<PAGE>
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 quarterly period ended September 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
incorporation or organization) Identification Number)
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 November 14, 1997: 732,426 shares
Class B Common Stock, $.01 par value, outstanding on November 14, 1997: 10,000
shares, (represents 72,192 shares of $1.00 par value Common Stock on a fully
converted basis)
Transitional Small Business Disclosure Format (check one); YES [ ] NO [X]
<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 Operations 4
Consolidated Statement 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 8
PART II. OTHER INFORMATION
Item 1.Legal Proceedings 18
Item 2.Changes 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 19
SIGNATURES 20
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and Due from banks $ 999,105 $ 198,154
Interest-bearing deposits with banks 642,693 4,016,032
------------ ------------
Total cash and cash equivalents 1,641,798 4,214,186
Investment securities:
Investments available-for-sale 9,341,282 6,097,627
Investments held-to-maturity (fair value: 1997 - $16,623,438;
1996 - $10,230,574) 16,473,314 10,227,119
------------ ------------
Total investment securities 25,814,596 16,324,746
FHLB Stock 600,000 250,000
Loans 34,081,439 16,711,562
Allowance for loan losses (257,079) (182,079)
------------ ------------
Loans, net 33,824,360 16,529,483
Premises and Equipment, net 188,074 145,421
Goodwill 82,462 128,285
Other assets 2,117,350 553,378
------------ ------------
Total assets $ 64,268,640 $ 38,145,499
============ ============
LIABILITIES
Deposits:
Demand $ 151,468 $ 58,659
Passbook 1,847,594 2,029,694
NOW accounts 1,314,478 891,640
Money Market 2,922,953 --
Certificates of deposit 39,958,807 24,993,154
------------ ------------
Total deposits 46,195,300 27,973,147
Other borrowed money 12,205,000 5,050,000
Other liabilities 448,474 227,505
------------ ------------
Total liabilities $ 58,848,774 $ 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;
732,426 shares issued and outstanding and 72,192 shares of
common stock issuable upon conversion of 10,000 shares of
$.01 par value Class B common stock 804,618 597,082
Additional paid-in capital 4,745,165 4,877,701
Accumulated earnings (deficit) 135,279 (152,574)
Unearned compensation, Class B common stock (343,775) (425,195)
Unrealized gain (loss) on investments available-for-sale 78,579 (2,167)
------------ ------------
Total stockholders' equity 5,419,866 4,894,847
------------ ------------
Total liabilities and stockholders' equity $ 64,268,640 $ 38,145,499
============ ============
</TABLE>
3
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine and three month periods ended September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $1,880,149 $1,409,126 $ 673,628 $ 576,531
Investment securities 1,179,790 562,625 483,361 211,225
Interest-bearing deposits and other 121,882 173,716 69,384 29,297
---------- ---------- ---------- ----------
3,181,821 2,145,467 1,226,373 817,053
Interest expense:
Passbook 35,643 46,428 11,499 14,174
NOW Accounts 11,025 8,378 3,939 3,182
Money Market 26,378 -- 24,976 --
Certificates of deposit 1,315,441 785,150 515,929 268,707
Other borrowings 183,928 5,808 49,208 5,808
---------- ---------- ---------- ----------
1,572,416 845,764 605,551 291,871
---------- ---------- ---------- ----------
Net interest income 1,609,405 1,299,703 620,822 525,182
Provision for loan losses 75,000 125,000 50,000 50,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,534,405 1,174,703 570,822 475,182
---------- ---------- ---------- ----------
Noninterest income
Gain on sales of investment securities 45,162 22,063 9,123 --
Other 234,199 74,027 141,940 28,412
---------- ---------- ---------- ----------
279,361 96,090 151,063 28,412
Noninterest expense:
Compensation and benefits 616,713 602,988 200,813 221,952
Occupancy 134,626 82,481 51,350 29,815
Data processing 86,059 51,502 47,426 19,416
Professional fees 127,312 54,720 32,186 5,229
Advertising 27,022 16,071 12,333 4,514
Insurance 25,218 45,956 2,345 20,230
Office 69,397 50,666 30,325 13,304
Travel & Entertainment 56,536 53,204 24,254 27,381
Depreciation and Amortization 47,381 38,924 15,483 9,217
Other 132,348 90,719 63,813 36,233
---------- ---------- ---------- ----------
1,322,612 1,087,231 480,328 387,291
---------- ---------- ---------- ----------
Income before income taxes 491,154 183,562 241,557 116,303
Provision for income taxes 203,301 -- 113,697 --
---------- ---------- ---------- ----------
Net income $ 287,853 $ 183,562 $ 127,860 $ 116,303
========== ========== ========== ==========
Per Share Data:
Earnings per common share - primary and
fully diluted $ 0.36 $ 0.23 $ 0.16 $ 0.15
Weighted average shares outstanding 800,772 794,119 804,618 794,119
</TABLE>
4
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Unearned Net
Additional Accumulated compensation unrealized
Common paid-in earnings Class B gain (loss) on
Stock capital (deficit) Common Stock AFS investments 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
investments 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 gain on
investments 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
====================================================================================================================================
Effect of 33% Common Stock dividend 199,642 (199,642) - - - -
Net unrealized gain on
investments available-for-sale - - - - 68,838 68,838
Amortization of unearned
compensation Class B common stock - - - 27,140 - 27,140
Net income - - 127,860 - - 127,860
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 804,618 $ 4,745,165 $ 135,279 $ (343,775) $ 78,579 $ 5,419,866
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30,
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows used in operating activities:
Net Income $ 287,853 $ 183,562
Adjustments to reconcile net income to cash used in operating
activities
Depreciation and amortization 40,351 38,924
Net accretion of discounts on purchased loan portfolios (340,229) --
Provision for loan losses 75,000 125,000
Net amortization (accretion) of investment securities premiums/discounts 30,902 --
Amortization of Class B Stock 81,420 --
Gain on sale of investments available-for-sale (45,162) (22,063)
Net (increase) decrease in other assets (1,563,972) (166,343)
Net increase (decrease) in other liabilities 220,969 (197,833)
Net (increase) decrease in goodwill 45,823 --
------------ ------------
Net cash used in operating activities (1,167,045) (38,753)
------------ ------------
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 2,963,248 1,482,188
Proceeds from maturity or calls of investment securities held-to-maturity 1,450,000 --
Proceeds from maturity or calls of investment securities available-for-sale 2,875,000
Purchase of investment securities available-for-sale (9,060,852) (2,492,975)
Purchase of investment securities held-to-maturity (9,130,922) (2,148,094)
Repayments of principal on investment securities held-to-maturity 444,581 541,307
Repayments of principal on investment securities available-for-sale 93,041 52,365
Net purchases of FHLB stock (350,000) --
Cash of acquired entity 44,810 --
Net increase in loans (17,029,648) (7,842,638)
Purchases of premises and equipment (83,004) (24,272)
------------ ------------
Net cash used in investing activities (26,782,496) (10,432,119)
------------ ------------
Cash flows provided by financing activities:
Net increase (decrease) in demand deposits and savings accounts 3,256,500 (294,632)
Net increase in certificates of deposit 14,965,653 3,279,600
Net increase in FHLB borrowings 7,000,000 2,500,000
Net increase (decrease) in other borrowings 155,000 (56,100)
------------ ------------
Net cash provided by financing activities 25,377,153 5,428,868
------------ ------------
Net decrease in cash and cash equivalents (2,572,388) (5,042,004)
Cash and cash equivalents, beginning of period 4,214,186 8,094,133
------------ ------------
Cash and cash equivalents, end of period $ 1,641,798 $ 3,052,129
============ ============
</TABLE>
6
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the nine and three month periods ended
September 30, 1997, and 1996 is unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of September 30, 1997, and
for the nine and three month periods ended September 30, 1997 and 1996 include
the accounts of USABancShares, Inc. (the "Company") and its wholly-owned
subsidiaries 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 nine and three month
periods ended September 30, 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 33% stock dividend paid on July 18, 1997.
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 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 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 process, 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 February, 1997 the FASB issued SFAS 129, Disclosure Information about Capital
Structure. SFAS 129 summarizes previously issued disclosure guidance contained
within APB Opinion No. 10 and 15, as well as SFAS No. 47. SFAS 129 is effective
for fiscal years ending after December 15, 1997. The Company's current
disclosures will not be affected by the adoption of SFAS 129.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards to provide prominent disclosure of comprehensive
income items. Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. SFAS No. 130 is effective for all periods beginning
after December 15, 1997. Subsequent to the effective date, all prior-period
amounts are required to be restated to conform to the provisions of SFAS No.
130. The adoption of SFAS 130 is not expected to have a material impact on the
Company's financial position and or results of operations.
7
<PAGE>
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. SFAS No. 131
is effective for all periods beginning after December 15, 1997. Management is
evaluating the disclosure requirements of this statement. The adoption of SFAS
131 is not expected to have a material impact on the Company's financial
position and or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This report contains "forward-looking" statements. USABancShares, Inc. (the
"Company") desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform 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
unaudited operations for the nine and three month periods ended September 30,
1997 are compared to the unaudited results of operations for the nine and three
month periods ended September 30, 1996. Such information is based upon the
historical financial information available as of that date. Results of
operations for the nine and three month periods ended September 30, 1997 are not
necessarily indicative of results to be attained for any other period.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended September 30,
Selected Financial Condition Data: 1997 1996
- ---------------------------------- ----------- -----------
<S> <C> <C>
Total assets $64,268,640 $31,327,851
Loans, net 33,824,360 14,714,835
Investment securities 25,814,596 12,746,816
Deposits 46,195,300 23,783,877
Total borrowings 12,205,000 2,500,000
Stockholders' equity 5,419,866 4,914,034
Selected Operations Data:
- -------------------------
Total interest income $ 3,181,821 $ 2,145,467
Total interest expense 1,572,416 845,764
----------- -----------
Net interest income 1,609,405 1,299,703
Provision for loan losses 75,000 125,000
----------- -----------
Net interest income after provision for loan losses 1,534,405 1,174,703
Total noninterest income 279,361 96,090
Total noninterest expense 1,322,612 1,087,231
----------- -----------
Income before income taxes 491,154 183,562
Income tax provision 203,301 --
----------- -----------
Net income $ 287,853 $ 183,562
=========== ===========
Selected Financial Ratios:
- --------------------------
Return on assets (ratio of annualized net income to average total assets) 0.87% 0.86%
Return on equity (ratio of annualized net income to average equity) 7.44% 5.11%
Tier 1 risk-based capital 10.6% 31.2%
Total risk-based capital 11.2% 32.4%
</TABLE>
8
<PAGE>
FINANCIAL CONDITION
The Company's total assets increased from $38.1 million at December 31, 1996 to
$64.3 million at September 30, 1997, an increase of $26.2 million, or 68.5%. The
increase was due primarily to increases in the loan and investment portfolios of
$17.4 million and $9.5 million, respectively. This growth was funded primarily
by increases in money market and certificate of deposit accounts and other
borrowed money. Total deposits increased $18.2 million to $46.2 million at
September 30, 1997, due primarily to increases in money market and certificates
of deposit accounts of $2.9 million and $15.0 million, respectively. Borrowed
funds consist primarily of advances ("FHLB Advances") from the Federal Home Loan
Bank (the "FHLB") with both fixed and variable interest rates. Total borrowed
funds increased to $12.2 million at September 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 $287,853, or $.36 per share, after giving
retroactive effect to the 33% stock dividend paid on July 18, 1997, for the nine
months ended September 30, 1997, compared to $183,562, or $.23 per share for the
nine months ended September 30, 1996, representing a 56.8% increase. Had the
stock dividend not occurred, earnings per share for the nine months ended
September 30, 1997 and 1996 would have been $.48 and $.31 per share,
respectively. The increase in net income was the result of an increase in net
interest income of $309,703, an increase in noninterest income of $183,271 and
a decrease in the provision for loan losses of $50,000. These increases were
partially offset by an increase in noninterest expense of $235,381 and an
increase in income tax expense of $203,301. Net income for the quarter ended
September 30, 1997 was $127,860, or $.16 per share, after giving retroactive
effect to the 33% stock dividend paid on July 18, 1997, as compared to $116,303,
or $.15 per share for the same period in 1996. Had the stock dividend not
occurred, earnings per share for the three months ended September 30, 1997 and
1996 would have been $.21 and $.19 per share, respectively.
INTEREST INCOME
Interest income increased 48.3% or $1.0 million to $3.2 million, for the nine
months ended September 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 $471,023 and $617,165, respectively. The
increase in interest income was partially offset by a decrease in interest
income on interest-bearing deposits of $51,834. 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
Bank during 1995, 1996 and 1997. 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 nine months ended September 30, 1997, the Bank recognized $340,229 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 $226,229
represents normal accretion based on the Bank's internal estimates of future
cash flows. Any changes from these estimates could result in either an increase
or decrease in accretion income. For the three months ended September 30, 1997,
interest income increased $409,320 to $1,226,373, or 50.1%, compared to the same
period in 1996. The increase in interest income was the result of an increase in
interest income on loans, investment securities, and interest-bearing deposits
of $97,097, $272,136, and $40,087, respectively.
9
<PAGE>
INTEREST EXPENSE
Interest expense increased 85.9% or $726,651 to $1,572,416, for the nine months
ended September 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 0.45% to 5.48% for the nine months
ended September 30, 1997 compared to the same period in 1996. Interest expense
increased $313,680 to $605,551, or 107.5%, for the three months ended September
30, 1997, compared to the same period in 1996, due to a higher volume of new
certificates of deposit and FHLB Advances.
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 (derived principally from loans and
investment securities) and interest expense (incurred 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. Interest margin refers to
the amount of net annualized interest income divided by average interest-earning
assets.
Net interest income for the nine months ended September 30, 1997, increased
$309,703, or 23.8%, to $1,609,405 from $1,229,703 compared to the same period in
1996. Average interest-earning assets increased by $15.0 million, or 54.6%, to
$42.6 million, for the nine months ended September 30, 1997 compared to the same
period in 1996. Average interest-bearing liabilities increased $15.9 million or
71.0% over the same period. The average net interest spread decreased from 5.34%
to 4.47% for the nine months ended September 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 0.42% and 0.45%, respectively. The Company's net
interest margin for the nine months ended September 30, 1997, was 5.03%,
compared to 6.28% for the same period in 1996. Net interest income for the three
months ended September 30, 1997, increased $95,640, or 18.2%, to $620,822 from
$525,182 compared to the same period in 1996.
Average interest-earning assets increased by $23.2 million, or 83.8%, to $50.9
million, for the three months ended September 30, 1997 compared to the same
period in 1996. Average interest-bearing liabilities increased $22.5 million or
97.8% over the same period. The average net interest spread decreased from 6.72%
to 4.32% for the three months ended September 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 2.16% and 0.24%, respectively. The
Company's net interest margin for the three months ended September 30, 1997, was
4.88%, compared to 7.58% 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>
For the Nine Months Ended September 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 (1) $ 19,896,501 $ 1,880,149 12.60% $ 10,978,516 $ 1,409,126 17.11%
Investment securities 19,661,783 1,179,790 8.00% 11,351,687 562,625 6.61%
Interest-bearing deposits and other 3,079,363 121,882 5.28% 5,251,491 173,716 4.41%
------------- ------------- ------ ------------ ---------- ------
Total earning assets 42,637,647 3,181,821 9.95% 27,581,694 2,145,467 10.37%
------ ------
Non interest earning assets 1,397,608 974,993
------------- ------------
Total assets $ 44,035,255 $ 28,556,687
============= ============
Liabilities and Stockholders' Equity:
Deposits:
Passbook 1,938,644 35,643 2.45% 2,347,878 46,428 2.64%
NOW & Money Market accounts 2,103,059 37,403 2.37% 489,263 8,378 2.28%
Certificates of deposit 30,475,981 1,315,441 5.76% 19,441,687 785,150 5.38%
Other borrowings 3,770,000 183,928 6.50% 140,426 5,808 5.51%
------------- ------------- ------ ------------ --------- ------
Total interest-bearing liabilities 38,287,684 1,572,416 5.48% 22,419,254 845,764 5.03%
Other liabilities 590,215 1,350,995
------------- ------------
Stockholders' equity 5,157,356 4,786,438
------------- ------------
Total liabilities and stockholders' equity $ 44,035,255 $ 28,556,687
============= ============
Excess of interest earning assets over
interest-bearing liabilities $ 4,349,964 $ 5,162,440
============= ============
------------- -----------
Net interest income $ 1,609,405 $ 1,299,703
============= ===========
Effective interest differential (spread) 4.47% 5.34%
------ -----
Net yield on average interest earning assets 5.03% 6.28%
====== =====
</TABLE>
- ----------------
(1) Interest on loans includes accretion income associated with loans purchased
at a discount. This income is recognized as a yield adjustment.
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.
<TABLE>
<CAPTION>
September 30, 1997 vs September 30, 1996
-----------------------------------------------------------
Increase or Decrease
Due to Change in
------------------------------------- Total
Average Average Increase
Rate/ Volume Analysis Volume Rate (Decrease)
- --------------------- ---------------- ----------------- ------------------
<S> <C> <C> <C>
Variance in interest income on:
Interest-earning assets:
Loans $ 697,526 $ (226,503) $ 471,023
Investment securities 479,252 137,913 617,165
Interest-bearing deposits and other (98,756) 46,922 (51,834)
----------- ----------- -----------
Total interest-earning assets 1,078,022 (41,668) 1,036,354
Interest-bearing deposits
Deposits:
Passbook $ (7,687) $ (3,097) $ (10,784)
NOW & Money Market accounts 28,689 336 29,025
Certificates of deposit 472,961 57,330 530,291
Other borrowings 173,103 5,017 178,120
----------- ----------- -----------
Total interest-bearing liabilities 667,066 59,586 726,652
----------- ----------- -----------
Change in net interest income 410,956 (101,254) 309,702
----------- ----------- -----------
</TABLE>
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 nine
months ended September 30, 1997 and remained unchanged during the three months
ended September 30, 1997 compared to the same periods during 1996. The allowance
for loan losses as a percentage of loans and leases outstanding was 0.75% at
September 30, 1997, compared to 1.09% at December 31, 1996 and 1.24% at
September 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 third quarter of 1997 or for the
comparable quarter in 1996.
12
<PAGE>
NONINTEREST INCOME
Noninterest income increased 190.7%, or $183,271 to $279,361, for the nine
months ended September 30, 1997, compared to the same period in 1996. The
increase was primarily the result of commission income of $171,179 generated by
the Company's brokerage subsidiary, USACapital, and an increase in the gain on
sales of investment securities of $23,099. Noninterest income increased $122,651
to $151,063 for the three months ended September 30, 1997, compared to the same
period in 1996. The increase was primarily the result of commission income of
$95,947 generated by USACapital during quarter ended September 30, 1997 as well
as increases in fees and service charges on loan and deposit accounts.
NONINTEREST EXPENSE
Noninterest expense increased 21.7%, or $235,381 to $1,322,612, for the nine
months ended September 30, 1997, compared to the same period in 1996.
Compensation expense increased $13,725 due to the hiring of additional
personnel. Occupancy expense, data processing, office, travel and entertainment,
advertising, depreciation and amortization expenses and other miscellaneous
expenses increased $169,802 as a result of the Bank's increased promotional
efforts to attract new customers. Professional fees increased $72,592 due to an
increase in outside consulting and legal services provided during the period.
The increase in noninterest expense for the nine months ended September 30,
1997, was partially offset by a decrease in insurance expense of $20,738.
Noninterest expense increased $93,037 or 24.0%, to $480,328, for the three
months ended September 30, 1997, compared to the same period in 1996. Increases
in occupancy, data processing, professional fees, advertising, office,
depreciation and amortization and other noninterest expenses of $135,188, were
partially offset by decreases in compensation, insurance and travel and
entertainment expenses of $42,151.
INCOME TAX EXPENSE
Income tax expense increased $203,301, and $113,697, respectively, for the nine
and three month periods ended September 30, 1997. The Company did not record an
income tax provision for the nine and three month periods ended September 30,
1996, because of prior net operating losses which were available for utilization
during those periods.
LOAN PORTFOLIO
Loans, (net of the allowance for loan losses, unearned fees and origination
costs and loans in process) were $33.8 million at September 30, 1997 compared to
$16.5 million at December 31, 1996. Loans, net represented 52.6% of total assets
and 73.2% of total deposits as of September 30, 1997 compared to 43.3% and
58.9%, respectively, at December 31, 1996. On September 30, 1997, the net book
value of nonaccrual loans was approximately $366,000 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
September 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.
13
<PAGE>
The following table summarizes the loan portfolio of the Bank by loan category
and amount at September 30, 1997, compared to December 31, 1996:
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------------ ---------------------------------
Amount Percent Amount Percent
------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Real estate $33,072 97.78% $14,648 88.62%
Commercial and industrial 708 2.09% 1,138 6.88%
Other 1,100 3.25% 1,226 7.42%
------- ------ ------- ------
Total loans 34,880 103.12% 17,012 102.92%
Less:
Loans in process 623 1.84% 215 1.30%
Unearned income 176 0.52% 86 0.52%
Allowance for loan losses 257 0.76% 182 1.10%
------- ------ ------- ------
Net loans $33,824 100.00% $16,529 100.00%
======= ====== ======= ======
</TABLE>
The following table summarizes the changes in the Bank's allowance for loan
losses for the period ended September 30, 1997, compared to December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Balance at beginning of period $ 182,079 $ 60,000
Additions:
Allowance of acquired banks -- --
Provision for loan losses 75,000 125,000
--------- ---------
Total additions 75,000 125,000
--------- ---------
Deductions:
Loan losses -- (2,921)
Less recoveries on loans -- --
--------- ---------
Net loan losses -- (2,921)
--------- ---------
--------- ---------
Balance at end of period $ 257,079 $ 182,079
========= =========
</TABLE>
14
<PAGE>
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at
September 30, 1997, and December 31, 1996, respectively, for each major category
of the Bank's investment securities:
<TABLE>
<CAPTION>
September 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 $ 2,492,418 $ 12,820 $ -- $ 2,505,238
Mortgage-backed securities 900,237 36,525 -- 936,761
Other securities 5,829,569 69,714 -- 5,899,283
----------- ----------- ------------ -----------
Total available-for-sale $ 9,222,224 $ 119,058 $ -- $ 9,341,282
=========== =========== ============ ===========
Held-to-Maturity
U.S. Government agency securities $ 3,526,563 $ 44,475 $ -- $ 3,571,038
Mortgage-backed securities 6,371,285 42,361 -- 6,413,646
Municipal Bonds 3,162,426 -- -- 3,162,426
Other securities 3,413,040 63,288 -- 3,476,328
----------- ----------- ------------ -----------
Total held-to-maturity $16,473,314 $ 150,124 $ -- $16,623,438
=========== =========== ============ ===========
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 and
repayments, net income, FHLB Advances, 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.
15
<PAGE>
Total deposits increased 65.1% to $46.2 million at September 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 its retail deposit products. 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 to rely on
customer deposits, maturing investment securities, sales of "Available-for-Sale"
securities, loan sales, loan repayments, net income, Federal Funds markets, and
FHLB Advances 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>
September 30, 1997 December 31, 1996
-------------------------------------- -----------------------------------------
Amount Percent Amount Percent
------------------ ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Demand $ 151,468 0.33% $ 58,659 0.21%
NOW & Money Market accounts 4,237,431 9.17% 891,640 3.19%
Passbook 1,847,594 4.00% 2,029,694 7.25%
Certificates of deposit 39,958,807 86.50% 24,993,154 89.35%
----------- ------ ----------- ------
$46,195,300 100.00% $27,973,147 100.00%
=========== ====== =========== ======
</TABLE>
The following table summarizes the maturity composition of certificates of
deposit at September 30, 1997, compared to December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------------------- -----------------------------------------
Amount Percent Amount Percent
------------------ ------------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Within one year $17,743,241 44.40% $13,968,430 55.89%
Over one year through two years 14,777,044 36.98% 4,199,501 16.80%
Over two years through three years 3,447,592 8.63% 4,289,518 17.16%
Over three years through five years 2,665,435 6.67% 1,322,451 5.29%
Over five years through ten years 1,325,495 3.32% 1,213,254 4.86%
----------- ------ ----------- ------
$39,958,807 100.00% $24,993,154 100.00%
=========== ====== =========== ======
</TABLE>
Other borrowings increased to $12.2 million at September 30, 1997, compared to
$5.1 million as of December 31, 1996. This increase was the result of additional
short-term FHLB Advances 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 FHLB Advances.
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 banks. 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.
16
<PAGE>
"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. The following table
sets forth the regulatory capital ratios for the Bank as of September 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 September 30, 1997: Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 5,102 11.2% $ 3,586 8.0% 4,483 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 4,845 10.6% $ 1,793 4.0% 2,690 6.0%
Tier I Capital
(Average Assets) $ 4,845 11.0% $ 1,761 4.0% 2,202 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>
17
<PAGE>
PART II. OTHER INFORMATION
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
On July 30, 1997, the Company held its annual meeting of shareholders.
At the meeting, the Company's shareholders (1) elected ten directors to
hold office until the 1998 annual meeting of shareholders and (2)
ratified the appointment of Grant Thornton, LLP as the Company's
independent auditors for the 1997 fiscal year. These matters were
approved by the Company's shareholders pursuant to the following votes:
<TABLE>
<CAPTION>
Votes
-----------------------------------
For Against Withheld Abstensions
--- ------- -------- -----------
<S> <C> <C> <C> <C>
1. Election of Directors
Bruce W. Kauffman 177,764 - 580 -
Leonard A. Sylk 177,764 - 580 -
Kenneth L. Tepper 177,764 - 580 -
Clarence L. Rader 178,234 - 110 -
Carmen J. Cocca, Jr. 177,764 - 580 -
Jeffrey A. D'Ambrosio 177,764 - 580 -
George C. Fogwell III 178,134 - 210 -
John A. Gambone 177,464 - 880 -
George M. Laughlin 177,764 - 580 -
Wayne O. Leevy 177,764 - 580 -
2. Ratification of Grant Thornton, LLP 177,644 100 - 600
</TABLE>
Item 5. Other Information
Not Applicable
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No.
-----------
27. Financial Data Schedule
(B) Reports on Form 8-K
A report on Form 8-K was filed during the quarter ended September
30, 1997, regarding the issuance of a 33% stock dividend payable on
July 18, 1997.
- -------------------------------
19
<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.
USABANCSHARES, INC.
Date: November 14, 1997 By: /s/ Kenneth L. Tepper
----------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ David J. Torpey
--------------------
David J. Torpey,
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 999,105
<INT-BEARING-DEPOSITS> 642,693
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,341,282
<INVESTMENTS-CARRYING> 16,473,314
<INVESTMENTS-MARKET> 16,623,438
<LOANS> 34,081,439
<ALLOWANCE> 257,079
<TOTAL-ASSETS> 64,268,640
<DEPOSITS> 46,195,300
<SHORT-TERM> 12,205,000
<LIABILITIES-OTHER> 448,474
<LONG-TERM> 0
0
0
<COMMON> 804,618
<OTHER-SE> 4,615,248
<TOTAL-LIABILITIES-AND-EQUITY> 64,268,640
<INTEREST-LOAN> 1,880,149
<INTEREST-INVEST> 1,179,790
<INTEREST-OTHER> 121,882
<INTEREST-TOTAL> 3,181,821
<INTEREST-DEPOSIT> 1,388,487
<INTEREST-EXPENSE> 1,572,416
<INTEREST-INCOME-NET> 1,609,405
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 45,162
<EXPENSE-OTHER> 1,322,612
<INCOME-PRETAX> 491,154
<INCOME-PRE-EXTRAORDINARY> 491,154
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,853
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 5.03
<LOANS-NON> 366,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 182,079
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 257,079
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 257,079
</TABLE>
