SECURITY AND EXCHANGE COMMSSION
WASHNGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-29276
FIRST ROBINSON FINANCIAL CORPORATION
(Exact name of registrant as specified its charter)
DELAWARE 36-4145294
(State or other jurisdiction I.R.S. Employer ID Number
of incorporation or organization)
501 EAST MAIN STREET, ROBINSON. ILLINOIS 62454
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (618) 544-8621
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
As of February 11, 1999, the Registrant had 859,625 shares of Common Stock, par
value $0.01, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
YES _____ NO __X__
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION
Index to Form 10-QSB
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1998
And March 31, 1998 3
Consolidated Statements of Income for the Three-Month
And Nine Month Periods Ended December 31, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity for the Nine Month
Period Ended December 31, 1998 and 1997 5
Consolidated Statements of Cash Flows for the Three-Month
And Nine Month Periods Ended December 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
Unaudited
12/31/98 3/31/98
-------- --------
($1,000's)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and due from banks $ 804 $ 609
Interest bearing deposits 5,074 5,965
-------- --------
Total Cash and Cash Equivalents 5,878 6,574
Securities available for sale, amortized cost of $11,921and $4,065
at Dec. 31, 1998 and March 31, 1998 respectively 11,957 4,119
Securities held to maturity, estimated market value of $190 and
$967 at Dec. 31, 1998 and March 31, 1998, respectively 190 955
Loans receivable, net 63,410 64,234
Accrued interest receivable 656 715
Premises and equipment, net 2,936 2,897
Foreclosed real estate 0 221
Prepaid income tax 67 29
Other assets 174 224
-------- --------
Total Assets $ 85,268 $ 79,968
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 68,666 $ 62,630
Advances from Federal Home Loan Bank 2,000 2,000
Repurchase agreements 2,304 1,644
Advances from Borrowers for taxes and insurance 66 75
Accrued interest payable 305 348
Deferred income taxes 150 157
Other liabilities 183 219
-------- --------
Total Liabilities 73,674 67,073
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $ .01 par value; authorized 2,000,000 shares
859,625 shares issued and outstanding 9 9
Preferred stock, $.01 par value; authorized 500,000 shares,
No shares issued and outstanding
Paid-in capital 8,264 8,232
Retained earnings 5,220 5,223
Treasury stock at cost (747) 0
Accumulated other comprehensive income, net of related tax
of $14 and $19 at Dec. 31 1998 and March 31, 1998, respectively 21 33
Unearned employee stock ownership plan and recognition and retention plan (1,173) (602)
-------- --------
Total Stockholders' Equity 11,594 12,895
-------- --------
Total Liabilities and Stockholders' Equity $ 85,268 $ 79,968
-------- --------
</TABLE>
3
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Month and Nine Month Periods Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
Three Month Period Nine Month Period
1998 1997 1998 1997
------ ------ ------ ------
($1,000's)
<S> <C> <C> <C> <C>
Interest Income:
Interest on Loans $1,431 $1,482 $4,353 $4,339
Interest and dividends on securities 212 81 551 306
------ ------ ------ ------
Total interest income 1,643 1,563 4,904 4,645
------ ------ ------ ------
Interest expense:
Interest on deposits 788 738 2,294 2,240
Interest on FHLB advances 26 5 77 62
Interest on repurchase agreements 32 3 92 4
------ ------ ------ ------
Total interest expense 846 746 2,463 2,306
------ ------ ------ ------
Net interest income 797 817 2,441 2,339
Provision for loan losses 30 163 145 299
------ ------ ------ ------
Net interest income after provision 767 654 2,296 2,040
------ ------ ------ ------
Non-interest income:
Service charges 70 61 205 155
Loan fees 28 40 89 125
Gain on sale of loans 0 0 0 133
Other non-interest income 14 6 45 43
------ ------ ------ ------
Total other income 112 107 339 456
------ ------ ------ ------
Non-interest expense:
Compensation and employee benefits 373 272 1,259 870
Occupancy and equipment 108 94 330 273
Foreclosed property expense 6 10 35 37
Data Processing 25 15 66 45
Audit, legal and other professional 33 23 109 44
SAIF deposit insurance 14 10 39 30
Advertising 19 16 50 55
Telephone and postage 22 20 67 61
Other 90 95 273 264
------ ------ ------ ------
Total other expenses 690 555 2,228 1,679
------ ------ ------ ------
Income before income tax 189 206 407 817
Provision for income taxes 74 84 153 322
------ ------ ------ ------
Net Income (Loss) $ 115 $ 122 $ 254 $ 495
------ ------ ------ ------
Earnings Per Share-Basic $ 0.15 $ 0.15 $ 0.33 $ 0.62
Earnings Per Share-Diluted $ 0.15 $ 0.15 $ 0.33 $ 0.62
</TABLE>
4
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Nine Month Periods Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Unallocated Accumulated
ESOP Other
Common Paid-in Retained Treasury and Comprehensive
Stock Capital Earnings Stock RRP Income Total
-----------------------------------------------------------------------------------------------
($1,000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $9 $8,232 $5,223 $0 $(602) $33 $12,895
Net Income 254 254
Rounding 1 1
Other Comprehensive Income (12) (12)
Allocation of ESOP shares 32 52 84
Treasury Stock at cost (747) (747)
Dividends Paid (258) (258)
Recognition and Retention Plan (623) (623)
-----------------------------------------------------------------------------------------------
Balance at Dec. 31, 1998 $9 $8,264 $5,220 $(747) $(1,173) $21 $11,594
-- ------ ------ ----- -------- --- -------
<CAPTION>
Unallocated
Employee Accumulated
Stock Other
Common Paid-in Retained Ownership Comprehensive
Stock Capital Earnings Plan Income Total
-----------------------------------------------------------------------------
($1,000's)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $0 $0 $4,850 $0 $30 $4,880
Issuance of Common Stock 9 8,178 (688) 7,499
Net Income 495 495
Other Comprehensive Income (4) (4)
Allocation of ESOP shares 42 69 111
-----------------------------------------------------------------------------
Balance at September 30, 1997 $9 $8,220 $5,345 $(619) $26 $12,981
-- ------ ------ ------ --- -------
</TABLE>
5
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month and Nine Month Periods
Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
1998 1997 1998 1997
------- ------- ------- -------
($1,000's)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 115 $ 122 $ 254 $ 495
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Provision for depreciation 61 52 174 139
Provision for loan losses 30 163 145 299
Net amortization and accretion on investments 14 11 27 15
(Increase) decrease in accrued interest receivable 68 (35) 59 (211)
(Increase) decrease in prepaid income taxes 19 0 (38) 0
Decrease (Increase) in other assets 14 20 50 77
(Decrease) increase in accrued interest payable (56) (29) (43) (12)
(Decrease) increase in accrued income taxes 0 (107) 0 35
(Decrease) increase in deferred income taxes 0 150 0 150
Increase (decrease) in other liabilities 85 (97) (36) (13)
Gain on sale of loans 0 0 0 (133)
Gain on sale of premises and equipment 0 0 0 0
Loss on sale of mortgage-backed securities 0 0 0 0
------- ------- ------- -------
Net cash provided by operating activities 350 250 592 841
------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of securities available for sale 0 0 0 0
Proceeds from maturities of securities available for sale 500 0 500 200
Proceeds from sale of mortgage-backed securities
Available for sale 0 0 0 0
Proceeds from maturities of securities held to maturity 20 20 35 35
Purchase of securities held to maturity 0 0 (35) (677)
Purchase of securities available for sale (2,075) (500) (8,944) (500)
Repayment of principal on mortgage-backed securities 614 434 1,326 768
Decrease (increase) in loans receivable 396 (1,784) (582) (6,712)
Purchase of loans and participations (678) (608) (678) (608)
Sale or participation of originated loans 508 0 1,939 1,714
Decrease (increase) in foreclosed real estate 24 18 221 (5)
Purchase of premises and equipment (46) (91) (213) (284)
------- ------- ------- -------
Net cash used in investing activities (737) (2,511) (6,431) (6,069)
------- ------- ------- -------
</TABLE>
6
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
CONSOLDIATED STATEMENT OF CASH FLOWS
For The Three and Nine Month Periods Ended December 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
1998 1997 1998 1997
------- ------- ------- -------
($1,000's)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 154 $ (283) $ 6,036 $(1,748)
Increase (decrease) in repurchase agreements 283 202 660 (163)
Advances from Federal Home Loan Bank 1,500 2,500 1,500 4,250
Repayment of FHLB advances (1,500) (500) (1,500) (6,000)
Increase in advances from borrowers
for taxes and insurance 18 19 (9) (8)
Proceeds from issuance of common stock 0 0 0 8,187
Purchase of employee stock ownership plan 0 0 0 (688)
ESOP shares released 25 111 84 111
Dividends paid 0 0 (258) 0
Purchase of stock for Recognition & Retention Plan 0 0 (746) 0
Funding of recognition and retention plan 0 0 123 0
Purchase of treasury stock 0 0 (747) 0
------- ------- ------- -------
Net cash provided by financing activities 480 2,049 5,143 3,941
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 93 (212) (696) (1,287)
Cash and cash equivalents at beginning of period 5,785 3,094 6,574 4,169
------- ------- ------- -------
Cash and cash equivalents at end of period $ 5,878 $ 2,882 $ 5,878 $ 2,882
------- ------- ------- -------
Supplemental Disclosures:
Additional Cash Flows Information:
Cash paid for:
Interest on deposits, advances and
repurchase agreements $ 902 $ 775 $ 2,506 $ 2,318
Income taxes:
Federal 52 37 180 111
State 5 8 22 26
Schedule of Non-Cash Investing Activities:
Change in unrealized gain on securities available for sale (87) 0 (19) (7)
Change in deferred income taxes attributed to
Unrealized gain on securities available for sale 34 0 (7) 3
</TABLE>
7
<PAGE>
FIRST ROBINSON FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements include the accounts of First Robinson
Financial Corporation (the Company) and its wholly owned subsidiary, First
Robinson Savings Bank, National Association (the Bank). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are unaudited and should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's annual report dated April 22, 1998. The accompanying
unaudited consolidated financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not include information
or footnotes necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. In the opinion of management of the Company the unaudited
consolidated financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position of the
Company at December 31, 1998 and the results of its operations and cash flows
for the three months and nine months ended December 31, 1998 and 1997. The
results of operations for those months ended December 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
(2) Stock Conversion
On June 27, 1997, the predecessor of the Bank, First Robinson Savings and Loan,
F.A. completed its conversion from a Federally chartered mutual savings and loan
to a National Bank and was simultaneously acquired by the Company, which was
formed to act as the holding company of the Bank. At the date of the conversion,
the Company completed the sale of 859,625 shares of common stock $.01 par value,
to its Eligible Account Holders and Employee Stock Ownership Plan (ESOP), at
$10.00 per share. Net proceeds from the above transactions, after deducting
offering expenses, underwriting fees, and amounts retained to fund the ESOP,
totaled $7,504,657.
(3) Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," which requires entities with complex capital
structures to present both basic earnings per share ("EPS") and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities of other contracts to issue common stock (such as stock options) were
exercised or converted into common stock or resulted in the issuance of common
stock that would then share in the earnings of the entity. Diluted EPS is
computed by dividing net income by the weighted average number of common shares
outstanding for the period, plus common-equivalent shares computed using the
treasury stock method. The Company's weighted average common shares outstanding
was 760,768 and 779,864 for the three and nine month periods ending December 31,
1998. The Company's operations did not start until June 27, 1997, earnings per
share calculations are presented as if the Company was operating for both the
three and nine month periods ended December 31, 1997. Weighted average common
shares outstanding for the three and nine month periods ended December 31, 1997
were 796,012 and 792,829 respectively. The Company approved a stock option plan
during the quarter ended September 30, 1998. This plan had no dilutive effect on
the earnings per share since current stock price was less than option price.
8
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Employee Stock Ownership Plan
In connection with the conversion to the stock form of ownership, the Board of
Directors established an employee stock ownership plan (ESOP) for the exclusive
benefit of participating employees. Employees age 21 or older who have completed
one year of service are eligible to participate. Upon the issuance of the common
stock, the ESOP acquired 68,770 shares of $0.01 par value common stock at the
subscription price of $10.00 per share. The Bank makes contributions to the ESOP
equal to the ESOP's debt service less dividends received by the ESOP. All
dividends received by the ESOP are used to pay debt service. As the debt is
repaid, shares are released from collateral and allocated to active employees.
The Bank accounts for its ESOP in accordance with Statement of Position 93-6.
Accordingly, the debt of the ESOP is recorded as debt and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated balance
sheets. As shares are released from collateral, the Bank reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for earnings-per-share calculations. Dividends on allocated shares
are recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt or accrued interest. ESOP
compensation expense for the three months ended December 31, 1998 was $37,000
and for the nine months ended December 31, 1998 was $117,000.
The ESOP shares at December 31, 1998 were as follows:
Allocated shares 13,754
Shares released for allocation 0
Unallocated shares 55,016
Total ESOP shares 68,770
Fair value of unallocated shares $639,561
(5) Comprehensive Income
The company has adopted FASB Statement No. 130, Reporting Comprehensive Income.
The statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes net income and other
comprehensive income, which for the Company includes unrealized gains and losses
on securities available for sale. Comprehensive income, unaudited, for the three
and nine month periods ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
1998 1997 1998 1997
----- ----- ----- -----
($1,000)
<S> <C> <C> <C> <C>
Net Income $ 115 $ 122 $ 254 $ 495
----- ----- ----- -----
Other Comprehensive Income
Unrealized gains (losses) on securities (87) 0 (19) (7)
Related tax effects 34 0 7 3
----- ----- ----- -----
Other Comprehensive Income (Losses) (53) 0 (12) (4)
----- ----- ----- -----
Comprehensive Income $ 62 $ 122 $ 242 $ 491
----- ----- ----- -----
</TABLE>
9
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
General
The principal business of the Company, through its operating subsidiary,
the Bank, consists of accepting deposits from the general public and investing
these funds primarily in loans, mortgage-backed securities and other securities.
The Company's loans consist primarily of loans secured by residential real
estate located in its market area, consumer loans and commercial loans.
The Company's net income is dependent primarily on its net interest income,
which is the difference between interest earned on interest-eaming assets and
the interest paid on interest-bearing liabilities. Net interest income is a
function of the Company's "interest rate spread," which is the difference
between the average yield earned on interest-earning assets and the average rate
paid on interest-bearing liabilities. The interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates, loan
demand and deposit flows. To a lesser extent, the Company's net income also is
affected by the level of general and administrative expenses and the level of
other income, which primarily consists of service charges and other fees.
The operations of the Company are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of government agencies. Lending activities are influenced by the demand
for and supply of housing, competition among lenders, the level of interest
rates and the availability of funds. Deposit flows and costs of funds are
influenced by prevailing market rates of interest, competing investments,
account maturities and the levels of personal income and savings in the
Company's market area.
Historically, the Company's mission has been to originate loans on a
profitable basis to the communities it serves. In seeking to accomplish its
mission, the Board of Directors and management have adopted a business strategy
designed (i) to maintain the Bank's capital level in excess of regulatory
requirements; (ii) to maintain the Company's asset quality, (iii) to maintain,
and if possible, increase the Company's earnings; and (iv) to manage the
Company's exposure to changes in interest rates.
Forward-Looking Statements
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
risks and uncertainties, including but not limited to changes in economic
conditions in the Company's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Company's
market area and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and
advises readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
10
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Impact of the Year 2000
The Company has continued conducting and testing its computer systems to
identify applications that could be affected by the "Year 2000" issue, and has
developed an implementation plan to address the issue. The Company's data
processing is performed primarily in-house; however software and hardware
utilized is under maintenance agreements with third party vendors, consequently
the Company is very dependent on those vendors to conduct its business. The
Company has already contacted each vendor to request time tables for year 2000
compliance and expected costs, if any, to be passed along to the Company. To
date, the Company has been informed that its primary service providers
anticipate that all reprogramming efforts will be completed by December 31,
1998, allowing the Company adequate time for testing. Review and testing of core
systems is estimated to be 85% complete. Management does not expect these costs
to have a significant impact on its financial position or results of operations
however, there can be no assurance that the vendors' systems will be Year 2000
compliant, consequently the Company could incur incremental costs to convert to
another vendor. The Company identified certain of its hardware and software
equipment that was not Year 2000 compliant. The Company purchased new equipment
and software totaling approximately $90,000. However the Company has projected
an additional $140,000 for capital expenditures as a safeguard for future
contingencies. The Company projects that expenses should not exceed $78,000 for
the fiscal year ending March 31, 1999. The Company is expensing all costs
associated with Year 2000 required system changes as costs are incurred, and
such costs are being funded through operating cash flows. The cost of internal
resources for compliance has not been estimated. The Company does not expect
significant increases in future data processing costs or other expenses related
to its Year 2000 compliance. The Company continues to plan for the "Year 2000"
issue. Several measures are being developed including but not limited to a
proactive approach to customer awareness regarding the "Year 2000" issue,
reviewing and planning for liquidity needs, additional inspections of
environmental systems, and contingency and business recovery planning.
Business Strategy
The Company's mission statement is "To provide the BEST financial products
and services, with friendly courteous PEOPLE, while increasing shareholder value
and remaining locally-owned." This mission statement fully supports the
Company's business strategy, which is to continue to be a community-oriented
locally owned financial institution offering financial services to residents and
businesses of Crawford County, Illinois (the primary market area). Strategic
planning continues to be a vital ingredient of the Company's future. The Board
of Directors and management have recently reviewed and updated the Company's
strategic plan. Some new products and services that support the Company's
strategic plan will be implemented within the next six to twelve months. These
products should assist the Company in maintaining a strong presence in the
one-to four- family real estate market. A marketing committee has been formed to
make recommendations and help implement services which will help the Bank
increase its market share in a manner consistent with the Company's strategic
plan
Financial Condition
Comparison at December 31, 1998 and March 31, 1998
The Company's total assets increased by approximately $5.3 million or 6.6%,
to $85.3 million at December 31, 1998 from $80.0 million at March 31, 1998. This
increase in total assets was primarily the result of a $7.8 million increase in
securities available for sale offset primarily by a $696,000 decrease in cash
and cash equivalents, an $824,000 decrease in loans receivable, net, a $221,000
decrease in foreclosed real estate and a $765,000 decrease in securities held to
maturity. The decrease in securities held to maturity was primarily the result
of a reclassification of the securities to available for sale by implementing
the Statement of Financial Accounting Standards No. 133. The overall increase in
assets was primarily due to the purchase of additional securities. This increase
was primarily funded by increases in deposits and repurchase agreements
11
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition - Continued
Liabilities increased approximately $6.6 million or 9.8% to $73.7 million
at December 31, 1998 from $67.1 million at March 31, 1998. This increase in
liabilities was primarily the result of a $6.0 million increase in deposits and
a $660,000 increase in repurchase agreements.
Stockholders' equity decreased $1.3 million or 10.1% to $11.6 million as of
December 31, 1998 from $12.9 million as of March 31, 1998. This decrease was
primarily from $1.4 million of the Company's stock being re-purchased, offset by
earnings for the quarter. This stock is currently held in treasury stock and for
the Recognition and Retention Plan.
Results of Operation
Comparison of the Three Months ended December 31, 1998 and 1997
Net Income
The Company reported net earnings of $115,000 during the three months ended
December 31, 1998 as compared to net income of $122,000 during the three months
ended December 31, 1997. The $7,000 or 5.7% decrease in net income during the
three months ended December 31, 1998, as compared to the same period in the
prior year, was primarily attributable to an increase of $135,000 or 24.3% in
non-interest expense offset by an increase of $113,000 or 17.3% in net interest
income after provision for loan losses, an increase of $5,000 or 4.7% in
non-interest income and a decrease $10,000 or 11.9% in provision for income
taxes.
Net Interest Income
Net interest income decreased by $20,000 or 2.4% to $797,000 during the
three months ended December 31, 1998, as compared to $817,000 during the same
period in the prior year. The decrease was caused by an increase of $100,000 or
13.4% in total interest expense offset by an increase of $80,000 or 5.1% in
total interest income. The increase in total interest expense was from a $50,000
or 6.8% increase in interest on deposits, a $21,000 increase in interest on FHLB
advances and a $29,000 increase in interest on repurchase agreements. The
increase in total interest income was from a $131,000 increase in interest and
dividends on securities offset by a decrease of $51,000 or 3.4% in interest on
loans. Interest rate spread for the three months ended December 31, 1998 was
3.21% compared to 3.64% for the same period in 1997.
Non-Interest Income
Total non-interest income increased by $5,000 or 4.7% to $112,000 during
the three months ended December 31, 1998, as compared to $107,000 during the
same period in the prior year. The increase in total non-interest income was
primarily caused by an increase of $9,000 or 14.8% in service charges and an
increase of $8,000 in other non-interest income offset by a decrease of $12,000
or 30.0% in loan fees.
12
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Non-Interest Expense
Total non-interest expense increased by $135,000 or 24.3% to $690,000
during the three months ended December 31, 1998, as compared to $555,000 during
the same period in the prior year. This increase was due primarily from an
increase of $101,000 or 37.1% in compensation and employee benefits, an increase
of $14,000 or 14.9% in occupancy and equipment expense, an increase of $10,000
or 66.7% in data processing expense, an increase of $10,000 or 43.5% in audit,
legal, and other professional expenses, an increase of $4,000 or 40.0% in SAIF
deposit insurance premiums, an increase of $3,000 or 18.8% in advertising
expense and an increase of $2,000 or 10.0% in telephone and postage expenses
partially offset by a decrease of $4,000 or 40.0% in foreclosed property expense
and a decrease of $5,000 or 5.3% in other expenses. The significant increase in
compensation and employee benefits was primarily from the ongoing costs
associated with the implementation of the Company's Recognition and Retention
Plan approved by shareholders at their annual meeting July 29, 1998 and the
hiring of additional personnel.
Provision for Loan Losses
During the three months ended December 31, 1998, the Company recorded
provision for loan losses of $30,000 as compared to $163,000 for the same period
of the prior year. The Company recorded such provisions to adjust the Company's
allowance for loan losses to a level deemed appropriate based on an assessment
of the volume and lending presently being conducted by the Company, industry
standards, past due loans, economic conditions in the Company's market area
generally and other factors related to the collectability of the Company's loan
portfolio. The Company's non-performing assets as a percentage of total assets
was 0.57% at December 31, 1998, as compared to 0.15% at September 30, 1998.
Provision for Income Taxes
The Company recognized a provision for income taxes of $74,000 for the
three months ended December 31, 1998 as compared to a provision for income taxes
of $84,000 for the same period in the prior year. The effective tax rate during
the three months ended December 31, 1998 was 39.2% (federal and state) as
compared to 40.8% during the same period in the prior year.
Comparison of the Nine Months ended December 31, 1998 and 1997
Net Income
The Company reported a net income of $254,000 during the nine months ended
December 31, 1998 as compared to $495,000 during the nine months ended December
31, 1997. The $241,000 or 48.7% decrease in net income for the nine months ended
December 31, 1998, as compared to the same period in the prior year was
primarily attributable to an increase of $256,000 or 12.5% in net interest
income after provision for loan losses and a decrease of $169,000 or 52.5% in
provision for income taxes offset by a decrease of $117,000 or 25.7% in
non-interest income and an increase of $549,000 or 32.7% in non-interest
expense.
13
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Net Interest Income
Net interest income increased by $102,000 or 4.4% during the nine months
ended December 31, 1998, as compared to the same period in the prior year. This
increase was caused by a $259,000 or 5.6% increase in total interest income
offset by a $157,000 or 6.8% increase in total interest expense. The increase in
total interest income was from a $14,000 or 0.3% increase in interest on loans
and a $245,000 or 80.1% increase in interest and dividends on securities. The
increase in total interest expense was from a $54,000 or 2.4% increase in
interest on deposits, a $15,000 or 24.2% increase in interest on Federal Home
Loan Bank advances and a $88,000 increase in interest on repurchase agreements.
Interest rate spread for the nine months ended December 31, 1998 was 3.36%
compared to 3.74% for the same period in 1997.
Non-Interest Income
Total non-interest income decreased by $117,000 or 25.7% during the nine
months ended December 31, 1998, as compared to the same period in the prior
year. The decrease in non-interest income was primarily the result of a $50,000
or 32.3% increase in service charges and a $2,000 or 4.7% increase in other
non-interest income offset by a $36,000 or 28.8% decrease in loan fees and a
decrease of $133,000 in gains from sale of loans. The significant decrease in
gains from sale of loans was caused by a one-time sale of the government
guaranteed portion of commercial loans during the nine months ended December 31,
1997.
Non-Interest Expense
Total non-interest expense increased by $549,000 or 32.7% during the nine
months ended December 31, 1998, as compared to the same period in the prior
year. This increase was due primarily from an increase of $389,000 or 44.7% in
compensation and employee benefits, an increase of $57,000 or 20.9% in occupancy
and equipment expense, an increase of $21,000 or 46.7% in data processing
expense, an increase of $65,000 or 147.7% in audit, legal and other professional
expenses, an increase of $9,000 or 30.0% in SAIF deposit insurance premiums, an
increase of $6,000 or 9.8% in telephone and postage expense and an increase of
$9,000 or 3.4% in other expenses offset by a decrease of $2,000 or 5.4% in
foreclosed property expense and a decrease of $5,000 or 9.1% in advertising
expense. The significant increase in compensation and employee benefits was
primarily the result of initial and ongoing costs associated with the Company's
Recognition and Retention Plan approved by the shareholders at their annual
meeting July 29, 1998 and increased personnel costs. The increase in audit and
legal fees was a direct result of the increased costs associated with being a
publicly traded company.
Provision for Loan Losses
During the nine months ended December 31, 1998, the Company recorded
provision for loan losses of $145,000 as compared to $299,000 for the same
period of the prior year. The Company recorded such provisions to adjust the
Company's allowance for loan losses to a level deemed appropriate based on an
assessment of the volume and lending presently being conducted by the Company,
industry standards, past due loans, economic conditions in the Company's market
area generally and other factors related to the collectability of the Company's
loan portfolio. The Company's non-performing assets as a percentage of total
assets was 0.57% at December 31, 1998, as compared to 0.55% at March 31, 1998.
14
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Provision for Income Taxes
The Company recognized provision for income taxes of $153,000 for the nine
months ended December 31, 1998 as compared to $322,000 for the same period in
the prior year. The effective tax rate during the nine months ended December 31,
1998 was 37.6% (federal and state) and 39.4% for the nine months ending December
31, 1997.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits and principal and
interest payments collected on loans, investments and related securities. While
scheduled loan repayments and maturing investments are relatively predictable,
deposit flows and early loan prepayments are more influenced by interest rates,
general economic conditions and competition. Additionally, the Company may
borrow funds from the FHLB of Chicago and the Discount Window of the Federal
Reserve of St. Louis or utilize other borrowings of funds based on need,
comparative costs and availability at the time. The Company has developed a
correspondent relationship and has borrowing capabilities with Cole Taylor Bank
in Chicago.
At December 31, 1998 the Company had $2.0 million in advances from the FHLB
of Chicago outstanding with no change from the amount of advances as of March
31, 1998. The Company uses its liquidity resources principally to meet
outstanding commitments on loans, to fund maturing certificates of deposit and
deposit withdrawals and to meet operating expenses. The Company anticipates that
it will have sufficient funds available to meet current loan commitments. At
December 31, 1998, the Company had outstanding commitments to extend credit,
which amounted to $2.4 million (including $1.7 million, in available revolving
commercial lines of credit). Management believes that loan repayments and other
sources of funds will be adequate to meet the Company's foreseeable liquidity
needs.
Liquidity management is both a daily and long-term responsibility of
management. The Company adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing investments and (iv) the
objectives of its asset/liability management program. Excess liquidity generally
is invested in interest-earning overnight deposits and other short-term
government and agency obligations.
Regulatory Capital
The Bank is subject to capital requirements of the Office of the
Comptroller of the Currency ("OCC"). The OCC requires the Bank to maintain
minimum ratios of Tier I capital to total risk-weighted assets and total capital
to risk-weighted assets of 4% and 8% respectively. Tier I capital consists of
total stockholders' equity calculated in accordance with generally accepted
accounting principals less intangible assets, and total capital is comprised of
Tier I capital plus certain adjustments, the only one of which is applicable to
the Bank is the allowance for loan losses. Risk-weighted assets refer to the on-
and off-balance sheet exposures of the Bank adjusted for relative risk levels
using formulas set forth by OCC regulations. The Bank is also subject to an OCC
leverage capital requirement, which calls for a minimum ratio of Tier I capital
to quarterly average total assets of 3% to 5%, depending on the institution's
composite ratings as determined by its regulators.
15
<PAGE>
FIRST ROBINSON FINANCIAL CORP. AND SUBSIDIARY
Management Discussion and Analysis of Financial
Condition and Results of Operations
Regulatory Capital
At December 31, 1998, the Bank was in compliance with all of the
aforementioned capital requirements as summarized below:
December 31, 1998
-----------------
(1,000's)
Tier I Capital:
Common stockholders' equity 9,723
Unrealized loss (gain) on securities available for sale (21)
Total Tier I Capital 9,702
Tier II Capital:
Total Tier I capital 9,702
Qualifying allowance for loan losses 697
Total capital 10,399
Risk-weighted assets 55,730
Quarter average assets 85,542
<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 December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) 10,399 18.66% 4,458 8.00% 5,573 10.00%
Tier I Capital
(to Risk-Weighted Assets) 9,702 17.41% 2,229 4.00% 3,344 6.00%
Tier I Capital
(to Average Assets) 9,702 11.34% 3,422 4.00% 4,277 5.00%
</TABLE>
At the time of the conversion of the Bank to a stock organization, a special
liquidation account was established for the benefit of eligible account holders
and the supplemental account holders in an amount equal to the net worth of the
Bank. This special liquidation account will be maintained for the benefit of
eligible account holders and the supplemental account holders who continue to
maintain their accounts in the Bank after the conversion on June 27, 1997. In
the event of a complete liquidation, each eligible and the supplemental eligible
account holders will be entitled to receive a liquidation distribution from the
liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. With the reorganization completed on
June 27, 1997, this liquidation account became part of stockholders' equity for
the Company under the same terms and conditions as if the reorganization had not
occurred. The Bank may not declare or pay cash dividends on or repurchase any of
its common stock if stockholders' equity would be reduced below applicable
regulatory capital requirements or below the special liquidation account.
16
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Executives
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits: I. Statement Regarding Computation of Earnings
II. Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST ROBINSON FINANCIAL
CORPORATION
Date: February 15, 1999 /s/ Rick L. Catt
----------------- ----------------
Rick L. Catt
President and Chief Executive Officer
Date: February 15, 1999 /s/ Jamie E. McReynolds
----------------- -----------------------
Jamie E. McReynolds
Chief Financial Officer and Vice President
18
Exhibit 11
Statement Regarding Computation of Earnings per Share
<TABLE>
<CAPTION>
Three Months Nine Months
December 31, December 31,
1998 1997 1998 1997 (1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings (in thousands) $115 $122 $254 $495
Basic earnings per share:
Weighted average shares outstanding 859,625 859,625 859,625 859,625
Less unearned employee stock ownership plan shares (55,876) (63,613) (57,499) (66,796)
Less shares repurchased (42,981) 0 (22,262) 0
Average option shares granted 0 0 0 0
Less assumed purchase of shares using treasury method 0 0 0 0
--------- --------- --------- ---------
Common and common equivalent shares outstanding 760,768 796,012 779,864 792,829
--------- --------- --------- ---------
Earnings per common share - basic $0.15 $0.15 $0.33 $0.62
--------- --------- --------- ---------
Diluted earnings per share:
Weighted average shares outstanding 859,625 859,625 859,625 859,625
Less unearned employee stock ownership plan shares (55,876) (63,613) (57,499) (66,796)
Less shares repurchased (42,981) 0 (22,262) 0
Average option shares granted (2) 0 0 0 0
Less assumed purchase of shares using treasury method 0 0 0 0
--------- --------- --------- ---------
Common and common equivalent shares outstanding 760,768 796,012 779,864 792,829
--------- --------- --------- ---------
Earnings per common share - diluted $0.15 $0.15 $0.33 $0.62
--------- --------- --------- ---------
</TABLE>
(1) See page 8 for Earnings per Share
(2) Option price exceeds market price
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of First Robinson Financial Corporation for
the quarterly period ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 804
<INT-BEARING-DEPOSITS> 5,074
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,957
<INVESTMENTS-CARRYING> 190
<INVESTMENTS-MARKET> 190
<LOANS> 64,123
<ALLOWANCE> (713)
<TOTAL-ASSETS> 85,268
<DEPOSITS> 68,666
<SHORT-TERM> 4,304
<LIABILITIES-OTHER> 704
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 11,585
<TOTAL-LIABILITIES-AND-EQUITY> 85,268
<INTEREST-LOAN> 1,431
<INTEREST-INVEST> 212
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,643
<INTEREST-DEPOSIT> 788
<INTEREST-EXPENSE> 846
<INTEREST-INCOME-NET> 797
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 690
<INCOME-PRETAX> 189
<INCOME-PRE-EXTRAORDINARY> 189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 3.96
<LOANS-NON> 476
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (704)
<CHARGE-OFFS> 44
<RECOVERIES> (23)
<ALLOWANCE-CLOSE> (713)
<ALLOWANCE-DOMESTIC> 473
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 240
</TABLE>
