<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____________________ to ______________________
Commission file number 0-21264
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VISTA BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2870972
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
305 Roseberry Street, P.O. Box 5360, Phillipsburg, New Jersey 08865
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(Address of principal executive offices) (Zip Code)
(908) 859-9500
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(Issuer's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of July 31, 1996, there
were 4,040,641 shares of $.50 par value Common Stock outstanding.
<PAGE>
VISTA BANCORP, INC.
Form 10-Q
For the period ended June 30, 1996
Index
PAGE
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three Months
Ended June 30, 1996 and 1995 and Six Months
Ended June 30, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders' Equity -
Six Months Ended June 30, 1996 and
The Year Ended December 31, 1995 5
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II Other Information
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
2
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Vista Bancorp, Inc. and Subsidiaries
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CONSOLIDATED BALANCE SHEETS
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $15,994 $18,823
Federal funds sold and securities purchased under agreements to resell 3,712 10,980
Short-term investments 1,677 6,345
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Total Cash and Cash Equivalents 21,383 36,148
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Securities available for sale (Amortized cost: $163,163 and $143,563 in 1996 and 1995,
respectively) 161,500 145,867
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Loans, net of unearned income:
Mortgage 137,655 134,471
Commercial 69,716 67,311
Consumer 70,470 62,500
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Total Loans 277,841 264,282
Allowance for loan losses (3,850) (3,932)
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Total Net Loans 273,991 260,350
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Premises and equipment 5,857 5,903
Accrued interest receivable 4,336 3,779
Other assets 4,068 5,193
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Total Assets $471,135 $457,240
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Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $40,015 $40,215
Interest-bearing 61,099 64,044
Savings 110,864 104,749
Time 203,786 192,555
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Total Deposits 415,764 401,563
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Borrowed funds 12,678 12,141
Long-term debt 4,615 4,725
Accrued interest payable 998 1,023
Other liabilities 1,779 1,943
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Total Liabilities 435,834 421,395
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Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,041,270 and 3,999,344 at June 30, 1996 and December 31, 1995, respectively 2,021 2,000
Paid-in capital 12,549 12,064
Retained earnings 21,836 20,268
Treasury stock (780 shares) (7) (7)
Net unrealized gain (loss) on securities available for sale (1,098) 1,520
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Total Shareholders' Equity 35,301 35,845
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Total Liabilities and Shareholders' Equity $471,135 $457,240
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The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
3
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Vista Bancorp, Inc. and Subsidiaries
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CONSOLIDATED STATEMENTS OF INCOME
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $5,601 $5,209 $11,055 $10,107
Interest on federal funds sold and securities purchased
under agreements to resell 146 140 290 259
Interest on short-term investments 16 19 90 86
Interest on securities:
Taxable 2,375 2,235 4,675 4,406
Nontaxable 151 98 289 197
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Total Interest Income 8,289 7,701 16,399 15,055
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Interest Expense:
Interest on deposits 3,862 3,623 7,729 6,950
Interest on borrowed funds 122 111 253 228
Interest on long-term debt 83 49 169 96
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Total Interest Expense 4,067 3,783 8,151 7,274
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Net Interest Income 4,222 3,918 8,248 7,781
Provision for Loan Losses 45 45 90 100
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Net Interest Income After Provision for Loan Losses 4,177 3,873 8,158 7,681
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Noninterest Income:
Service charges on deposit accounts 383 348 775 682
Other service charges 147 80 275 151
Net security gains (losses) (43) (131) 15 (118)
Other income 70 72 202 175
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Total Noninterest Income 557 369 1,267 890
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Noninterest Expense:
Salaries and benefits 1,664 1,478 3,273 3,011
Occupancy expense 260 234 544 477
Furniture and equipment expense 295 265 582 542
Other expense 836 848 1,547 1,678
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Total Noninterest Expense 3,055 2,825 5,946 5,708
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Income Before Provision for Income Taxes 1,679 1,417 3,479 2,863
Provision for Income Taxes 561 491 1,189 1,007
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Net Income $1,118 $926 $2,290 $1,856
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Earnings per Share $0.28 $0.27 $0.57 $0.54
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Weighted Average Number of Common Shares
Outstanding 4,024,283 3,449,437 4,014,122 3,438,511
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The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
4
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Amounts in Thousands (Except Per Share and Share Data)
For The Year Ended December 31, 1995 and
For The Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities Total
Shares Common Paid-in Retained Treasury Available Shareholders'
Issued Stock Capital Earnings Stock for Sale Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 3,423,061 $1,712 $6,247 $17,350 ($7) ($730) $24,572
Net income - 1995 - - - 4,093 - - 4,093
Cash dividends - $.34 per share - - - (1,175) - - (1,175)
Net proceeds from
issuance of common stock 576,283 288 5,808 - - - 6,096
Deferred compensation - - 9 - - - 9
Net unrealized appreciation in the
market value of securities available
for sale, net of income taxes - - - - - 2,250 2,250
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Balance, December 31, 1995 3,999,344 2,000 12,064 20,268 (7) 1,520 35,845
Net income - 1996 - - - 2,290 - - 2,290
Cash dividends - $.18 per share - - - (722) - - (722)
Net proceeds from
issuance of common stock 41,926 21 471 - - - 492
Deferred compensation - - 14 - - - 14
Net unrealized depreciation in the
market value of securities available
for sale, net of income taxes - - - - - (2,618) (2,618)
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Balance, June 30, 1996 4,041,270 $2,021 $12,549 $21,836 ($7) ($1,098) $35,301
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The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
5
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
--------------------------
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $2,290 $1,856
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 439 376
Provision for loan losses 90 100
Increase in deferred income 52 22
Increase in accrued interest receivable (557) (216)
(Decrease) increase in accrued interest payable (25) 106
Decrease in other assets 2,393 12
(Decrease) increase in other liabilities (164) 33
Net amortization of premium on securities 330 206
Net security (gains) losses (15) 118
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Net Cash Provided By Operating Activities 4,833 2,613
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 16,552 5,134
Proceeds from sales of securities available for sale 27,613 18,860
Purchases of securities available for sale (64,080) (9,564)
Proceeds from maturities of securities held to maturity - 6,915
Purchases of securities held to maturity - (18,979)
Net increase in loans (13,783) (13,606)
Net capital expenditures (298) (536)
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Net Cash Used For Investing Activities (33,996) (11,776)
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Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 2,970 (9,114)
Net increase in time deposits 11,231 15,614
Net increase in borrowed funds 537 3,367
Net (decrease) increase in long-term debt (110) 2,930
Net proceeds from issuance of common stock 492 413
Cash dividends paid (722) (549)
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Net Cash Provided By Financing Activities 14,398 12,661
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Net (Decrease) Increase in Cash and Cash Equivalents (14,765) 3,498
Cash and Cash Equivalents, Beginning of Period 36,148 26,091
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Cash and Cash Equivalents, End of Period $21,383 $29,589
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Supplemental Disclosures of Cash Flow Information:
Interest paid $8,176 $7,168
Income taxes paid 1,272 1,089
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 467 100
Net unrealized (loss) gain in the fair value of securities available for sale (3,967) 1,337
Increase (decrease) in deferred tax asset related to net unrealized
(loss) gain in the fair value of securities available for sale 1,349 (465)
Net unrealized (loss) gain in the fair value of securities available for sale,
net of income taxes (2,618) 872
Deferred compensation 14 5
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
6
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Vista Bancorp, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Vista Bancorp,
Inc. and its subsidiaries (Vista) reflected all adjustments and disclosures
which were, in the opinion of management, necessary for a fair presentation of
interim results. The financial information was prepared in accordance with
Vista's customary accounting practices and was not audited.
Certain information and footnote disclosures required under generally
accepted accounting principles were condensed or omitted pursuant to the
Securities and Exchange Commission (SEC) rules and regulations. The
preparation of financial statements in conformity with general accepted
accounting principals required management to make certain estimates and
assumptions that affected the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. These
interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Vista's Annual
Report for the year ended December 31, 1995.
Results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
Note 2. Securities
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," was
adopted on January 1, 1994 and required Vista to classify its securities
according to three categories. Debt and equity securities that Vista had the
positive intent and ability to hold to maturity were classified as held to
maturity (HTM) and reported at amortized cost. Debt and equity securities that
were bought and held principally to be sold in the near term were classified
as trading securities and reported at fair value, with unrealized gains and
losses included in earnings. Vista did not (currently does not) employ this
strategy. Debt and equity securities that did not fall into either of these
categories were classified as available for sale (AFS) and reported at fair
value, with unrealized gains and losses shown as a separate component of
shareholders' equity on an after-tax basis.
In October 1995, the Financial Accounting Standards Board (FASB)
suspended certain transfer provisions of SFAS No. 115 for a defined period of
time beginning November 15 and ending on December 31, 1995. During this
one-time adjustment period, Vista elected to transfer all securities
classified as held to maturity into the AFS portfolio in accordance with SFAS
No. 115. The transfer involved securities with an amortized cost of $116.0
million and a market value of $117.7 million.
7
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements - (Continued)
Note 2. Securities (Continued)
Gains or losses were recognized and shown separately in the
statements of income on realization or when values were deemed to have been
other than temporarily impaired. Recognition of these gains or losses was
based on the specific identification method. Proceeds from the sales of
securities AFS during the first six months of 1996 and 1995 were $27.6 million
and $18.9 million, respectively. Gross realized gains of $165 thousand and
gross realized losses of $150 thousand were recognized on the sales of
securities AFS during the first six months of 1996. For the first six months
of 1995 gross realized gains of $17 thousand and gross realized losses of $135
thousand were recognized on the sales of securities AFS.
The amortized cost, estimated market value and contractual maturity
information for securities AFS at June 30, 1996 and December 31, 1995, are
disclosed on the following page. Securities not due at a single maturity date,
such as mortgage-backed securities, are disclosed separately rather than
allocated over several maturity categories.
8
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements - (Continued)
Note 2. Securities (Continued)
<TABLE>
<CAPTION>
Securities Available for Sale June 30, 1996
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $27,598 $24 ($345) $27,277
U.S. Government agencies and corporations 12,112 18 (188) 11,942
State and political subdivisions 14,318 17 (170) 14,165
Corporate debt securities 12,738 97 (89) 12,746
Mortgage-backed securities 93,810 663 (1,690) 92,783
Equity securities 2,587 - - 2,587
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Total securities available for sale $163,163 $819 ($2,482) $161,500
---------------------------------------------------------------------------------------------------------
Securities Available for Sale December 31, 1995
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
U.S. Treasury securities $28,142 $314 ($1) $28,455
U.S. Government agencies and corporations 13,602 168 (9) 13,761
State and political subdivisions 11,435 71 (28) 11,478
Corporate debt securities 14,963 338 (8) 15,293
Mortgage-backed securities 73,190 1,580 (121) 74,649
Equity securities 2,231 - - 2,231
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Total securities available for sale $143,563 $2,471 ($167) $145,867
---------------------------------------------------------------------------------------------------------
Securities Available for Sale Securities Available for Sale
June 30, 1996 December 31, 1995
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Estimated Estimated
Amortized Market Amortized Market
Amounts in Thousands Cost Value Cost Value
---------------------------------------------------------------------------------------------------------
Maturing within one year $15,228 $15,254 $26,045 $26,149
Maturing after one year but within five years 41,850 41,480 35,546 36,205
Maturing after five years but within ten years 9,688 9,396 5,878 5,952
Maturing after ten years - - 673 681
No Maturity 2,587 2,587 2,231 2,231
Mortgage-backed securities 93,810 92,783 73,190 74,649
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Total securities available for sale $163,163 $161,500 $143,563 $145,867
---------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements - (Continued)
Note 3. Loans
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," addresses the accounting by creditors for
impairment of certain loans. SFAS No. 114 and SFAS No. 118 apply to
collateralized loans, except large groups of homogeneous loans, that are
collectively evaluated for impairment. They also apply to all loans that are
restructured in a troubled debt restructuring involving a modification of
terms. SFAS No. 114 and SFAS No. 118 require that loans within the scope of
these statements be measured based on the present value of expected future
cash flows discounted using the loan's effective interest rate, the loan's
observable market price or the fair value of the collateral securing the loan.
SFAS No. 114 and SFAS No. 118 apply to all financial statements for the fiscal
years beginning after December 15, 1994. Vista adopted SFAS No. 114 and SFAS
No. 118 on January 1, 1995.
At June 30, 1996, the total impaired loans recognized in accordance
with SFAS No. 114 and SFAS No. 118 were $3.1 million, of which $1.8 million
were valued based upon discounted cash flows and $1.3 million using the fair
value of collateral. Based on these methods, $663 thousand of the $3.9 million
allowance for loan losses was allocated against the $3.1 million of impaired
loans. The remaining allowance for loan losses, totalling $3.2 million at June
30, 1996, was available to absorb losses in Vista's entire credit portfolio.
Vista's total average impaired loans during the quarter and the year-to-date
period ended June 30, 1996 was approximately the same as the balance at June
30, 1996. Interest income recorded on total impaired loans during the first
six months of 1996 was immaterial.
Note 4. Recently Issued Accounting Standards
In March 1995, FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expected to hold and use should be
based on the fair value of the asset.
This statement became effective and was adopted by Vista on January
1, 1996. Adoption of this statement had no material impact on Vista's
financial position or its results of operations during the first six months of
1996.
10
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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Notes to Consolidated Financial Statements - (Continued)
Note 4. Recently Issued Accounting Standards - (Continued)
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires the recognition of separate assets
relating to the rights to service mortgage loans for others based on their
fair value if it is practicable to estimate the value. This statement applies
prospectively to transactions entered into in 1996, therefore, there is no
cumulative effect upon adoption of this statement.
This statement became effective and was adopted by Vista on January
1, 1996. This statement had no effect on the financial position or results of
operations during the first six months of 1996 since Vista did not engage in
any activities covered by the provisions of this statement during this time
period.
In October 1995, FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 provides an alternative method of
accounting for stock-based compensation arrangements, based on fair value of
the stock-based compensation utilizing various assumptions regarding the
underlying attributes of the options and Vista's stock, rather than the
existing method of accounting for stock-based compensation which is provided
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). FASB encourages entities to adopt the
fair-value-based method but does not require adoption of this method.
This statement became effective on January 1, 1996. Vista elected to
continue its current accounting policy.
11
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Vista Bancorp, Inc. (Vista), formed in 1988, has two wholly-owned
subsidiary banks, The Phillipsburg National Bank and Trust Company (PNB)
located in Phillipsburg, New Jersey and Twin Rivers Community Bank (Twin
Rivers) located in Palmer Township, Pennsylvania. PNB has nine branch sites
serving Warren and Hunterdon counties in New Jersey. Twin Rivers maintains two
branch sites serving Northampton County in Pennsylvania.
On October 31, 1995, Vista commenced Rights and Community Stock
Offerings to issue 500,000 new common shares. The shares offered were fully
subscribed in December and Vista received approximately $5.3 million of net
proceeds after issuance costs.
On December 1, 1995, PNB acquired the Washington Township, Warren
County, New Jersey, branch of Summit Bank with its principal offices located
in Chatham, New Jersey. The acquisition involved the branch facility and $14
million in deposits. The purchase price for the branch facility and deposit
premium paid totaled approximately $1 million.
On May 21, 1996, PNB entered an agreement to acquire the Flemington,
Hunterdon County, New Jersey branch facility of Summit Bank (formerly United
Jersey Bank). The proposed acquisition involves the purchase of the building
and equipment and the assumption of the land lease, for the purpose of
operating a full-service branch banking office at this location. No deposits
will be purchased as part of this transaction. Closing is expected during the
third quarter and the branch is scheduled to open in the fourth quarter of
1996.
Results of Operations for the three and six month periods ended June 30, 1996
and June 30, 1995
Vista's net income equaled $1.1 million for the second quarter of
1996, an increase of $192 thousand, or 21%, over net income of $926 thousand
earned in the second quarter of 1995. Earnings per share equaled $.28 in the
second quarter of 1996 compared to $.27 for the same period in 1995, despite a
17% increase in the average number of common shares outstanding attributable
to the stock offering and participation in various Vista stock plans.
The increase in net income for the quarter was primarily the result
of growth in net interest income of $304 thousand and noninterest income,
excluding net security losses, of $100 thousand and lower net losses on the
sales of securities of $88 thousand. These earnings improvements were offset
by a $230 thousand increase in noninterest expenses and a $70 thousand
increase in the provision for income taxes resulting from higher pre-tax
earnings.
12
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Vista's net income for the first six months of 1996 equaled $2.3
million, or $.57 per share, representing an increase of $434 thousand, or 23%,
over the $1.9 million, or $.54 per share, earned in the first six months of
1995. Growth in net income was attributable to a $467 thousand increase in net
interest income, a $244 thousand increase in noninterest income, excluding net
security gains, and a $10 thousand lower provision for loan losses. In
addition, net securities gains of $15 thousand were realized in 1996 compared
to net security losses of $118 thousand realized in 1995. These earnings
improvements were offset by a $238 thousand increase in noninterest expenses
and a $182 thousand increase in the provision for income taxes. Noninterest
expenses were favorably impacted by a $406 thousand and $203 thousand
reduction in bank insurance premium assessments by the Federal Deposit
Insurance Corporation (FDIC) on a year-over-year and quarter-over-quarter
basis, respectively.
Return on average shareholders' equity (ROE) equaled 12.54%, and
return on average assets (ROA) equaled .96% for the second quarter of 1996
compared to ROE of 14.04% and ROA of .89% for the same period of 1995. ROE for
the first six months of 1996 was 12.74% compared to 14.49% for the comparable
period in 1995 while ROA equaled .99% and .90%, respectively. ROE declined on
a quarter-over-quarter and year-over-year basis as the growth in average
shareholders' equity, resulting primarily from the added capital raised
through the stock offering and participation in various Vista stock plans and
the tax-effected SFAS No. 115 adjustment, outpaced the growth in annualized
net income. ROA improved over the prior year as the increase in annualized net
income outpaced the growth in total average assets.
Net Interest Income
Net interest income for the second quarter of 1996 increased $304
thousand, or 8%, to $4.2 million, compared to $3.9 million for the second
quarter of 1995. The quarterly increase was due primarily to a higher volume
of average interest-earning assets. The net interest spread on a
tax-equivalent basis declined 19 basis points to 3.36% compared to the prior
year quarter of 3.55%. The net interest margin, which is tax-equivalent net
interest income expressed as a percentage of average interest-earning assets
declined to 3.87% for the second quarter of 1996 from 4.00% in the second
quarter of 1995 as growth in interest-earning assets outpaced the growth in
net interest income due primarily to lower yields on interest-earning assets.
However, the net interest margin increased 10 basis points compared to the net
interest margin of 3.77% recorded in the first quarter of 1996.
For the first six months of 1996, net interest income increased $467
thousand, or 6%, to $8.2 million from $7.8 million for the same period last
year. The year-over-year net interest spread declined 30 basis points to 3.30%
from 3.60% while the margin declined 20 basis points to 3.82% from 4.02%. The
decline in the net interest spread and margin on a year-over-year basis was
due to the growth in interest-earning assets outpacing the growth in net
interest income as a result of lower yields on interest-earning assets and a
higher cost of funds.
It should be noted that the net interest margin is not a managed
target. Vista's goal is to continue increasing net interest income.
13
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Interest income on a tax-equivalent basis amounted to $16.5 million
for the first six months of 1996, an increase of $1.4 million, or 9%, compared
to $15.1 million in interest income earned for the same period in 1995. The
increase in interest income was largely due to higher average volumes in all
categories of interest-earning assets which increased interest income by $1.8
million but were offset in part by lower yields which reduced interest income
by $376 thousand. The average yield on interest-earning assets declined 20
basis points to 7.54% for the first six months of 1996 compared to 7.74% for
the comparable period in 1995.
Interest expense amounted to $8.2 million for the first six months of
1996, an increase of $877 thousand, or 12%, compared to the same period in
1995. The increase in interest expense was primarily due to higher volumes of
average interest-bearing liabilities which increased interest expense by $747
thousand and higher rates paid for deposits which increased interest expense
by $130 thousand. The average cost of funds on interest-bearing liabilities
was 4.24% for the first six months of 1996, an increase of 10 basis points
from 4.14% for the first six months of 1995.
The following table, "Consolidated Average Balances, Net Interest
Income and Average Rates," presents Vista's average assets, liabilities and
shareholders' equity. Vista's net interest income, net interest spreads and
net interest income as a percentage of interest-earning assets for the periods
ended June 30, 1996 and 1995, are also reflected.
14
<PAGE>
<TABLE>
<CAPTION>
Vista Bancorp, Inc. and Subsidiaries
- --------------------------------------------
Consolidated Average Balances, Net Interest Income and Average Rates Six Months Ended June 30,
(Tax-equivalent Basis)
1996 1995
----------------------------- -----------------------------
Average Average Average Average
Amounts in Thousands (Except Percentages) Balances Interest Rates Balances Interest Rates
(1) (2) (3) (1) (2) (3)
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities purchased
under agreements to resell $10,913 $290 5.34% $8,715 $259 5.99%
Short-term investments 3,405 90 5.32% 2,995 86 5.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 14,318 380 5.34% 11,710 345 5.94%
- ------------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 26,558 780 5.91% 30,852 954 6.24%
U.S. Government agencies and corporations 101,484 3,349 6.64% 82,186 2,922 7.17%
States and other political subdivisions 13,293 392 5.93% 8,883 271 6.15%
Other 16,468 546 6.67% 15,482 530 6.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 157,803 5,067 6.46% 137,403 4,677 6.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 135,635 5,144 7.63% 132,343 5,012 7.64%
Commercial 67,037 3,111 9.33% 58,766 2,797 9.60%
Consumer 65,357 2,805 8.63% 54,036 2,299 8.58%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 268,029 11,060 8.30% 245,145 10,108 8.31%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 440,150 16,507 7.54% 394,258 15,130 7.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 15,049 12,561
Allowance for loan losses (3,937) (3,982)
Other assets 13,133 11,842
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning Assets 24,245 20,421
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $464,395 $414,679
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $66,530 $782 2.36% $59,722 $765 2.58%
Savings 108,075 1,675 3.12% 102,402 1,535 3.02%
Time 167,903 4,511 5.40% 162,856 4,166 5.16%
Time deposits $100,000 and over 28,051 761 5.46% 17,085 484 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 370,559 7,729 4.19% 342,065 6,950 4.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 11,679 253 4.36% 9,924 228 4.63%
Long-term debt 4,696 169 7.24% 1,900 96 10.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 16,375 422 5.18% 11,824 324 5.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 386,934 8,151 4.24% 353,889 7,274 4.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 37,885 31,797
Other liabilities 3,434 3,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing Liabilities 41,319 34,962
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 36,142 25,828
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $464,395 $414,679
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread (tax-equivalent basis) $8,356 3.30% $7,856 3.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis Adjustment (108) (75)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $8,248 $7,781
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 3.82% 4.02%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Average volume information was computed using approximate daily averages.
(2) Interest on loans includes fee income.
(3) Rates have been annualized and computed on a tax-equivalent basis using the federal income tax statutory rate of 34%.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of interest-earning assets on a tax-equivalent basis.
</TABLE>
15
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- --------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Income
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 vs. 1995
-------------------------------
Increase (Decrease)
Due to Changes in
--------------------
Amounts in Thousands Total Average Average
Change(1) Volume Rate
-------------------------------
<S> <C> <C> <C>
Interest Income
Federal funds sold and securities purchased
under agreements to resell $31 $61 ($30)
Short-term investments 4 11 (7)
- --------------------------------------------------------------------------------------
Total Short-term Investments 35 72 (37)
- --------------------------------------------------------------------------------------
Securities:
U.S. Treasury (174) (128) (46)
U.S. Government agencies and corporations 427 649 (222)
States and other political subdivisions 121 130 (9)
Other 16 33 (17)
- --------------------------------------------------------------------------------------
Total Securities 390 684 (294)
- --------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 132 125 7
Commercial 314 386 (72)
Consumer 506 486 20
- --------------------------------------------------------------------------------------
Total Loans 952 997 (45)
- --------------------------------------------------------------------------------------
Total Interest Income 1,377 1,753 (376)
- --------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand 17 83 (66)
Savings 140 87 53
Time 345 131 214
Time deposits $100,000 and over 277 299 (22)
- --------------------------------------------------------------------------------------
Total Interest-bearing Deposits 779 600 179
- --------------------------------------------------------------------------------------
Borrowed funds 25 39 (14)
Long-term debt 73 108 (35)
- --------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 98 147 (49)
- --------------------------------------------------------------------------------------
Total Interest Expense 877 747 130
- --------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $500 $1,006 ($506)
- --------------------------------------------------------------------------------------
(1) The volume/rate variance is allocated based on the percentage
relationship of changes volume and changes in rate to the "Total
Change".
(2) Includes nonaccrual loans.
</TABLE>
16
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
The preceding table, "Volume/Rate Analysis of Changes in Net Interest
Income," analyzes net interest income by segregating the volume and rate
components of the changes in net interest income resulting from changes in the
volume of various interest-earning assets and interest-bearing liabilities and
the changes in the rates earned and paid by Vista.
Noninterest Income
Major Components of Noninterest Income
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
Change Change
Amounts in Thousands (Except Percentages) 1996 1995 $ %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $775 $682 $ 93 14%
Other service charges 275 151 124 82
Net security gains (losses) 15 (118) 133 N/A
Trust income 76 66 10 15
Safe deposit box income 40 40 - -
Other income 86 69 17 25
-----------------------------------------------------------
Total Noninterest Income $ 1,267 $ 890 $ 377 42%
===========================================================
</TABLE>
For the six months ended June 30, 1996, total noninterest income
increased $377 thousand, or 42% compared to the same period in 1995. Excluding
net security gains and losses from both periods, noninterest income from core
banking operations increased $244 thousand, or 24%, on a year-over-year basis
due primarily to increases in deposit and other service charges. Total
annualized noninterest income, excluding security transactions, expressed as a
percentage of total average assets was .54% for the first six months of 1996
compared to .49% in the same period of 1995.
Income from service charges on deposit accounts increased 14%, to
$775 thousand, from $682 thousand in 1995. The majority of the increase
resulted from higher service charge income on consumer transaction accounts
due to increased volume and pricing changes and higher service charge income
on commercial accounts due to a greater volume of item processing activity.
Other service charge income increased 82%, to $275 thousand, in 1996
compared to $151 thousand in 1995. The majority of the increase resulted from
$59 thousand in higher service charge income on loans fueled by $37 thousand
in fees earned from originating residential mortgages for the secondary
market, $16 thousand in loan modification fees on residential mortgages as
customers responded to lower interest rates in the first quarter of 1996 and
refinanced their debt, and attendant activities which generated additional
appraisal and insurance fee income. Also contributing to the increase was $16
thousand in higher service charge income from increased automated teller
machine usage.
17
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
In the first six months of 1996, Vista sold $28 million of securities
compared to $19 million in the first six months of 1995 resulting in net gains
of $15 thousand in 1996 versus $118 thousand of net losses in 1995. The
security gains during 1996 were consummated for various asset liability
management reasons including portfolio reallocation, sale of MBS pools that
had paid down significantly and sale of securities to reinvest proceeds into
higher yielding securities. The net effect of the sales is expected to have a
nominal effect on the investment security yield. The security sales during
1995 were consummated with the intention of reinvesting the proceeds into
higher yielding MBS pools.
Other income increased 25% to $86 thousand in 1996 compared to $69
thousand in 1995. Other income for the first six months of 1996 included a
gain of $62 thousand on the sale of $2.8 million of student loans to Sallie
Mae in March 1996. The first half of 1995 included a $31 thousand gain from
the sale of a property classified as other real estate owned.
For the quarter ended June 30, 1996, total noninterest income
increased $188 thousand, or 51%, to $557 thousand compared to the second
quarter of 1995. Excluding net security transactions in both periods,
noninterest income from core banking operations increased $100 thousand, or
20%, versus the second quarter of 1995 due primarily to increases in deposit
and other service charges. Total annualized noninterest income, excluding
security transactions, expressed as a percentage of average total assets was
.51% for the second quarter of 1996 compared to .48% for the same period of
1995.
18
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Noninterest Expense
Major Components of Noninterest Expense
<TABLE>
<CAPTION>
For The Six Months Ended June 30,
Change Change
Amounts in Thousands (Except Percentages) 1996 1995 $ %
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits:
Salary expense $2,522 $2,324 $ 198 9%
Benefit expense 751 687 64 9
-----------------------------------------------------------
Total salaries and benefits 3,273 3,011 262 9
Occupancy expense 544 477 67 14
Furniture and equipment expense 582 542 40 7
Other expenses:
FDIC insurance 2 408 (406) (100)
Regulatory exam assessments 52 47 5 11
Marketing and advertising 253 221 32 14
Professional fees 147 95 52 55
Printing and stationery 155 107 48 45
Postage 124 112 12 11
Fees on loan accounts 171 109 62 57
Correspondent bank charges 29 14 15 107
Intangible asset amortization 95 43 52 121
Insurance 49 45 4 9
Property expense on ORE 41 44 (3) (7)
All other 429 433 (4) (1)
-----------------------------------------------------------
Total other expenses 1,547 1,678 (131) (8)
-----------------------------------------------------------
Total Noninterest Expense $5,946 $5,708 $ 238 4%
===========================================================
</TABLE>
For the six months ended June 30, 1996, total noninterest expense
increased $238 thousand, or 4%, to $5.9 million compared to $5.7 million for
the first six months of 1995. Total annualized noninterest expense expressed
as a percentage of total average assets equaled 2.57% for the first half of
1996 compared to 2.78% for the first half of 1995. The improvement in this key
benchmark underscored the strategy Vista employed to leverage the existing
cost structure and profitably grow assets at a pace that exceeded the
incremental cost to manage and administer a larger organization and, in turn,
generated higher levels of net income. Although Vista plans to continue this
strategy, total noninterest expenses are expected to increase to support asset
growth through market expansion.
The largest component of Vista's cost structure was salary and
benefits expense which equaled $3.3 million for the first six months of 1996
compared to $3.0 million for the same period in 1995. Salary and benefit
expense accounted for 55% and 53% of total noninterest expense for the same
periods. When considered separately, salary expense increased 9%, or $198
thousand, in 1996 compared to 1995 due to higher staffing levels and normal
salary adjustments.
19
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Benefit expense increased 9%, or $64 thousand, in the first six
months of 1996 compared to the same period in 1995 due in large part to a $54
thousand non-recurring rebate of health insurance premiums in the second
quarter of 1995. Excluding this rebate, benefit expense for the first six
months of 1996 would have increased 1%, or $10 thousand, over the same period
in 1995. Containment of benefit expense through the first six months of 1996
compared to the first six months of 1995 resulted from a decrease in pension
expense which offset, in part, increases in postretirement medical plan
benefits, payroll taxes and other benefits resulting from increased staff.
Occupancy expense increased 14% to $544 thousand in the first six
months of 1996 from $477 thousand in 1995 due to higher facilities maintenance
costs, real estate taxes and utility costs. Contributing to the higher
facilities maintenance and utility costs was the severe winter weather and the
addition of the Washington Township branch banking facility in December 1995.
Furniture and equipment expense increased 7% to $582 thousand in the
first half of 1996 compared to 1995 due primarily to upgrades in technology
and expenses related to the addition of the Washington Township branch.
Other expenses decreased $131 thousand, or 8%, to $1.5 million in the
first six months of 1996 from $1.7 million for the same period in 1995 due to
a significant reduction in the bank insurance premium assessments by the FDIC.
The FDIC reduced bank insurance fund premiums for highly-rated institutions to
the annual statutory minimum of $2 thousand effective January 1, 1996. (There
is no guarantee that this rate will remain at this minimum level beyond 1996.)
This reduction was offset, in part, by increases in fees on loan accounts,
core deposit amortization expense and professional fees associated with
benefit plan administration. Also offsetting this reduction was an increase in
printing and stationery costs attributable primarily to the introduction of
check imaging technology and a new logo for PNB and higher marketing costs
associated with the 140th anniversary celebration at PNB.
For the quarter ended June 30, 1996, total noninterest expense
increased $230 thousand, or 8%, to $3.1 million compared to the second quarter
of 1995, due primarily to increases in salaries and benefits, occupancy
expense, furniture and equipment expense and other expenses which were offset,
in part, by the reduction in FDIC insurance premiums. Total annualized
noninterest expense expressed as a percentage of total average assets declined
to 2.62% for the second quarter of 1996 from 2.72% for the same period in
1995.
Provision for Income Taxes
Vista's provision for income taxes increased $182 thousand, or 18%,
to $1.2 million for the first six months of 1996 from $1.0 million for the
same period of 1995. The primary reason for this increase was a higher level
of pre-tax income. The effective tax rate declined to 34.2% for the first six
months of 1996 from 35.2% for the same period of 1995 due to a higher level of
tax exempt interest income in 1996 compared to 1995.
20
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Financial Condition - June 30, 1996 versus December 31, 1995
General
At June 30, 1996, Vista's total consolidated assets equaled $471
million which represented an increase of approximately $14 million from $457
million at December 31, 1995. Funding the increase in assets was a $14 million
increase in total deposits which equaled $416 million at June 30, 1996, versus
$402 million at December 31, 1995. At June 30, 1996, total shareholders'
equity equaled $35 million versus $36 million at December 31, 1995. The
decline was attributable to the increase in market interest rates during the
first six months of 1996 which depressed the value of the available for sale
security portfolio and resulted in a $2.6 million adjustment to capital at
June 30, 1996. Offsetting this adjustment was $2.1 million in added capital
from earnings retention and participation in various Vista stock plans.
Securities
Vista classified its entire investment securities portfolio as
available for sale and recorded the portfolio at market value. At June 30,
1996 the portfolio equaled $162 million and carried a pre-tax unrealized net
loss of approximately $2 million. At December 31, 1995, the portfolio equaled
$146 million and carried a pre-tax unrealized net gain of approximately $2
million. The portfolio activity during the first half of 1996 included $64
million in purchases, $28 million in sales and $17 million of maturities.
Vista maintained higher than average cash and cash equivalents at December 31,
1995 and utilized these available funds during the first quarter of 1996 as
market interest rates increased and provided an opportunity to improve the
yields on earning assets. The sales of securities were largely attributed to
portfolio mix realignment and sales of pools of mortgage-backed securities
that amortized down to small outstanding balances.
Loans
During the first six months of 1996, Vista expanded all sectors of
its loan portfolio, as total loans, net of the allowance for loan losses,
increased $14 million, or 5%, to $274 million from $260 million at December
31, 1995. Consumer loans increased $8 million, or 13%, during the first six
months of 1996 and were concentrated in indirect automobile and home equity
lending which were offset by the sale of a substantial portion of the student
loan portfolio. Mortgage loans increased $3 million with the majority of the
increase coming in adjustable-rate mortgage loans. Commercial loans increased
approximately $3 million.
At June 30, 1996, mortgage loans accounted for 50% of the total loan
portfolio while commercial and consumer loans each accounted for 25% of the
portfolio. These concentrations were relatively unchanged from December 31,
1995.
Vista anticipates lowering its concentration of residential mortgage
loans as it moves toward increased lending to small businesses and consumer
installment loans.
21
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
At June 30, 1996, Vista's loan to deposit ratio was 66.8% compared to
65.8% at December 31, 1995 and 65.6% at March 31, 1996.
Deposits
Total deposits amounted to $416 million at June 30, 1996, reflecting
an increase of $14 million compared to December 31, 1995. All of the net
growth occurred in the time and savings deposit categories. Time deposits
increased $12 million, or 6%, during the first six months of 1996, with all
the growth occurring in the second quarter, as a result of rising interest
rates and successful CD promotions. During the second quarter of 1996, Vista
was able to retain the savings deposit growth it experienced in the first
quarter of 1996 through competitive pricing.
During the first half of 1996, average time deposits, including those
$100,000 and over, remained the largest component, at 48% of total average
deposits for the first six months 1996 and 1995. Interest-bearing demand
accounts equaled 16% of total average deposits during the first six months of
1996 and 1995, while savings accounts equaled 27% for the same periods.
Noninterest-bearing demand deposits equaled 9% of total average deposits.
Borrowed Funds and Long-term Debt
Total borrowed funds and long-term debt equaled $17 million at June
30, 1996, and December 31, 1995.
Total average interest-bearing liabilities funded 88% of total
average interest-earning assets during the first six months of 1996 compared
to 90% for the same period in 1995.
Nonperforming Assets
Nonperforming assets, consisting of loans on nonaccrual status plus
other real estate acquired through foreclosure (ORE), totaled $4.3 million at
June 30, 1996 and $4.5 million at December 31, 1995, or 1.55% and 1.71% of
total outstanding loans and ORE, respectively. The decrease in this percentage
at June 30, 1996 compared to December 31, 1995 was primarily due to a decrease
in nonperforming assets and an increase in total loans outstanding.
ORE increased to $732 thousand at June 30, 1996, compared to $489
thousand at December 31, 1995, due primarily to the transfer of one large
residential mortgage loan into ORE.
22
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Allowance for Loan Losses and Related Provision
The allowance for loan losses equaled $4 million at June 30, 1996 and
December 31, 1995. The allowance equaled 1.39% of total loans at June 30,
1996, compared to 1.49% at December 31, 1995. Net charge-offs to the allowance
during the first six months of 1996 were $172 thousand.
The provision for loan losses equaled $45 thousand for the second
quarter and $90 thousand on a year-to-date basis for 1996 compared to $45
thousand and $100 thousand recorded for the same periods in 1995. At June 30,
1996, the allowance for loan losses represented 108% of total nonaccrual loans
as compared to 97% at December 31, 1995.
In determining the adequacy of the allowance for loan losses,
management reviewed a loan analysis prepared by Vista's internal loan review
officer, national and local economic indicators, loan collateral values and
historical loss factors. The recognition of impaired loans and specific
allowances that must be determined for such loans were also factored into
Vista's determination of the allowance for loan losses. This information was
reviewed on a quarterly basis with each subsidiary's Board of Directors.
Management determined Vista's allowance for loan losses to be adequate at June
30, 1996.
Liquidity
Liquidity is a measure of Vista's ability to meet present and future
financial obligations and commitments on a timely basis. Liquidity needs
include sufficient cash flow to meet present and future loan commitments,
deposit outflows and daily business operations. At the bank subsidiary level,
liquidity is generally provided by deposit growth, maturities and sales of
securities, periodic repayments of loans, borrowings and net income. Liquidity
is provided to Vista in the form of monthly service fees paid by the bank
subsidiaries, issuance of common stock through participation in the various
stock plans of Vista and quarterly dividend payments from the bank
subsidiaries.
Vista's ability to meet its quarterly dividend payments is dependent
to a large degree on the bank subsidiaries' ability to make dividend payments
to Vista. Any restriction on the subsidiaries' ability to pay dividends could
impair Vista's ability to make cash dividend payments to its shareholders.
Liquidity is managed on a daily basis at both the parent company and
subsidiary levels, enabling management to effectively monitor changes in
liquidity and to react accordingly to market conditions. Management believes
that liquidity is sufficient to meet present and future financial obligations
and commitments on a timely basis.
At June 30, 1996, cash and cash equivalents equaled $21 million which
represented a decrease of $15 million from the $36 million in cash and cash
equivalents on hand at December 31, 1995. Changes in cash were measured by
changes in the three major classifications of cash flows known as operating,
investing and financing activities. The $15 million decrease in cash and cash
equivalents was attributable to combined net cash flows provided by operating
and financing activities totaling $19 million, which were then used for
investing activities of $34 million.
23
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
At June 30, 1996, net cash provided by operating activities equaled
$5 million which consisted mainly of net income adjusted for noncash charges.
Net cash provided by financing activities totaled $14 million and consisted of
increases in deposits, borrowed funds and proceeds from common stock issuance
which were offset by cash dividends paid and decreases in long-term debt.
Cash flows of $44 million from maturities and sales of securities
were combined with $5 million and $14 million of net cash flows provided by
operating and financing activities, respectively, and $15 million in cash and
cash equivalents available at December 31, 1995, to fund $64 million in
security purchases and $14 million in loans.
Capital Resources
The capital adequacy of Vista is reviewed on an ongoing basis by
management and the Board of Directors which considers regulatory guidelines,
asset size, balance sheet composition and risk profile characteristics,
including asset quality, interest rate risk and liquidity needs. An adequate
capital base is important to support growth and expansion and to protect
against unexpected losses that cannot be covered by current year earnings.
Capital is generally provided to Vista in the form of retained net
income after the payment of dividends and by the issuance of common stock
through participation in the Employee Stock Purchase Plan, Board of Directors
Stock Purchase Plan and the Dividend Reinvestment Plan.
At June 30, 1996 total shareholders' equity decreased $544 thousand
to $35 million, a decrease of 2% from the $36 million at December 31, 1995.
This decrease was due to the $3 million decline in the net unrealized gain on
securities AFS and dividends paid of $722 thousand which offset the $2 million
in net income and $492 thousand in added capital raised through the various
stock plans.
Vista's dividend payout ratio equaled 32% for the six months ended
June 30, 1996 compared to 30% for same period in 1995. Vista paid cash
dividends totaling $722 thousand during the first six months of 1996, an
increase of $173 thousand or 32% over the $549 thousand paid during the same
period in 1995. The increase in cash dividends was attributed to the increased
number of shares outstanding at the quarterly dividend rate of 9 cents per
share in the first six months of 1996 compared to 8 cents per share for the
same period of 1995. Vista's book value per share at June 30, 1996, was equal
to $8.74 compared to $8.96 at December 31, 1995.
Vista maintained a Tier I risk-based capital ratio of 12.69% and a
total risk-based capital ratio of 14.59% at June 30, 1996, compared to 12.75%
and 14.68%, respectively, at December 31, 1995. Both of these key capital
ratios reflected the relative quality of Vista's on-balance sheet and
off-balance sheet composition based on the regulatory minimum ratios.
24
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Vista maintained a leverage capital ratio of 7.12% at June 30, 1996,
and 7.41% at December 31, 1995. The decrease in Vista's leverage ratio was
attributed to the growth in total average assets outpacing the growth in Tier
I leverage capital in the first six months of 1996.
Vista may be a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
statements of condition. The contract or notional amounts of these instruments
reflect the extent of involvement Vista has in particular classes of financial
instruments. Vista uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Vista was committed to advance $24 million to its borrowers at June
30, 1996 and December 31, 1995. Standby letters of credit contracts with its
customers totaled $1 million as of June 30, 1996 and December 31, 1995.
Vista did not (does not) issue nor hold derivative instruments.
However, Vista did (does) issue loan commitments and letters of credit. These
instruments were (are) issued in the normal ordinary course of business to
meet customer needs. Commitments to fund fixed-rate loans were immaterial at
June 30, 1996 and December 31, 1995. Variable rate commitments were (are)
generally issued for less than one year and carry market rates of interest.
Such instruments are not likely to be affected by annual rate caps triggered
by rising interest rates. Such off-balance sheet risk was not material to
Vista's results of operations or financial condition.
25
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
Part II Other Information
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of
Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Description of Exhibit
-------------- ----------------------
2 Not Applicable
4 Not Applicable
10 Not Applicable
11 Not Applicable
15 Not Applicable
18 Not Applicable
19 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
27 Financial Data Schedules
99 Not Applicable
(b) Reports on Form 8-K
The registrant has filed no reports on Form 8-K for the
quarterly period ended June 30, 1996.
26
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Vista Bancorp, Inc.
- ---------------------------
(Registrant)
Dated: August 13, 1996
-----------------
By /s/ William F. Keefe
-----------------------------------------
William F. Keefe
Executive Vice President and
and Chief Financial Officer
(Mr. Keefe is the Principal
Accounting Officer and has
been duly authorized to sign
on behalf of the registrant.)
27
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
27 Financial Data Schedules . . . . . . 29
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,994
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,712
<TRADING-ASSETS> 0
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<LOANS> 277,841
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<TOTAL-ASSETS> 471,135
<DEPOSITS> 415,764
<SHORT-TERM> 12,678
<LIABILITIES-OTHER> 2,777
<LONG-TERM> 4,615
0
0
<COMMON> 2,021
<OTHER-SE> 33,280
<TOTAL-LIABILITIES-AND-EQUITY> 471,135
<INTEREST-LOAN> 11,055
<INTEREST-INVEST> 4,964
<INTEREST-OTHER> 380
<INTEREST-TOTAL> 16,399
<INTEREST-DEPOSIT> 7,729
<INTEREST-EXPENSE> 8,151
<INTEREST-INCOME-NET> 8,248
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 5,946
<INCOME-PRETAX> 3,479
<INCOME-PRE-EXTRAORDINARY> 3,479
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,290
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 0.00
<LOANS-NON> 3,574
<LOANS-PAST> 237
<LOANS-TROUBLED> 153
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<RECOVERIES> 34
<ALLOWANCE-CLOSE> 3,850
<ALLOWANCE-DOMESTIC> 3,850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 827
</TABLE>
