<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 September 30, 1996
-----------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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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 October 31, 1996, there
were 4,060,814 shares of $.50 par value Common Stock outstanding.
<PAGE>
VISTA BANCORP, INC.
Form 10-Q
For the period ended September 30, 1996
Index
-----
PAGE
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three Months
Ended September 30, 1996 and 1995 and Nine Months
Ended September 30, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders'
Equity - Nine Months Ended September 30, 1996 and
The Year Ended December 31, 1995 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 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 11
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
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $16,284 $18,823
Federal funds sold and securities purchased under agreements to resell 6,605 10,980
Short-term investments 1,420 6,345
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Total Cash and Cash Equivalents 24,309 36,148
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Securities available for sale (Amortized cost: $161,288 and $143,563 in 1996 and 1995,
respectively 160,895 145,867
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Loans, net of unearned income:
Mortgage 140,622 134,471
Commercial 75,439 67,311
Consumer 80,388 62,500
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Total Loans 296,449 264,282
Allowance for loan losses (3,778) (3,932)
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Total Net Loans 292,671 260,350
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Premises and equipment 6,119 5,903
Accrued interest receivable 2,953 3,779
Other assets 4,388 5,193
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Total Assets $491,335 $457,240
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Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $41,473 $40,215
Interest-bearing 67,055 64,044
Savings 111,734 104,749
Time 209,859 192,555
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Total Deposits 430,121 401,563
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Borrowed funds 16,109 12,141
Long-term debt 4,560 4,725
Accrued interest payable 1,123 1,023
Other liabilities 2,467 1,943
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Total Liabilities 454,380 421,395
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Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,061,594 and 3,999,344 at September 30, 1996 and December 31, 1995, respectively 2,031 2,000
Paid-in capital 12,790 12,064
Retained earnings 22,401 20,268
Treasury stock (780 shares) (7) (7)
Net unrealized gain (loss) on securities available for sale (260) 1,520
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Total Shareholders' Equity 36,955 35,845
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Total Liabilities and Shareholders' Equity $491,335 $457,240
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
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 Sept. 30, Nine Months Ended Sept. 30,
1996 1995 1996 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $5,885 $5,334 $16,940 $15,441
Interest on federal funds sold and securities purchased
under agreements to resell 126 223 416 482
Interest on short-term investments 12 34 102 120
Interest on securities:
Taxable 2,497 2,220 7,172 6,626
Nontaxable 148 102 437 299
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Total Interest Income 8,668 7,913 25,067 22,968
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Interest Expense:
Interest on deposits 4,048 3,762 11,777 10,712
Interest on borrowed funds 160 95 413 323
Interest on long-term debt 83 93 252 189
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Total Interest Expense 4,291 3,950 12,442 11,224
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Net Interest Income 4,377 3,963 12,625 11,744
Provision for Loan Losses 45 45 135 145
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Net Interest Income After Provision for Loan Losses 4,332 3,918 12,490 11,599
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Noninterest Income:
Service charges on deposit accounts 376 365 1,151 1,047
Other service charges 102 103 377 254
Net security gains (losses) 9 23 24 (95)
Other income 107 84 309 259
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Total Noninterest Income 594 575 1,861 1,465
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Noninterest Expense:
Salaries and benefits 1,689 1,513 4,962 4,524
Occupancy expense 264 238 808 715
Furniture and equipment expense 277 262 859 804
Other expense 1,257 635 2,804 2,313
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Total Noninterest Expense 3,487 2,648 9,433 8,356
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Income Before Provision for Income Taxes 1,439 1,845 4,918 4,708
Provision for Income Taxes 470 652 1,659 1,659
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Net Income $969 $1,193 $3,259 $3,049
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Earnings per Share $0.24 $0.34 $0.81 $0.88
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Weighted Average Number of Common Shares
Outstanding 4,045,328 3,471,271 4,024,600 3,449,551
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
For The Year Ended December 31, 1995 and
For The Nine Months Ended September 30, 1996
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
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,999,344 2,000 12,064 20,268 (7) 1,520 35,845
Net income - 1996 - - - 3,259 - - 3,259
Cash dividends - $.28 per share - - - (1,126) - - (1,126)
Net proceeds from
issuance of common stock 62,250 31 705 - - - 736
Deferred compensation - - 21 - - - 21
Net unrealized depreciation in the
market value of securities available
for sale, net of income taxes - - - - - (1,780) (1,780)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 4,061,594 $2,031 $12,790 $22,401 ($7) ($260) $36,955
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Nine Months Ended September 30
1996 1995
--------------------------
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $3,259 $3,049
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 657 547
Provision for loan losses 135 145
Increase in deferred income 90 38
Decrease (increase) in accrued interest receivable 826 (624)
Increase in accrued interest payable 100 184
Decrease in other assets 1,584 95
Increase in other liabilities 545 44
Net amortization of premium on securities 440 315
Net security (gains) losses (24) 95
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Net Cash Provided By Operating Activities 7,612 3,888
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 25,929 6,471
Proceeds from sales of securities available for sale 29,385 25,017
Purchases of securities available for sale (73,455) (12,727)
Proceeds from maturities of securities held to maturity - 9,561
Purchases of securities held to maturity - (34,497)
Net increase in loans (32,546) (20,521)
Net capital expenditures (735) (668)
- -------------------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (51,422) (27,364)
- -------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 11,254 (9,613)
Net increase in time deposits 17,304 23,768
Net increase (decrease) in borrowed funds 3,968 (1,280)
Net (decrease) increase in long-term debt (165) 2,895
Net proceeds from issuance of common stock 736 624
Cash dividends paid (1,126) (861)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 31,971 15,533
- -------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (11,839) (7,943)
Cash and Cash Equivalents, Beginning of Period 36,148 26,091
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Cash and Cash Equivalents, End of Period $24,309 $18,148
- -------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $12,342 $11,040
Income taxes paid 1,907 1,723
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 563 209
Net unrealized (loss) gain in the fair value of securities available for sale (2,697) 1,362
Increase (decrease) in deferred tax asset related to net unrealized
(loss) gain in the fair value of securities available for sale 917 (473)
Net unrealized (loss) gain in the fair value of securities available for sale,
net of income taxes (1,780) 889
Deferred compensation 21 -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
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
principles 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
Gains or losses were recognized and shown separately in the statements
of income on realization. Recognition of these gains or losses was based on the
specific identification method. Proceeds from the sales of securities available
for sale (AFS) during the first nine months of 1996 and 1995 were $29.4 million
and $25.0 million, respectively. Gross realized gains of $174 thousand and gross
realized losses of $150 thousand were recognized on the sales of securities AFS
during the first nine months of 1996. For the first nine months of 1995 gross
realized gains of $48 thousand and gross realized losses of $143 thousand were
recognized on the sales of securities AFS.
The amortized cost, estimated market value and contractual maturity
information for securities AFS at September 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.
7
<PAGE>
Notes to Consolidated Financial Statements - (Continued)
Vista Bancorp, Inc. and Subsidiaries
-----------------------------------------------
Notes to Consolidated Financial Statements - (Continued)
Note 2. Securities (Continued)
<TABLE>
<CAPTION>
Securities Available for Sale September 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 $27,586 $51 ($239) $27,398
U.S. Government agencies and corporations 12,102 27 (108) 12,021
State and political subdivisions 12,013 37 (79) 11,971
Corporate debt securities 12,471 116 (54) 12,533
Mortgage-backed securities 94,499 872 (1,016) 94,355
Equity securities 2,617 - - 2,617
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Total securities available for sale $161,288 $1,103 ($1,496) $160,895
---------------------------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------------------------
Total securities available for sale $143,563 $2,471 ($167) $145,867
---------------------------------------------------------------------------------------------------------
Securities Securities
Available for Sale Available for Sale
September 30, 1996 December 31, 1995
---------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Amounts in Thousands Cost Value Cost Value
---------------------------------------------------------------------------------------------------------
Maturing within one year $11,705 $11,722 $26,045 $26,149
Maturing after one year but within five years 42,398 42,301 35,546 36,205
Maturing after five years but within ten years 10,069 9,900 5,878 5,952
Maturing after ten years - - 673 681
No Maturity 2,617 2,617 2,231 2,231
Mortgage-backed securities 94,499 94,355 73,190 74,649
---------------------------------------------------------------------------------------------------------
Total securities available for sale $161,288 $160,895 $143,563 $145,867
---------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
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 September 30, 1996, the total impaired loans recognized in
accordance with SFAS No. 114 and SFAS No. 118 were $3.1 million, of which $1.7
million were valued based upon discounted cash flows and $1.4 million using the
fair value of collateral. Based on these methods, $525 thousand of the $3.8
million allowance for loan losses was allocated against the $3.1 million of
impaired loans. The remaining allowance for loan losses, totalling $3.3 million
at September 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 September 30, 1996 was approximately the same as the
balance at September 30, 1996. Interest income recorded on total impaired loans
during the first nine 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 nine months of 1996.
9
<PAGE>
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 nine 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.
In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers of
Securities and Extinguishment of Liabilities." SFAS No. 125 provides standards
based on consistent application of a financial-components approach that focuses
on control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, removes financial assets from the balance sheet when control has
been surrendered, and removes liabilities from the balance sheet when they have
been extinguished.
This statement supersedes SFAS No. 122 and becomes effective for
transfers of financial assets and extinguishment of liabilities occurring after
December 31, 1996. Earlier or retroactive application is not permitted. This
statement is not expected to have a material impact on Vista's financial
position or results of operations.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
On May 21, 1996, PNB acquired the Flemington, Hunterdon County, New
Jersey branch facility of Summit Bank (formerly United Jersey Bank). The
acquisition involved 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 were purchased as part of this
transaction. The branch is scheduled to open in the fourth quarter of 1996. The
addition of this branch will increase PNB's total branch network to nine offices
serving Warren and Hunterdon counties in New Jersey.
On October 7, 1996, Twin Rivers opened its third branch office at 2850
Easton Avenue in Bethlehem Township, Northampton County, Pennsylvania. The
transaction involved the renegotiation of the lease on this former branch
facility of CoreStates Bank (successor by merger to Meridian Bank) and the
purchase of certain furniture and equipment from CoreStates. No deposits were
acquired as part of this transaction.
On October 28, 1996, Twin Rivers entered into an agreement with
CoreStates to purchase the land, building and certain furniture and equipment of
a former Meridian branch facility at 1003 West Broad Street, Bethlehem,
Northampton County, Pennsylvania. No deposits are included as a part of this
transaction. The branch is scheduled to open in the fourth quarter of 1996,
pending regulatory approval. The addition of these two branches will double Twin
Rivers' branch network to four offices serving Northampton County in
Pennsylvania.
Factors That May Affect Future Results
General. Banking is affected, directly and indirectly, by local,
domestic and international economic and political conditions, and by government
monetary and fiscal policies. Conditions such as inflation, recession,
unemployment, volatile interest rates, tight money supply, real estate values,
international conflicts and other factors beyond the control of Vista may
adversely affect the future results of operations of Vista. Management does not
expect any particular factor to affect Vista's results of operations. A downward
trend in several areas, however, including real estate, construction and
consumer spending, could have an adverse impact on Vista's ability to maintain
or increase profitability. Therefore, there is no assurance that Vista will be
able to continue its current rates of income and growth.
Interest Rates. Vista's earnings depend, to a large extent, upon net
interest income, which is primarily influenced by the relationship between its
cost of funds (deposits and borrowings) and the yield on its interest-earning
assets (loans and investments). This relationship, known as the net interest
spread, is subject to fluctuation and is affected by regulatory, economic and
competitive factors which influence interest rates, the volume, rate and mix of
interest-earning assets and interest-bearing liabilities, and the level of
nonperforming assets. As part of its interest rate risk management strategy,
management seeks to control its exposure to interest rate changes by managing
the maturity and repricing characteristics of interest-earning assets and
interest-bearing liabilities.
11
<PAGE>
Adequacy of Allowance for Loan Losses. In originating loans, there is a
likelihood that some credit losses will occur. This risk of loss varies with,
among other things, general economic conditions, the type of loan being made,
the credit worthiness and debt servicing capacity of the borrower over the term
of the loan and, in the case of a collateralized loan, the value and
marketability of the collateral securing the loan. Management maintains an
allowance for loan losses based on, among other things, historical loan loss
experience, known inherent risks in the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and the evaluation of current economic conditions.
Management currently believes that the allowance for loan losses is adequate,
but there can be no assurance that nonperforming loans will not increase in the
future.
Local Economic Conditions. The success of Vista is dependent, to a
certain extent, upon the general economic conditions in the geographic market
served by Vista. Although Vista expects that economic conditions will continue
to be favorable in this market, no assurance can be given that these economic
conditions will continue. Adverse changes in economic conditions in the
geographic market that Vista serves would likely impair Vista's ability to
collect loans and could otherwise have a material adverse effect on Vista's
results of operations and financial condition.
Competition. The banking industry is highly competitive, with rapid
changes in product delivery systems and in the consolidation of service
providers. Many of Vista's competitors are bigger than Vista in terms of assets
and have substantially greater technical, marketing and financial resources.
Because of their size, any of these competitors can (and do) offer products and
services that Vista does not offer. Vista is constantly striving to meet the
convenience and needs of its customers and to enlarge its customer base. No
assurance can be given that these efforts will be successful in maintaining and
expanding Vista's customer base.
Growth by Internal Expansion and Acquisition. Vista's strategy to
expand internally by establishing new branch offices is dependent on its ability
to identify advantageous branch office locations and generate new deposits and
loans from those locations that will create an acceptable level of net income
for Vista. At the same time, Vista's strategy to grow externally through
selective acquisitions of other financial institutions or branches of such
institutions is dependent on successfully identifying, acquiring and integrating
such institutions or branches. There can be no assurance Vista will be
successful in implementing its internal growth strategy or in identifying
attractive acquisition candidates, acquiring such candidates on favorable terms
or successfully integrating any acquired institutions or branches into Vista.
Federal and State Government Regulation. The operations of Vista are
heavily regulated and will be affected by present and future legislation and by
the policies established from time to time by various federal and state
regulatory authorities. In particular, the monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of banks in
the past and are expected to continue to do so in the future.
12
<PAGE>
Results of Operations for the three and nine month periods ended September 30,
1996 and September 30, 1995
Vista's net income equaled $969 thousand for the third quarter of 1996,
a decrease of $224 thousand, or 19%, over net income of $1.2 million earned in
the third quarter of 1995. Earnings per share equaled $.24 in the third quarter
of 1996 compared to $.34 for the same period in 1995. Excluding an after-tax
charge of $190 thousand for a one-time special assessment to the Federal Deposit
Insurance Corporation (FDIC) Savings Association Insurance Fund (SAIF), net
income on an operating basis for the third quarter of 1996 would have been $1.2
million, a decrease of $34 thousand, or 3%, over the same period in 1995.
Earnings per share would have been $.29.
Excluding the one-time special SAIF assessment, the decrease in net
income for the quarter was due to the $523 thousand increase in noninterest
expense resulting primarily from an increase of $197 thousand in FDIC deposit
insurance premiums and a $176 thousand increase in salaries and benefits. These
increases in noninterest expense were offset by the growth in net interest
income of $414 thousand, noninterest income of $33 thousand, excluding net
security gains, and a $55 thousand lower provision for income taxes resulting
from lower pre-tax earnings.
Vista's net income for the first nine months of 1996 equaled $3.3
million, or $.81 per share, representing a increase of $210 thousand, or 7%,
from the $3.1 million, or $.88 per share, earned in the first nine months of
1995. Excluding an after-tax charge of $190 thousand for the one-time special
SAIF assessment, net income on an operating basis, would have been $3.5 million
for the first nine months of 1996, an increase of $400 thousand, or 13%, over
the same period in 1995. Earnings per share would have been $.86.
Excluding the one-time special SAIF assessment, growth in net income
for the nine months ended September 30, 1996, was attributable to a $881
thousand increase in net interest income, a $277 thousand increase in
noninterest income, excluding net security gains and losses, and a $10 thousand
lower provision for loan losses. In addition, net securities gains of $24
thousand were realized in 1996 compared to net security losses of $95 thousand
realized in 1995. These earnings improvements were offset by a $760 thousand
increase in noninterest expense and a $127 thousand increase in the provision
for income taxes.
Return on average shareholders' equity (ROE) equaled 10.71%, and return
on average assets (ROA) equaled .79% for the third quarter of 1996 compared to
ROE of 17.02% and ROA of 1.11% for the same period of 1995. ROE for the first
nine months of 1996 was 12.06% compared to 15.39% for the comparable period in
1995 while ROA equaled .92% and .97%, 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 declined over the prior year as the growth in total average assets
outpaced the growth in annualized net income.
13
<PAGE>
Net Interest Income
Net interest income for the third quarter of 1996 increased $414
thousand, or 10%, to $4.4 million, compared to $4.0 million for the third
quarter of 1995. The quarterly increase was due primarily to a higher volume of
average interest-earning assets. The net interest spread, the difference between
the rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities, on a tax-equivalent basis, declined 9 basis points to 3.33%
compared to the prior year quarter of 3.42%. The net interest margin, which is
tax-equivalent net interest income expressed as a percentage of average
interest-earning assets declined to 3.82% for the third quarter of 1996 from
3.89% in the third quarter of 1995 as the growth in interest-earning assets
occurred at narrower net interest spreads.
For the first nine months of 1996, net interest income increased $881
thousand, or 8%, to $12.6 million from $11.7 million for the same period last
year. The year-over- year net interest spread declined 24 basis points to 3.30%
from 3.54% while the margin declined 16 basis points to 3.81% from 3.97%. 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 slightly
higher cost of funds.
Interest income on a tax-equivalent basis amounted to $25.2 million for
the first nine months of 1996, an increase of $2.1 million, or 9%, compared to
$23.1 million in interest income earned for the same period in 1995. The
increase in interest income was largely due to a higher volume of average
interest-earning assets which increased interest income by $2.9 million but was
offset in part by lower yields which reduced interest income by $721 thousand.
The average yield on interest-earning assets declined 22 basis points to 7.52%
for the first nine months of 1996 compared to 7.74% for the comparable period in
1995.
Interest expense amounted to $12.4 million for the first nine months of
1996, an increase of $1.2 million, or 11%, compared to $11.2 million for the
same period in 1995. The increase in interest expense was primarily due to a
higher volume of average interest-bearing liabilities which increased interest
expense by $1.2 million. The average cost of funds on interest-bearing
liabilities was 4.22% for the first nine months of 1996, an increase of 2 basis
points from 4.20% for the first nine 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
September 30, 1996 and 1995, are also reflected.
14
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- --------------------------------------------
<TABLE>
<CAPTION>
Consolidated Average Balances, Net Interest Income and Average Rates Nine Months Ended September 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 $10,415 $416 5.34% $10,910 $482 5.91%
Short-term investments 2,559 102 5.32% 2,771 120 5.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 12,974 518 5.33% 13,681 602 5.88%
- ------------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 26,953 1,201 5.95% 29,973 1,376 6.14%
U.S. Government agencies and corporations 103,168 5,173 6.70% 82,187 4,416 7.18%
States and other political subdivisions 13,299 593 5.96% 8,924 405 6.07%
Other 16,018 798 6.65% 16,150 835 6.91%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 159,438 7,765 6.51% 137,234 7,032 6.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 137,020 7,806 7.61% 132,138 7,533 7.62%
Commercial 69,286 4,806 9.27% 60,149 4,333 9.63%
Consumer 69,467 4,338 8.34% 55,621 3,578 8.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 275,773 16,950 8.21% 247,908 15,444 8.33%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 448,185 25,233 7.52% 398,823 23,078 7.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 14,830 12,630
Allowance for loan losses (3,904) (3,997)
Other assets 12,649 11,762
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning Assets 23,575 20,395
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $471,760 $419,218
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $66,756 $1,147 2.30% $60,081 $1,148 2.55%
Savings 109,285 2,556 3.12% 101,857 2,303 3.02%
Time 169,799 6,821 5.37% 164,002 6,460 5.27%
Time deposits $100,000 and over 30,878 1,253 5.42% 18,719 801 5.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 376,718 11,777 4.18% 344,659 10,712 4.16%
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 12,487 413 4.42% 9,476 323 4.56%
Long-term debt 4,668 252 7.21% 2,882 189 8.77%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 17,155 665 5.18% 12,358 512 5.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 393,873 12,442 4.22% 357,017 11,224 4.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 38,323 32,488
Other liabilities 3,472 3,219
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing Liabilities 41,795 35,707
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 36,092 26,494
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $471,760 $419,218
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread (tax-equivalent basis) $12,791 3.30% $11,854 3.54%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis Adjustment (166) (110)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $12,625 $11,744
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 3.81% 3.97%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 average interest-earning assets on a
tax-equivalent basis.
15
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- --------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Income
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Nine Months Ended September
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 ($66) ($21) ($45)
Short-term investments (18) (9) (9)
- -----------------------------------------------------------------------------------------
Total Short-term Investments (84) (30) (54)
- -----------------------------------------------------------------------------------------
Securities:
U.S. Treasury (175) (136) (39)
U.S. Government agencies and corporations 757 1,068 (311)
States and other political subdivisions 188 195 (7)
Other (37) (7) (30)
- -----------------------------------------------------------------------------------------
Total Securities 733 1,120 (387)
- -----------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 273 279 (6)
Commercial 473 639 (166)
Consumer 760 868 (108)
- -----------------------------------------------------------------------------------------
Total Loans 1,506 1,786 (280)
- -----------------------------------------------------------------------------------------
Total Interest Income 2,155 2,876 (721)
- -----------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand (1) 121 (122)
Savings 253 172 81
Time 361 232 129
Time deposits $100,000 and over 452 496 (44)
- -----------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,065 1,021 44
- -----------------------------------------------------------------------------------------
Borrowed funds 90 100 (10)
Long-term debt 63 101 (38)
- -----------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 153 201 (48)
- -----------------------------------------------------------------------------------------
Total Interest Expense 1,218 1,222 (4)
- -----------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $937 $1,654 ($717)
- -----------------------------------------------------------------------------------------
</TABLE>
(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.
16
<PAGE>
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 Nine Months Ended September 30,
Change Change
Amounts in Thousands (Except Percentages) 1996 1995 $ %
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $1,151 $1,047 $ 104 10%
Other service charges 377 254 123 48
Net security gains (losses) 24 (95) 119 (125)
Trust income 153 120 33 28
Safe deposit box income 57 58 (1) (2)
Other income 99 81 18 22
-----------------------------------------------------------
Total Noninterest Income $1,861 $1,465 $ 396 27%
===========================================================
</TABLE>
For the nine months ended September 30, 1996, total noninterest income
increased $396 thousand, or 27% compared to the same period in 1995. Excluding
net security gains and losses from both periods, noninterest income from core
banking operations increased $277 thousand, or 18%, 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 .52% for the first nine months of 1996
compared to .50% in the same period of 1995.
Income from service charges on deposit accounts increased 10%, to $1.2
million, from $1.1 million 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 $123 thousand, or 48%, to $377
thousand, in 1996 compared to $254 thousand in 1995. The majority of the
increase resulted from $83 thousand in higher service charge income on loans
including $55 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 which were prevalent in
the first quarter of 1996 and refinanced their debt, and related activities
which generated additional appraisal fee income. Also contributing to the
increase was $24 thousand in higher service charge income from increased
automated teller machine usage.
17
<PAGE>
In the first nine months of 1996, Vista sold $29 million of securities
compared to $25 million in the first nine months of 1995 resulting in net gains
of $24 thousand in 1996 versus $95 thousand of net losses in 1995.
Other income increased 22% to $99 thousand in 1996 compared to $81
thousand in 1995. Other income for the first nine 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 nine months of 1995 included $35 thousand of gains from
the sales of a properties classified as other real estate owned.
For the quarter ended September 30, 1996, total noninterest income
increased $19 thousand, or 3%, to $594 thousand compared to the third quarter of
1995. Excluding net security gains and losses in both periods, noninterest
income from core banking operations increased $32 thousand, or 6%, versus the
third quarter of 1995. Total annualized noninterest income, excluding security
transactions, expressed as a percentage of average total assets was .48% for the
third quarter of 1996 compared to .51% for the same period of 1995.
18
<PAGE>
Noninterest Expense
Major Components of Noninterest Expense
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Nine Months Ended September 30,
Change Change
Amounts in Thousands (Except Percentages) 1996 1995 $ %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and benefits:
Salary expense $3,817 $3,498 $ 319 9%
Benefit expense 1,145 1,026 119 12
------------------------------------------------------------
Total salaries and benefits 4,962 4,524 438 10
Occupancy expense 808 715 93 13
Furniture and equipment expense 859 804 55 7
Other expenses:
FDIC insurance 496 388 108 28
Regulatory exam assessments 79 68 11 16
Marketing and advertising 356 341 15 4
Professional fees 211 152 59 39
Printing and stationery 211 140 71 51
Postage 187 159 28 18
Fees on loan accounts 251 185 66 36
Correspondent bank charges 41 20 21 105
Intangible asset amortization 138 61 77 126
Insurance 74 70 4 5
Property expense on ORE 74 98 (24) (24)
All other 686 631 55 9
------------------------------------------------------------
Total other expenses 2,804 2,313 491 21
------------------------------------------------------------
Total Noninterest Expense $9,433 $8,356 $1,077 13%
============================================================
</TABLE>
For the nine months ended September 30, 1996, total noninterest expense
increased $1.1 million, or 13%, to $9.4 million compared to $8.3 million for the
first nine months of 1995. Total annualized noninterest expense expressed as a
percentage of total average assets equaled 2.67% for the first nine months of
1996 and 1995.
The largest component of Vista's cost structure was salaries and
benefits which equaled $5.0 million for the first nine months of 1996 compared
to $4.5 million for the same period in 1995. Salary and benefit expenses
accounted for 53% and 54% of total noninterest expense for the same periods.
When considered separately, salary expense increased 9%, or $319 thousand, in
1996 compared to 1995 due to higher staffing levels and normal salary
adjustments.
19
<PAGE>
Benefit expense increased 12%, or $119 thousand, in the first nine
months of 1996 compared to the same period in 1995 due in 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 nine months of 1996 would
have increased 7%, or $65 thousand, over the same period in 1995, as increases
in postretirement medical plan benefits, payroll taxes and other benefits
resulting from increased staff were offset, in part, by a decrease in pension
expense.
Occupancy expense increased 13% to $808 thousand in the first nine
months of 1996 from $715 thousand in 1995 due to higher facilities related
expenses.
Furniture and equipment expense increased 7% to $859 thousand in the
first nine months of 1996 compared to $804 thousand in 1995 due primarily to
upgrades in technology and expenses related to the addition of the Washington
Township branch.
Other expenses increased $491 thousand, or 21%, to $2.8 million in the
first nine months of 1996 from $2.3 million for the same period in 1995 due
primarily to the increase in FDIC insurance. The increase in FDIC insurance
resulted from a $317 thousand ($190 thousand after-tax) one-time special SAIF
assessment and $176 thousand ($106 thousand after-tax) of additional SAIF
deposit insurance premiums on previously acquired SAIF insured deposits. Also
contributing to the increase were increases in core deposit premium
amortization, fees on loan accounts, professional fees associated with benefit
plan administration, and printing and stationery costs attributable primarily to
the introduction of check imaging technology and a new corporate logo for PNB.
Effective January 1, 1996, the FDIC reduced Bank Insurance Fund (BIF)
deposit insurance premiums for highly-rated institutions to the annual statutory
minimum of $2 thousand, while maintaining SAIF deposit insurance premiums at
$.23 per $100 of deposits. Beginning January 1, 1997, Vista will be subject to
FDIC deposit insurance premiums of $.013 per $100 of BIF deposits and $.064 per
$100 of SAIF deposits. The ongoing deposit insurance premiums for both BIF and
SAIF will be used to service the Financing Corporation (FICO) bonds which were
floated by the United States government to pay for the thrift industry cleanup
in the late 1980s.
For the quarter ended September 30, 1996, total noninterest expense
increased $839 thousand, or 32%, to $3.5 million compared to the third quarter
of 1995. Nearly 62% of the quarter-over-quarter increase was due to the increase
in FDIC insurance resulting largely from a $317 thousand ($190 thousand
after-tax) one-time special SAIF assessment and $176 thousand ($106 thousand
after-tax) of additional SAIF deposit insurance premiums on previously acquired
SAIF insured deposits. Also contributing to the increase were increases in
salaries and benefits, printing and stationery, core deposit premium
amortization, occupancy expense and other expenses. Total annualized noninterest
expense expressed as a percentage of total average assets increased to 2.85% for
the third quarter of 1996 from 2.45% for the same period in 1995. Excluding the
SAIF assessments, this benchmark for the third quarter of 1996 would have
remained unchanged at 2.45% quarter-over-quarter.
20
<PAGE>
Vista's expects 1997 earnings to be affected by higher expense levels
as Vista absorbs the three new branching facilities opening in the fourth
quarter of 1996 into its corporate structure and adds additional managerial
expertise in key support functions. See "Factors That May Affect Future
Results."
Provision for Income Taxes
Vista's provision for income taxes was $1.7 million for the first nine
months of 1996 and 1995. The effective tax rate declined to 33.7% for the first
nine 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.
Financial Condition - September 30, 1996 versus December 31, 1995
General
At September 30, 1996, Vista's total consolidated assets equaled $491
million which represented an increase of approximately $34 million from $457
million at December 31, 1995. Funding the increase in assets was a $29 million
increase in total deposits and a $4 million increase in borrowed funds. At
September 30, 1996, total shareholders' equity equaled $37 million versus $36
million at December 31, 1995. The increase was attributable to the $2.9 million
in added capital from earnings retention and participation in various Vista
stock plans. Offsetting this increase was a $1.8 million adjustment to capital
at September 30, 1996 which resulted from an increase in market interest rates
during the first nine months of 1996 which depressed the value of the available
for sale security portfolio.
Securities
Vista's entire investment securities portfolio is classified as
available for sale and recorded at market value. At September 30, 1996 the
portfolio equaled $161 million and carried a pre-tax unrealized net loss of
approximately $400 thousand. 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 nine months of 1996 included $73 million
in purchases, $29 million in sales and $26 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
rebalancing and sales of pools of mortgage-backed securities that amortized down
to small outstanding balances.
21
<PAGE>
Loans
The following discussion contains forward-looking statements that
involve risks and uncertainties. The actual results for any particular period
may vary. See "Factors That May Affect Future Results."
During the first nine months of 1996, Vista expanded all sectors of its
loan portfolio, as total loans increased $32 million, or 12%, to $296 million
from $264 million at December 31, 1995. Consumer loans increased $18 million, or
29%, during the first nine months of 1996 with $16 million of this increase
concentrated in automobile loans generated through an aggressive indirect
lending program. Mortgage loans increased $6 million with the majority of the
increase coming in adjustable-rate mortgage loans.
Commercial loans increased $8 million.
At September 30, 1996, mortgage and consumer loans accounted for 48%
and 27%, respectively, of the total loan portfolio compared to 51% and 24% at
December 31, 1995. Commercial loans accounted for 25% of the portfolio,
relatively unchanged from December 31, 1995. Vista anticipates continued
lowering of its concentration in residential mortgage loans as it moves toward
increased lending to small businesses and consumer installment loans.
At September 30, 1996, Vista's loan to deposit ratio was 68.9% compared
to 65.8% at December 31, 1995.
Deposits
Total deposits amounted to $430 million at September 30, 1996,
reflecting an increase of $29 million compared to December 31, 1995, with all
deposit categories contributing to the net growth. Time deposits increased $17
million, or 9%, during the first nine months of 1996, with the growth occurring
in the second and third quarters due to successful CD promotions. Savings
deposits increased $7 million as Vista was able to retain and build on the
savings deposit growth it experienced in the first quarter of 1996 through
competitive pricing. Interest-bearing demand deposits increased $3 million while
noninterest-bearing demand deposits increased $1 million during this same
period.
During the first nine months of 1996, average time deposits, including
those $100,000 and over, remained the largest component, at 48% of total average
deposits for the first nine months 1996 and 1995. Interest-bearing demand
accounts equaled 16% of total average deposits during the first nine 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 $21 million at
September 30, 1996, which represents an increase of $4 million over the $17
million at December 31, 1995, due primarily to $4 million in federal funds
purchased.
22
<PAGE>
Total average interest-bearing liabilities funded 88% of total average
interest-earning assets during the first nine 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 $3.8 million at
September 30, 1996 and $4.5 million at December 31, 1995, or 1.26% and 1.71% of
total outstanding loans and ORE, respectively. The decrease in this percentage
at September 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 $728 thousand at September 30, 1996, compared to $489
thousand at December 31, 1995, due primarily to transfers from nonaccrual loans.
Allowance for Loan Losses and Related Provision
The allowance for loan losses equaled $4 million at September 30, 1996
and December 31, 1995. The allowance equaled 1.27% of total loans at September
30, 1996, compared to 1.49% at December 31, 1995. Net charge-offs to the
allowance during the first nine months of 1996 were $289 thousand.
The provision for loan losses equaled $45 thousand for the third
quarter and $135 thousand on a year-to-date basis for 1996 compared to $45
thousand and $145 thousand, respectively for the same periods in 1995. At
September 30, 1996, the allowance for loan losses represented 125% of total
nonaccrual loans 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
September 30, 1996. See "Factors That May Affect Future Results."
Liquidity
At September 30, 1996, cash and cash equivalents equaled $24 million
which represented a decrease of $12 million from the $36 million in cash and
cash equivalents on hand at December 31, 1995. The $12 million decrease in cash
and cash equivalents was attributable to combined net cash flows provided by
operating and financing activities totaling $39 million, which were then used
for investing activities of $51 million.
23
<PAGE>
At September 30, 1996, net cash provided by operating activities
equaled $7 million which consisted mainly of net income adjusted for noncash
charges. Net cash provided by financing activities totaled $32 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 $55 million from maturities and sales of securities were
combined with $7 million and $32 million of net cash flows provided by operating
and financing activities, respectively, and $12 million in cash and cash
equivalents available at December 31, 1995, to fund $73 million in security
purchases and $33 million in loans.
Capital Resources
The following discussion contains statements involving future results.
Actual results may vary for numerous reasons, including, but not limited to,
Vista's customers closing on various commitments. For discussion on the risks
and uncertainties that may affect theses commitments, see "Factors That May
Affect Future Results."
At September 30, 1996 total shareholders' equity increased $1 million
to $37 million, an increase of 3% from the $36 million at December 31, 1995.
This increase resulted from $3 million in net income and $736 thousand in added
capital raised through the various stock plans which offset the $2 million
decline in the net unrealized gain on securities AFS and dividends paid of
approximately $1 million.
Vista's dividend payout ratio equaled 35% for the nine months ended
September 30, 1996 compared to 28% for same period in 1995. Vista paid cash
dividends totaling $1.1 million during the first nine months of 1996, an
increase of $265 thousand, or 31% over the $861 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 10 cents per
share effective for the third quarter of 1996 from 9 cents per share for the
same period of 1995. Vista's book value per share at September 30, 1996, was
equal to $9.10 compared to $8.96 at December 31, 1995.
Vista maintained a Tier I risk-based capital ratio of 12.52% and a
total risk-based capital ratio of 14.11% at September 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.
Vista maintained a leverage capital ratio of 7.12% at September 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 nine months of 1996.
24
<PAGE>
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 $30 million and $24 million to its
borrowers at September 30, 1996 and December 31, 1995, respectively. Standby
letters of credit contracts with its customers totaled $1 million as of
September 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
September 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>
<TABLE>
<CAPTION>
<S> <C> <C>
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 September 30, 1996.
26
<PAGE>
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: November 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>
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ------------ ----
27 Financial Data Schedules . . . . . . . . . . . . 29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,284
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,605
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 160,895
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 296,449
<ALLOWANCE> 3,778
<TOTAL-ASSETS> 491,335
<DEPOSITS> 430,121
<SHORT-TERM> 16,109
<LIABILITIES-OTHER> 3,590
<LONG-TERM> 4,560
0
0
<COMMON> 2,031
<OTHER-SE> 34,924
<TOTAL-LIABILITIES-AND-EQUITY> 491,335
<INTEREST-LOAN> 16,940
<INTEREST-INVEST> 7,609
<INTEREST-OTHER> 518
<INTEREST-TOTAL> 25,067
<INTEREST-DEPOSIT> 11,777
<INTEREST-EXPENSE> 12,442
<INTEREST-INCOME-NET> 12,625
<LOAN-LOSSES> 135
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 9,433
<INCOME-PRETAX> 4,918
<INCOME-PRE-EXTRAORDINARY> 4,918
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,259
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 0.00
<LOANS-NON> 3,027
<LOANS-PAST> 500
<LOANS-TROUBLED> 153
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,932
<CHARGE-OFFS> 340
<RECOVERIES> 51
<ALLOWANCE-CLOSE> 3,778
<ALLOWANCE-DOMESTIC> 3,778
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 795
</TABLE>
