<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 September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-27244
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USABancShares.com, 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)
1535 Locust Street, Philadelphia, PA, 19102
-------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(215) 569-4200
--------------
(Registrant's telephone number, including area code)
USABanc.com, Inc. and USABancShares, Inc.
-----------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 November 12, 1999:
5,423,784 shares
Class B Common Stock, $.01 par value, outstanding on November 12, 1999:
216,460 shares
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TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page #
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Comprehensive Income (Loss) 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 10
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 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 25
2
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USABancShares.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in Thousands, except per share data)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,603 $ 1,335
Interest-bearing deposits with banks 12,172 7,706
Secondary Offering Receivable 8,075 -
Securities available-for-sale 38,240 28,389
Securities held-to-maturity (fair value:
1999 - $54,304; 1998 - $15,951) 56,748 15,755
FHLB Stock 4,011 3,523
Loans receivable, net 200,696 102,138
Premises and equipment, net 3,043 2,023
Accrued interest receivable 3,212 1,633
Other real estate owned 55 66
Goodwill, net 71 69
Deferred income taxes 832 573
Bank Owned Life Insurance 5,088 -
Other assets 4,761 1,896
-------------------------------------
Total assets $ 340,607 $ 165,106
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 2,712 $ 1,439
NOW 1,996 846
Money Market 658 2,345
Savings and Passbook 25,423 5,281
Time 241,884 104,476
-------------------------------------
Total deposits 272,673 114,387
Borrowed funds:
Short term borrowings - 6,106
Long term borrowings 30,000 25,000
Guaranteed Preferred Beneficial Interests in
Subordinated Debt 10,000 -
Collateralized borrowings 1,980 4,199
Accrued interest payable 2,623 399
Accrued expenses and other liabilities 2,316 1,418
-------------------------------------
Total liabilities 319,592 151,509
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 5,000,000 authorized shares;
no shares issued and outstanding - -
Common stock, $1.00 par value; 10,000,000 authorized shares;
5,420,784 shares issued and outstanding and 216,460 shares
of converted and unissued Class B common stock, actual
5,637,244 shares issued and outstanding, as adjusted 5,637 4,231
Additional paid-in capital 15,254 8,568
Accumulated earnings 1,473 1,112
Accumulated other comprehensive (loss) - unrealized
depreciation on securities available-for-sale (1,349) (314)
-------------------------------------
Total stockholers' equity 21,015 13,597
-------------------------------------
Total liabilities and stockholders' equity $ 340,607 $ 165,106
=====================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financialstatements.
3
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USABancShares.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in Thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 10,024 $ 6,520 $ 4,287 $ 2,396
Investment securities 4,681 2,084 1,973 846
Interest-bearing deposits and other 208 262 104 96
-------- ------- ------- -------
Total interest income 14,913 8,866 6,364 3,338
Interest expense:
Deposits 6,958 3,784 3,375 1,463
Borrowed funds 1,829 775 665 391
-------- ------- ------- -------
Total interest expense 8,787 4,559 4,040 1,854
-------- ------- ------- -------
Net interest income 6,126 4,307 2,324 1,484
Provision for loan losses 1,075 310 825 150
-------- ------- ------- -------
Net interest income after provision for loan losses 5,051 3,997 1,499 1,334
Non-interest income:
Service Fee income 150 83 40 27
Gain on sales of investment securities 31 126 - 78
Gain on sales of loans receivable 1,402 - 1,361 -
Gain on sale of real estate owned 60 - - -
Brokerage operations 102 170 (91) 76
Other 290 11 156 6
-------- ------- ------- -------
Total non-interest income 2,035 390 1,466 187
Non-interest expense:
Salaries and employee benefits 2,273 1,034 927 492
Net occupancy expense 558 256 216 83
Professional fees 367 181 168 77
Office expenses 203 93 102 23
Data processing fees 461 85 340 23
Advertising expense 1,466 111 1,334 53
Other operating expenses 1,118 703 456 305
-------- ------- ------- -------
Total non-interest expense 6,446 2,463 3,543 1,056
-------- ------- ------- -------
Income before income taxes 640 1,924 (578) 465
Income taxes 279 747 (15) 196
-------- ------- ------- -------
Net income $ 361 $ 1,177 $ (563) $ 269
======== ======= ======= =======
Earnings per share - basic (1) $ 0.09 $ 0.30 $ (0.13) $ 0.06
======== ======= ======= =======
Earnings per share - diluted (1) $ 0.07 $ 0.28 $ (0.11) $ 0.06
======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
(1) All per share data has been adjusted to reflect all dividends and stock
splits.
4
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USABancShares.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
-------- -------
<S> <C> <C>
Net income $ 361 $ 1,177
Other comprehensive loss:
Unrealized losses on securities available-for-sale:
Unrealized holding losses arising during the period,
net of taxes (1,035) (289)
------- -------
Comprehensive income (Loss) $ (674) $ 888
======= =======
Three Months Ended
September 30,
----------------------------------
1999 1998
-------- --------
Net income (Loss) $ (563) $ 269
Other comprehensive loss:
Unrealized losses on securities available-for-sale:
Unrealized holding losses arising during the period,
net of taxes (546) (30)
------- -------
Comprehensive income (Loss) $(1,109) $ 239
======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE>
USABancShares.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1999
(unaudited)
(in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Accumulated comprehensive
Stock (1) capital (1) earnings loss Total
--------- ----------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $4,231 $8,568 $1,112 ($314) $13,597
Net unrealized loss on
securities available-for-sale - - - (315) (315)
Net income - - 414 - 414
------- ------- ------ ----- -------
Balances, March 31, 1999 $ 4,231 $ 8,568 $ 1,526 $ (629) $ 13,696
======= ======= ======= ====== ========
Net unrealized loss on
securities available-for-sale - - - (174) (174)
Net income - - 510 - 510
------- ------- ------ ----- -------
Balances, June 30, 1999 $ 4,231 $ 8,568 $ 2,036 $ (803) $ 14,032
======= ======= ======= ====== ========
Secondary Offering $1,400 $6,675 - - 8,075
Exercise of options 6 11 - - 17
Net unrealized loss on
securities available-for-sale - - - (546) (546)
Net loss - - (563) - (563)
------- ------- ------ ----- -------
Balances, September 30, 1999 $ 5,637 $ 15,254 $ 1,473 $ (1,349) $ 21,015
======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
(1) All per share data has been adjusted to reflect all dividends and stock
splits.
6
<PAGE>
USABancShares.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $361 $1,177
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for possible loan losses 1,075 310
Depreciation 291 156
(Increase) Decrease in goodwill (2) 9
Net accretion of discounts on purchased loan portfolios (763) (872)
Net (accretion) amortization of securities discount/premiums (107) 45
Net gains on sale of securities (31) (138)
Net gains on sale of loan assets (1,402) -
Net gains on sale of real estate owned (60) -
Increase in accrued interest receivable (1,579) (524)
Increase in deferred tax asset (259) (201)
Increase in bank owned life insurance (5,088) -
Increase in other assets (2,865) (3,391)
Increase in accrued interest payable 2,224 575
Increase in accrued expenses and other liabilities 898 599
-------- -------
Net cash used in operating activities (7,307) (2,255)
-------- -------
Cash flows from investing activities:
Investment securities available for sale
Purchases (45,178) (22,359)
Sales 1,620 4,498
Maturities and principal repayments 307 1,250
Investment securities held to maturity
Purchases (11,728) (6,469)
Sales 1,200 450
Maturities and principal repayments 3,205 4,779
Purchases of FHLB Stock (488) (2,623)
Increase in interest bearing deposits with banks (4,466) (3,707)
Net increase in loans (98,558) (32,035)
Decrease in other real estate, net 11 -
Purchases of premises and equipment (1,311) (859)
-------- -------
Net cash used in investing activities (155,386) (57,075)
-------- -------
Cash flows from financing activities:
Net increase in deposits 158,286 28,090
Net (decrease) increase in borrowings (3,325) 24,416
Private placement proceeds, net - 7,098
Trust preferred proceeds 10,000 -
-------- -------
Net cash provided by financing activities 164,961 59,604
-------- -------
Net increase in cash and cash equivalents 2,268 274
Cash and cash equivalents, beginning of period 1,335 833
-------- -------
Cash and cash equivalents, end of period $ 3,603 $ 1,107
======== =======
</TABLE>
Supplemental disclosure of cash flow information
On April 1, 1999 the Bank reclassed $33.4 million from available for sale to
held to maturity. Due to that reclass the Bank accreted $7,000 and $4,000 into
equity during the nine and three months ended September 30, 1999 respectively,
to restore the securities back to their carrying value.
The accompanying notes are an integral part
of these consolidated financial statements.
7
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USABancShares.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of USABancShares.com, Inc. (the "Company") vBank, (the "Bank") a
Pennsylvania chartered stock savings bank, USACapital, Inc., a Pennsylvania
corporation, USACredit, Inc., a Pennsylvania corporation, USARealEstate, Inc., a
Pennsylvania corporation and USA Capital Trust I, a Delaware business trust. 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 unaudited consolidated financial statements as of
September 30, 1999 and for the nine and three months ended September 30, 1999
and 1998, are not necessarily indicative of results to be anticipated for the
full year.
2. Trust Preferred Securities
On March 9, 1999, the Company issued $10.0 million of 9.5% junior subordinated
debentures to USA Capital Trust I, a Delaware business trust, in which the
Company owns all of the common equity. The trust issued $10.0 million of trust
preferred securities to investors, secured by the junior subordinated debentures
and the guarantee of the Company. The junior subordinated debentures mature in
2029.
3. Secondary Offering
On September 30, 1999, the Company issued 1,400,000 common shares in a secondary
offering. The Company issued these share at $6.75, with net proceeds of $8.1
million, subsequent to offering costs of $1.4 million.
4. Computation of Per Share Earnings
Basic earnings per share ("EPS") 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.
5. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements 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.
On April 1, 1999 in conjunction with the adoption of SFAS No. 133, the Bank
reclassified $33.4 million of securities from available for sale to held to
maturity.
8
<PAGE>
The following information was used in the computation of earnings per share on
both a basic and diluted basis for the nine and three month periods ended
September 30, 1999 and 1998.
(in Thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Basic EPS Computation:
Numerator - Net earnings $ 361 $ 1,177
Denominator - Weighted average shares outstanding 4,235 3,882
-------- -------
Basic EPS (1) $ 0.09 $ 0.30
======== =======
Diluted EPS Computation:
Numerator - Net earnings $ 361 $ 1,177
Denominator - Weighted average shares outstanding 4,235 3,882
Effect of dilutive securities 632 325
-------- -------
Diluted EPS (1) $ 0.07 $ 0.28
======== =======
Three Months Ended
September 30,
---------------------------
1999 1998
------- -------
Basic EPS Computation:
Numerator - Net earnings $ (563) $ 269
Denominator - Weighted average shares outstanding 4,242 4,210
-------- -------
Basic EPS (1) $ (0.13) $ 0.06
======== =======
Diluted EPS Computation:
Numerator - Net earnings $ (563) $ 269
Denominator - Weighted average shares outstanding 4,242 4,210
Effect of dilutive securities 977 320
-------- -------
Diluted EPS (1) $ (0.11) $ 0.06
======== =======
</TABLE>
(1) All per share data has been adjusted to reflect all dividends and stock
splits.
9
<PAGE>
USABancShares.com, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1999
Forward-looking Statements
When used in this Form 10-QSB, the words or phrases "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project", or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as to the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Year 2000 Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems. The year 2000 date change can
affect any system that uses computer software programs or computer chips,
including automated equipment and machinery. 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. Regarding the Company, computer systems are
used to perform financial calculations, track deposits and loan payments,
transfer funds and make direct deposits. The primary processing of the Company's
loan and deposit transactions is performed by Electronic Data Systems
Incorporated (EDS), a third-party data processing vendor. Computer software and
computer chips also are used to run security systems, communications networks
and other essential bank equipment. Because of its reliance on these systems
(including those used by its existing third-party data processing vendor), the
Company is following a comprehensive process to assure that such systems are
ready for the Year 2000 date change. To become Year 2000 compliant, the Company
has followed guidelines suggested by federal bank regulatory agencies and the
Securities and Exchange Commission (the "Commission"). The Company has completed
its employee and customer awareness programs. The system has been tested and
certified to be Y2K compliant. The equipment found not to be Y2K compliant has
been replaced and the Board of Directors has been appraised of the Bank's effort
in its process of becoming Y2K compliant.
The Company's third party data processing servicer as well as vendors who
provide significant technology-related services have modified their systems to
become Year 2000 compliant. The Company has developed scripts involving typical
transactions to test the proper functioning of the modified systems. The testing
and corrections have taken place and all of the Company's mission critical
applications have been deemed
10
<PAGE>
compliant through testing or vendor certification. The monitoring of vendors and
customers will continue into 2000.
The Bank has prepared and tested its contingency plan for how the Company would
resume business if unanticipated problems arise from non-performance by vendors.
The Year 2000 issues may also affect customers of the Company's, particularly in
the areas of access to funds and additional expenditures to achieve compliance.
The Company has contacted its commercial credit customers and borrowers
regarding the customers awareness of the Year 2000 issue. While no assurance can
be given that its customers will be Year 2000 compliant, management believes,
based on representations of such customers and a review of their operations
(including assessments of the borrowers' level of sophistication and data and
record keeping requirements), that the customers are either addressing the
appropriate issues to insure compliance or that they are not faced with material
Year 2000 issues. In addition, in substantially all cases, the credit extended
to such borrowers is collateralized by real estate which inherently minimizes
the Company's exposure in the event that such borrowers do experience problems
or delays becoming Year 2000 compliant.
The Company's efforts to become Year 2000 compliant are being monitored by its
federal banking regulators. Failure to be Year 2000 compliant could subject the
Company to formal supervisory or enforcement actions. The Company expensed
$20,000 during the year ended December 31, 1998 relating to costs incurred as a
result of the Company's Year 2000 Plan. No additional expense is anticipated to
be incurred during 1999. The Company has incurred approximately $100,000 in
costs related to the implementation of the Company's Year 2000 plan. No
additional expense is anticipated to be incurred during 1999. The Company
believes the Year 2000 issue will not pose significant operating problems for
the Company.
FINANCIAL CONDITION
The Company's total assets increased from $165.1 million at December 31, 1998 to
$340.6 million at September 30, 1999, an increase of $175.5 million, or 106.3%.
The increase was due primarily to increases in the loans receivable, net,
securities portfolio, cash and due from banks, and interest bearing deposits of
$98.6 million, $50.8 million, $10.3 million, and $4.5 million, respectively.
The increase in the loan portfolio was a result of originating $40.1 million in
loans primarily commercial real estate and multi-family and acquiring $108.2
million of performing commercial real estate loans. The acquired loans were
purchased for $105.9 million. The acquisitions and orignation volume was offset
by prepayments of $30.1 million. The increase in the securities portfolio was
primarily due to the acquisition of corporate trust preferred securities and
federal agency bonds. The increase in interest bearing deposits relates to
required funding of loan closings in early October 1999. The growth in total
assets was funded by increases in deposits of $137.4 million in non-retail
certficiates of deposit and $20.9 million in transaction accounts, and the
issuance of $10.0 million guaranteed subordinated debentures. Management plans
to continue to utilize FHLB advances in conjunction with deposit expansion to
provide the necessary funding and liquidity for the Bank's continued growth. The
Bank's borrowing limit at the FHLB as of September 30, 1999 was approximately
$43.8 million, of which $30.0 million was drawn upon as of such date. The
Company's stockholders' equity increased from $13.6 million at December 31, 1998
to $21.0 million at September 30, 1999, due mainly from the secondary offering,
and to a lesser degree net income of the Company for the nine months ended
September 30, 1999.
NET INCOME
The Company reported a net income of $361,000 or $0.07 per diluted share, for
the nine months ended September 30, 1999, compared to $1.2 million or $0.28 per
diluted share for the nine months ended September 30, 1998. Net interest income
increased $1.8 million and noninterest income increased $1.6 million. These
increases in revenues were offset by an increase in noninterest expenses of $4.0
million and an increase in the provision for loan losses of $765,000. Core
earnings of the Bank continue to improve, but
11
<PAGE>
the required investment to launch www.usabancshares.com has resulted in the
decline of the Company's net income. The Company anticipates to continue to
invest in marketing and building its online customer network resulting in
operating losses for 1999 and 2000.
The Company reported a net operating loss of $563,000 or $(0.11) per share, for
the three months ended September 30, 1999, compared to net income of $269,000 or
$0.06 per share for the three months ended September 30, 1998. Net income
decreased primarily because of the Company's Internet initiative and the
investments made to launch www.usabancshares.com. Net interest income increased
$840,000, and noninterest income increased $1.3 million. These increases in
revenues were offset by an increase in noninterest expenses of $2.5 million and
an increase in the provision for loan losses of $675,000.
INTEREST INCOME
Total interest income increased $6.0 million or 68.2% to $14.9 million for the
nine months ended September 30, 1999 compared to the nine months ended September
30, 1998, due to an increase in average earning assets of $101.6 million during
the same time periods. Income on loans increased $3.5 million due to the average
earning loan balances increasing $63.9 million. The increase in average loans
outstanding was partially offset by the yield on the loan portfolio decreasing
by 221 basis points. Income on investments increased $2.6 million due to the
investment portfolio average earnings balances increasing $35.0 million between
the noted periods and the yield on the portfolio also increasing by 102 basis
points.
Total interest income increased $3.0 million or 90.7% to $6.4 million for the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998, due to an increase in average earning assets of $156.4
million during the same time period. Income on loans increased $1.9 million due
to the average earning loan balances increasing $102.1 million. The increase in
average loans outstanding was partially offset by the yield on the loan
portfolio decreasing by 256 basis points. Income on investments increased $1.1
million due to the investment portfolio average balances increasing $48.4
million between the noted periods and the yield on the portfolio also increasing
by 62 basis points.
INTEREST EXPENSE
Total interest expense increased $4.2 million or 92.7% to $8.8 million, for the
nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998, due to a higher volume of new certificates of deposit, an
increased outstanding balance of FHLB advances and the guaranteed subordinated
debt, issued in March of 1999. Interest expense on deposits increased $3.2
million, interest expense on other borrowings increased $1.1 million and
interest expense incurred on the guaranteed debt was $547,000. The interest
expense increases were due to the average outstanding balances increasing $65.7
million, $13.1 million and $7.7 million, respectively. The guaranteed
subordinated debt carries an interest rate of 9.50%. The average cost of funds,
including other borrowings, was 5.61% for the nine months ended September 30,
1999 compared to 5.58% over the same period in 1998.
Total interest expense increased $2.2 million or 117.9% to $4.0 million, for the
three months ended September 30, 1999, compared to the three months ended
September 30, 1998, due to a higher volume of new certificates of deposit, an
increased outstanding balance of FHLB advances and the guaranteed subordinated
debt, issued in March of 1999. Interest expense increased on deposits $1.9
million, interest expense on borrowings increased $274,000 and interest expense
incurred of the guaranteed debt was $238,000. The interest expense increases
were due to the average outstanding balances increasing $128.5 million, $3.7
million and $10.0 million, respectively. The guaranteed subordinated debt
carries an interest rate of 9.50%. The average cost of funds, including other
borrowings, was 5.73% for the three months ended September 1999 compared to
5.47% over the same period in 1998.
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 rate
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 nine months ended September 30, 1999, increased $1.8
million, or 42.2%, to $6.1 million from $4.3 million for the same period in
1998. Average interest-earning assets increased by $101.6 million, or 89.4%, to
$215.3 million, for the nine months ended September 30, 1999 compared to the
same period in 1998. Average interest-bearing liabilities increased $100.0
million or 91.8% over the same period. The net interest rate spread and net
interest margin decreased for the period ended September 30, 1999 vs. September
30, 1998, from 4.82% to 3.63% and 5.06% to 3.79%, respectively. For the nine
months ended September 30, 1999, $763,000 of discount was accreted into interest
income or 5.1% of the total interest income. This compares to $872,000 of
discount accreted into interest income for the nine month period ended September
30, 1998 or 9.8% of total interest income. Excluding the income attributable to
the accretion of discount on loans acquired, the net interest margin would have
declined 67 basis points for the nine months ended September 30, 1999 compared
to September 30, 1998 to 3.37% from 4.04%. Over the past twelve months the
Company's strategic initiative has been to improve the quality of the loan
assets and for the Company to originate more loans than we acquire. Secondary to
this initiative, the loan assets to be acquired will be of better quality
relative to the Bank's underwriting criteria than past acquisitions. These
efforts coupled with the level of loan pay-offs, $30.1 million during the nine
months ended September 30, 1999, have lead to the decline of the yields on the
loan portfolio and the decline in net interest margin.
Net interest income for the three months ended September 30, 1999, increased
$840,000 or 56.6%, to $2.3 million from $1.5 million for the same period in
1998. Average interest-earning assets increased by $156.4 million, or 122.4% to
$284.0 million, for the three months ended September 30, 1999 compared to the
same period in 1998. Average interest-bearing liabilities increased $167.3
million or 146.0% over the same period. The net interest spread and net interest
margin decreased for the period ended September 30, 1999 compared to September
30, 1998, from 3.98% to 3.23% and 4.65% to 3.27% respectively. For the three
months ended September 30, 1999, $195,000 of discount was accreted into interest
income or 3.1% of the total interest income. This compares to $417,000, of
discount accreted into interest income for the three month period ended
September 30, 1998 or 12.5% of total interest income. Excluding the income
attributable to the accretion of discount on loans acquired, the net interest
margin would have declined 34 basis points for the three months ended September
30, 1999 compared to September 30, 1998 to 3.00% from 3.34% respectively. Over
the past twelve months the Company's strategic initiative has been to improve
the quality of the loan assets and for the Company to originate more loans than
we acquire. Secondary to this initiative, the loan assets to be acquired will be
of better quality relative to the Bank's underwriting criteria than past
acquisitions. These efforts coupled with the level of loan pay-offs, $12.8
million for the three months ended September 30, 1999, have lead to the decline
of the yields on the loan portfolio and the decline in net interest margin.
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>
(in Thousands)
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- ------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
----------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 136,249 $ 10,024 9.81% $ 72,300 $ 6,520 12.02%
Investment securities 70,646 4,681 8.83 35,566 2,084 7.81
Interest-bearing deposits and other 8,429 208 3.31 5,829 262 6.11
--------- -------- ----- -------- ------- ------
Total interest-earning assets $ 215,324 $ 14,913 9.24% $113,695 $ 8,866 10.40%
Interest-bearing liabilities:
Deposits:
NOW $ 1,394 $ 28 2.68% $ 1,043 $ 18 2.30%
Money Market 1,856 66 4.74 2,517 34 1.80
Savings and Passbook 15,513 540 4.64 1,705 33 2.58
Certificates of deposit 150,315 6,324 5.61 84,595 3,699 5.83
Borrowings 39,852 1,829 6.12 19,097 775 5.41
--------- -------- ----- -------- ------- ------
Total interest-bearing liabilities $ 208,930 $ 8,787 5.61% $108,957 $ 4,559 5.58%
--------- -------- -------- -------
Excess of interest-earning assets over
interest-bearing liabilities $ 6,394 $ 4,738
========= ========
Net interest income $ 6,126 $ 4,307
======= =======
Net interest rate spread 3.63% 4.82%
====== ======
Net interest margin 3.79% 5.06%
====== ======
Average earning assets to average
interest bearing liabilities 103.06% 104.35%
====== ======
</TABLE>
14
<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 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>
(in Thousands)
September 30, 1999 vs September 30, 1998
Increase or Decrease
Due to Changes in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
--------- --------- ----------
<S> <C> <C> <C>
Variance in interest income on:
Interest-earning assets:
Loans $ 5,767 $ (2,263) $ 3,504
Securities 2,056 541 2,597
Interest-earning deposits and other 117 (171) (54)
------- -------- -------
Total interest-earning assets $ 7,939 $ (1,892) $ 6,047
------- -------- -------
Interest-bearing liabilities:
Deposits:
Savings & Passbook $ 6 $ 4 $ 10
NOW Accounts (9) 41 32
Money Market accounts 267 240 507
Certificates of Deposit 2,874 (249) 2,625
Borrowings 842 212 1,054
------- -------- -------
Total interest-bearing liabilities $ 3,980 $ 248 $ 4,228
------- -------- -------
Changes in net interest income $ 3,960 $ (2,141) $ 1,819
======= ======== =======
</TABLE>
PROVISION FOR LOAN LOSSES
Management records the provision for loan losses in amounts that result in an
allowance for loan losses sufficient to cover all potential net charge-offs and
risks believed to be inherent in the loan portfolio. Management's evaluation
includes such factors as past loan loss experience as related to current loan
portfolio mix, evaluation of actual and potential losses in the loan portfolio,
prevailing regional and national economic conditions that might have an impact
on the portfolio, regular reviews and examinations of the loan portfolio
conducted by bank regulatory authorities, and other factors that management
believes deserve current recognition. As a result of management's evaluation of
these factors the provision for loan losses was $825,000 during the three months
ended September 30, 1999. The allowance for loan losses as a percentage of loans
outstanding was 1.04% at September 30, 1999, compared to 1.02% at December 31,
1998 and 0.93% at September 30, 1998. Management will continue to record a
provision for loan losses to maintain the allowance for loan losses at a level
deemed adequate by management on a quarterly basis. The Bank had charge-offs of
$43,000 and recoveries of $24,000 on loans during the nine months ended
September 30, 1999 compared to $43,000 of charge-offs for the nine months ended
September 30, 1998.
15
<PAGE>
NONINTEREST INCOME
Noninterest income increased $1.6 million to $2.0 million for the nine months
ended September 30, 1999. Gain on sales of loans, with principal balances of
$5.0 million and sold with servicing released, increased $1.4 million, and
income on bank owned life insurance increased $88,000 during the period. These
increases were offset by the brokerage operations net earnings decreasing
$68,000 during the comparable time periods. The brokerage operation results
reflect the costs associated with the launch of the on-line trading line of
business www.usaforce.com.
Noninterest income increased $1.3 million to $1.5 million for the three months
ended September 30, 1999. Gain on sales of loans, with principal balances of
$4.5 million and sold with servicing released, increased $1.3 million and income
on bank owned life insurance increased $22,000 during the period. These
increases were offset by the brokerage operations net earnings decreasing
$167,000 during the comparable time periods. The brokerage operation results
reflect the costs associated with the launch of the on-line trading line of
business www.usaforce.com.
NONINTEREST EXPENSE
Other noninterest expense increased $4.0 million to $6.4 million, for the nine
months ended September 30, 1999. Compensation expense increased $1.2 million due
to the hiring of 50 additional personnel. Occupancy expense increased due to the
addition of one branch. Advertising expense increased $1.4 million due to a new
marketing campaign for the www.usabancshares.com web site. Office expense,
travel and entertainment, and other miscellaneous expenses increased as a result
of the increased efforts to attract additional customers and travel expenses
related to Internet strategic planning. Professional fees increased due to an
increase in outside consulting and legal services provided during the nine
months ended September 30, 1999.
Other noninterest expense increased $2.5 million to $3.5 million, for the three
months ended September 30, 1999. Compensation expense increased $435,000 due to
the hiring of 21 additional personnel. Advertising expense increased $1.3
million due to a new marketing campaign for www.usabancshares.com web site.
Office expense, travel and entertainment, and other miscellaneous expenses
increased as a result of the increased efforts to attract additional customers
and travel expenses related to Internet strategic planning. Professional fees
increased due to an increase in outside consulting and legal services provided
during the three months ended September 30, 1999.
INCOME TAX EXPENSE
Income tax expense recorded for the nine months ended September 30, 1999 and
1998 was $279,000 and $747,000 or 43.6% and 38.8%, effective tax rate,
respectively. The Company did not provide a tax provision for the second or
third calendar quarter in 1999. The Company anticipates investing significant
financial resources on its marketing program, technology initiatives and human
resources on its Internet initiative that will result in an operating loss for
calendar 1999 and 2000.
16
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) was $200.1 million at September 30, 1999
compared to $102.1 million at December 31, 1998. Loans receivable represented
58.9% of total assets as of September 30, 1999 compared to 61.8% at December 31,
1998. The following table summarizes the loan portfolio of the Bank by loan
category and amount at September 30, 1999, compared to December 31, 1998:
<TABLE>
<CAPTION>
(in Thousands)
September 30, December 31,
---------------------- ----------------------
1999 % 1998 %
------ --- ------ ---
<S> <C> <C> <C> <C>
Real estate $ 196,951 96.8% $ 102,076 98.8%
Commercial and industrial 4,130 2.0 986 1.0
Consumer 2,348 1.2 243 0.2
--------- ------ --------- -----
Total loans, net of discount $ 203,429 100.0% $ 103,305 100.0%
========= ====== ========= =====
Loans in process (428) -
Deferred loan fees (198) (116)
Allowance for loan losses (2,107) (1,051)
--------- ---------
Net loans $ 200,696 $ 102,138
========= =========
</TABLE>
At September 30, 1999 the Bank's net discounted loan portfolio amounted to
$141.3 million or 69.5% of total loans net of discount. These loans have a face
value of $147.1 million, reflecting a discount of $5.8 million or 3.9%. At
December 31, 1998 the Bank's net discounted loan portfolio amounted to $51.7
million or 50.0% of the total loans net of discount. These loans had a face
value of $57.0 million, reflecting a discount of $5.3 million or 9.3% as of
September 30, 1999. The Bank has identified $2.1 million and $538,000 of
discount as a cash discount that will not be amortized into income as a yield
adjustment until a final resolution has been determined for the identified loans
at September 30, 1999 and December 31, 1998, respectively.
On September 30, 1999, the net book value of nonaccrual loans was approximately
$1.5 million compared to $1.8 million at December 31, 1998. At September 30,
1999 the allowance for loan losses to non-performing loans, net of discount was
143.3% compared to 53.7% at December 31, 1998. The Banks allowance for loan
losses and purchased discount to total loans was 3.8% and 5.9% at September
30, 1999 and December 31, 1998, respectively.
The amount of troubled debt restructured loans totaled $1.8 million as of
September 30, 1999 compared to zero at December 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
sufficient to cover the outstanding obligation to the Bank.
17
<PAGE>
The following table summarizes the changes in the Bank's allowance for loan
losses for the period ended September 30, 1999, compared to December 31, 1998:
(in Thousands)
Nine months Twelve months
ended September 30, ended December 31,
1999 1998
------------------- ------------------
Balance at beginning of period $1,051 $ 568
Provision for loan losses 1,075 510
Charge-offs (43) (43)
Recoveries 24 16
------- ------
Balance at September 30, 1998 $2,107 $1,051
======= ======
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at
September 30, 1999, and December 31, 1998, respectively, for each major category
of the Bank's investment securities:
<TABLE>
<CAPTION>
(in Thousands)
September 30, 1999
-------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
U.S. Government and agency
securities $ 3,409 $ - $ (68) $ 3,341
Mortgage-backed securities 9,283 - (329) 8,954
Corporate securities 17,446 7 (219) 17,234
Trust preferred securities 6,798 13 (294) 6,517
Other Securities 2,463 34 (303) 2,194
-------- ---- -------- --------
Total Available-for-Sale $ 39,399 $ 54 $ (1,213) $ 38,240
======== ==== ======== ========
Held-to-Maturity
U.S. Government and agency
securities $ 5,631 $ 20 $ (130) $ 5,521
Mortgage-backed securities 6,966 260 (270) 6,956
Corporate obligations 15,857 18 (1,028) 14,847
Trust preferred securities 25,125 144 (1,274) 23,995
Municipal securities 3,169 - (184) 2,985
-------- ---- -------- --------
Total Held-to-Maturity $ 56,748 $ 442 $ (2,886) $ 54,304
======== ===== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
(in Thousands)
December 31, 1998
-------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
Mortgage-backed securities $ 2,628 $ - $ (8) $ 2,620
Corporate securities 1,322 13 (89) 1,246
Trust preferred securities 22,987 243 (605) 22,625
Other Securities 1,957 - (59) 1,898
-------- ---- ------- --------
Total Available-for-Sale $ 28,894 $ 256 $ (761) $ 28,389
======== ===== ======= ========
Held-to-Maturity
U.S. Government and agency
securities $ 1,201 $ 1 $ - $ 1,202
Mortgage-backed securities 5,650 104 (1) 5,753
Municipal securities 3,166 69 - 3,235
Trust preferred securities 2,313 65 - 2,378
Other Securities 3,425 14 (56) 3,383
-------- ---- ------- --------
Total Held-to-Maturity $ 15,755 $ 253 $ (57) $ 15,951
======== ===== ======= ========
</TABLE>
LIQUIDITY
The Company's primary sources of funds are customer deposits, non-retail
certificates of 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 138.4% to $272.7 million at September 30, 1999, compared to $114.4
million as of December 31, 1998. 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. 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.
19
<PAGE>
The following table summarizes the composition of the Bank's deposit portfolio.
<TABLE>
<CAPTION>
(in Thousands)
September 30, 1999 December 31, 1998
------------------------- ------------------------
Amount Percent Amount Percent
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Demand $ 2,712 0.99% $ 1,439 1.26%
NOW 1,996 0.73 846 0.74
Money Market 658 0.24 2,345 2.05
Savings and Passbook 25,423 9.33 5,281 4.62
Time 241,884 88.71 104,476 91.33
-------- ------ -------- ------
$272,673 100.00% $114,387 100.00%
======== ====== ======== ======
</TABLE>
The following table summarizes the maturity composition of certificates of
deposit at September 30, 1999, compared to December 31, 1998:
<TABLE>
<CAPTION>
(in Thousands)
September 30, 1999 December 31, 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Within one year $144,815 59.87% $47,067 45.05%
Over one year through two years 59,837 24.74 28,399 27.18
Over two years through three years 15,243 6.30 14,769 14.14
Over three years through five years 20,844 8.62 13,333 12.76
Over five years through ten years 1,145 0.47 908 0.87
-------- ------ ------- ------
$241,884 100.00% $104,476 100.00%
======== ====== ======== ======
</TABLE>
Borrowings remained constant at $30.0 million for September 30, 1999 and
December 31, 1998. The Bank has five outstanding credit facilities with fixed
rates and a conversion feature to an adjustable rate in the amounts of $5.0
million, $5.0 million, $5.0 million, $5.0 million, and $10.0 million,
respectively. These five credit facilities have interest rates of 5.47%, 5.63%,
5.14%, 4.84%, and 5.37%, and conversion dates of June 15, 2000, June 15, 2003,
December 15, 1999, September 30, 2003, and April 7, 2000, respectively. The Bank
has available to borrow from the FHLB an additional $13.8 million, if so
desired. 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 sanctions by
regulators that, if undertaken, could have a material effect on the financial
statements of the Bank. 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 are calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about component, risk weighting 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). At September 30, 1999, the Company and the Bank meet all
capital adequacy requirements to which they are subject.
20
<PAGE>
At September 30, 1999, the Bank's actual and required minimum capital ratios
were as follows:
<TABLE>
<CAPTION>
To be well
For the Bank: Capitalized under
- ------------- For Capital Prompt Corrective
(in Thousands) Adequacy Purposes Action Provisions
As of September 30, 1999 Amount Ratio Amount Ratio Amount Ratio
- ------------------------ -------- ------- -------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 30,136 10.4% $ 23,206 8.0% $ 29,007 10.0%
Tier I Capital
(to Risk Weighted Assets) 28,029 9.7 11,603 4.0 17,404 6.0
Tier I Capital
(to Average Assets) 28,029 13.9 8,077 4.0 10,097 5.0
As of December 31, 1998:
- ------------------------
Total Capital
(to Risk Weighted Assets) $ 13,930 11.2% $ 9,987 8.0% $ 12,483 10.0%
Tier I Capital
(to Risk Weighted Assets) 12,879 10.3 4,994 4.0 7,490 6.0
Tier I Capital
(to Average Assets) 12,879 8.5 6,068 4.0 7,585 5.0
</TABLE>
On September 30, 1999 the Company issued 1,400,000 common shares in a public
offering. The shares were sold at $6.75 providing the Company with $8.1 million
of net proceeds.
On March 9, 1999, the Company issued $10.0 million of 9.5% junior subordinated
debentures to USA Capital Trust I, a Delaware business trust, in which the
Company owns all of the common equity. The trust issued $10.0 million of trust
preferred securities to investors, secured by the junior subordinated debentures
and the guarantee of the Company. The junior subordinated debentures mature in
2029. The trust preferred securities are Tier I eligible except, in accordance
with Federal Reserve Board regulations, the Company is limited to recognizing
$4.5 million as Tier I capital, such that no more than 25% percent of Tier I
capital is comprised of trust preferred securities. The Company has invested
$6.0 million of the proceeds in vBank.
At September 30, 1999, the Company's actual and required minimum capital ratios
were as follows:
<TABLE>
<CAPTION>
For the Company:
- ---------------- For Capital
(in Thousands) Adequacy Purposes
As of September 30, 1999 Amount Ratio Amount Ratio
- ------------------------ -------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 34,238 11.7% $ 23,414 8.0%
Tier I Capital
(to Risk Weighted Assets) 29,532 10.1 11,707 4.0
Tier I Capital
(to Average Assets) 29,532 9.7 12,181 4.0
As of December 31, 1998:
- ------------------------
Total Capital
(to Risk Weighted Assets) $ 15,566 12.1% $ 10,317 8.0%
Tier I Capital
(to Risk Weighted Assets) 13,782 10.7 5,159 4.0
Tier I Capital
(to Average Assets) 13,782 8.7 6,319 4.0
</TABLE>
21
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
Information called for by this item regarding the Company's legal proceedings is
incorporated herein by reference to the section entitled "Business - Legal
Proceedings" in the Company's Registration Statement on Form SB-2 (No.
333-83041), as amended, effective September 30, 1999.
Item 2. Changes in Securities
---------------------
On March 9, 1999, USA Capital Trust I, a Delaware business trust established by
the Company (the "Trust"), sold $10,000,000 in liquidation amount of 9.50%
Capital Securities, representing preferred beneficial interests in the assets of
the Trust, to a limited number of qualified institutional buyers and
institutional accredited investors in a private placement pursuant to Rule 144
and Rule 506 of Regulation D promulgated under the Securities Act of 1933.
Sandler O'Neill & Partners, L.P. received a fee of $350,000 for its services as
placement agent in the transaction. The Trust contemporaneously sold $310,000 in
liquidation amount of Common Securities of the Trust to the Company. The Trust
used the proceeds of the offering of the Capital Securities and the Common
Securities to purchase 9.50% junior subordinated deferrable interest debentures
issued by the Company in the principal amount of $10,310,000 (the "Junior
Subordinated Debentures"). The Trust will pay semi-annual distributions to the
holders of Capital Securities in amounts equal to the interest payments made by
the Company with respect to the Junior Subordinated Debentures. The obligations
of the Trust to pay distributions on the Capital Securities and the Common
Securities have been fully and unconditionally guaranteed by the Company, to the
extent that the Trust has funds available for distribution.
On July 21, 1999, the Company granted Earthlink Network, Inc., ("Earthlink")
120,000 warrants to purchase Class A common shares of USABancShares.com, Inc.
These warrants carry a strike price of $12.00. Eighty thousand of these warrants
can be exercised on or after July 22, 2000, with the remaining forty thousand
being exercisable on or after July 22, 2001. These securities were issued in
reliance on the exemptions from registration under the Securities Act provided
in Section 4(2) or under Regulation D promulgated under the Securities Act. The
securities were issued to a single purchaser who the Company believes is an
"accredited investor" and has the knowledge and experience to evaluate the
merits and risks of the purchase.
On August 18, 1999, the Company has granted Systemax, Inc., (Systemax) 10,000
warrants to purchase Class A common shares of USABancShares.com, Inc. These
warrants carry a strike price of $9.875 and will expire on August 17, 2001. In
addition, the Company agreed to grant Systemax, upon certain conditions,
warrants to purchase an additional 30,000 shares of its common stock at a per
share exercise price equal to the closing market bid price on the day prior to
the grant. These securities were issued in reliance on the exemptions from
registration under the Securities Act of 1933, as amended (the "Securities Act")
provided in Section 4(2) or under Regulation D promulgated under the Securities
Act. The securities were issued to a single purchaser who the Company believes
is an "accredited investor" and has the knowledge and experience to evaluate the
merits and risks of the purchase.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
22
<PAGE>
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(A) Exhibits
The following exhibits are filed as part of this report.
Exhibit numbers correspond to the exhibits required by Item 601 of Regulation
S-B.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of USABancShares.com*
3.1.1 Articles of Amendment to the Amended and Restated Articles of Incorporation of USABancShares.com dated as of
May 13, 1999+
3.1.2 Articles of Amendment to the Amended and Restated Articles of Incorporation of USABancShares.com dated as of
August 24, 1999+
3.1.3 Articles of Amendment to the Amended and Restated Articles of Incorporation of USABancShares.com dated as of
September 9, 1999+
3.2 Bylaws of USABancShares*
4.1 Indenture of USABancShares.com, Inc. relating to the Junior Subordinated Debentures**
4.2 Form of Certificate of Exchange Junior Subordinated Debenture**
4.3 Form of Certificate of Original Junior Subordinated Debenture**
4.4 Certificate of Trust of USA Capital Trust I**
4.5 Amended and Restated Declaration of Trust of USA Capital Trust I**
4.6 Form of Common Security**
4.7 Form of Exchange Capital Security Certificate**
4.8 Form of Certificate of Original Capital Security**
4.9 Form of Exchange Guarantee of USABancShares.com, Inc. relating to the Exchange Capital Securities**
10 Registration Rights Agreement among USABancShares.com, Inc., USA Capital Trust I and Sandler O'Neill &
Partners, L.P.**
10.1 Stock Option Plan, as amended and restated+
10.2 Employee Stock Purchase Plan*****
10.3 Employee Savings Plan*****
10.4 Employment agreement between USABancShares.com and Kenneth L. Tepper+
10.5 Employment agreement between USABancShares.com and Brian M. Hartline+
10.6 Employment agreement between USABancShares.com and Craig J. Scher+
10.7 Agreement by and between Kenneth L. Tepper and USABancShares.com dated January 2, 1998**
10.8 Warrant Agreement between USABancShares.com and Sandler O'Neill & Partners, L.P. dated February 13, 1998**
10.9 Registration Rights Agreement between USABancShares.com and certain shareholders dated February 13, 1998**
10.10 Indenture of USABancShares relating to the Junior Subordinated Debentures****
10.11 Registration Rights Agreement among USABancShares.com, USA Capital Trust I and Sandler O'Neill & Partners, L.P. as
representative of the investors****
10.12 Agreement by and between Earthlink Network, Inc., Earthlink Operations, Inc. and USABancShares.com effective as of
July 21, 1999+++
10.13 Agreement by and between USABancShares.com and Systemax, Inc. dated August 18, 1999+++
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11 Computation of Per Share Earnings (Included in Financial Statements on Page 9 of this report)
23.1 Consent of Grant Thornton LLP
27 Financial Data Schedule
- --------------
* Incorporated by reference from the Registration Statement on Form SB-2 of USABancShares.com, as amended,
Registration No. 33-92506.
** Incorporated by reference from the Registration Statement on Form S-4 of USABancShares.com filed on May 12, 1999.
*** Incorporated by reference from USABancShares.com's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998.
**** Incorporated by reference from the Registration Statement on Form S-4 of USABancShares.com, Registration No. 333-78348.
***** Incorporated by reference from the Registration Statement on Form S-8 of USABancShares.com, Registration No. 333-841351.
+ Incorporated by reference from the Registration Statement on Form SB-2 of USABancShares.com, Registration No. 333-83041.
++ Confidential Materials deleted and filed separately with the Securities and Exchange Commission.
</TABLE>
(B) Reports on Form 8-K
Not applicable
24
<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.com, Inc.
Date: November 15, 1999 By: /s/ Kenneth L. Tepper
-------------------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 15, 1999 By: /s/ Brian M. Hartline
------------------------------------
Brian M. Hartline,
Chief Financial Officer
(Principal Accounting and Financial Officer)
25
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REPORT TO WHICH THIS SCHEDULE RELATES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000945532
<NAME> USABANCSHSARES.COM,INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 3,603
<INT-BEARING-DEPOSITS> 12,712
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 38,240
<INVESTMENTS-CARRYING> 56,748
<INVESTMENTS-MARKET> 54,304
<LOANS> 200,696
<ALLOWANCE> 2,107
<TOTAL-ASSETS> 340,607
<DEPOSITS> 272,673
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,939
<LONG-TERM> 41,980
0
0
<COMMON> 5,637
<OTHER-SE> 15,378
<TOTAL-LIABILITIES-AND-EQUITY> 340,607
<INTEREST-LOAN> 10,024
<INTEREST-INVEST> 4,681
<INTEREST-OTHER> 208
<INTEREST-TOTAL> 14,913
<INTEREST-DEPOSIT> 6,958
<INTEREST-EXPENSE> 8,787
<INTEREST-INCOME-NET> 6,126
<LOAN-LOSSES> 1,075
<SECURITIES-GAINS> 31
<EXPENSE-OTHER> 6,446
<INCOME-PRETAX> 640
<INCOME-PRE-EXTRAORDINARY> 640
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 9.24
<LOANS-NON> 1,470
<LOANS-PAST> 3,069
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<CHARGE-OFFS> (43)
<RECOVERIES> 24
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<ALLOWANCE-DOMESTIC> 2,107
<ALLOWANCE-FOREIGN> 0
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</TABLE>
