<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 September 30,1999
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, 3,910,834 shares of outstanding as of
November 13,1999
<PAGE>
Crusader Holding Corporation
Index to Form 10-Q Report
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and June
30,1999...............................................................3
Consolidated Statements of Income for the three months ended and
nine months ended September 30, 1999 and 1998.........................4
Consolidated Statement of Shareholders' Equity and Comprehensive
Income as of September 30, 1999.......................................5
Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 and 1998...........................................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..................................................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................13
Item 2. Changes in Securities and Use of Proceeds.....................13
Item 3. Defaults Upon Senior Securities...............................13
Item 4. Submission of Matters to a Vote of Security Holders...........13
Item 5. Other Information.............................................13
Item 6. Exhibits and Reports on Form 8-K..............................13
2
<PAGE>
Item 1. Financial Statements
Crusader Holding Corporation and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,655,000 $ 6,056,000
Loans held for sale (estimated market value
of $71,352,000 and $77,623,000 at September 30,1999
and June 30, 1999, respectively) 69,274,000 74,708,000
Investment securities available-for-sale 23,471,000 20,454,000
Mortgage-backed securities available-for-sale 15,556,000 10,759,000
Loans receivable, net 206,861,000 187,696,000
Accrued interest receivable 2,330,000 2,379,000
Other real estate owned 794,000 315,000
Premises and equipment, net 1,056,000 1,068,000
Other assets 3,999,000 3,845,000
------------ ------------
Total Assets $327,996,000 $307,280,000
============ ============
LIABILITIES
Deposits $180,831,000 $189,106,000
Advances from Federal Home Loan Bank 109,000,000 80,300,000
Securities sold under agreements to repurchase 8,280,000 8,280,000
Other liabilities 1,632,000 2,028,000
------------ ------------
Total Liabilities 299,743,000 279,714,000
MINORITY INTEREST 136,000 230,000
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; 3,910,834 and 3,983,284
shares outstanding at September 30,
1999 and June 30, 1999 respectively 40,000 40,000
Additional paid in capital 23,522,000 23,522,000
Treasury Stock (1,041,000) (368,000)
Retained earnings 6,313,000 4,627,000
Net unrealized gains (losses) on securities
available-for -sale (717,000) (485,000)
------------ ------------
Total Shareholders' Equity 28,117,000 27,336,000
------------ ------------
Total Liabilities and Shareholders' Equity $327,996,000 $307,280,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Three months
ended September 30,
1999 1998
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $6,220,000 $4,380,000
Short-term consumer loans 741,000 0
Investment and mortgage-backed securities 651,000 311,000
---------- ----------
Total interest income 7,612,000 4,691,000
---------- ----------
INTEREST EXPENSE
Deposits 2,304,000 1,678,000
Borrowed funds 1,332,000 843,000
---------- ----------
Total interest expense 3,636,000 2,521,000
---------- ----------
NET INTEREST INCOME 3,976,000 2,170,000
PROVISION FOR LOAN LOSSES 627,000 100,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,349,000 2,070,000
NON-INTEREST INCOME
Service charges on deposit accounts and
other fees 30,000 28,000
Conforming mortgage banking revenues (83,000) 176,000
Non-interest income from Crusader
Mortgage Corporation 438,000 981,000
Other 147,000 33,000
---------- ----------
Total non-interest income 532,000 1,218,000
NON-INTEREST EXPENSES
Employee compensation and benefits 417,000 335,000
Data processing 36,000 31,000
Federal insurance premiums 25,000 20,000
Occupancy and equipment 112,000 78,000
Professional fees 82,000 30,000
Crusader Mortgage Corporation expenses 425,000 638,000
Other operating 170,000 147,000
Goodwill amortization 21,000 21,000
---------- ----------
Total non-interest expenses 1,288,000 1,300,000
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 2,593,000 1,988,000
INCOME TAX EXPENSE 829,000 708,000
---------- ----------
Income before minority interest 1,764,000 1,280,000
Minority interest 78,000 29,000
---------- ----------
NET INCOME $1,686,000 $1,251,000
========== ==========
Net income per share, basic and diluted $ 0.43 $ 0.33
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statement of Shareholders' Equity and Comprehensive Income For the
three months ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized
gain (loss)
Additional on securities
Common paid-in Treasury Retained available-
stock capital Stock earnings for-sale Total
-------- ---------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 $ 40,000 23,522,000 (368,000) $ 4,627,000 $(485,000) $27,336,000
Net unrealized loss on
securities available-for-sale -- -- -- (232,000) (232,000)
Purchase of Treasury Stock (673,000) (673,000)
Net income -- -- 1,686,000 -- 1,686,000
-------- ---------- ---------- ----------- --------- -----------
Balance at September 30, 1999 $ 40,000 23,522,000 (1,041,000) $ 6,313,000 $(717,000) $28,117,000
======== ========== ========== =========== ========= ===========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Crusader Holding Corporation and Subsidiary
Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three months
ended
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,686,000 $ 1,251,000
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of premiums and discounts on securities and loans net (13,000) 161,000
Amortization of goodwill 21,000 21,000
Provision for loan losses 627,000 100,000
Net gain on sale of loans held for sale (355,000) (1,157,001)
Depreciation and amortization of premises and equipment 81,000 59,000
Proceeds from sale of assets held for sale 46,006,000 69,507,000
Originations of loans held for sale (40,217,000) (72,938,000)
Increase in accrued interest receivable 49,000 157,000
(Increase) decrease in deferred income taxes (76,000) 331,000
Other, net (1,680,000) 301,000
------------ -----------
Net cash used in operating activities 6,129,000 2,207,000
INVESTMENT ACTIVITIES
Net increase in loans (20,586,000) (18,595,000)
Purchase of investment securities available-for-sale (4,123,000) (3,975,000)
Purchase of mortgage-backed securities available-for-sale (3,769,000) --
Repayment of principal of investment securities available-for-sale -- 1,123,000
Repayment of principal of mortgage-backed securities available-for-sale 347,000 1,948,000
Proceeds from sale of mortgage-backed securities available-for-sale 683,000 --
Proceeds from sale of property acquired through loan foreclosure actions -- --
Purchase of premises and equipment (69,000) (73,001)
------------ -----------
Net cash used in investing activities (27,517,000) (21,818,000)
FINANCING ACTIVITIES
Net decrease in deposits (8,275,000) 18,887,000
Advances and other borrowings, net 28,700,000 8,350,000
(Decrease) increase in advance payments by borrowers for taxes and insurance 235,000 --
Purchase of Treasury Stock (673,000) --
------------ -----------
Net cash provided by financing activities 19,987,000 27,237,000
------------ -----------
Net increase in cash and cash equivalents (1,401,000) 3,212,000
------------ -----------
Cash and cash equivalents at beginning of year 6,056,000 10,670,000
------------ -----------
Cash and cash equivalents at end of year $ 4,655,000 $13,882,000
============ ===========
</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 three month periods ended September 30, 1999 and
1998 is unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of September 30, 1999, and
for the three month periods ended September 30, 1999 and 1998 include the
accounts of Crusader Holding Corporation (the "Company") and its wholly-owned
subsidiary, Crusader Savings Bank FSB (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 three month periods
ended September 30, 1999 and September 30, 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 all stock dividends, including the 5% stock dividend paid October 14,
1999. Basic and diluted weighted average shares outstanding were 3,927,000 and
4,025,000 for the three months ended September 30, 1999 and 1998, 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
<PAGE>
4. RECENT PRONOUNCEMENTS
None
5. RECENT LITIGATION
During October 1998, one of the Bank's deposit customers (the Bank Depositor)
had approximately $1.3 million of dishonored money orders which resulted in its
account being deficient by a similar amount. The Bank has initiated a lawsuit in
the Court of Common Pleas of Philadelphia County against the money order company
which was placed the stop payments on the money orders issued, and the Bank
Depositor; alleging, among other things, that the money orders were improperly
stopped and the Bank was a holder in due course and is therefore entitled to
reimbursement. The Bank is seeking reimbursement in the lawsuit. The Bank has
also initiated an involuntary bankruptcy proceeding against the Bank Depositor
in the United States Bankruptcy Court for the Eastern District of Pennsylvania.
The Bank is seeking to have a trustee preserve the assets of the Bank Depositor
in order that the Bank may receive partial reimbursement. An order for relief
under Chapter 7 of the Bankruptcy Code was granted on March 8, 1999. In December
1998, the Company recorded a pre-tax provision of $950,000 to provide for its
potential exposure with respect to the money orders. The Company believes its
litigation has strong merit; however, the provision was recorded because of the
length of time likely to transpire before the litigation is finalized and the
potential uncertainty associated therewith.
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 Annual Report on Form 10-K fiscal year ended
June 30, 1999. Results of unaudited operations for the three month periods ended
September 30, 1999 are compared to the unaudited results of operations for the
three month periods ended September 30, 1998. Such information is based upon the
historical financial information available as of the date indicated. Results of
operations for the three month periods ended September 30, 1999 and September
30, 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 and Section
21E(i)(i) of the Securities Exchange Act of 1934, as amended. Examples of
forward-looking statements include, but are not limited to (a) statements of
plans and objectives of the Company, its management or its 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. The Bank's
lending products include conforming and nonconforming credit residential
mortgages, consumer and home equity loans, multi-family residential and
non-residential real estate loans, SBA loans, and secured property tax liens. In
order to manage its liquidity and interest rate risk, the Company maintains an
investment portfolio consisting of bonds and mortgage-backed securities, most 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 Company'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 Company'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 $328.0 million at September 30, 1999, as
compared to $307.3 million at June 30, 1999. The increase in assets primarily
reflects the deployment of proceeds from FHLB advances into portfolio loans. At
September 30, 1999, the loan portfolio aggregated $206.9 million as compared to
$187.7 million at June 30, 1999 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 decreased to $69.3 million at September 30, 1999 as compared to $74.7
million at June 30, 1999. This decrease resulted primarily from an decrease in
the volume of conforming mortgage originations, due to higher market interest
rates. Nonconforming mortgage loans available for sale aggregated $33.3 million
at September 30, 1999, with the balance in conforming loans available for sale.
Cash and cash equivalents aggregated $4.7 million at September 30, 1999 as
compared to $6.1 at June 30, 1999. This decrease resulted primarily from reduced
sales of loan pools in the current quarter. Deposits were $180.8 million at
September 30, 1999 as compared to $189.1 million at June 30, 1999 reflecting
primarily a decrease in certificates of deposits. FHLB advances increased to
approximately $109.0 from $80.3 million as these borrowings were utilized in
part to fund the asset growth. Shareholders' equity increased by $781,000 due
primarily to net income generated during the period, which was offset by stock
repurchases as well as an approximate $232,000 increase in the unrealized losses
on securities available for sale.
9
<PAGE>
RESULTS OF OPERATIONS
Three months ended September 30, 1999 versus three months ended September 30,
1998. Net income increased to $1.7 million for the three months ended September
30, 1999 as compared to $1.3 million for the comparable prior year period. Net
interest income increased by $1.8 million or 83.23% due primarily to a growth in
average earning assets of $106.7 million and an increase in the net yield on
interest-earning assets to 5.09% as compared to 4.22% in the prior year period.
The provision for loan losses was increased by $527,000 to $627,000 for the
current year period due to a growth in the loan portfolio and the introduction
of the Company's new short-term consumer loan product, which accounted for
$327,000 of the provision. Non-interest income decreased by $686,000 due
primarily to a decrease in CMC nonconforming mortgage banking income of $543,000
and conforming mortgage banking revenues of $259,000 as compared to an aggregate
of $1.2 million for the prior year period. Non-interest expenses remained stable
at $1.3 million. Income tax expense was $121,000 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 deposit ("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 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, management believes that the Company's 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 provided by operating activities for the three months ended September
30, 1999 was $6.1 million as compared to $2.2 million used in the comparable
prior year period. During the three months ended September 30, 1999, and
September 30, 1998 the $6.1 and $2.2 million related principally to excess sale
of loans available for sale as compared to origination/purchases of the same.
Net cash used in investing activities approximated $27.5 million and $21.8
million during the three months ended September 30, 1999 and 1998, respectively.
During each year, the primary use was the funding of the growth in the Bank's
loan portfolio.
10
<PAGE>
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 Initial Public Offering
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 September
30, 1999. 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 $28,815 8.78% $ 4,923 1.50% $16,411 5.00%
Core capital 28,815 8.78% 13,129 4.00 $16,411 5.00
Risk-based capital 28,931 13.75% 16,833 8.00 $21,041 10.00
</TABLE>
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. 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 generally 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 September 30, 1999, approximately 83% 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 September 30, 1999, the Bank
did not have any hedging transactions in place, such as interest rate swaps,
caps or floors.
11
<PAGE>
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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and lawsuits in which the Company or
the Bank are periodically involved, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the Bank's business. In the opinion of management,
there are no material pending claims or lawsuits.
During October 1998, one of the Bank's deposit customers ("Bank
Depositor") had approximately $1.3 million of dishonored money orders which
resulted in its account being deficient by a similar amount. The Bank has
initiated a lawsuit in the Court of Common Pleas of Philadelphia County against
the money order company which placed the stop payments on the money orders
issued, and the Bank Depositor; alleging among other things, that the money
orders were improperly stopped and the Bank was a holder in due course and is
therefore entitled to reimbursement. The Bank is seeking reimbursement in the
lawsuit. The Bank has also initiated an involuntary bankruptcy proceeding
against the Bank Depositor in the United States Bankruptcy Court for the Eastern
District of Pennsylvania. The Bank is seeking to have a trustee preserve the
assets of the Bank Depositor in order that the Bank may receive partial
reimbursement. An order for relief under Chapter 7 of the Bankruptcy Code was
granted on March 8, 1999. In December 1998, the Company recorded a pre-tax
provision of $950,000 to provide for its potential exposure with respect to the
money orders. The Company believes its litigation has strong merit; however, the
provision was recorded because of the length of time likely to transpire before
the litigation is finalized and the potential uncertainty associated therewith.
Item 2. Changes in Securities and Use of Proceeds
A. Recent Sales of Unregistered Securities
None
B. Use of Proceeds from Registered Securities
None
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
13
<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: November 15, 1999 By: /s/ Thomas J. Knox
----------------------------
Thomas J. Knox
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ Joseph T. Crowley
------------------------------------
Joseph T. Crowley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<INT-BEARING-DEPOSITS> 4,655,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,471,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 2,122,000
<TOTAL-ASSETS> 327,966,000
<DEPOSITS> 180,831,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,632,000
<LONG-TERM> 117,280,000
0
0
<COMMON> 40,000
<OTHER-SE> 28,077,000
<TOTAL-LIABILITIES-AND-EQUITY> 327,996,000
<INTEREST-LOAN> 6,961,000
<INTEREST-INVEST> 651,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,612,000
<INTEREST-DEPOSIT> 2,304,000
<INTEREST-EXPENSE> 3,636,000
<INTEREST-INCOME-NET> 3,976,000
<LOAN-LOSSES> 627,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,288,000
<INCOME-PRETAX> 2,593,000
<INCOME-PRE-EXTRAORDINARY> 2,593,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,686,000
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 5.09
<LOANS-NON> 2,130,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,523,000
<CHARGE-OFFS> 28,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,122,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,122,000
</TABLE>
