Attached files
file | filename |
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EX-32 - FIRST ROBINSON FINANCIAL CORP | v166173_ex32.htm |
EX-31.2 - FIRST ROBINSON FINANCIAL CORP | v166173_ex31-2.htm |
EX-31.1 - FIRST ROBINSON FINANCIAL CORP | v166173_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
For
the quarterly period ended
|
September
30, 2009
|
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
For the
transition period from _____________________
to ________________________
Commission
File Number 029276
FIRST
ROBINSON FINANCIAL CORPORATION
(Exact
name of registrant as specified in its charter)
DELAWARE
|
36-4145294
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
Number)
|
|
501 East Main Street, Robinson,
Illinois
|
62454
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s telephone number, including area code
|
(618)
544-8621
|
None
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File requested to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
registrant was required to submit and post such
files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Larger
Accelerated Filer
|
o
|
Accelerated
Filer
|
o
|
Non-Accelerated
Filer
|
o
(Do not check if a smaller reporting company)
|
Smaller
Reporting Company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes o No x
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 433,198 shares of common stock, par
value $.01 per share, as of November 12, 2009.
FIRST
ROBINSON FINANCIAL CORPORATION
Index to
Form 10-Q
PAGE
|
||
PART
1. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2009 And March 31,
2009
|
3
|
|
Condensed
Consolidated Statements of Operations for the Three-Month and Six-Month
Periods Ended September 30, 2009 and 2008
|
4
|
|
Condensed
Consolidated Statements of Changes in Stockholders’ Equity For the
Six-Month Periods ended September 30, 2009 and 2008
|
6
|
|
Condensed
Consolidated Statements of Cash Flows for the Six-Month Periods Ended
September 30, 2009 and 2008
|
7
|
|
Notes
to Condensed Consolidated Financial Statements
|
9
|
|
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
33
|
Item
4T.
|
Controls
and Procedures
|
33
|
PART
II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
34
|
Item
1A.
|
Risk
Factors
|
34
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
34
|
Item
3.
|
Defaults
Upon Senior Executives
|
34
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
34
|
Item
5.
|
Other
Information
|
35
|
Item
6.
|
Exhibits
|
35
|
SIGNATURES
|
36
|
|
CERTIFICATIONS
|
|
2
Item 1:
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
(Unaudited)
|
||||||||
September 30, 2009
|
March 31, 2009
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 6,186 | $ | 5,424 | ||||
Interest-bearing
deposits
|
3,156 | 713 | ||||||
Federal
funds sold
|
3,872 | 7,572 | ||||||
Available-for-sale
securities
|
60,774 | 55,925 | ||||||
Loans,
held for sale
|
419 | 392 | ||||||
Loans,
net of allowance for loan losses of $893 and $780 at September 30, 2009
and March 31, 2009, respectively
|
94,759 | 86,365 | ||||||
Federal
Reserve and Federal Home Loan Bank stock
|
1,006 | 811 | ||||||
Premises
and equipment, net
|
3,903 | 3,940 | ||||||
Foreclosed
assets held for sale, net
|
30 | 46 | ||||||
Interest
receivable
|
999 | 824 | ||||||
Prepaid
income taxes
|
— | 81 | ||||||
Cash
surrender value of life insurance
|
1,477 | 1,453 | ||||||
Other
assets
|
880 | 873 | ||||||
Total
Assets
|
$ | 177,461 | $ | 164,419 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities
|
||||||||
Deposits
|
$ | 148,263 | $ | 140,088 | ||||
Other
borrowings
|
12,387 | 9,914 | ||||||
Short-term
borrowings
|
2,500 | — | ||||||
Advances
from borrowers for taxes and insurance
|
66 | 166 | ||||||
Deferred
income taxes
|
525 | 452 | ||||||
Accrued
income taxes
|
28 | — | ||||||
Interest
payable
|
300 | 330 | ||||||
Other
liabilities
|
1,256 | 1,162 | ||||||
Total
Liabilities
|
165,325 | 152,112 | ||||||
Commitments
and Contingencies
|
— | — | ||||||
Stockholders’
Equity
|
||||||||
Preferred
stock, $.01 par value; authorized 500,000 shares, no shares issued and
outstanding
|
— | — | ||||||
Common
stock, $ .01 par value; authorized 2,000,000 shares; 859,625 shares
issued; outstanding September 30, 2009– 433,198 shares; March 31, 2009 –
435,232 shares
|
9 | 9 | ||||||
Additional
paid-in capital
|
8,777 | 8,791 | ||||||
Retained
earnings
|
10,341 | 10,560 | ||||||
Accumulated
other comprehensive income
|
914 | 782 | ||||||
Treasury
stock, at cost
|
||||||||
Common:
September 30, 2009 – 426,427 shares; March 31, 2009 – 424,393
shares
|
(7,905 | ) | (7,835 | ) | ||||
Total
Stockholders’ Equity
|
12,136 | 12,307 | ||||||
Total
Liabilities and Stockholders’ Equity
|
$ | 177,461 | $ | 164,419 |
See Notes
to Condensed Consolidated Financial Statements
3
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the
Three and Six-Month Periods Ended September 30, 2009 and 2008
(In
thousands, except per share data)
(Unaudited)
Three-Month Period
|
Six-Month Period
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Interest
and Dividend Income:
|
||||||||||||||||
Loans
|
$ | 1,414 | $ | 1,343 | $ | 2,761 | $ | 2,656 | ||||||||
Securities:
|
||||||||||||||||
Taxable
|
518 | 519 | 1,085 | 929 | ||||||||||||
Tax-exempt
|
37 | 21 | 75 | 42 | ||||||||||||
Other
interest income
|
1 | 32 | 5 | 109 | ||||||||||||
Dividends
on Federal Reserve Bank stock
|
2 | 3 | 5 | 5 | ||||||||||||
Total
Interest and Dividend Income
|
1,972 | 1,918 | 3,931 | 3,741 | ||||||||||||
Interest
Expense:
|
||||||||||||||||
Deposits
|
823 | 710 | 1,745 | 1,394 | ||||||||||||
Other
borrowings
|
18 | 57 | 28 | 106 | ||||||||||||
Total
Interest Expense
|
841 | 767 | 1,773 | 1,500 | ||||||||||||
Net
Interest Income
|
1,131 | 1,151 | 2,158 | 2,241 | ||||||||||||
Provision
for Loan Losses
|
135 | 130 | 180 | 160 | ||||||||||||
Net
Interest Income After Provision for Loan Losses
|
996 | 1,021 | 1,978 | 2,081 | ||||||||||||
Non-interest
income:
|
||||||||||||||||
Charges
and fees on deposit accounts
|
256 | 231 | 476 | 448 | ||||||||||||
Charges
and other fees on loans
|
78 | 40 | 178 | 84 | ||||||||||||
Net
gain on sale of loans
|
55 | 30 | 182 | 72 | ||||||||||||
Net
realized gain on sale of available-for-sale investments
|
5 | 2 | 106 | 2 | ||||||||||||
Other
|
121 | 105 | 239 | 234 | ||||||||||||
Total
Non-Interest Income
|
515 | 408 | 1,181 | 840 | ||||||||||||
Non-interest
expense:
|
||||||||||||||||
Compensation
and employee benefits
|
690 | 569 | 1,340 | 1,301 | ||||||||||||
Occupancy
and equipment
|
176 | 158 | 360 | 333 | ||||||||||||
Data
processing
|
66 | 60 | 126 | 119 | ||||||||||||
Audit,
legal and other professional
|
107 | 49 | 192 | 99 | ||||||||||||
Advertising
|
75 | 52 | 177 | 97 | ||||||||||||
Telephone
and postage
|
50 | 33 | 104 | 59 | ||||||||||||
Net
loss on sale of foreclosed property
|
— | — | — | 4 | ||||||||||||
FDIC
insurance
|
50 | 4 | 181 | 10 | ||||||||||||
Loss
on cost basis equity investment
|
137 | — | 137 | — | ||||||||||||
Other
|
183 | 137 | 341 | 273 | ||||||||||||
Total
Non-Interest Expense
|
1,534 | 1,062 | 2,958 | 2,295 |
See Notes
to Condensed Consolidated Financial Statements.
4
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
For the
Three and Six-Month Periods Ended September 30, 2009 and 2008
(In
thousands, except per share data)
(Unaudited)
Three-Month Period
|
Six-Month Period
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Income
(loss) before income taxes
|
(23 | ) | 367 | 201 | 626 | |||||||||||
Provision for
income taxes
|
11 | 123 | 72 | 208 | ||||||||||||
Net
Income (Loss)
|
$ | (34 | ) | $ | 244 | $ | 129 | $ | 418 | |||||||
Earnings
(Loss) Per Share-Basic
|
$ | (0.08 | ) | $ | 0.56 | $ | 0.31 | $ | 0.95 | |||||||
Earnings
(Loss) Per Share-Diluted
|
$ | (0.08 | ) | $ | 0.54 | $ | 0.30 | $ | 0.92 |
See Notes
to Condensed Consolidated Financial Statements
5
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the
Six-Months Ended September 30, 2009 and 2008
(In
thousands, except share data)
(Unaudited)
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
Comprehensive
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Stock
|
Total
|
Loss
|
|||||||||||||||||||||||||
Balance,
April 1, 2008
|
451,464 | $ | 9 | $ | 8,491 | $ | 10,114 | $ | 247 | $ | (6,985 | ) | $ | 11,876 | ||||||||||||||||||
Comprehensive
loss
|
||||||||||||||||||||||||||||||||
Net
income
|
418 | 418 | 418 | |||||||||||||||||||||||||||||
Change
in unrealized (depreciation) on available-for-sale securities, net of
taxes of $(7)
|
(13 | ) | (13 | ) | (13 | ) | ||||||||||||||||||||||||||
Total
comprehensive income
|
405 | |||||||||||||||||||||||||||||||
Treasury
shares purchased
|
(7,936 | ) | (282 | ) | (282 | ) | ||||||||||||||||||||||||||
Transfer
of Unallocated Recognition and Retention Shares to Treasury
Shares
|
125 | (125 | ) | — | ||||||||||||||||||||||||||||
Dividends
on common stock, $0.75 per share
|
(345 | ) | (345 | ) | ||||||||||||||||||||||||||||
Incentive
compensation
|
(12 | ) | (12 | ) | ||||||||||||||||||||||||||||
Stock
options exercised
|
9,452 | 168 | 164 | 332 | ||||||||||||||||||||||||||||
Balance,
September 30, 2008
|
452,980 | $ | 9 | $ | 8,772 | $ | 10,187 | $ | 234 | $ | (7,228 | ) | $ | 11,974 | ||||||||||||||||||
Balance,
April 1, 2009
|
435,232 | $ | 9 | $ | 8,791 | $ | 10,560 | $ | 782 | $ | (7,835 | ) | $ | 12,307 | ||||||||||||||||||
Comprehensive
loss
|
||||||||||||||||||||||||||||||||
Net
income
|
129 | 129 | 129 | |||||||||||||||||||||||||||||
Unrealized
appreciation (depreciation) on available-for-sale
securities:
|
||||||||||||||||||||||||||||||||
Unrealized
appreciation (depreciation) on available-for-sale securities, net of taxes
of $146
|
203 | |||||||||||||||||||||||||||||||
Less
reclassification adjustment for realized gains included in income net of
taxes $35
|
71 | |||||||||||||||||||||||||||||||
Total
unrealized depreciation on available-for-sale securities, net of taxes of
$111
|
132 | 132 | 132 | |||||||||||||||||||||||||||||
Total
comprehensive income
|
261 | |||||||||||||||||||||||||||||||
Treasury
shares purchased
|
(2,034 | ) | (70 | ) | (70 | ) | ||||||||||||||||||||||||||
Dividends
on common stock, $0.80 per share
|
(348 | ) | (348 | ) | ||||||||||||||||||||||||||||
Incentive
compensation
|
(14 | ) | (14 | ) | ||||||||||||||||||||||||||||
Balance,
September 30, 2009
|
433,198 | $ | 9 | $ | 8,777 | $ | 10,341 | $ | 914 | $ | (7,905 | ) | $ | 12,136 |
See Notes
to Condensed Consolidated Financial Statements
6
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Six-Months Ended September 30, 2009 and 2008
(In
thousands)
(Unaudited)
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 129 | $ | 418 | ||||
Items
not requiring (providing) cash
|
||||||||
Depreciation
and amortization
|
150 | 147 | ||||||
Provision
for loan losses
|
180 | 160 | ||||||
Amortization
of premiums and discounts on securities
|
126 | (16 | ) | |||||
Amortization
of loan servicing rights
|
57 | 25 | ||||||
Compensation
related to options exercised
|
— | 182 | ||||||
Deferred
income taxes
|
(38 | ) | (39 | ) | ||||
Originations
of mortgage loans held for sale
|
(18,555 | ) | (4,531 | ) | ||||
Proceeds
from the sale of mortgage loans
|
18,710 | 4,704 | ||||||
Net
gain on loans sold
|
(182 | ) | (72 | ) | ||||
Net
loss on sale of foreclosed property
|
— | 4 | ||||||
Loss
on cost basis equity investment
|
137 | — | ||||||
Net
realized gain on sale of securities
|
(106 | ) | (2 | ) | ||||
Cash
surrender value of life insurance
|
(24 | ) | (31 | ) | ||||
Changes
in:
|
||||||||
Interest
receivable
|
(175 | ) | (151 | ) | ||||
Other
assets
|
(211 | ) | (76 | ) | ||||
Interest
payable
|
(30 | ) | (10 | ) | ||||
Other
liabilities
|
94 | (98 | ) | |||||
Income
taxes, prepaid/accrued
|
109 | (134 | ) | |||||
Net
cash provided by operating activities
|
371 | 480 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of available-for-sale securities
|
(26,983 | ) | (21,062 | ) | ||||
Proceeds
from maturities of available-for-sale securities
|
330 | 1,000 | ||||||
Proceeds
from sales of available-for-sale securities
|
15,448 | 953 | ||||||
Repayment
of principal on mortgage-backed securities
|
6,579 | 3,790 | ||||||
Purchase
of Federal Home Loan Bank stock
|
(195 | ) | — | |||||
Net
change in loans
|
(8,574 | ) | (3,991 | ) | ||||
Purchase
of premises and equipment
|
(103 | ) | (585 | ) | ||||
Proceeds
from sale of foreclosed assets
|
16 | 12 | ||||||
Net
cash used in investing activities
|
(13,482 | ) | (19,883 | ) |
See Notes
to Condensed Consolidated Financial Statements.
7
FIRST
ROBINSON FINANCIAL CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For The
Six-Months Ended September 30, 2009 and 2008
(In
thousands)
(Unaudited)
2009
|
2008
|
|||||||
Cash
flows from financing activities:
|
||||||||
Net
increase in deposits
|
$ | 8,175 | $ | 11,661 | ||||
Proceeds
from other borrowings
|
54,591 | 79,294 | ||||||
Repayment
of other borrowings
|
(52,118 | ) | (77,960 | ) | ||||
Advances
from Federal Home Loan Bank
|
5,500 | — | ||||||
Repayment
of advances from Federal Home Loan Bank
|
(5,500 | ) | — | |||||
Proceeds
from short-term borrowings
|
3,100 | — | ||||||
Repayment
of short-term borrowings
|
(600 | ) | ||||||
Purchase
of incentive plan shares
|
(14 | ) | (12 | ) | ||||
Proceeds
received from exercise of stock options
|
— | 150 | ||||||
Purchase
of treasury stock
|
(70 | ) | (282 | ) | ||||
Dividends
paid
|
(348 | ) | (345 | ) | ||||
Net
increase in advances from borrowers for taxes and
insurance
|
(100 | ) | (72 | ) | ||||
Net
cash provided by financing activities
|
12,616 | 12,434 | ||||||
Decrease
in cash and cash equivalents
|
(495 | ) | (6,969 | ) | ||||
Cash
and cash equivalents at beginning of period
|
13,709 | 19,528 | ||||||
Cash
and cash equivalents at end of period
|
$ | 13,214 | $ | 12,559 | ||||
Supplemental
Cash Flows Information:
|
||||||||
Interest
paid
|
$ | 1,803 | $ | 1,510 | ||||
Income
taxes paid (net of refunds)
|
— | 380 | ||||||
Real
estate acquired in settlement of loans
|
— | 90 |
See Notes
to Condensed Consolidated Financial Statements.
8
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Basis of
Presentation
|
The
condensed 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 condensed consolidated financial
statements are unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company’s Form 10-K filed
with the Securities and Exchange Commission. The accompanying
unaudited interim condensed consolidated financial statements have been prepared
in accordance with the rules and regulations for reporting on Form
10-Q and Article 8-03 of Regulation of S-X. Accordingly, they do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations, changes in stockholders’ equity, and
cash flows in conformity with accounting principles generally accepted in the
United States of America. In the opinion of management of the
Company, the unaudited condensed consolidated financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position of the Company at September 30, 2009, the results
of its operations for the three and six month periods ended September 30, 2009
and 2008, the changes in stockholders’ equity for the six month periods ended
September 30, 2009 and 2008, and cash flows for the six month periods ended
September 30, 2009 and 2008. The results of operations for those
months ended September 30, 2009 are not necessarily indicative of the results to
be expected for the full year.
The
Condensed Consolidated Balance Sheet of the Company, as of March 31, 2009, has
been derived from the audited Consolidated Balance Sheet for the Company as of
that date.
2.
|
Newly Adopted and
Recent Accounting
Pronouncements
|
Effective
September 15, 2009, Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) No. 815-10-65-1, formerly Statement No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133”, which was orignally issued in March 2008, requires
enhanced qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of and gains and
losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. FASB ASC No. 815-10-65-1 was
effective for the Company for the interim period beginning April 1, 2009, and
did not have an effect on the Company’s condensed consolidated financial
statements.
In April
2009, the FASB issued FASB ASC No. 820, formerly FASB Staff Position
FAS 157-4,“Determining Fair
Value When the Volume and Level of Activity For the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly”. FASB ASC No. 820 provides additional guidance for estimating
fair value when the volume and level of activity for the asset or liability have
decreased significantly. FASB ASC No. 820 also provides guidance on
identifying circumstances that indicate a transaction is not
orderly. The provisions of FASB ASC No. 820 were effective for the
Company’s interim period ended June 30, 2009 and did not have a material effect
on the Company’s condensed consolidated financial statements.
In April
2009, FASB ASC No. 320-10 and FASB ASC No. 958-320, formerly FASB Staff
Positions FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments” were issued. FASB ASC No.
320-10 and FASB ASC No. 958-320 establish methodologies of determining and
recording other-than-temporary impairments of debt securities and expands
disclosures about fair value measurements. The provisions were
effective for the Company’s interim period ended June 30, 2009 and are reflected
in the Company’s condensed consolidated financial statements.
In April
2009, the FASB issued FASB ASC No. 825-10-50 and FASB ASC No. 270-10, formerly
FASB Staff Position on FAS 107-1 and APB 28-1, “Interim Disclosures About Fair
Value of Financial Instruments”. FASB ASC No. 825-10-50 and
FASB ASC No. 270-10 require disclosures about fair value of financial
instruments in interim reporting periods of publicly-traded companies that were
previously only required to be disclosed in annual financial
statements. The provisions of the ASC’s were effective for the
Company for the interim period ended June 30, 2009. The disclosure provisions of
these ASC’s are reflected in the Company’s condensed consolidated financial
statements.
In May
2009, the FASB issued FASB ASC No. 855-10, (the ASC), formerly
Statement No. 165, “Subsequent
Events”. FASB ASC No. 855-10 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or available to be
issued. The ASC does not apply to subsequent events or transactions
that are within the scope of other generally accepted accounting principles
(GAAP) that provide different guidance on the accounting treatment for subsequent
events or transactions. FASB ASC No. 855-10 was effective for interim
or annual financial periods after June 15, 2009. The Company
adopted the provisions of FASB ASC No 855-10 for the quarter ended
June 30, 2009, as required, and adoption did not have a material impact on the
Company’s condensed consolidated financial statements.
9
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On June
12, 2009, the FASB issued SFAS No. 166, “Accounting for Transfers
of Financial Assets”, (“SFAS 166”). SFAS 166 is
a revision to FAS 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities”, and
will require more information about transfers of financial assets, including
securitization transactions, and where companies have continuing exposure to the
risks related to transferred financial assets. SFAS 166 also
eliminates the concept of a “qualifying special-purpose entity”, changes the
requirements for derecognizing financial assets and requires additional
disclosures. SFAS 166 will be effective as of the beginning of the
Company’s first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. Earlier application is
prohibited. The recognition and measurement provisions of SFAS 166
shall be applied to transfers that occur on or after the effective
date. The Company will adopt SFAS 166 on April 1, 2010, as
required. Management has not determined the impact adoption may have
on the Company’s consolidated financial statements.
On June
12, 2009, the FASB issued Statement of Financial Accounting Standards No. 167,
“Amendments to FASB
Interpretation No. 46(R)” (“SFAS167”). SFAS 167 is a revision
to FASB Interpretation No. 46(R), “Consolidation of Variable Interest
Entities,” and changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic
performance. SFAS 167 will be effective as of the Company’s first
annual reporting period that begins after November 15, 2009, for interim periods
within that first annual reporting period and for interim and annual reporting
periods thereafter. Earlier adoption is prohibited. The
Company will adopt SFAS 167 on April 1, 2010, as required. Management
has not determined the impact adoption may have on the Company’s consolidated
financial statements.
On June
29, 2009, the FASB issued FASB ASC No. 105, formerly Statement of Financial
Accounting Standards No. 168 (“SFAS 168”) “Accounting Standards
Codification™ and the Hierarchy of Generally
Accepted Accounting Principles” – a replacement of FASB Statement No.
162. FASB ASC No. 105 establishes the FASB Accounting Standards
Codification™as
a source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with US GAAP. FASB ASC No. 105 was effective for
financial statements issued for interim and annual reporting periods ending
after September 15, 2009, for most entities. On the effective date,
all non-SEC accounting and reporting standards will be
superceded. The Company adopted FASB ASC No. 105 for the quarterly
period ended September 30, 2009, as required, and adoption did not have a
material impact on the Company’s consolidated financial statements.
3.
|
Fair Value
Measurements
|
In
accordance with FASB ASC No. 820, formerly Statement of Financial Standards
No. 157, Fair Value
Measurements (“FAS 157”), which was effective April 1, 2008, the
Company adopted FASB ASC No. 820. FASB ASC No. 820 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements and has been applied prospectively as of the beginning
of the year.
FASB ASC
No. 820 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. FASB ASC No. 820 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
10
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Level 1
|
Quoted
prices in active markets for identical assets or
liabilities.
|
|
Level 2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or
liabilities.
|
|
Level 3
|
Unobservable
inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities.
|
Following
is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying condensed
consolidated balance sheet at September 30, 2009 and March 31,
2009.
Available-for-Sale
Securities
The fair
value of available-for-sale securities are determined by various valuation
methodologies. Where quoted market prices are available in an active market,
securities are classified within Level 1. The Company has no Level 1 securities.
If quoted market prices are not available, then fair values are estimated using
pricing models or quoted prices of securities with similar characteristics.
Level 2 securities include obligations of U.S. government corporations and
agencies, obligations of states and political subdivisions, and mortgage-backed
securities. The value of the Company’s Level 2 securities is set
forth below. In certain cases where Level 1 or Level 2 inputs are not
available, securities are classified within Level 3 of the
hierarchy. The Company has no Level 3 available-for-sale
securities.
The
following table presents the Company’s assets that are measured at fair value on
a recurring basis and the level within the FASB ASC No. 820 hierarchy
in which the fair value measurements fall as of September 30, 2009 and March 31,
2009 (in thousands):
Carrying value at September 30, 2009
|
||||||||||||||||
Description
|
Fair Value
|
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Available-for-sale
securities
|
$
|
60,774
|
$
|
—
|
$
|
60,774
|
$
|
—
|
Carrying value at March 31, 2009
|
||||||||||||||||
Description
|
Fair Value
|
Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Available-for-sale
securities
|
$
|
55,925
|
$
|
—
|
$
|
55,925
|
$
|
—
|
The
Company may be required, from time to time, to measure certain other financial
assets and liabilities on a nonrecurring basis. These adjustments to fair value
usually result from application of lower-of-cost-or-market accounting or
write-downs of individual assets. Following is a description of
the valuation methodologies for assets and liabilities measured at fair value on
a non-recurring basis and recognized in the accompanying balance sheets, as well
as the general classification of such assets and liabilities pursuant to the
valuation hierarchy.
11
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Impaired
Loans
Loans for
which it is probable that the Company will not collect all principal and
interest due according to contractual terms are measured for impairment in
accordance with the provisions of FASB ASC No. 310-10-45 (“ASC 310-45”)
“Accounting by Creditors for Impairment of a Loan.” Allowable methods for
estimating fair value include using the fair value of the collateral or
collateral dependent loans or, where a loan is determined not to be collateral
dependent, using the discounted cash flow method.
If the
impaired loan is identified as collateral dependent, then the fair value method
of measuring the amount of the impairment is utilized. This method requires
reviewing an independent appraisal of the collateral and applying a discount
factor to the value based on management’s estimation process.
Impaired
loans are classified within Level 3 of the fair value hierarchy.
Mortgage
Servicing Rights
The fair
value used to determine the valuation allowance is estimated using discounted
cash flow models. Due to the nature of the valuation inputs, mortgage
servicing rights are classified within Level 3 of the hierarchy.
Cost
Method Investments
Cost
method investments do not trade in an active, open market with readibly
observable prices. The cost method invesments are peridoically
reviewed for impairment based on each investee’s earning performance, asset
quality, changes in the economic environment, and current and projected future
cash flows. Due to the nature of the valuation inputs, cost method
investments are classified within Level 3 of the hierarchy.
The
following table presents the fair value measurement of assets measured at fair
value on a nonrecurring basis and the level within the FASB ASC No. 820 fair
value hierarchy in which the fair value measurements fall at September 30, 2009
and March 31, 2009:
Carrying value at September 30, 2009
|
||||||||||||||||
Quoted Prices in
|
Significant
|
|||||||||||||||
Active Markets
|
Other
|
Significant
|
||||||||||||||
for Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Description
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Impaired
loans
|
$
|
121
|
$
|
—
|
$
|
—
|
$
|
121
|
||||||||
Cost
method investments
|
60
|
—
|
—
|
60
|
Carrying value at March 31, 2009
|
||||||||||||||||
Quoted Prices in
|
Significant
|
|||||||||||||||
Active Markets
|
Other
|
Significant
|
||||||||||||||
for Identical
|
Observable
|
Unobservable
|
||||||||||||||
Assets
|
Inputs
|
Inputs
|
||||||||||||||
Description
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Impaired
loans
|
$
|
154
|
$
|
—
|
$
|
—
|
$
|
154
|
||||||||
Motgage
servicing rights
|
243
|
—
|
—
|
$
|
243
|
12
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
following methods were used to estimate fair values of the Company’s financial
instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which involves significant
judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these
financial instruments and
because management does not intend to sell these financial instruments, the
Company does not know whether the fair values shown below represent values at
which the respective financial instruments could be sold individually or in the
aggregate.
Carrying
amount is the estimated fair value for cash and cash equivalents,
interest-bearing deposits, loans held for sale, federal funds sold, Federal
Reserve and Federal Home Loan Bank stocks, accrued interest receivable and
payable, and advances from borrowers for taxes and
insurance. Security fair values equal quoted market prices, if
available. If quoted market prices are not available, fair value is
estimated based on quoted market prices of similar securities. The
fair value of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the
calculations. On demand deposits, savings accounts, NOW accounts, and
certain money market deposits the carrying amount approximates fair
value. The fair value of fixed-maturity time deposits is estimated
using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities. On other borrowings and
short-term borrowings, rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate the fair value of
existing debt.
The fair
value of commitments to originate loans is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of forward sale commitments is
estimated based on current market prices for loans of similar terms and credit
quality. The fair values of letters of credit and lines of credit are
based on fees currently charged for similar agreements or on the estimated cost
to terminate or otherwise settle the obligations with the counterparties at the
reporting date.
13
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
|
March 31, 2009
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Financial
assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
6,186
|
$
|
6,186
|
$
|
5,424
|
$
|
5,424
|
||||||||
Interest-bearing
deposits
|
3,156
|
3,156
|
713
|
713
|
||||||||||||
Federal
funds sold
|
3,872
|
3,872
|
7,572
|
7,572
|
||||||||||||
Available-for-sale
securities
|
60,774
|
60,774
|
55,925
|
55,925
|
||||||||||||
Loans
held for sale
|
419
|
419
|
392
|
392
|
||||||||||||
Loans,
net of allowance for loan losses
|
94,759
|
95,757
|
86,365
|
87,092
|
||||||||||||
Federal
Reserve and Federal Home Loan Bank stock
|
1,006
|
1,006
|
811
|
811
|
||||||||||||
Interest
receivable
|
999
|
999
|
824
|
824
|
||||||||||||
Financial
liabilities
|
||||||||||||||||
Deposits
|
148,263
|
140,887
|
140,088
|
135,883
|
||||||||||||
Other
borrowings
|
12,387
|
12,387
|
9,914
|
9,927
|
||||||||||||
Short-term
borrowings
|
2,500
|
2,500
|
—
|
—
|
||||||||||||
Advances
from borrowers for taxes and insurance
|
66
|
66
|
166
|
166
|
||||||||||||
Interest
payable
|
300
|
300
|
330
|
330
|
||||||||||||
Unrecognized
financial instruments (net
of contract amount)
|
||||||||||||||||
Commitments
to originate loans
|
—
|
—
|
—
|
—
|
||||||||||||
Letters
of credit
|
—
|
—
|
—
|
—
|
||||||||||||
Lines
of credit
|
—
|
—
|
—
|
—
|
4.
|
Federal Home Loan Bank
Stock
|
The
Company owns approximately $836,000 of Federal Home Loan Bank of Chicago
(“FHLB”) stock. During the third quarter of 2007, the FHLB of Chicago
received a Cease and Desist Order from its regulator, the Federal Housing
Finance Board. The order generally prohibits capital stock
repurchases and redemptions until a time to be determined by the Federal Housing
Finance Board. The FHLB will continue to provide liquidity and
funding through advances. With regard to dividends, which have not
been declared since July 24, 2007, the FHLB will continue to assess its dividend
capacity each quarter and make appropriate requests for
approval. Management performed an analysis and deemed the Company’s
investment in FHLB stock to be not impaired as of September 30,
2009.
5.
|
Authorized Share
Repurchase Program
|
On July
23, 2009, the Board of Directors of the Company voted to approve the extension
and expansion of the repurchase program of its equity stock approved on July 24,
2008. The Company may repurchase up to 10,000 additional shares of
the Company’s outstanding common stock in the open market or in negotiated
private transactions from time to time when deemed appropriate by management.
The increase represents approximately 2.5% of the Company’s issued and
outstanding shares. As of July 22, 2009, the Company had repurchased
22,782 shares of its common stock out of the 26,892 shares that had been
previously authorized for repurchase leaving 4,110 remaining to be
purchased. As a result of these combined actions, the Company is
currently authorized to repurchase 14,110 shares of common stock. The
program has been extended to August 2, 2010 or the earlier of the
completion of the repurchase of the 14,110 shares. As of
November 10, 2009, 1,950 shares of the 14,110 have been purchased in the
expanded program leaving 12,160 remaining to be purchased pursuant to this share
repurchase program.
14
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6.
|
Investment
Securities
|
The
amortized cost and approximate fair values of available-for-sale securities are
as follows:
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Approximate
Fair Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
September
30, 2009
|
||||||||||||||||
U.S.
government agencies
|
$ | 17,416 | $ | 339 | $ | — | $ | 17,755 | ||||||||
Mortgage-backed
securities
|
37,216 | 1,092 | 33 | 38,275 | ||||||||||||
State
and political subdivisions
|
4,647 | 98 | 1 | 4,744 | ||||||||||||
$ | 59,279 | $ | 1,529 | $ | 34 | $ | 60,774 | |||||||||
March
31, 2009
|
||||||||||||||||
U.S.
government agencies
|
$ | 9,793 | $ | 199 | $ | — | $ | 9,992 | ||||||||
Mortgage-backed
securities
|
39,878 | 1,045 | 22 | 40,901 | ||||||||||||
State
and political subdivisions
|
5,002 | 52 | 22 | 5,032 | ||||||||||||
$ | 54,673 | $ | 1,296 | $ | 44 | $ | 55,925 |
The
amortized cost and fair value of available-for-sale securities at September 30,
2009, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Amortized
Cost
|
Fair
Value
|
|||||||
(In
thousands)
|
||||||||
Within
one year
|
$ | 4,641 | $ | 4,698 | ||||
One
to five years
|
16,255 | 16,606 | ||||||
Five
to ten years
|
1,167 | 1,195 | ||||||
Investment
securities
|
22,063 | 22,499 | ||||||
Mortgage-backed
securities
|
37,216 | 38,275 | ||||||
Totals
|
$ | 59,279 | $ | 60,774 |
Proceeds
from the sale of investment securities available-for-sale during the three
months and six-months ended September 30, 2009 were $2,508,000 and $15,408,000,
respectively. Gross gains from the sale of investment securities
available-for-sale for the three months ended September 30, 2009 were $5,000
with no gross losses. Gross gains of $113,000 and gross losses of
$7,000 were realized on the sales for the six-months ended September 30,
2009.
15
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
following table shows our investments’ gross unrealized losses and fair value
(in thousands), aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position at
September 30, 2009 and March 31, 2009. At September 30, 2009, the
Company does not hold any security that it considers other-than-temporarily
impaired.
Description of Securities
|
Less than 12 Months
|
More than 12 Months
|
Total
|
|||||||||||||||||||||
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
Fair Value
|
Unrealized
Losses
|
|||||||||||||||||||
As
of September 30, 2009
|
||||||||||||||||||||||||
Mortgage-backed
securities
|
$ | 3,505 | $ | 32 | $ | 78 | $ | 1 | $ | 3,583 | $ | 33 | ||||||||||||
State
and political subdivisions
|
— | — | 228 | 1 | 228 | 1 | ||||||||||||||||||
Total
temporarily impaired securities
|
$ | 3,505 | $ | 32 | $ | 306 | $ | 2 | $ | 3,811 | $ | 34 | ||||||||||||
As
of March 31, 2009
|
||||||||||||||||||||||||
Mortgage-backed
securities
|
$ | 6,307 | $ | 20 | $ | 125 | $ | 2 | $ | 6,432 | $ | 22 | ||||||||||||
State
and political subdivisions
|
290 | 16 | 225 | 6 | 515 | 22 | ||||||||||||||||||
Total
temporarily impaired securities
|
$ | 6,597 | $ | 36 | $ | 350 | $ | 8 | $ | 6,947 | $ | 44 |
There are
8 securities in an unrealized loss position in the investment portfolio at
September 30, 2009, all due to interest rate changes and not credit
events. These unrealized losses are considered temporary and,
therefore, have not been recognized into income, because the issuers are of high
credit quality and management has the ability and intent to hold for the
foreseeable future. The fair value is expected to recover as the
investments approach their maturity date or there is a downward shift in
interest rates. All mortgage-backed securities in the portfolio are
residential properties.
7.
|
Lines of
Credit
|
The
Company’s revolving line of credit note payable matured on July 31, 2009 but was
extended to September 30, 2009. The revoloving line of credit renewed
on September 17, 2009 and increased from $600,000 to $2,500,000 with the
renewal. The balance of the revolving line of credit was $2,500,000
and $0 as of September 30, 2009 and March 31, 2009, respectively. The
note bears interest at the prime commercial rate with a floor of 3.50% which was
the rate on September 30, 2009, matures on September 16, 2010, and is secured by
100% stock of the Bank.
The Bank
maintains a $5,000,000 revolving line of credit, of which none was outstanding
at September 30, 2009 and March 31, 2009, with an unaffiliated financial
institution. The line bears interest at the federal funds rate of the financial
institution (1.0% at September 30, 2009), has an open-end maturity and is
unsecured if used for less than fifteen (15) consecutive business
days.
The Bank
has also established borrowing capabilities at the Federal Reserve Bank of St.
Louis discount window. Investment securities of $3,000,000 have been pledged as
collateral. As of September 30, 2009 and March 31, 2009 no
amounts were outstanding. The primary credit borrowing rate at
September 30, 2009 was 0.50%, has a term of up to 90 days, and has no
restrictions on use of the funds borrowed.
16
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Earnings (Loss) Per
Share for the Three-Month
Periods
|
Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share gives effect to the
increase in the average shares outstanding resulting from the exercise of
dilutive stock options and the effect of the incentive plan
shares. As of September 30, 2009 and 2008, all outstanding options
had been exercised. Therefore, there is no dilutive effect with
regards to options for the earnings per share calculation for the three month
periods ended September 30, 2009 or 2008. The components of basic and
diluted earnings (loss) per share for the three months ended September 30, 2009
and 2008 were computed as follows (dollar amounts in thousands except share
data):
|
Weighted
|
|||||||||||
|
Average
|
Per
Share
|
||||||||||
Income
(Loss)
|
Shares
|
Amount
|
||||||||||
For
the Three-Months Ended September 30, 2009:
|
||||||||||||
Basic
Earnings (Loss) per Share:
|
||||||||||||
Income
(loss) available to common stockholders
|
$ | (34 | ) | 417,916 | $ | (0.08 | ) | |||||
Effect
of Dilutive Securities:
|
||||||||||||
Incentive
plan shares
|
15,996 | |||||||||||
Diluted
Earnings (Loss) per Share:
|
||||||||||||
Income
(loss) available to common stockholders
|
$ | (34 | ) | 433,912 | $ | (0.08 | ) | |||||
For
the Three-Months Ended September 30, 2008:
|
||||||||||||
Basic
Earnings per Share:
|
||||||||||||
Income
available to common stockholders
|
$ | 244 | 439,170 | $ | 0.56 | |||||||
Effect
of Dilutive Securities:
|
||||||||||||
Incentive
plan shares
|
16,148 | |||||||||||
Diluted
Earnings per Share:
|
||||||||||||
Income
available for common stockholders
|
$ | 244 | 455,318 | $ | 0.54 |
17
FIRST
ROBINSON FINANCIAL CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings Per Share for the
Six-Month Periods
Basic
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted
earnings per share gives effect to the increase in the average shares
outstanding which would have resulted from the exercise of dilutive stock
options. As of September 30, 2008, all outstanding options had been
exercised. Therefore, there is no dilutive effect with regards to
options for the earnings per share calculation for the six month periods ended
September 30, 2009 and 2008. The components of basic and
diluted earnings per share for the six months ended September 30, 2009 and 2008
were computed as follows (dollar amounts in thousands except share
data):
Weighted
|
||||||||||||
Average
|
Per
Share
|
|||||||||||
Income
|
Shares
|
Amount
|
||||||||||
For
the Six-Months Ended September 30, 2009:
|
||||||||||||
Basic
Earnings per Share:
|
||||||||||||
Income
available to common stockholders
|
$ | 129 | 418,586 | $ | 0.31 | |||||||
Effect
of Dilutive Securities:
|
||||||||||||
Unearned
incentive plan shares
|
15,947 | |||||||||||
Diluted
Earnings per Share:
|
||||||||||||
Income
available to common stockholders
|
$ | 129 | 434,533 | $ | 0.30 | |||||||
For
the Six-Months Ended September 30, 2008:
|
||||||||||||
Basic
Earnings per Share:
|
||||||||||||
Income
available to common stockholders
|
$ | 418 | 439,386 | $ | 0.95 | |||||||
Effect
of Dilutive Securities:
|
||||||||||||
Unearned
incentive plan shares
|
16,058 | |||||||||||
Diluted
Earnings per Share:
|
||||||||||||
Income
available for common stockholders
|
$ | 418 | 455,444 | $ | 0.92 |
9.
|
Subsequent
Events
|
Subsequent
events have been evaluated through November 13, 2009, which is the date the
financial statements were issued.
18
Item 2:
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Forward-Looking
Statements
When used
in this filing and in future filings by First Robinson Financial Corporation
(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 “believe,” “expect,” “should,” “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. Examples of forward-looking statements include,
but are not limited to, estimates with respect to our financial condition,
results of operations and business that are subject to various factors that
could cause actual results to differ materially from these estimates and most
other statements that are not historical in nature. Such statements are subject
to risks and uncertainties, including but not limited to changes in economic
conditions nationally and in the Company’s market area; legislative/regulatory
provisions; monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board; the quality of
composition of the loan or investment portfolios; changes in accounting
principles, policies, or guidelines; fluctuations in interest rates; deposit
flows; demand for loans in the Company’s market area; real estate values; credit
quality and adequacy of reserves; competition; customer growth and retention;
earnings growth and expectations; new products and services; technological
factors affecting operations, pricing of products and services; employees;
unforseen difficulties and higher than expected costs associated with the
implementation of our Strategic Plan; or failure to improve operating
efficiencies through expense controls; all or some of which could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. References in this filing to “we,”
“us,” and “our” refer to the Company and/or the Bank, as the content
requires. 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.
Critical
Accounting Policies
The
accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States and conform to
general practices within the banking industry. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions.
The financial position and results of operations can be affected by these
estimates and assumptions and are integral to the understanding of reported
results. Critical accounting policies are those policies that management
believes are the most important to the portrayal of the Company's financial
condition and results, and they require management to make estimates that are
difficult, subjective, or complex.
Allowance for Loan Losses -
The allowance for loan losses provides coverage for probable losses inherent in
the Company's loan portfolio. Management evaluates the adequacy of the allowance
for credit losses each quarter based on changes, if any, in underwriting
activities, the loan portfolio composition (including product mix and
geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is
inherently subjective, as it requires the use of significant management
estimates. Many factors can affect management's estimates of specific and
expected losses, including volatility of default probabilities, rating
migrations, loss severity and economic and political conditions. The allowance
is increased through provisions charged to operating earnings and reduced by net
charge-offs.
The
Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for homogeneous consumer loans is based on an analysis of loan mix,
risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
and historical losses, adjusted for current trends, for each homogenous category
or group of loans. The allowance for credit losses relating to impaired loans is
based on the loan's observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan's
effective interest rate.
Regardless
of the extent of the Company's analysis of customer performance, portfolio
trends or risk management processes, certain inherent but undetected losses are
probable within the loan portfolio. This is due to several factors including
inherent delays in obtaining information regarding a customer's financial
condition or changes in their unique business conditions, the judgmental nature
of individual loan evaluations, regulatory input, collateral assessments and the
interpretation of economic trends. Volatility of economic or customer-specific
conditions affecting the identification and estimation of losses for larger
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogeneous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of the exposures.
The estimates are based upon the Company's evaluation of risk associated with
the commercial and consumer allowance levels and the estimated impact of the
current economic environment.
19
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Overview
First
Robinson Financial Corporation (the “Company”) is the holding company for First
Robinson Savings Bank, National Association (the “Bank”). The Company is
headquartered in Robinson, Illinois and operates three full service offices and
one drive-up facility in Crawford County, Illinois and one full service office
in Knox County, Indiana. Assets grew $13.1 million from $164.4
million at March 31, 2009 to $177.5 million at September 30,
2009. See “Financial Condition” for more information. The Company had
a net loss of $34,000 for the three month period ending September 30, 2009,
versus net income of $244,000 in the same period of 2008, a decrease of 113.9%.
For the six months ended September 30, 2009, the Company earned $129,000
compared to $418,000 for the same period of 2008, a decrease of $289,000, or
69.1%. The primary reason for the decrease in earnings can be
attributed to the increase in the FDIC insurance assessment in both the
three-month and six-month periods and the recognized loss on a cost basis equity
security investment owned by the Company. See “Results of Operations”
for further information. Basic earnings (loss) per share for the three month
period were $(0.08) per share and $0.31 for the six month period ended September
30, 2009 versus $0.56 per share for the three month period and $0.95
for the six month period ended September 30, 2008. Diluted earnings
(loss) per share reflect incentive plan shares and the potential dilutive impact
of stock options granted under the stock option plan and the effect of the
incentive plan shares. Diluted earnings (loss) per share for the
three months and six months ending September 30, 2009 were $(0.08) and $0.30
respectively. For the three months and six months ending September
30, 2008, diluted earnings per share were $0.54 per share and $0.92 per share,
repsectively .
The
Company’s principal business, through its operating subsidiary, the Bank,
consists of accepting deposits from the general public in our market area and
investing these funds primarily in loans, mortgage-backed securities and other
securities. Loans consist primarily of loans secured by residential
real estate located in our market area, consumer loans, commercial loans, and
agricultural loans. With the addition of a branch in Vincennes,
Indiana, our market area has expanded to include Knox and surrounding counties
in Indiana along with Crawford and contiguous counties in Illinois.
The
Company’s results of operations are dependent primarily on 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 “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 results of operations are
also affected by other income, and general, administrative and other expense,
the provision for losses on loans and income tax expense. Other
income consists primarily of service charges and gains
(losses) on sales of loans. General, administrative and other expense
consists primarily of salaries and employee benefits, occupancy and office
expenses, advertising, data processing expenses and the costs associated with
being a publicly held company.
Operations
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 served. In seeking to accomplish this 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 asset quality,
(iii) to maintain, and if possible, increase earnings; and (iv) to manage
exposure to changes in interest rates.
In
response to the current national and international economic recession, however,
the U.S. government has taken a variety of actions intended to stimulate the
national economy, including the passage of legislation, such as the Emergency
Economic Stabilization Act of 2008 (the “EESA”), and the implementation of
certain programs by federal agencies.
The first
program put forth by the U.S. Treasury pursuant to its authority under the EESA
was the Troubled Asset Relief Program’s Capital Purchase Program (the
“CPP”). Pursuant to the CPP, the US Treasury, on behalf of the US
government, intends to purchase up to $250 billion of preferred stock, along
with warrants to purchase common stock, from certain financial institutions that
applied to receive funds. The CPP is intended to shore up bank
capital and to stimulate lending. Neither the Company nor the Bank
has participated in the CPP.
20
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Another
recently implemented program intended to stabilize the nation’s banking system
is the Term Asset-Backed Securities Loan Facility (the “TALF”) promulgated by
the Board of Governors of the Federal Reserve System (the “Federal
Reserve”). The program, which became operational in March, 2009, is
intended to increase credit availability and support economic activity by
facilitating renewed issuance of consumer and small business asset-backed
securities (“ABS”) and commercial mortgage-backed securities
(“CMBS”). Under TALF, the Federal Reserve Bank of New York will
finance the purchase of eligible ABS and CMBS by investors that own eligible
collateral so long as such investor maintains an account relationship with a
primary dealer. Generally, eligible ABS must be newly issued, highly
rated ABS collateralized by student loans, auto loans, credit card loans, and
loans guaranteed by the Small Business Administration. Eligible CMBS
must also meet certain requirements, including: (i) it must entitle
its holders to payments of principal and interest throughout its remaining term,
(ii) it must bear interest at a fixed pass-through rate or at a rate based on
the weighted average of the underlying fixed mortgage rates, and (iii) the CMBS
must not be junior to other securities with claims on the same pool of
loans. Minimum loan sizes under the TALF will be $10 million and TALF
loans will generally have a three year maturity. The Federal Reserve
has also determined that certain high-quality commercial mortgage-backed
securities issued before January 1, 2009 will become eligible collateral under
the TALF. Starting in June 2009, however, TALF loans secured by SBA
Pool Certificates, SBA Development Company Participation Certificates, or ABS
secured by student loans or commercial mortgages will have a five-year maturity
if the borrower so elects. The facility will cease making TALF loans
collateralized by newly issued CMBS on June 30, 2010, and TALF loans
collateralized by other TALF-eligible newly issued and legacy ABS on March 31,
2010, unless the Board of Governors extends the facility.
In
response to the current reserve ratios of the Deposit Insurance Fund, and the
need to restore it to its statutory minimum, the Federal Deposit Insurance
Corporation (the “FDIC”) announced on May 22, 2009, a final rule imposing a 5
basis point special assessment on each insured depository institution’s assets
minus Tier 1 capital as of June 30, 2009 (although no institution’s special
assessment exceeded 10 basis points times the institution’s assessment base for
the second quarter of 2009). The Company’s special assessment of
$81,000 was paid on September 30, 2009.
The FDIC
has announced that a three year prepaid assessment will be collected December
30, 2009 from insured institutions. Under the rule, the prepaid
amount will be based on an institution’s assessment rate and assessment base for
the third quarter of 2009, assuming a 5% annual growth in deposits each
year. While the FDIC plan will maintain current assessment rates
through 2010, effective January 1, 2011, the rates will increase by three basis
points across the board (e.g., Risk Catagory I banks paying 12-16 basis points
for 2010 would pay 15-19 basis points). Additionally, the FDIC voted
to extend the DIF restoration plan from seven to eight years, with a target of
returning the fund to a 1.15% reserve ratio (the minimum required by law) by the
first quarter of 2014. The total prepayment will be booked as a
“prepaid expense” asset and will qualify as a zero risk weight under the
risk-based capital requirements. Any prepayment amounts not
exhausted after collection of the amount due on June 30, 2013, will be refunded
to the institution, rather than on December 30, 2014, as originally
proposed.
Finally,
the FDIC promulgated a temporary liquidity guarantee program that had both a
debt guarantee component, whereby the FDIC agreed to guarantee certain senior
unsecured debt issued by eligible financial institutions between October 14,
2008 and October 31, 2009, and a transaction account guarantee component (TAG),
whereby the FDIC agreed to insure 100% of non-interest bearing deposit
transaction accounts held at eligible financial institutions, such as lawyers’
trust accounts, payment processing accounts, payroll accounts and working
capital accounts through June 30, 2010. The FDIC has granted an
extension of the transaction account guarantee component of this
program. Institutions have until November 2, 2009 to opt-out of
the TAG. The Bank opted out of participation in the debt guarantee
program but does participate in the TAG program.
On May
22, 2009, President Obama signed into law the Credit Card Accountability,
Responsibility and Disclosure Act of 2009 (the “Credit Card
Act”). The law made significant changes to the Truth in Lending Act
as implemented by the Federal Reserve’s Regulation Z. The Credit Card
Act imposes a number of changes upon credit card issuers by February 2010,
although a limited number of changes went into effect in August
2009. This has no impact on the Company as the Company does not issue
credit cards.
The
extent to which these programs and others like them will succeed in ameliorating
tight credit conditions or otherwise result in an improvement in the national
economy is uncertain. It is also likely, but not certain, that
additional legislation affecting financial institutions (such as the Bank) and
their holding companies (such as the Company) will be enacted.
Legislative
and regulatory changes continue to be proposed with respect to consumer
financial products and services. The most significant of these
proposals was released by the U.S. Treasury in June 2009 and involves the
creation of a new, independent federal agency to be called the Consumer
Financial Protection Agency. The proposed agency would regulate
consumer financial products and services and provide minimum, uniform rules with
respect to such products, including products currently offered by the
Bank. The proposal also includes a rollback of preemption for
federally chartered banks (like the Bank) such that a broad category of state
consumer law not currently applicable to the Bank would be applicable to the
operations and product offerings of the Bank, its subsidiaries and its
affiliates. In addition, the proposed agency would have sole
rulemaking and interpretive authority. Debate continues with respect
to the creation and powers of the proposed agency and there is no way to predict
whether it will be created and, if it is, the authority it will
possess.
21
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
We
continue to maintain a strong presence in the community and are pleased to be
one of the few independent community banks in our primary market
area. To visit First Robinson Savings Bank on the web, go
to www.frsb.net.
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
between 60-90 days delinquent, the loan will generally be referred to the
Company’s legal counsel for collection.
When a
loan becomes more than 90 days delinquent and collection of principal and
interest is considered doubtful, or is otherwise impaired, the Company 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. 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 Company’s loan delinquencies by type, by amount
and by percentage of type at September 30, 2009.
Loans Delinquent
For:
|
||||||||||||||||||||||||||||||||||||||||||||||||
30-89 Days(1)
|
90 Days and Over(1)
|
Nonaccrual
|
Total
Delinquent Loans
|
|||||||||||||||||||||||||||||||||||||||||||||
Number
|
Amount
|
Percent
of
Loan
Category
|
Number
|
Amount
|
Percent
of
Loan
Category
|
Number
|
Amount
|
Percent
of
Loan
Category
|
Number
|
Amount
|
Percent
of
Loan
Category
|
|||||||||||||||||||||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||||||||||||||||||||||||||
Real
Estate:
|
||||||||||||||||||||||||||||||||||||||||||||||||
One-
to four-family
|
7 | $ | 158 | 0.35 | % | — | — | — | 7 | $ | 170 | 0.37 | % | 14 | $ | 328 | 0.72 | % | ||||||||||||||||||||||||||||||
Construction
or development
|
2 | 160 | 4.01 | — | — | — | — | — | — | 2 | 160 | 4.01 | ||||||||||||||||||||||||||||||||||||
Commercial
and agriculture
|
1 | 38 | 0.23 | — | — | — | — | — | — | 1 | 38 | 0.23 | ||||||||||||||||||||||||||||||||||||
State
and municipal government
|
2 | 96 | 2.14 | — | — | — | — | — | — | 2 | 96 | 2.14 | % | |||||||||||||||||||||||||||||||||||
Consumer
and other loans
|
5 | 15 | 0.15 | — | — | — | 1 | 7 | 0.07 | 6 | 22 | 0.22 | % | |||||||||||||||||||||||||||||||||||
Commercial
business and agricultural finance
|
3 | 33 | 0.20 | — | — | — | 4 | 43 | 0.25 | 7 | 76 | 0.45 | % | |||||||||||||||||||||||||||||||||||
Total
|
20 | $ | 500 | 0.51 | % | — | — | — | 12 | $ | 220 | 0.22 | % | 32 | $ | 720 | 0.73 | % |
(1)
|
Loans
are still accruing.
|
22
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
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.
September 30,
|
March 31,
|
September 30,
|
||||||||||
2009
|
2009
|
2008
|
||||||||||
(In
thousands)
|
||||||||||||
Non-accruing
loans:
|
||||||||||||
One-
to four-family
|
$ | 170 | $ | 192 | $ | 157 | ||||||
Consumer
and other loans
|
7 | 14 | — | |||||||||
Commercial
business and agricultural finance
|
43 | 29 | 21 | |||||||||
Total
|
220 | 235 | 178 | |||||||||
Foreclosed/Repossessed
assets:
|
||||||||||||
One-
to four-family
|
30 | 46 | 90 | |||||||||
Total
|
30 | 46 | 90 | |||||||||
Total
non-performing assets
|
$ | 250 | $ | 281 | $ | 268 | ||||||
Total
as a percentage of total assets
|
0.14 | % | 0.17 | % | 0.18 | % |
Gross
interest income which would have been recorded had the non-accruing loans been
current in accordance with their original terms amounted to approximately $4,000
for the three months and $6,000 for the six months ended September 30, 2009 and
$6,000 for the three months and $10,000 for the six months ended September 30,
2008.
Classified
Assets. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities, considered by the
Office of the Comptroller of the Currency (“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 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.
In
connection with the filing of its periodic reports with the OCC and in
accordance with its classification of assets policy, the Company 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 September 30, 2009, the Company
had classified a total of $400,000 of its assets as substandard and $195,000 as
doubtful. At September 30, 2009, total classified assets comprised
$595,000, or 4.9% of the Company’s capital, and 0.3% of the Company’s total
assets.
23
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Other Loans of
Concern. As of September
30, 2009, there were $4.8 million in loans identified, but not classified, by
the Company with respect to which known information about the possible credit
problems of the borrowers or the cash flows of the business 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.
At
September 30, 2009, the Company had a commercial loan in the amount of $1.0
million, secured by the common stock of a financial institution. The
borrower is under formal enforcement action by its regulator with respect to its
capital position due to the borrower’s deteriorating investment
portfolio. The borrower is attempting to raise additional capital or
negotiate a merger with another financial institution to address the regulatory
concerns. The Company will continue to monitor and evaluate this loan
as information and progress reports are received from the
borrower. Due to the nature of the collateral and the economic stress
on the financial industry, the Company could incur losses on this commercial
loan.
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. 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 fair value
minus 20% of the fair value if the property is appraised at $50,000 or
less. If the property is appraised at greater than $50,000, then the
property is recorded at the fair value less 10% of the fair value. 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 September 30, 2009, the
Bank had one real estate property acquired through foreclosure. An
offer has been accepted and the property will be sold in the coming
quarter.
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 Company’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
operations. Such agencies may require the Bank to increase the Bank’s
allowance for loan losses, increase classified assets, or take other actions
that could significantly affect the Company’s earnings based upon their judgment
of the information available to them at the time of their
examination. At September 30, 2009, the Company had a total allowance
for loan losses of $893,000, representing 0.94% of the Company’s loans,
net. At March 31, 2009, the Company’s total allowance for loan
losses to the Company’s loans, net was at 0.90%.
24
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
The
distribution of the Company’s allowance for losses on loans at the dates
indicated is summarized as follows:
September 30, 2009
|
March 31, 2009
|
|||||||||||||||||||||||
Amount
of
Loan
Loss
Allowance
|
Loan
Amounts
by
Category
|
Percent
of
Loans
in Each
Category
to
Total
Loans
|
Amount
of
Loan
Loss
Allowance
|
Loan
Amounts
by
Category
|
Percent
of
Loans
in
Each
Category
to
Total
Loans
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
One-
to four-family including loans held for sale
|
$ | 115 | $ | 45,374 | 46.26 | % | $ | 66 | $ | 43,903 | 48.59 | % | ||||||||||||
Multi-family
|
— | 1,257 | 1.28 | — | 1,242 | 1.38 | ||||||||||||||||||
Commercial
and agricultural real estate
|
505 | 16,200 | 16.52 | 458 | 14,793 | 16.37 | ||||||||||||||||||
Construction
or development
|
— | 3,989 | 4.07 | — | 2,624 | 2.90 | ||||||||||||||||||
Consumer
and other loans
|
34 | 9,806 | 10.00 | 34 | 7,783 | 8.62 | ||||||||||||||||||
State
and municipal governments
|
— | 4,486 | 4.57 | — | 2,172 | 2.40 | ||||||||||||||||||
Commercial
business and agricultural finance
|
239 | 16,964 | 17.30 | 222 | 17,835 | 19.74 | ||||||||||||||||||
Gross
Loans
|
98,076 | 100.00 | % | 90,352 | 100.00 | % | ||||||||||||||||||
Unallocated
|
— | — | ||||||||||||||||||||||
Deferred
loan fees
|
(3 | ) | (4 | ) | ||||||||||||||||||||
Undisbursed
portion of loans
|
(2,002 | ) | (2,811 | ) | ||||||||||||||||||||
Total
|
$ | 893 | $ | 96,071 | $ | 780 | $ | 87,537 |
The
following table sets forth an analysis of the Company’s allowance for loan
losses.
Three Months Ended
September 30,
|
Six Months Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Balance
at beginning of period
|
$ | 825 | $ | 757 | $ | 780 | $ | 727 | ||||||||
Charge-offs:
|
||||||||||||||||
One-
to four-family
|
68 | — | 68 | — | ||||||||||||
Commercial
non-residential real estate
|
— | 123 | — | 123 | ||||||||||||
Consumer
and other loans
|
6 | 20 | 12 | 24 | ||||||||||||
Total
charge-offs
|
74 | 143 | 80 | 147 | ||||||||||||
Recoveries:
|
||||||||||||||||
One-
to four-family
|
— | — | — | 1 | ||||||||||||
Consumer
and other loans
|
7 | 8 | 13 | 11 | ||||||||||||
Total
recoveries
|
7 | 8 | 13 | 12 | ||||||||||||
Net
charge-offs .
|
67 | 135 | 67 | 135 | ||||||||||||
Additions
charged to operations
|
135 | 130 | 180 | 160 | ||||||||||||
Balance
at end of period
|
$ | 893 | $ | 752 | $ | 893 | $ | 752 | ||||||||
Ratio
of net charge-offs during the period to average loans outstanding during
the period
|
0.07 | % | 0.17 | % | 0.07 | % | 0.18 | % | ||||||||
Ratio
of net charge-offs during the period to average non-performing
assets
|
22.64 | % | 39.06 | % | 23.45 | % | 41.73 | % |
25
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Financial
Condition
Total
assets of the Company increased by $13.1 million, or 7.9%, to $177.5 million at
September 30, 2009 from $164.4 million at March 31, 2009. The increase in assets
was primarily due to an increase of $8.4 million, or 9.7%, loans receivable,
net, and an increase of $4.8 million, or 8.7%, in available for sale
securities.
Cash and
cash equivalents decreased by $495,000 from $13.7 million at March 31, 2009 to
$13.2 million at September 30, 2009. The decrease resulted from the funds being
used to purchase additional available-for-sale securities and to fund loan
growth. The Company’s non-interest earning deposits are with
Independent Bankers Bank (“IBB”) located in Springfield, Illinois. As
IBB is a participant in the Transaction Account Guarantee Program, the Company’s
deposits are insured.
Available-for-sale
investment securities increased to $60.8 million at September 30, 2009 compared
to $55.9 million at March 31, 2009, a $4.8 million increase. The increase
resulted from the purchase of $27.0 million in available-for-sale securities and
the realized net gain on sale of available-for-sale securities of $106,000, and
the increase of $243,000 in the market valuation of the available-for-sale
portfolio, offset by $6.6 million in repayments on mortgage-backed securities,
by $330,000 in proceeds from the maturity of available-for-sale securities, and
by $15.4 million in proceeds from the sale of available-for-sale securities, and
the amortization of $126,000 of premiums and discounts on investments. The
investment portfolio is managed to limit the Company's exposure to risk by
investing primarily in mortgage-backed securities and
other securities which are either directly or
indirectly backed by the federal government or a local municipal
government.
During
April 2009, the Company was required to purchase $195,000 in additional Federal
Home Loan Bank (“FHLB”) stock which increased our holdings to
$836,000. The amount of required investment in FHLB stock is
calculated based on a formula which includes the amount of one- to-
four family dwelling loans held in the Company’s loan portfolio and the amount
of mortgage-backed securities held in the Company’s investment
portfolio. Due to the increase in both of these factors on the
balance sheet, we were required to purchase the additional shares.
The
Company's net loan portfolio including loans held for sale increased by $8.4
million to $95.2 million at September 30, 2009 from $86.8 million at March 31,
2009. Loans on one- to four-family real estate, including one- to four-family
loans held for sale, increased by $1.4 million, or 3.3%; commercial
nonresidential real estate and farmland loans increased by $1.4 million, or
9.5%; construction and development loans increased by $1.4 million, or 52.0%;
consumer and other loans increased by $2.0 million, or 26.0%; loans to state and
municpal governments increased by $2.3 million, or 106.5%; and loans on
multi-family properties increased $15,000, or 1.2%. These increases
were offset, in part, by the decrease of $871,000, or 4.9%, in commercial
business and agricultural finance loans. The total amount of
undisbursed closed-ended lines of credit decreased by $809,000, or 28.8% from
$2.8 million at March 31, 2009 to $2.0 million at September 30,
2009.
At
September 30, 2009, the allowance for loan losses was $893,000, or 0.94% of the
net loan portfolio, an increase of $113,000 from the allowance for loan losses
at March 31, 2009 of $780,000, or 0.90% of the net loan portfolio. During the
first six-months of fiscal 2010, the Company charged off $80,000 of loan losses,
$68,000 on a one- to four- family property and the remaining $12,000 in consumer
and other loans. The chargeoffs of $80,000 were offset by $13,000 in recoveries,
all in consumer and other loans. Management reviews the adequacy of the
allowance for loan losses quarterly, and believes that its allowance is
adequate; however, the Company cannot assure that future chargeoffs and/or
provisions will not be necessary. See “Asset Quality” for further
information on delinquencies.
The
Company had one foreclosed real estate property held for sale at September 30,
2009 with no change from March 31, 2009. Foreclosed assets are
carried at lower of cost or fair value. When foreclosed assets are
acquired, any required adjustment is charged to allowance for loan
losses. All subsequent activity is included in current
operations.
Total
deposits increased by $8.2 million, or 5.8%, to $148.3 million at September 30,
2009 from $140.1 million at March 31, 2009. The increase in total deposits was
due to an increase of $1.1 million in certificates of deposit, an increase
of $6.2 million in savings, NOW, and money market accounts, and an
increase of $918,000 in non-interest bearing demand deposits.
Other
borrowings, consisting entirely of repurchase agreements, increased $2.5
million, or 24.9% from $9.9 million at March 31, 2009 to $12.4 million at
September 30, 2009. The obligations are secured by mortgage-backed securities
and US Government agency obligations. At September 30, 2009, the
average rate on the repurchase agreements was 0.32% compared to 0.30% at March
31, 2009. The rate on approximately $10.7 million of the repurchase
agreements reprice daily. All agreements mature periodically within
24 months.
26
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
The
short-term borrowing consists of the Company’s revolving line of credit note
payable that matured on July 31, 2009 but was extended to September 30,
2009. The revoloving line of credit renewed on September 17, 2009 and
increased from $600,000 to $2,500,000 with the renewal. The balance
of the revolving line of credit was $2,500,000 and $0 as of September 30, 2009
and March 31, 2009, respectively. The note bears interest at the
prime commercial rate with a floor of 3.50% which was the rate on September 30,
2009, matures on September 16, 2010, and is secured by the Bank.
Stockholders'
equity at September 30, 2009 was $12.1 million compared to $12.3 million at
March 31, 2009, a decrease of $171,000, or 1.4%. Factors relating to
the decrease in stockholders’ equity can be attributed to the addition of
$129,000 in net income offset by $348,000 in dividends declared and paid, the
decrease in additional paid-in-capital of $14,000 due to the purchase of
incentive plan shares related to the Directors Retirment Plan and the repurchase
of $70,000 in treasury shares offset, in part, to the increase of $132,000 in
accumulated other comprehensive income due to the increase in the fair value of
securities available for sale.
Results
of Operations
Net
Income
The
Company recorded a net loss of $34,000 for the three month period ending
September 30, 2009, versus net income of $244,000 in the same period of 2008, a
decrease of 113.9%. Earnings for the three months ended September 30, 2009 were
positively impacted by a $107,000, or 26.2%, increase in non-interest income
which was offset by an increase of $472,000, or 44.4%, in non-interest expense
and a decrease of $25,000, or 2.4%, in net interest income after provision when
compared to the prior year. Basic earnings (loss) per share for the September
30, 2009 three month period were $(0.08) per share versus $0.56 per share for
the same period of 2008. Diluted earnings (loss) per share reflect
incentive plan shares and the potential dilutive impact of stock options granted
under the stock option plan. Diluted earnings (loss) per share for
the three months ending September 30, 2009 were $(0.08) compared to $0.54 at
September 30, 2008. For the six month period ended September 30,
2009, the Company earned $129,000, a decrease of $289,000, or 69.1%, from
$418,000 for the six months ending September 30, 2008. Earnings for
the six months ended September 30, 2009 were positively impacted by a $341,000,
or 40.6%, increase in non-interest income which was offset by an increase of
$663,000, or 28.9%, in non-interest expense and a decrease of $103,000, or 2.4%,
in net interest income after provision when compared to the prior
year. Basic earnings per share for the September 30, 2009 six month
period were $0.31 per share versus $0.95 per share for the same period of
2008. Diluted earnings per share reflect incentive plan shares and
the potential dilutive impact of stock options granted under the stock option
plan. Diluted earnings per share for the six months ending September
30, 2009 were $0.30 compared to $0.92 at September 30,
2008.
Net
Interest Income
For the
three-month period ended September 30, 2009, net interest income totaled
$1,131,000, a decrease of 1.7%, or $20,000, compared to the same period of 2008.
The decrease in net interest income can be attributed due to an increase of
$74,000, or 9.6%, in total interest expense, offset by the increase of $54,000,
or 2.8%, in total interest income. The increase in total interest expense is due
to the increase of $113,000, or 15.9%, in interest expense on
deposits, a $6,000 increase in interest expense on the short-term borrowing, a
$1,000 increase on interest expense related to federal funds purchased and a
$1,000 increase on advances from the Federal Home Loan Bank of Chicago, offset
by the decrease of $47,000, or 82.5%, in interest expense on other borrowings
for the three months ended September 30, 2009 compared to the three months ended
September 30, 2008. The increase of $71,000, or 5.3%, from loans receivable and
the increase of $16,000, or 76.2%, from tax-exempt securities offset by the
decrease of $31,000, or 96.8%, in interest income on deposits and federal funds
sold are the contributing factors to the increase of $54,000 in interest
income.
For the
six-month period ended September 30, 2009, net interest income totaled
$2,158,000, a decrease of $83,000, or 3.7%, from the same period in the prior
year. Contributing to the decrease was the increase of $273,000, or
18.2%, in total interest expense, offset by the increase of $190,000, or 5.1% in
total interest income. The increase in total interest expense is due
to interest expense on deposits increasing $351,000, or 25.2%, a $7,000 increase
in interest expense on the short-term borrowing, a $1,000 increase on interest
expense related to federal funds purchased and a $1,000 increase on advances
from the Federal Home Loan Bank of Chicago, for the six months ended
September 30, 2009 when compared to the same period in the prior
year. These increases are offset, in part, by other borrowings
decreasing by $87,000, or 82.1%. The increase in total interest
income can be attributed to a $156,000, or 16.8%, increase in interest income
from taxable securities, the increase of $105,000, or 4.0%, in interest income
from loans receivable and a $33,000, or 78.6%, increase in tax-exempt securities
interest income offset, in part, by the decrease of $104,000, or 95.4%, in other
interest income.
27
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
For the
three-months ended September 30, 2009 total average interest earning assets
increased by $31.8 million, or 24.5%, to $161.9 million as of September 30, 2009
from $130.1 million as of September 30, 2008. However, the yield on
the earning assets decreased by 103 basis points when comparing the three months
ended September 30, 2009 to the same period in 2008. Total average
interest bearing liabilities for the three months ended September 30, 2009 were
$149.1 million compared to $114.1 million as of September 30, 2008, an increase
of $35.0 million, or 30.7%. The cost on the average interest
bearing liabilities decreased by 43 basis points. For the three-month
period ended September 30, 2009, the net interest spread decreased 60 basis
points to 2.61% versus 3.21% in the comparable period of 2008. The
decrease in the net interest spread can be partially attributed to market
pressures pushing loan and investment rates down while still requiring the Bank
to pay mid-market deposit rates. The six-month period ending
September 30, 2009 is a copy of the three-months ended September 30, 2009, as
far as the increase in both interest-earning assets and interest-bearing
liabilities and the decrease in the yield earned and paid. Like the
three-month period, the net interest rate spread for the six-months ended
September 30, 2009 decreased 63 basis points to 2.51% from 3.14% for
the six-months ended September 30, 2008.
The
average daily loan balances for the quarter ended September 30, 2009 increased
$15.6 million, or 20.0%, to $93.5 million, versus $77.9 million for the same
period of 2008. During the same period, the yield on loans decreased
84 basis points to 6.05% from 6.89% for the September 30, 2009 quarter compared
to the September 30, 2008 quarter. The average daily loan balances
for the six-month period ending September 30, 2009 increased 17.5% to $90.1
million, versus the average daily loan balances of $76.7 million for the same
period of 2008. The yield on loans, for the six-months ended
September 30, 2009, declined by 80 basis points to 6.13% from 6.93% in the same
six-month period of 2008.
The
average daily securities balances, the Company’s interest-earning deposits and
the federal funds sold balances for the second quarter of fiscal year 2010
increased $16.0 million, or 31.2%, to $67.4 million, versus $51.3 million for
the same period of fiscal year 2009. However, the yield on available-for-sale
securities, interest-earning deposits and federal funds sold decreased by 115
basis points to 3.31% for the three months ended September 30, 2009 compared to
4.46% for the three months ended September 30, 2008. The average daily balances
of securities, interest-earning deposits and federal funds sold for the first
six months of fiscal 2010 increased $18.1 million, or 35.7%, to $68.8
million, versus $50.7 million for the same period of fiscal year
2009. The yield on available-for-sale securities, interest-earning
deposits and federal funds sold deceased 87 basis points for the six months
ending September 30, 2009 to 3.39% from 4.26% as of September 30,
2008.
On an
average daily basis, total interest-bearing deposits increased $37.6 million, or
39.3%, to $133.2 million for the three-month period ended September 30, 2009,
versus $95.6 million in the same period in 2008. The average cost of funds on
deposits decreased by 50 basis points to 2.47% for the September 2009 quarter
versus the September 2008 quarter at 2.97%. The average daily balance
of interest-bearing deposits for the six-month period ended September 2009 also
increased by $37.6 million, or 39.7%, to $132.1 million from $94.5
million. When comparing the average cost of funds on deposits for the
September 2009 six-month period to the same period ending September 30, 2008
there was a decrease of 31 basis points, from 2.95% to 2.64%.
For the
three-months ended September 30, 2009 versus the same period of 2008, the
average daily balance of short-term borrowings, federal funds purchased, Federal
Home Loan Bank advances, and other borrowings decreased $2.5 million, or 13.6%,
from $18.4 million to $15.9 million. The average cost of funds
decreased for the September 2009 quarter by 78 basis points from 1.23% to 0.45%.
The average daily balance of short-term borrowings, federal funds purchased,
Federal Home Loan Bank advances, and other borrowings for the six-months ended
September 30, 2009 decreased by $2.0 million, or 11.4%, to $15.2 million from
$17.2 million for the six-month period ending September 30, 2008 while the
average cost of funds decreased by 87 basis points to 0.37% from 1.24% when
comparing the six-months of fiscal year 2010 to fiscal year 2009.
Provision
for Loan Losses
The
provision for loan losses for the quarter ended September 30, 2009 was $135,000
with a 3.8% increase over the provision of $130,000 for the September 30, 2008
quarter. The provision for both periods reflects management's
analysis of the Company's loan portfolio based on the information which was
available to the Company. Management meets on a quarterly basis to review the
adequacy of the allowance for loan losses based on Company guidelines.
Classified loans are reviewed by the loan officers to arrive at specific reserve
levels for those loans. Once the specific reserve for each loan is calculated,
management calculates general reserves for each loan category based on a
combination of loss history adjusted for current national and local economic
conditions, trends in delinquencies and charge-offs, trends in volume and term
of loans, changes in underwriting standards, and industry conditions. While the
Company cannot assure that future chargeoffs and/or provisions will not be
necessary, the Company's management believes that, as of September 30, 2009, its
allowance for loan losses was adequate.
28
N FIRST ROBINSON FINANCIAL
CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Non-Interest
Income
Non-interest
income categories for the three-month and six-month periods ended September 30,
2009 and 2008 are shown in the following table:
Three
Months Ended
|
||||||||||||
September
30,
|
||||||||||||
|
||||||||||||
|
2009
|
2008
|
% Change
|
|||||||||
(In
thousands)
|
||||||||||||
Non-interest
income:
|
||||||||||||
Charges
and fees on deposit accounts
|
$ | 256 | $ | 231 | 10.8 | % | ||||||
Charges
and other fees on loans
|
78 | 40 | 95.0 | |||||||||
Net
gain on sale of loans
|
55 | 30 | 83.3 | |||||||||
Net
realized gain on sale of available-for-sale securities
|
5 | 2 | 150.0 | |||||||||
Other
|
121 | 105 | 15.2 | |||||||||
Total
non-interest income
|
$ | 515 | $ | 408 | 26.2 | % |
Six
Months Ended
|
||||||||||||
September
30,
|
||||||||||||
|
||||||||||||
|
2009
|
2008
|
% Change
|
|||||||||
|
(In
thousands)
|
|||||||||||
Non-interest
income:
|
||||||||||||
Charges
and fees on deposit accounts
|
$ | 476 | $ | 448 | 6.3 | % | ||||||
Charges
and other fees on loans
|
178 | 84 | 111.9 | |||||||||
Net
gain on sale of loans
|
182 | 72 | 152.8 | |||||||||
Net
realized gain on sale of available for sale securities
|
106 | 2 | 5,200.0 | |||||||||
Other
|
239 | 234 | 2.1 | |||||||||
Total
Non-Interest Income
|
$ | 1,181 | $ | 840 | 40.6 | % |
Non-interest
income increased $107,000 when comparing the three-months ended September 30,
2009 to September 30, 2008. The largest contributing factors to the
increase were the increase in gain on sale of loans and the fees related to the
servicing of loans. The gain on sale of loans is due to the sale of
$4.9 million in loans for the three-months ended September 30, 2009 compared to
$1.9 million in loans sold during the three months ended September 30,
2008. For the six-months ended September 30, 2009, non-interest
income increased $341,000 over the six-months ended September 30,
2008. The increase can be primarily attributed to the net realized
gain on the sale of available for sale securities due to the sale of $15.4
million in mortgage-backed and agency securities; and the net gain from the sale
of loans. During the six-months ended September 30, 2009, the Company
sold $18.7 million in loans into the secondary market compared to $4.7 million
during the six-months ended September 30, 2008.
29
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Non-Interest
Expense
Non-interest
expense categories for the three-month and six-month periods ended September 30,
2009 and 2008 are shown in the following table:
Three
Months Ended
|
||||||||||||
September
30,
|
||||||||||||
|
||||||||||||
2009
|
2008
|
% Change
|
||||||||||
(In
thousands)
|
||||||||||||
Non-interest
expense:
|
||||||||||||
Compensation
and employee benefits
|
$ | 690 | $ | 569 | 21.3 | % | ||||||
Occupancy
and equipment
|
176 | 158 | 11.4 | |||||||||
Data
processing
|
66 | 60 | 10.0 | |||||||||
Audit,
legal and other professional
|
107 | 49 | 118.4 | |||||||||
Advertising
|
75 | 52 | 44.2 | |||||||||
Telephone
and postage
|
50 | 33 | 51.5 | |||||||||
FDIC
Insurance
|
50 | 4 | 1,150.0 | |||||||||
Loss
on cost basis equity security
|
137 | — | — | |||||||||
Other
|
183 | 137 | 33.6 | |||||||||
Total
non-interest expense
|
$ | 1,534 | $ | 1,062 | 44.4 | % |
Six
Months Ended
|
||||||||||||
September
30,
|
||||||||||||
2009
|
2008
|
% Change
|
||||||||||
(In
thousands)
|
||||||||||||
Non-interest
expense:
|
||||||||||||
Compensation
and employee benefits
|
$ | 1,340 | $ | 1,301 | 3.0 | % | ||||||
Occupancy
and equipment
|
360 | 333 | 8.1 | |||||||||
Data
processing
|
126 | 119 | 5.9 | |||||||||
Audit,
legal and other professional
|
192 | 99 | 93.9 | |||||||||
Advertising
|
177 | 97 | 82.5 | |||||||||
Telephone
and postage
|
104 | 59 | 76.3 | |||||||||
Net
loss on sale of foreclosed property
|
— | 4 | (100.0 | ) | ||||||||
FDIC
insurance
|
181 | 10 | 1,710.0 | |||||||||
Loss
on cost basis equity security
|
137 | — | — | |||||||||
Other
|
341 | 273 | 24.9 | |||||||||
Total
Non-Interest Expense
|
$ | 2,958 | $ | 2,295 | 28.9 | % |
Compensation
and employee benefits increased by $121,000 when comparing the September 2009
and 2008 quarters primarily due to the $90,000 increase in salaries and the
increase of $8,000 in payroll taxes. The increase in salaries and payroll taxes
can be attributed to the hiring of a trust officer in July 2008 and the hiring,
during the second quarter of fiscal 2009, of full-time employees for the
Vincennes, Indiana branch. Another factor contributing the the
increase is due to the $20,000 increase associated with the market value of the
shares held in the Directors Retirement Plan. For the six-months
ended September 30, 2009, compensation expense increased $39,000 over the
six-months ended September 30, 2008. Salaries and payroll taxes
increased by $225,000 due to the additional employees but this increase was
offset, in part, by the decrease of $182,000 in expense related to options
exercised and the decrease of $13,000 in the market value of the shares held in
the Directors Retirement Plan.
Advertising
expense increased $23,000 and $80,000 for the three- and six- months ended
September 30, 2009, respectively, when compared to the same period of the prior
year due to increased advertising in a new market area: Vincennes, Indiana. On
May 1st, 2009,
in response to a marketing program to promote branding, our deposit product
called “Reward Checking” was renamed Kasasa ™
Cash. This promotion has also led to the increase in
advertising.
30
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Telephone
and postage expense increased by $17,000 for the three-months ended September
30, 2009 when compared to the same period in 2008 and $45,000 for the six-months
ended September 30, 2009 over the six-months ended September 30,
2008. During August 2008, the Company signed with a company that
would supply all lines necessary for integrated technologies, secure networking,
and communicating with branches and ATMs. The addition of phones and
lines at the new branch in Vincennes also contributed to the
increases.
The
Company recognized a loss of $137,000 during the three-months ended September
30, 2009 related to a cost basis equity security investment in a financial
institution. The investment was written down to approximately $60,000
and additional losses on this investment may be required to be recognized in
future periods. No loss was recognized on this investment in prior
year periods.
The
increase of $171,000 in Federal Deposit Insurance Corporation (“FDIC”) insurance
when comparing the six-months ended September 30, 2009 to the same period in the
prior year was due to the increase in the assessment from 5 basis points to 12
basis points paid on deposits and the additional 5 basis point special
assessment on each insured depository institution's assets minus Tier 1 capital
as of June 30, 2009. The amount of the special assessment for any institution
was not to exceed 10 basis points times the institution's assessment base for
the second quarter 2009. The special assessment was collected on September 30,
2009. An additional special assessment of up to 5 basis points later in 2009 is
probable, but the amount is uncertain. The additional amount imposed
on the Company, as a result of the June 30, 2009 final rule, was
$81,359. During the three-months and six-months ended September 30,
2008, the Company still had a credit balance from the one-time assessment credit
which decreased the expense associated with FDIC insurance.
Income
Tax Expense
The
provision in income tax expense decreased $112,000, or 91.1%, for the
three-months ending September 30, 2009, compared to the same period in 2008. The
decreases can be attributed in part to decreased
profitability. For the six-months ended September 30, 2009, the
provision for income tax expense decreased $136,000, or 65.4%, from the
six-months ended September 30, 2008 due to decreased profitability and the
increase in non-taxable income.
Off-Balance
Sheet Arrangements
The
Company has entered into performance standby and financial standby letters of
credit with various local commercial businesses in the aggregate amount of
$395,000. The letters of credit are collateralized and underwritten, as
currently required by our loan policy, in the same manner as any commercial
loan. The advancement of any funds on these letters of credit is not
anticipated.
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.
Liquidity
resources are used principally to meet outstanding commitments on loans, to fund
maturing certificates of deposit and deposit withdrawals
and to meet operating expenses. The Company anticipates no
foreseeable problems in meeting current loan commitments. At September 30,
2009, outstanding commitments to extend credit amounted to $20.7 million
(including $12.6 million, in available revolving and closed-ended commercial and
agricultural lines of credit). Management believes that
loan repayments and other sources of funds will be adequate to meet any
foreseeable liquidity needs.
The
Company maintains a $24.5 million line of credit with the FHLB, which can be
accessed immediately. As of September 30, 2009 and 2008, there were
no advances outstanding for either period. However, the available
line of credit with the FHLB was reduced by $1.2 million for the credit
enhancement reserve established as a result of the participation in the FHLB
Mortgage Partnership Finance (“MPF”) program. At September 30, 2009,
the Company also maintained a $5.0 million revolving line of credit and a $2.5
million revolving line of credit with Independent Banker’s Bank located in
Springfield, Illinois. The Company borrowed $2.5 million of the $2.5
million revolving line in September 2009. The Company has also established
borrowing capabilities at the discount window with the Federal Reserve Bank of
St. Louis. Investment
securities of $3,000,000 have been pledged as collateral. As of
September 30, 2009 and 2008, no amounts were outstanding at the Federal Reserve
discount window.
31
FIRST
ROBINSON FINANCIAL CORPORATION
Management’s
Discussion and Analysis of Financial Condition
And
Results of Operations
Liquidity
management is both a daily and long-term responsibility of
management. We adjust our 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.
The
Company and the Bank are subject to capital requirements of the federal bank
regulatory agencies which require the Bank to maintain minimum ratios of Tier I
capital to total adjusted assets and to risk-weighted assets of 4%, and total
capital to risk-weighted assets of 8% respectively. Generally, 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. Both the Bank and
the Company are considered well-capitalized under federal
regulations.
At
September 30, 2009, the Bank’s compliance with all of the aforementioned capital
requirements is summarized below:
To
be Well Capitalized
|
||||||||||||||||||||||||
Under
the Prompt
|
||||||||||||||||||||||||
For
Capital
|
Corrective
Action
|
|||||||||||||||||||||||
Actual
|
Adequacy Purposes
|
Provisions
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
Total
Risk-Based Capital
|
||||||||||||||||||||||||
(to
Risk-Weighted Assets)
|
$ | 12,983 | 13.35 | % | $ | 7,778 | 8.00 | % | $ | 9,723 | 10.00 | % | ||||||||||||
Tier
I Capital
|
||||||||||||||||||||||||
(to
Risk-Weighted Assets)
|
12,075 | 12.42 | 3,889 | 4.00 | 5,834 | 6.00 | ||||||||||||||||||
Tier
I Capital
|
||||||||||||||||||||||||
(to
Average Assets)
|
12,075 | 6.95 | 6,951 | 4.00 | 8,689 | 5.00 |
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 June 27, 1997. In the unlikely 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. 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.
32
FIRST
ROBINSON FINANCIAL CORPORATION
Item: 3 Quantitative and Qualitative
Disclosures about Market Risk
Not
applicable.
Item: 4T Controls and
Procedures
Any
control system, no matter how well designed and operated, can provide only
reasonable (not absolute) assurance that its objectives will be
met. Furthermore, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been
detected.
Disclosure Controls and
Procedures
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e)) under the Exchange Act as of the end of the period
covered by this report. Based upon that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that, as of
September 30, 2009 the Company’s disclosure controls and procedures were
effective to provide reasonable assurance that (i) the information required to
be disclosed in this Report was recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and
(ii) information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to
Company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding disclosure.
Internal Control Over
Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
33
PART II
OTHER INFORMATION
Item
1. Legal
Proceedings
None
Item 1A.
Risk
Factors
None
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
The following table provides
information about purchases by the Company for the quarter ended September
30, 2009 regarding the Company’s common stock.
PURCHASES
OF EQUITY SECURITIES BY COMPANY (1)
Period
|
Total Number of
Shares
Purchased
|
Average Price Paid
per Share
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
|
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
|
||||||||||||
7/1/2009
– 7/30/2009
|
950 | $ | 34.50 | 950 | 13,160 | |||||||||||
8/1/2009
– 8/31/2009
|
1,177 | 34.34 | 1,000 | 12,160 | ||||||||||||
9/1/2009–
9/30/2009
|
70 | 35.00 | — | 12,160 | ||||||||||||
Total
|
2,197 | $ | 34.43 | 1,950 | 12,160 |
(1) On
July 23, 2009, the Board of Directors of the Company voted to approve the
extension and expansion of the repurchase program of its equity stock approved
on July 24, 2008. The Company may repurchase up to 10,000 additional
shares of the Company’s outstanding common stock in the open market or in
negotiated private transactions from time to time when deemed appropriate by
management. The increase represents approximately 2.5% of the Company’s issued
and outstanding shares. As of July 22, 2009, the Company had
repurchased 22,782 shares of its common stock out of the 26,892 shares that had
been previously authorized for repurchase leaving 4,110 remaining to be
purchased. As a result of these actions, the Company is currently
authorized to repurchase 14,110 shares of common stock. The program
has been extended to August 2, 2010 or the earlier of the completion
of the repurchase of the 14,110 shares. As of November 10,
2009, 1,950 shares of the 14,110 have been purchased in the expanded program
leaving 12,160 remaining to be purchased pursuant to this share repurchase
program.
Item
3.
Defaults Upon Senior
Executives
None
Item
4.
Submission of Matters to a
Vote of Security Holders
On July 23, 2009, the Company held its
Annual Meeting of Stockholders.
|
(a)
|
At
the meeting, J. Douglas Goodwine and Robin E. Guyer were elected as
directors for terms to expire in 2012. Those directors
continuing in office are Rick L. Catt, Steven E. Neeley, Scott F. Pulliam,
and William K. Thomas.
|
|
(b)
|
Stockholders
voted on the following matters:
|
(i) The
election of the following two directors of the
Corporation:
BROKER
|
||||||||
VOTES:
|
FOR
|
WITHHELD
|
ABSTAIN
|
NON-VOTES
|
||||
J.
Douglas Goodwine
|
330,447
|
400
|
—
|
—
|
||||
Robin
E. Guyer
|
|
328,892
|
|
1,955
|
|
—
|
|
—
|
34
PART II
OTHER INFORMATION
|
(ii) The
ratification of the appointment of BKD, LLP as auditors for the Company
for the fiscal year ending March 31,
2010:
|
|
BROKER
|
|||||||
VOTES:
|
FOR
|
WITHHELD
|
ABSTAIN
|
NON-VOTES
|
||||
|
329,851
|
|
796
|
|
200
|
|
—
|
Item
5.
|
Other
Information
|
None
Item
6.
|
Exhibits
|
1.
|
Exhibit
31: Section 302 Certifications
|
2.
|
Exhibit
32: Section 906
Certifications
|
35
SIGNATURES
Pursuant
to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRST
ROBINSON FINANCIAL
|
|
CORPORATION
|
|
Date: November 13,
2009
|
/s/ Rick L. Catt
|
Rick
L. Catt
|
|
President
and Chief Executive Officer
|
|
Date: November 13,
2009
|
/s/ Jamie E. McReynolds
|
Jamie
E. McReynolds
|
|
|
Chief Financial Officer
and Vice President
|
36
EXHIBIT
INDEX
Exhibit
No.
31.1
|
Certification
by the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31.2
|
Certification
by the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32
|
Certifications
of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
37