<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, 1997
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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, 133 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, 1997 there were 4,137,239 shares of $.50 par value
Common Stock outstanding.
<PAGE>
VISTA BANCORP, INC.
Form 10-Q
For the period ended September 30, 1997
<TABLE>
<CAPTION>
Index
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PAGE
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<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three Months and Nine Months
Ended September 30, 1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity -
Nine Months Ended September 30, 1997 and
The Year Ended December 31, 1996 5
Consolidated Statements of Cash Flows - Nine Months
Ended September, 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
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,
1997 1996
-----------------------------
Assets
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 20,023 $ 18,370
Federal funds sold 4,600 13,395
Short-term investments 9,725 3,817
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Total CaSh and Cash Equivalents 34,348 35,582
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Securities available for sale (Amortized cost; $185,438 and $151,303 in 1997 and 1996, respectively) 187,126 152,388
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Loans, net of unearned income:
Mortgage 144,275 140,612
Commercial 94,240 78,250
Consumer 84,672 80,702
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Total Loans 323,387 299,564
Allowance for loan losses (4,000) (3,903)
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Total Net Loans 319,387 295,661
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Premises and equipment 7,583 7,542
Accrued interest receivable 3,403 2,826
Other assets 4,808 4,222
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Total Assets $556,665 $ 498,201
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Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 51,276 $ 42,462
Interest-bearing 70,549 69,908
Savings 127,680 111,671
Time 242,731 211,070
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Total Deposits 492,236 435,111
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Borrowed funds 14,365 16,643
Long-term debt 4,310 4,498
Accrued interest payable 1,268 1,102
Other liabilities 2,447 2,032
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Total Liabilities 514,626 459,386
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Shareholders' Equity:
Common stock; $,50 par value; shares authorized 10,000,000; shares issued,
4,146,792 and 4,085,498 at September 30, 1997 and December 31, 1996, respectively. 2,073 2,043
Paid-in capital 13,964 13,092
Retained earnings 25,022 22,984
Treasury stock (9,780 and 780 shares at September 30, 1997 and December 31, 1996, respectively) (134) (7)
Net unrealized gain on securities available for sale 1,114 703
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Total Shareholders' Equity 42,039 38,815
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Total Liabilities and Shareholders' Equity $ 556,665 $ 498,201
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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
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,
1997 1996 1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 6,609 $ 5,885 $18,953 $ 16,940
Interest on federal funds sold 248 126 591 416
Interest on short-term investments 51 12 104 102
Interest on securities:
Taxable 2,743 2,497 7,742 7,172
Nontaxable 231 146 645 437
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Total interest income 9,882 8,668 28,035 25,067
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Interest Expense:
Interest on deposits 4,774 4,048 13,516 11,777
Interest on borrowed funds 226 160 501 413
Interest an long-term debt 78 83 236 252
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Total Interest Expense 5,078 4,291 14,253 12,442
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Net Interest Income 4,804 4,377 13,782 12,625
Provision for Loan Losses 195 45 585 135
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Net Interest Income After Provision for Loan Losses 4,609 4,332 13,197 12,490
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Noninterest income:
Service charges on deposit accounts 413 376 1,226 1,151
Other service charges 137 102 387 377
Not security gains 135 9 235 24
Other income 90 107 262 309
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Total Noninterest Income 775 594 2,110 1,861
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Noninterest Expense:
Salaries and benefits 1,932 1,689 5,763 4,962
Occupancy expense 346 264 1,018 808
Furniture and equipment expense 388 277 1,103 859
SAIF assessment -- 317 -- 317
Other expense 876 940 2,520 2,487
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Total Noninterest Expense 3,542 3,487 10,404 9,433
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Income Before Provision for Income Taxes 1,842 1,439 4,903 4,918
Provision for Income Taxes 610 470 1,594 1,659
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Net Income $ 1,232 $ 969 $ 3,309 $ 3,259
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Earnings per Share $ 0.30 $ 0.24 $0.81 $ 0.81
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Weighted Average Number of Common Shares Outstanding 4,121,638 4,045,328 4,104,690 4,024,600
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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)
For The Year Ended December 31, 1996 and
For The Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities Total
Shares Common Paid-in Retained Treasury Available Shareholder
Outstanding Stock Capital Earnings Stock for sale Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,998,564 $ 2,000 $12,064 $20,268 ($7) $1,520 $35,645
Net Income - 1996 -- -- -- 4,248 -- -- 4,248
Cash dividends - $.38 per share -- -- -- (1,632) -- -- (1,532)
Net proceeds from
issuance of common stock 86,154 43 998 -- -- -- 1,041
Deferred compensation -- -- 30 -- -- -- 30
Net unrealized depreciation in the
market value of securities available
for sale, net of income taxes -- -- -- -- -- (617) (817)
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Balance, December 31, 1996 4,084,718 2,043 13,092 22,984 (7) 703 38,815
Net income - 1997 -- -- -- 3,309 -- -- 3,309
Cash dividends - $.31 per share -- -- -- (1,271) -- -- (1,271)
Net proceeds from
issuance of common stock 61,294 30 837 -- -- -- 887
Purchase of Treasury Stock (9,000) -- -- -- (127) -- (127)
Deferred compensation -- -- 35 -- -- -- 35
Net unrealized appreciation in the
market value of securities available
for sale, net of income taxes -- -- -- -- -- 411 411
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Balance, September 30, 1997 4,137,012 $2,073 $13,964 $25,022 ($134) $1,114 $42,039
</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>
Nino Months Ended September 30,
1997 1996
-------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 3,309 $ 3,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 764 657
Provision for loan losses 585 135
Increase in deferred income 118 90
(Increase) decrease in accrued interest receivable (677) 826
Increase in accrued interest payable 166 100
(Increase) decrease in other assets (616) 1,584
Increase in other liabilities 450 545
Net amortization of premium on securities 240 440
Net security gains (235) (24)
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Net Cash Provided By Operating Activities 4,204 7,612
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 18,019 25,929
Proceeds from sales of securities available for sale 18,075 29,385
Purchases of securities available for sale (70,234) (73,455)
Net increase in loans (24,727) (32,546)
Net capital expenditures (699) (735)
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Net Cash Used For Investing Activities (59,566) (51,422)
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Cash Flows From Financing Activities:
Net increase in demand and savings deposits 25,464 11,254
Net increase in time deposits 31,661 17,304
Net (decrease) increase in borrowed funds (2,278) 3,968
Net decrease in long-term debt (188) (165)
Net proceeds from issuance of common stock 867 736
Purchases of treasury stock (127) --
Cash dividends paid (1,271) (1,126)
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Net Cash Provided By Financing Activities 54,128 31,971
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Net Decrease in Cash and Cash Equivalents (1,234) (11,839)
Cash and Cash Equivalents, Beginning of Period 35,582 36,148
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Cash and Cash Equivalents, End of Period $ 34,348 $ 24,309
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Supplemental Disclosures of Cash Flow Information:
Interest paid $ 14,087 $ 12,342
Income taxes paid 1,655 1,907
Supplemental Disclosures of investing and Financing Activities:
Transfers from loans to other real estate owned 298 563
Net unrealized gain (loss) in the fair value of securities available for sale 623 (2,697)
(Decrease) increase in deferred tax asset related to net unrealized
gain (loss) in the fair value of securities available for sale (212) 917
Net unrealized gain (loss) in the fair value of securities available for sale,
net of income taxes 411 (1,780)
Deferred compensation 35 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) reflect all adjustments and disclosures
which are, in the opinion of management, necessary for a fair presentation of
interim results. The financial information has been prepared in accordance with
Vista's customary accounting practices and has not been audited.
Certain information and footnote disclosures required under generally
accepted accounting principles have been 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 requires management to make certain estimates and assumptions that
affect 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, 1996.
Results of operations for the nine month period ended September 30,
1997, are not necessarily indicative of the results to be expected for the full
year.
Note 2. Recently Issued Accounting Standards
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 would recognize the financial and servicing assets
it controls and the liabilities it has incurred, remove financial assets from
the balance sheet when control has been surrendered, and remove liabilities from
the balance sheet when they have been extinguished. This statement supersedes
SFAS No. 122 which was originally effective for transfers of financial assets
and extinguishment of liabilities occurring after December 31, 1996. SFAS No.
127 issued in December 1996 delayed the effective date of certain Provisions of
SFAS No. 125 as they affect transfers of financial assets until after December
31, 1997. Earlier or retroactive application of either standard is not
permitted. Management has not yet determined the effect of these statements on
Vista's financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
SFAS No. 128 supersedes APB Opinion No. 15, "Earnings Per Share," and specifies
the computation, presentation and disclosure requirements for earnings per share
for entities with publicly held common stock or potential common stock. This
statement is effective for financial statements for periods ending after
December 31, 1997. The adoption of this statement should not have a material
effect on the consolidated financial statements of Vista.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Certain statements in this Form 10-Q are forward-looking statements that
involve a number of risks and uncertainties. A discussion of these factors,
among others, which may cause actual results to differ materially from
projected results appears under "Factors That May Affect Future Results."
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-earnings assets and
interest-bearing liabilities.
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.
8
<PAGE>
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.
Results of Operations for the periods ended September 30, 1997 and September 30,
1996
For the third quarter of 1997, Vista reported a 6% increase in operating
income to $1.232 million, or $.30 per common share compared to operating
income, exclusive of the SAIF assessment discussed below, of $1.159 million or
$.29 per share reported for the third quarter of 1996. The increase in net
income for the quarter was due to higher levels of net interest income,
noninterest income and security gains which offset a higher provision for loan
losses and increased noninterest expense. Results for the third quarter of 1996
do not include a one-time charge of $317 thousand, ($190 thousand or $.05 per
share, after taxes) for a special assessment paid to the Savings Association
Insurance Fund (SAIF). Including the special assessment, net income for the
third quarter of 1996 was $969 thousand or $.24 per share.
For the nice months ended September 30, 1997, Vista reported a 4%
decrease in net operating income to $3.309 million or $.81 per share compared
to operating income of $3.449 million or $.86 per share. Including the special
assessment, net income for the nine months ended September 30, 1997 increased 2%
to $3.309 million compared to $3.259 million or $.81 per share earned in the
nine month period one year earlier.
The lower level of operating earnings for the comparative nine months
reflect the higher level of operating expenses incurred in connection with
Vista's announced 3 branch expansion, added staff and higher provision for loan
losses, which in turn were offset in part by a higher level of net interest
income and security gains.
9
<PAGE>
Three branch facilities were acquired in late 1996 without deposits and
consequently the start-up costs of expansion was expected to impact earnings for
a period of twelve to eighteen months until the acquired branches could grow
deposits which in turn can be deployed into loans and investments in order to
reach a break-even point of profitability. These estimates are based on
historical experience and management's judgement. There can be no guarantee
that these branches will reach a break-even level of profitability according
to this time frame.
Excluding the one-time SAIF assessment, return on average equity (ROE)
equaled 11.99% for the third quarter of 1997 and 12.81% for the third quarter
of 1996. Return on average assets (ROA) equaled .89% for the third quarter of
1997 and .95% for the third quarter of 1996. For the first nine months of 1997,
ROE equaled 11.18% and 12.76% for the first nine months of 1996. ROA equaled
.84% for the first nine months of 1997 and .98% for the first nine months of
1996.
Tax-equivalent net interest income amounted to $4.9 million for the
third quarter of 1997, an increase of $500 thousand, or 11%, compared to $4.4
million earned in the third quarter of 1996. For the first nine months of 1997,
tax-equivalent net interest income totaled $14.0 million, an increase of $1.2
million or 9% compared to $12.8 million for the same nine month period in 1996.
The net interest margin, which is tax-equivalent net interest income
expressed as a percentage of average interest-earning assets, averaged 3.71% for
the third quarter of 1997 compared to 3.82% for the third quarter of 1996. For
the first nine months of 1997 the net interest margin averaged 3.76% compared to
3.81% for the same nine month period in 1996. The decrease in the margin was
caused by the cost of funds increasing at a faster pace than the yield on
earning assets. Margin compression is expected during periods of expansion as
new funds generated by new branch, locations tend to be higher cost time
deposits. Growth in time deposits generally will precede loan growth which
offer higher yields to offset the effects of higher interest expense. Until an
equilibrium can be reached with higher lending volumes the net interest spread
and margin will contract. The goal during periods of expansion is to counteract
the effect of margin compression with balance sheet growth to produce growth in
net interest income.
Tax-equivalent interest income amounted to $9.9 million for the third
quarter of 1997, an increase of approximately $1.2 million, or 14%, compared to
$8.7 million for the third quarter of 1996. The increase in interest income was
due to a higher volume of average interest-earning assets which increased
interest income by $1.1 million while higher yields contributed an additional
$100 thousand, The average yield on interest-earning assets increased 4 basis
points to 7.56% for the third quarter of 1997 compared to 7.52% for the third
quarter of 1996. Tax-equivalent interest income for the first nine months of
1997 increased $3.1 million to 12% to $28.3 million from $25.2 million in the
same nine month period in 1996. Yields on interest-earning assets averaged
7.58% for the first nine months of 1997, up 6 basis points from 7.52% for the
same period in 1996.
Interest expense amounted to $5.1 million for the third quarter of 1997,
an increase of approximately $800 thousand, or 19% compared to $4.3 million in
the third quarter of 1996. The increase is due primarily to a higher volume of
average interest-bearing liabilities which increased interest expense by $625
thousand while higher rates paid for deposits increased interest expense by $175
thousand.
10
<PAGE>
The average cost of funds on interest-bearing liabilities increased by
20 basis points to 4.39% for the third quarter of 1997 compared to 4.19% for the
third quarter of 1996. Interest expense for the first nine months of 1997
increased $1.9 million or 15% to $14.3 million from $12.4 million in the
comparable first half of 1996. The cost funds for the first nine months of 1997
averaged 4.33%, an increase of 11 basis points from the average of 4.22%
reported for the same period of 1996.
The 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, 1997 and 1996, are also reflected.
The 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.
11
<PAGE>
Vista Bancorp. Inc. and Subsidiaries
Consolidated Average Balances, Net Interest Income and Average Rates
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---------------------------------------- ---------------------------------
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 $ 14,340 $ 591 5.51% $10,415 $ 416 5.34%
Short-term investments 2,719 104 5.11% 2,559 102 5.32%
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Total Short-term investments 17,059 695 5.45% 12,974 516 5.33%
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Securities,
U.S. Treasury 23,546 1,070 6.06% 26,953 1,201 5.95%
U.S. Government agencies and corporations 117,004 6,030 6.89% 103,166 5,173 6.70%
States and other political subdivisions 16,722 876 6.26% 13,299 593 5.96%
Other 12,948 643 6.84% 16,016 798 6.63%
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Total Securities 172,220 6,619 6.69% 159,439 7,765 6.51%
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Loans, net of unearned income: (4)
Mortgage 141,435 8,066 7.62% 137,020 7,806 7.61%
Commercial 65,964 5,889 9.16% 69,286 4,806 9.27%
Consumer 62,309 5,024 8.16% 69,467 4,338 8.34%
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Total Loans 309,708 18,979 8.19% 275,773 16,950 8.21%
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Total Interest-earning Assets 496,987 26,293 7.58% 448,165 25,233 7.52%
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Cash and due from banks 16,146 14,830
Allowance for loan losses (3,901) (3,904)
Other assets 15,442 12,649
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Total Noninterest-earning Asset 27,687 23,575
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Total Assets $ 526,674 $471,760
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Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 71,157 $ 1,143 2.15% $ 66,756 $ 1,147 2.30%
Savings 116,822 2,611 3.22% 109,285 2,556 3.12%
Time 197,863 8,072 5.45% 169,799 6,821 5.37%
Time deposits $100,000 and over 35,610 1,490 5.59% 30,878 1,253 5.42%
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Total Interest-bearing Deposits 421,472 13,518 4.29% 376,718 11,777 4.18%
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Borrowed funds 14,117 501 4.74% 12,487 413 4.42%
Long-term debt 4,431 236 7.12% 4,668 252 7.21%
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Total Borrowed Funds and Long-term Debt 18,548 737 5.31% 17,155 665 5.18%
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Total Interest-bearing Liabilities 440,020 14,253 4.33% 393,873 12,442 4.22%
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Noninterest-bearing demand deposits 43,313 38,323
Other liabilities 3,776 3,472
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Total Noninterest-bearing liabilities 47,089 41,795
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Shareholders' Equity 39,665 36,092
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Total Liabilities and Shareholders' Equity $ 528,674 $ 471,760
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Net Interest Income/Spread (tax-equivalent basis) $ 14,040 3.25% $12,791 3.30%
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Tax-equivalent Basis Adjustment (258) (166)
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Net Interest Income $ 13,782 $12,625
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Net Interest Margin(5) 3.76% 3.81%
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</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.
12
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Volume/Rate Analysis of Changes in Net Interest Income
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 vs. 1996
-----------------------------------------------
Increase (Decrease)
Due to Changes in
-----------------------------
Amounts in Thousands Total Average Average
Change(l) Volume Rate
-----------------------------------------------
<S> <C> <C> <C>
Interest income
Federal funds sold $ 175 $ 162 $ 13
Short-term investments 2 6 (4)
- ------------------------------------------------------------------------------------------------------------------------
Total Short-term investments 177 168 9
- ------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (131) (155) 24
U.S. Government agencies and corporations 857 709 148
States and other political subdivisions 283 253 30
Other (155) (153) (2)
- ------------------------------------------------------------------------------------------------------------------------
Total Securities 854 654 200
- ------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 260 251 9
Commercial 1,083 1,144 (61)
Consumer 686 786 (100)
- ------------------------------------------------------------------------------------------------------------------------
Total Loans 2,029 2,181 (152)
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Income 3,060 3,003 57
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand (4) 73 (77)
Savings 255 180 76
Time 1,251 1,143 108
Time deposits $100,000 and over 237 197 40
- ------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,739 1,593 146
- ------------------------------------------------------------------------------------------------------------------------
Borrowed funds 88 67 31
Long-term debt (16) (13) (3)
- ------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 72 44 28
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 1,811 1,637 174
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 1,249 $ 1,366 ($117)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The volume/rate variance is allocated based on the percentage relationship
of changes in volume and changes in rate to the "Total Change".
(2) Includes nonaccrual loans.
13
<PAGE>
For the third quarter of 1997, total noninterest income was $775
thousand, representing an increase of $181 thousand or 30% over total
noninterest income of $594 thousand for the third quarter of 1996. Adjusting for
the effect of security transactions total noninterest income was $640 thousand,
an increase of $55 thousand or 9% over the $585 thousand earned in the third
quarter of 1996.
For the first nine months of 1997, total noninterest income equaled $2.1
million reflecting an increase of $240 thousand over the $1.86 million earned
in the first nine months of 1996. Adjusting for the effects of security gains
and a one-time $62 thousand gain on the sale of a student loan portfolio
recognized in 1996, total noninterest income from core banking operations
reflects an increase of S100 thousand or 6% in 1997 to $1.9 million from $1.8
million in 1996.
Income from service charges on deposit accounts increased $37 thousand
or 9% to $413 thousand in the third quarter of 1997 from $376 thousand in the
same quarter of 1996. The majority of the increase resulted from a higher level
of fees earned from nonsufficient funds (NSF) on personal checking accounts and
fees earned on commercial transaction accounts attributable to a greater volume
of item processing activity. For the first nine months of 1997, income from
service charges on deposit accounts increased 6% to $1.23 million from $1.15
million in 1996.
Other service charge revenue increased 34% to $137 thousand during the
third quarter compared to $102 thousand in the third quarter of 1996. For the
first nine months of 1997 total other service charge revenues were up 3% to $387
thousand from $377 earned in the same period one year earlier. The increases
resulted from higher fees collected from lending activities, lockbox servicing,
check cashing and other fees collected from routine banking services.
For the third quarter of 1997, other income decreased $17 thousand or
16% to $90 thousand from $107 thousand in the third quarter of 1996. On a
year-to-date basis, other income, adjusting 1996 for a $62 thousand one-time
gain, on the sale of a loan portfolio, reflected a 6% increase to $262 thousand
from $247 thousand in 1996. Both periods reflect increased revenues from Trust
operations.
During the first nine months of 1997, $18.1 million of securities
were sold which generated $235 thousand of net security gains. In comparison,
during the same nine month period of 1996, $29.4 million of securities were
sold which generated $24 thousand of net security gains.
For the third quarter of 1997, total noninterest expense increased $372
thousand or 11% to $3.54 million from $3.18 million, excluding the SAIF
assessment charge of $317 thousand, in the third quarter of 1996. When
annualized, noninterest expense expressed as a percentage of total average
assets decreased to 2.55% for the third quarter of 1997 from 2.60% in the third
quarter one year earlier. The increase in absolute expense dollars is due
largely to the 30% expansion of the branch network in late 1996, as well as
staffing enhancements made in retail banking, commercial lending, operations and
technology to support a larger and more complex organization.
14
<PAGE>
Total noninterest expense through the first nine months of 1997
increased 14% or $1.27 million to $10.40 million from $9.13 million, excluding
the SAIF assessment, in the same period of 1996 due to the branch expansion and
increased staffing levels discussed previously. The pace of growth in
noninterest expense on a sequential or linked-quarter basis for 1997 has shown a
significant slowdown which is consistent with management's strategy of
growing the balance sheet to increase net interest income while leveraging the
expense base.
The largest component of Vista's cost structure is salary and benefits
expense which increased $200 thousand or 15% to $1.9 million for the third
quarter of 1997 compared to $1.7 million for the same quarter of 1996. Full-time
equivalent employees increased to 211 in the third quarter of 1997 from 183
full-time equivalent employees in the comparable quarter of 1996. Total salary
and benefit expense through the first nine months of 1997 increased by $800
thousand or 16% to $5.8 million from $5.0 million in the same period of 1996.
Occupancy expense increased $82 thousand or 31% to $346 thousand in the
third quarter of 1997 from $264 thousand in 1996 due to increased costs to
operate and maintain 14 branch facilities in the third quarter of 1997 compared
to 11 facilities in the third quarter of 1996. The majority of the increase in
expenses resulted from higher depreciation expense from a greater number of
facilities, rental expense, utilities, property insurance and real estate
property tax expense. Total occupancy expense through the first nine months of
1997 increased $210 thousand or 26% to $1.02 million from $808 thousand in
the same period of 1996.
Furniture and equipment expense increased $111 thousand or 40% to $388
thousand in the third quarter of 1997 from $277 thousand in the third quarter of
1996 due primarily to upgrades in technology and automation, including a new 24
hour telephone banking system, furniture and equipment depreciation and
increased telephone and data line communication charges. Significant expenses
were during the quarter for consultants and computer specialists in response to
significant turnover of key staff. Usage of these vendors is expected through
the fourth quarter of 1997. The key staff positions have been filled by new
employees. Total furniture and equipment expense through the first nine months
of 1997 increased $244 thousand or 28% to $1.10 million from $859 thousand in
the same period, of 1996.
Other expense, consisting mainly of marketing, real estate owned
expenses, professional fees, printing, stationery and supplies, and postage
expenses, declined 7% to $876 thousand in the third quarter of 1997 from $940
thousand for the same quarter of 1996, excluding the SAIF assessment. Other
noninterest expense for the first nine months of 1997 remained flat with the
same nine month period in 1996 at $2.5 million.
The Year 2000 poses a significant challenge for all financial
institutions because many automated applications will cease to function
normal1y as a result of the way date fields are interpreted by computer systems.
Significant costs could result if systems must be repaired or replaced. Senior
management is actively involved in assuring that all systems and applications
Bank-wide are Year 2000 compliant. Currently, the estimated costs involved to
repair, replace and test all systems is not expected to be material.
15
<PAGE>
Financial Condition - September 30, 1997 versus December 31, 1996
At September 30, 1997, consolidated total assets equaled $557 million
which represented an increase of approximately $59 million from $498 million at
December 31, 1996. The increase was largely due to strong deposit growth from
the three new branch facilities located in Flemington, New Jersey and Butztown
and Bethlehem in Pennsylvania, which all became operational in the fourth
quarter of 1996.
Securities available for sale totaled $187 million at September 30, 1997
reflecting an increase of $35 million or 23% compared to the $152 million in
securities available for sale at the end of 1996. The portfolio is comprised of
61% fixed and variable rate mortgage-backed securities with pass-through,
balloon, adjustable-rate structures and CMO structures, 20% in U.S. Government
and Federal agency debt instruments, 11% in tax-exempt securities and the
balance in other securities. The portfolio activity during the first nine months
of 1997 included $70 million of purchases, $1.8 million of sales and $18
million of maturities. Gross unrealized gains on securities available for sale
totaled $1.721 million and gross unrealized losses equaled $33 thousand at
September 30, 1997.
Total loans equaled $323 million at September 30, 1997, reflecting an
increase of approximately $23 million or 8% over the $300 million in total
outstanding loans at year-end 1996. This increase occurred in commercial loans
and was consistent with the objective to lower the concentration in mortgage
loans and diversify the portfolio mix while improving yields and profitability
by increasing tire concentration in consumer and small business lending. At
September 30, 1997, the loan to deposit ratio was 65.7% compared to 68.9% at
December 31, 1996. The ratio declined as deposits increased faster than loans in
the first nine months of 1997 which compressed the net interest margin.
Vista's, Pennsylvania bank subsidiary, Twin Rivers Community Bank,
agreed in principle to sell $15 million of fixed and variable rate mortgage
loans during the fourth quarter. The sales proceeds will be reinvested into
higher yielding consumer and commercial loans to improve the loan portfolio mix
while lessening the reliance on high cost time deposits which in turn will
assist in lowering the cost of funds to enhance margins. The sale is not
expected to have a material affect on the consolidated results of operations
during the fourth quarter.
Total deposits equaled $492 million at September 30, 1997, reflecting an
increase of approximately $57 million or 13% in total deposits compared to $435
million at year-end 1996. Deposit growth was experienced in all deposit
categories. The opening of the three new branch facilities was complimented by
special promotional campaigns designed to attract deposits which in turn would
be reinvested into securities and loans over time in order to offset the
significant growth in operating expense which accompanies expansion efforts.
Variable-rate tiered savings products with money market rates are
offered to customers who maintain high balances. Strategies deployed during the
first half of 1997 proved successful in raising total deposits which had the
effect of increasing the average cost of funds.
At September 30, 1997, time deposits, including those $100 thousand and
over, remained the largest component of the total deposit base, equaling 49% at
September 30, 1997 and. December 31, 1996. Interest-bearing demand accounts
equaled 14% of total deposits, while Savings accounts equaled 26% at September
30, 1997 and December 31, 1996.
16
<PAGE>
Total borrowed funds and long-term debt equaled $19 million at September
30, 1997, reflecting a decrease of $2 million from $21 million outstanding at
December 31, 1996.
Nonperforming assets, consisting of loans on nonaccrual status plus
other real estate acquired through foreclosure (ORE), totaled $4.4 million at
September 30, 1997 and December 31, 1996, respectively or 1.36% and 1.48% of
total outstanding loans and ORE. The decrease in the ratio was due to the
increase in total loans outstanding. ORE increased to $1.5 million at September
30, 1997 compared to $1.3 million at December 31, 1996.
The allowance for loan losses equaled $4.0 million or 1.23% of total
loans at September 30, 1997, compared to $3.9 million and 1.30% at year-end
1996. The provision for loan losses equaled $195 thousand for the third
quarter of 1997 compared to $45 thousand in the third quarter of 1996. For the
first nine months of 1997 the provision for loan losses totaled $585 thousand
compared to $135 thousand for the first nine months of 1996. Vista increased the
provision for loan losses to match growth in the loan portfolio and to provide
for losses in the indirect automobile loan portfolio. At September 30, 1997,
the allowance for loan losses represented 137% of total nonaccrual loans as
compared to 123% at December 31, 1996.
At September 30, 1997, the indirect automobile loan portfolio had an
approximate outstanding principal balance of $28 million. Beginning in the
fourth quarter of 1996 and continuing through the second quarter of 1997, Vista
experienced above average charge-offs in its indirect automobile loan
portfolio. Vista responded to this trend in charge-offs by tightening the loan
underwriting standards and decreasing the number of loan originations. In 1997,
charge-offs of loans in the indirect automobile loan portfolio were $147
thousand for the first quarter, $88 thousand for the second quarter and $65
thousand for the third quarter.
Total loan charge-offs for the three and nine month periods ended
September 30, 1997 were $133 thousand and $628 thousand. Recoveries were $104
thousand for the third quarter and $139 thousand for nine month period ended
September 30, 1997.
At September 30, 1997, cash and cash equivalents equaled $34.3 million
which represented a decrease of $1.3 million from the $35.6 million in cash and
cash equivalents at December 31, 1996. Changes in cash are measured by changes
in operating, investing and financing activities. The decrease in cash and cash
equivalents was attributable to combined net cash flows provided by operating
and financing activities totaling $58.3 miLlion, which were then used for
investing activities of $59.6 million.
At September 30, 1997, net cash provided by operating activities equaled
$4.2 million which consisted mainly of net income adjusted for noncash charges.
Net cash provided by financing activities totaled approximately $54.1 million
and consisted almost entirely of deposit growth.
At September 30, 1997 total shareholders' equity equaled $42.0 million
representing an increase of $3.2 million from $38.8 million in shareholders'
equity at December 31, 1996. This increase was due to $3.3 million in net
income, $867 thousand in added capital raised through the various stock plans,
a $411 thousand increase to the market value adjustment on the available for
sale portfolio, offset in part by $1.3 million of cash dividends paid and $127
thousand of treasury stock purchases to fund future stock plan awards.
17
<PAGE>
Vista's dividend payout ratio equaled 38% for the first nine months of
1997, its highest level in several years. This trend is expected to continue for
the balance of 1997 until such time as earnings increase. The increase in the
dividend payout ratio was expected and is considered acceptable by management as
a substantial portion of the dividends paid flows back into capital through the
dividend reinvestment plan.
Vista maintained a Tier I risk-based capital ratio of 13.12% and a total
risk-based capital ratio of 14.54% at September 30, 1997, compared to 13.33% and
14.90%, respectively, at December 31, 1996. Vista maintained a leverage capital
ratio of 7.37% at September 30, 1997 and 7.57% at December 31, 1996.
18
<PAGE>
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 Not Applicable
Security Holders
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 filed no report on Form 8-K for the quarterly period
ended September 30, 1997.
19
<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 14, 1997
------------------------
By /s/ William F. Keefe
---------------------
William F. Keefe
Executive Vice President and
Chief Financial Officer
(Mr. Keefe is the Principal
Accounting Officer and has
been duly authorized to sign
on behalf of the registrant.)
20
<PAGE>
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
27 Financial Data Schedules....................... 22
21
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 20,023
<INT-BEARING-DEPOSITS> 9,725
<FED-FUNDS-SOLD> 4,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 187,126
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 323,387
<ALLOWANCE> 4,000
<TOTAL-ASSETS> 556,665
<DEPOSITS> 492,236
<SHORT-TERM> 14,365
<LIABILITIES-OTHER> 3,715
<LONG-TERM> 4,310
0
0
<COMMON> 2,073
<OTHER-SE> 39,966
<TOTAL-LIABILITIES-AND-EQUITY> 556,665
<INTEREST-LOAN> 16,953
<INTEREST-INVEST> 8,387
<INTEREST-OTHER> 696
<INTEREST-TOTAL> 28,036
<INTEREST-DEPOSIT> 13,516
<INTEREST-EXPENSE> 14,253
<INTEREST-INCOME-NET> 13,782
<LOAN-LOSSES> 585
<SECURITIES-GAINS> 235
<EXPENSE-OTHER> 10,404
<INCOME-PRETAX> 4,903
<INCOME-PRE-EXTRAORDINARY> 4,903
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,309
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 0
<LOANS-NON> 2,918
<LOANS-PAST> 124
<LOANS-TROUBLED> 336
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,903
<CHARGE-OFFS> 828
<RECOVERIES> 139
<ALLOWANCE-CLOSE> 4,000
<ALLOWANCE-DOMESTIC> 4,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 859
</TABLE>
