<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 Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 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 Lincoln Plaza, 1535 Locust 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 [ ]
Transitional Small Business Format: YES [ ] NO [X ]
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 13, 1998: 1,583,038 shares
Class B Common Stock, $.01 par value, outstanding on August 13, 1998: 10,000
shares
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Change in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
2
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 677,511 $ 833,176
Interest-bearing deposits with banks 9,023,541 3,975,261
------------- -------------
Cash and cash equivalents 9,701,052 4,808,437
Securities available-for-sale 18,907,646 9,034,725
Securities held-to-maturity (fair value: 1998 - $17,664,718;
1997 - $15,643,630) 17,413,781 15,418,904
FHLB Stock 2,954,600 900,000
Loans receivable, net 79,663,046 56,002,164
Premises and equipment, net 1,724,292 1,152,789
Goodwill, net 76,720 79,648
Other assets (including accrued interest: 1998 - $1,272,936;
1997 - $847,056) 4,246,928 1,929,309
------------- -------------
Total assets $ 134,688,065 $ 89,325,976
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 90,065,173 $ 70,473,521
Borrowed funds 27,263,007 9,340,000
Collateralized borrowings 3,293,825 3,297,942
Accrued expenses and other liabilities 953,304 848,730
------------- -------------
Total liabilities 121,575,309 83,960,193
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;
1,501,657 shares issued and outstanding and 81,381 shares of
converted and unissued Class B common stock 1,583,038 813,807
Additional paid-in capital 11,156,711 4,827,866
Accumulated earnings (deficit) 529,297 (378,182)
Accumulated other comprehensive (loss) income - unrealized
appreciation (depreciation) on securities available-for-sale (156,290) 102,292
------------- -------------
Total stockholders' equity 13,112,756 5,365,783
------------- -------------
Total liabilities and stockholders' equity $ 134,688,065 $ 89,325,976
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans $4,123,891 $1,206,521 $2,476,379 $ 622,800
Investment securities 1,238,195 696,429 690,576 382,791
Interest-bearing deposits and other 169,977 52,498 78,335 23,138
---------- ---------- ---------- ----------
Total interest income 5,532,063 1,955,448 3,245,290 1,028,729
Interest expense:
Deposits 2,321,278 832,144 1,240,856 433,422
Borrowed funds 383,212 134,719 289,654 86,740
---------- ---------- ---------- ----------
Total interest expense 2,704,490 966,863 1,530,510 520,162
Net interest income 2,827,573 988,585 1,714,780 508,567
Provision for loan losses 160,000 25,000 125,000 --
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 2,667,573 963,585 1,589,780 508,567
Non-interest income:
Gain on sales of investment securities 48,524 36,039 9,194 29,487
Brokerage operations 320,489 -- 158,475 --
Other 60,859 92,259 41,365 83,107
---------- ---------- ---------- ----------
Total non-interest income 429,872 128,298 209,034 112,594
Non-interest expense:
Compensation and benefits 600,993 415,900 328,923 215,968
Occupancy 185,572 83,276 113,486 43,701
Other 851,645 343,110 577,508 195,905
---------- ---------- ---------- ----------
Total non-interest expense 1,638,210 842,286 1,019,917 455,574
---------- ---------- ---------- ----------
Earnings before income taxes 1,459,235 249,597 778,897 165,587
Taxes on income 551,756 89,604 283,993 58,558
---------- ---------- ---------- ----------
Net earnings $ 907,479 $ 159,993 $ 494,904 $ 107,029
========== ========== ========== ==========
Earnings per share - basic $ 0.65 $ 0.20 $ 0.31 $ 0.13
========== ========== ========== ==========
Earnings per share - diluted $ 0.60 $ 0.20 $ 0.29 $ 0.13
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
--------- --------
<S> <C> <C>
Net earnings $ 907,479 $159,993
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period,
net of taxes (258,582) 11,908
--------- --------
Comprehensive income $ 648,897 $171,901
--------- --------
Three Months Ended
June 30,
--------------------------
1998 1997
--------- --------
Net earnings $ 494,904 $107,029
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period,
net of taxes (155,117) 26,776
--------- --------
Comprehensive income $ 339,787 $133,805
--------- --------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Net
Additional Accumulated unrealized
Common paid-in earnings gain (loss) on
Stock capital (deficit) AFS securities Total
----- ------- --------- -------------- -----
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 813,807 $ 4,827,866 $(378,182) $ 102,292 $ 5,365,783
Issuance of common stock, net of offering
expenses of $363,579 769,231 6,367,190 -- -- 7,136,421
Net unrealized loss on
securities available-for-sale -- -- -- (103,465) (103,465)
Net income -- -- 412,575 -- 412,575
--------- ------------ --------- --------- ------------
Balances, March 31, 1998 1,583,038 $ 11,195,056 $ 34,393 $ (1,173) $ 12,811,314
========= ============ ========= ========= ============
Offering expenses related to February 13,
1998 private placement -- (38,345) -- -- (38,345)
Net unrealized loss on
securities available-for-sale -- -- -- (155,117) (155,117)
Net income -- -- 494,904 -- 494,904
--------- ------------ --------- --------- ------------
Balances, June 30, 1998 1,583,038 $ 11,156,711 $ 529,297 $(156,290) $ 13,112,756
========= ============ ========= ========= ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 907,479 $ 159,993
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 103,875 26,585
Net accretion of discounts on purchased loan portfolios (455,402) (251,645)
Provision for loan losses 160,000 25,000
Net amortization of investment securities premiums/discounts 39,880 17,800
Amortization of Class B common stock -- 54,280
Net gains on sale of investment securities (48,524) (36,039)
Increase in other assets (2,317,619) (396,600)
Increase in other liabilities 104,574 109,085
------------ ------------
Net cash used in operating activities (1,505,737) (291,541)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities available-for-sale 2,408,607 1,354,800
Proceeds from sale of investment securities held-to-maturity -- 1,001,250
Proceeds from maturity or calls of investment securities available-for-sale 1,000,000 --
Proceeds from maturity or calls of investment securities held-to-maturity 1,000,000 500,000
Purchase of investment securities available-for-sale (13,544,279) (4,330,435)
Purchase of investment securities held-to-maturity (3,140,004) (2,946,188)
Repayments of principal on investment securities held-to-maturity 157,940 379,574
Repayments of principal on investment securities available-for-sale -- 65,144
Purchase of FHLB Stock (2,054,600) (125,000)
Cash of acquired entity -- 44,810
Net increase in loans (23,365,480) (4,008,807)
Decrease in goodwill 2,928 30,677
Purchases of premises and equipment (675,378) (44,998)
------------ ------------
Net cash used in investing activities (38,210,266) (8,079,173)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 19,591,652 10,592,233
Net increase (decrease) in other borrowed funds 17,923,007 (845,000)
Proceeds from private placement 7,098,076 --
Increase in collateralized borrowings (4,117) --
------------ ------------
Net cash provided by financing activities 44,608,618 9,747,233
------------ ------------
Net increase in cash and cash equivalents 4,892,615 1,376,519
Cash and cash equivalents, beginning of period 4,808,437 4,214,186
------------ ------------
Cash and cash equivalents, end of period $ 9,701,052 $ 5,590,705
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
7
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of June 30, 1998, and for the
three and six month periods ended June 30, 1998 and 1997 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 three and six month
periods ended June 30, 1998, are not necessarily indicative of results to be
anticipated for the full year.
2. PRIVATE PLACEMENT
On February 13, 1998, the Company issued 769,231 shares of its Class A common
stock in conjunction with a private placement offering (the "Offering"). Total
cash received was $7,136,421, net of related Offering costs of $363,579. In
connection with the Offering, the Company granted, to the placement agent,
warrants convertible for a period of five years into 3.25% of the Company's
common stock. The number of warrants will be adjusted for stock splits, stock
dividends, and the issuance of additional shares so as to maintain the
underwriter's ownership of the fully diluted common stock at 3.25% for a period
of three years from the close of the offering. In addition, in connection with
the offering, the Company and the President and CEO have entered into an
agreement by which the Company has an option to pay $150,000 per year for each
of the three years beginning in 1998 in exchange for the President agreeing to
waive any future exercise of the non-dilutive feature of the Class B common
stock. If the Company does not make the optional payment on January 2nd of each
year, the President will be entitled to implement the anti-dilutive feature for
10% of any Class A common stock issued during the year of non-payment. The
Company exercised its option for 1998 upon the close of the offering.
3. COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share amounts are computed by dividing net earnings by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share amounts are computed by dividing net earnings by the weighted
average number of shares and all dilutive potential shares outstanding during
the period. As discussed in note 2 above, the Company completed a private
placement on February 13, 1998 issuing 769,231 shares of its Class A common
stock. The average number of shares and dilutive potential shares have been
restated to reflect the issuance of these shares.
8
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
3. COMPUTATION OF PER SHARE EARNINGS - (Continued)
The following information was used in the computation of earnings per share on
both a basic and diluted basis for the six and three month periods ended June
30, 1998 and 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1998 1997
<S> <C> <C>
Basic EPS Computation:
Numerator - Net earnings $ 907,479 $159,993
Denominator - Weighted average shares outstanding 1,396,043 803,205
---------- --------
Basic EPS $ 0.65 $ 0.20
========== ========
Diluted EPS Computation:
Numerator - Net earnings $ 907,479 $159,993
Denominator - Weighted average shares outstanding 1,396,043 803,205
Effect of dilutive securities 105,466 --
---------- --------
Diluted EPS $ 0.60 $ 0.20
========== ========
Three Months Ended
June 30,
--------------------------------
1998 1997
---------- --------
Basic EPS Computation:
Numerator - Net earnings $ 494,904 $107,029
Denominator - Weighted average shares outstanding 1,583,038 803,464
---------- --------
Basic EPS $ 0.31 $ 0.13
========== ========
Diluted EPS Computation:
Numerator - Net earnings $ 494,904 $107,029
Denominator - Weighted average shares outstanding 1,583,038 803,464
Effect of dilutive securities 137,654 --
---------- --------
Diluted EPS $ 0.29 $ 0.13
========== ========
</TABLE>
9
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
4. NEW PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 129, "Disclosure Information about Capital Structure". SFAS
No.129 summarizes previously issued disclosure guidance contained within APB
Opinion No. 10 and No. 15, as well as SFAS No. 47. The Company's current
disclosures were not affected by the adoption of SFAS No. 129.
On January 1, 1998, the Company adopted 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 circumstances
from non-owner sources. Prior period amounts have been restated to conform to
the provisions of SFAS No. 130. The adoption of SFAS No. 130 did not have a
material impact on the Company's financial position or results of operations.
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires that
public business enterprises report certain information about operating segments
in a complete set of financial statements of the enterprise and in condensed
financial statements of interim periods issued to stockholders. It also requires
the reporting of certain information about their products and services, the
geographic area in which they operate, and their major customers. The adoption
of SFAS No. 131 did not have an impact on the Company's financial position or
results of operations.
The American Institute of Certified Public Accountants (AICPA) executive
committee has issued Statement of Position (SOP) 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. The SOP was issued
to provide authoritative guidance on the subject of accounting for the cost
associated with the purchase or development of computer software. The statement
is effective for fiscal years beginning after December 15, 1998 for costs
incurred in those fiscal years for all projects, including projects in progress
when the SOP is adopted. The adoption of SOP 98-1 is not expected to have a
material impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) Issued Statement
of Financial Accounting Standards (SFAS) No. 133 ,"Accounting for Derivative
Instruments and Hedging Activity." SFAS No.133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (gains and
losses) depends on the intended use of the derivative and resulting designation.
SFAS No.133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Earlier application is permitted only as of the beginning of any
fiscal quarter. The Company is currently reviewing the provisions of SFAS
No.133.
10
<PAGE>
USABancShares, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1998
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-QSB contains forward-looking
information. The forward-looking information contained herein is subject to
certain risk and uncertainties that could cause actual results to differ
materially from those projected. For example, risk and uncertainties can arise
with changes in: general economic conditions, including their impact on capital
expenditures; business conditions in the financial services industry; the
regulatory environment; rapidly changing technology and evolving banking
industry standards; competitive factors, including increased competition with
community, regional, and national financial institutions, new services and
products offered by competitors; and price pressures. Readers are cautioned not
to place undue reliance on the forward-looking information included within,
which reflects management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise or update this forward-looking
information to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the risk factors described in other documents
the Company files from time to time with the Securities and Exchange Commission.
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" problem. The Year
2000 problem is the result of computer programs using two digits rather than
four to define the year. Any of the Company's programs that are time sensitive
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. Management
anticipates that the enhancements necessary to prepare its mission critical
systems for the year 2000 will be completed in early 1999.
The Company is also aware of the risks to third parties, including vendors (and
to the extent appropriate, depositors and borrowers) and the potential adverse
impact on the Company resulting from failures by these parties to adequately
address the Year 2000 problem. The Company has been communicating with its
outside data processing service bureau, as well as other third party service
providers, to assess their progress in evaluating and implementing any
corrective measures required by them to be prepared for the year 2000. To date,
the Company has not been advised by any of its primary vendors that they do not
have plans in place to address and correct the Year 2000 problem; however, no
assurance can be given as to the adequacy of such plans or to the timeliness of
their implementation.
Based on the Company's current knowledge, the expense of the year 2000 project
as well as the related potential effect on the Company's earnings is not
expected to have a material effect on the Company's financial position or
results of operations.
NET INCOME
The Company reported net earnings of $907,479, or $.54 per share, diluted, for
the six months ended June 30, 1998, compared to $159,993, or $.27 per share for
the six months ended June 30, 1997. The increase in net income was primarily the
result of an increase in net interest income of $1.8 million, and an increase in
non-interest income of $301,574. This was partially offset by an increase in the
provision for loan losses of $135,000, an increase in non-interest expense of
$795,924, and an increase in income tax expense of $462,152.
11
<PAGE>
The Company reported net earnings of $494,904, or $.53 per share, diluted, for
the three months ended June 30, 1998, compared to $107,029, or $.18 per share
for the three months ended June 30, 1997. The increase in net income was
primarily the result of an increase in net interest income of $1.2 million, and
an increase in non-interest income of $96,440. This was partially offset by an
increase in the provision for loan losses of $125,000, an increase in
non-interest expense of $564,343, and an increase in income tax expense of
$225,435.
INTEREST INCOME
Interest income increased 182.9% or $3.6 million to $5.5 million, for the six
months ended June 30, 1998, compared to the same period in 1997. The increase in
interest income was the result of an increase in interest income on loans,
investment securities, and interest-bearing deposits of $2.9 million, $541,766,
and $117,479, respectively. 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 since 1995. 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). Any changes from these estimates could
result in either an increase or decrease in accretion income. During the six
months ended June 30, 1998, the Bank recognized $455,402 in accretion income
associated with these discounted loan pools.
Interest income increased 215.5% or $2.2 million to $3.2 million, for the three
months ended June 30, 1998, compared to the same period in 1997. The increase in
interest income was the result of an increase in interest income on loans,
investment securities, and interest-bearing deposits of $1.89 million, $307,785,
and $55,197, respectively. 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 since 1995. 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). Any changes from these estimates could
result in either an increase or decrease in accretion income. During the three
months ended June 30, 1998, the Bank recognized $197,112 in accretion income
associated with these discounted loan pools.
INTEREST EXPENSE
Interest expense increased 179.7% or $1.7 million to $2.7 million, for the six
months ended June 30, 1998, compared to the same period in 1997, due to higher
volumes of new certificates of deposit, money market accounts, and FHLB
Advances. The average cost of funds, including other borrowings, increased 0.27%
to 5.71% for the six months ended June 30, 1998 compared to the same period in
1997. Interest expense increased 194.2% or $1.0 million to $1.5 million, for the
three months ended June 30, 1998, compared to the same period in 1997, due to
higher volumes of new certificates of deposit, Money market accounts, and FHLB
Advances.
12
<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 volumes 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, 1998, increased $1.8
million, or 176.8%, to $2.8 million from $988,585 for the same period in 1997.
Average interest-earning assets increased by $67.4 million, or 171.6%, to $106.7
million, for the six months ended June 30, 1998 compared to the same period in
1997. Average interest-bearing liabilities increased $59.2 million or 166.5%
over the same period. The average net interest margin increased from 5.03% to
5.30%, during the period, due to the volume of interest-earning assets
increasing at a faster rate than interest-bearing liabilities, and the average
rate on interest-earning assets increasing at a faster rate than the average
rate on interest-bearing liabilities. Net interest income for the three months
ended June 30, 1998, increased $1.2 million, or 237.2%, to $1.7 million from
$508,567 for the same period in 1997.
13
<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,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- --------------------------------------
Average Average Average Average
Assets: Balance (1) Interest Rate Balance (1) Interest Rate
------------ ---------- ---- ----------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 67,832,605 $4,123,891 12.16% $18,610,161 $1,206,521 12.97%
Investment securities 32,360,272 1,238,195 7.65% 18,722,683 696,429 7.44%
Interest-bearing deposits and other 6,499,401 169,977 5.23% 1,951,192 52,498 5.38%
------------ ---------- ---- ----------- ---------- ----
Total earning assets $106,692,278 $5,532,063 10.37% $39,284,036 $1,955,448 9.96%
Liabilities:
Deposits:
Passbook $ 1,789,834 $ 23,276 2.60% $ 1,936,722 $ 24,105 2.49%
NOW accounts 937,254 9,454 2.02% 1,038,013 8,488 1.64%
Money Market accounts 2,319,207 75,801 6.54% -- -- 0.00%
Certificates of deposit 75,738,000 2,212,747 5.84% 28,415,356 799,551 5.63%
Other borrowings 13,901,504 383,212 5.51% 4,136,667 134,719 6.51%
------------ ---------- ---- ----------- ---------- ----
Total interest-bearing liabilities $ 94,685,799 $2,704,490 5.71% $35,526,758 $ 966,863 5.44%
Excess of interest earning assets over ------------ -----------
interest-bearing liabilities $ 12,006,479 $ 3,757,278
============ ---------- =========== ----------
Net interest income $2,827,573 $ 988,585
========== ==========
Effective interest differential (spread) 4.66% 4.51%
---- ----
Net yield on average interest earning assets 5.30% 5.03%
==== ====
</TABLE>
14
<PAGE>
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>
Six Months Ended
June 30, 1998 vs June 30, 1997
----------------------------------------------------------
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 $ 2,987,695 $ (70,325) $ 2,917,370
Investment securities 521,262 20,504 541,766
Interest-bearing deposits and other 118,906 (1,427) 117,479
----------- ----------- -----------
Total interest-earning assets $ 3,627,863 $ (51,249) $ 3,576,615
Interest-bearing deposits:
Deposits:
Passbook $ (2,029) $ 1,200 $ (829)
NOW accounts (687) 1,653 966
Money Market accounts 75,801 -- 75,801
Certificates of deposit 1,381,423 31,773 1,413,196
Other borrowings 265,782 (17,289) 248,493
----------- ----------- -----------
Total interest-bearing liabilities $ 1,720,290 $ 17,337 $ 1,737,627
----------- ----------- -----------
Change in net interest income $ 1,907,573 $ (68,586) $ 1,838,988
----------- ----------- -----------
</TABLE>
15
<PAGE>
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 increased $135,000 during the six
months ended June 30, 1998. The allowance for loan losses as a percentage of
loans and leases outstanding was .90% at June 30, 1998, compared to 1.01% at
December 31, 1997 and .99% at June 30, 1997. 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. During the three months ended June 30,
1998 provision for loan losses increased $125,000 compared to the same period in
1997.
NON-INTEREST INCOME
Non-interest income increased $301,574 to $429,872, for the six months ended
June 30, 1998, compared to the same period in 1997. The increase was primarily
the result of commission income of $320,489 generated by the Company's brokerage
subsidiary, USACapital, and an increase in the gain on sales of investment
securities of $12,485. This was partially offset by a decrease in other
non-interest income of $31,400.
Non-interest income increased $96,440 to $209,034, for the three months ended
June 30, 1998, compared to the same period in 1997. The increase was primarily
the result of commission income of $158,475 generated by the Company's brokerage
subsidiary, USACapital. This was partially offset by a decrease in the gain on
sales of investment securities of $20,293 and other non-interest income of
$41,742.
NON-INTEREST EXPENSE
Non-interest expense increased 94.5%, or $795,924 to $1.6 million, for the six
months ended June 30, 1998, compared to the same period in 1997. Compensation
and benefits expense increased $185,093 due to the hiring of additional
personnel. Occupancy expense increased $102,296 due to the costs associated with
the opening of the Bank's headquarters branch in Center City, Philadelphia.
Other expenses increased $508,535 as a result of the Bank's increased
promotional efforts to attract new customers.
Non-interest expense increased 123.9%, or $564,343 to $1.0 million, for the
three months ended June 30, 1998, compared to the same period in 1997.
Compensation and benefits expense increased $112,955 due to the hiring of
additional personnel. Occupancy expense increased 69,785 due to costs associated
with the opening of the Bank's headquarters branch in Center City, Philadelphia.
Other expenses increased $381,603 as a result of the Bank's increased
promotional efforts to attract new customers.
INCOME TAX EXPENSE
Income tax expense increased $462,152 to $551,756, for the six months ended June
30, 1998, compared to the same period in 1997. Income tax expense increased
$225,435 to $283,993, for the three months ended June 30, 1998, compared to the
same period in 1997.
16
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) were $79.7 million at June 30, 1998
compared to $56.0 million at December 31, 1997. Loans receivable represented
59.2% of total assets and 88.3% of total deposits as of June 30, 1998 compared
to 62.7% and 79.5%, respectively, at December 31, 1997. The following table
summarizes the loan portfolio of the Bank by loan category and amount at June
30, 1998, compared to December 31, 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, December 31,
-------------------------------- --------------------------------
1998 % 1997 %
------- ---- ------- ----
<S> <C> <C> <C> <C>
Real estate $76,316 95.8% $54,262 96.9%
Commercial and industrial 759 1.0% 1,091 1.9%
Other 3,536 4.4% 1,694 3.0%
------- ---- ------- ----
Total loans 80,611 101.2% 57,047 101.9%
Less:
Loans in process -- 0.0% 260 0.5%
Unearned income 228 0.3% 217 0.4%
Allowance for loan losses 720 0.9% 568 1.0%
------- ---- ------- ----
Net loans $79,663 100.0% $56,002 100.0%
======= ===== ======= =====
</TABLE>
On June 30, 1998, the net book value of nonaccrual loans was approximately
$169,000 compared to $286,987 at December 31, 1997. These amounts represented
nonaccrual balances on discounted commercial and residential real estate loans
acquired by the Bank and not on balances originated directly by the Bank. There
were no troubled debt restructured loans as of June 30, 1998. The Bank will
recognize income on nonaccrual loans, on a 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, 1998, compared to December 31, 1997:
1998 1997
--------- ---------
Balance at beginning of year $ 567,940 $ 182,079
Provision for loan losses 160,000 415,000
Loan losses $ (8,077) $ (29,139)
--------- ---------
Balance at end of year $ 719,863 $ 567,940
========= =========
17
<PAGE>
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at June
30, 1998, and December 31, 1997, respectively, for each major category of the
Bank's investment securities:
<TABLE>
<CAPTION>
June 30, 1998
--------------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- ----- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
U.S. Government agency securities $ 250,000 $ 1,250 $ -- $ 251,250
Equity and other securities 18,903,522 -- 247,126 18,656,396
----------- -------- --------- -----------
Total available-for-sale $19,153,522 $ 1,250 $ 247,126 $18,907,646
=========== ======== ========= ===========
Held-to-Maturity
U.S. Government agency securities $ 2,645,138 $ -- $ (23,761) $ 2,621,377
Mortgage-backed securities 6,146,183 46,525 -- 6,192,708
Municipal securities 3,162,997 79,020 -- 3,242,017
Equity and other securities 5,459,463 149,153 -- 5,608,616
----------- -------- --------- -----------
Total held-to-maturity $17,413,781 $274,698 $ (23,761) $17,664,718
=========== ======== ========= ===========
December 31, 1997
--------------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- ----- -----------
Available-for-Sale
U.S. Government agency securities $ 1,243,139 $ 15,824 $ -- $ 1,258,963
Equity and other securities 7,636,598 150,461 11,297 7,775,762
----------- -------- --------- -----------
Total available-for-sale $ 8,879,737 $166,285 $ 11,297 $ 9,034,725
=========== ======== ========= ===========
Held-to-Maturity
U.S. Government agency securities $ 3,557,087 $ -- $ 10,202 $ 3,546,885
Mortgage-backed securities 6,306,384 50,074 -- 6,356,458
Municipal securities 3,162,576 100,831 -- 3,263,407
Equity and other securities 2,392,857 84,023 -- 2,476,880
----------- -------- --------- -----------
Total held-to-maturity $15,418,904 $234,928 $ 10,202 $15,643,630
----------- -------- --------- -----------
</TABLE>
18
<PAGE>
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 27.8% to $90.1 million at June 30, 1998,
compared to $70.5 million as of December 31, 1997. 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 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>
June 30, 1998 December 31, 1997
------------------------------------ ------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Demand $ 668,008 0.74% $ 257,325 0.37%
NOW Accounts 1,038,380 1.15% 688,177 0.98%
Money Market Accounts 2,252,000 2.50% 4,801,606 6.81%
Passbook 1,716,078 1.91% 2,018,768 2.86%
Certificates of deposit 84,390,707 93.70% 62,707,645 88.97%
----------- ------ ----------- ------
$90,065,173 100.00% $70,473,521 100.00%
=========== ====== =========== ======
</TABLE>
The following table summarizes the maturity composition of certificates of
deposit at June 30, 1998, compared to December 31, 1997:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------------------------- --------------------------------
1998 % 1997 %
------ ------- ------ -------
<S> <C> <C> <C> <C>
Within one year $36,761,972 43.56% $26,499,563 42.26%
Over one year through two years 19,766,846 23.42% 21,383,648 34.10%
Over two years through three years 20,384,361 24.15% 8,414,801 13.42%
Over three years through five years 6,245,401 7.40% 4,733,566 7.55%
Over five years through ten years 1,232,127 1.46% 1,676,067 2.67%
----------- ------ ----------- ------
$84,390,707 100.00% $62,707,645 100.00%
=========== ====== =========== ======
</TABLE>
19
<PAGE>
Borrowed funds increased $17.9 million to $27.3 million at June 30, 1998,
compared to $9.3 million as of December 31, 1997. This increase was primarily
the result of the utilization of FHLB advances to fund earning-asset growth
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
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that , if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
At June 30, 1998, the Bank's actual and required minimum capital ratios were as
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) To Be Well
Capitalized Under
For Capital Prompt Corrective
For the Bank: Actual: Adequacy Purposes: Action Provisions:
- ------------- -------------------- ----------------------- --------------------
As of June 30, 1998: Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 13,255 13.4% $ 7,888 8.0% 9,860 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 12,535 12.7% $ 3,944 4.0% 5,916 6.0%
Leverage $ 12,535 9.7% $ 5,147 4.0% 6,434 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 5,315 7.9% $ 5,400 8.0% 6,750 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 4,747 7.0% $ 2,700 4.0% 4,050 6.0%
Leverage $ 4,747 5.4% $ 3,548 4.0% 4,435 5.0%
</TABLE>
20
<PAGE>
At June 30, 1998, the Company's actual and required minimum capital ratios were
as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) For Capital
For the Company: Actual: Adequacy Purposes:
- ---------------- ----------------------- ---------------------
As of June 30, 1998: Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 13,912 13.3% $ 8,383 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 13,192 12.6% $ 4,192 4.0%
Leverage $ 13,192 9.8% $ 5,388 4.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 5,752 8.5% $ 5,431 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 5,184 7.6% $ 2,715 4.0%
Leverage $ 5,184 5.8% $ 3,570 4.0%
</TABLE>
RECENT EVENTS
On July 23, 1998, the Company's Board of Directors declared a 33% stock
dividend, payable August 17, 1998 to stockholders of record as of August 3,
1998.
21
<PAGE>
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank was engaged in any legal
proceeding of a material nature at June 30, 1998. From time to
time, the Company is party to legal proceedings in the ordinary
course of business wherein it enforces its security interest in
loans.
Item 2. Changes in Securities
None
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
----------- ----------------
3. Articles and Bylaws *
27. Financial Data Schedule
(B) On July 28, 1998 the Company filed an 8-K reporting the
declaration of a 33% stock dividend, by the Company's Board of
Directors, payable August 17, 1998 to stockholders of record as
of August 3, 1998.
- -------------------------------
* Incorporated by reference from the Registration Statement on Form SB-2 of the
Company, as amended, Registration No. 00027244
22
<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, hereunto duly authorized, in the City of Philadelphia, Commonwealth
of Pennsylvania.
USABANCSHARES, INC.
Date: August 13, 1998 By: /s/ Kenneth L. Tepper
----------------------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 By: /s/ David J. Torpey
----------------------------------
David J. Torpey,
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
23
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000945532
<NAME> USABANCSHARES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,557,005
<INT-BEARING-DEPOSITS> 9,023,541
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,907,646
<INVESTMENTS-CARRYING> 17,413,781
<INVESTMENTS-MARKET> 17,664,718
<LOANS> 80,382,909
<ALLOWANCE> 719,863
<TOTAL-ASSETS> 134,672,933
<DEPOSITS> 90,065,173
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,231,997
<LONG-TERM> 27,263,007
0
0
<COMMON> 1,583,038
<OTHER-SE> 11,529,718
<TOTAL-LIABILITIES-AND-EQUITY> 134,672,933
<INTEREST-LOAN> 4,123,891
<INTEREST-INVEST> 1,238,195
<INTEREST-OTHER> 169,977
<INTEREST-TOTAL> 5,532,063
<INTEREST-DEPOSIT> 2,321,278
<INTEREST-EXPENSE> 2,704,490
<INTEREST-INCOME-NET> 2,827,573
<LOAN-LOSSES> 160,000
<SECURITIES-GAINS> 48,524
<EXPENSE-OTHER> 1,638,210
<INCOME-PRETAX> 1,459,235
<INCOME-PRE-EXTRAORDINARY> 1,459,235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 907,479
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 5.30
<LOANS-NON> 169,000
<LOANS-PAST> 1,291,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 567,940
<CHARGE-OFFS> 8,077
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 719,863
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 719,863
</TABLE>
