposit insurance assessment is expected to
significantly decline commencing January 1, 1997.
In addition, in the future, non-interest expense may increase due to
expenses associated with the ESOP and the costs of being a public company.
Occupancy expense increased $86,000, or 26.9%, to $406,000 for 1996 from
$320,000 for 1995. This increase was mainly attributed to increased expenses of
two branches for all of 1996 as compared to part of a year in 1995.
Provision for Loan Losses
During the year ended October 31, 1996, the Bank recorded a provision
for loan losses of $270,000 compared to $9,000 for the year ended October 31,
1995. This provision was recorded due to the significant growth in loans of
21.3% for 1996. The Company experienced significant growth in commercial
business, commercial real estate, and consumer loans of 27.4% between the two
years or 59.9% of the total loan growth in 1996. The Company increased the
provision for loan losses in 1996 based on the continued growth in this type of
lending which has perceived higher credit risk than traditional thrift lending
on residential real estate loans.
During fiscal 1996, the Company's non-performing loans increased from
$36,000 to $389,000. This increase was primarily attributed to a $260,000
one-to-four family dwelling which was later transferred to real estate owned.
This increase did not have a significant effect on the Company's provisions for
loan losses as management anticipates a minimal loss, if any, when the property
is sold.
Management will continue to monitor its allowance for loan losses and
make additions to the allowance through the provision for loan losses as
economic conditions and other factors dictate. Although the Company maintains
its allowance for loan losses at a level which it considers to be adequate to
provide for loan losses, there can be no assurance that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in the future.
Provision for Income Taxes
Income taxes decreased by $182,000 to $51,000 for the year ended
October 31, 1996 from $233,000 for the year ended October 31, 1995. This
decrease results from the decrease in income before taxes. The Company's
effective tax rates were 29.3% and 36.9% for the years ended October 31, 1996
and October 31, 1995, respectively.
9
<PAGE>
The effective tax rates decreased from 1995 to 1996 as a direct effect
of the decrease in taxable income. In 1995, the Bank was taxed at 34% based on
the IRS tax rate schedule for corporations which is graduated based on taxable
income levels. In 1996, the Company was taxed at an effective tax rate of 29.4%
based on the same IRS tax rate schedule for corporations used in 1995. Both
years had adjustments which lessened taxable income, however, the decrease in
effective tax rates are directly related to the reduction in taxable income of
the two years. State income taxes are calculated at a flat tax rate.
Average Balances/Interest Rates and Yields. The following table
presents for the periods indicated the total dollar amount of interest income
from average interest earning assets and the resultant yields, as well as the
interest expense on average interest bearing liabilities, expressed both in
dollars and rates. No tax equivalent adjustments were made. All average balances
are monthly average balances. Non-accruing loans have been included in the table
as loans carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
----------- ------- ------ ----------- ------- ------ ----------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable(1).................. $60,167 $5,494 9.13% $49,543 $ 4,441 8.96% $39,101 $3,367 8.61%
Mortgage-backed securities........... 3,520 248 7.05 3,872 248 6.40 3,117 204 6.54
Investment securities................ 830 39 4.70 879 57 6.48 1,276 76 5.96
Interest-bearing deposits............ 3,116 134 4.30 1,994 81 4.06 2,236 108 4.83
-------- ------- -------- -------- --------- --------
Total interest-earning assets....... 67,633 $ 5,915 8.75 56,288 $4,827 8.58 45,730 $3,755 8.21
======= ====== ======
Noninterest-earning asset............. 3,965 3,523 2,786
-------- --------- --------
Total assets........................ $71,598 $59,811 $48,516
======= ======= =======
Interest-Bearing Liabilities:
Savings deposits..................... $ 6,373 $ 197 3.09 $ 4,938 $ 156 3.16 $ 4,272 $ 129 3.02
Demand and NOW deposits.............. 8,578 251 2.93 6,447 207 3.21 5,942 189 3.18
Certificate of deposits.............. 44,017 2,505 5.69 40,363 2,271 5.63 31,478 1,633 5.19
Borrowings........................... 2,195 124 5.65 367 21 5.72 329 20 6.08
-------- -------- --------- ------- -------- --------
Total interest-bearing liabilities.. 61,163 3,077 5.04 52,115 2,655 5.09 42,021 1,971 4.69
------- ------ -------
Noninterest-bearing liabilities 2,863 2,964 2,131
-------- -------- -------
Total liabilities.................. 64,026 55,079 44,152
Retained earnings.................... 7,541 4,695 4,353
Unrealized gains on securities ...... 31 37 11
--------- ---------- -----------
Total Liabilities and Capital..... $71,598 $59,811 $48,516
======= ======= =======
Net interest income................... $2,838 $2,172 $1,784
====== ====== ======
Net interest spread................... 3.71% 3.49% 3.52%
==== ==== ====
Net average earning assets............ $ 6,470 $ 4,173 $ 3,709
======= ======= =======
Net yield on average earning assets.. 4.20% 3.86% 3.90%
==== ==== ====
Average interest-earning assets
to average interest-bearing liabilities 1.11x 1.08x 1.09x
====== ====== ======
- -----------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.
</TABLE>
10
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to rate.
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------------
1996 vs. 1997 1995 vs. 1996
-----------------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
----------- -----------
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- ------ ----------- -------- ------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable............................. $ 961 $ 85 $1,046 $932 $ 142 $1,074
Mortgage-backed securities................... (23) 25 2 48 (4) 44
Investments securities....................... (3) (16) (19) (26) 7 (19)
Other........................................ 55 4 59 (11) (10) (27)
------- ----- -------- ------ ----- --------
Total interest-earning assets.............. $ 990 $ 98 $1,088 $943 $129 $1,072
===== ==== ------ ==== ==== ------
Interest-bearing liabilities:
Savings deposits............................. 44 (3) 41 21 6 27
Demand and NOW accounts...................... 67 (18) 49 16 2 18
Certificate accounts......................... 204 24 228 491 147 638
Borrowings................................... 104 --- 104 2 (1) 1
----- ----- ------- ------- ----- --------
Total interest-bearing liabilities......... $ 419 $ 3 $ 422 $ 530 $154 $ 684
===== ==== ------ ====== ==== ------
Net interest income........................... $ 666 $ 388
====== ======
</TABLE>
11
<PAGE>
Asset/Liability Management
One of the Company's principal financial objectives is to achieve
long-term profitability while reducing its exposure to fluctuations in interest
rates. The Company has sought to reduce exposure of its earnings to changes in
market interest rates by managing the mismatch between asset and liability
maturities and interest rates. The principal element in achieving this objective
has been to increase the interest-rate sensitivity of the Company's assets by
originating loans with interest rates subject to periodic repricing to market
conditions. Accordingly, the Company has emphasized the origination of one to
three year adjustable rate mortgage loans, short-term and adjustable commercial
loans, and consumer loans for retention in its portfolio. Management has offered
higher yields on deposits with extended maturities to assist in matching the
rate sensitivity of its liabilities.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Company's
assets mature or reprice more quickly or to a greater extent that its
liabilities, the Bank's net portfolio value and net interest income would tend
to increase during periods of rising interest rates but decrease during periods
of falling interest rates.
If the Company's assets mature or reprice more slowly or to a lesser
extent that its liabilities, the Company's net portfolio value and net interest
income would tend to decrease during periods of rising interest rates but
increase during periods of falling interest rates.
The Company's Board of Directors has formulated an Interest Rate Risk
Management policy designed to promote long-term profitability while managing
interest-rate risk. The Board of Directors has established an Asset/Liability
Committee which consists primarily of the management team of the Bank. This
committee meets periodically and reports to the Board of Directors quarterly
concerning asset/liability policies, strategies and the Company's current
interest rate risk position. The committee's first priority is to structure and
price the Company's assets and liabilities to maintain an acceptable interest
rate spread while reducing the net effects of changes in interest rates.
Management's principal strategy in managing the Company's interest rate
risk has been to maintain short and intermediate term assets in the portfolio,
including one and three year adjustable rate mortgage loans, as well as
increased levels of commercial, agricultural and consumer loans, which typically
are for short or intermediate terms and carry higher interest rates than
residential mortgage loans. In addition, in managing the Company's portfolio of
investment securities and mortgage-backed and related securities, management
seeks to purchase securities that mature on a basis that approximates as closely
as possible the estimated maturities of the Company's liabilities or purchase
securities that have adjustable rate provision. The Company does not engage in
hedging activities.
In addition to shortening the average repricing of its assets, the
Company has sought to lengthen the average maturity of its liabilities by
adopting a tiered pricing program for its certificates of deposit, which
provides higher rates of interest on its longer term certificates in order to
encourage depositors to invest in certificates with longer maturities.
12
<PAGE>
Net Portfolio Value. The Company voluntarily measures its interest rate
risk ("IRR") into its internal risk based capital calculation. The IRR component
is a dollar amount that measures the terms of the sensitivity of the Company's
net portfolio value ("NPV") to changes in interest rates. NPV is the difference
between incoming and outgoing discounted cash flows from assets, liabilities,
and off-balance sheet contracts. The Company measures the change to its NPV as a
result of a hypothetical 200 basis point ("bp") change in market interest rates.
Management reviews the IRR measurements on a quarterly basis. In addition to
monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure is
used in conjunction with NPV measures to identify excessive interest rate risk.
The following table presents the Company's NPV at October 31, 1997, as
calculated by the Company.
<TABLE>
<CAPTION>
At October 31, 1997
--------------------------------------------------------------------
Change in Rate
- --------------
(Basis Points) Net Portfolio Value NPV as % of PV of Assets
------------------------------------ -------------------------
$ Amount $ Change % Change NPV Ratio BP Change
-------- -------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 bp $ 8,503 $(696) $(8) 11.23% (92) bp
+200 8,756 (443) (5) 11.57 (58)
+100 8,990 (210) (2) 11.88 (27)
0 9,199 --- --- 12.15 ---
- -100 9,377 177 2 12.39 24
- -200 9,520 321 3 12.58 43
- -300 9,624 425 5 12.72 57
</TABLE>
In the above table, the first column on the left presents the basis
point increments of yield curve shifts. The second column presents the overall
dollar amount of NPV at each basis point increment. The third and fourth columns
present the Company's actual position in dollar change and percentage change in
NPV at each basis point increment. The remaining columns present the Company's
percentage change and basis point change in its NPV as a percentage of portfolio
value of assets.
Certain shortcomings are inherent in the method of analysis presented
in the computation of NPV. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates.
The Company's Board of Directors is responsible for reviewing the
Company's asset arid liability policies. The Board meets monthly to review
interest rare risk and trends, as well as liquidity and capital ratios and
requirements. The Company's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the
Company's asset and liability goals and strategies.
13
<PAGE>
Liquidity
The Bank's primary sources of funds are deposits, repayments and
prepayments of loans and interest income. Although maturity and scheduled
amortization of loans are relatively predictable sources of funds, deposit flows
and prepayments on loans are influenced significantly by general interest rates,
economic conditions and competition.
The primary investment activity of the Company is originating one-
to-four family residential mortgages, commercial business and real estate loans,
and consumer loans to be held to maturity. For the fiscal years ended October
31, 1997, 1996 and 1995, the Company originated loans for its portfolio in the
amount of $40.9 million, $36.7 million and $31.8 million, respectively. For the
fiscal years ended October 31, 1997, 1996 and 1995, these activities were funded
from repayments of $29.3 million, $23.9 million, and $16.4 million, respectively
and sales and participations of $2.1 million, $1.7 million, and $3.1 million,
respectively.
The Company's most liquid assets are cash and cash equivalents, which
include short-term investments. At October 31, 1997, 1996, and 1995, cash and
cash equivalents were $2.9 million, $1.3 million, and $2.8 million,
respectively. In addition, the Company has used jumbo certificates of deposits
as a source of funds. Jumbo certificates of deposits represented $11.1 million,
$10.7 million and $10.2 million at October 31, 1997, 1996 and 1995,
respectively, or 18.0%, 18.9% and 20.6% of total deposits at October 31, 1997,
1996 and 1995 respectively. Management has monitored and reviewed its liquidity
and maintains a $16.9 million line of credit with the FHLB which can be accessed
immediately.
Liquidity management for the Company is both an ongoing and long-term
function of the Company's asset/liability management strategy. Excess funds,
when applicable, generally are invested in deposits at the FHLB of Chicago.
Currently when the Bank requires funds, beyond its ability to generate deposits,
additional sources of funds are available through the FHLB of Chicago. The Bank
has the ability to pledge its FHLB of Chicago stock or certain other assets as
collateral for such advances. The Company has used FHLB advances to fund cash
flow shortages. These advances are generally less than .10% over the average
rate paid on the Company's certificates of deposit. The Bank may also use FHLB
advances in the future to fund loan demand in excess of the available funds.
Management and the Board of Directors believe that due to significant
amounts of adjustable rate mortgage loans that could be sold and the Company's
ability to acquire funds from the FHLB of Chicago, the Bank's liquidity is
adequate.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operation of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature.
14
<PAGE>
As a result, interest rates, generally, have a more significant impact on a
financial institution's performance than does inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services.
15
<PAGE>
Independent Auditors' Report
To the Board of Directors
First Robinson Financial Corp.
and Subsidiary
Robinson, Illinois
We have audited the accompanying consolidated statements of financial condition
of First Robinson Financial Corp. and Subsidiary as of October 31, 1997 and 1996
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years ended October 31, 1997, 1996 and 1995. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Robinson Financial Corp. and Subsidiary as of October 31, 1997 and 1996, and the
results of their operations and their cash flows for the years ended October 31,
1997, 1996, and 1995 in conformity with generally accepted accounting
principles.
/s/ LARSSON, WOODYARD & HENSON, LLP
November 14, 1997
16
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
October 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
-------- --------
1,000's
------------------------
<S> <C> <C>
Cash and cash equivalents:
Cash $ 268 $ 385
Interest bearing deposits 2,662 868
-------- --------
Total cash and cash equivalents 2,930 1,253
Securities held to maturity, approximate
market value of $1,008,000 and $589,000
for October 31, 1997 and 1996, respectively 997 592
Securities available for sale
amortized cost of $3,759,000 and $4,090,000
for October 31, 1997 and 1996, respectively 3,803 4,133
Loans receivable, net 63,960 54,448
Foreclosed real estate 335 278
Premises and equipment 2,713 2,564
Accrued interest receivable 675 514
Prepaid income taxes 0 19
Other assets 146 68
-------- --------
Total Assets $ 75,559 $ 63,869
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 61,715 $ 56,691
Federal Home Loan Bank advances 0 1,500
Repurchase agreements 92 0
Advances from borrowers for taxes and insurance 42 35
Accrued interest payable 362 353
Accrued income taxes 91 0
Deferred income taxes 241 91
Accrued expenses 212 541
-------- --------
Total Liabilities 62,755 59,211
-------- ---------
Commitments and contingencies
Stockholders' Equity
Common stock $.01 par value; authorized 2,000,000 shares
859,625 shares issued and outstanding;
Preferred stock, $.01 par value; authorized 500,000 shares,
0 shares issued and outstanding 9 0
Paid-in capital 8,178 0
Retained earnings 5,278 4,631
Unrealized gain on securities held available for sale 27 27
Unearned employee stock ownership plan (688) 0
-------- --------
Total Stockholders' Equity 12,804 4,658
-------- --------
Total Liabilities and Stockholders' Equity $ 75,559 $ 63,869
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended October 31,
-----------------------------------
1997 1996 1995
-------- -------- ---------
1,000's
-----------------------------------
<S> <C> <C> <C>
Interest income:
Interest on mortgage loans $ 3,525 $ 2,789 $ 2,247
Interest on nonmortgage loans 1,969 1,652 1,120
Interest on securities 421 386 388
-------- -------- --------
Total interest income 5,915 4,827 3,755
-------- -------- --------
Interest expense:
Interest on deposits 2,953 2,634 1,951
Interest on Federal Home Loan Bank advances 117 21 20
Interest on other borrowed money 7 0 0
-------- -------- --------
Total interest expense 3,077 2,655 1,971
-------- -------- --------
Net interest income 2,838 2,172 1,784
Provision for loan losses 206 270 9
-------- -------- --------
Net interest income after
provision for loan losses 2,632 1,902 1,775
-------- -------- --------
Non-interest income:
Charges and fees on loans 139 139 120
Service charges 181 156 121
Gain on sale of assets 133 60 1
Other non-interest income 63 37 29
-------- -------- --------
516 392 271
-------- -------- --------
Non-interest expense:
Compensation and employee benefits 1,106 1,017 743
Occupancy and equipment 400 358 268
Data processing 56 48 52
Audit, legal and other professional services 40 32 26
SAIF deposit insurance 46 393 92
Advertising 69 47 36
Telephone and postage 81 63 47
Other non-interest expense 277 162 150
-------- -------- --------
2,075 2,120 1,414
-------- -------- --------
Income before income taxes 1,073 174 632
Provision for income tax 426 51 233
-------- -------- --------
Net income $ 647 $ 123 $ 399
======== ======== ========
Earnings per share 0.26 N/A N/A
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
18
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Unearned Gain on
Employee Securities
Stock Available
Common Paid-in Retained Ownership For
Stock Capital Earnings Plan Sale Total
------ ------- -------- --------- ---------- -----
(1,000's)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 $ 0 $ 0 $ 4,109 $ 0 $ 2 $ 4,111
Net income 0 0 399 0 0 399
Change in unrealized gain
on securities available for sale 0 0 0 0 26 26
------ ------ ------- ------ ----- -------
Balance at October 31, 1995 0 0 4,508 0 28 4,536
Net income 0 0 123 0 0 123
Change in unrealized gain on
securities available for sale 0 0 0 0 (1) (1)
------ ------ ------- ------ ----- -------
Balance at October 31, 1996 0 0 4,631 0 27 4,658
Issuance of common shares 9 8,178 0 (688) 0 7,499
Net income 0 0 647 0 0 647
------ ------ ------- ------ ----- -------
Balance at October 31, 1997 $ 9 $ 8,178 $ 5,278 ($ 688) $ 27 $12,804
====== ======= ======= ====== ===== =======
</TABLE>
19
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
For the Years Ended October 31,
----------------------------------
1997 1996 1995
--------- ------- -------
1,000's
---------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 647 $ 123 $ 399
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for depreciation 178 165 120
Provision for loan losses 206 270 9
Amortization of premiums on securities 15 21 3
Accretion of discounts on securities (4) (2) (1)
Increase in accrued interest receivable (161) (219) (82)
Decrease in prepaid income taxes 19 0 0
Increase in other assets (53) (3) (24)
Increase in accrued interest payable 9 124 80
Increase (decrease) in accrued income taxes 91 (16) 54
Increase (decrease) in deferred income taxes 150 (131) 78
(Decrease) increase in accrued expenses (354) 272 116
FHLB stock dividends received 0 0 (4)
Gain on sale of loan (133) (45) 0
Gain on sale of premises and equipment 0 (8) (1)
--------- ------- --------
Net cash provided by operating activities 610 551 747
--------- ------- --------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 200 0 0
Proceeds from securities held to maturity 35 706 143
Purchase of securities held to maturity (500) 0 0
Purchase of securities available for sale (676) (2,218) 0
Repayment of principal on mortgage-backed securities 855 954 278
Increase in loans receivable (11,055) (11,563) (13,858)
Purchase of loans and participations (617) 0 0
Sale or participation of originated loans 2,087 1,744 3,081
(Increase) decrease in foreclosed real estate (57) (260) 1
Purchase of premises and equipment (327) (246) (685)
Proceeds from sale of premises and equipment 0 22 0
--------- ------- --------
Net cash used in
investing activities (10,055) (10,861) (11,040)
--------- ------- --------
Cash flows from financing activities:
Net increase in deposits 5,116 7,287 10,196
Advances from Federal Home Loan Bank 0 1,500 0
Repayment of Federal Home Loan Bank advances (1,500) 0 0
Increase (decrease) in advances from borrowers for
taxes and insurance 7 2 (1)
Proceeds from issuance of common stock 8,187 0 0
Purchase of employee stock ownership plan (688) 0 0
--------- ------- --------
Net cash provided by financing activities 11,122 8,789 10,195
--------- ------- --------
Increase (decrease) in cash and cash equivalents 1,677 (1,521) (98)
Cash and cash equivalents at beginning of year 1,253 2,774 2,872
--------- ------- --------
Cash and cash equivalents at end of year $ 2,930 $ 1,253 $ 2,774
========= ======= ========
</TABLE>
20
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
For the Years Ended October 31,
--------------------------------
1997 1996 1995
-------- ------- -------
1,000's
--------------------------------
<S> <C> <C> <C>
Supplemental Disclosures:
Additional Cash Flows
Information:
Cash paid for:
Interest on deposits, advances and other borrowings $ 3,068 $ 2,509 $ 1,892
Income taxes:
Federal 147 176 148
State 35 40 43
Schedule of Non-Cash Investing Activities:
Federal Home Loan Bank Stock dividends 0 0 4
Change in unrealized gain (loss) on
securities available for sale 0 2 (43)
Change in deferred income taxes attributed to unrealized gain
on securities available for sale 0 1 (17)
Foreclosed real estate 57 260 0
</TABLE>
21
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Description of the Business
First Robinson Financial Corporation (the Company) was incorporated as a
Delaware corporation in March of 1997 at the direction of the Board of
Directors of First Robinson Savings and Loan, F.A., the predecessor of
First Robinson Savings Bank, National Association (the Bank), to become the
holding company for the Bank upon its conversion from a mutual federal
savings and loan to a national stock bank (the Conversion). The Bank was
originally chartered in 1883. The Conversion was completed in June of 1997
with the issuance of 859,625 shares of the Company's common stock at an
initial public offering price of $10 per share. The total proceeds from the
Conversion were $8,596,250, net of related conversion cost of $408,686,
with net proceeds of $8,187,564. The Company used fifty percent of the net
proceeds to acquire all of the outstanding common stock of the Bank. As of
October 31, 1997, the Company has no significant assets other than the
outstanding stock of the Bank, proceeds from the Conversion, and a note
receivable from the ESOP Trust for the shares purchased for the Employee
Stock Ownership Plan. The Company's principal business is overseeing and
directing the business of the Bank and investing the assets of the Company.
The Company has registered with the Board of Governors of the Federal
Reserve System as a bank holding company.
The Bank operates through three facilities serving Crawford County,
Illinois and contiguous counties in southeastern Illinois. The principal
business of the Bank consists of attracting deposits from the general
public and using such deposits, together with other funds, to originate one
to four single family residential mortgage loans, consumer loans,
commercial and agricultural business loans, commercial and agricultural
mortgage loans, and to a lesser extent, multifamily and construction loans.
The Bank's main office is located in Robinson with facilities in Oblong and
Palestine.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary First Robinson Savings Bank, National
Association. All material intercompany transactions and accounts have been
eliminated.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the statement of consolidated financial condition and
revenues and expenses for the year. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination
of the allowance for losses on loans and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loan losses and
foreclosed real estate, management obtains independent appraisals for
significant properties.
Cash Equivalents
Cash equivalents of $2,662,000 and $868,000 at October 31, 1997 and 1996,
respectively, consists of amounts due from depository institutions and
interest-bearing deposits. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Securities Held to Maturity
Securities classified as held to maturity are those securities the Company
has the positive intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, which are recognized in
interest income using the interest method over the period to maturity.
22
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Securities Available for Sale
Securities classified as available for sale are those securities that the
Company intends to hold for an indefinite period of time, but not
necessarily to maturity, equity securities, and FHLB stock. Any decision to
sell a security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes in the
maturity mix of the Bank's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors. Securities
available for sale are carried at fair value. The difference between fair
value and amortized cost, adjusted for amortization of premium and
accretion of discounts, which are recognized in interest income using the
interest method over their contractual lives, results in an unrealized gain
or loss. Unrealized gains or losses are reported as increases or decreases
in shareholder's equity net of the related deferred tax effect. Realized
gains or losses, determined on the basis of the cost of specific securities
sold, are included in earnings.
Loans and Allowance for Loan Losses
Loans are considered as held-to-maturity asset and, accordingly, are
carried at historical cost. Loans are stated at the amount of unpaid
principal, reduced by unearned discounts, allowances for loan losses, loans
in process, loans participated to other financial institutions, and
deferred loan origination fees. Unearned discounts on nonmortgage
installment loans are recognized as income over the term of the loan by the
interest method. Interest on all other mortgage and nonmortgage loans is
calculated by using the simple interest method on the unpaid principal
outstanding. Loan origination and commitment fees, as well as certain
direct origination costs, are deferred and amortized as a yield adjustment
over the lives of the related loans using the interest method when in
excess of loan origination cost. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status. Loans are placed
on nonaccrual status when the collection of the interest becomes doubtful.
Interest accrued during the current year and deemed uncollectible is
reversed and charged against current income, while uncollectible interest
accrued from prior years is charged against the allowance for loan losses.
Interest income on nonaccrual loans is then recognized only when collected.
A loan remains on nonaccrual status until the loan is current as to payment
of both principal and interest, and/or the borrower demonstrates the
ability to pay and remain current.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments of information available to them at
the time of their examination. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense, and reduced by charge-offs, net of recoveries.
Changes in the allowance relating to impaired loans are charged or credited
to the provision for loan losses.
Loans are considered impaired when it becomes probable that the Bank will
be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans are measured by the present value of
expected future cash flows or the fair value of collateral, if the loan is
collateral dependent. Interest income on these loans is recognized as
described above depending on the accrual status of the loan.
The allowance for loan losses is increased by provisions charged to
expenses and reduced by loans charged off, net of recoveries. It is
maintained at a level considered adequate to absorb potential loan losses
determined on the basis of management's continuing review and evaluation of
the loan portfolio and its judgment as to the impact of economic conditions
on the portfolio. The evaluation by management includes consideration of
past loan loss experience and trends, changes in the composition of the
loan portfolio, the current volume and condition of loans outstanding and
the probability of collecting all amounts due.
23
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Real Estate Held for Investment and Foreclosed Real Estate
Direct investments in real estate properties held for investment are
carried at the lower of cost, including cost of improvements and amenities
subsequent to acquisition, or net realizable value.
Foreclosed real estate held for sale is carried at the lower of cost or
estimated fair market value, net of estimated selling costs. Costs of
holding foreclosed property are charged to expense in the current period,
except for significant property improvements, which are capitalized to the
extent that carrying value does not exceed estimated fair market value.
Premises and Equipment
Land is carried at cost. Buildings and furniture, fixtures and equipment
are carried at cost adjusted for accumulated depreciation. Depreciation is
calculated over the estimated useful lives of the assets. Buildings and
furniture, fixtures and equipment are depreciated using the straight-line
method. The estimated useful lives are five to fifty years for buildings
and improvements and five to fifteen years for equipment.
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
The Company files a consolidated income tax return with the Bank.
Pension Plan
The Company has a pension plan covering substantially all employees. It is
the policy of the Company to fund the maximum amount that can be deducted
for federal income tax purposes but in amounts not less than the minimum
amounts required by law.
Earnings Per Share
Earnings per share calculation for the year ended October 31, 1997 has been
based on the net income since June 30, 1997 through October 31, 1997 of
$207,000. The period since the conversion date of June 27, 1997 through
June 30, 1997 was considered insignificant for this calculation and the
weighted average number of shares outstanding of 790,855. For purposes of
this calculation, the number of shares purchased by the ESOP Plan, which
have not been allocated to the participant accounts, are not assumed to be
outstanding. Earnings per share amounts have not been presented for the
years ended October 31, 1996 and 1995, which was prior to the stock
conversion.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit and standby letters of credit. Such instruments are recorded in the
consolidated financial statements when they become payable.
24
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements. Estimates also affect the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Amounts presented in prior years consolidated financial statements have
been reclassified to conform to the 1997 presentation.
New Accounting Standards
In August 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities using a financial-components
approach that focuses on control of the asset or liability. It requires
that an entity recognize only assets it controls and liabilities it has
incurred and should derecognize assets only when control has been
surrendered and derecognize liabilities only when they have been
extinguished. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December
31, 1996, and is to be applied prospectively. The Company plans to adopt
this Statement on November 1, 1997 without any material impact on its
consolidated financial statements. In December of 1996, the FASB issued
SFAS No. 127, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities," which defers the effective date of SFAS
No. 125 for one year.
In February of 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
that specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock. SFAS
is effective for financial statements ending after December 15, 1997. The
Company does not anticipate implementation of SFAS No. 128 will have a
material effect on its earnings per share computation.
In February of 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," that specifies standards for
disclosing information about an entity's capital structure. SFAS is
effective for financial statements ending after December 15, 1997. The
Company does not anticipate implementation of SFAS No.
129 will have any disclosure effect on its financial statements.
In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement requires classification of items of
other comprehensive income by their nature in the financial statements and
display of the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section
of the statement of financial position. This statement is effective for
fiscal years beginning after December 31, 1997 and the Company will
implement this for its year ended October 31, 1999.
25
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Summary of Significant Accounting Policies
New Accounting Standards
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards for
reporting information about operating segments in annual financial
statements and requires that those businesses report selective information
about operating segments in interim financial reports to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement is
effective for fiscal years beginning after December 31, 1997. This
statement requires disclosure in information in the financial statements
and the Company will implement this for their year ended October 31, 1999.
Note B. Securities
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
October 31, 1997
-----------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of other U.S. Government
agencies $ 500 $ 0 $ 1 $ 499
Equity securities:
FRB stock 123 0 0 123
FHLB stock 317 0 0 317
Mortgage-backed securities:
FNMA 2,104 36 2 2,138
FHLMC 559 7 1 565
GNMA 156 5 0 161
--------- ------- ------ -------
$ 3,759 48 $ 4 $ 3,803
========= ======= ====== =======
</TABLE>
Securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
October 31, 1997
-----------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(1,000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 500 $ 13 $ 0 $ 513
Municipal obligations 210 0 0 210
Mortgage-backed securities:
FHLMC 287 0 2 285
-------- ------- ------ -------
$ 997 $ 13 $ 2 $ 1,008
======== ======= ====== =======
</TABLE>
26
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
October 31, 1996
--------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost G Losses Value
--------- ------------ ---------- -----------
(1,000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Equity securities:
FHLMC stock $ 200 $ 5 $ 0 $ 205
FHLB stock 264 0 0 264
Mortgage-backed securities:
FNMA 2,698 41 9 2,730
FHLMC 724 6 5 725
GNMA 204 5 0 209
-------- ------- ------- --------
$ 4,090 $ 57 $ 14 $ 4,133
======== ======= ======= ========
</TABLE>
Securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
October 31, 1996
-------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost G Losses Value
--------- ------------ ---------- ------------
(1,000's)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal obligations $ 245 $ 0 $ 0 $ 245
Mortgage-backed securities:
FHLMC 347 0 3 344
-------- ------- ------- --------
$ 592 0 $ 3 $ 589
======== ======= ======= ========
</TABLE>
The amortized cost and approximate market value of securities available for
sale and held to maturity at October 31, 1997 and 1996, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because securities may have a call provision.
<TABLE>
<CAPTION>
October 31, 1997
-----------------------------------------------------------
Securities Securities
Available for Sale Held to Maturity
-------------------------- --------------------------
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
----------- ------- ----------- --------
(1,000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 35 $ 35
Due after one year through five years 500 499 635 648
Due after five years through ten years 0 0 40 40
Due after ten years 440 440 0 0
Mortgage-backed securities 2,819 2,864 287 285
--------- ------- -------- -------
$ 3,759 $ 3,803 $ 997 $ 1,008
========= ======= ======== =======
</TABLE>
27
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B. Securities
<TABLE>
<CAPTION>
October 31, 1996
-----------------------------------------------------------
Securities Securities
Available for Sale Held to Maturity
-------------------------- --------------------------
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
----------- ------- ----------- --------
(1,000's)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 35 $ 35
Due after one year through five years 0 0 0 0
Due after five years through ten years 0 0 0 0
Due after ten years 464 469 210 210
Mortgage-backed securities 3,626 3,664 347 344
--------- ------- -------- -------
$ 4,090 $ 4,133 $ 592 $ 589
========= ======= ======== =======
</TABLE>
There were no gains or losses on the sale of securities for the years ended
October 31, 1997, 1996 and 1995. During 1997, FHLMC stock was redeemed for
$200,000 at no gain or loss.
Securities at October 31, 1997 and 1996, respectively, with amortized cost of
$4,060,000 and $3,811,000, and approximate market values of $4,114,000 and
$3,845,000 were pledged to secure public deposits and for other purposes as
required or permitted by law. The Company had one derivative security at
October 31, 1996, which was an FHLMC Step Up with interest rate adjustments
at certain dates. The FHLMC Step Up was called during 1997.
Note C. Loans Receivable and Provision for Loan Losses
Loans receivable consisted of the following:
<TABLE>
<CAPTION>
October 31,
------------------------
1997 1996
---------- --------
(1,000's)
------------------------
<S> <C> <C>
Real estate loans:
One to four family residential $ 29,894 $ 27,784
Multi-family residential 124 141
Commercial 12,420 9,594
Construction 578 76
-------- --------
43,016 37,595
Other loans:
Deposit accounts 657 571
Automobile 9,480 8,764
Commercial 9,140 5,257
Other loans 2,392 2,717
-------- --------
Total loans 64,685 54,904
Less:
Loans in progress 243 0
Allowance for loan losses 482 413
Unearned discounts 0 43
-------- --------
Net loans $ 63,960 $ 54,448
======== ========
</TABLE>
28
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C. Loans Receivable
Changes in allowance for loan losses are as follows:
October 31,
----------------------------------
1997 1996 1995
--------- --------- ---------
(1,000's)
----------------------------------
Balance $ 413 $ 255 $ 288
Provision for losses 206 270 9
Loans charged off (161) ( 122) (44)
Recoveries 24 10 2
------ ------ ------
Balance $ 482 $ 413 $ 255
====== ====== ======
The weighted average interest rate on loans at October 31, 1997 and 1996 was
9.14% and 8.84%, respectively.
Impaired loans totaled $326,000 and $0 at October 31, 1997 and 1996,
respectively. An allowance for losses was not deemed necessary for impaired
loans totaling $60,000 and $0 at October 31, 1997 and 1996, respectively. An
allowance of $85,000 and $0 was recorded for the remaining balance of
impaired loans of $266,000 and $0 at December 31, 1997 and 1996,
respectively. Impaired loans averaged $26,000 and $0 for 1997 and 1996,
respectively. Interest income and cash receipts of interest totaled $5,000
and $0 for the years ended October 31, 1997 and 1996, respectively.
Loans on which the accrual of interest was discontinued or reduced amounted
to $334,000 and $68,000 at October 31, 1997 and 1996, respectively.
Additional interest income of approximately $7,000, $2,000 and $1,000 would
have been recorded had income on these loans been accounted for on the
accrual basis.
The Company sold participaing interest in real estate and commercial loans of
$2,087,000, $600,000 and $0 and whole loans of $1,131,000, $606,000 and $0
for the respective years ending October 31, 1997, 1996 and 1995. The Company
recognized gains on the loans sold of $133,000, $45,000, and $0 for the
respective years ended October 31, 1997, 1996 and 1995. The Company purchased
participating interest and whole loans in the amount of $617,000, $0 and $0
for the respective eyars ended October 31, 1997, 1996 and 1995.
Note D. Accrued Interest Receivable
Accrued interest receivable consisted of the following:
October 31,
--------------------
1997 1996
------- -------
(1,000's)
--------------------
Mortgage loans $ 334 $ 312
Nonmortgage loans 238 193
Securities 40 9
------ ------
$ 675 $ 514
====== ======
Note E. Premises and Equipment
Premises and equipment consisted of the following:
October 31,
--------------------
1997 1996
------- -------
(1,000's)
--------------------
Land $ 334 $ 313
Building 2,309 2,246
Furniture and equipment 1,384 1,143
------ ------
4,027 3,702
Accumulated depreciation (1,314) (1,138)
------ ------
$2,713 $2,564
====== ======
29
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E. Premises and Equipment
Depreciation included in the consolidated statements of income amounted to
$178,000, $165,000 and $120,000 for the years ended October 31, 1997, 1996
and 1995, respectively.
Included in the buildings is $186,794 of capitalized interest from the 1985
building project. Amortization of capitalized interest, which is included in
premises, occupancy and equipment expense, amounted to $3,735 for each of the
years ended October 31, 1997, 1996 and 1995. The Company completed a new
drive-up facility in Oblong at a cost of $277,000 in the current year.
Note F. Deposit Analysis
Deposits and weighted average interest rates are summarized as follows:
<TABLE>
<CAPTION>
October 31,
----------------------------------------------------
1997 1996
----------------------- -----------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
-------- -------- -------- --------
(1,000's)
----------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing $ 3,494 .00% $ 2,265 .00%
NOW accounts 8,381 3.11% 6,717 3.12%
Passbook 5,882 3.10% 5,540 3.00%
Certificates 43,958 5.72% 42,169 5.65%
-------- --------
Total deposits $ 61,715 4.79% $ 56,691 4.87%
======== ========
</TABLE>
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
October 31,1997
------------------------------------------------------------------------
Less Than One to Two to After
One Year Two Years Three Years Three Years Totals
--------- --------- ----------- ----------- --------
(1,000's)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.00 to 3.99% $ 122 $ 0 $ 0 $ 0 $ 122
4.00 to 5.99% 17,730 3,692 685 173 22,280
6.00 to 7.99% 7,797 7,907 3,969 1,883 21,556
-------- -------- -------- ------- --------
Totals $ 25,649 $ 11,599 $ 4,654 $ 2,056 $ 43,958
======== ======== ======== ======= ========
</TABLE>
30
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note F. Deposit Analysis
Certificates had the following remaining maturities:
<TABLE>
<CAPTION>
October 31,1996
------------------------------------------------------------------------
Less Than One to Two to After
One Year Two Years Three Years Three Years Totals
--------- --------- ----------- ----------- --------
(1,000's)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.00 to 3.99% $ 307 $ 0 $ 0 $ 0 $ 307
4.00 to 4.99% 18,311 3,907 375 100 22,693
5.00 to 5.99% 10,320 3,366 1,084 4,399 19,169
6.00 to 6.99% 0 0 0 0 0
-------- -------- -------- ------- --------
Totals $ 28,938 $ 7,273 $ 1,459 $ 4,499 $ 42,169
======== ======== ======== ======= ========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
October 31,
------------------------------
1997 1996 1995
------- -------- -------
(1,000's)
------------------------------
<S> <C> <C> <C>
Passbook $ 197 $ 156 $ 129
NOW accounts 251 207 189
Certificates 2,505 2,271 1,633
------- ------- ------
$ 2,953 $ 2,634 $1,951
======= ======= ======
</TABLE>
At October 31, 1997 and 1996, the Company had $11,104,000 and $10,737,000,
respectively, of deposit accounts with balances of $100,000 or more. The
Company did not have brokered deposits at October 31, 1997 or 1996. Deposits
in excess of $100,000 are not federally insured. The Company has pledged
mortgage-backed certificates and securities, when requested by depositors,
for deposits of $100,000 or more.
Note G. Federal Home Loan Bank Advances
The Company has entered into an FHLB advance agreement on March 19, 1991. The
agreement covers the terms and collateral requirements. The daily advances
are secured by FHLB stock and a portion of the qualified mortgage loans of
the Company. The Company had outstanding advances of $0 and $1,500,000 as of
October 31, 1997 and 1996, respectively. In addition, the Company had $0 and
$7,000 of accrued interest payable as of October 31, 1997 and 1996,
respectively.
Information concerning FHLB advances is summarized as follows:
<TABLE>
<CAPTION>
October 31,
------------------------------
1997 1996 1995
------- -------- -------
(1,000's)
------------------------------
<S> <C> <C> <C>
Average balance $2,064 $ 367 $ 329
Average interest rate 5.67% 5.72% 6.08%
Maximum month-end balance $5,500 $ 1,500 $2,000
</TABLE>
31
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Regulatory Matters
The Company is regulated by the Board of Governors of the Federal Reserve
System ("FRB") and is subject to securities registration and public
reporting regulations of the Securities and Exchange Commission. The Bank is
regulated by the Federal Deposit Insurance Corporation ("FDIC") and the
Office of the Comptroller of the Currency ("OCC").
The Bank is subject to the capital requirements of the FDIC and the OCC. The
FDIC requires the Bank to maintain minimum ratios of Tier 1 capital to total
risk-weighted assets and total capital to risk-weighted assets of 4% and 8%,
respectively. Tier 1 capital consists of total shareholders' equity
calculated in accordance with generally accepted accounting principles less
intangible assets, and total capital is comprised of Tier 1 capital plus
certain adjustments, the only one of which is applicable to the Bank is the
allowance for possible 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 in FDIC regulations. The Bank is also
subject to an FDIC leverage capital requirement, which calls for a minimum
ratio of Tier 1 capital (as defined above) to quarterly average total assets
of 3% to 5%, depending on the institution's composite ratings as determined
by its regulators.
At October 31, 1997 and 1996, the Bank was in compliance with all of the
aforementioned capital requirements as summarized below.
At October 31,
--------------------
1997 1996
-------- --------
(1,000's)
--------------------
Tier I Capital:
Common stockholders' equity $ 9,377 $ 4,658
Unrealized holding loss (gain) on securities
available for sale ( 27) (27)
-------- --------
Total Tier I capital $ 9,350 $ 4,631
======== ========
Tier II Capital:
Total Tier I capital $ 9,350 $ 4,631
Qualifying allowance for loan losses 482 412
-------- --------
Total capital $ 9,832 $ 5,043
======== ========
Risk-weighted assets $ 54,647 $ 47,251
Average assets $ 71,709 $ 59,811
<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 October 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 9,832 17.99% $ 4,372 = 8.0% $5,464 = 10.0%
Tier I Capital
(to Risk-Weighted Assets) 9,350 17.10% 2,186 = 4.0% 3,278 = 6.0%
Tier I Capital
(to Average Assets) 9,350 13.04% 2,868 = 4.0% 3,585 = 5.0%
</TABLE>
32
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note H. Regulatory Matters
<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 October 31, 1996:
Total Risk-Based Capital
(to Risk-Weighted Assets) $ 5,043 10.67% $ 3,780 = 8.0% $4,725 = 10.0%
Tier I Capital
(to Risk-Weighted Assets) 4,631 9.80% 2,890 = 4.0% 2,835 = 6.0%
Tier I Capital
(to Average Assets) 4,631 7.74% 2,392 = 4.0% 2,991 = 5.0%
</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 eligible account holders in an amount equal to
the net worth of the Bank. The special liquidation account will be
maintained for the benefit of eligible account holders and the supplemental
eligible accounts 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 accounts 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.
Subject to applicable law, the Boards of Directors of the Company and the
Bank may each provide for the payment of dividends. Future declarations of
cash dividends, if any, by the Company may depend upon dividend payments by
the Bank to the Company. Subject to regulations of the OCC, the Bank may not
declare or pay a cash dividend if its stockholder's equity would thereby be
reduced below either the aggregate amount then required for the liquidation
account or the minimum regulatory capital requirements imposed by federal
regulations. The Bank may not declare or pay a cash dividend to the Company
in excess of 100% of its net income to date, less dividends paid, during the
current calendar year plus the preceding year's net income, less any
dividends paid or declared during that year without prior regulatory
approval.
Retained earnings at October 31, 1997 include approximately $1,257,000 for
which federal income tax has not been provided. The Bank was allowed a
special bad debt deduction limited generally to 8 percent of otherwise
taxable income and subject to certain limitations based on aggregate loans
and savings account balances at the end of the year. If the amounts that
qualify as deductions for federal income tax purposes are later used for
purposes other than for bad debt losses, they will be subject to federal
income tax at the then current corporate rate. The unrecorded deferred tax
liability on the above amount is approximately $427,000.
33
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I. Income Tax
The components of the provision for income taxes are summarized as follows:
October 31,
-------------------------------
1997 1996 1995
----- ---- ----
(1,000's)
-------------------------------
Currently payable:
Federal $ 227 $ 147 $ 162
State 47 33 35
Deferred:
Federal 125 (105) 28
State 27 (24) 8
----- ------ ------
$ 426 $ 51 $ 233
===== ====== ======
Income tax expense for the years ended October 31, 1997, 1996 and 1995, has
been provided at an effective rate of approximately 40.0%, 29.3% and 36.9%,
respectively. An analysis of tax expense for the three years setting forth
the reasons for the variations from the federal statutory rate of 34% is as
follows:
<TABLE>
<CAPTION>
October 31,
-------------------------------
1997 1996 1995
----- ---- ----
(1,000's)
-------------------------------
<S> <C> <C> <C>
Computed tax at statutory rates $ 365 $ 51 $ 215
Increase (decrease) in tax expense resulting from:
State and local taxes based on income,
net of federal income tax benefit 67 15 28
Municipal interest (5) (6) (5)
Other (1) (9) (5)
----- ------ -----
$ 426 $ 51 $ 233
===== ====== =====
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
October 31,
-------------------------------
1997 1996 1995
----- ---- ----
(1,000's)
-------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 147 $ 119 $ 62
Directors' retirement 41 36 0
----- ------ -----
188 155 62
----- ------ -----
Deferred tax liabilities:
Accrual basis adjustment 233 51 81
Depreciation 169 169 174
FHLB stock 10 9 10
Allowance for unrealized gain on
securities available for sale 17 17 18
----- ------ -----
429 246 283
----- ------ -----
Net deferred tax liabilities $ 241 $ 91 $ 221
===== ====== =====
</TABLE>
No valuation allowance was required for deferred tax assets at October 31,
1997 or 1996.
34
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note J. Employee Benefit Plans
The Company has established a 401(k) profit sharing plan which covers all
employees with three months of service and minimum age of 21. This plan
allows for individual employees to elect a portion of their salary to be
deferred with a matching provision of the first four percent of salary
deferral at a rate of twenty-five percent from the Company. The plan has a
five year vesting schedule. Contributions to this plan by the Company
amounted to $4,000, $3,000 and $26,000 for the years ended October 31, 1997,
1996, and 1995, respectively, which are included in compensation and
employee benefits. Total pension cost including administration and other
fees amounted to $7,000, $12,000 and $27,000 for the years ended October 31,
1997, 1996, and 1995, respectively, which are included in compensation and
employee benefits.
The Bank approved a directors' retirement plan during 1996. The plan
provided for a one-time contribution of $2,000 per year of service for each
director, future contributions of $2,000 per year for each director, and a
discretionary annual contribution for each director using performance
standards similar to those used under the existing 401(k) plan. Each
director's account will include a rate of return equal to the highest
interest rate paid on the Bank's one year or less certificate of deposits.
Future annual contributions will be made for each director to the plan as of
January 1 of each year starting with January 1, 1998. The Company's
contribution, including prior service, for the years ended October 31, 1997
and 1996 were $10,000 and $94,000. The plan expense is included in
compensation and employee benefits.
Note K. Employee Stock Ownership Plan (ESOP)
In June 1997 the Company established an Employee Stock Ownership Plan (the
ESOP) in connection with the stock conversion in which employees meeting age
and service requirements are eligible to participate. A participant is 100%
vested after five years of credit service. The ESOP borrowed $688,000 from
the Company and purchased 68,770 shares of common stock of the Company at
the date of the conversion. This debt carries an interest rate of 7.11% and
requires annual principal and interest payments. The Company has committed
to make annual contributions to the ESOP necessary to repay the loan
including interest.
As the debt is repaid, ESOP shares which were initially pledged as
collateral for its debt, are released from collateral and allocated to
active employees, based on the proportion of debt service paid in the year.
The Company accounts for its ESOP in accordance with Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the shares pledged as collateral are reported as unearned ESOP
shares in the consolidated balance sheets. As shares are determined to be
ratably released from collateral, the Company reports compensation expense
equal to the current market price of the shares, and the shares become
outstanding for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of stockholders' equity and dividends on
unallocated ESOP shares are used to pay debt servicing costs. The trustees'
of the plan may direct payments of cash dividends be paid to the
participants or to be credited to participant accounts and invested.
Compensation expense for the ESOP was $86,000 for October 31, 1997. The ESOP
shares were as follows:
Allocated shares 0
Shares ratably released for allocation 0
Unallocated shares 68,770
----------
Total ESOP shares 68,770
==========
Fair value of unreleased shares at October 31, 1997 $1,040,000
==========
35
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note L. Economic Dependency
The Company is a nondiscriminatory lender in their market area as defined by
their Community Reinvestment Act. The Company is a full service institution
with facilities located in southeast central Illinois. The Company has no
economic dependency other than the general market area. Concentration of
credit risk has been disclosed in Note C concerning lending portfolio.
Note M. Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company is
a defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the consolidated financial statements of
the Company.
October 31,
---------------------
1997 1996
----- ------
(1,000's)
---------------------
Fixed rate $ 180 $ 538
===== =======
Variable rate $ 594 $ 2,892
===== =======
Interest rates for fixed rate loan commitments at October 31, 1997 and 1996
were from 8.00% to 13.25% and from 5.00% to 10.00%, respectively. Interest
rates for variable rate loan commitments at October 31, 1997 and 1996 were
from 8.5% to 9% and from 8.00% to 9.75%, respectively. The Bank had unused
lines of credit in the amount of $3,889,000 and $2,118,000 at October 31,
1997 and 1996, respectively.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the consolidated
statements of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of these instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount and
type of collateral obtained, if deemed necessary by the Company upon
extension of credit, varies and is based on management's credit evaluation
of the counterparty.
In September 1996, the FDIC imposed the one-time assessment on all SAIF
insured deposits as of March 31, 1995. The Company has included the FDIC
assessment in the amount of $281,000 as SAIF deposit insurance in the
consolidated statements of income for the year ended October 31, 1996.
36
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N. Related Parties
The Company has entered into transactions with its directors, and executive
officers, and their affiliates. Such transactions were made in the ordinary
course of business on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features. A summary of loans to such related parties is as
follows:
October 31,
---------------------
1997 1996
----- ------
(1,000's)
---------------------
Balance $ 210 $ 222
New loans 145 140
Repayments (132) (152)
----- -----
Balance $ 223 $ 210
===== =====
Note O. Fair Value of Financial Instruments
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
For cash and cash equivalents, Federal Home Loan Bank stock, Federal
Reserve Bank stock, and accrued interest receivable, the carrying value is
a reasonable estimate of fair value. The fair value of investment
securities is based on quoted market prices, dealer quotes and prices
obtained from independent pricing services. The fair value of loans
receivable is estimated based on present values using the Bank's current
pricing structures to approximate current entry-value interest rates
considering anticipated prepayment speeds, maturity and credit risks.
The fair value of demand deposit accounts, NOW accounts, savings accounts
and money market deposits, and fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities at the reporting date. The fair value of FHLB advances
and other borrowings is estimated using rates currently available for debt
with similar terms and remaining maturities. For advance payments by
borrowers for taxes and insurance and accrued interest payable the carrying
value is a reasonable estimate of fair value. Commitments are generally
made at prevailing interest rates at the time of funding and, therefore,
there is no difference between the contract amount and fair value.
The fair value estimates presented herein are based on pertinent
information available to management as of October 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
the reporting date and, therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
37
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note O. Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments is as
follows:
<TABLE>
<CAPTION>
October 31,
-------------------------------------------------------
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(1,000's)
-------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and interest bearing deposits $ 2,930 $ 2,930 $ 1,253 $ 1,253
Securities available for sale 3,803 3,803 4,133 4,133
Securities held to maturity 997 1,008 592 589
Loans receivable, net 63,960 63,963 54,448 55,515
Accrued interest receivable 675 675 514 514
LIABILITIES
Deposits 61,715 61,978 56,691 56,801
FHLB advances 0 0 1,500 1,500
Repurchase agreements 92 92 0 0
Advances from borrowers for
taxes and insurance 42 42 35 35
Accrued interest payable 362 362 353 353
Commitments 0 4,663 0 5,548
</TABLE>
Note P. Parent Company Only Financial Information
The following condensed statement of financial condition, as of October 31,
1997, and condensed statement of income and cash flows for the period from
June 27, 1997 (date of formation) to October 31, 1997, for First Robinson
Financial Corp. should be read in conjunction with the consolidated
financial statements and the notes herein.
CONDENSED STATEMENT OF FINANCIAL CONDITION
October 31, 1997
ASSETS (1,000's)
---------
Cash $ 3,506
Investment in First Robinson Savings Bank, N.A. 9,377
Other assets 3
--------
Total Assets $ 12,886
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 69
Accrued income taxes 12
Deferred income taxes 1
Stockholders' equity 12,804
--------
Total Liabilities and Stockholders' Equity $ 12,886
========
38
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P. Parent Company Only Financial Information
CONDENSED STATEMENT OF INCOME
For the Period from June 27, 1997 to October 31, 1997
(1,000's)
---------
Income:
Interest income $ 47
--------
Total income 47
--------
Expenses:
Professional fees 6
Other 7
--------
Total expense 13
--------
Income before income taxes and equity in undistributed
earnings of subsidiary 34
Provision for income taxes 13
--------
Income before equity in undistributed earnings of subsidiary 21
Equity of Undistributed Earnings of Subsidiary:
First Robinson Savings Bank, N.A. 186
--------
Net income $ 207
========
CONDENSED STATEMENT OF CASH FLOWS
For the Period From June 27, 1997 to October 31, 1997
(1,000's)
---------
Operating Activities:
Net income $ 207
Adjustments to reconcile net loss to net cash provided
by operating activities:
Equity in undistributed net income of subsidiary (186)
Increase in other assets (3)
Increase in accounts payable 69
Increase in accrued income taxes 12
Increase in deferred income taxes 1
--------
Net cash provided by operating activities 100
--------
Investing Activities:
Investment in the Bank (4,094)
--------
Net cash used by investing activities (4,094)
--------
39
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P. Parent Company Only Financial Information
CONDENSED STATEMENT OF CASH FLOWS
For the Period From June 27, 1997 to October 31, 1997
(1,000's)
---------
Financing Activities:
Proceeds from issuance of stock $ 8,188
Proceeds used to purchase ESOP shares (688)
--------
Net cash provided by financing activities 7,500
--------
Net increase in cash 3,506
Cash Beginning of Period 0
Cash End of Period $ 3,506
========
40
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION AND SUBSIDIARY
STOCKHOLDER INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will be held at 10:00 a.m., February 24,
1998, at the Company's office located at 501 East Main Street, Robinson,
Illinois.
STOCK LISTING
The Company's stock is traded on the over-the-counter market with quotations
available through the OTC Electronic Bulletin Board under the symbol "FRFC."
PRICE RANGE OF COMMON STOCK
The following table sets forth the high and low bid prices of the Common Stock.
These prices do not represent actual transactions and do not include retail
mark-ups, mark-downs or commissions.
High Low Dividends
------ ----- ---------
July 31, 1997.......... $16.50 $16.50 $---
October 31, 1997....... $15.125 $15.125 $---
The Company did not declare a dividend in fiscal 1997. Dividend payment
decisions are made with consideration of a variety of factors including
earnings, financial condition, market considerations and regulatory
restrictions. Restrictions on dividend payments are described in Note H of the
Notes to Financial Statements included in this report.
As of October 31, 1997, the Company had approximately 638 stockholders of record
and 859,625 outstanding shares of common stock.
SHAREHOLDERS AND GENERAL INQUIRIES TRANSFER AGENT
Rick L. Catt, President Register and Transfer Company
First Robinson Financial Corporation 10 Commerce Drive
501 East Main Street Cranford, New Jersey 07016
Robinson, Illinois 62454 (908) 272-8511
(618) 544-8621
ANNUAL AND OTHER REPORTS
The Company is required to file an annual report on Form 10-KSB for its fiscal
year ended October 31, 1997, with the Securities and Exchange Commission. Copies
of the Form 10-KSB annual report and the Company's quarterly reports may be
obtained without charge by contacting:
Rick L. Catt, President
First Robinson Financial Corporation
501 East Main Street
Robinson, Illinois 62454
(618) 544-8621
41
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION AND SUBSIDIARY
CORPORATE INFORMATION
COMPANY AND BANK ADDRESS
501 East Main Street Telephone: (618) 544-6821
Robinson, Illinois 62454 Fax: (618) 544-7506
DIRECTORS OF THE BOARD
Scott F. Pulliam Rick L. Catt
Public Accountant President and Chief Executive Officer
Robinson, Illinois First Robinson Financial Corporation
Robinson, Illinois
James D. Goodwine
Funeral Director William K. Thomas
Robinson, Illinois Attorney
Robinson, Illinois
Clell T. Keller
Retired Clerk of Crawford Donald K. Inboden
County, Illinois Circuit Court Retired - Marathon Oil Company
Robinson, Illinois Robinson, Illinois
FIRST ROBINSON FINANCIAL CORPORATION AND SUBSIDIARY OFFICERS
Rick L. Catt Jamie E. McReynolds
President and Chief Executive Vice President, Chief Financial
Officer Officer and Secretary
Leslie Trotter, III William D. Sandford
Vice President Vice President and Senior
Loan Officer
Rita L. Elder
Vice President
INDEPENDENT AUDITORS SPECIAL COUNSEL
Larsson, Woodyard & Henson, LLP Silver, Freedman & Taff, L.L.P.
702 East Court Street 1100 New York Avenue, N.W.
Paris, Illinois 61944 Washington, D.C. 20005
42
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiary or Percent of State of
Parent Organization Ownership Incorporation
- ------ ------------- ---------- -------------
1. First Robinson First Robinson 100% Federal
Financial Savings Bank, N.A
Corporation
2. First Robinson First Robinson 100% Illinois
Savings Bank, Service Corporation
N.A.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 268
<INT-BEARING-DEPOSITS> 2,662
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,803
<INVESTMENTS-CARRYING> 997
<INVESTMENTS-MARKET> 997
<LOANS> 63,960
<ALLOWANCE> (482)
<TOTAL-ASSETS> 75,559
<DEPOSITS> 61,715
<SHORT-TERM> 92
<LIABILITIES-OTHER> 948
<LONG-TERM> 0
9
0
<COMMON> 0
<OTHER-SE> 12,804
<TOTAL-LIABILITIES-AND-EQUITY> 75,559
<INTEREST-LOAN> 5,494
<INTEREST-INVEST> 421
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,915
<INTEREST-DEPOSIT> 2,903
<INTEREST-EXPENSE> 3,077
<INTEREST-INCOME-NET> 2,838
<LOAN-LOSSES> 206
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,075
<INCOME-PRETAX> 1,073
<INCOME-PRE-EXTRAORDINARY> 1,073
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 647
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 4.20
<LOANS-NON> 334
<LOANS-PAST> 0
<LOANS-TROUBLED> 36
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (619)
<CHARGE-OFFS> (161)
<RECOVERIES> 24
<ALLOWANCE-CLOSE> (482)
<ALLOWANCE-DOMESTIC> (333)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (149)
</TABLE>
