<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, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to _______________
Commission file number 000-27244
---------
USABancShares.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)
Securities registered under Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Transitional Small Business Format: YES [ ] NO [X ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $1.00 par value, outstanding on May 12, 2000: 5,490,254 shares
Class B Common Stock, $.01 par value, outstanding on May 12, 2000: 216,460
shares
<PAGE>
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 (Loss) Income 5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
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 20
SIGNATURES 22
2
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in Thousands, except per share data)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
2000 1999
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,063 $ 3,813
Interest-bearing deposits with banks 26,352 821
Securities available-for-sale 32,486 37,478
Securities held-to-maturity (fair value: 2000 - $63,148;
1999 - $54,799) 69,235 60,337
Federal Home Loan Bank of Pittsburgh (FHLB) Stock 4,011 4,011
Loans receivable, net 200,415 197,623
Premises and equipment, net 4,587 2,851
Accrued interest receivable 3,149 2,906
Goodwill, net 69 70
Deferred income taxes 1,497 1,475
Bank owned life insurance 5,215 5,149
Other assets 11,547 6,801
--------- ---------
Total assets $ 360,626 $ 323,335
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 7,908 $ 5,168
NOW 12,089 4,692
Money Market 866 973
Savings and Passbook 19,446 19,271
Time 252,670 224,934
--------- ---------
Total deposits 292,979 255,038
Borrowed funds:
Short term borrowings 2,600 -
Long term borrowings 35,000 35,000
Guaranteed preferred beneficial interests in subordinated debt 10,000 10,000
Accrued interest payable 2,459 4,132
Accrued expenses and other liabilities 1,470 1,237
--------- ---------
Total liabilities 344,508 305,407
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;
5,490,284 shares issued and outstanding in 2000; 5,423,784 shares issued and
outstanding in 1999; and 216,460 and 216,460 shares of converted and
un-issued Class B common stock in 2000 and 1999, respectively
actual 5,706,744 shares issued and outstanding in 2000, as adjusted
actual 5,640,244 shares issued and outstanding in 1999, as adjusted 5,707 5,640
Additional paid-in capital 15,739 15,368
Accumulated deficit (3,833) (1,378)
Accumulated other comprehensive loss - unrealized
depreciation on securities available-for-sale (1,495) (1,702)
--------- ---------
Total stockholders' equity 16,118 17,928
--------- ---------
Total liabilities and stockholders' equity $ 360,626 $ 323,335
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in Thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Interest income:
Loans $ 4,747 $ 2,756
Investment securities 2,301 1,044
Interest-bearing deposits and other 256 81
------- -------
Total interest income 7,304 3,881
Interest expense:
Deposits 3,996 1,667
Borrowed funds 748 488
------- -------
Total interest expense 4,744 2,155
------- -------
Net interest income 2,560 1,726
Provision for loan losses - 100
------- -------
Net interest income after provision for loan losses 2,560 1,626
Non-interest income:
Service fee income 94 29
(Loss) gain on sales of investment securities (267) 56
Brokerage operations (loss) gain (192) 126
Other 104 109
------- -------
Total non-interest income (261) 320
Non-interest expense:
Salaries and employee benefits 1,428 506
Net occupancy expense 212 164
Professional fees 364 100
Office expenses 228 52
Data processing fees 351 51
Advertising expense 1,477 45
Insurance expense 34 21
Travel expense 176 44
Loan servicing expense 62 1
Internet content expense 31 -
Other operating expenses 566 272
------- -------
Total non-interest expense 4,929 1,256
------- -------
(Loss) income before income tax (benefit) expense (2,630) 690
Income tax (benefit) expense (175) 276
------- -------
Net (loss) income $(2,455) $ 414
======= =======
(Loss) earnings per share - basic (1) $ (0.43) $ 0.20
======= =======
(Loss) earnings per share - diluted (1) $ (0.43) $ 0.19
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1) All per share data has been adjusted to reflect all stock dividends and
stock splits.
4
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss) Income
(in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------------
2000 1999
---------------- -------------
<S> <C> <C>
Net (loss) income $ (2,455) $ 414
Other comprehensive (loss) income:
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period,
net of taxes 207 (315)
-------- -----
Comprehensive (loss) income $ (2,248) $ 99
======== =====
</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
(in Thousands)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Accumulated comprehensive stockholders'
Stock capital deficit loss equity
------------------- ---------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1999 $ 5,640 $ 15,368 $ (1,378) $ (1,702) $ 17,928
Net unrealized gain on
securities available-for-sale - - - 207 207
Exercise of options 67 309 - - 376
Warrants 62 62
Net loss - - (2,455) - (2,455)
------- -------- -------- -------- --------
Balances, March 31, 2000 $ 5,707 $ 15,739 $ (3,833) $ (1,495) $ 16,118
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,455) $ 414
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Provision for possible loan losses - 100
Depreciation and amortization 106 88
Decrease (increase) of goodwill 1 (5)
Net accretion of discounts on purchased loan portfolios (238) (301)
Net accretion/amortization of securities discount/premiums (112) (13)
Net losses (gains) on sale of securities 267 (56)
Net gains on sale of loan assets - (42)
Net increase in deferred fees 71 31
Increase in accrued interest receivable (243) (196)
Increase in deferred tax asset (22) (56)
Increase in bank owned life insurance (66) -
(Increase) decrease in other assets (4,769) 40
(Decrease) increase in accrued interest payable (1,673) 118
Increase in accrued expenses and other liabilities 233 640
---------- ---------
Net cash (used) provided by operating activities (8,900) 762
---------- ---------
Cash flows from investing activities:
Investment securities available for sale
Purchases - (22,921)
Sales 4,867 1,081
Maturities and principal repayments 150 23
Net realized losses 36 -
Investment securities held to maturity
Purchases (10,323) (1,979)
Sales 1,000 1,200
Maturities and principal repayments 436 1,812
(Increase) decrease in interest bearing deposits with banks (25,531) 7,459
Principal payments on loans 9,992 7,372
Purchases of loans - (1,232)
Originations of loans (12,552) (13,838)
Decrease in other real estate, net - 1
Purchases of premises and equipment (1,842) (240)
---------- ---------
Net cash used in investing activities (33,767) (21,262)
---------- ---------
Cash flows from financing activities:
Net increase in deposits 37,941 11,378
Increase (decrease) in short-term borrowings 2,600 (1,142)
Exercise of stock options 376 -
Proceeds from issuance of Trust Preferred Securities - 10,000
---------- ---------
Net cash provided by financing activities 40,917 20,236
---------- ---------
Net decrease in cash and cash equivalents (1,750) (264)
Cash and cash equivalents, beginning 3,813 1,335
---------- ---------
Cash and cash equivalents, end $ 2,063 $ 1,071
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000
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
March 31, 2000 and for the three months ended March 31, 2000 and 1999, 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 9.50% 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. Private Stock Placement
In March, 2000, the Company entered into an agreement to issue 500,000 common
shares in conjunction with a private stock placement with Track Data Corporation
through the exchange of shares of common stock. The transaction was anticipated
to be accretive to the Company's book value. As a result of recent developments
effecting the market valuation of Track Data, the Company rescinded the
agreement on May 15, 2000 through mutual agreement. As a result, there is no
dilutive effect resulting from the transaction which may have otherwise occurred
and all shares subject to the agreement have been returned.
5. 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.
8
<PAGE>
The following information was used in the computation of earnings per share on
both a basic and diluted basis for the three month period ended March 31, 2000
and 1999.
<TABLE>
<CAPTION>
(in Thousands, except per share data) Three months ended
March 31,
--------------------------
2000 1999
------- ------
<S> <C> <C>
Basic EPS Computation:
Numerator - Net (loss) earnings $(2,455) $ 414
Denominator - Weighted average shares outstanding 5,676 2,116
------- ------
Basic (loss) earnings per share (1) $ (0.43) $ 0.20
======= ======
Diluted EPS Computation:
Numerator - Net (loss) earnings $(2,455) $ 414
Denominator - Weighted average shares outstanding 5,676 2,116
Effect of dilutive securities - 117
------- ------
Diluted (loss) earnings per share (1) $ (0.43) $ 0.19
======= ======
</TABLE>
(1) All per share data has been adjusted to reflect all stock dividends and
stock splits.
6. Recent 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. Due to that reclassification, the Bank accreted approximately $7,000
into equity during the three months ended March 31, 2000 to restore the
securities back to their carrying value.
9
<PAGE>
USABANCSHARES.COM, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
March 31, 2000
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.
FINANCIAL CONDITION
The Company's total assets increased from $323.3 million at December 31, 1999 to
$365.6 million at March 31, 2000, an increase of $37.3 million, or 11.5%. The
increase was due primarily to increases in the net loans receivable, securities
portfolio, interest bearing deposits, premises and equipment and other assets of
$2.8 million, $3.9 million, $25.5 million, $1.7 million, and $4.7 million,
respectively. The increase in the loan portfolio was a result of originating
$12.6 million in loans, primarily commercial real estate and multi-family
residential real estate. The origination volume was partially offset by
principal payments and loan payoffs totaling $10.0 million. The increase in the
securities portfolio was primarily due to the acquisition of federal agency
bonds and equity securities, partially offset by the sale of corporate debt
instruments. The increase in interest bearing deposits can be attributed to the
growth in deposit liabilities. The increase in premises and equipment is the
result of the purchase of a new administrative office building at a cost of
approximately $1.6 million. The increase in other assets is associated with
fees relating to the Company's strategic marketing agreements with several
leading internet entities.
The growth in total assets was funded by increases in deposits of $27.7 million
in retail time deposits and $10.2 million in transaction accounts. 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 March 31, 2000 was approximately
$47.0 million, of which $35.0 million was drawn upon as of such date. The
Company's stockholders' equity decreased from $17.9 million at December 31, 1999
to $16.1 million at March 31, 2000, due to the operating loss incurred by the
Company for the three months ended March 31, 2000, partially offset by proceeds
received from the exercise of stock options.
10
<PAGE>
NET INCOME
The Company reported a net operating loss of $2.5 million or $(0.43) per share,
for the three months ended March 31, 2000, compared to net income of $414,000 or
$0.19 per diluted share for the three months ended March 31, 1999. Net income
decreased primarily because of the Company's Internet initiative and the
investments made to market and support www.usabancshares.com. Net interest
income increased $834,000, and was partially offset by a decrease in
non-interest income of $581,000. Non-interest expense increased $3.7 million
primarily due to increases in advertising expense of $1.4 million, compensation
expense of $922,000, data processing expense of $300,000, professional fees
expense of $264,000, and $294,000 in other operating expense, all related to the
Internet strategy.
INTEREST INCOME
Total interest income increased $3.4 million or 88.2% to $7.3 million for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999, due to an increase in average earning assets of $157.5 million during the
same time period. Income on loans increased $2.0 million due to the average
earning loan balances increasing $94.6 million. The increase in average loans
outstanding was partially offset by the yield on the loan portfolio decreasing
by 114 basis points. Income on investments increased $1.3 million due to the
investment portfolio average balances increasing $52.0 million between the noted
periods and the yield on the portfolio also increasing by 89 basis points.
INTEREST EXPENSE
Total interest expense increased $2.6 million or 120.1% to $4.7 million, for the
three months ended March 31, 2000, compared to the three months ended March 31,
1999, due to a higher volume of new certificates of deposit, an increased
outstanding balance of FHLB advances and the issuance of guaranteed subordinated
debt, in March of 1999. Interest expense increased on deposits $2.3 million,
interest expense on borrowings increased $260,000 and interest expense incurred
as a result of the guaranteed debt was $490,000. The interest expense increases
were due to the average outstanding balances increasing $151.4 million, $3.0
million and $8.8 million, respectively. The guaranteed subordinated debt carries
an interest rate of 9.50%. The average cost of funds, including other
borrowings, was 6.01% for the three months ended March 31, 2000 compared to
5.62% over the same period in 1999.
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 volume of interest-earning assets and interest-bearing liabilities
that occur over time. Volume refers to the average dollar level of
interest-earning assets and interest-bearing liabilities. Net interest 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 after provision for loan losses for the three months ended
March 31, 2000, increased $934,000 or 57.4%, to $2.6 million from $1.6 million
for the same period in 1999. Average interest-earning assets increased by $157.5
million, or 97.2% to $319.4 million, for the three months ended March 31, 2000
compared to the same period in 1999. Average interest-bearing liabilities
increased $163.2 million or 106.4% over the same period. The net interest spread
and net interest margin decreased for the period ended March 31, 2000 compared
to March 31, 1999, from 3.95% to 3.17% and 4.26% to 3.22% respectively. For the
three months ended March 31, 2000, $238,000 of discount was accreted into
interest income or 3.3% of the total interest income. This compares to $301,000
of discount accreted into interest income for the three month period ended March
31, 1999 or 7.8% of total interest income. Excluding the income attributable to
the accretion of discount on loans acquired, the net interest margin would have
declined 60 basis points for the three months ended March 31, 2000 compared to
11
<PAGE>
March 31, 1999 to 2.92% from 3.52% respectively. Over the past fifteen 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 a quality in keeping
with the Bank's underwriting criteria and will be adjustable in nature rather
than fixed. These efforts coupled with the level of prepayments and loan
pay-offs, $5.3 million for the three months ended March 31, 2000, have lead to
the decline of the yields on the loan portfolio and the decline in net interest
margin.
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)
Three months ended March 31,
2000 1999
---------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 196,789 $ 4,747 9.65% $ 102,169 $ 2,756 10.79%
Investment securities 103,705 2,301 8.88 52,976 1,044 7.88
Interest-bearing deposits and other 17,705 256 5.78 6,818 81 4.75
------------- ------------ ----------- ------------- ------------ -------------
Total interest-earning assets $ 318,199 $ 7,304 9.18 $ 161,963 $ 3,881 9.58
Interest-bearing liabilities:
Deposits:
NOW $ 7,909 $ 84 4.26% $ 1,001 $ 6 2.40%
Money Market 972 10 4.13 3,369 40 4.76
Savings and Passbook 18,951 192 4.06 7,671 85 4.44
Time 241,607 3,710 6.16 106,033 1,536 5.81
Borrowings 47,145 748 6.36 35,298 488 5.55
------------- ------------ ----------- ------------- ------------ -------------
Total interest-bearing liabilities $ 316,584 $ 4,744 6.01 $ 153,372 $ 2,155 5.63
------------- ------------ ----------- ------------- ------------ -------------
Excess of interest-earning assets over
interest-bearing liabilities $ 1,615 $ 8,591
============= =============
Net interest income $ 2,560 $ 1,726
============ ============
Net interest rate spread 3.17% 3.95%
=========== =============
Net interest margin 3.22% 4.26%
=========== =============
Average earning assets to average
interest bearing liabilities 100.51% 105.60%
=========== =============
</TABLE>
12
<PAGE>
RATE VOLUME ANALYSIS
The following table 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)
March 31, 2000 vs. March 31, 1999
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 $ 2,552 $ (561) $ 1,991
Investment securities 1,000 258 1,257
Interest-earning deposits and other 129 46 175
---------- --------- ---------
Total interest-earning assets $ 3,681 $ (258) $ 3,423
---------- --------- ---------
Interest-bearing liabilities:
Deposits:
NOW $ 41 $ 37 $ 78
Money Market (28) (2) (30)
Savings and Passbook 125 (18) 107
Time 1,964 210 2,174
Borrowings 164 96 260
---------- --------- ---------
Total interest-bearing liabilities $ 2,266 $ 323 $ 2,589
---------- --------- ---------
Changes in net interest income $ 1,415 $ (581) $ 834
========== ======== =========
</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, no additions to the provision for loan losses were made during
the three months ended March 31, 2000. The allowance for loan losses as a
percentage of loans outstanding, net of discount was 1.04% at March 31, 2000,
compared to 1.06% at December 31, 1999 and 1.05% at March 31, 1999. 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 three month periods ended March
31, 2000 and 1999. No recoveries on loans were recorded during the three months
ended March 31, 2000 compared to $24,000 of recoveries recorded for the same
period in 1999.
13
<PAGE>
NON-INTEREST INCOME
Non-interest income decreased $581,000 to ($261,000) for the three months ended
March 31, 2000. Loss on sale of investments was $267,000 for the three months
ended March 31, 2000 compared to a gain of $56,000 for the same period in 1999.
Net earnings from brokerage operations decreased $318,000 during the period. The
brokerage operation results reflect the increased costs associated with the
maintenance and support of the on-line trading line of business
www.usaforce.com. Other non-interest income reflects an increase of $66,000 in
income on bank owned life insurance along with an increase in service fee income
of $65,000, for the three month period ended March 31, 2000 compared to the same
period in 1999.
NON-INTEREST EXPENSE
Other non-interest expense increased $3.7 million, or 292.4% to $4.9 million,
for the three months ended March 31, 2000. Compensation expense increased
$922,000, or 182.2%, due to the hiring of 39 new employees. Advertising expense
increased $1.4 million due to new marketing initiatives 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 three months ended March 31, 2000.
INCOME TAX EXPENSE
An income tax benefit of $175,000 was recorded for the three months ended March
31, 2000, compared to income tax expense of $276,000 for the three months ended
March 31, 1999. The resulting effective tax rates were (6.7%) and 40.0%,
respectively. The Company did not provide a tax provision for the second, third
and fourth calendar quarters of 1999. The Company recorded a tax benefit of
$588,000 in the fourth quarter of 1999.
14
<PAGE>
LOAN PORTFOLIO
Loans receivable, (net of the allowance for loan losses, unearned fees and
origination costs and loans in process) was $200.4 million at March 31, 2000
compared to $197.6 million at December 31, 1999. Loans receivable represented
54.8% of total assets as of March 31, 2000 compared to 61.1% at December 31,
1999. The following table summarizes the loan portfolio of the Bank by loan
category and amount at March 31, 2000, compared to December 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------- -------------------------------
(in Thousands) 2000 % 1999 %
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Real Estate:
1-4 family residential properties $ 21,032 10.4% $ 31,729 15.9%
Commercial real estate 151,949 74.9 143,428 71.7
Multifamily residential properties 10,014 4.9 7,726 3.9
Construction 10,752 5.3 9,467 4.7
Commercial and industrial 6,462 3.2 4,688 2.3
Consumer 2,659 1.3 2,967 1.5
--------- ----- --------- ------
Total loans, net of discount $ 202,868 100.0% $ 200,005 100.0%
========= ===== ========= =====
Deferred loan fees (338) (267)
Allowance for loan losses (2,115) (2,115)
--------- ---------
Net loans $ 200,415 $ 197,623
========= =========
</TABLE>
At March 31, 2000 the Bank's net discounted loan portfolio amounted to $118.1
million or 58.2% of total loans net of discount. These loans have a face value
of $123.4 million, reflecting a discount of $5.3 million or 4.3%. At December
31, 1999 the Bank's net discounted loan portfolio amounted to $121.3 million or
60.7% of the total loans net of discount. These loans had a face value of $126.9
million, reflecting a discount of $5.6 million or 4.4%. The Bank has identified
$2.0 million at March 31, 2000 and December 31, 1999, 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.
On March 31, 2000, the net book value of nonaccrual loans was approximately $1.5
million compared to $1.3 million at December 31, 1999. At March 31, 2000 the
allowance for loan losses to non-performing loans, net of discount was 141.95%
compared to 167.06% at December 31, 1999. The Bank's allowance for loan losses
and purchased discount to total loans, net of discount, was 3.66% and 3.82% at
March 31, 2000 and December 31, 1999, respectively.
The amount of troubled debt restructured loans totaled $1.7 million as of March
31, 2000 and December 31, 1999. The Bank will recognize income on non-accrual
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.
15
<PAGE>
The following table summarizes the changes in the Bank's allowance for loan
losses for the period ended March 31, 2000, compared to December 31, 1999:
(in Thousands)
Three months Twelve months
ended March 31, ended December 31,
2000 1999
--------------- -------------------
Balance at beginning of period $2,115 $1,051
Provision for loan losses - 1,175
Charge-offs - (141)
Recoveries - 30
------ ------
Balance at end of period $2,115 $2,115
====== ======
INVESTMENT PORTFOLIO
The following table presents the book values and estimated market values at
March 31, 2000, and December 31, 1999, respectively, for each major category of
the Company's investment securities:
<TABLE>
<CAPTION>
March 31, 2000
-----------------------------------------------------------
(in Thousands)
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 $ 1,399 $ - $ (49) $ 1,350
Mortgage-backed securities 8,933 - (462) 8,471
Corporate securities 14,795 18 (373) 14,440
Trust preferred securities 7,587 16 (644) 6,959
Other securities 1,438 - (172) 1,266
-------- ----- -------- --------
Total Available-for-Sale $ 34,152 $ 34 $ (1,700) $ 32,486
======== ===== ======== ========
Held-to-Maturity
U.S. Government and agency
securities $ 16,082 $ - $ (293) $ 15,789
Mortgage-backed securities 5,979 93 (126) 5,946
Corporate obligations 16,080 - (1,344) 14,736
Trust preferred securities 28,708 138 (4,313) 24,533
Municipal securities 3,171 - (242) 2,929
-------- ----- -------- --------
Total Held-to-Maturity $ 70,020 $ 231 $ (6,318) $ 63,933
======== ===== ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------
(in Thousands)
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 $ 1,399 $ - $ (51) $ 1,348
Mortgage-backed securities 9,101 - (457) 8,644
Corporate securities 19,326 6 (311) 19,021
Trust preferred securities 7,588 - (608) 6,980
Other securities 2,058 2 (575) 1,485
-------- ----- -------- --------
Total Available-for-Sale $ 39,472 $ 8 $ (2,002) $ 37,478
======== ===== ======== ========
Held-to-Maturity
U.S. Government and agency
securities $ 5,694 $ - $ (262) $ 5,432
Mortgage-backed securities 6,514 8 (152) 6,370
Corporate obligations 16,079 - (1,355) 14,724
Trust preferred securities 29,676 139 (3,595) 26,220
Municipal securities 3,170 - (321) 2,849
-------- ----- -------- --------
Total Held-to-Maturity $ 61,133 $ 147 $ (5,685) $ 55,595
======== ===== ======== ========
</TABLE>
LIQUIDITY
The Company's primary sources of funds are customer deposits, non-retail
certificates of deposit, maturities of investment securities, sales of
"Available for Sale" securities, loan sales, loan repayments, 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 14.9% to
$293.0 million at March 31, 2000, compared to $255.0 million as of December 31,
1999. The Bank has made a concerted effort to attract deposits through
competitive pricing of its Internet/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, 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>
(in Thousands)
March 31, 2000 December 31, 1999
-------------------------- ----------------------------
Amount Percent Amount Percent
---------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Demand $ 7,908 2.70% $ 5,168 2.03%
NOW 12,089 4.13 4,692 1.84
Money Market 866 0.30 973 0.38
Savings and Passbook 19,446 6.64 19,271 7.56
Time 252,670 86.23 224,934 88.19
--------- ------ -------- ------
$ 292,979 100.00% $255,038 100.00%
========= ====== ======== ======
</TABLE>
The following table summarizes the maturity composition of time deposits at
March 31, 2000, compared to December 31, 1999:
<TABLE>
<CAPTION>
(in Thousands)
March 31, 2000 December 31, 1999
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
Within one year $ 135,297 53.55% $142,907 63.53%
Over one year through two years 49,807 19.71 44,860 19.95
Over two years through three years 31,904 12.63 15,996 7.11
Over three years through five years 34,643 13.71 20,450 9.09
Over five years through ten years 1,019 0.40 721 0.32
--------- ------ -------- ------
$ 252,670 100.00% $224,934 100.00%
========= ====== ======== ======
</TABLE>
Borrowings increased 7.4% to $37.6 million as of March 31, 2000 compared to
$35.0 million at December 31, 1999. 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, $10.0 million, $5.0 million, and
$10.0 million, respectivey. These five credit facilities have interest rates of
5.47%, 5.63%, 6.31%, 4.84%, and 5.37%, and conversion dates of June 15, 2000,
June 15, 2003, December 20, 2001, September 30, 2003, and April 7, 2000,
respectively. The conversion rates on these credit facilities are based on the
three month LIBOR rate plus 8 basis points, 14 basis points, 16 basis points,
14.5 basis points, and 12 basis points, respectively. The Company also has a
prime based loan in the amount of $2.6 million with a maturity date of October
1, 2000. The Bank has available to borrow from the FHLB an additional $12.0
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 March 31, 2000, the Bank and the Company meet all
capital adequacy requirements to which they are subject.
18
<PAGE>
At March 31, 2000, the Bank's actual and required minimum capital ratios were as
follows:
<TABLE>
<CAPTION>
To be well
Capitalized under
For Capital Prompt Corrective
(in Thousands) Adequacy Purposes Action Provisions
----------------- -----------------
As of March 31, 2000: Amount Ratio Amount Ratio Amount Ratio
- --------------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 27,414 9.3% $ 23,657 8.0% $ 29,571 10.0%
Tier I Capital
(to Risk Weighted Assets) 25,299 8.6 11,828 4.0 17,743 6.0
Tier I Capital
(to Average Assets) 25,299 7.5 13,544 4.0 16,929 5.0
As of December 31, 1999:
- ------------------------
Total Capital
(to Risk Weighted Assets) $ 28,266 10.1% $ 22,460 8.0% $ 28,075 10.0%
Tier I Capital
(to Risk Weighted Assets) 26,151 9.3 11,230 4.0 16,845 6.0
Tier I Capital
(to Average Assets) 26,151 7.9 13,171 4.0 16,464 5.0
</TABLE>
At March 31, 2000, the Company's actual and required minimum capital ratios were
as follows:
<TABLE>
<CAPTION>
For Capital
(in Thousands) Adequacy Purposes
As of March 31, 2000: Amount Ratio Amount Ratio
- --------------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 29,556 10.0% $ 23,747 8.0%
Tier I Capital
(to Risk Weighted Assets) 23,278 7.8 11,874 4.0
Tier I Capital
(to Average Assets) 23,278 6.8 13,693 4.0
As of December 31, 1999:
- ------------------------
Total Capital
(to Risk Weighted Assets) $ 31,331 11.2% $ 22,473 8.0%
Tier I Capital
(to Risk Weighted Assets) 25,645 9.1 11,237 4.0
Tier I Capital
(to Average Assets) 25,645 7.8 13,124 4.0
</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 9.50% 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, such that no more than 25% percent of
Tier I capital can be comprised of trust preferred securities. The Company has
invested $6.0 million of the proceeds in the Bank.
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
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 August 18, 1999, the Company 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. As of March 31, 2000, Systemax had not
satisfied the conditions required for the purchase of the additional 30,000
shares and therefore, the warrants will not be granted.
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.
Exhibit No. Description
- ----------- -----------
10.1 Employment agreement between USABancShares.com and Kenneth L.
Tepper and Brian M. Hartline*
10.2 Employment agreement between USABancShares.com and Craig J. Scher
10.3 Employment agreement between USABancshares.com and Sean Sweeney
10.4 Agreement by and between Kenneth L. Tepper and USABancShares.com
dated January 2, 1998**
10.5 Registration Rights Agreement between USABancShares.com and
certain shareholders dated February 13, 1998**
10.6 Warrant Agreement between USABancShares.com and Sandler O'Neill &
Partners, L.P. dated February 13, 1998**
10.7 Agreement by and between USABancshares.com, Inc. and Earthlink
and Systemax*
11 Computation of Per Share Earnings (Included in Financial
Statements on Page 9 of this report)
21 Subsidiaries of the Corporation
27 Financial Data Schedule
- -------------------------
* Incorporated by reference from the Registration Statement on Form SB-2 of
USABancShares.com's, as ammended, Registration No. 33-92506.
** Incorporated by reference from USABancShares.com's Annual Report on Form
10-KSB for the fiscal year December 31, 1999.
(B) Reports on Form 8-K
Not applicable
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned; thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania.
USABancShares.com, Inc.
Date: May 15, 2000 By: /s/ Kenneth L. Tepper
----------------------------------------------
Kenneth L. Tepper,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 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 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> USABANCSHARES.COM, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,063
<INT-BEARING-DEPOSITS> 26,352
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,486
<INVESTMENTS-CARRYING> 69,235
<INVESTMENTS-MARKET> 63,148
<LOANS> 200,415
<ALLOWANCE> 2,115
<TOTAL-ASSETS> 360,626
<DEPOSITS> 292,979
<SHORT-TERM> 2,600
<LIABILITIES-OTHER> 3,929
<LONG-TERM> 45,000
0
0
<COMMON> 5,707
<OTHER-SE> 10,411
<TOTAL-LIABILITIES-AND-EQUITY> 360,626
<INTEREST-LOAN> 4,747
<INTEREST-INVEST> 2,301
<INTEREST-OTHER> 256
<INTEREST-TOTAL> 7,304
<INTEREST-DEPOSIT> 3,996
<INTEREST-EXPENSE> 4,744
<INTEREST-INCOME-NET> 2,560
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (267)
<EXPENSE-OTHER> 4,929
<INCOME-PRETAX> (2,630)
<INCOME-PRE-EXTRAORDINARY> (2,630)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,455)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
<YIELD-ACTUAL> 9.18
<LOANS-NON> 1,490
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,718
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,115
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,115
<ALLOWANCE-DOMESTIC> 2,115
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
