<PAGE>
Balance Sheet SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended June 30, 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 000-27244
---------
USABANCSHARES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 23-2806495
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Penn Square, 30 South 15th Street, Philadelphia, PA, 19102
--------------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(215) 569-4200
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None.
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, $1.00 par value, outstanding on August 14, 1997: 550,696 shares
Class B Common Stock, $.01 par value, outstanding on August 14, 1997: 10,000
shares
<PAGE>
USABancShares, Inc.
Index to Form 10-QSB Report
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Statements of Changes in Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Change in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
USABancShares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and Due from banks $ 1,569,544 $ 198,154
Interest-bearing deposits with banks 4,021,161 4,016,032
----------- -----------
Total cash and cash equivalents 5,590,705 4,214,186
Investment securities:
Investments available for sale 9,052,294 6,097,627
Investments held to maturity (fair value; 1997 - $11,293,538,
1996 - $10,230,574) 11,308,644 10,227,119
----------- -----------
Total investment securities 20,360,938 16,324,746
FHLB Stock 375,000 250,000
Loans 20,972,014 16,711,562
Allowance for loan losses (207,079) (182,079)
----------- -----------
Loans, net 20,764,935 16,529,483
Premises and Equipment, net 163,834 145,421
Goodwill 97,608 128,285
Other assets 949,978 553,378
----------- -----------
Total assets $48,302,998 $38,145,499
=========== ===========
LIABILITIES
Deposits:
Demand $ 102,675 $ 58,659
Passbook 1,884,966 2,029,694
NOW accounts 1,089,216 891,640
Money Market 2,838,837 -
Certificates of deposit 32,649,686 24,993,154
----------- -----------
Total deposits 38,565,380 27,973,147
Other borrowed money 4,205,000 5,050,000
Other liabilities 336,590 227,505
----------- -----------
Total liabilities $43,106,970 $33,250,652
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; authorized 5,000,000 shares;
no shares issued and outstanding - -
Common stock, $1.00 par value; authorized 10,000,000 shares;
550,696 shares issued and outstanding and 54,280 shares of
converted and unissued Class B common stock 604,976 597,082
Additional paid-in capital 4,944,807 4,877,701
Accumulated deficit 7,419 (152,574)
Unearned compensation, Class B common stock (370,915) (425,195)
Unrealized gain (loss) on securities available-for-sale 9,741 (2,167)
----------- -----------
Total stockholders' equity 5,196,028 4,894,847
----------- -----------
Total liabilities and stockholders'equity $48,302,998 $38,145,499
=========== ===========
</TABLE>
3
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
USABancShares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six and three month periods ended June 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans $1,206,521 $ 832,595 $ 622,800 $601,325
Investment securities 696,429 351,400 382,791 186,775
Interest-bearing deposits and other 52,498 144,417 23,138 43,786
---------- ---------- ---------- --------
1,955,448 1,328,412 1,028,729 831,886
Interest expense:
Passbook 24,105 32,254 11,520 15,875
NOW Accounts 7,086 5,196 3,847 2,553
Money Market 1,402 - 1,393 -
Certificates of deposit 799,551 516,443 416,662 258,295
Other borrowings 134,719 - 86,740 -
---------- ---------- ---------- --------
966,863 553,893 520,162 276,723
---------- ---------- ---------- --------
Net interest income 988,585 774,519 508,567 555,163
Provision for loan losses 25,000 75,000 - 75,000
---------- ---------- ---------- --------
Net interest income after provision for loan losses 963,585 699,519 508,567 480,163
---------- ---------- ---------- --------
Non-interest income
Gain on sales of investment securities 36,039 22,063 29,487 -
Other 92,259 45,615 83,107 5,377
---------- ---------- ---------- --------
128,298 67,678 112,594 5,377
Non-interest expense:
Compensation 415,900 381,036 215,968 215,481
Occupancy 83,276 52,666 43,701 25,440
Data processing 38,634 32,085 23,179 18,869
Professional fees 95,127 49,491 63,862 43,226
Advertising 14,689 11,558 8,118 6,486
Insurance 22,873 25,726 10,121 19,873
Office 39,072 37,362 19,831 27,080
Travel & Entertainment 32,282 25,823 20,512 14,871
Depreciation and Amortization 31,898 29,707 18,709 14,900
Other 68,535 54,484 31,573 40,740
---------- ---------- ---------- --------
842,286 699,938 455,574 426,966
---------- ---------- ---------- --------
Income before income taxes 249,597 67,259 165,587 58,574
Provision for income taxes 89,604 - 58,558 -
---------- ---------- ---------- --------
Net income, (loss) $ 159,993 $ 67,259 $ 107,029 $ 58,574
========== ========== ========== ========
Earnings per common share - primary and fully diluted $ 0.27 $ 0.11 $ 0.18 $ 0.10
Weighted average shares outstanding 600,590 597,082 604,022 597,082
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
USABancShares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Unearned Net
Additional compensation unrealized
Common paid-in Accumulated Class B gain on
Stock capital deficit Common Stock AFS securities Total
------ ------- ------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 597,082 $4,877,701 ($152,574) ($425,195) ($2,167) $4,894,847
Net unrealized loss on
securities available-for-sale - - - - (14,868) (14,868)
Amortization of unearned
compensation Class B common stock - - - 27,140 - 27,140
Net income - - 52,964 - - 52,964
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 597,082 $4,877,701 $(99,610) $(398,055) $(17,035) $4,960,083
====================================================================================================================================
Acquisition of Knox Financial 7,894 67,106 75,000
Net unrealized loss on
securities available-for-sale - - - - 26,776 26,776
Amortization of unearned
compensation Class B common stock - - - 27,140 - 27,140
Net income - - 107,029 - - 107,029
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 604,976 $4,944,807 $ 7,419 $(370,915) $ 9,741 $5,196,028
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
USABancShares, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended June 30,
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows used in operating activities
Net Income $ 159,993 $ 67,259
Adjustments to reconcile net income to cash used in
operating activities
Depreciation and amortization 26,585 54,483
Net accretion of discounts on purchased loan portfolios (251,645) -
Provision for loan losses 25,000 75,000
Net amortization of investment securities premiums/discounts 17,800 -
Amortization of Class B Stock 54,280 -
Gain on sale of investments available for sale (36,039) (22,063)
Net (increase) decrease in other assets (396,600) (33,106)
Net increase (decrease) in other liabilities 109,085 (192,414)
(Increase) decrease in goodwill 30,677 -
---------- ----------
Net cash used in operating activities (260,864) (50,841)
---------- ----------
Cash flows used in investing activities
Proceeds from sale of investment securities held-to-maturity 1,001,250 -
Proceeds from sale of investment securities available-for-sale 1,354,800 1,482,188
Proceeds from maturity or calls of investment securities held-to-maturity 500,000 -
Purchase of investment securities available-for-sale (4,330,435) (1,742,975)
Purchase of investment securities held-to-maturity (2,946,188) (1,649,500)
Repayments of principal on investment securities held-to-maturity 379,574 499,178
Repayments of principal on investment securities available-for-sale 65,144 48,289
Net purchases of FHLB stock (125,000) -
Cash of acquired entity 44,810 -
Net increase in loans (4,008,807) (4,701,635)
Purchases of premises and equipment (44,998) (15,898)
---------- ----------
Net cash used in investing activities (8,109,850) (6,080,353)
---------- ----------
Cash flows provided by financing activities
Net increase in demand deposits and savings accounts 2,935,701 41,385
Net increase in certificates of deposit 7,656,532 696,923
Net decrease in FHLB borrowings (1,000,000) -
Net increase (decrease) in other borrowed funds 155,000 (56,100)
---------- ----------
Net cash provided by financing activities 9,747,233 682,208
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,376,519 (5,448,986)
Cash and cash equivalents, beginning of period 4,214,186 8,094,133
---------- ----------
Cash and cash equivalents, end of period $5,590,705 $2,645,147
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
USABancShares, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the three and six months
ended June 30, 1997 is unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of June 30, 1997, and for the
three and six month periods ended June 30, 1997 and 1996 include the accounts of
USABancShares, Inc. (the "Company") and its wholly-owned subsidiares Peoples
Thrift Savings Bank (the "Bank") and USACapital, Inc. (USACapital). 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 and six months
ended June 30, 1997, are not necessarily indicative of results to be anticipated
for the full year.
2. PER SHARE DATA
Income per common share data is based on the weighted average number of shares
outstanding of 600,590 and 597,082 at June 30, 1997 and 1996 respectively.
3. ALLOWANCE FOR LOAN LOSSES
The Allowance for Loan Losses is established through a provision for loan losses
charged to expenses. The allowance is an amount that management believes will be
adequate to to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
While management usues 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
thier examination process, periodically review the Bank's allowance for loan
losses based on thier judgements about information available to them at the time
of thier examinations.
4. RECENT PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which provides
new accounting and reporting standards for sales, securitizations, servicing of
financial assets and extinguishment of liabilities. The Company adopted this
statement on January 1, 1997. The adoption of SFAS No. 125 did not have a
material impact on the Company's consolidated financial statements.
5. ACQUISITIONS
On April 11, 1997, the Company consummated the acquisition of the Knox Financial
Services Group, Inc. ("Knox"), a registered securities broker/dealer. The
Company acquired all of the outstanding shares of common stock of Knox in
exchange for 7,894 restricted shares of the Company's common stock. Knox has
been renamed USACapital, Inc. ("USACapital"). USACapital conducts Knox's retail
brokerage business under the direction of its current principals.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains "forward-looking" statements. USABancShares, Inc. (the
"Company") desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Act of 1995 and is including this statement for
the express purpose of availing itself of such safe harbor with respect to such
statements. 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 performance and (c)
statements of assumptions underlying other statements and statements about the
Company or its business. The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related notes and
with the statistical information and financial data appearing in this report as
well as the Company's 1996 Annual Report on Form 10-KSB. Results of operations
for the three and six month periods ended June 30, 1997 are compared to the
unaudited results of operations for the three and six month periods ended June
30, 1996. Such information is based upon the historical financial information
available as of that date. Results of operations for the three and six month
periods ended June 30, 1997 are not necessarily indicative of results to be
attained for any other period.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For Six Months Ended
Selected Financial Condition Data: 6/30/97 6/30/96
----------- -----------
<S> <C> <C>
Total assets $48,302,998 $26,442,047
Loans receivable, net 20,764,935 11,623,832
Securities 20,360,938 11,496,890
Deposits 38,565,380 21,537,217
Total borrowings 4,205,000 -
Stockholders' equity 5,196,028 4,769,472
Selected Operations Data:
Total interest income $ 1,955,448 $ 1,328,412
Total interest expense 966,863 553,893
----------- -----------
Net interest income 988,585 774,519
Provision for loan losses 25,000 75,000
----------- -----------
Net interest income after provision for loan losses 963,585 699,519
Total noninterest income 128,298 67,678
Total noninterest expense 842,286 699,938
----------- -----------
Income before income taxes 249,597 67,259
Income tax provision 89,604 -
----------- -----------
Net income $ 159,993 $ 67,259
=========== ===========
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) 0.78% 0.52%
Return on equity (ratio of net income to average equity) 6.34% 2.85%
Tier I risk-based capital 25.5% 24.60%
Total risk-based capital 26.7% 25.60%
</TABLE>
FINANCIAL CONDITION
The Company's total assets increased from $38.1 million at December 31, 1996 to
$48.3 million at June 30, 1997, an increase of $10.2 million, or 24.6%. The
increase was due primarily to increases in the loan and investment portfolios of
$4.3 million and $4.0 million, respectively. This growth was funded primarily by
increases in money market and certificate of deposit accounts. Total deposits
increased $10.6 million to $38.6 million at June 30, 1997, due primarily to
increases in money market and certificates of deposit accounts of $2.8 million
and $7.7 million, respectively.
8
<PAGE>
Borrowed funds consist primarily of ("Advances") from the Federal Home Loan Bank
(the "FHLB") with both fixed and variable interest rates. Total borrowed funds
decreased to $4.2 million at June 30, 1997 compared to $5.1 million at December
31, 1996. Management plans to continue to utilize FHLB advances in conjunction
with deposit expansion to provide the necessary funding for the Bank's continued
growth.
RESULTS OF OPERATIONS
NET INCOME
The Company reported net income of $159,993, or $.27 per share, for the six
months ended June 30, 1997, compared to $67,259, or $.11 per share for the six
months ended June 30, 1996, representing a 137.9% increase. The increase in net
income was the result of an increase in net interest income of $214,066, an
increase in non-interest income of $60,620 and a decrease in the provision for
loan losses of $50,000. This was partially offset by an increase in noninterest
expense of $142,348 and an increase in income tax expense of $89,604. Net income
for the quarter ended June 30, 1997 was $107,029 as compared to $58,574 for the
same period in 1996.
INTEREST INCOME
Interest income increased $627,036 to $1,955,448, or 47.2% for the six months
ended June 30, 1997, compared to the same period in 1996. The increase in
interest income was the result of an increase in interest income on loans and
investment securities of $373,926 and $345,029, respectively. The increase in
interest income was partially offset by a decrease in interest income on
interest-bearing deposits of $91,919. The increase in interest income on loans
is due to an increase in the average balance of the loan portfolio, as well as
accretion income recognized on discounted loan pools purchased by the by the
Bank during 1995 and 1996. The discount associated with such discounted loan
pools is recognized as a yield adjustment and is included as interest income
using the interest method and applied on a loan-by-loan basis (to the extent
that the timing and amount of cash flows can reasonably be determined). During
the six months ended June 30, 1997, the Bank recognized approximately $252,000
in accretion income associated with these discounted loan pools. Of this amount,
approximately $114,000 represents accelerated income related to payoffs of
individual loans within the discounted loan pools. The balance of approximately
$138,000 represents normal accretion based on the Banks internal estimates of
future cash flows. For the three months ended June 30, 1997, interest income
increased $196,843 to $1,028,729, or 23.7%, compared to the same period in 1996.
The increase in interest income was the result of an increase in interest income
on loans and investment securities of $21,475 and $196,016, respectively. The
increase in interest income was partially offset by a decrease in interest
income on interest-bearing deposits of $20,648 for the three months ended June
30, 1997.
INTEREST EXPENSE
Interest expense increased $412,970 to $966,863, or 74.6%, for the six months
ended June 30, 1997, compared to the same period in 1996 due to a higher volume
of new certificates of deposit and FHLB Advances. The average cost of funds,
including other borrowings, increased .19% to 5.44% for the six months ended
June 30, 1997 compared to the same period in 1996. Interest expense increased
$243,439 to $520,162, or 88.0%, for the three months ended June 30, 1997,
compared to the same period in 1996 due to a higher volume of new certificates
of deposit and FHLB Advances. The average cost of funds, including other
borrowings, increased .40% to 5.54% for the three months ended June 30, 1997
compared to the same period in 1996.
9
<PAGE>
NET INTEREST INCOME
The Company's profitability, like that of many financial institutions, is
dependent to a large extent upon net interest income. Net interest income is the
difference between interest income (principally from loans and investment
securities) and interest expense (principally on customer deposits and
borrowings). Changes in net interest income result from changes in the mix of
rates and volume of interest-earning assets and interest-bearing liabilities
that occur over time. Volume refers to the average dollar level of
interest-earning assets and interest bearing liabilities. Net interest spread
refers to the differences between the average yield on interest-earning assets
and the average cost of interest-bearing liabilities. Net interest margin refers
to net interest income divided by average interest-earning assets.
Net interest income for the six months ended June 30, 1997, increased $214,066,
or 27.64%, to $988,585 from $774,519 compared to the same period in 1996.
Average interest-earning assets increased by $14.1 million, or 56.0%, to $39.3
million, for the six months ended June 30, 1997 compared to the same period in
1996. Average interest-bearing liabilities increased $14.4 million or 68.2% over
the same period. The average net interest spread decreased from 5.30% to 4.51%
for the six months ended June 30, 1997, resulting from a decrease in the average
yield on earning assets and an increase in the average cost of interest-bearing
liabilities of .59% and .19%, respectively. The Company's net interest margin
for the six months ended June 30, 1997, was 5.03%, compared to 6.15% for the
same period in 1996. Net interest income for the three months ended June 30,
1997, decreased $46,596, or 8.39%, to $508,567 from $555,163 compared to the
same period in 1996. Average interest-earning assets increased by $16.4 million,
or 65.8%, to $41.2 million, for the three months ended June 30, 1997 compared to
the same period in 1996. Average interest-bearing liabilities increased $16.1
million or 74.6% over the same period.
The average net interest spread decreased from 8.25% to 4.45% for the three
months ended June 30, 1997, resulting from the decrease in the average yield on
earning assets and the increase in the average cost of interest-bearing
liabilities of 3.40% and .40%, respectively. The Company's net interest margin
for the three months ended June 30, 1997, was 4.94%, compared to 8.94% for the
same period in 1996.
10
<PAGE>
ANALYSIS OF NET INTEREST INCOME
The following table presents information regarding yields on interest-earning
assets, expense on interest-bearing liabilities, and net yields on
interest-earning assets for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------------
Average Average Average Average
Assets: Balance Interest Rate Balance Interest Rate
------------ ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 18,610,161 $1,206,521 12.97% $ 9,408,015 $ 832,595 17.70%
Investment securities 18,722,683 696,429 7.44% 10,782,518 351,400 6.52%
Interest-bearing deposits and other 1,951,192 52,498 5.38% 4,994,740 144,417 5.78%
------------ ---------- ------ ----------- ---------- ------
Total earning assets 39,284,036 1,955,448 9.96% 25,185,273 1,328,412 10.55%
Non interest earning assets 1,632,753 928,512
------------ -----------
Total assets $ 40,916,789 $26,113,785
============ ===========
Liabilities and Stockholders' Equity:
Deposits:
Passbook 1,936,722 24,105 2.49% 2,479,806 32,254 2.60%
NOW & Money Market accounts 1,038,013 8,488 1.64% 485,309 5,196 2.14%
Certificates of deposit 28,415,356 799,551 5.63% 18,150,349 516,443 5.69%
Other borrowings 4,136,667 134,719 6.51% 0 0 0.00%
----------- ---------- ------ ----------- ---------- ------
Total interest-bearing liabilities 35,526,757 966,863 5.44% 21,115,464 553,893 5.25%
Other liabilities 373,046 284,164
----------- -----------
Stockholders' equity 5,016,986 4,714,157
----------- -----------
Total liabilities and stockholders' equity $40,916,789 $26,113,785
=========== ===========
Excess of interest earning assets over
interest-bearing liabilities $ 3,757,279 $ 4,069,809
=========== ===========
Net interest income $ 988,585 $ 774,519
========== ==========
Effective interest differential (spread) 4.51% 5.30%
------ ------
Net yield on average interest earning assets 5.03% 6.15%
====== ======
</TABLE>
11
<PAGE>
RATE VOLUME ANALYSIS
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between changes (a) related to
outstanding balances and (b) due to the changes in interest rates. Information
is provided in each category with respect to: (i) changes attributable to
changes in volume (changes in volume multiplied by prior rate); (ii) changes
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) the net change in rate/volume (change in rate multiplied by change in
volume). The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
June 30, 1997 vs June 30, 1996
-------------------------------------
Increase or Decrease
Due to Change in
------------------------ Total
Average Average Increase
Rate/Volume Analysis Volume Rate (Decrease)
- --------------------- --------- ---------- ---------
Variance in interest income on:
Interest-earning assets:
Loans $514,634 $(140,708) $373,926
Investment securities 289,459 55,570 345,029
Interest-bearing deposits and other (82,514) (9,405) (91,919)
--------- ---------- ---------
Total interest-earning assets 721,579 (94,543) 627,036
Interest-bearing deposits
Deposits:
Passbook $ (6,809) $ (1,340) $ (8,149)
NOW & Money Market accounts 4,154 (862) 3,292
Certificates of deposit 288,772 (5,664) 283,108
Other borrowings 134,719 -- 134,719
--------- ---------- ---------
Total interest-bearing liabilities 420,835 (7,865) 412,970
--------- ---------- ---------
Change in net interest income 300,744 (86,678) 214,066
========= ========== =========
PROVISION FOR LOAN LOSSES
Management records the provision for loan losses in amounts that result in an
allowance for loan losses sufficient to cover all potential net charge-offs and
risks believed to be inherent in the loan portfolio. Management's evaluation
includes such factors as past loan loss experience as related to current loan
portfolio mix, evaluation of actual and potential losses in the loan portfolio,
prevailing regional and national economic conditions that might have an impact
on the portfolio, regular reviews and examinations of the loan portfolio
conducted by bank regulatory authorities, and other factors that management
believes deserve current recognition. As a result of management's evaluation of
these factors, the provision for loan losses decreased $50,000 during the six
months ended June 30, 1997 and $75,000 during the three months ended June 30,
1997 compared to the same periods during 1996. The allowance for loan losses as
a percentage of loans and leases outstanding was .99% at June 30, 1997, compared
to 1.09% at December 31, 1996 and 1.15% at June 30, 1996. Management believes
that the allowance for loan losses, which is a general reserve, is adequate to
cover actual and potential losses in the loan portfolio under current
conditions. Management is not aware of any significant risks in the current loan
portfolio due to concentrations of loans within any particular industry, nor of
any separate types of loans within a particular category of non-performing loans
that are unusually significant with respect to possible loan losses when
compared to the entire loan portfolio. No charge-offs on loans were recorded
during the second quarter of 1997 or for the comparable quarter in 1996.
12
<PAGE>
NONINTEREST INCOME
Noninterest income increased $60,620 to $128,298, or 89.6%, for the six months
ended June 30, 1997, compared to the same period in 1996. The increase was the
result of commission income of $75,232 generated by the Company's brokerage
subsidiary, USACapital, during quarter ended June 30, 1997, its first quarter of
operation and an increase in the gain on sales of investment securities of
$13,976. Noninterest income increased $107,217 to $112,594 for the three months
ended June 30, 1997, compared to the same period in 1996. The increase was
primarily the result of commission income of $75,232 generated by USACapital
during quarter ended June 30, 1997 as well as increases in fees and service
charges on loan and deposit accounts.
NONINTEREST EXPENSE
Noninterest expense increased $142,348 to $842,286, or 20.3%, for the six months
ended June 30, 1997, compared to the same period in 1996. Compensation expense
increased $34,864 due to the hiring of additional personnel. Occupancy expense,
office, travel and entertainment, advertising, depreciation and amortization
expenses and other miscellaneous expenses increased $61,848 as a result of the
increased promotional efforts to attract additional customers. Professional fees
increased $45,636 due an increase in outside consulting and legal services
provided during the quarter. Noninterest expense increased $28,608 to $455,574,
or 6.7%, for the three months ended June 30, 1997, compared to the same period
in 1996. Increases in occupancy, professional fees and other noninterest
expenses of $18,261, $20,636 and $15,879, respectively, were partially offset by
decreases in advertising, insurance and other expenses of $9,752, $7,249, and
$9,167, respectively.
INCOME TAX EXPENSE
Income tax expense increased from $0 to $89,604, for the six months ended June
30, 1997, compared to the same period in 1996. The Company did not record an
income tax provision for the six months ended June 30, 1996, because of prior
net operating losses which were utilized during that period. Income tax expense
increased from $0 to $58,558, for the three months ended June 30, 1997, compared
to the same period in 1996. The Company did not record an income tax provision
for the three months ended June 30, 1996 because of prior net operating losses
which were utilized during that period.
13
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) were $20.1 million at June 30, 1997
compared to $16.5 million at December 31, 1996. Loans receivable represented
42.2% of total assets and 53.8% of total deposits as of June 30, 1997 compared
to 43.3% and 58.9%, respectively, at December 31, 1996.
The following table summarizes the loan portfolio of the Bank by loan category
and amount at June 30, 1997, compared to December 31, 1996:
(Dollars in thousands)
June 30, December 31,
-------------------- ------------------
1997 % 1996 %
-------------------- ------------------
Real estate $15,886 76.5% $14,648 88.6%
Commercial and industrial 4,258 20.5% 1,138 6.9%
Other 987 4.8% 1,226 7.4%
------- ------ ------- ------
Total loans 21,131 101.8% 17,012 102.9%
Less:
Loans in process 49 0.3% 215 1.3%
Unearned income 110 0.5% 86 0.5%
Allowance for loan losses 207 1.0% 182 1.1%
------- ------ ------- ------
Net loans 20,765 100.0% 16,529 100.0%
======= ====== ======= ======
On June 30, 1997, the net book value of nonaccrual loans was approximately
$326,000 compared to $120,985 at December 31, 1996. These amounts represented
nonaccrual balances on discounted commercial and residential real estate loans
purchased by the Bank from the Federal Deposit Insurance Corporation during 1996
and not on balances originated directly by the Bank. The Bank had no troubled
debt restructured loans as of June 30, 1997. The Bank will recognize income on
nonaccrual loans, under the cash basis, when the loans are brought current as to
outstanding principal and collateral on the loan is sufficient to cover the
outstanding obligation to the Bank. The following table summarizes the changes
in the Bank's allowance for loan losses for the period ended June 30, 1997,
compared to December 31, 1996:
1997 1996
-------- --------
Balance at beginning of period $182,079 $ 60,000
-------- --------
Additions:
Allowance of acquired banks - -
Provision for loan losses 25,000 125,000
-------- --------
Total additions 25,000 125,000
-------- --------
Deductions:
Loan losses - (2,921)
Less recoveries on loans - -
Net loan losses - -
Balance at end of period $207,079 $182,079
-------- --------
14
<PAGE>
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at June
30, 1997, and December 31, 1996, respectively, for each major category of the
Bank's investment securities:
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------- --------- -----------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government agency securities $ 5,362,613 $ 5,851 $ 5,368,464
Mortgage-backed securities 1,795,561 4,133 1,799,694
Other securities 1,879,362 4,774 - 1,884,136
----------- ------- ------- -----------
Total available for sale $ 9,037,536 $14,758 $ - $ 9,052,294
=========== ======= ======= ===========
Held to Maturity
U.S. Government agency securities $ 1,947,315 $ - $11,357 $ 1,935,958
Mortgage-backed securities 6,460,260 - 20,826 6,439,434
Other securities 2,901,069 17,077 - 2,918,146
----------- ------- ------- -----------
Total held to maturity $11,308,644 $17,077 $32,183 $11,293,538
=========== ======= ======= ===========
December 31, 1996
---------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------- --------- -----------
Available for Sale
U.S. Government agency securities $ 3,614,740 $ 28,850 $ - $ 3,643,590
Mortgage-backed securities 1,863,115 6,037 - 1,869,152
Other securities 623,055 - 38,170 584,885
----------- ------- ------- -----------
Total available for sale $ 6,100,910 $34,887 $38,170 $ 6,097,627
=========== ======= ======= ===========
Held to Maturity
U.S. Government agency securities $ 1,498,179 $ - $ 1,884 $ 1,496,295
Mortgage-backed securities 6,820,038 3,602 - 6,823,640
Other securities 1,908,902 1,737 - 1,910,639
----------- ------- ------- -----------
Total held to maturity $10,227,119 $ 5,339 $ 1,884 $10,230,574
=========== ======= ======= ===========
</TABLE>
LIQUIDITY
The Company's primary sources of funds are customer deposits, maturities of
investment securities, sales of "Available for Sale" securities, loan sales,
loan repayments, net income, advances from the FHLB, and the use of Federal
Funds markets. Scheduled loan repayments are relatively stable sources of funds
while deposit inflows and unscheduled loan prepayments may fluctuate. Deposit
inflows and unscheduled loan prepayments are influenced by general interest rate
levels, interest rates available on other investments, competition, economic
conditions, and other factors. Deposits are the Company's primary source of new
funds. Total deposits increased 37.9% to $38.6 million at June 30, 1997,
compared to $28.0 million as of December 31, 1996. The Bank has made a concerted
effort to attract deposits in the market area served by the Bank through
competitive pricing of the its retail deposit products.
15
<PAGE>
Increases over the period were due to marketing efforts, and new business
development programs initiated by the Company. Management anticipates that the
Company will continue relying on customer deposits, maturity of investment
securities, sales of "Available for Sale" securities, loan sales, loan
repayments, net income, Federal Funds markets, and FHLB borrowings to provide
liquidity. Although deposit balances have shown historical growth, such balances
may be influenced by changes in the banking industry in general, interest rates
available on other investments, general economic conditions, competition and
other factors.
The following table summarizes the composition of the Bank's deposit portfolio.
<TABLE>
<CAPTION>
30-Jun-97 31-Dec-96
------------------------------ ------------------------------
Amount Percent Amount Percent
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Demand $ 102,675 0.27% $ 58,659 0.21%
NOW & Money Market accounts 3,928,053 10.19% 891,640 3.19%
Passbook 1,884,966 4.89% 2,029,694 7.26%
Certificates of deposit 32,649,686 84.66% 24,993,154 89.35%
----------- ------- ----------- -------
$38,565,380 100.00% $27,973,147 100.00%
=========== ======= =========== =======
</TABLE>
The following table summarizes the maturity composition of certificates of
deposit at June 30, 1997, compared to December 31, 1996:
<TABLE>
<CAPTION>
30-Jun-97 31-Dec-96
------------------------------ ------------------------------
Amount Percent Amount Percent
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Within one year $14,347,202 43.94% $13,968,430 55.89%
Over one year through two years 11,394,957 34.90% 4,199,501 16.80%
Over two years through three years 3,246,995 9.94% 4,289,518 17.16%
Over three years through five years 2,345,138 7.18% 1,322,451 5.29%
Over five years through ten years 1,315,393 4.03% 1,213,254 4.85%
----------- ------- ----------- -------
$32,649,686 100.00% $24,993,154 100.00%
=========== ======= =========== =======
</TABLE>
Other borrowings decreased to $4.2 million at June 30, 1997, compared to $5.1
million as of December 31, 1996. This decrease was the result of the scheduled
maturity of an FHLB advance which was partially offset by additional borrowings
during the period. Borrowings may be used on a short-term basis to compensate
for reductions in other sources of funds. Borrowings may also be used on a
long-term basis to support expanded lending activities and to match maturities
or repricing intervals of assets. The sources of such funds will be Federal
Funds purchased and borrowings from the FHLB.
CAPITAL RESOURCES
Both the Company and the Bank are required to comply with certain "risk-based"
capital adequacy guidelines issued by the Federal Reserve Bank (for the Company)
and the FDIC (for the Bank). The risk-based capital guidelines assign varying
risk weights to the individual assets held by a bank. The guidelines also assign
weights to the "credit-equivalent" amounts of certain off-balance sheet items,
such as letters of credit and interest rate and currency swap contracts. Under
these guidelines, institutions are expected to meet minimum ratios for
"qualifying total capital" and Tier 1 capital to risk-weighted assets of 8% and
4% respectively and a minimum leverage ratio (the ratio of Tier 1 capital to
total average assets) of 3% plus an additional amount equal to between 1% and
2%. As used in the guidelines, "Tier 1 capital" includes common stockholders'
equity, certain qualifying perpetual preferred stock and minority interests in
the equity accounts of consolidated subsidiaries, less goodwill. "Tier 2
capital" components (limited in the aggregate to one-half of total qualifying
capital) include allowances for credit losses (within certain limits), certain
excess levels of preferred stock and certain types of "hybrid" capital
instruments. subordinated debt and other preferred stock. The subordinated debt
component of Tier 2 capital is reduced by 20% per year over the last five years
of the term of any subordinated debt.
16
<PAGE>
The following table sets forth the regulatory capital ratios for the Bank as of
June 30, 1997, and December 31, 1996, together with the minimum ratios required
under the regulation for an institution to be deemed "well capitalized".
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
For the Bank: Actual: Adequacy Purposes: Action Provisions:
- -------------- ---------------------- --------------------- ---------------------
As of June 30, 1997: Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $4,867 26.7% $1,461 8.0% 1,827 10.0%
Tier I Capital
(to Risk Weighted Assets) $4,660 25.5% $ 731 4.0% 1,096 6.0%
Tier I Capital
(Average Assets) $4,660 10.8% $1,730 4.0% 2,163 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $4,657 25.6% $1,458 8.0% 1,822 10.0%
Tier I Capital
(to Risk Weighted Assets) $4,475 24.6% $ 729 4.0% 1,093 6.0%
Tier I Capital
(Average Assets) $4,475 12.9% $1,387 4.0% 1,734 5.0%
</TABLE>
RECENT EVENTS
On June 24, 1997, the Company's Board of Directors declared a 33% stock
dividend, payable July 18, 1997 to shareholders of record as of July 1, 1997.
17
<PAGE>
PART II
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Page No. in Sequential
Exhibit No. Numbering System
----------- ----------------------
4. Articles and Bylaws *
27. Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
- -------------------------------
* Incorporated by reference from the Registration Statement on Form SB-2 of the
Company, as amended, Registration No. 00027244
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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, in the City of Philadelphia,
Commonwealth of Pennsylvania.
USABANCSHARES, INC.
Date: August 14, 1997 By: /s/ Kenneth L. Tepper
----------------------------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ David J. Torpey
----------------------------------------
David J. Torpey,
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,569,544
<INT-BEARING-DEPOSITS> 4,021,161
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,052,294
<INVESTMENTS-CARRYING> 11,293,538
<INVESTMENTS-MARKET> 11,308,644
<LOANS> 20,792,014
<ALLOWANCE> 207,079
<TOTAL-ASSETS> 48,302,998
<DEPOSITS> 38,565,380
<SHORT-TERM> 4,205,000
<LIABILITIES-OTHER> 336,590
<LONG-TERM> 0
0
0
<COMMON> 604,976
<OTHER-SE> 4,591,052
<TOTAL-LIABILITIES-AND-EQUITY> 48,302,998
<INTEREST-LOAN> 1,206,521
<INTEREST-INVEST> 696,429
<INTEREST-OTHER> 52,498
<INTEREST-TOTAL> 1,955,448
<INTEREST-DEPOSIT> 832,144
<INTEREST-EXPENSE> 966,863
<INTEREST-INCOME-NET> 988,585
<LOAN-LOSSES> 25,000
<SECURITIES-GAINS> 36,039
<EXPENSE-OTHER> 842,286
<INCOME-PRETAX> 249,597
<INCOME-PRE-EXTRAORDINARY> 249,597
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,993
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 5.03
<LOANS-NON> 326,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 182,079
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 207,079
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 207,079
</TABLE>
