FIRST ROBINSON FINANCIAL CORP - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - FIRST ROBINSON FINANCIAL CORP	Financial_Report.xls
EX-32 - EXHIBIT 32 - FIRST ROBINSON FINANCIAL CORP	v300836_ex32.htm
EX-31.1 - EXHIBIT 31.1 - FIRST ROBINSON FINANCIAL CORP	v300836_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - FIRST ROBINSON FINANCIAL CORP	v300836_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

December 31, 2011

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 001-12969

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 S No £

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 S No £

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	£	Accelerated Filer	£
Non-Accelerated Filer	£ Do not check if a smaller reporting company)	Smaller Reporting Company	S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes £ No S

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 426,744 shares of common stock, par value $.01 per share, as of February 13, 2012.

FIRST ROBINSON FINANCIAL CORPORATION

Index to Form 10-Q

			PAGE

PART 1. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of December 31, 2011 and March 31, 2011	3

		Condensed Consolidated Statements of Income and Comprehensive Income for the Three-Month and Nine-Month Periods Ended December 31, 2011 and 2010	4

		Condensed Consolidated Statements of Changes in Stockholders’ Equity For the Nine-Month Periods ended December 31, 2011 and 2010	6

		Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended December 31, 2011 and 2010	7

		Notes to Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

	Item 4.	Controls and Procedures	43

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	44

	Item 1A.	Risk Factors	44

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

	Item 3.	Defaults Upon Senior Executives	44

	Item 4.	Mine Safety Disclosures	44

	Item 5.	Other Information	44

	Item 6.	Exhibits	44

SIGNATURES			45

CERTIFICATIONS

XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document

Item 1:

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	(Unaudited)
	December 31, 2011			March 31, 2011
ASSETS

Cash and due from banks	$	8,127		$	9,546
Interest-bearing deposits		30,418			17,813
Cash and cash equivalents		38,545			27,359
Held-to maturity securities (fair values of $1,342 and $0)		1,225			—
Available-for-sale securities		44,203			51,677
Loans, held for sale		508			354
Loans, net of allowance for loan losses of $1,290 and $1,145 at December 31, 2011 and March 31, 2011, respectively		127,449			120,164
Federal Reserve and Federal Home Loan Bank stock		1,189			1,056
Premises and equipment, net		4,185			3,848
Foreclosed assets held for sale, net		25			218
Interest receivable		886			914
Prepaid income taxes		—			249
Cash surrender value of life insurance		1,595			1,556
Other assets		1,532			1,436
Total Assets	$	221,342		$	208,831

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities
Deposits	$	182,768		$	176,352
Other borrowings		15,821			15,620
Short-term borrowings		2,000			1,800
Advances from borrowers for taxes and insurance		219			274
Accrued income taxes		47			—
Deferred income taxes		524			512
Interest payable		130			183
Other liabilities		1,234			1,325
Total Liabilities		202,743			196,066

Commitments and Contingencies		—			—

Stockholders’ Equity
Preferred stock, $.01 par value, $1,000 liquidation value; authorized 500,000 shares, 4,900 shares and 0 shares issued and outstanding at December 31, 2011 and March 31, 2011		4,900			—
Common stock, $ .01 par value; authorized 2,000,000 shares; 859,625 shares issued; 426,744 shares outstanding at December 31, 2011 and 427,149 at March 31, 2011		9			9
Additional paid-in capital		8,639			8,781
Retained earnings		12,359			11,212
Accumulated other comprehensive income		804			861
Treasury stock, at cost
Common: December 31, 2011– 432,881 shares and March 31, 2011– 432,476 shares		(8,112	)		(8,098	)
Total Stockholders’ Equity		18,599			12,765

Total Liabilities and Stockholders’ Equity	$	221,342		$	208,831

See Notes to Condensed Consolidated Financial Statements

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the Three and Nine-Month Periods Ended December 31, 2011 and 2010

(In thousands, except per share data)

(Unaudited)

	Three-Month Period					Nine-Month Period
	2011			2010		2011			2010

Interest and Dividend Income:
Loans	$	1,762		$	1,719	$	5,173		$	4,884
Securities:
Taxable		299			378		1,020			1,249
Tax-exempt		33			29		95			89
Other interest income		15			10		33			19
Dividends on FRB and FHLB stocks		4			3		10			8

Total Interest and Dividend Income		2,113			2,139		6,331			6,249

Interest Expense:
Deposits		342			578		1,171			1,789
Other borrowings		24			26		76			80

Total Interest Expense		366			604		1,247			1,869

Net Interest Income		1,747			1,535		5,084			4,380

Provision for Loan Losses		150			75		555			165

Net Interest Income after Provision for Loan Losses		1,597			1,460		4,529			4,215

Non-interest income:
Charges and fees on deposit accounts		263			239		753			728
Charges and other fees on loans		117			107		338			265
Net gain on sale of loans		192			207		630			548
Net gain (loss) on sale of foreclosed property		(6	)		—		(11	)		15
Net gain on sale of equipment		—			—		—			4
Other		143			142		438			409

Total Non-Interest Income		709			695		2,148			1,969

Non-interest expense:
Compensation and employee benefits		751			680		2,282			2,218
Occupancy and equipment		195			198		563			549
Data processing and telecommunications		118			114		361			317
Audit, legal and other professional		68			62		188			204
Advertising		66			64		213			198
FDIC insurance		11			55		78			159
Foreclosed property expense		1			7		19			11
Other		185			177		532			504

Total Non-Interest Expense		1,395			1,357		4,236			4,160

See Notes to Condensed Consolidated Financial Statements.

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (CONTINUED)

For the Three and Nine-Month Periods Ended December 31, 2011 and 2010

(In thousands, except per share data)

(Unaudited)

	Three-Month Period						Nine-Month Period
	2011			2010			2011			2010

Income before income taxes		911			798			2,441			2,024

Provision for income taxes		336			275			893			681

Net Income		575			523			1,548			1,343

Preferred stock dividends		12			—			17			—

Net income available to common stockholders	$	563		$	523		$	1,531		$	1,343

Earnings Per Common Share-Basic	$	1.37		$	1.27		$	3.73		$	3.25
Earnings Per Common Share-Diluted	$	1.32		$	1.22		$	3.58		$	3.13

Comprehensive Income:

Net income available to common stockholders	$	563		$	523		$	1,531		$	1,343

Other comprehensive income, net of tax:

Change in unrealized appreciation on securities available for sale, net of tax of $(61) and $(127) for the three months ended December 30, 2011 and 2010, respectively and $(5) and $(67) for the nine months ended December 30, 2011 and 2010, respectively		(145	)		(201	)		(57	)		(106	)

Total comprehensive income	$	418		$	322		$	1,474		$	1,237

See Notes to Condensed Consolidated Financial Statements

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Nine-Month Periods Ended December 31, 2011 and 2010

(In thousands, except share data)

(Unaudited)

																Accumulated
										Additional						Other
	Preferred Stock				Common Stock					Paid-in			Retained			Comprehensive			Treasury
	Shares		Amount		Shares			Amount		Capital			Earnings			Income			Stock			Total

Balance, April 1, 2010		0	$	0		433,198		$	9	$	8,783		$	10,182		$	976		$	(7,905	)	$	12,045

Net income														1,343									1,343
Change in unrealized appreciation on available for sale securities, net of taxes of $(67)																	(106	)					(106	)
Treasury shares purchased						(5,449	)													(174	)		(174	)
Dividends on common stock, $0.85 per share														(365	)								(365	)
Purchase of incentive shares											(14	)											(14	)

Balance, December 31, 2010		0	$	0		427,749		$	9	$	8,769		$	11,160		$	870		$	(8,079	)	$	12,729

Balance, April 1, 2011		0	$	0		427,149		$	9	$	8,781		$	11,212		$	861		$	(8,098	)	$	12,765

Net income														1,548									1,548
Change in unrealized appreciation on available-for-sale securities, net of taxes of $(5)																	(57	)					(57	)
Series A Preferred Shares Issued		4,900		4,900							(128	)											4,772
Treasury shares purchased						(405	)													(14	)		(14	)

Dividends on common stock, $0.90 per share														(384	)								(384	)
Dividends on preferred shares, $3.47 per share														(17	)								(17	)
Purchase of incentive shares											(14	)											(14	)

Balance, December 31, 2011		4,900	$	4,900		426,744		$	9	$	8,639		$	12,359		$	804		$	(8,112	)	$	18,599

See Notes to Condensed Consolidated Financial Statements

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine-Months Ended December 31, 2011 and 2010

(In thousands)

(Unaudited)

	2011			2010
Cash flows from operating activities:
Net income	$	1,548		$	1,343
Items not requiring (providing) cash
Depreciation and amortization		270			233
Provision for loan losses		555			165
Amortization of premiums and discounts on securities		208			204
Amortization of loan servicing rights		158			202
Deferred income taxes		17			(238	)
Originations of mortgage loans held for sale		(31,010	)		(33,325	)
Proceeds from the sale of mortgage loans		31,485			33,604
Net gain on loans sold		(630	)		(548	)
Net (gain) loss on sale of foreclosed property		11			(15	)
Net gain on sale of equipment		—			(4	)
Cash surrender value of life insurance		(39	)		(37	)
Changes in:
Interest receivable		28			81
Interest payable		(53	)		(48	)
Other assets		(261	)		13
Other liabilities		(91	)		42
Income taxes		296			341

Net cash provided by operating activities		2,492			2,013

Cash flows from investing activities:
Purchase of available-for-sale securities		(5,093	)		(2,631	)
Purchase of held-to-maturity securities		(1,380	)		—
Proceeds from maturities of available-for-sale securities		6,139			3,550
Proceeds from maturities of held-to-maturity securities		155			—
Repayment of principal on mortgage-backed securities		6,158			7,737
Purchase of Federal Home Loan Bank stock		—			(43	)
Purchase of Federal Reserve Bank stock		(133	)		—
Net change in loans		(7,829	)		(20,742	)
Purchase of premises and equipment		(600	)		(117	)
Proceeds from sale of equipment		—			24
Proceeds from sale of foreclosed assets		172			67

Net cash used in investing activities		(2,411	)		(12,155	)

See Notes to Condensed Consolidated Financial Statements.

FIRST ROBINSON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For The Nine-Months Ended December 31, 2011 and 2010

(In thousands)

(Unaudited)

	2011			2010

Cash flows from financing activities:
Net increase in deposits	$	6,416		$	26,886
Federal funds purchased		—			15,025
Repayment of federal funds purchased		—			(15,025	)
Proceeds from other borrowings		132,587			97,877
Repayment of other borrowings		(132,386	)		(99,347	)
Net change in short-term borrowings		200			100
Purchase of incentive plan shares		(14	)		(14	)
Purchase of treasury stock		(14	)		(174	)
Proceeds from sale of preferred stock, net		4,772			—
Dividends paid on common shares		(384	)		(365	)
Dividends paid on preferred shares		(17	)		—
Net decrease in advances from borrowers for taxes and insurance		(55	)		(23	)

Net cash provided by financing activities		11,105			24,940

Increase in cash and cash equivalents		11,186			14,798

Cash and cash equivalents at beginning of period		27,359			17,889

Cash and cash equivalents at end of period	$	38,545		$	32,687

Supplemental Cash Flows Information:

Interest paid	$	1,300		$	1,917

Income taxes paid (net of refunds)		546			454

Real estate acquired in settlement of loans		10			70

Internally financed sales of other real estate owned		21			—

See Notes to Condensed Consolidated Financial Statements.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 December 31, 2011, the results of its operations for the three and nine month periods ended December 31, 2011 and 2010, the changes in stockholders’ equity for the nine month periods ended December 31, 2011 and 2010, and cash flows for the nine month periods ended December 31, 2011 and 2010. The results of operations for those months ended December 31, 2011 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, 2011, has been derived from the audited Consolidated Balance Sheet for the Company as of that date.

Certain reclassifications have been made to the 2010 consolidated financial statements to conform to the 2011 financial statement presentation. These classifications had no effect on net income.

Recent Accounting Pronouncements

In April 2011, FASB issued ASU No. 2011-03 “Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required and the ASU is not expected to have a material effect on its financial position or results of operations.

In May 2011, FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required and the adoption is not expected to have a material effect on its financial position or results of operations.

In December 2011, the FASB issued FASB ASU No. 2011-12 which temporarily defers the effective date for disclosures related to reclassification adjustments within accumulated other comprehensive income and should continue to report reclassifications out of accumulated other comprehensive income consistent within the presentation requirements in effect before FASB ASU No. 2011-05. The adoption of this accounting standard is not expected to have a material impact on the Company’s financial position and results of operations.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

ASC Topic 820, Fair Value Measurements, 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:

	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 and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying condensed consolidated balance sheet at December 31, 2011 and March 31, 2011.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 hierarchy in which the fair value measurements fall as of December 31, 2011 and March 31, 2011 (in thousands):

	Carrying value at December 31, 2011
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government sponsored enterprises (GSE)	$	12,934	$	—	$	12,934	$	—
Mortgage-backed, GSE residential		28,217		—		28,217		—
Mortgage-backed, GSE commercial		1,048		—		1,048		—
State and political subdivisions		2,004		—		2,004		—
Total available-for-sale securities	$	44,203	$	—	$	44,203	$	—

	Carrying value at March 31, 2011
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government sponsored enterprises (GSE)	$	12,345	$	—	$	12,345	$	—
Mortgage-backed, GSE residential		33,995		—		33,995		—
Mortgage-backed, GSE commercial		1,455		—		1,455		—
State and political subdivisions		3,882		—		3,882		—
Total available-for-sale securities	$	51,677	$	—	$	51,677	$	—

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 and inputs used for assets 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.

Impaired Loans (Collateral Dependent)

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. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, when impairment is determined using the fair value method. Fair value adjustments on impaired loans were $510,000 for the nine months ended December 31, 2011 and $146,000 for the year ended March 31, 2011.

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.

Foreclosed Assets Held for Sale

Fair value of foreclosed assets held for sale is based on market prices determined by appraisals less discounts for costs to sell. Foreclosed assets held for sale are classified within Level 2 of the valuation hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 and March 31, 2011 (in thousands):

Carrying value at December 31, 2011

Quoted Prices in

Significant

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Description

Fair Value

(Level 1)

(Level 2)

(Level 3)

Impaired loans (collateral dependent)

722

—

722

			Carrying value at March 31, 2011
			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 (collateral dependent)	$	212	$	—	$	—	$	212
Mortgage servicing rights		591		—		—		591
Foreclosed assets held for sale, net		218		—		218		—

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.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

	December 31, 2011				March 31, 2011
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Financial assets
Cash and cash equivalents	$	8,127	$	8,127	$	9,546	$	9,546
Interest-bearing deposits		30,418		30,418		17,813		17,813
Held-to-maturity securities		1,225		1,342		—		—
Available-for-sale securities		44,203		44,203		51,677		51,677
Loans held for sale		508		508		354		354
Loans, net of allowance for loan losses		127,449		129,048		120,164		121,796
Federal Reserve and Federal Home Loan Bank stock		1,189		1,189		1,056		1,056
Interest receivable		886		886		914		914

Financial liabilities
Deposits		182,768		178,425		176,352		164,566
Other borrowings		15,821		15,821		15,620		15,623
Short-term borrowings		2,000		2,000		1,800		1,800
Advances from borrowers for taxes and insurance		219		219		274		274
Interest payable		130		130		183		183

Unrecognized financial instruments (net of contract amount)
Commitments to originate loans		—		—		—		—
Letters of credit		—		—		—		—
Lines of credit		—		—		—		—

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Federal Home Loan Bank Stock

The Company owns approximately $879,000 of Federal Home Loan Bank of Chicago (“FHLB”) stock. The FHLB of Chicago is operating under a Cease and Desist Order from its regulator, the Federal Housing Finance Agency (“FHFA”). The FHLB’s new capital structure and excess stock repurchase plan was approved by the FHFA. The repurchase plan allows for the FHLB to repurchase approximately $500 million in excess capital stock held by its members which will represent 45% of the excess stock outstanding. The FHLB will continue to provide liquidity and funding through advances and access for members to sell loans to FNMA through the MPF X-tra program. With regard to dividends, the FHLB will continue to assess their dividend capacity each quarter and make the appropriate request for approval. The FHLB did not pay a dividend during 2010; however in 2011, the FHLB declared and paid four dividends at an annualized rate of 10 basis points per share. Management performed an analysis and deemed the Company’s cost method investment in FHLB stock to be recoverable as of December 31, 2011.

Authorized Share Repurchase Program

The share repurchase program approved by the Board of Directors on August 17, 2010 expired August 16, 2011 with 1,555 shares purchased of the 5,000 shares approved in the program. On September 20, 2011, the Board of Directors voted to approve an additional stock repurchase program of 5,000 shares, or approximately 1.2%, of the Company’s issued and outstanding shares. The repurchase program will expire upon the earlier of the completion of the purchase of an aggregate of shares or September 19, 2012. As of December 31, 2011, there have been 405 shares purchased in the current program.

Investment Securities

The amortized cost and approximate fair values of securities are as follows:

Available-for-sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
December 31, 2011
U.S. government sponsored enterprises (GSE)	$	12,793	$	141	$	—	$	12,934
Mortgage-backed securities, GSE, residential		27,028		1,195		6		28,217
Mortgage-backed securities, GSE, commercial		1,072		—		24		1,048
State and political subdivisions		1,965		39		—		2,004

	$	42,858	$	1,375	$	30	$	44,203

March 31, 2011
U.S. government sponsored enterprises (GSE)	$	12,082	$	263	$	—	$	12,345
Mortgage-backed securities, GSE residential		32,868		1,127		—		33,995
Mortgage-backed securities, GSE, commercial		1,491		—		36		1,455
State and political subdivisions		3,829		54		1		3,882

	$	50,270	$	1,444	$	37	$	51,677

Held-to-maturity Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
December 31, 2011
State and political subdivisions	$	1,225	$	117	$	—	$	1,342

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company had no held-to-maturity securities at March 31, 2011.

The amortized cost and fair value of available-for-sale and held-to-maturity securities at December 31, 2011, 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.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

Within one year	$	7,822	$	7,907	$	205	$	206
One to five years		6,936		7,031		215		221
Five to ten years		—		—		515		577
Over ten years		—		—		290		338

		14,758		14,938		1,225		1,342
Mortgage-backed securities		28,100		29,265		—		—

Totals	$	42,858	$	44,203	$	1,225	$	1,342

There were no sales of investment securities during the three months or nine months ended December 31, 2011 or December 31, 2010.

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 December 31, 2011 and March 31, 2011. At December 31, 2011, 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
	(In thousands)
As of December 31, 2011
Mortgage-backed securities, GSE, residential	$	1,825	$	6	$	—	$	—	$	1,825	$	6
Mortgage-backed securities, GSE, commercial		—		—		1,048		24		1,048		24
Total temporarily impaired securities	$	1,825	$	6	$	1,048	$	24	$	2,873	$	30

As of March 31, 2011
Mortgage-backed securities, GSE, residential	$	1,455	$	36	$	—	$	—	$	1,455	$	36
State and political subdivisions		226		1		—		—		226		1
Total temporarily impaired securities	$	1,681	$	37	$	—	$	—	$	1,681	$	37

There are four securities in unrealized loss positions in the investment portfolio at December 31, 2011, due to interest rate changes, not credit events. The unrealized losses are considered temporary and, therefore, have not been recognized, because the issuers are of high credit quality and the Bank has the ability and intent to hold for the foreseeable future. The fair values are expected to recover as the investments approach their maturity dates or there is a downward shift in interest rates. All but one of the mortgage-backed securities in the portfolio are residential properties. One of the mortgage-backed securities with a temporary loss is secured by 5 or more dwelling units.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. Loans and Allowance for Loan Losses

Classes of loans, including loans held for sale, at December 31, 2011 and March 31 include:

	December 31, 2011		March 31, 2011
	(In thousands)
Mortgage loans on real estate:
Residential:
1-4 Family	$	45,518	$	41,954
Second mortgages		1,345		1,542
Construction		4,624		5,362
Equity lines of credit		3,993		3,761
Commercial and farmland		37,570		33,898
Total mortgage loans on real estate		93,050		86,517
Commercial loans and agricultural finance		18,941		19,132
Consumer/other loans		17,218		15,852
States and municipal government loans		1,326		764
Total Loans		130,535		122,265

Less
Net deferred loan fees, premiums and discounts		17		12
Undisbursed portion of loans		1,271		590
Allowance for loan losses		1,290		1,145

Net loans	$	127,957	$	120,518

The Company is a community-oriented financial institution that seeks to serve the financial needs of the residents and businesses in its market area. The Company considers Crawford County and surrounding counties in Illinois and Knox County and surrounding counties in Indiana as its market area. The principal business of the Company has historically consisted of attracting retail deposits from the general public and primarily investing those funds in one- to four-family residential real estate loans, commercial, multi-family and agricultural real estate loans, consumer loans, and commercial business and agricultural finance loans. For the most part, loans are collateralized by assets, primarily real estate, of the borrowers and guaranteed by individuals. Repayment of the loans is expected to come from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Loan originations are developed from continuing business with (i) depositors and borrowers, (ii) real estate broker referrals, (iii) auto dealer referrals, and (iv) walk-in customers. All of the Company’s lending is subject to its written underwriting standards and loan origination procedures. Upon receipt of a loan application, it is first reviewed by a loan officer in the loan department who checks applications for accuracy and completeness. The Company’s underwriting department then gathers the required information to assess the borrower’s ability to repay the loan, the adequacy of the proposed collateral, the employment stability and the credit-worthiness of the borrower. The financial resources of the borrower and the borrower’s credit history, as well as the collateral securing the loan, are considered an integral part of each risk evaluation prior to approval. A credit report is obtained to verify specific information relating to the applicant’s employment and credit standing. Income is verified using W-2 information, tax returns or pay-stubs of the potential borrower. In the case of a real estate loan, an appraisal of the real estate intended to secure the proposed loan is undertaken by an independent appraiser approved by the Company. The board of directors has established individual lending authorities for each loan officer by loan type. Loans over an individual officer’s lending limits must be approved by a loan officer with a higher lending limit, with the highest being that of the president and senior loan officer who have a combined lending authority up to $500,000. Loans with a principal balance over this limit must be approved by the directors’ loan committee, which meets weekly and consists of the chairman of the board, all outside directors, the president, the senior loan officer and loan officers. The senior loan officer and loan officers do not vote on the loans presented. The board of directors ratifies all loans that are originated. Once the loan is approved, the applicant is informed and a closing date is scheduled. Loan commitments are typically funded within 30 days.

The Company requires evidence of marketable title and lien position or appropriate title insurance on all loans secured by real property. The Company also requires fire and extended coverage casualty insurance in amounts at least equal to the lesser of the principal amount of the loan or the value of improvements on the property, depending on the type of loan. As required by federal regulations, the Company also requires flood insurance to protect the property securing its interest if such property is located in a designated flood area.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s lending can be summarized into five primary areas; residential real estate loans, commercial real estate and farmland loans, commercial and agricultural finance loans, consumer loans and loans to state and municipal government loans. A description of each of the lending areas can be found in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011. The significant majority of the lending activity occurs in the Company’s Illinois market, with the remainder in the Indiana market. Management reserves the right to change the amount or type of lending in which it engages to adjust to market or other factors.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. Management’s evaluation is also subject to review and potential change, by bank regulatory authorities.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

There have been no significant changes to the Company’s accounting policies or methodology from the prior periods.

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2011 and March 31, 2011:

	For Nine Months Ended December 31, 2011
	Commercial Real Estate		Residential Real Estate			Commercial		Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Allowance for loan losses:
Balance at March 31, 2011	$	365	$	581		$	168	$	31	$	—	$	1,145
Provision charged to expense		8		(101	)		527		121		—		555
Losses charged off		61		26			297		50		—		434
Recoveries		—		—			—		24		—		24
Balance, end of period	$	312	$	454		$	398	$	126	$	—	$	1,290

	For Three Months Ended December 31, 2011
	Commercial Real Estate		Residential Real Estate		Commercial		Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Allowance for loan losses:
Balance at September 30, 2011	$	304	$	429	$	349	$	67	$	—	$	1,149
Provision charged to expense		8		25		49		68		—		150
Losses charged off		—		—		—		18		—		18
Recoveries		—		—		—		9		—		9
Balance, end of period	$	312	$	454	$	398	$	126	$	—	$	1,290

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	December 31, 2011
	Commercial Real Estate		Residential Real Estate		Commercial		Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Ending balance:
individually evaluated for impairment	$	—	$	31	$	44	$	32	$	—	$	107
Ending balance:
collectively evaluated for impairment	$	312	$	423	$	354	$	94	$	—	$	1,183

Loans:
Ending balance	$	37,570	$	55,480	$	18,941	$	17,218	$	1,326	$	130,535
Ending balance:
individually evaluated for impairment	$	178	$	364	$	496	$	99	$	—	$	1 ,137
Ending balance:
collectively evaluated for impairment	$	37,392	$	55,116	$	18,445	$	17,119	$	1,326	$	129,398

	March 31, 2011
	Commercial Real Estate			Residential Real Estate		Commercial			Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of year	$	593		$	72	$	279		$	29	$	—	$	973
Provision charged to expense		(83	)		842		(42	)		18		—		735
Losses charged off		169			333		69			54		—		625
Recoveries		24			—		—			38		—		62
Balance, end of period	$	365		$	581	$	168		$	31	$	—	$	1,145
Ending balance:
individually evaluated for impairment	$	—		$	27	$	3		$	9	$	—	$	39
Ending balance:
collectively evaluated for impairment	$	365		$	554	$	165		$	22	$	—	$	1,106

Loans:
Ending balance	$	33,898		$	52,619	$	19,132		$	15,852	$	764	$	122,265
Ending balance:
individually evaluated for impairment	$	239		$	315	$	11		$	61	$	—	$	626
Ending balance:
collectively evaluated for impairment	$	33,659		$	52,304	$	19,121		$	15,791	$	764	$	121,639

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the activity in the allowance for loan losses for the three-month and nine-month periods ended December 31, 2010:

	For Nine Months Ended December 31, 2010
	Commercial Real Estate			Residential Real Estate		Commercial			Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Allowance for loan losses:
Balance at March 31, 2010	$	593		$	72	$	279		$	29	$	—	$	973
Provision charged to expense		(95	)		303		(70	)		27		—		165
Losses charged off		18			31		1			40		—		90
Recoveries		24			—		—			30		—		54
Balance, end of period	$	504		$	344	$	208		$	46	$	—	$	1,102

	For Three Months Ended December 31, 2010
	Commercial Real Estate			Residential Real Estate		Commercial			Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)

Allowance for loan losses:
Balance at September 30, 2010	$	548		$	143	$	331		$	38	$	—	$	1,060
Provision charged to expense		(26	)		201		(122	)		22		—		75
Losses charged off		18			—		1			19		—		38
Recoveries		—			—		—			5		—		5
Balance, end of period	$	504		$	344	$	208		$	46	$	—	$	1,102

Management’s opinion as to the ultimate collectability of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on all loans at origination. In addition, commercial lending relationships over $100,000 are reviewed annually by the credit analyst or senior loan officer in our loan department in order to verify risk ratings. The Company uses the following definitions for risk ratings:

Watch – Loans classified as watch have minor weaknesses or negative trends. The is a possibility that some loss could be sustained.

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2011 and March 31, 2011:

	December 31, 2011
	Commercial Real Estate		Residential Real Estate		Commercial		Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Rating:
Pass	$	31,842	$	53,985	$	16,989	$	16,929	$	1,200	$	120,945
Watch		4,953		779		763		153		126		6,774
Special Mention		121		133		477		10		—		741
Substandard		476		415		707		70		—		1,668
Doubtful		178		168		5		56		—		407
Total	$	37,570	$	55,480	$	18,941	$	17,218	$	1,326	$	130,535

	March 31, 2011
	Commercial Real Estate		Residential Real Estate		Commercial		Consumer/ Other Loans		State and Municipal Government		Total
	(In thousands)
Rating:
Pass	$	31,664	$	51,798	$	17,767	$	15,703	$	634	$	117,566
Watch		1,627		296		423		65		130		2,541
Special Mention		287		146		677		—		—		1,110
Substandard		81		272		259		27		—		639
Doubtful		239		107		6		57		—		409
Total	$	33,898	$	52,619	$	19,132	$	15,852	$	764	$	122,265

The following tables present the Company’s loan portfolio aging analysis as of December 31, 2011 and March 31, 2011:

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non- accrual		Total Loans Past Due and Non- accrual		Current		Total Loans Receivable
	(In thousands)
Real Estate:
Residential:
1-4 Family	$	143	$	—	$	94	$	79	$	316	$	45,202	$	45,518
Construction		110		—		—		—		110		4,514		4,624
Second mortgages		—		—		—		—		—		1,345		1,345
Equity lines of credit		—		—		—		9		9		3,984		3,993
Commercial real estate		—		—		—		178		178		37,392		37,570
Commercial		520		489		—		5		1,014		17,927		18,941
Consumer/other loans		162		9		—		78		249		16,969		17,218
State and municipal government		—		—		—		—		—		1,326		1,326

Total	$	935	$	498	$	94	$	349	$	1,876	$	128,659	$	130,535

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Non-accrual		Total Loans Past Due and Non-accrual		Current		Total Loans Receivable
	(In thousands)
Real Estate:
Residential:
1-4 Family	$	121	$	—	$	—	$	52	$	173	$	41,781	$	41,954
Construction		—		—		—		—		—		5,362		5,362
Second mortgages		—		—		—		—		—		1,542		1,542
Equity lines of credit		—		—		—		—		—		3,761		3,761
Commercial real estate		—		—		—		239		239		33,659		33,898
Commercial		—		333		—		6		339		18,793		19,132
Consumer/other loans		23		—		—		40		63		15,789		15,852
State and municipal government		—		—		—		—		—		764		764

Total	$	144	$	333	$	—	$	337	$	814	$	121,451	$	122,265

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is passed on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual basis when all the principal and interest amounts contractually due are brought current and future payments are reasonable assured.

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Impairment is measured on a loan-by-loan basis by either the present value of the expected future cash flows, the loan’s observable market value, or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. Significant restructured loans are considered impaired in determining the adequacy of the allowance for loan losses.

The Company actively seeks to reduce its investment in impaired loans. The primary tools to work through impaired loans are settlement with the borrowers or guarantors, foreclosure of the underlying collateral, or restructuring.

The Company will restructure loans when the borrower demonstrates the inability to comply with the terms of the loan, but can demonstrate the ability to meet acceptable restructured terms. Restructurings generally include one or more of the following restructuring options; reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance, or other actions intended to maximize collection. Restructured loans in compliance with modified terms are classified as impaired.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following tables present impaired loans for the three and nine months ended December 31, 2011 and the year ended March 31, 2011:

							Three Months Ended				Nine Months Ended
	December 31, 2011						December 31, 2011				December 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance:
Residential	$	140	$	140	$	—	$	93	$	1	$	78	$	5
Commercial real estate		178		391		—		178		—		196		—
Consumer		2		2		—		2		—		10		—
Commercial		1		1		—		2		—		66		—
Loans with a specific valuation allowance:
Residential		224		224		31		219		2		220		7
Commercial real estate		—		—		—		—		—		—		—
Consumer		98		98		32		60		—		40		4
Commercial		494		494		44		495		3		296		8
Total:
Residential	$	364	$	364	$	31	$	312	$	3	$	298	$	12
Commercial real estate	$	178	$	391	$	—	$	178	$	—	$	196	$	—
Consumer	$	100	$	100	$	32	$	62	$	—	$	50	$	4
Commercial	$	495	$	495	$	44	$	497	$	3	$	362	$	8

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2011
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance:
Residential	$	97	$	97	$	—	$	67	$	6
Commercial real estate		239		391		—		48		6
Consumer		40		40		—		13		1
Commercial		5		5		—		1		1
Loans with a specific valuation allowance:
Residential		218		218		27		294		13
Commercial real estate		—		—		—		97		—
Consumer		21		21		9		17		1
Commercial		6		6		3		38		—
Total:
Residential	$	315	$	315	$	27	$	361	$	19
Commercial real estate	$	239	$	391	$	—	$	145	$	6
Consumer	$	61	$	61	$	9	$	30	$	2
Commercial	$	11	$	11	$	3	$	39	$	1

During the nine months ended December 31, 2011, the Company adopted the provisions of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”). Management applied the guidance on determining whether any restructurings that occurred from April 1, 2011 or later met the definition of a TDR. TDRs at December 31, 2011 and March 31, 2011 totaled $413,000, and $466,000, respectively. At December 31, 2011, the Company had a related allowance for loan losses of $23,000 allocated to these TDRs, compared to $19,000 at March 31, 2011. As of December 31, 2011, the Company had $207,000 classified as TDRs performing as agreed under the terms of their restructured plans and $206,000 not performing as agreed under the terms of the restructured plans. For the three and nine month periods ended December 31, 2011, there was one loan with a balance of $26,000 modified as a TDR. The following table presents an analysis of TDRs as of December 31, 2011 and March 31, 2011 (dollar amounts in thousands).

	December 31, 2011						March 31, 2011
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Residential		5	$	224	$	224		4	$	210	$	210
Commercial real estate		1		391		178		1		391		239
Consumer		1		5		5		1		6		6
Commercial		2		6		6		2		11		11
Total:		9	$	626	$	413		8	$	618	$	466

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Lines of Credit

The Company’s $2.5 million revolving line of credit note payable matured September 30, 2011 and was renewed until September 30, 2012. The balance of the revolving line of credit was $2,000,000 and $1,800,000 as of December 31, 2011 and March 31, 2011, respectively. The note bears interest at the prime commercial rate with a floor of 3.50% which was the rate on December 31, 2011, and is secured by all the stock of the Bank. The line was paid to zero on January 3, 2012.

During the nine months ended December 31, 2011, the revolving line of credit maintained by the Bank with an unaffiliated financial institution increased to $6,700,000 from the $5,000,000 line at March 31, 2011, of which no amounts were outstanding at December 31, 2011 or March 31, 2011. The line bears interest at the federal funds rate of the financial institution (1.15% at December 31, 2011), has an open-end maturity and is unsecured if used for less than thirty (30) consecutive days.

The Bank has also established borrowing capabilities at the Federal Reserve Bank of St. Louis discount window. Investment securities of $3,014,000 have been pledged as collateral. The amount available to borrow is equal to or less than the amount pledged as collateral. As of December 31, 2011 and March 31, 2011 no amounts were outstanding. The primary credit borrowing rate at December 31, 2011 was 0.50%, has a term of up to 90 days, and has no restrictions on use of the funds borrowed.

The Bank also maintains a $17.6 million line of credit with the Federal Home Loan Bank of Chicago (“FHLB”). No FHLB advances were outstanding for the periods ended December 31, 2011 or March 31, 2011.

Other Borrowings

Other borrowings included the following:

	December 31, 2011		March 31, 2011
	(In thousands)

Securities sold under repurchase agreements	$	15,821	$	15,620

Securities sold under agreements to repurchase consist of obligations of the Company to other parties. The obligations are secured by investments and such collateral is held by the Company under a safekeeping agreement at a correspondent bank. The maximum amount of outstanding agreements at any month end during the nine months ending December 31, 2011 and the year ending March 31, 2011 totaled $17,810,000 and $20,388,000, respectively. The monthly average of such agreements totaled $14,899,000 for the nine months ending December 31, 2011and $17,401,000 for the twelve months ending March 31, 2011. The average rate on the agreements for the nine months ending December 31, 2011was 0.145% and for the twelve months ending March 31, 2011 the average rate was 0.25%. The agreements at December 31, 2011, mature periodically within 24 months. The Company has a repurchase agreement with one customer with an outstanding balance of $5.0 million at December 31, 2011. The repurchase agreement matures daily.

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.

Earnings Per Common Share for the Three-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 resulting from the effect of the incentive plan shares. The components of basic and diluted earnings per share for the three months ended December 31, 2011 and 2010 were computed as follows (dollar amounts in thousands except share data):

			Weighted
			Average		Per Share
			Shares		Amount

For the Three-Months Ended December 31, 2011:

Basic Earnings per Common Share:
Income available to common stockholders	$	563		410,788	$	1.37

Effect of Dilutive Securities:
Incentive plan shares				16,296

Diluted Earnings per Common Share:
Income available to common stockholders	$	563		427,084	$	1.32

For the Three-Months Ended December 31, 2010:

Basic Earnings per Common Share:
Income available to common stockholders	$	523		412,263	$	1.27

Effect of Dilutive Securities:
Incentive plan shares				16,280

Diluted Earnings per Common Share:
Income available for common stockholders	$	523		428,543	$	1.22

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.

Earnings Per Common Share for the Nine-Month Periods

Basic earnings per common 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. The components of basic and diluted earnings per share for the nine months ended December 31, 2011 and 2010 were computed as follows (dollar amounts in thousands except share data):

			Weighted
			Average		Per Share
			Shares		Amount

For the Nine-Months Ended December 31, 2011:

Basic Earnings per Common Share:
Income available to common stockholders	$	1,531		410,897	$	3.73

Effect of Dilutive Securities:
Unearned incentive plan shares				16,171

Diluted Earnings per Share:
Income available to common stockholders	$	1,531		427,068	$	3.58

For the Nine-Months Ended December 31, 2010:

Basic Earnings per Common Share:
Income available to common stockholders	$	1,343		412,930	$	3.25

Effect of Dilutive Securities:
Unearned incentive plan shares				16,132

Diluted Earnings per Common Share:
Income available for common stockholders	$	1,343		429,062	$	3.13

FIRST ROBINSON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.

Participation in the Small Business Lending Fund of the U.S. Treasury Department

On August 23, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the U.S. Treasury, pursuant to which the Company issued and sold to the Treasury 4,900 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the “Series A Preferred Stock”), for aggregate proceeds of $4,900,000. The issuance was pursuant to the Treasury’s Small Business Lending Fund program, established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Series A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, commencing October 1, 2011. The dividend rate, which is calculated on the aggregate Liquidation Amount, has been initially set at 1% per annum based upon the current level of “Qualified Small Business Lending” (“QSBL”) by the Bank. The dividend rate for future dividend periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. The dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods. If the Series A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%. It is anticipated that the Company will redeem the Series A Preferred Stock prior to such time, although the Company has not decided how to fund the redemption at this time. Funding could occur through retained earnings, or debt, or securities offerings, or a combination thereof. Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases. Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series A Preferred Stock, and is subject to other restrictions on its ability to repurchase or redeem other securities. In addition, if (i) the Company has not timely declared and paid dividends on the Series A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series A Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of Series A Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors.

As is more completely described in the Company’s Certificate of Designation, holders of the Series A Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series A Preferred Stock and on certain corporate transactions. Except with respect to such matters and, if applicable, the election of the additional directors, the Series A Preferred Stock does not have voting rights.

The Company may redeem the shares of Series A Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator, the Office of the Comptroller of the Currency.

As of December 31, 2011, the Company has paid two quarterly dividends to the Treasury at the 1% rate on $4,900,000 totaling approximately $17,000. The rate for the January through March quarterly period will also be 1% as directed by Treasury.

Item 2:

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto.

Forward-Looking Statements

This document, including information incorporated by reference, contains “forward-looking statements” (as that term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.”

Examples of forward-looking statements include, but are not limited to, estimates or projections with respect to our future financial condition, results of operations or business, such as: projections of revenues, income, earnings per share, capital expenditures, assets, liabilities, dividends, capital structure, or other financial items; descriptions of plans or objectives of management for future operations, products, or services, including pending acquisition transactions; forecasts of future economic performance; and descriptions of assumptions underlying or relating to any of the foregoing. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements.

Factors which could cause or contribute to such differences include but are not limited to: general business and economic conditions on both a regional and national level; worldwide political and social unrest, including acts of war and terrorism; increased competition in the products and services we offer and the markets in which we conduct our business; the interest rate environment; fluctuations in the capital markets, which may directly or indirectly affect our asset portfolio; legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; technological changes, including the impact of the Internet; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; accounting principles, policies, practices or guidelines; deposit attrition, operating costs, customer loss and business disruption greater than the Company expects; the occurrence of any event, change or other circumstance that could result in the Company’s failure to develop and implement successful capital raising and debt restructuring plans.

Any forward-looking statements made in this report or incorporated by reference in this report are made as of the date of this report, and, except as required by applicable law, we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. You should consider these risks and uncertainties in evaluating forward-looking statements and you should not place undue reliance on these statements. We decline any obligation to publicly announce future events or developments that may affect the forward-looking statements herein.

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.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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.

Overview

First Robinson Financial Corporation (the “Company”) is a bank holding company that was chartered under the laws of the State of Delaware in March 1997. Its primary business is the ownership of First Robinson Savings Bank, National Association (the “Bank”), a national bank that was also chartered in 1997 and whose predecessor was First Robinson Savings & Loan, which had been serving the financial needs of Crawford County since 1883. The Company is headquartered in Robinson, Illinois and the Bank operates three full service banking offices and one drive-up facility in Crawford County, Illinois and one full service banking office in Knox County, Indiana. We may use “Company” and “Bank” interchangeably herein when discussing the activities and the assets and liabilities of the Bank.

Assets of the Company increased $12.5 million, or 6.0%, to $221.3 million at December 31, 2011 from $208.8 million at March 31, 2011. See “Financial Condition” for more information. The Company is reporting net income available to common stockholders of $563,000 for the three months and $1,531,000 for the nine months ending December 31, 2011 versus net income of $523,000 for the three months and $1,343,000 for the nine months ending December 31, 2010. See “Results of Operations” for further information. Basic and diluted earnings per common share for the three month period ending December 31, 2011 were $1.37 and $1.32, respectively, compared to basic and diluted earnings per common share of $1.27 and $1.22 for the three-months ended December 31, 2010. Basic and diluted earnings per common share for the nine month period ending December 31, 2011 were $3.73 and $3.58, respectively, compared to basic and diluted earnings per common share of $3.25 and $3.13 for the nine-months ended December 31, 2010. Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding incentive plan shares and are determined using the treasury stock method.

The most significant event during the nine months ended December 31, 2011 was the issuance by the Company of 4,900 shares of Senior Non-Cumulative Preferred Stock, Series A to the U.S. Treasury for aggregate proceeds of $4.9 million. See Note 12 of Notes to Condensed Consolidated Financial Statements.

We continue to maintain a strong presence in the community and are 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.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Asset Quality

Delinquencies. When a borrower fails to make a required payment on a loan, the Company 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 Company’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 December 31, 2011.

	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:
Residential		6	$	253		0.46	%		1		94		0.17	%		3	$	88		0.16	%		10	$	435		0.79	%
Commercial		—		—		—			—		—		—			1		178		0.48			1		178		0.48
Consumer and other loans		17		171		0.99			—		—		—			6		78		0.45			23		249		1.44
Commercial business		3		1,009		5.33			—		—		—			1		5		0.03			4		1,014		5.36

Total		26	$	1,433		1.10	%		1		94		0.07	%		11	$	349		0..27	%		38	$	1,876		1.44	%

(1)

Loans are still accruing.

One of the commercial business loans, with a balance of $489,000, is a participation loan that we purchased in 2009 that is secured by assets of an estate. Collection efforts are being pursued by the lead bank. The second commercial business loan, with a balance of $477,000, is to a local trucking company that is in the process of selling a portion of the collateral on the loan with the proceeds being applied to the balance. Our loan department has been in contact with the purchaser of the collateral to verify the details of the pending transaction.

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 Company’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.

	December 31, 2011			March 31, 2011			December 31, 2010
	(In thousands)
Non-accruing loans:
1-4 Family	$	88		$	52		$	185
Equity line of credit								10
Commercial real estate		178			239			—
Consumer and other loans		78			40			10
Commercial		5			6			78
Total		349			337			283

Foreclosed/Repossessed assets:
1-4 Family		25			218			70
Repossessed assets		—			—			—
Total		25			218			70

Total nonperforming assets	$	374		$	555		$	353
Total as a percentage of total assets		0.17	%		0.27	%		0.17	%

Gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to approximately $7,000 for the three months and $19,000 for the nine months ended December 31, 2011 and $4,000 for the three months and $14,000 for the nine months ended December 31, 2010.

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 Bank regularly reviews loans in its portfolio to determine whether such assets require classification in accordance with applicable regulations. On the basis of management’s review of its assets, at December 31, 2011, the Bank had classified a total of $1,668,000 of its assets as substandard and $407,000 as doubtful. At December 31, 2011, total classified assets, including foreclosed property, comprised $2,100,000, or 12.0% of the Bank’s capital, and 0.95% of the Bank’s total assets.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Other Loans of Concern. As of December 31, 2011, there were $7.5 million in loans identified, but not classified, by the Bank with respect to which known information about the possible credit problems of the borrowers or the cash flows of the 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.

The total loans classified as “Special Mention” and “Watch” have increased 105.8% when comparing March 31, 2011 to December 31, 2011. The Company has experienced significant commercial real estate loan growth, especially in the Knox County market. Management recognizes there are increased risks associated with commercial real estate and has therefore implemented conservative procedures to monitor those risks.

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. During the three months ended December 31, 2011, an updated evaluation of the single-family dwelling currently in foreclosed assets was obtained and a valuation allowance of $6,000 was established for the residential property. A loss on the property of $6,000 was recorded. At December 31, 2011, the Bank had one residential property acquired through foreclosure. The property is listed for sale.

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 December 31, 2011, the Company had a total allowance for loan losses of $1,290,000, representing 1.01% of the Company’s loans, net. At March 31, 2011, the Company’s total allowance for loan losses to the Company’s loans, net was at 0.95%. See Note 7 of Notes to Condensed Consolidated Financial Statements.

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:

	December 31, 2011							March 31, 2011
	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)
Real Estate:
Residential	$	454	$	55,480		42.50	%	$	581	$	52,619		43.04	%
Commercial		312		37,570		28.78			365		33,898		27.72
Commercial loans		398		18,941		14.51			31		19,132		15.65
Consumer/other loans		126		17,218		13.19			168		15,852		12.97
State and municipal government		—		1,326		1.02			—		764		0.62
Gross Loans				130,535		100.00	%				122,265		100.00	%

Less:
Deferred loan fees				17							12
Undisbursed portion of loans				1,271							590
Total	$	1,290	$	129,247				$	1,145	$	121,663

The following table sets forth an analysis of the Company’s allowance for loan losses.

	Three Months Ended December 31,						Nine Months Ended December 31, 2011
	2011			2010			2011			2010
	(In thousands)

Balance at beginning of period	$	1,149		$	1,060		$	1,145		$	973

Charge-offs:
One- to four-family		—			—			26			31
Commercial real estate		—			18			61			18
Commercial business		—			1			297			1
Consumer and other loans		18			19			50			40
Total charge-offs		18			38			434			90

Recoveries:
Commercial real estate		—			—			—			24
Consumer and other loans		9			5			24			30
Total recoveries		9			5			24			54

Net charge-offs (recoveries)		9			33			410			36
Additions charged to operations		150			75			555			165
Balance at end of period	$	1,290		$	1,102		$	1,290		$	1,102

Ratio of net charge-offs during the period to average loans outstanding during the period		0.01	%		0.03	%		0.34	%		0.03	%

Ratio of net charge-offs during the period to average non-performing assets		3.32	%		8.53	%		87.98	%		13.04	%

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Financial Condition

March 31, 2011 Compared to December 31, 2011

Total assets of the Company increased $12.5 million, or 6.0%, to $221.3 million at December 31, 2011 from $208.8 million at March 31, 2011. The increase in assets was primarily due to an increase of $11.2 million, or 40.9%, in cash and cash equivalents, and an increase of $7.4 million, or 6.2%, in loans receivable, net and an increase of $1,225,000 or 100.0% in held-to-maturity securities, offset, in part, by a decrease of $7.5 million, or 14.5%, in available-for-sale securities.

The increase of $11.2 million in cash and cash equivalents can be attributed, in part, to an increase of $6.4 million in total deposits and the increase of $5.8 million in capital as a result of the receipt of SBLF proceeds and net income after preferred stock dividends.

Available-for-sale securities decreased to $44.2 million at December 31, 2011 compared to $51.7 million at March 31, 2011, a $7.5 million decrease. The decrease resulted from the maturity of $6.1 million in available-for-sale securities, the repayment of $6.2 million in mortgage-backed securities, the amortization of $208,000 of premiums and discounts on investments, and the decrease of $62,000 in the market valuation of the available-for-sale portfolio, offset by the purchase of $5.1 million of available-for-sale securities. The investment portfolio is managed to limit the Company's exposure to credit risk by investing primarily in mortgage-backed securities and other securities which are either directly or indirectly backed by the federal government or a municipal government. Securities backed by a municipal government make up 4.5% of the outstanding available-for-sale securities portfolio.

In June 2011, we purchased $1.4 million in held-to-maturity securities. On November 1, 2011, $155,000 in held-to-maturity securities matured. The securities were issued by a local municipality. We had no held-to-maturity securities at March 31, 2011.

Each quarter, management assesses whether there have been events or economic circumstances indicating that a security on which there is an unrealized loss is other-than-temporarily impaired. Management considers several factors, including the amount and duration of the impairment; the intent and ability of the Company to hold the security for a period sufficient for a recovery in value; and known recent events specific to the issuer or its industry. In analyzing an issuer’s financial condition, management considers whether the securities are issued by agencies of the federal government, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports, among other things. As we currently do not have the intent to sell these securities and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, no declines are deemed to be other than temporary. We will continue to evaluate our investment securities for possible other-than-temporary impairment, which could result in non-cash charges to earnings in one or more future periods. See Note 6 of Notes to Condensed Consolidated Financial Statements.

The Company's net loan portfolio including loans held for sale increased by $7.4 million to $127.9 million at December 31, 2011 from $120.5 million at March 31, 2011. The increase can be attributed to an increase of $2.9 million, or 5.4%, in loans on residential real estate, which includes one- to four-family loans, equity lines of credit, second mortgages and residential construction loans; an increase of $3.7 million, or 10.8%, in commercial real estate loans; an increase in loans to state and municipal governments by $562,000, or 73.6%; and an increase of $1.4 million, or 8.6%, in consumer and other loans; offset by a decrease of $191,000, or 1.0%, in commercial business and agricultural finance loans. The increase in commercial real estate can be attributed to the Vincennes market where there are more opportunities for this type of lending.

At December 31, 2011, the allowance for loan losses was $1,290,000, or 1.01% of the net loan portfolio, an increase of $145,000 from the allowance for loan losses at March 31, 2011 of $1,145,000, or 0.95% of the net loan portfolio. During the nine-months ended December 31, 2011, the Company charged off $434,000 in loan losses; $297,000 from commercial business and agricultural finance loans; $61,000 in commercial real estate loans; $36,000 from loans secured by automobiles; $26,000 in loans secured by one- to- four family properties; and $14,000 in consumer and other loans. The charge offs were offset in part by recoveries of $24,000 derived from $11,000 in consumer and other loans and $13,000 in automobile 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 has one foreclosed real estate property held for sale at December 31, 2011 consisting of one residential property at a value of $25,000 compared to four residential properties and one commercial building at March 31, 2011 at a value of $218,000. The commercial non-residential building was sold for an approximate loss of $2,000 and three of the residential properties were sold at a net loss of $3,000. During the three months ended December 31, 2011, an updated evaluation of the residential property currently in foreclosed assets was obtained and a valuation allowance of $6,000 was established. A loss on the property of $6,000 was recorded. 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. The property is listed for sale.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Total deposits increased $6.4 million, or 3.6%, to $182.8 million at December 31, 2011 from $176.4 million at March 31, 2011. The increase in total deposits was due to an increase of $16.9 million in demand deposits offset in part by a decrease of $8.0 million in certificates of deposit, and a decrease of $2.5 million in savings, now and money market accounts. The increase in demand deposits can primarily be attributed to the growth in deposits of a local business. For the most part, the funds generated from the growth in deposits is being held in total cash and cash equivalents as the local business expects an outflow of cash in the near future.

The balance in other borrowings, consisting of repurchase agreements, had little change when comparing the balance at March 31, 2011 of $15.6 million at March 31, 2011 to $15.8 million at December 31, 2011. The obligations are secured by mortgage-backed securities and US government agency obligations. At December 31, 2011, the average rate on the repurchase agreements was 0.15% compared to 0.25% at March 31, 2011. The rate on approximately $15.6 million of the repurchase agreements reprice daily. All agreements mature periodically within 24 months.

The short-term borrowing consists of the Company’s revolving line of credit note payable with an unaffiliated financial institution which matured September 30, 2011 and was renewed until September 30, 2012. The balance of the revolving line of credit was $2.0 million and $1.8 million as of December 31, 2011 and March 31, 2011, respectively. The note bears interest at the prime commercial rate with a floor of 3.50% which was the rate on December 31, 2011 and is secured by all the stock of the Bank. The line was paid to zero subsequent to December 31, 2011.

Stockholders' equity at December 31, 2011 was $18.6 million compared to $12.8 million at March 31, 2011, an increase of $5.8 million, or 45.7%. The increase in stockholders’ equity can be attributed primarily to the net receipt of $4.8 million from the sale of 4,900 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series A for participation in the US Treasury’s Small Business Lending Fund program and the addition of $1,548,000 of net income; offset by the payment of $384,000 in common stock dividends and the payment of $17,000 in preferred stock dividends. These increases were offset by the decrease in additional paid-in-capital due to the purchase of $14,000 in shares related to an incentive plan, by the decrease of $57,000 in accumulated other comprehensive income due to the decrease in the fair value of securities available for sale and the increase of treasury shares due to the purchase of $14,000 in First Robinson Financial Corporation shares.

Results of Operations

Comparison of Operating Results for the Three Months Ended December 31, 2011 and 2010

Net Income

The Company’s net income available to common shareholders for the three month period ending December 31, 2011 was $563,000, versus net income of $523,000 in the same period of 2010, an increase of $40,000, or 7.6%. Earnings for the three months ended December 31, 2011 were positively impacted by the $212,000, or 13.8%, increase in net interest income and the increase of $14,000, or 2.0%, in non-interest income, offset by the increase of $75,000, or 100.0%, in provision for loan losses, the increase in non-interest expense of $38,000, or 2.8%, the increase of $61,000 in income tax provision, and the increase of $17,000 in dividends paid on preferred stock when comparing to the prior year. Basic and diluted earnings per common share for the three month period ending December 31, 2011 were $1.37 and $1.32, respectively, compared to basic and diluted earnings per common share of $1.27 and $1.22 for the three-months ended December 31, 2010. Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding incentive plan shares and are determined using the treasury stock method.

Net Interest Income

For the three-month period ended December 31, 2011, net interest income totaled $1,747,000, an increase of 13.8%, or $212,000, compared to the same period of 2010. The increase in the three-month period ended December 31, 2011 versus the comparable period of 2010 was due to the decrease of $238,000, or 39.4%, in total interest expense offset by the decrease of $26,000, or 1.2%, in total interest income. The decrease in total interest income can be attributed to the decrease of $79,000, or 20.9%, in interest income on taxable securities, offset by the increase of $43,000, or 2.5%, in interest income from loans receivable, the increase of $4,000, or 13.8%, from tax-exempt securities, and the increase of $5,000, or 33.3%, in other interest income. The decrease in total interest expense is due primarily to the decrease of $236,000, or 40.8%, in interest expense on deposits for the three months ended December 31, 2011 compared to the three months ended December 31, 2010.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

For the three-months ended December 31, 2011, total average interest earning assets increased by $13.4 million, or 7.3%, to $198.2 million as of December 31, 2011 from $184.8 million as of December 31, 2010. The yield on the earning assets decreased by 37 basis points when comparing the three months ended December 31, 2011 to the same period in 2010. Total average interest bearing liabilities for the three months ended December 31, 2011 were $160.3 million compared to $162.8 million as of December 31, 2010, a decrease of $2.4 million, or 1.5%. The cost on average interest bearing liabilities decreased by 57 basis points. For the three-month period ended December 31, 2011, the average net interest spread increased 20 basis points to 3.35% versus 3.15% in the comparable period of 2010.

Interest income on loans receivable increased $43,000 to $1,762,000 for the quarter ended December 31, 2011 from $1,719,000 for the quarter ended December 31, 2010 due to the average balance on loans for the quarter ended December 31, 2011 increasing $5.9 million, or 5.0%, to $124.3 million, versus $118.4 million for the same period of 2010. During the same period, the yield on loans decreased 14 basis points to 5.67% from 5.81% for the December 31, 2011 quarter compared to the December 31, 2010 quarter. The 14 point basis decrease primarily reflected the lower interest rate environment.

Interest income on taxable securities decreased $79,000 to $299,000 for the quarter ended December 31, 2011 from $378,000 for the quarter ended December 31, 2010. The decrease in interest income on taxable securities can be attributed in part to the decrease of $1.9 million in the average balance from $44.1 million as of December 31, 2010 to $42.2 million as of December 31, 2011 and primarily to the 59 basis point decrease in the yield on taxable securities when comparing the three-month periods ended December 31, 2011 to 2010.

Interest income on tax-exempt securities increased $4,000 when comparing the three months ended December 31, 2011 to the same period in the prior year. The average balance on tax-exempt securities increased by $118,000 from $4.5 million as of December 31, 2010 compared to $4.6 million as of December 31, 2011. The average yield on tax-exempt securities increased 22 basis points from 2.61% as of December 31, 2010 to 2.83% as of December 31, 2011. The average yield does not reflect the benefit of the higher tax-equivalent yield attributed to municipal securities, which is reflected in income tax expense.

Total interest expense on deposits decreased $236,000 from $578,000 for the three-months ended December 31, 2010 to $342,000 for the three months ended December 31, 2011. The decrease can be attributed to a 65 basis point decrease in the average rate paid on total deposits from 1.61% as of December 31, 2010 to 0.96% as of December 31, 2011, in addition to the decrease of $1.3 million in the average balance of deposits from $143.8 million as of December 31, 2010 to $142.5 million as of December 31, 2011. The decrease in the average rate paid on deposits is primarily a reflection of lower short-term market interest rates.

Provision for Loan Losses

The provision for loan losses for the quarter ended December 31, 2011 was $150,000, a $75,000, or 100.0%, increase over the provision of $75,000 for the December 31, 2010 quarter. The increase in our provision reflects the increase in our net charge offs of $9,000 for the three months ended December 31, 2011 compared to net charge offs of $33,000 for the three months ended December 31, 2010. 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 December 31, 2011, its allowance for loan losses was adequate. See “Asset Quality” and Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information.

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 periods ended December 31, 2011 and 2010 are shown in the following table:

	Three Months Ended
	December 31,
Non-interest income:	2011			2010		% Change
	(In thousands)
Charges and fees on deposit accounts	$	263		$	239		10.0	%
Charges and other fees on loans		117			107		9.3
Net gain (loss) on sale of foreclosed assets		(6	)		—		—
Net gain on sale of loans		192			207		(7.2	)
Other		143			142		0.7

Total non-interest income	$	709		$	695		2.0	%

Non-interest income increased $14,000 when comparing the three-months ended December 31, 2011 to December 31, 2010 as a result the increase of $10,000 in charges and fees on loans, the increase of $24,000 in charges and fees on deposit accounts, and the increase of $1,000 in other non-interest income, offset, in part, by the increase of $6,000 on the loss on the sale of foreclosed property and the decrease of $15,000 in net gain on sale of loans. During the quarter ended December 31, 2011, approximately $1.4 million less in mortgage loans were sold than in the same period of the prior year. The $15,000 decrease in net gain on loans sold is a result of the decrease in mortgage loans sold.

Non-Interest Expense

Non-interest expense categories for the three-month periods ended December 31, 2011 and 2010 are shown in the following table:

	Three Months Ended
	December 31,
	2011		2010		% Change
Non-interest expense:	(In thousands)
Compensation and employee benefits	$	751	$	680		10.4	%
Occupancy and equipment		195		198		(1.5	)
Data processing and telecommunications		118		114		3.5
Audit, legal and other professional		68		62		9.7
Advertising		66		64		3.1
FDIC Insurance		11		55		(80.0	)
Foreclosed property expense		1		7		(85.7	)
Other		185		177		4.5

Total non-interest expense	$	1,395	$	1,357		2.8	%

The increase of $71,000 in compensation and employee benefits resulted from an increase in salaries, partially as a result of the addition of two fulltime equivalent employees during the three months ended December 31, 2011 compared to no fulltime equivalent employee additions during the three months ended December 31, 2010. The increase of $4,000 in data processing and telecommunications costs can be attributed, in part, to the increase in the usage of our bill pay product through internet banking and the increase in the maintenance costs associated with the software used for processing. The decrease in FDIC insurance, in response to the Dodd-Frank Act, is a result of our assessment decreasing from approximately 12 basis points annually on deposits to approximately 5 basis points annually on average assets less average tangible equity capital. The increase in other non-interest expenses was primarily from the adjustment of the reserve held for off-balance sheet assets.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Income Tax Expense

The provision in income tax expense increased $61,000, or 22.2%, for the three-months ending December 31, 2011, compared to the same period in 2010. The increase can be attributed, in part, to higher state tax rates and increased income. The effective tax rate was 36.9% for the quarter ended December 31, 2011 compared to 34.5%for the quarter ended December 31, 2010.

Comparison of Operating Results for the Nine Months Ended December 31, 2011 and 2010

Net Income

For the nine month period ended December 31, 2011, the Company’s net income available to common stockholders was $1,531,000, an increase of $188,000, or 14.0%, from $1,343,000 for the nine months ending December 31, 2010. Earnings for the nine months ended December 31, 2011 were positively impacted by an increase of $314,000, or 7.5%, in net interest income after provision for loan losses, and an increase of $179,000, or 9.1%, in non-interest income, which were offset in part by the increase of $76,000, or 1.8%, in non-interest expense and by an increase of $212,000, or 31.1%, in provision for income taxes, and the increase of $12,000 in dividends paid on preferred stock when compared to the nine months ended December 31, 2010. Basic and diluted earnings per common share for the nine month period ending December 31, 2011 were $3.73 and $3.58, respectively, compared to basic and diluted earnings per common share of $3.25 and $3.13 for the nine-months ended December 31, 2010. Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding incentive plan shares and are determined using the treasury stock method.

Net Interest Income

For the nine-month period ended December 31, 2011, net interest income totaled $5,084,000, an increase of $704,000, or 16.1%, from the same period in the prior year. The improvement reflects the increase of $82,000, or 1.3%, in total interest income and the decrease of $622,000, or 33.3%, in total interest expense. The increase in total interest income can be attributed to a $289,000, or 5.9%, increase in interest income from loans receivable, the increase of $14,000 in other interest income and a $6,000, or 6.7%, increase in tax-exempt securities offset, in part, by the decrease of $229,000, or 18.3%, in interest income from taxable securities. The major factor contributing to the decrease in total interest expense is the decrease of $618,000, or 34.5%, interest expense on deposits.

For the nine-months ended December 31, 2011 total average interest earning assets increased by $14.1 million, or 8.0%, to $189.4 million as of December 31, 2011 from $175.3 million as of December 31, 2010. The yield on the earning assets decreased by 29 basis points when comparing the nine months ended December 31, 2011 to the same period in 2010. Total average interest bearing liabilities for the nine months ended December 31, 2011 were $162.8 million compared to $159.6 million as of December 31, 2010, an increase of $3.2 million, or 2.0%. The cost on average interest bearing liabilities decreased by 54 basis points when comparing the two periods. For the nine-month period ended December 31, 2011, the average net interest spread increased 25 basis points to 3.44% versus 3.19% in the comparable period of 2010.

Interest income on loans receivable increased $289,000 to $5,173,000 for the nine-months ended December 31, 2011 from $4,884,000 for the nine-months ended December 31, 2010 due to the average balance on loans for the nine-months ended December 31, 2011 increasing $9.8 million, or 8.8%, to $121.7 million, versus $111.9 million for the same period of 2010. During the same period, the yield on loans decreased 15 basis points to 5.67% from 5.82%.

Interest income on taxable securities decreased $229,000 to $1,020,000 for the nine-months ended December 31, 2011from $1,249,000 for the nine-months ended December 31, 2010. The decrease in interest income from taxable securities can be attributed in part to the decrease of $2.5 million in the average balance of taxable securities from $46.6 million as of December 31, 2010 to $44.1 million as of December 31, 2011 and primarily to the decrease of 49 basis points in the average yield from 3.57% as of December 31, 2010 to 3.08% as of December 31, 2011.

Interest income on tax-exempt securities increased $6,000 when comparing the nine months ended December 31, 2011 to the same period in the prior year. The average balance on tax-exempt securities increased $78,000 from $4,467,000 as of December 31, 2010 compared to $4,545,000 as of December 31, 2011. The average yield on tax-exempt securities increased 12 basis points from 2.65% as of December 31, 2010 to 2.77% as of December 31, 2011. The average yield does not reflect the benefit of the higher tax-equivalent yield attributed to municipal securities, which is reflected in income tax expense.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Total interest expense on deposits decreased $618,000 from $1,789,000 for the nine months ended December 31, 2010 to $1,171,000 for the nine months ended December 31, 2011. The decrease can be attributed to a 64 basis point decrease in the average rate paid on total deposits from 1.71% as of December 31, 2010 to 1.07% as of December 31, 2011, offset by the increase of $6.7 million in the average balance of deposits from $139.3 million as of December 31, 2010 to $146.0 million as of December 31, 2011. The decrease in the average rate paid on deposits is a reflection of the low short-term market interest rates.

Provision for Loan Losses

The provision for loan losses for the nine-months ended December 31, 2011 was $555,000, a 236.4% increase over the provision of $165,000 for the December 31, 2010 nine-month period. The increase in our provision reflects the increase in our net charge offs of $410,000 for the nine months ended December 31, 2011 compared to net charge offs of $36,000 for the nine months ended December 31, 2010. 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 December 31, 2011, its allowance for loan losses was adequate. See “Asset Quality” and Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information.

Non-Interest Income

Non-interest income categories for the nine-month periods ended December 31, 2011 and 2010 are shown in the following table:

	Nine Months Ended
	December 31,
Non-interest income:	2011			2010		% Change
	(In thousands)
Charges and fees on deposit accounts	$	753		$	728		3.4	%
Charges and other fees on loans		338			265		27.5
Net gain on sale of loans		630			548		15.0
Net gain (loss) on sale of foreclosed property		(11	)		15		(173.3	)
Net gain on sale of equipment		—			4		(100.0	)
Other		438			409		7.1

Total Non-Interest Income	$	2,148		$	1,969		9.1	%

Non-interest income increased $179,000 when comparing the nine-months ended December 31, 2011 to December 31, 2010 as a result of the increase of $82,000 in net gain on sale of loans, the $73,000 increase in charges and other fees on loans, the increase of $29,000 in other non-interest income, and the increase of $25,000 in charges and fees on deposit accounts, offset, in part by the decrease of $26,000 in gain on sales of foreclosed property. The $29,000 increase in other non-interest income is primarily from interchange income from the increase in debit card usage by customers. The Company promotes a checking account product that rewards customers for debit card usage.

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 nine-month periods ended December 31, 2011 and 2010 are shown in the following table:

	Nine Months Ended
	December 31,
	2011		2010		% Change
Non-interest expense:	(In thousands)
Compensation and employee benefits	$	2,282	$	2,218		2.9	%
Occupancy and equipment		563		549		2.6
Data processing and telecommunications		361		317		13.9
Audit, legal and other professional		188		204		(7.8	)
Advertising		213		198		7.6
FDIC insurance		78		159		(50.9	)
Foreclosed property expense		19		11		72.7
Other		532		504		5.6

Total Non-Interest Expense	$	4,236	$	4,160		1.8	%

The increase of $64,000 in compensation and employee benefits is partially a result of an increase in the number of fulltime equivalent employees to 64 as of December 31, 2011 from 59 as of December 31, 2010. The growth in the Vincennes, Indiana branch has contributed to the increase in full-time equivalent employees. Expenses associated with occupancy and equipment increased $14,000 when comparing the December 31, 2011 and 2010 nine-month periods as a result of a new parking lot being constructed at the Robinson facility. The increase of $44,000 in data processing and telecommunications costs can be attributed, in part, to the increase in the usage of our bill pay product through internet banking and the increase in the maintenance costs associated with the software used for processing. Audit, legal and other professional services decreased $16,000 when comparing the December 2011 and 2010 nine-month periods due to decreased legal costs. The decrease in FDIC insurance, in response to the Dodd-Frank Act, is a result of our assessment decreasing from approximately 12 basis points annually on deposits to approximately 5 basis points annually on average assets less average tangible equity capital. The increase in foreclosed property expense is a result of holding more properties during the nine-months ended December 31, 2011 compared to the same period in the prior year. The increase in other non-interest expenses was primarily from the adjustment of the reserve held for off-balance sheet assets.

Income Tax Expense

The provision in income tax expense increased $212,000, or 31.1%, for the nine-months ending December 31, 2011, compared to the same period in 2010. The increases can be attributed to increased profitability and higher state taxes. The effective tax rate for the nine-months ended December 31, 2011 and 2010 were 36.6% and 33.7%, respectively.

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 $528,000. 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.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

Liquidity resources are used principally to meet outstanding commitments on loans, to fund maturing certificates of deposit and deposit withdrawals, to fund dividends for our Series A preferred stock, and to meet operating expenses. At December 31, 2011, outstanding commitments to extend credit amounted to $31.4 million (including $22.2 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 Bank maintains a $17.6 million line of credit with the FHLB of Chicago, which can be accessed immediately. As of December 31, 2011 and 2010, there were no advances outstanding for either period. The Bank also maintains a $6.7 million revolving federal funds line of credit with an unaffiliated financial institution of which no balance was outstanding at December 31, 2011 and $35,000 was outstanding at December 31, 2010. The Company also has a $2.5 million revolving line of credit with an unaffiliated financial institution of which $2.0 million was outstanding at December 31, 2011 and $1.8 million outstanding at December 31, 2010, secured by all of the stock of the Bank. The line was paid to zero subsequent to December 31, 2011. The Bank has also established borrowing capabilities at the discount window with the Federal Reserve Bank of St. Louis, as to which investment securities of $3,000,000 have been pledged as collateral. As of December 31, 2011 and 2010, no amounts were outstanding at the Federal Reserve discount window.

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.

On August 23, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued and sold to the Treasury 4,900 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the “Series A Preferred Stock”), for aggregate proceeds of $4,900,000. The issuance was pursuant to the Treasury’s Small Business Lending Fund program, established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion. The Series A Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1, commencing October 1, 2011. The dividend rate, which is calculated on the aggregate Liquidation Amount, has been initially set at 1% per annum based upon the current level of “Qualified Small Business Lending” (“QSBL”) by the Bank. The dividend rate for future dividend periods will be set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the time the Agreement was entered into. The dividend rate may vary from 1% per annum to 5% per annum for the second through tenth dividend periods, and from 1% per annum to 7% per annum for the eleventh through the first half of the nineteenth dividend periods. If the Series A Preferred Stock remains outstanding for more than four-and-one-half years, the dividend rate will be fixed at 9%. It is anticipated that the Company will redeem the Series A Preferred Stock prior to such time, although the Company has not decided how to fund the redemption at this time, funding could occur through retained earnings, or debt, or securities offerings, or a combination thereof. Prior to that time, in general, the dividend rate decreases as the level of the Bank’s QSBL increases. Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series A Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series A Preferred Stock, and is subject to other restrictions on its ability to repurchase or redeem other securities. In addition, if (i) the Company has not timely declared and paid dividends on the Series A Preferred Stock for six dividend periods or more, whether or not consecutive, and (ii) shares of Series A Preferred Stock with an aggregate liquidation preference of at least $25,000,000 are still outstanding, the Treasury (or any successor holder of Series A Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors.

FIRST ROBINSON FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

And Results of Operations

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 principles 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 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.

During the nine months ended December 31, 2011, the Company paid the Bank $4,410,000 of the $4,900,000 in SBLF proceeds. The Bank then paid a dividend to the Company of $2,000,000. The following table, with dollars in thousands, summarizes the aforementioned capital requirements at December 31, 2011 and reflects the SBLF and dividend transaction in the Bank’s Capital. As noted, the Bank is in compliance with its capital requirements at December 31, 2011, and additionally is considered well-capitalized in all three capital ratio categories.

											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)	$	18,869		15.56	%	$	9,702		8.00	%	$	12,127		10.00	%
Tier I Capital
(to Risk-Weighted Assets)		17,525		14.45			4,851		4.00			7,276		6.00
Tier I Capital
(to Average Assets)		17,525		8.21			8,536		4.00			10,669		5.00

FIRST ROBINSON FINANCIAL CORPORATION

Item: 3 Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item: 4 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 December 31, 2011 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.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There have been no material changes to risk factors previously disclosed by the Company in its Annual Report on Form 10-K for the year ended March 31, 2011 and its subsequent quarterly reports on Form 10-Q.

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 December 31, 2011 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
10/1/2011 – 10/31/2011		—		—		—		5,000
11/1/2011 – 11/30/2011		405	$	33.50		—		4,595
12/1/2011– 12/31/2011		—		—		—		4,595
Total		405	$	33.50		—		4,595

(1) See Note 5 of Notes to Condensed Consolidated Financial Statements for more information regarding stock purchases.

Item 3.	Defaults Upon Senior Executives
	None

Item 4.	Mine Safety Disclosures
	None

Item 5.	Other Information
	None

Item 6.	Exhibits

	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certifications of the Chief Executive Officer and Chief Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	101.INS	XBRL Instance Document (furnished herewith)
	101.SCH	XBRL Taxonomy Extension Schema Document (furnished herewith)
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith)
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith)
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document (furnished herewith)
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST ROBINSON FINANCIAL
	CORPORATION

Date: February 14, 2012	/s/ Rick L. Catt
	Rick L. Catt
	President and Chief Executive Officer

Date: February 14, 2012	/s/ Jamie E. McReynolds
	Jamie E. McReynolds
	Chief Financial Officer and Vice President

EXHIBIT INDEX

Exhibit No.

	31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32	Certifications of the Chief Executive Officer and Chief Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	101*	The following materials from First Robinson Financial Corporation’s quarterly report on Form 10-Q for the period ended December 31, 2011, formatted in XBRL: Condensed Consolidated Balance Sheet, Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Changes in Stockholders’ Equity, Condensed Consolidated Statements of Cash Flows and Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

		*As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

Attached files

Stock widget

Investing forum

FIRST ROBINSON FINANCIAL CORP Reports

Also read