<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 March 31, 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 Identification Number)
incorporation or organization)
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 May 14, 1998: 1,583,038 shares
Class B Common Stock, $.01 par value, outstanding on May 14, 1998: 10,000 shares
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
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 21
Item 2. Change in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,079,232 $ 833,176
Interest-bearing deposits with banks 8,209,856 3,975,261
------------- ------------
Cash and cash equivalents 9,289,088 4,808,437
Securities available-for-sale 14,936,950 9,034,725
Securities held-to-maturity (fair value: 1998 - $14,593,207;
1997 - $15,643,630) 14,397,433 15,418,904
FHLB Stock 957,500 900,000
Loans receivable, net 59,345,422 56,002,164
Premises and equipment, net 1,396,945 1,152,789
Goodwill, net 79,282 79,648
Other assets (including accrued interest: 1998 - $943,955;
1997 - $847,056) 2,132,176 1,929,309
------------- ------------
Total assets $ 102,534,796 $ 89,325,976
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 82,480,237 $ 70,473,521
Borrowed funds 3,340,000 9,340,000
Collateralized borrowings 3,293,825 3,297,942
Accrued expenses and other liabilities 609,420 848,730
------------- ------------
Total liabilities 89,723,482 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 11,195,056 4,827,866
Accumulated earnings (deficit) 34,393 (378,182)
Accumulated other comprehensive (loss) income - unrealized
appreciation (depreciation) on securities available-for-sale (1,173) 102,292
------------- ------------
Total stockholders' equity 12,811,314 5,365,783
------------- ------------
Total liabilities and stockholders' equity
$ 102,534,796 $ 89,325,976
============= ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
3
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Interest income:
Loans $ 1,647,512 $ 582,028
Investment securities 547,619 313,638
Interest-bearing deposits and other 91,642 29,360
------------- ------------
Total interest income 2,286,773 925,026
Interest expense:
Deposits 1,080,422 398,721
Borrowed funds 93,558 47,980
------------- ------------
Total interest expense 1,173,980 446,701
Net interest income 1,112,793 478,325
Provision for loan losses 35,000 25,000
------------- ------------
Net interest income after provision for loan losses 1,077,793 453,325
Non-interest income:
Gain on sales of investment securities 39,330 6,552
Brokerage operations 162,014 -
Other 19,494 10,845
------------- ------------
Total non-interest income 220,838 17,397
Non-interest expense:
Compensation and benefits 272,071 199,932
Occupancy 72,087 39,575
Other 274,135 147,205
------------- ------------
Total non-interest expense 618,293 386,712
------------- ------------
Earnings before income taxes 680,338 84,010
Taxes on income 267,763 31,046
------------- ------------
Net earnings $ 412,575 $ 52,964
============= ============
Earnings per share - basic $ 0.34 $ 0.07
============= ============
Earnings per share - diluted $ 0.32 $ 0.07
============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
----------------- ------------
<S> <C> <C>
Net earnings $ 412,575 $ 52,964
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period,
net of taxes (103,465) (14,868)
---------- --------
Comprehensive income $ 309,110 $ 38,096
---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<PAGE>
USABancShares, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997
(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) $ 1,811,314
=========== ============ ============ ============ ============
</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>
Three Months Ended
March 31,
----------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 412,575 $ 52,964
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 28,972 10,899
Net accretion of discounts on purchased loan portfolios (258,290) (162,613)
Provision for loan losses 35,000 25,000
Net amortization (accretion) of investment securities premiums/discounts (12,865) 7,317
Amortization of Class B common stock - 27,140
Net gains on sale of investment securities (39,330) (6,552)
Increase in other assets (202,867) (224,399)
Increase (decrease) in other liabilities (239,310) 1,826
------------ ------------
Net cash used in operating activities (276,115) (268,418)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities available-for-sale 1,839,781 1,019,458
Proceeds from maturity or calls of investment securities available-for-sale 750,000
Proceeds from maturity or calls of investment securities held-to-maturity 1,000,000 (1,846,188)
Purchase of investment securities available-for-sale (8,569,758) (2,615,250)
Repayments of principal on investment securities held-to-maturity 47,953 253,773
Repayments of principal on investment securities available-for-sale - 23,540
(Purchase) redemptions of FHLB Stock (57,500) 96,400
Net increase in loans (3,119,968) (1,272,731)
Decrease in goodwill 366 2,290
Purchases of premises and equipment (273,128) (22,105)
------------ ------------
Net cash used in investing activities (8,382,254) (4,360,813)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 12,006,716 2,984,309
Net decrease in other borrowed funds (6,000,000) (1,895,000)
Proceeds from private placement 7,136,421 -
Increase in collateralized borrowings (4,117) -
------------ ------------
Net cash provided by financing activities 13,139,020 1,089,309
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,480,651 (3,539,922)
Cash and cash equivalents, beginning of period 4,808,437 4,214,186
----------- ------------
Cash and cash equivalents, end of period $ 9,289,088 $ 674,264
=========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
7
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of March 31, 1998, and for
the three month periods ended March 31, 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 month period ended March 31, 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 the these shares.
8
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Basic EPS Computation:
Numerator - Net earnings $ 412,575 $ 52,964
Denominator - Weighted average shares outstanding 1,206,970 794,119
--------- ---------
Basic EPS $ 0.34 $ 0.07
========= =========
Diluted EPS Computation:
Numerator - Net earnings $ 412,575 $ 52,964
Denominator - Weighted average shares outstanding 1,206,970 794,119
Effect of dilutive securities 68,886 -
--------- ---------
Diluted EPS $ 0.32 $ 0.07
========= =========
</TABLE>
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.
9
<PAGE>
USABancShares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
4. NEW PRONOUNCEMENTS - ( Continued)
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.
10
<PAGE>
USABancShares, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 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 $412,575, or $.32 per share, diluted, for
the three months ended March 31, 1998, compared to $52,964, or $.07 per share
for the three months ended March 31, 1997. The increase in net income was
primarily the result of an increase in net interest income of $634,468, and an
increase in non-interest income of $203,441. This was partially offset by an
increase in the provision for loan losses of $10,000, an increase in
non-interest expense of $231,581, and an increase in income tax expense of
$236,717. More detailed comparisons are discussed on the following pages.
11
<PAGE>
INTEREST INCOME
Interest income increased 147.2% or $1.4 million to $2.3 million, for the
three months ended March 31, 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 $1.1
million, $233,981, and $62,282, 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 March 31, 1998, the Bank
recognized $258,290 in accretion income associated with these discounted loan
pools.
INTEREST EXPENSE
Interest expense increased 162.8% or $727,279 to $1.2 million, for the three
months ended March 31, 1998, compared to the same period in 1997, due to
higher volumes of new certificates of deposit, Money market accounts, and
Federal Home Loan Bank ("FHLB") Advances. The average cost of funds, including
other borrowings, increased 0.37% to 5.89% for the three months ended March
31, 1998 compared to the same period in 1997.
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 three months ended March 31, 1998, increased
$634,468, or 137.8%, to $1.1 million from $478,325 for the same period in
1997. Average interest-earning assets increased by $53.9 million, or 143.3%,
to $91.5 million, for the three months ended March 31, 1998 compared to the
same period in 1997. Average interest-bearing liabilities increased $47.4
million or 146.3% over the same period. The average net interest margin
decreased from 5.09% to 4.86%, during the quarter, due to the volume of
interest-bearing liabilities increasing at a faster rate than interest-earning
assets, and the average rate on interest-bearing liabilities increasing at a
faster rate than the average rate on interest-earning assets.
12
<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>
Three Months Ended March 31,
---------------------------------------------------------------------------
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 $ 57,673,793 $ 1,647,512 11.43% $ 17,429,235 $ 582,028 13.36%
Investment securities 27,746,051 547,619 7.89% 17,910,935 313,638 7.00%
Interest-bearing deposits and other 6,092,559 91,642 6.02% 2,266,207 29,360 5.18%
------------ ----------- ------ ------------ --------- ------
Total earning assets $ 91,512,403 $ 2,286,773 10.00% $ 37,606,377 $ 925,026 9.84%
Liabilities:
Deposits:
Passbook $ 1,876,347 $ 12,429 2.65% $ 2,082,600 $ 12,584 2.42%
NOW accounts 934,999 9,241 3.95% 1,012,412 3,248 1.28%
Money Market accounts 5,770,017 58,457 4.05% - - 0.00%
Certificates of deposit 64,856,624 1,000,295 6.17% 26,298,190 382,889 5.82%
Other borrowings 6,340,000 93,558 5.90% 3,000,000 47,980 6.40%
------------ ----------- ----- ------------ --------- -----
Total interest-bearing liabilities $ 79,777,987 $ 1,173,980 5.89% $ 32,393,202 $ 446,701 5.52%
Excess of interest earning assets over ------------- ------------
interest-bearing liabilities $ 11,734,416 $ 5,213,175
============= ============
----------- ---------
Net interest income $ 1,112,793 $ 478,325
=========== =========
Effective interest differential (spread) 4.11% 4.32%
------ -----
Net yield on average interest earning assets 4.86% 5.09%
====== =====
(1) Average balances are calculated on a quarterly basis.
</TABLE>
13
<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>
March 31, 1998 vs March 31, 1997
--------------------------------------------------------------
Increase or Decrease
Due to Change in
------------------------------------ Total
Average Average Increase
Volume Rate (Decrease)
-------------- ------------ ---------------
<S> <C> <C> <C>
Variance in interest income on:
Interest-earning assets:
Loans $1,136,651 $(71,167) $1,065,484
Investment securities 189,999 43,982 233,981
Interest-bearing deposits and other 56,860 5,422 62,282
---------- -------- ---------
Total interest-earning assets 1,383,509 (21,762) 1,361,747
Interest-bearing deposits:
Deposits:
Passbook (1,273) 1,118 (155)
NOW accounts (585) 6,578 5,993
Money Market accounts 58,457 -- 58,457
Certificates of deposit 654,241 (36,835) 617,406
Other borrowings 48,979 (3,401) 45,578
---------- -------- ---------
Total interest-bearing liabilities 759,819 (32,540) 727,279
---------- -------- ---------
Change in net interest income $ 623,690 $ 10,778 $ 634,468
========== ======== ==========
</TABLE>
14
<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 $35,000 during the quarter ended March 31, 1998. The allowance for
loan losses as a percentage of loans and leases outstanding was 1.00% at March
31, 1998, compared to 1.01% at December 31, 1997 and 1.14% at March 31, 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.
NON-INTEREST INCOME
Non-interest income increased $203,441 to $220,838, for the three months ended
March 31, 1998, compared to the same period in 1997. The increase was
primarily the result of commission income of $162,014 generated by the
Company's brokerage subsidiary, USACapital, and an increase in the gain on
sales of investment securities of $32,778.
NON-INTEREST EXPENSE
Non-interest expense increased 59.9%, or $231,581 to $618,293, for the three
months ended March 31, 1998, compared to the same period in 1997. Compensation
and benefits expense increased $72,139 due to the hiring of additional
personnel. Occupancy expense increased $32,512 due to the costs associated
with the opening of the Bank's headquarters branch in Center City,
Philadelphia. Other expenses increased $126,930 as a result of the Bank's
increased promotional efforts to attract new customers.
INCOME TAX EXPENSE
Income tax expense increased to $236,717 to $267,763, for the three months
ended March 31, 1998, compared to the same period in 1997.
15
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) were $59.3 million at March 31, 1998
compared to $56.0 million at December 31, 1997. Loans receivable represented
57.9% of total assets and 72.0% of total deposits as of March 31, 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
March 31, 1998, compared to December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
(Dollars in thousands) March 31, December 31,
----------------------------- --------------------------
1998 % 1997 %
----------------------------- --------------------------
Real estate $ 60,111 101.3% $ 54,262 96.9%
Commercial and industrial 598 1.0% 1,091 1.9%
Other 2,784 4.7% 1,694 3.0%
------------- ------------- ----------- -----------
Total loans 63,493 107.0% 57,047 101.9%
Less:
Loans in process 3,320 5.6% 260 0.5%
Unearned income 233 0.4% 217 0.4%
Allowance for loan losses 595 1.0% 568 1.0%
------------- ------------- ------------- -----------
Net loans $ 59,345 100.0% $ 56,002 100.0%
============= ============= ============= ===========
</TABLE>
On March 31, 1998, the net book value of nonaccrual loans was approximately
$202,000 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 March 31, 1998. The Bank
will recognize income on nonaccrual loans, under the cash basis, when the
loans are brought current as to outstanding principal and collateral on the
loan is sufficient to cover the outstanding obligation to the Bank.
The following table summarizes the changes in the Bank's allowance for loan
losses for the period ended March 31, 1998, compared to December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Balance at beginning of year $ 567,940 $ 182,079
Provision for loan losses 35,000 415,000
Loan losses $ (8,077) $ (29,139)
------------ -----------
Balance at end of year $ 594,863 $ 567,940
------------ -----------
</TABLE>
16
<PAGE>
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at
March 31, 1998, and December 31, 1997, respectively, for each major category
of the Bank's investment securities:
<TABLE>
<CAPTION>
March 31, 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 $ 500,000 $ 4,302 $ - $ 504,302
Equity and other securities 14,438,528 - 5,880 14,432,648
------------- ----------- ------------ --------------
Total available-for-sale $ 14,938,528 $ 4,302 $ 5,880 $ 14,936,950
============= ============ ============ =============
Held-to-Maturity
U.S. Government agency securities $ 2,588,462 $ 1,808 $ - $ 2,590,270
Mortgage-backed securities 6,257,298 38,878 - 6,296,176
Municipal securities 3,162,835 88,992 - 3,251,827
Equity and other securities 2,388,838 66,096 - 2,454,934
------------- ------------ ------------ -------------
Total held-to-maturity $ 14,397,433 $ 195,774 $ - $ 14,593,207
============= ============ ============ =============
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>
17
<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 17.0% to $82.4
million at March 31, 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 the its retail deposit
products. Increases over the period were due to marketing efforts, and new
business development programs initiated by 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>
March 31, 1998 Decemnber 31, 1997
--------------------------------- ---------------------------------
Amount Percent Amount Percent
------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Demand $ 308,813 0.38% $ 257,325 0.37%
NOW Accounts 836,128 1.01% 688,177 0.98%
Money Market Accounts 2,386,413 2.89% 4,801,606 6.81%
Passbook 1,863,591 2.26% 2,018,768 2.86%
Certificates of deposit 77,085,292 93.46% 62,707,645 88.97%
------------ ----------- ------------ ----------
$ 82,480,237 100.00% $ 70,473,521 100.00%
------------ ----------- ------------ ----------
The following table summarizes the maturity composition of certificates of
deposit at March 31, 1998, compared to December 31, 1997:
March 31, 1998 Decemnber 31, 1997
------------------------------- ---------------------------------
1998 % 1997 %
------------ ----------- ---------------- ----------
Within one year $ 32,217,008 41.79% $ 26,499,563 42.26%
Over one year through two years 22,494,301 29.18% 21,383,648 34.10%
Over two years through three years 14,986,206 19.44% 8,414,801 13.42%
Over three years through five years 5,502,182 7.14% 4,733,566 7.55%
Over five years through ten years 1,885,595 2.45% 1,676,067 2.67%
------------ ------------ ------------ ----------
$ 77,085,292 100.00% $ 62,707,645 100.00%
============ ============ ============ ==========
</TABLE>
18
<PAGE>
Borrowed funds decreased $6.0 million to $3.3 million at March 31, 1998,
compared to $9.3 million as of December 31, 1997. This decrease was the result
of a paydowns on overnight FHLB advances during the quarter. 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 March 31, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
At March 31, 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 March 31, 1998: Amount Ratio Amount Ratio Amount Ratio
--------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 12,644 16.4% $ 6,178 8.0% 7,722 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 12,049 15.6% $ 3,089 4.0% 4,633 6.0%
Leverage $ 12,049 11.9% $ 4,059 4.0% 5,074 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>
19
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1998, the Company's actual and required minimum capital ratios
were as follows:
(Dollars in Thousands) For Capital
For the Company: Actual: Adequacy Purposes:
--------------------------- --------------------------
<S> <C> <C> <C> <C>
As of March 31, 1998: Amount Ratio Amount Ratio
-------- ------ ------- ------
Total Capital
(to Risk Weighted Assets) $ 13,326 17.2% $ 6,181 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 12,731 16.5% $ 3,090 4.0%
Leverage $ 12,731 12.4% $ 4,098 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>
20
<PAGE>
PART II
Item 1. Legal Proceedings
Neither the Corporation nor the Bank was engaged in any legal
proceeding of a material nature at March 31, 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
On February 13, 1998 the Company completed a private placement
in which it issued 769,231 shares of its Class A common stock
for an aggregate purchase price of $7,500,000 to institutional
investors. The placement agent for this transaction was Sandler
O'Neill & Partners, L.P. (See Note 2 in Notes to Consolidated
Financial Statements on page 8)
The Company paid Sandler O'Niell a fee of $125,000, for its
services in connection with the Offering and in addition, the
Company has agreed to grant Sandler O'Niell 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.
The private placement was conducted pursuant to Regulation D of
the Securities Act of 1933, as amended (the "Act") and was,
therefore, exempt from the registration requirements of the
Act.
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 *
11. Computation of Per Share Earnings
(Included in Financial Statements
on page 9)
27. Financial Data Schedule
(B) On March 4, 1998 the Company filed an 8-K reporting the
private placement of 769,231 shares of its Class A common stock
to institutional investors.
-------------------------------
* Incorporated by reference from the Registration Statement on
Form SB-2 of the Company, as amended, Registration No. 00027244
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania.
USABANCSHARES, INC.
Date: May 14, 1998 By: /s/ Kenneth L. Tepper
----------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1998 By: /s/ David J. Torpey
--------------------
David J. Torpey,
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
22
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000945532
<NAME> USA BANCSHARES, INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 1,079,232 157,881
<INT-BEARING-DEPOSITS> 8,209,856 516,383
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 14,936,950 7,661,474
<INVESTMENTS-CARRYING> 14,397,433 11,812,305
<INVESTMENTS-MARKET> 14,593,207 11,734,935
<LOANS> 59,345,422 18,146,907
<ALLOWANCE> 594,863 207,079
<TOTAL-ASSETS> 102,534,796 39,301,870
<DEPOSITS> 82,480,237 30,957,456
<SHORT-TERM> 3,340,000 3,155,000
<LIABILITIES-OTHER> 3,903,245 229,331
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 1,583,038 597,082
<OTHER-SE> 11,228,276 4,363,001
<TOTAL-LIABILITIES-AND-EQUITY> 102,534,796 39,301,870
<INTEREST-LOAN> 1,647,512 582,028
<INTEREST-INVEST> 547,619 313,638
<INTEREST-OTHER> 91,642 29,360
<INTEREST-TOTAL> 2,286,773 925,026
<INTEREST-DEPOSIT> 1,080,422 398,721
<INTEREST-EXPENSE> 1,173,980 446,701
<INTEREST-INCOME-NET> 1,112,793 478,325
<LOAN-LOSSES> 35,000 25,000
<SECURITIES-GAINS> 39,330 6,552
<EXPENSE-OTHER> 618,293 386,712
<INCOME-PRETAX> 680,338 84,010
<INCOME-PRE-EXTRAORDINARY> 680,338 84,010
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 267,763 52,964
<EPS-PRIMARY> 0.34 0.07
<EPS-DILUTED> 0.32 0.07
<YIELD-ACTUAL> 4.86 5.09
<LOANS-NON> 202,000 244,000
<LOANS-PAST> 22,000 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 567,940 182,079
<CHARGE-OFFS> 8,077 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 594,863 207,079
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 594,863 207,079
</TABLE>
