<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 December 31, 1997
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
March 17, 1998
<PAGE>
Crusader Holding Corporation
Index to Form 10-Q Report
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1997.............................3
Consolidated Statements of Operations for the three months ended and
six months ended December 31, 1997 and 1996.......................................................4
Consolidated Statement of Shareholders' Equity as of December 31, 1997............................5
Consolidated Statements of Cash Flows for the six months
ended December 31, 1997 and 1996..................................................................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>
December 31, June 30,
1997 1997
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,121,000 $ 325,000
Loans held for sale (estimated market value
of $29,656,000 and $6,338,000 at December 31, 1997
and June 30, 1997, respectively) 29,616,000 6,244,000
Investment securities available-for-sale 2,968,000 6,299,000
Mortgage-backed securities available-for-sale 15,729,000 16,044,000
Loans receivable, net 100,407,000 85,992,000
Accrued interest receivable 984,000 815,000
Other real estate owned 111,000 --
Premises and equipment, net 951,000 880,000
Other assets 1,441,000 494,000
------------- -------------
Total Assets $ 161,328,000 $ 117,093,000
============= =============
LIABILITIES
Deposits $ 140,657,000 $ 95,906,000
Advances from Federal Home Loan Bank -- 8,950,000
Securities sold under agreements to repurchase 10,780,000 5,780,000
Shareholders' notes 3,238,000 2,990,000
Other liabilities 926,000 503,000
------------- -------------
Total Liabilities 155,601,000 114,129,000
MINORITY INTEREST 46,000 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; 2,500,000 and 2,170,000
shares issued and outstanding at December 31,
1997 and June 30, 1997 respectively 25,000 10,850
Additional paid in capital 3,206,000 2,065,900
Retained earnings 2,444,000 864,250
Net unrealized gains (losses) on securities
available-for-sale 6,000 (46,000)
------------- -------------
Total Shareholders' Equity 5,681,000 2,895,000
------------- -------------
Total Liabilities and Shareholders' Equity $ 161,328,000 $ 117,093,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Three months Six months
ended December 31, ended December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $3,156,000 $1,496,000 $5,571,000 $2,760,000
Investment and mortgage-backed securities 367,000 369,000 770,000 771,000
---------- ---------- ---------- ----------
Total interest income 3,523,000 1,865,000 6,341,000 3,531,000
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits 1,738,000 908,000 3,211,000 1,747,000
Borrowed funds 400,000 265,000 640,000 499,000
Shareholder notes 52,000 37,000 90,000 75,000
---------- ---------- ---------- ----------
Total interest expense 2,190,000 1,210,000 3,941,000 2,321,000
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,333,000 655,000 2,400,000 1,210,000
PROVISION FOR LOAN LOSSES (Note.3) 170,000 10,000 185,000 21,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,163,000 645,000 2,215,000 1,189,000
NON-INTEREST INCOME
Service charges on deposit accounts and
other fees 43,000 26,000 89,000 45,000
Conforming mortgage banking revenues 91,000 117,000 199,000 193,000
Non-interest income from Crusader
Mortgage Corporation 1,311,000 290,000 2,144,000 467,000
Other 15,000 12,000 29,000 48,000
---------- ---------- ---------- ----------
Total non-interest income 1,460,000 445,000 2,461,000 753,000
NON-INTEREST EXPENSES
Employee compensation and benefits 204,000 205,000 438,000 405,000
Data processing 27,000 27,000 53,000 45,000
Federal insurance premiums 15,000 34,000 28,000 361,000
Occupancy and equipment 74,000 70,000 149,000 140,000
Professional fees 21,000 14,000 37,000 28,000
Crusader Mortgage Corporation expenses 730,000 235,000 1,292,000 353,000
Other operating 111,000 90,000 196,000 141,000
---------- ---------- ---------- ----------
Total non-interest expenses 1,182,000 675,000 2,193,000 1,473,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 1,441,000 415,000 2,483,000 469,000
INCOME TAX EXPENSE 507,000 145,000 865,000 164,000
---------- ---------- ---------- ----------
Income before minority interest 934,000 270,000 1,618,000 303,000
Minority interest 8,000 0 27,000 0
---------- ---------- ---------- ----------
NET INCOME $ 926,000 $ 270,000 $1,591,000 $ 303,000
========== ========== ========== ==========
Net income per share (Note.2) $ 0.39 $ 0.14 $ 0.70 $ 0.15
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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Crusader Holding Corporation and Subsidiary
Consolidated Statement of Shareholders' Equity
For the six months ended December 31, 1997 (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 -- -- -- 52,000
52,000
Issuance of Common Stock 1,000 252,000 -- -- 253,000
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 -- -- 1,591,000 -- 1,591,000
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 $ 25,000 $ 3,206,000 $ 2,444,000 $ 6,000 $ 5,681,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statements of Cash Flows (unaudited)
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<TABLE>
<CAPTION>
Six months ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,591,000 $ 305,000
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of premiums and discounts on loans, mortgage-backed
securities, investments and assets held for sale, net 96,000 80,000
Provision for loan losses 185,000 21,000
Net gain on sale of loans held for sale (196,000) (193,000)
Depreciation and amortization of premises and equipment 69,000 61,000
Proceeds from sale of assets held for sale 76,926,000 16,955,000
Originations of loans held for sale (100,102,000) (19,823,000)
Increase in accrued interest receivable (169,000) (109,000)
(Increase) decrease in deferred income taxes 201,000 87,000
Other, net 134,000 1,700,000
------------- -------------
Net cash used in operating activities (21,265,000) (916,000)
INVESTMENT ACTIVITIES
Net increase in loans (14,711,000) (20,416,000)
Purchase of investment securities available-for-sale 0 (1,000,000)
Purchase of mortgage-backed securities available-for-sale (3,402,000) 0
Repayment of principal of investment securities available-for-sale 3,087,000 233,000
Repayment of principal of mortgage-backed securities available-for-sale 1,831,000 1,516,000
Repayment of principal of mortgage-backed securities held-to-maturity 0 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 0 0
Purchase of minority shares in subsidiary (890,000) 0
Purchase of premises and equipment (140,000) (631,000)
------------- -------------
Net cash used in investing activities (12,310,000) (18,326,000)
FINANCING ACTIVITIES
Net increase in deposits 44,751,000 20,654,000
Advances and other borrowings, net (3,950,000) (1,270,000)
Proceeds from shareholders' notes 248,000 0
(Decrease) increase in advance payments by borrowers for taxes and
insurance 232,000 (45,000)
Change in net unrealized gain (loss) or securities available-for-sale (52,000) 0
Capital contributions 1,142,000 260,000
------------- -------------
Net cash provided by financing activities 42,371,000 19,599,000
Net increase in cash and cash equivalents 8,796,000 357,000
------------- -------------
Cash and cash equivalents at beginning of year 325,000 1,197,000
------------- -------------
Cash and cash equivalents at end of year $ 9,121,000 $ 1,554,000
============= =============
</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 six and three month periods ended December 31,
1997, and 1996 is unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of December 31, 1997, and
for the six and three month periods ended December 31, 1997 and 1996 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 six and three month periods ended December 31, 1997 are not necessarily
indicative of results to be anticipated for the full year.
2. NET INCOME PER SHARE
Net income per common share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year
after giving retroactive effect to the December 8, 1997 two-for-one stock
split effected in the form of a stock dividend.
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 in 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.
4. RECENT PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board (FASB) issued
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 is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company
does not anticipate that adoption of SFAS No. 130 will have a material impact
on the Company.
7
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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 financial statements.
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 six and
three month periods ended December 31, 1997 are compared to the unaudited
results of operations for the six and three month periods ended December 31,
1996. Such information is based upon the historical financial information
available as of the date indicated. Results of operations for the six and
three month periods ended December 31, 1997 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
currently are U.S. Treasury or U.S. Government Agency quality. The Bank's loan
and investment portfolios are funded with deposits as well as borrowings from
the Federal Home Loan Bank of Pittsburgh 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 (such revenues realized by CMC in its
nonconforming mortgage operation, mortgage banking revenue from the sale of
conforming residential mortgage loans 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 $161.3 million at December 31, 1997 as
compared to $117.1 million at June 30, 1997. The increase in assets primarily
reflects the deployment of proceeds from certificates of deposits into loans,
including portfolio loans and loans held for sale. At December 31, 1997, the
loan portfolio aggregated $100.4 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 $29.6 million at December 31, 1997 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 $71.5 million during the three month period ended December 31,
1997. Cash and cash equivalents aggregated $9.1 million at December 31, 1997
9
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as compared to $325,000 at June 30, 1997. This increase resulted primarily
from the proceeds of two loan pool sales on December 30, 1997. Other assets
increased by $1.2 million due largely to the $928,000 of excess of cost over
fair value of assets acquired in connection with the Bank's acquisition of the
remaining shares of CMC. Deposits were $140.7 million at December 31, 1997 as
compared to $95.9 million at June 30, 1997 reflecting primarily an increase in
certificates of deposits. Shareholders' equity increased by $2.8 million due
to the $1.6 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 and the purchase of the remaining shares of CMC.
RESULTS OF OPERATIONS
Three months ended December 31, 1997 versus three months ended December 31,
1996. Net income increased to $926,000 for the three months ended December 31,
1997 as compared to $270,000 for the comparable prior year period. Net
interest income increased by $678,000 or 103.51% due primarily to a growth in
average earning assets of $63.6 million and an increase in the net yield on
interest-earning assets to 3.49% as compared to 2.94% in the prior year
period. The provision for loan losses increased by $160,000 to $170,000 for
the current year period due to a growth in the loan portfolio. There were no
charge-offs of loans in either period. Non-interest income increased by $1.0
million or 228.81% due primarily to an increase in CMC nonconforming mortgage
banking income to $1.3 million as compared to $290,000 for the prior year
period. Non-interest expenses increased by $507,000 due primarily to an
increase in CMC operating expenses of $495,000. Excluding CMC's operating
expenses, non-interest expenses increased by $12,000, due primarily to
expansion of the Bank's staff to accommodate the growth in assets. Income tax
expense was $362,000 higher due to the increased profitability.
Six months ended December 31, 1997 versus six months ended December 31, 1996.
Net income increased to $1.6 million for the six months ended December 31,
1997 as compared to $303,000 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 $1.1 million or
220.12%. Net interest income increased by $1.2 million or 98.35% due primarily
to a growth in average earning assets of $55.3 million and an increase in the
net yield on interest-earning assets to 3.40% as compared to 2.82% in the
prior year period. Provision for loan losses increased by $164,000 to $185,000
for current year period due to growth in loan portfolio. Non-interest income
increased by $1.7 million or 226.83% due primarily to an increase in CMC
nonconforming mortgage banking income to $2.1 million as compared to $467,000
for the prior year period. Non-interest expenses increased by $720,000.
Excluding an increase in CMC operating expenses of $939,000 and the $296,000
one-time SAIF assessment incurred in the prior year period, non-interest
expenses increased by $77,000, which is due primarily to the Bank's expansion
of staff to accommodate the growth in assets. Income tax expense was $701,000
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 Bank
currently does not intend to open additional retail branches.
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 and the rates at which they are offered
fluctuate largely as a result of changes in market interest rates. The Bank
also funds its assets with secured borrowings from the FHLB and collateralized
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
10
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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, together with the proceeds received from its initial public
offering which was consummated on February 13, 1998 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 six months ended December 31,
1997 and 1996 was $21.3 million and $916,000, respectively. During the six
months ended December 31, 1997, the $21.3 million related principally to
growth in loans available-for-sale while the $916,000 in the six months ended
December 31, 1996 related to growth in loans available-for-sale and other
assets.
Net cash used in investing activities approximated $12.3 and $18.3 million
during the six months ended December 31, 1997 and 1996, 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 as
well as from additional capital contributions by its shareholders. As a
privately owned company, 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
December 31, 1997. 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 $8,061 5.03% $2,406 1.50% $8,019 5.00%
Core capital 8,061 5.03 6,415 4.00 8,019 5.00
Risk-based capital 8,716 10.57 6,598 8.00 8,247 10.00
</TABLE>
ACQUISITION OF MINORITY INTEREST IN CMC
Effective November 30, 1997, the Company, the Bank and CMC entered into an
agreement with the minority shareholder of CMC and a corporation controlled by
him (the "Minority Shareholder Corporation"). The agreement, as amended,
provides for the Bank's acquisition of the entire interest in CMC held by the
minority shareholder in exchange for 150,000 shares of Common Stock, and
further provides for the payment of accrued compensation of $250,000. The
agreement also provides for a reduction in the number of shares of Common
Stock to which the minority shareholder would otherwise be entitled in the
event that CMC's net income for the twelve months ending December 31, 1998
does not exceed a certain level. The agreement further requires that the
minority shareholder's shares of Common Stock be escrowed for three years,
11
<PAGE>
with a portion of such shares released on each of three designated dates, and
provides for the granting of an irrevocable proxy, pursuant to which the
shares will be voted in the same proportion as the other outstanding shares of
the Common Stock are voted. The agreement also contains certain indemnities in
favor of the Company, the Bank and CMC and prohibits the Minority Shareholder
Corporation from competing with the Company for a period of three years. In
addition, for a three year period from the effective date of the agreement,
the Minority Shareholder Corporation shall receive a monthly payment of
$6,250. As a result of this transaction, as of November 30, 1997, the Bank
owned all the outstanding shares of CMC. If the Bank had owned 100% of CMC and
the Company issued 150,000 additional shares of Common Stock on July 1, 1997,
net income and net income per share would have increased by $241,000 and
$0.10, respectively, for the six months ended December 31, 1997.
SUBSEQUENT EVENT
On February 13, 1998, the Company consummated its initial public offering of
1,000,000 shares of Common Stock resulting in the Company receiving net
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
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 as well as its 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 December 31, 1997,
approximately 94% 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 life 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 December 31, 1997, approximately 90% 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).
12
<PAGE>
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 December 31, 1997, 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.
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
1. Effective November 30, 1997, the Company issued 150,000 shares of
its Common Stock to Jeffrey K. Rafsky in exchange for 50 shares of CMC stock.
2. On December 8, 1997, the Company granted options to purchase an
aggregate of 20,000 shares of Common Stock at an exercise price of $12.00 per
share to Joseph T. Crowley, President of the Bank.
The Company believes that the transactions described above were exempt from
registration under Sections 3(a)(9), 3(b) or 4(2) of the Securities Act
because the subject securities were, respectively, either (i) exchanged by the
issuer with its existing security holders exclusively, with no commission or
other remuneration being paid or given directly or indirectly for soliciting
such exchange; (ii) issued pursuant to a compensatory benefit plan pursuant to
Rule 701 under the Securities Act; or (iii) sold to a limited group of
persons, each of whom was believed to have been a sophisticated investor or
had a pre-existing business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution. Restrictive legends were placed on stock certificates evidencing
the shares and/or agreements relating to the right to purchase such shares
described above.
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
At a special meeting of the shareholders of the Company held on
December 8, 1997, the following actions were unanimously approved with no
abstentions:
1.) The Articles of Incorporation and Bylaws of the Company were
amended and restated in accordance with the form included as Exhibits 3.1 and
3.2, respectively, to the Company's Registration Statement on Form S-1,
Registration No. 333-42215.
2) The following individuals were elected directors of the Company to
serve a one-year term:
o Paul Bachow
14
<PAGE>
o Ronald Caplan
o D. Walter Cohen, D.D.S.
o Daniel DiLella
o Joel S. Lawson III
o Brian McAdams
o Linda Knox
The following individuals, constituting the existing directors
of the Company were reaffirmed to serve a one-year term:
o Joseph T. Crowley
o Thomas J. Knox
o Bruce A. Levy
3) The Director Stock Option Plan and Employee Stock Option Plan, in
the form included as exhibits 10.1 and 10.2, respectively to the Company's
Registration Statement on Form S-1, Registration No. 333-42215, were adopted.
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
15
<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: March ___, 1998 By: /s/ Thomas J. Knox
-------------------
Thomas J. Knox
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: March __, 1998 By: /s/ Joseph T. Crowley
----------------------
Joseph T. Crowley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<INT-BEARING-DEPOSITS> 8,615,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,697,000
<INVESTMENTS-CARRYING> 18,697,000
<INVESTMENTS-MARKET> 18,697,000
<LOANS> 100,407,000
<ALLOWANCE> 655,000
<TOTAL-ASSETS> 161,328,000
<DEPOSITS> 140,657,000
<SHORT-TERM> 14,018,000
<LIABILITIES-OTHER> 926,000
<LONG-TERM> 0
0
0
<COMMON> 25,000
<OTHER-SE> 5,656,000
<TOTAL-LIABILITIES-AND-EQUITY> 161,328,000
<INTEREST-LOAN> 5,571,000
<INTEREST-INVEST> 770,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,341,000
<INTEREST-DEPOSIT> 3,211,000
<INTEREST-EXPENSE> 3,941,000
<INTEREST-INCOME-NET> 2,400,000
<LOAN-LOSSES> 185,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,193,000
<INCOME-PRETAX> 2,483,000
<INCOME-PRE-EXTRAORDINARY> 2,483,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,591,000
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 3.49
<LOANS-NON> 938,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 470,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 655,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 655,000
</TABLE>
