<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31,1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 23663
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CRUSADER HOLDING CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2562545
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1230 Walnut Street, Philadelphia, PA 19107
------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 893-1500
----------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, par value $0.01 per share, 3,650,000 shares of outstanding as of
May 5,1998
<PAGE>
Crusader Holding Corporation
Index to Form 10-Q Report
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and June 30,1997.......................................3
Consolidated Statements of Income and Comprehensive Income for the three months ended and
nine months ended March 31, 1998 and 1997...............................................................4
Consolidated Statement of Shareholders' Equity as of March 31,1998......................................5
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1998 and 1997.................................................................................6
Notes to Consolidated Financial Statements..............................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................................9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................14
Item 2. Changes in Securities and Use of Proceeds.....................................................14
Item 3. Defaults Upon Senior Securities...............................................................14
Item 4. Submission of Matters to a Vote of Security Holders...........................................14
Item 5. Other Information.............................................................................15
Item 6. Exhibits and Reports on Form 8-K..............................................................15
</TABLE>
2
<PAGE>
Item 1. Financial Statements
Crusader Holding Corporation and Subsidiary
Consolidated Balance Sheets
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<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,170,000 $ 325,000
Loans held for sale (estimated market value
of $60,157,000 and $6,338.000 at March 31,1998
and June 30, 1997, respectively) 60,117,000 6,244,000
Investment securities available-for-sale 963,000 6,299,000
Mortgage-backed securities available-for-sale 18,084,000 16,044,000
Loans receivable, net 109,253,000 85,992,000
Accrued interest receivable 1,094,000 815,000
Other real estate owned -- --
Premises and equipment, net 992,000 880,000
Other assets 2,778,000 494,000
------------- -------------
Total Assets $ 202,451,000 $ 117,093,000
============= =============
LIABILITIES
Deposits $ 133,131,000 $ 95,906,000
Advances from Federal Home Loan Bank 33,500,000 8,950,000
Securities sold under agreements to repurchase 10,780,000 5,780,000
Shareholders' notes -- 2,990,000
Other liabilities 2,836,000 503,000
------------- -------------
Total Liabilities 180,247,000 114,129,000
MINORITY INTEREST 56,000 69,000
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 5,000,000 shares of
$0.01 par value; none outstanding -- --
Common stock - authorized, 20,000,000 shares of
$0.01 par value; 3,650,000 and 2,170,000
shares issued and outstanding at December 31,
1997 and June 30, 1997 respectively 37,000 11,000
Additional paid in capital 18,782,000 2,066,000
Retained earnings 3,329,000 864,000
Net unrealized gains (losses) on securities
available-for -sale -- (46,000)
------------- -------------
Total Shareholders' Equity 22,148,000 2,895,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 202,451,000 $ 117,093,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statements of Income and Comprehensive Income (Unaudited)
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<TABLE>
<CAPTION>
Three months Nine months
ended March 31, ended March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 3,512,000 $ 1,721,000 $ 9,083,000 $ 4,481,000
Investment and mortgage-backed securities 358,000 331,000 1,128,000 1,102,000
----------- ----------- ----------- -----------
Total interest income 3,870,000 2,052,000 10,211,000 5,583,000
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,953,000 963,000 5,164,000 2,710,000
Borrowed funds 275,000 264,000 915,000 763,000
Shareholder notes 16,000 37,000 106,000 112,000
----------- ----------- ----------- -----------
Total interest expense 2,244,000 1,264,000 6,185,000 3,585,000
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,626,000 788,000 4,026,000 1,998,000
PROVISION FOR LOAN LOSSES 100,000 10,000 285,000 32,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,526,000 778,000 3,741,000 1,966,000
NON-INTEREST INCOME
Service charges on deposit accounts and
other fees 47,000 25,000 136,000 70,000
Conforming mortgage banking revenues 183,000 58,000 382,000 251,000
Non-interest income from Crusader
Mortgage Corporation 905,000 183,000 3,049,000 650,000
Other 15,000 19,000 44,000 67,000
----------- ----------- ----------- -----------
Total non-interest income 1,150,000 285,000 3,611,000 1,038,000
NON-INTEREST EXPENSES
Employee compensation and benefits 298,000 195,000 736,000 600,000
Data processing 28,000 23,000 81,000 68,000
Federal insurance premiums 18,000 3,000 46,000 364,000
Occupancy and equipment 85,000 76,000 234,000 216,000
Professional fees 26,000 16,000 63,000 44,000
Crusader Mortgage Corporation expenses 682,000 184,000 1,971,000 537,000
Other operating 128,000 132,000 324,000 273,000
Goodwill amortization 21,000 -- 24,000 --
----------- ----------- ----------- -----------
Total non-interest expenses 1,286,000 629,000 3,479,000 2,102,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,390,000 434,000 3,873,000 902,000
INCOME TAX EXPENSE 495,000 152,000 1,360,000 316,000
----------- ----------- ----------- -----------
Income before minority interest 895,000 282,000 2,513,000 586,000
Minority interest 10,000 -- 37,000 --
----------- ----------- ----------- -----------
NET INCOME $ 885,000 $ 282,000 $ 2,476,000 $ 586,000
=========== =========== =========== ===========
Unrealized gain (loss) on securities, net of tax (6,000) (114,000) 46,000 22,000
----------- ----------- ----------- -----------
Comprehensive income $ 879,000 $ 168,000 $ 2,522,000 $ 608,000
=========== =========== =========== ===========
Net income per share, basic and diluted $ 0.28 $ 0.13 $ 0.98 $ 0.28
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statement of Shareholders' Equity
For the nine months ended March 31, 1998 (unaudited)
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<TABLE>
<CAPTION>
Net unrealized
gain (loss)
Additional on securities
Common paid-in Retained available-
stock capital earnings for-sale Total
----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $ 11,000 $ 2,066,000 $ 864,000 $ (46,000) $ 2,895,000
Net unrealized gain on
securities available-for-sale -- -- -- 46,000 46,000
Issuance of Common Stock 13,000 15,828,000 -- -- 15,841,000
Two for one stock split 11,000 -- (11,000) -- --
Acquisition of minority
interest in Crusader
Mortgage Corporation 2,000 888,000 -- -- 890,000
Net income -- -- 2,476,000 -- 2,476,000
--------- ----------- ----------- --------- -----------
Balance at March 31, 1998 $ 37,000 18,782,000 $ 3,329,000 $ -- $22,148,000
========= =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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Crusader Holding Corporation and Subsidiary
Consolidated Statements of Cash Flows (unaudited)
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<TABLE>
<CAPTION>
Nine months ended
March 31, March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,476,000 $ 586,000
Adjustments to reconcile net income to net cash used in operating activities:
securities, investments and assets held for sale, net 28,000 126,000
Provision for loan losses 285,000 32,000
Net gain on sale of loans held for sale (3,012,000) (81,000)
Depreciation and amortization of premises and equipment 103,000 93,000
Proceeds from sale of assets held for sale 117,180,000 27,136,000
Originations of loans held for sale (168,041,000) (28,014,000)
Increase in accrued interest receivable (279,000) 20,000
(Increase) decrease in deferred income taxes -- --
Other, net 939,000 866,000
------------- -------------
Net cash used in operating activities (50,377,000) 681,000
INVESTMENT ACTIVITIES
Net increase in loans (23,361,000) (23,547,000)
Purchase of investment securities available-for-sale (1,000,000) (3,000,000)
Purchase of mortgage-backed securities available-for-sale (4,661,000) --
Repayment of principal of investment securities available-for-sale 3,214,000 54,000
Repayment of principal of mortgage-backed securities available-for-sale 3,598,000 2,436,000
Repayment of principal of mortgage-backed securities held-to-maturity -- 81,000
Proceeds from sale of mortgage-backed securities available-for-sale 1,915,000 1,891,000
Proceeds from sale of property acquired through loan foreclosure actions 111,000 --
Purchase of premises and equipment (220,000) (650,000)
------------- -------------
Net cash used in investing activities (20,404,000) (22,735,000)
FINANCING ACTIVITIES
Net increase in deposits 37,225,000 24,931,000
Advances and other borrowings, net 29,550,000 (3,720,000)
Repayment of shareholders' note, net (2,990,000) --
Proceeds from issuance of common stock, net 15,841,000 --
------------- -------------
Net cash provided by financing activities 79,626,000 21,211,000
------------- -------------
Net increase in cash and cash equivalents 8,845,000 (843,000)
------------- -------------
Cash and cash equivalents at beginning of year 325,000 1,197,000
------------- -------------
Cash and cash equivalents at end of year $ 9,170,000 $ 354,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Crusader Holding Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the nine and three month petiods
ended March 31, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of March 31, 1998, and for
the nine and three month periods ended March 31, 1998 and 1997 include the
accounts of Crusader Holding Corporation (the "Company") and its wholly-owned
subsidiary, Crusader Savings Bank, (the "Bank"), along with the Bank's wholly
owned and majority owned subsidiaries including Crusader Mortgage Corporation
("CMC"). All significant intercompany accounts and transactions have been
eliminated.
The interim financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (including normal recurring accruals) necessary
for fair presentation of results of operations for the interim periods included
herein have been made. The results of operations for the nine and three month
periods ended March 31, 1998 are not necessarily indicative of results to be
anticipated for the full year.
2. NET INCOME PER SHARE
Basic and diluted earnings per share are calculated using statement of Financial
Accounting Standards ("SFAS") No. 128. Under SFAS No. 128, basic earnings per
share is computed based upon the weighted average number of common shares
outstanding during the period while diluted earnings per share is computed based
upon the weighted average number of common shares and common equivalent shares
outstanding during the period. Common stock equivalents are stock options,
warrants and similar items. In converting the common stock equivalents to common
shares, the Treasury Stock Method is utilized whereby it is assumed that the
proceeds that would be received upon the exercise of the common stock
equivalents are used to repurchase outstanding shares at the average market
price during the period. There was no difference between the Company's basic and
diluted earnings per share.
In determining the weighted average shares outstanding during the period in the
computation of basic and diluted earnings per share, retroactive effect was
given to the December 8, 1997 two for one stock split effected in the form of a
stock dividend. Basic and diluted weighted average shares outstanding were
2,553,000 and 2,093,000 for the nine months ended March 31, 1998, and March 31,
1997, respectively.
3. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for possible
loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible loan losses on existing loans that may become uncollectible
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, the
status of specific problem loans and overall current economic conditions that
may affect the ability of borrowers to repay their loans. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination processes,
periodically review the Bank's allowance for loan losses based on their
judgments about information available to them at the time of their examinations.
7
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4. COMPREHENSIVE INCOME
During the quarter ended March 31, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting of Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of financial statements. This statement also requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This statement was effective
for interim periods and fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 did not have a
material impact on the Company.
5. RECENT PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS
No. 131), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that such enterprises report selected information about
operating segments in interim financial reports issued to shareholders. This
statement also establishes standards for related disclosures about products and
services, geographic areas and major customers. This statement requires the
reporting of financial and descriptive information about the enterprise's
reportable operating segments. This statement is effective for financial
statements for periods beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated. The
Company does not anticipate that the adoption of SFAS No. 131 will have a
material impact on the Company's results of operations.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes appearing on the preceding
pages as well as in the Company's Registration Statement on Form S-1,
Registration No. 333-42215. Results of unaudited operations for the nine and
three month periods ended March 31, 1998 are compared to the unaudited results
of operations for the nine and three month periods ended March 31, 1997. Such
information is based upon the historical financial information available as of
the date indicated. Results of operations for the nine and three month periods
ended March 31, 1998 are not necessarily indicative of results to be attained
for any other period.
Certain statements contained in this report are "forward-looking" as defined in
Section 27A(i)(1) of the Securities Act of 1933, as amended. Examples of
forward-looking statements include, but are not limited to (a) statements of
plans and objectives of the Company or its management or Board of Directors, (b)
statements of future economic performances and (c) statements of assumptions
underlying other statements and statements about the Company or its business.
The Company's management believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations.
However, there can be no assurance that actual results will not differ
materially from its expectations. For a discussion of important factors that
could cause actual results to differ materially from those in the forward
looking statement, see the risk factors set forth in the Company's Registration
Statement on Form S-1, Registration No. 333-42215.
GENERAL
The Company is a holding company operating a federally chartered savings bank.
The Bank conducts community banking activities by accepting deposits from the
public and investing the proceeds in loans and investment securities. In
addition to bank lending products, such as single family conforming credit
residential mortgages, home equity loans, multi-family residential and
non-residential real estate loans and Small Business Administration loans, the
Bank originates or acquires nonconfoming mortgages that are subsequently resold
in larger pools, and delinquent property tax liens. In order to manage its
liquidity and interest rate risk, the Bank maintains an investment portfolio
consisting of bonds and mortgage-backed securities, all of which are investment
quality. The Bank's loan and investment portfolios are funded with deposits as
well as borrowings from the Federal Home Loan Bank of Pittsburgh ("FHLB") or
collateralized borrowings secured by the Bank's investment securities. The
Bank's earnings are largely dependent upon its net interest income (the
difference between what it earns on its loans and investments and what it pays
on its deposits and borrowings). In addition to net interest income, the Bank's
net income is impacted by its loan loss provision, non-interest income
(non-interest revenues realized by CMC in its nonconforming mortgage
operation,conforming mortgage banking revenue and loan, deposit and ATM fees)
and non-interest expenses (such as salaries and benefits, professional fees,
occupancy cost, deposit insurance premiums and expenses related to CMC
nonconforming mortgage operations.).
FINANCIAL CONDITION
The Company's assets increased to $202.5 million at March 31, 1998, as compared
to $117.1 million at June 30, 1997. The increase in assets primarily reflects
the deployment of proceeds from certificates of deposits, FHLB advances and the
Initial Public Offering of Stock consummated in February 1998 into loans,
including portfolio loans and loans held for sale. At March 31, 1998, the loan
portfolio aggregated $109.3 million as compared to $86.0 million at June 30,
1997 with the growth concentrated in commercial real estate loans, including
loans secured by apartment buildings and mixed use properties, and conforming
adjustable rate residential mortgages. Loans held for sale increased to $60.1
million at March 31, 1998 as compared to $6.2 million at June 30, 1997. This
increase resulted primarily from an increase in the volume of nonconforming
mortgage originations and acquisitions of CMC, which aggregated $139.9 million
during the nine month period ended March 31, 1998. Nonconforming
9
<PAGE>
mortgage loans available for sale aggregated $49.3 million at March 31, 1998.
Cash and cash equivalents aggregated $9.1 million at March 31, 1998 as compared
to $325,000 at June 30, 1997. This increase resulted primarily from the proceeds
of loan pool sales on March 31, 1998, which were utilized to repay borrowings in
early April 1998. Other assets increased by $2.3 million due largely to the
approximate $1 million of excess of cost over fair value of assets acquired in
connection with the Bank's acquisition of the remaining shares of CMC, and an
increase in accrued interest receivable due to the loan growth noted above.
Deposits were $133.1 million at March 31, 1998 as compared to $95.9 million at
June 30, 1997 reflecting primarily an increase in certificates of deposits. FHLB
advaces increased approximately $24.6 million as these borrowings were utilized
in part to fund the asset growth. Shareholders' equity increased by $19.2
million due to the $2.5 million of net income generated during the period, and
as a result of the issuance of additional shares of the Company's common stock
(Common Stock) in connection with the September 30, 1997 capital contributions
by shareholders, the purchase of the remaining shares of CMC and completion of a
Initial Public Offering ("IPO") of 1,150,000 shares consummated in February
1998.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 versus three months ended March 31, 1997. Net
income increased to $885,000 for the three months ended March 31, 1998 as
compared to $282,000 for the comparable prior year period. Net interest income
increased by $838,000 or 106.35% due primarily to a growth in average earning
assets of $77.2 million and an increase in the net yield on interest-earning
assets to 3.67% as compared to 3.01% in the prior year period. The provision for
loan losses was increased by $90,000 to $100,000 for the current year period due
to a growth in the loan portfolio. There were no actual charge-offs of loans in
either period. Non-interest income increased by $865,000 million or 303.51% due
primarily to an increase in CMC nonconforming mortgage banking income to
$905,000 as compared to $183,000 for the prior year period. Non-interest
expenses increased by $657,000 due primarily to an increase in CMC operating
expenses of $498,000. Excluding CMC's operating expenses, non-interest expenses
increased by $159,000, due primarily to expansion of the Bank's staff to
accommodate the growth in assets. Income tax expense was $343,000 higher due to
the increased profitability.
Nine months ended March 31, 1998 versus nine months ended March 31, 1997. Net
income increased to $2.5 million for the nine months ended March 31,1998 as
compared to $586,000 for the comparable prior year period. Excluding the
one-time Savings Association Insurance Fund ("SAIF") special assessment incurred
in the prior year period, net income increased by $1.7 million or 218.25%. Net
interest income increased by $2.0.million or 101.50% due primarily to a growth
in average earning assets of $61.7 million and an increase in the net yield on
interest-earning assets to 3.48% as compared to 2.92% in the prior year period.
Provision for loan losses increased by $253,000 to $285,000 for current year
period due to growth in loan portfolio. Non-interest income increased by $2.6
million or 247.88% due primarily to an increase in CMC nonconforming mortgage
banking income to $3.0 million as compared to $650,000 for the prior year
period. Non-interest expenses increased by $1.4 million. Excluding an increase
in CMC operating expenses of $1.4 million and the $296,000 one-time SAIF
assessment incurred in the prior year period, non-interest expenses increased by
$236,000, which is due primarily to the Bank's expansion of staff to accommodate
the growth in assets. Income tax expense was $1.0 million higher due to the
increased profitability.
LIQUIDITY AND CAPITAL RESOURCES
A major source of the Company's asset growth has been funded through deposits,
mostly certificates of deposits ("CDs"), generated through the Bank's two branch
offices and a network of financial planners and brokers.
The ability of the Bank to retain and attract deposits is dependent upon a
number of factors, including interest rates offered on the Bank's products.
Historically, most of the Bank's deposits have been in the form of CDs, which
typically provide for a higher interest rate than other bank deposit products,
such as checking and savings accounts. The Bank also funds its assets with
secured borrowings from the FHLB and collateralized
10
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borrowings secured by its investment securities portfolio. These borrowings
generally provide the Bank with greater flexibility in matching the duration of
its liabilities with that of certain of its assets. Future availability of these
funding sources is largely dependent upon the Bank having sufficient available
eligible assets to collateralize these borrowings. The Bank currently has
available excess collateral to secure future borrowings from these sources and
it anticipates that future asset growth will provide additional eligible
collateral. The Bank's assets generally provide for scheduled principal and
interest payments which provide the Bank with additional sources of funds. If
required, additional funds could be obtained through the sale of either loans or
investment securities which are classified as available-for-sale. The Bank has
and will continue to utilize its investment securities portfolio to manage
liquidity.
The Bank's primary uses of funds are the origination and acquisition of loans,
the funding of maturing deposits and the repayment of borrowings. The Bank has
experienced strong loan demand. Based upon management's current business
strategy, the Company believes that its income from operations and existing
funding sources will be adequate to meet its operating and growth requirements
for the foreseeable future; however, there can be no assurance that such
strategy will not change or that the implementation of the strategy will not
require additional capital or funding sources.
Net cash used in operating activities for the nine months ended March 31, 1998
was $51.3 million as compared to $681,000 provided in the comparable prior year
period. During the nine months ended March 31, 1998, the $51.3 million related
principally to growth in loans available-for-sale while the $681,000 provided in
the nine months ended March 31, 1997 related principly from a reduction in other
assets.
Net cash used in investing activities approximated $20.4 million and $22.7
million during the nine months ended March 31, 1998 and 1997, respectively.
During each year, the primary use was the funding of the growth in the Bank's
loan portfolio.
The Bank monitors its capital level relative to its business operations and
anticipated growth and has continually maintained it at a level which would
allow it to be classified as "well-capitalized" under the Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"). Well-capitalized institutions
are assessed lower deposit insurance premiums. The Bank's capital to support its
asset growth has come from internally generated earnings, additional capital
contributions by its shareholders and proceeds from the IPO consummated in
February 1998. Prior to February 1998, the Company's shareholders chose to
contribute capital on an ongoing basis only as it was necessary to fund the
Company's growth .
The following tables set forth the Bank's regulatory capital levels at March 31,
1998. The Company is not subject to regulatory capital requirements.
<TABLE>
<CAPTION>
Required for To Be Well Capitalized
Capital Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ------------------------
(Dollars in thousands)
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $21,083 10.46% $ 2,406 1.50% $10,077 5.00%
Core capital 21,083 10.46% 6,415 4.00 $10,077 5.00
Risk-based capital 21,838 20.79% 6,598 8.00 $10,502 10.00
</TABLE>
INITIAL PUBLIC OFFERING
On February 13, 1998, the Company consummated its initial public offering of
1,000,000 shares of Common Stock resulting in the Company receiving proceeds of
$13,875,000 after payment of underwriting fees and commissions. On March 11,
1998, the underwriters exercised their overallotment option to purchase an
additional 150,000 shares resulting in the Company receiving additional net
proceeds of approximately $2,092,500. After the payment of certain expenses
associated with the offering, the proceeds were utilized to
11
<PAGE>
repay certain shareholder notes approximating $3.2 million and the balance was
contributed as capital to the Bank for working capital and other general
corporate purposes.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. Interest rate risk is defined as the sensitivity of the
Company's current and future earnings and capital to changes in the level of
market interest rates. The Bank's exposure to interest rate risk results from,
among other things, the difference in maturities on interest-earning assets and
interest-bearing liabilities. Since the Bank's assets currently have a longer
maturity than its liabilities, the Bank's earnings could be negatively impacted
during a period of rising interest rates and conversely positively impacted
during a period of falling interest rates. The relationship between the interest
rate sensitivity of the Bank's assets and liabilities is continually monitored
by management. In this regard, the Bank emphasizes the origination of adjustable
rate assets for portfolio while originating longer term fixed rate assets for
resale. At March 31, 1998, approximately 95% of the Bank's loan portfolio
excluding loans held for sale was comprised of adjustable rate loans.
Additionally, the origination level of fixed rate assets are continually
monitored and if deemed appropriate, the Bank will enter into forward
commitments for the sale of these assets to ensure the Bank is not exposed to
undue interest rate risk.
The Bank utilizes its investment and mortgage-backed portfolio in managing its
liquidity and therefore seeks securities with a stated or estimated duration of
less than five years. These securities are readily marketable and provide the
Bank with a cash flow stream to fund asset growth or liability maturities.
A significant portion of the Bank's assets have been funded with CDs, including
jumbo CDs. Unlike other deposit products such as checking and savings accounts,
CDs carry a high degree of interest rate sensitivity and therefore, their
renewal will vary based on the competitiveness of the Bank's interest rates. The
Bank has attempted to price its CDs to be competitive at the shorter maturities
(i.e., maturities of less than one year) in order to better match the repricing
characteristics of portfolio loans and the anticipated holding period for loans
held for sale. At March 31, 1998, approximately 84% of the Bank's deposits were
CDs.
The Bank utilizes borrowings from the FHLB and collateralized repurchase
agreements in managing its interest rate risk and as a tool to augment deposits
in funding asset growth. The Bank may utilize these funding sources to better
match its longer term repricing assets (i.e., between one and five years).
The nature of the Bank's current operations is such that it is not subject to
foreign currency exchange or commodity price risk. Additionally, neither the
Company nor the Bank owns any trading assets. At March 31, 1998, the Bank did
not have any hedging transactions in place, such as interest rate swaps, caps or
floors.
Interest rate Sensitivity Analysis. One measure of a bank's interest rate
sensitivity is through the use of a GAP analysis. Using a GAP analysis, the Bank
matches the extent to which its interest-earning assets and interest-bearing
liabilities mature or reprice within specified time horizons. The interest rate
sensitivity gap is defined as the excess of interest-earning assets maturing or
repricing within a specific time period over the interest-bearing liabilities
maturing or repricing within the same time period (a negative GAP for a
specified time period would indicate there are more liabilities than assets
maturing or repricing within that time period). The Bank attempts to maintain
its one and three year GAP positions within +/- 10% and +/- 15% of assets,
respectively.
Gap analysis is a useful measurement of asset and liability management; however,
it is difficult to predict the effect of changing interest rates based solely on
this measure. An additional analysis required by the Office of Thrift
Supervision ("OTS") and generated quarterly is the OTS Interest Rate Exposure
Report. This report forecasts changes in the Bank's market value of portfolio
equity ("MVPE") under alternative interest rate environments. The MVPE is
defined as the net present value of the Bank's existing assets, liabilities and
off-balance sheet instruments.
12
<PAGE>
Management believes that the assumptions utilized in evaluating the
vulnerability of the Company's earnings and capital to changes in interest rates
approximate actual experience; however, the interest rate sensitivity of the
Bank's assets and liabilities as well as the estimated effect of changes in
interest rates on MVPE could vary substantially if different assumptions are
used or actual experience differs from the experience on which the assumptions
were based.
In the event the Bank should experience a mismatch in its desired GAP ranges or
an excessive decline in its MVPE subsequent to an immediate and sustained change
in interest rate, it has a number of options which it could utilize to remedy
such mismatch. The Bank could restructure its investment portfolio through sale
or purchase of securities with more favorable repricing attributes. It could
also emphasize loan products with appropriate maturities or repricing attributes
or it could attract deposits or obtain borrowings with desired maturities.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
A. Recent Sales of Unregistered Securities
None
B. Use of Proceeds from Registered Securities
On February 13, 1998, the Company sold 1,000,000 shares of Common Stock
at a price of $15 per share (before deducting underwriting discounts and
commissions of $1.05 per share) and on March 11, 1998, pursuant to the exercise
of an overallotment option, sold an additional 150,000 shares to a group of
underwriters managed by Advest, Inc. After the payment of expenses associated
with the offering, approximately $3.2 million of the proceeds were utilized to
repay borrowings under notes held by certain of the Company's shareholders, and
the balance was contributed as capital to the Bank for working capital and other
general corporate purposes as described in its Registration Statement on Form
S-1, Registration No. 333-42215.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Those exhibits previously filed with the Securities
and Exchange Commission as required by Item 601 of
Regulation S-K, are incorporated herein by reference in
accordance with the provision of Rule 12b-32.
Exhibit No.
-----------
27. Financial Data Schedule
(B) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Crusader Holding Corporation
Date: May 15, 1998 By: /s/ Thomas J. Knox
-------------------
Thomas J. Knox
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Joseph T. Crowley
----------------------
Joseph T. Crowley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 0
<INT-BEARING-DEPOSITS> 9,077,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,047,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 755,000
<TOTAL-ASSETS> 202,451,000
<DEPOSITS> 133,131,000
<SHORT-TERM> 44,280,000
<LIABILITIES-OTHER> 2,836,000
<LONG-TERM> 0
0
0
<COMMON> 37,000
<OTHER-SE> 22,111,000
<TOTAL-LIABILITIES-AND-EQUITY> 202,451,000
<INTEREST-LOAN> 9,083,000
<INTEREST-INVEST> 1,128,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,211,000
<INTEREST-DEPOSIT> 5,164,000
<INTEREST-EXPENSE> 6,185,000
<INTEREST-INCOME-NET> 4,026,000
<LOAN-LOSSES> 285,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,516,000
<INCOME-PRETAX> 3,873,000
<INCOME-PRE-EXTRAORDINARY> 3,873,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,476,000
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 3.48
<LOANS-NON> 1,449,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 470,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 755,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 755,000
</TABLE>
