<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, 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
---------
USABanc.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)
USABancShares, Inc.
---------------------------
(Former Name of Registrant)
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:
Class A Common Stock, $1.00 par value, outstanding on May 13, 1999: 2,007,392
shares Class B Common Stock, $.01 par value, outstanding on May 13, 1999: 10,000
shares, which are convertible into 108,230 Class A common shares (which Class A
shares are not included in the number of shares of Class A common stock reported
as outstanding above).
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
<S> <C>
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 9
PART II OTHER INFORMATION
Item 1.Legal Proceedings 20
Item 2.Change in Securities 20
Item 3.Defaults Upon Senior Securities 20
Item 4.Submission of Matters to a Vote of Security Holders 20
Item 5.Other Information 20
Item 6.Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE>
USABanc.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1999 1998
--------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,071 $ 1,335
Interest-bearing deposits with banks 247 7,706
Securities available-for-sale 50,206 28,389
Securities held-to-maturity (fair value: 1999 - $14,665;
1998 - $15,951) 14,722 15,755
FHLB Stock 3,523 3,523
Loans receivable, net 110,013 102,138
Premises and equipment, net 2,175 2,023
Accrued interest receivable 1,829 1,633
Other real estate 65 66
Goodwill, net 74 69
Deferred income taxes 449 573
Other assets 1,856 1,896
--------------------------------
Total assets $ 186,230 $ 165,106
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 1,329 $ 1,439
NOW 908 846
Money Market 2,109 2,345
Savings and Passbook 12,367 5,281
Time 109,052 104,476
--------------------------------
Total deposits 125,765 114,387
Borrowed funds
Short term borrowings 5,000 6,106
Long term borrowings 25,000 25,000
Guaranteed Subordinated Debt 10,000 --
Collateralized borrowings 4,163 4,199
Accrued interest payable 517 399
Accrued expenses and other liabilities 2,089 1,418
--------------------------------
Total liabilities 172,534 151,509
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;
2,115,622 shares issued and outstanding 2,116 2,116
Additional paid-in capital 10,683 10,683
Accumulated earnings (deficit) 1,526 1,112
Accumulated other comprehensive (loss) income (629) (314)
--------------------------------
Total stockholders' equity 13,696 13,597
--------------------------------
Total liabilities and stockholders' equity $ 186,230 $ 165,106
================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
USABanc.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Interest income:
Loans $2,756 $1,647
Investment securities 1,044 548
Interest-bearing deposits and other 81 92
-------------------------
Total interest income 3,881 2,287
Interest expense:
Deposits 1,667 1,080
Borrowed funds 488 94
-------------------------
Total interest expense 2,155 1,174
Net interest income 1,726 1,113
Provision for loan losses 100 35
-------------------------
Net interest income after provision for loan losses 1,626 1,078
Non-interest income:
Gain on sales of investment securities 56 39
Brokerage operations 126 162
Other 138 20
-------------------------
Total non-interest income 320 221
Non-interest expense:
Salaries and employee benefits 506 272
Net occupancy expense 164 72
Professional fees 100 16
Office expenses 52 31
Data processing fees 51 28
Advertising expense 45 9
Other operating expenses 338 190
-------------------------
Total non-interest expense 1,256 618
-------------------------
Earnings before income taxes 690 681
Taxes on income 276 268
-------------------------
Net earnings $ 414 $ 413
=========================
Earnings per share - basic (1) $ 0.20 $ 0.26
=========================
Earnings per share - diluted (1) $ 0.19 $ 0.24
=========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1) 1998 per share amounts have been restated to reflect a 33% stock dividend
paid August 17, 1998.
4
<PAGE>
USABanc.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
------------------------
<S> <C> <C>
Net earnings $ 414 $ 413
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period,
net of taxes (315) (104)
========================
Comprehensive income $ 99 $ 309
========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
USABanc.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended March 31, 1999
(unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Accumulated other
Common paid-in earnings comprehensive
Stock capital (deficit) income Total
----- ------- --------- ------ -----
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1998 $ 2,116 $ 10,683 $ 1,112 $ (314) $ 13,597
Net unrealized loss on
securities available-for-sale -- -- -- (315) (315)
Net income -- -- 414 -- 414
-------- -------- -------- -------- --------
Balances, March 31, 1999 $ 2,116 $ 10,683 $ 1,526 $ (629) $ 13,696
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 414 $ 413
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for possible loan losses 100 35
Depreciation 88 29
(Increase) Decrease in goodwill (5) 1
Net accretion of discounts on purchased loan portfolios (301) (259)
Net accretion of securities discount (13) (14)
Net gains on sale of securities (56) (39)
Net gains on sale of loan assets (42) --
Increase in accrued interest receivable (196) (97)
Increase in deferred tax asset (56) (42)
Decrease (Increase) in other assets 40 (64)
Increase in accrued interest payable 118 81
Increase (Decrease) in accrued expenses and other liabilities 671 (320)
------------------------------
Net cash provided by (used in) operating activities 762 (276)
------------------------------
Cash flows from investing activities:
Investment securities available for sale
Purchases (22,921) (8,570)
Sales 1,081 1,840
Maturities and principal repayments 23 750
Investment securities held to maturity
Purchases (1,979) --
Sales 1,200 --
Maturities and principal repayments 1,812 1,048
Purchases of FHLB Stock -- (57)
Decrease (Increase) in interest bearing deposits with banks 7,459 (4,235)
Net increase in loans (7,698) (3,120)
Decrease in other real estate, net 1 --
Purchases of premises and equipment (240) (273)
------------------------------
Net cash used in investing activities (21,262) (12,617)
------------------------------
Cash flows from financing activities:
Net increase in deposits 11,378 12,007
Net (decrease) in borrowings (1,142) (6,004)
Private placement proceeds -- 7,136
Trust preferred proceeds 10,000 --
------------------------------
Net cash provided by financing activities 20,236 13,139
------------------------------
Net (decrease) increase in cash and cash equivalents (264) 246
Cash and cash equivalents, beginning of period 1,335 833
------------------------------
Cash and cash equivalents, end of period $ 1,071 $ 1,079
==============================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
USABanc.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of USABanc.com, Inc. (the "Company") BankPhiladelphia, (the "Bank") a
Pennsylvania chartered stock savings bank, USACapital, Inc., a Pennsylvania
corporation, USACredit, Inc., a Pennsylvania corporation, USAHoldings, 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
March 31, 1999 and for the three months ended March 31, 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. 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.
(Dollars in Thousands), except per share data
1999 1998
------ ------
Basic EPS Computation:
Numerator - Net earnings $ 414 $ 413
Denominator - Weighted average shares outstanding 2,116 1,605
------ ------
Basic EPS $ 0.20 $ 0.26
====== ======
Diluted EPS Computation:
Numerator - Net earnings $ 414 $ 413
Denominator - Weighted average shares outstanding 2,116 1,605
Effect of dilutive securities 117 92
------ ------
Diluted EPS $ 0.19 $ 0.24
====== ======
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 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
Corporation's loan and deposit transactions is performed by Intrieve
Incorporated, 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
is following guidelines suggested by federal bank regulatory agencies and the
Securities and Exchange Commission (the "Commission"). A description of each of
the steps and the status of the Corporation's efforts in completing the steps is
as follows.
During 1997, the Company formed a Year 2000 committee that has investigated
the Year 2000 problem and its potential impact on the Company's systems. The
Year 2000 Committee reports to the Year 2000 Committee of the Board of Directors
which in turn reports to the full Board of Directors.
An independent consulting firm has been engaged to assist the Company in
developing its approach to becoming Year 2000 compliant. The initial phase of
achieving Year 2000 compliance includes educating the Company's employees and
customers abount Year 2000 issues. The Company has completed this initial
awareness and understanding phase.
The Bank has identified all potentially affected systems. This step has included
a review of all major information technology and non-information technology
systems to determine how Year 2000 issues affect
9
<PAGE>
them. In connection with the foregoing, the Company has completed its
assessment of which systems and equipment are most prone to placing the
Corporation at risk if they are not Year 2000 compliant (i.e., mission critical
systems).
The Year 2000 Committee has developed an inventory of its vendors, an inventory
of actions to be taken, identificiation of the team members responsible for
completion of each action, a completion timetable and a project tracking
methodology. Significant vendors have been requested to advise the Company
in writing of their Year 2000 readiness, including actions to become compliant
if they are not already compliant. A plan has been developed to repair or
replace systems and equipment not currently Year 2000 compliant. Although
responses from certain vendors have not yet been received, this step is
substantially complete and is expected to be completed by September 1999.
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. It
has also arranged for repair or replacement of equipment programs affected by
Year 2000 issues. Most of the testing and corrections have taken place and all
of the Corporation's mission critical applications have been deemed compliant
through testing or vendor certification, or a plan has been developed for the
software upgrades required. This step is expected to be completed by June 30,
1999. The monitoring of certain vendors will continue into 1999.
The Bank is preparing a contingency plan for how the Company would resume
business if unanticipated problems arise from non-performance by vendors. Such
plans are expected to be completed in the second quarter of 1999.
The Year 2000 issues also affect certain of the Company's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of December 31, 1998, the Company had 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 has expensed
$10,000 during the three months ended March 31, 1999 relating to costs incurred
as a result of the Company's Year 2000 Plan. The Company anticipates incurring
approximately $120,000 in additional costs related to the implementation of the
Company's Year 2000 plan. The Company presently believes the Year 2000 issue
will not pose significant operating problems for the Company. However, if
implementation and testing plans are not complted in a satisfactory and timely
manner by third parties on which the Company is dependent, or other unforseen
problems arise, the Year 2000 issue could potentially have an adverse effect on
the operations of the Company.
FINANCIAL CONDITION
The Company's total assets increased from $165.1 million at December 31,
1998 to $186.2 million at March 31, 1999, an increase of $21.1 million, or
12.8%. The increase was due primarily to increases in the loan and securities
portfolios of $7.9 million and $20.8 million, respectively. This growth was
funded by increases in deposits of $11.3 million (primarily non-retail
certficiates of deposit) and the issuance of $10.0 million junior subordinated
debentures. The increase in the securities portfolio was primarily due to the
acquisition of corporate trust preferred securities and federal agency bonds.
Management plans to continue
10
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to utilize FHLB advances in conjunction with deposit expansion to provide the
necessary funding for the Bank's continued growth. The Bank's borrowing limit at
the FHLB as of March 31, 1999 was approximately $33.8 million, of which $30.0
million was drawn upon as of such date. The Companies stockholders' equity
increased from $13.6 million at December 31, 1998 to $13.7 million at March 31,
1999.
NET INCOME
The Company reported net income of $414,000 or $0.19 per share, for the three
months ended March 31, 1999, compared to $413,000 or $0.24 per share for the
three months ended March 31, 1998, representing a .24% increase in overall net
income. Net income increased slightly primarily due to the increase in net
interest income of $613,000 from the increase in average earning assets of $70.5
million over the prior period. Non-interest income for the three months ended
March 31, 1999 increased $99,000 to $320,000 from $221,000 for the same period
in 1998. This increase was offset by an increase of non-interest expense of
$638,000 due to the cost of enhancing the Company's infrastructure primarily an
increase in salaries, occupancy expense and professional fees. During the three
months ended March 31, 1998, the Company also recognized approximately $100,000
of non-recurring interest income related to loan acquisitions.
INTEREST EXPENSE
Total interest expense increased $981,000 or 83.6%, compared to the three months
ended March 31, 1998, due to a higher volume of new certificates of deposit and
Federal Home Loan Bank ("FHLB") Advances. Interest expense on borrowings
increased $394,000 due to the average outstanding FHLB advances increase of
$29.0 million. Interest expense incurred on certificates of deposit increased
$537,000 due to the average certificates of deposit increasing $41.2 million.
Increases in interest expenses due to volume were partially offset by decreases
in the interest rates paid on FHLB advances and certificates of deposit by
approximately 37 basis points. The average cost of funds, including other
borrowings, was 5.62% for the first three months of 1999 compared to 5.89% over
the same period in 1998.
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, 1999, increased
$613,000, or 55.1%, to $1.7 million from $1.1 million for the same period in
1998. Average interest-earning assets increased by $70.5 million, or 77.0%, to
$162 million, for the three months ended March 31, 1999 compared to the same
period in 1998. Average interest-bearing liabilities increased $73.6 million or
92.2% over the same period. The net interest spread and net interest margin
decreased for the period ended March 31, 1999 vs. March 31, 1998, from 4.11% to
3.96% and 4.86% to 4.26%, respectively. The major reason for the spread and
margin compression relates to the proportion of the amount of accretion of the
discount on loans acquired to total interest income. For the three months ended
March 31, 1999, $301,000 of discount was accreted into interest income or 7.7%
of the total interest income. This compares to $259,000 of discount accreted
into interest income for the three month period ended March 31, 1998 or 11.3% of
total interest income. Excluding the income attributable to the accretion of
discount on loans acquired, the net interest margin would have declined 21 basis
points for the three months ended March 31, 1999 vs. March 31, 1998 to 3.52%
from 3.73%, respectively.
11
<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>
(Dollars in Thousands)
Three Months Ended March 31,
1999 1998
------------------------------------- ----------------------------------
Average Average Average Average
Assets: Balance Interest Yield/Rate Balance Interest Yield/Rate
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 102,169 $ 2,756 10.79% $ 57,674 $ 1,647 11.43%
Investment securities 52,976 1,044 7.88 27,746 548 7.89
Interest-bearing deposits and other 6,818 81 4.75 6,093 92 6.02
--------- ------- ------ -------- ------- ------
Total earning assets $ 161,963 $ 3,881 9.58% $ 91,513 $ 2,287 10.00%
Liabilities:
Deposits:
Savings and Passbook $ 7,671 $ 85 4.43% $ 1,876 $ 13 2.65%
NOW accounts 1,001 6 2.40 935 9 3.95
Money Market accounts 3,369 40 4.75 5,770 59 4.05
Certificates of Deposit 106,033 1,536 5.79 64,857 999 6.16
Other borrowings 35,298 488 5.53 6,340 94 5.90
--------- ------- ------ -------- ------- ------
Total interest-bearing liabilities $ 153,372 $ 2,155 5.62% $ 79,778 $ 1,174 5.89%
--------- ------- -------- -------
Excess of interest earning assets over
interest-bearing liabilities $ 8,591 $ 11,735
========= ========
Net interest income $ 1,726 $ 1,113
======= =======
Effective interest rate differential (spread) 3.96% 4.11%
======= =======
Net yield on average interest earning assets 4.26% 4.86%
======= =======
Average earning assets to
Average interest bearing liabilities 105.60% 114.71%
======= =======
</TABLE>
12
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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>
(Dollars in Thousands)
March 31, 1999 vs March 31, 1998
Increase or Decrease
Due to Changes in
------------------------------- Total
Average Average Increase
Variance in interest income on: Volume Rate (Decrease)
------- ------- -------
<S> <C> <C> <C>
Interest-earning assets
Loans $ 1,212 $ (103) $ 1,109
Securities 497 (1) 496
Interest-bearing deposits and other 8 (19) (11)
------- ------- -------
Total interest-earning assets $ 1,717 $ (123) $ 1,594
------- ------- -------
Interest-bearing deposits
Savings and Passbook $ 51 $ 21 $ 72
NOW accounts 1 (4) (3)
Money Market accounts (27) 8 (19)
Certificates of Deposit 596 (59) 537
Other borrowings 400 (6) 394
------- ------- -------
Total interest-bearing liabilities $ 1,021 $ (40) $ 981
------- ------- -------
Changes in net interest income $ 696 $ (83) $ 613
======= ======= =======
</TABLE>
13
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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, a provision for loan losses was booked at $100,000 during the
quarter ended March 31, 1999. The allowance for loan losses as a percentage of
loans and leases outstanding was 1.05% at March 31, 1999, compared to 1.02% at
December 31, 1998 and 1.00% at March 31, 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. No charge-offs on
loans were recorded during the first quarter of 1999 compared to $8,000 of
charge-offs for the first quarter in 1998.
NONINTEREST INCOME
Noninterest income increased $99,000 or 44.8% in the first three months of 1999
compared to the same three months of 1998. Gains on sales of securities
classified as available-for-sale increased $17,000 and service charges on
deposit accounts, other service charges, loan review fees, letter of credit fees
and other miscellaneous income increased $82,000 during the period.
NONINTEREST EXPENSE
Other expense increased an aggregate of $638,000 or 103.2%, compared to the
first three months of 1998. Compensation expense increased $234,000 due to the
hiring of additional personnel . Occupancy expense increased $92,000 due to the
addition of two branches. Advertising expense increased $36,000 due to a new
marketing campain. Office expense, travel and entertainment, and other
miscellaneous expenses increased $192,000 as a result of the increased efforts
to attract additional customers. Professional fees increased $84,000 due to an
increase in outside consulting and legal services provided during the quarter.
INCOME TAX EXPENSE
Income tax expense recorded for the three months ended March 31, 1999 and 1998
was $276,000 and $268,000 or 40.0% and 39.4%, effective tax rate, respectively.
14
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) were $110.0 million at March 31, 1999
compared to $102.1 million at December 31, 1998. Loans receivable represented
59.1% of total assets as of March 31, 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 March 31, 1999, compared to December 31, 1998:
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31,
------------------------ -------------------------
1999 % 1998 %
------------------------ -------------------------
<S> <C> <C> <C> <C>
Real estate $ 106,046 96.4% $102,076 99.9%
Commercial and industrial 1,071 1.0 986 1.0
Other 4,218 3.8 243 0.2
--------- ------- --------- -------
Total loans 111,335 101.2 103,305 101.1
Loans in process - - - -
Deferred loan fees (147) (0.1) (116) (0.1)
Allowance for loan losses (1,175) (1.1) (1,051) (1.0)
--------- ------- --------- -------
Net loans $ 110,013 100.0% $102,138 100.0%
========= ======= ========= =======
</TABLE>
On March 31, 1999, the net book value of nonaccrual loans was approximately $2.0
million compared to $1.8 million at December 31, 1998. These amounts represented
nonaccrual balances on discounted commercial and residential real estate loans
purchased by the Bank and not on balances originated directly by the Bank. The
amount of troubled debt restructured loans totaled $1.5 million as of March 31,
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 is sufficient to cover the
outstanding obligation to the Bank.
15
<PAGE>
The following table summarizes the changes in the Bank's allowance for loan
losses for the period ended March 31, 1999, compared to December 31, 1998:
(Dollars in Thousands)
Three months Twelve months
ended March 31, ended December 31,
1999 1998
-------------- ----------------
Balance at beginning of period $1,051 $ 568
Provision for loan losses 100 510
Charge-offs - (43)
Recoveries 24 16
-------------- ----------------
Balance at end of period $1,175 $1,051
============== ================
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at
March 31, 1999, and December 31, 1998, respectively, for each major category of
the Bank's investment securities:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1999
----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Available-for-Sale
Mortgage-backed securities $10,529 $ -- $ (65) $10,464
Corporate obligations 12,829 52 (295) 12,586
Trust preferred securities 25,393 72 (737) 24,728
Other securities 2,503 58 (133) 2,428
------- ------- ------- -------
Total available-for-sale $51,254 $ 182 $(1,230) $50,206
======= ======= ======= =======
Held-to-Maturity
U.S. Government and agency
securities $ 1,964 $ -- $ (27) $ 1,937
Mortgage-backed securities 5,045 61 (16) 5,090
Municipal securities 3,167 45 -- 3,212
Trust preferred securities 1,113 41 (27) 1,127
Other securities 3,433 -- (134) 3,299
------- ------- ------- -------
Total held-to-maturity $14,722 $ 147 $ (204) $14,665
======= ======= ======= =======
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
(Dollars 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 obligations 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, 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 9.9% to $125.8 million at March 31, 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. Increases over the
period were due to marketing efforts, and new business development programs
initiated by the Company. Management anticipates that the Company will continue
relying on customer deposits, maturity of investment securities, sales of
"Available for Sale" securities, loan sales, loan repayments, net income,
Federal Funds markets, and FHLB borrowings to provide liquidity. Although
deposit balances have shown historical growth, such balances may be influenced
by changes in the banking industry in general, interest rates available on other
investments, general economic conditions, competition and other factors.
17
<PAGE>
The following table summarizes the composition of the Bank's deposit portfolio.
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1999 December 31, 1998
--------------------------------- --------------------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Demand $ 1,329 1.06% $ 1,439 1.26%
NOW 908 0.72 846 0.74
Money Market 2,109 1.68 2,345 2.05
Savings & Passbook 12,367 9.83 5,281 4.62
Time 109,052 86.71 104,476 91.33
-------- ------- -------- -------
$125,765 100.00% $114,387 100.00%
======== ======= ======== =======
</TABLE>
The following table summarizes the maturity composition of certificates of
deposit at March 31, 1999, compared to December 31, 1998:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1999 December 31, 1998
-------------------------------- --------------------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Within one year $ 52,820 48.43% $ 47,067 45.05%
Over one year through two years 30,633 28.09 28,399 27.18
Over two years through three years 11,304 10.37 14,769 14.14
Over three years through five years 13,111 12.02 13,333 12.76
Over five years through ten years 1,184 1.09 908 0.87
-------- ------- -------- -------
$109,052 100.00% $104,476 100.00%
======== ======= ======== =======
</TABLE>
Borrowings remained constant at $30.0 million for March 31, 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 $3.8 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 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). At March 31, 1999, the Company and the Bank meet all capital
adequacy requirements to which they are subject.
18
<PAGE>
At March 31, 1999, the Bank's actual and required minimum capital ratios were as
follows:
<TABLE>
<CAPTION>
To be well
Capitalized Under
For the Bank: For Capital Prompt Corrective
(Dollars in Thousands) Adequacy Purposes Action Provisions
As of March 31, 1999 Amount Ratio Amount Ratio Amount Ratio
--------- ------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 20,233 13.9% $ 11,640 8.0% $ 14,550 10.0%
Tier I Capital
(to Risk Weighted Assets) 19,058 13.1 5,820 4.0 8,730 6.0
Tier I Capital
(to Average Assets) 19,058 11.2 6,815 4.0 8,519 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 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 BankPhiladelphia.
At March 31, 1999, the Company's actual and required minimum capital ratios were
as follows:
<TABLE>
<CAPTION>
For the Company: For Capital
(Dollars in Thousands) Adequacy Purposes
As of March 31, 1999 Amount Ratio Amount Ratio
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 24,797 16.6% $ 11,942 8.0%
Tier I Capital
(to Risk Weighted Assets) 18,163 12.2 5,971 4.0
Tier I Capital
(to Average Assets) 18,163 10.3 7,027 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>
19
<PAGE>
PART II
Item 1. Legal Proceedings
Neither the Company nor the Bank is involved in any pending legal proceedings
other than routine legal proceedings occurring in the ordinary course of the
Bank's business. Management believes that such routine legal proceedings, in the
aggregate, are immaterial to the Company's and the Bank's financial condition
and results of operations.
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 $300,000 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 $10,300,000 (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. The first
distribution will be payable by the Trust on September 15, 1999.
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.
20
<PAGE>
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, as amended*
3.2 Bylaws of USABancShares *
4.1 Indenture of USABancShares 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 relating to the Exchange Capital Securities**
10 Registration Rights Agreement among USABancShares, USA Capital Trust I and Sandler O'Neill &
Partners, L.P.**
11 Computation of Per Share Earnings (Included in Financial Statements on Page 8 of this report)
27 Financial Data Schedule
</TABLE>
- -------------------------
* Incorporated by reference from the Registration Statement on Form SB-2 of
USABanc.com, as amended, Registration No. 33-92506.
** Incorporated by reference from the Registration Statement on Form S-4 of
USABanc.com filed on May 12, 1999.
(B)Reports on Form 8-K
On March 16, 1999, the Company filed a current report on
Form 8-K to report the event described in Item 2 of Part II of this report.
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.
USABanc.com, Inc.
Date: May 14, 1999 By: /s/ Kenneth L. Tepper
-------------------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 By: /s/ Brian M. Hartline
------------------------------------
Brian M. Hartline,
Chief Financial Officer
(Principal Accounting and Financial Officer)
22
<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> USABanc.com, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,071
<INT-BEARING-DEPOSITS> 247
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,206
<INVESTMENTS-CARRYING> 14,722
<INVESTMENTS-MARKET> 14,665
<LOANS> 111,335
<ALLOWANCE> 1,175
<TOTAL-ASSETS> 186,230
<DEPOSITS> 125,765
<SHORT-TERM> 5,000
<LIABILITIES-OTHER> 2,606
<LONG-TERM> 39,163
0
0
<COMMON> 2,110
<OTHER-SE> 11,580
<TOTAL-LIABILITIES-AND-EQUITY> 186,230
<INTEREST-LOAN> 2,756
<INTEREST-INVEST> 1,125
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,881
<INTEREST-DEPOSIT> 1,667
<INTEREST-EXPENSE> 2,155
<INTEREST-INCOME-NET> 1,726
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 56
<EXPENSE-OTHER> 1,250
<INCOME-PRETAX> 690
<INCOME-PRE-EXTRAORDINARY> 690
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 958
<LOANS-NON> 1,988
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,051
<CHARGE-OFFS> 0
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,175
<ALLOWANCE-DOMESTIC> 1,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
