Marketing costs swelled the first-quarter loss at USABancshares.com, one of only two publicly traded Internet banks.
The $2.5 million operating loss was six times that of a year earlier, the bank announced last week. Marketing expenditures were largely responsible, but costs related to upgrades of the bank's infrastructure also played a role, said Kenneth L. Tepper, president and chief executive officer.
USABancshares will probably redirect its advertising expenditures this quarter. "We have great control over our profitability, and it is advertising-related," Mr. Tepper said. "We'll look to achieve profitability sooner rather than later, and you'll probably see us cutting back on some advertising and focus on other channels."
The Philadelphia-based bank plastered its logo on national television networks throughout the first quarter, sponsoring CNBC's four-day millennium programming, MSNBC's "Silicon Valley Summit," and "Wheel of Fortune." The bank also advertised in newspapers in 12 major cities, including Los Angeles, Chicago, and Dallas.
Its marketing strategy contrasts with that of NetBank, the other publicly traded Internet bank. NetBank started aggressively marketing itself this past quarter, only after achieving its eighth straight quarter of profitability.
In results announced April 25, NetBank.com said it increased net income by 569% to $4.6 million in the quarter that ended March 31. NetBank.com also reported an increase in assets, to $1.4 billion.
The Atlanta-based bank invested $2.8 million in marketing during the quarter, up dramatically from the $387,000 it spent on branding in the first quarter of 1999.
"After we reached profitability in March 1998, we used funds to build our market awareness," said D.R. Grimes, chief executive officer and vice chairman.
USABancshares.com's advertising blitz helped increase account applications fivefold, Mr. Tepper said. Assets rose 13% from yearend, to $366 million.
Though the bank did not announce a customer total, at the end of April it told American Banker that it had 20,000, and $250 million of deposits.
Some of the first-quarter loss reflects customer service expenses at USABancshares.com's Web site and 24-hour call center. Data processing expenditures also increased because of added deposit volume and new accounts, Mr. Tepper said. USABancshares.com uses Electronic Data Systems of Plano, Tex., to support its back-end data processing.
USABancshares.com plans to focus more this quarter on its wireless banking service, which is already available. "It will be an important component of our growth," Mr. Tepper said. "We see the opportunity to invest in engineering and infrastructure to generate more growth."
