<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _________________
Commission file number 0-21264
VISTA BANCORP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2870972
- ------------------------------- -------------------
(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
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(908) 859-9500
--------------------------------------------------------------------
(Issuer's telephone number, including area code)
----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of July 31, 1997, there were 4,116,925 shares of $.50 par value Common
Stock outstanding.
<PAGE>
VISTA BANCORP, INC.
Form 10-Q
For the period ended June 30, 1997
Index
PAGE
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 3
Consolidated Statements of Income - Three Months and Six Months
Ended June 30, 1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity -
Six Months Ended June 30, 1997 and
The Year Ended December 31, 1996 5
Consolidated Statements of Cash Flows - Six Months
Ended June, 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 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- -----------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------------------------
Assets
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $20,365 $18,370
Federal funds sold 11,625 13,395
Short-term investments 2,808 3,817
- -----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 34,798 35,582
- -----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $178,706 and $151,303 in 1997 and 1996, respectively) 179,239 152,368
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 142,687 140,612
Commercial 87,173 78,250
Consumer 83,304 80,702
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 313,164 299,564
Allowance for loan losses (3,834) (3,903)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 309,330 295,661
- -----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 7,606 7,542
Accrued interest receivable 3,162 2,826
Other assets 4,648 4,222
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $538,783 $498,201
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $49,439 $42,462
Interest-bearing 64,965 69,908
Savings 117,400 111,671
Time 241,790 211,070
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 473,594 435,111
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 17,251 16,643
Long-term debt 4,373 4,498
Accrued interest payable 1,272 1,102
Other liabilities 2,114 2,032
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 498,604 459,386
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,126,630 and 4,085,498 at June 30, 1997 and December 31, 1997, respectively. 2,063 2,043
Paid-in capital 13,655 13,092
Retained earnings 24,243 22,984
Treasury stock (9,780 and 780 shares at June 30, 1997 and December 31, 1996, respectively) (133) (7)
Net unrealized gain on securities available for sale 351 703
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 40,179 38,815
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $538,783 $498,201
- -----------------------------------------------------------------------------------------------------------------------------------
</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 June 30, Six Months Ended June 30,
1997 1996 1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $6,290 $5,601 $12,344 $11,055
Interest on federal funds sold 139 146 343 290
Interest on short-term investments 25 16 53 90
Interest on securities:
Taxable 2,596 2,375 4,999 4,675
Nontaxable 216 151 414 289
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 9,266 8,289 18,153 16,399
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 4,477 3,862 8,742 7,729
Interest on borrowed funds 124 122 275 253
Interest on long-term debt 80 83 158 169
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,681 4,067 9,175 8,151
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 4,585 4,222 8,978 8,248
Provision for Loan Losses 195 45 390 90
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 4,390 4,177 8,588 8,158
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 406 383 813 775
Other service charges 134 137 250 257
Net security gains (losses) 4 (43) 100 15
Other income 94 70 172 202
- -----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 638 547 1,335 1,249
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 1,917 1,664 3,831 3,273
Occupancy expense 332 260 672 544
Furniture and equipment expense 373 295 715 582
Other expense 864 826 1,644 1,529
- -----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 3,486 3,045 6,862 5,928
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,542 1,679 3,061 3,479
Provision for Income Taxes 491 561 984 1,189
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $1,051 $1,118 $2,077 $2,290
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share $0.26 $0.28 $0.51 $0.57
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,102,842 4,024,283 4,096,076 4,014,122
- -----------------------------------------------------------------------------------------------------------------------------------
</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 Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities Total
Shares Common Paid-in Retained Treasury Available Shareholders'
Outstanding Stock Capital Earnings Stock for Sale Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,998,564 $2,000 $12,064 $20,268 ($7) $1,520 $35,845
Net income - 1996 - - - 4,248 - - 4,248
Cash dividends - $.38 per share - - - (1,532) - - (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 - - - - - (817) (817)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 4,084,718 2,043 13,092 22,984 (7) 703 38,815
Net income - 1997 - - - 2,077 - - 2,077
Cash dividends - $.20 per share - - - (818) - - (818)
Net proceeds from
issuance of common stock 41,132 20 540 - - - 560
Purchase of Treasury Stock (9,000) - - - (126) - (126)
Deferred compensation - - 23 - - - 23
Net unrealized depreciation in the
market value of securities available
for sale, net of income taxes - - - - - (352) (352)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 4,116,850 $2,063 $13,655 $24,243 ($133) $351 $40,179
- ---------------------------------------------------------------------------------------------------------------------------------
</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>
Six Months Ended June 30,
1997 1996
--------------------------
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $2,077 $2,290
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 506 439
Provision for loan losses 390 90
Increase in deferred income 74 52
Increase in accrued interest receivable (336) (557)
Increase (decrease) in accrued interest payable 170 (25)
(Increase) decrease in other assets (317) 2,393
Increase (decrease) in other liabilities 105 (164)
Net amortization of premium on securities 156 330
Net security gains (100) (15)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 2,725 4,833
- ------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 11,365 16,552
Proceeds from sales of securities available for sale 9,742 27,613
Purchases of securities available for sale (48,566) (64,080)
Net increase in loans (14,142) (13,783)
Net capital expenditures (490) (298)
- ------------------------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (42,091) (33,996)
- ------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in demand and savings deposits 7,763 2,970
Net increase in time deposits 30,720 11,231
Net increase in borrowed funds 608 537
Net decrease in long-term debt (125) (110)
Net proceeds from issuance of common stock 560 492
Purchases of treasury stock (126) -
Cash dividends paid (818) (722)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 38,582 14,398
- ------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (784) (14,765)
Cash and Cash Equivalents, Beginning of Period 35,582 36,148
- ------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $34,798 $21,383
- ------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $9,005 $8,176
Income taxes paid 981 1,272
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 9 467
Net unrealized (loss) gain in the fair value of securities available for sale (532) (3,967)
Increase (decrease) in deferred tax asset related to net unrealized
(loss) gain in the fair value of securities available for sale 180 1,349
Net unrealized (loss) gain in the fair value of securities available for sale,
net of income taxes (352) (2,618)
Deferred compensation 23 14
</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 six month period ended June 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-earning 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 June 30, 1997 and June 30, 1996
For the second quarter of 1997, Vista reported a 6% decrease in net income
to $1.051 million, or $.26 per common share compared to net income of $1.118
million or $.28 per common share reported for the second quarter of 1996. For
the six months ended June 30, 1997, Vista reported a 9% decrease in net income
to $2.077 million or $.51 per common share compared to net income of $2.290
million or $.57 per common share for the comparable six month period of 1996.
The decrease in net income for the above periods was due primarily to
higher operating expenses in connection with Vista's announced major branch
expansion, added staff and a higher provision for loan losses, which in turn
were offset in part by a higher level of net interest income. Three branches
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 can grow deposits which in turn can be
deployed into loans and investments in order to reach a break-even point for
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.
Return on average shareholders' equity (ROE) equaled 10.93%, and return on
average assets (ROA) equaled .81% for the second quarter of 1997 compared to
12.54% and .96%, respectively, for the second quarter of 1996. For the first six
months of 1997 ROE equaled 10.75% and ROA equaled .81% compared to 12.74% and
.99%, respectively for the first six months of 1996.
Tax-equivalent net interest income amounted to $4.6 million for the second
quarter of 1997, an increase of approximately $300 thousand, or 7%, compared to
$4.3 million earned in the second quarter of 1996. For the first six months of
1997, tax-equivalent net interest income totaled $9.1 million, an increase of
approximately $700 thousand or 8.3% compared to $8.4 million for the comparable
period of 1996.
9
<PAGE>
The net interest margin, which is tax-equivalent net interest income
expressed as a percentage of average interest-earning assets, averaged 3.81% for
the second quarter of 1997 compared to 3.87% for the second quarter of 1996. For
the first six months of 1997 the net interest margin averaged 3.79% compared to
3.82% for the comparable period of 1996.
Tax-equivalent interest income amounted to $9.3 million for the second
quarter of 1997, an increase of approximately $1.0 million, or 12%, compared to
$8.3 million for the second quarter of 1996. The increase in interest income was
due to a higher volume of average interest-earning assets which increased
interest income by approximately $950 thousand while higher yields contributed
an additional $50 thousand in interest income. The average yield on
interest-earning assets increased 9 basis points to 7.63% for the second quarter
of 1997 compared to 7.54% for the second quarter of 1996. Tax-equivalent
interest income for the first half of 1997 increased $1.8 million or 11% to
$18.3 million from $16.5 million in the comparable first half of 1996. Yields on
interest-earning assets averaged 7.59% for the first half of 1997 compared to
7.54% for the similar period of 1996.
Interest expense amounted to $4.7 million for the second quarter of 1997,
an increase of approximately $600 thousand, or 15%, compared to $4.1 million in
the second quarter of 1996. The increase is due primarily to a higher volume of
average interest-bearing liabilities which increased interest expense by
approximately $500 thousand while higher rates paid for deposits increased
interest expense by $100 thousand. The average cost of funds on interest-bearing
liabilities increased by 14 basis points to 4.32% for the second quarter of 1997
compared to 4.18% for the second quarter of 1996. Interest expense for the first
half of 1997 increased $1.0 million or 12% to $9.2 million from $8.2 million in
the comparable first half of 1996. The cost funds for the first half of 1997
averaged 4.30%, an increase of 6 basis points from the average cost of funds of
4.24% reported for the comparable 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 June 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.
10
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- --------------------------------------------
Consolidated Average Balances, Net Interest Income and Average Rates
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Six Months Ended June 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 $12,748 $343 5.43% $10,913 $290 5.34%
Short-term investments 2,047 53 5.22% 3,405 90 5.32%
- -----------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 14,795 396 5.40% 14,318 380 5.34%
- -----------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 23,135 697 6.08% 26,558 780 5.91%
U.S. Government agencies and corporations 112,261 3,874 6.96% 101,484 3,349 6.64%
States and other political subdivisions 18,190 563 6.24% 13,293 392 5.93%
Other 12,908 428 6.69% 16,468 546 6.67%
- -----------------------------------------------------------------------------------------------------------------------------
Total Securities 166,494 5,562 6.74% 157,803 5,067 6.46%
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 140,531 5,310 7.62% 135,635 5,144 7.63%
Commercial 83,516 3,786 9.14% 67,037 3,111 9.33%
Consumer 81,304 3,265 8.10% 65,357 2,805 8.63%
- -----------------------------------------------------------------------------------------------------------------------------
Total Loans 305,351 12,361 8.16% 268,029 11,060 8.30%
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 486,640 18,319 7.59% 440,150 16,507 7.54%
- -----------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 16,232 15,049
Allowance for loan losses (3,884) (3,937)
Other assets 15,397 13,133
- -----------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning Assets 27,745 24,245
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $514,385 $464,395
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $70,929 $757 2.15% $66,530 $782 2.36%
Savings 115,373 1,843 3.22% 108,075 1,675 3.12%
Time 194,933 5,259 5.44% 167,903 4,511 5.40%
Time deposits $100,000 and over 32,219 883 5.53% 28,051 761 5.46%
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 413,454 8,742 4.26% 370,559 7,729 4.19%
- -----------------------------------------------------------------------------------------------------------------------------
Borrowed funds 12,280 275 4.52% 11,679 253 4.36%
Long-term debt 4,465 158 7.14% 4,696 169 7.24%
- -----------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 16,745 433 5.21% 16,375 422 5.18%
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 430,199 9,175 4.30% 386,934 8,151 4.24%
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 41,556 37,885
Other liabilities 3,681 3,434
- -----------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing Liabilities 45,237 41,319
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 38,949 36,142
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $514,385 $464,395
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread (tax-equivalent basis) $9,144 3.29% $8,356 3.30%
- -----------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis Adjustment (166) (108)
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Income $8,978 $8,248
- -----------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 3.79% 3.82%
- -----------------------------------------------------------------------------------------------------------------------------
</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.
11
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
- ----------------------------------------------
Volume/Rate Analysis of Changes in Net Interest Income
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 vs. 1996
---------------------------------
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 $53 $50 $3
Short-term investments (37) (35) (2)
- ---------------------------------------------------------------------------------------------
Total Short-term Investments 16 15 1
- ---------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (83) (102) 19
U.S. Government agencies and corporations 525 367 158
States and other political subdivisions 171 151 20
Other (118) (118) 0
- ---------------------------------------------------------------------------------------------
Total Securities 495 298 197
- ---------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 166 185 (19)
Commercial 675 748 (73)
Consumer 460 649 (189)
- ---------------------------------------------------------------------------------------------
Total Loans 1,301 1,582 (281)
- ---------------------------------------------------------------------------------------------
Total Interest Income 1,812 1,895 (83)
- ---------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand (25) 50 (75)
Savings 168 116 52
Time 748 729 19
Time deposits $100,000 and over 122 114 8
- ---------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,013 1,009 4
- ---------------------------------------------------------------------------------------------
Borrowed funds 22 13 9
Long-term debt (11) (8) (3)
- ---------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 11 5 6
- ---------------------------------------------------------------------------------------------
Total Interest Expense 1,024 1,014 10
- ---------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $788 $881 ($93)
- ---------------------------------------------------------------------------------------------
</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.
12
<PAGE>
For the second quarter of 1997, total noninterest income was $638 thousand,
which was an increase of $91 thousand or 17% over total noninterest income of
$547 thousand for the second quarter of 1996. However, in analyzing trends in
noninterest income from core banking operations, Vista adjusted noninterest
income by taking into effect the results of net security transactions which were
nonrecurring items, varied by period and based upon asset\liability management
decisions. Accordingly, Vista adjusted second quarter 1997 noninterest income by
$4 thousand in net security gains and second quarter 1996 noninterest income by
$43 thousand in net security losses. After such adjustments for these reporting
periods, for the second quarter of 1997, total noninterest income was $634
thousand, which was an increase of $44 thousand or 7% over total noninterest
income of $590 thousand for the second quarter of 1996.
On a year-to-date basis, total noninterest income equaled $1.34 million
reflecting an increase of $86 thousand over the $1.25 million earned in the
first half 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 during the
first half of 1996, total noninterest income from core banking operations
reflects an increase of $63 thousand or 5%.
Income from service charges on deposit accounts increased $23 thousand or
6% to $406 thousand in the second quarter of 1997 from $383 thousand in the
comparable 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 six months of 1997,
income from service charges on deposit accounts increased 5% to $813 thousand
from $775 thousand in 1996.
Other service charge revenues remained essentially flat during the second
quarter compared to the second quarter of 1996 at $134 and $137 thousand,
respectively. Total other service charge revenues were substantially unchanged
at $250 thousand for the first half of 1997 and $257 for the comparable first
half of 1996.
For the second quarter of 1997, other income increased $24 thousand or 34%
to $94 thousand from $70 thousand in the second 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, resulted in a 23% increase to $172
thousand from $140 thousand in 1996. Both periods reflect increased revenues
from Trust operations.
During the first half of 1997, Vista sold approximately $9.7 million of
securities which generated $100 thousand of net security gains. In comparison,
during the first half of 1996, Vista sold $28 million of securities and
generated $15 thousand of net security gains. Approximately one half of the
gains in 1997 resulted from a terminated leverage transaction of which the sales
proceeds were used to payoff the underlying borrowing.
For the second quarter of 1997, total noninterest expense increased
approximately $440 thousand or 14% to $3.48 million from $3.04 million in the
second quarter of 1996. When annualized, noninterest expense expressed as a
percentage of total average assets increased to 2.69% for the second quarter of
1997 from 2.57% in the second quarter one year ago. The increase is due largely
to Vista's announced 30% expansion of its branch network, as well as staffing
enhancements made in retail banking, commercial lending, operations and
technology.
13
<PAGE>
The second quarter of 1997 is the second full quarter of operations for the
three new branch sites. Total noninterest expense through the first six months
of 1997 increased 16% or about $930 thousand to $6.86 million from $5.93 million
in the comparable period of 1996.
The largest component of Vista's cost structure is salary and benefits
expense which increased approximately $250 thousand or 15% to $1.92 million for
the second quarter of 1997 compared to $1.66 million for the similar quarter of
1996. Full-time equivalent employees increased to 217 in the second quarter of
1997 from 182 full-time equivalent employees in the comparable quarter of 1996.
Total salary and benefit expense through the first six months of 1997 increased
approximately $560 thousand or 17% to $3.83 million from $3.27 million in the
comparable period of 1996.
Separately, salary expense for the second quarter of 1997 increased $216
thousand or 17% due to the need to staff three new branches, added professional
staff in key support areas and normal merit increases. Benefits expense
increased $37 thousand or 10% in the second quarter of 1997 over the same period
last year due to increases in company subsidized medical insurance premiums,
payroll taxes and other staff benefits. Total salary expense for the first six
months of 1997 increased 18% or approximately $450 thousand to $2.97 million
from $2.52 million in the comparable period of 1996. Total benefits expense
through the first six months of 1997 increased $105 thousand or 14% to $856
thousand from $751 thousand in the comparable period of 1996.
Occupancy expense increased $72 thousand or 28% to $332 thousand in the
second quarter of 1997 from $260 thousand in 1996 due to increased costs to
operate and maintain 14 branch facilities in the second quarter of 1997 compared
to 11 facilities in the second quarter of 1996. The majority of the increase in
expenses resulted from higher building depreciation, rental expense, utilities,
property insurance and real estate property tax expense. Total occupancy expense
through the first six months of 1997 increased $128 thousand or 24% to $672
thousand from $544 thousand in the comparable period of 1996.
Furniture and equipment expense increased $78 thousand or 26% to $373
thousand in the second quarter of 1997 from $295 thousand in the second quarter
of 1996 due primarily to upgrades in technology and automation, furniture and
equipment depreciation and increased telephone and data line communication
charges. Total furniture and equipment expense through the first six months of
1997 increased $133 thousand or 23% to $715 thousand from $582 thousand in the
comparable period of 1996.
Other expense, consisting mainly of marketing, real estate owned expenses,
professional fees, printing, stationery and supplies, and postage expenses,
increased 5% to $864 thousand in the second quarter of 1997 from $826 thousand
for the similar quarter of 1996. Such increases are commensurate with Vista's
growth and the need to compete aggressively in its markets for loans and
deposits. Total other noninterest expense through the first six months of 1997
increased $115 thousand or 8% to $1.64 million from $1.53 million in the
comparable period of 1996.
14
<PAGE>
Financial Condition - June 30, 1997 versus December 31, 1996
At June 30, 1997, consolidated total assets equaled $539 million which
represented an increase of approximately $41 million from $498 million in
consolidated total assets 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 late 1996.
Securities available for sale totaled $179 million at June 30, 1997
reflecting an increase of $27 million or 18% compared to the $152 million in
securities available for sale at the end of 1996. The portfolio is comprised of
60% fixed and variable rate mortgage-backed securities with pass-through,
balloon and adjustable-rate structures, 23% in U.S. Government and Federal
agency debt instruments, 10% in tax-exempt securities and the balance in other
securities. The portfolio activity during the first half of 1997 included $49
million of purchases, $10 million of sales and $11 million of maturities. Gross
unrealized gains on securities available for sale totaled $1.4 million and gross
unrealized losses equaled $900 thousand at June 30, 1997.
Total loans equaled $313 million at June 30, 1997, reflecting an increase
of approximately $13 million or 4% over the $300 million in total outstanding
loans at year-end 1996. This increase occurred in commercial loans and was
consistent with Vista's objective to lessen its concentration in mortgage loans
and diversify the portfolio mix while improving yields and profitability by
increasing its concentration in consumer and small business lending. At June 30,
1997, Vista's loan to deposit ratio was 66.1% compared to 68.9% at December 31,
1996. The ratio declined as deposits increased faster than loans in the first
half of 1997 which in turn compressed the net interest margin slightly.
Total deposits equaled $474 million at June 30, 1997, reflecting an
increase of approximately $39 million or 9% in total deposits compared to $435
million at year-end 1996. Deposit growth was experienced in retail time
deposits, time deposits over $100 thousand and savings accounts while
interest-bearing transaction accounts declined due to municipal government
activities. 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 in order to offset the significant
growth in operating expense which accompanies the 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 June 30, 1997, time deposits, including those $100 thousand and over,
remained the largest component of the total deposit base, equaling 51% compared
to 49% at year-end 1996. Interest-bearing demand accounts equaled 14% of total
deposits at June 30, 1997 compared to 16% at year-end 1996. Savings accounts
equaled 25% of total deposits at June 30, 1997 and at year-end 1996.
Total borrowed funds and long-term debt equaled $22 million at June 30,
1997, an increase of approximately $1 million from $21 million outstanding at
December 31, 1996.
15
<PAGE>
Nonperforming assets, consisting of loans on nonaccrual status plus other
real estate acquired through foreclosure (ORE), totaled $4.5 million at June 30,
1997 and December 31, 1996, respectively or 1.42% and 1.48% of total outstanding
loans and ORE. The decrease in the ratio was due to the increase in total loans
outstanding. ORE declined to $1.2 million at June 30, 1997 compared to $1.3
million at December 31, 1996.
The allowance for loan losses equaled $3.8 million or 1.22% of total loans
at June 30, 1997, compared to $3.9 million and 1.30% at year-end 1996. The
provision for loan losses equaled $195 thousand for the second quarter of 1997
compared to $45 thousand in the second quarter of 1996. For the first half of
1997 the provision for loan losses totaled $390 thousand compared to $90
thousand for the first half 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 June 30, 1997, the allowance for loan
losses represented 118% of total nonaccrual loans as compared to 123% at
December 31, 1996.
At June 30, 1997, the indirect automobile loan portfolio had an approximate
outstanding principal balance of $28 million. Beginning during 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. Consequently, the
trend in these charge-offs indicated a decrease in the number of charge-offs
during the second quarter of 1997. For the first and second quarters of 1997,
charge-offs of loans in the indirect automobile loan portfolio were $147
thousand and $88 thousand, respectively.
Total charge-offs for the three month and six month periods ended June 30,
1997 were $179 thousand and $494 thousand, respectively. Recoveries were $11
thousand and $35 thousand for the three month and six month periods ended June
30, 1997, respectively.
At June 30, 1997, cash and cash equivalents equaled $34.8 million which
represented a decrease of $800 thousand 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 $800 thousand decrease in
cash and cash equivalents was attributable to combined net cash flows provided
by operating and financing activities totaling $41.3 million, which were then
used for investing activities of $42.1 million.
At June 30, 1997, net cash provided by operating activities equaled $2.7
million which consisted mainly of net income adjusted for noncash charges. Net
cash provided by financing activities totaled approximately $38.6 million and
consisted almost entirely of deposit growth.
At June 30, 1997 total shareholders' equity equaled $40.2 million
representing an increase of $1.4 million from $38.8 million in shareholders'
equity at December 31, 1996. This increase was due to $2.1 million in net income
and $560 thousand in added capital raised through the various stock plans,
offset in part by a $352 thousand reversal in the market value adjustment
recorded for the available for sale portfolio, cash dividends paid of $818
thousand and $126 thousand of treasury stock purchases which will be used to
fund stock plan awards.
16
<PAGE>
Vista's dividend payout ratio equaled 39.4% for the first six 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.
Vista maintained a Tier I risk-based capital ratio of 13.16% and a total
risk-based capital ratio of 14.69% at June 30, 1997, compared to 13.33% and
14.90%, respectively, at December 31, 1996. Vista maintained a leverage capital
ratio of 7.57% at June 30, 1997 and 7.57% at December 31, 1996.
17
<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
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 filed the following report on Form 8-K for the
quarterly period ended June 30, 1997:
On May 9, 1997, the registrant reported on Form 8-K that the
shareholder's approved the following proposals at the 1997 Annual
Meeting of Shareholders on April 23, 1997:
a. To amend and restate, in its entirety, the Vista Employee
Stock Purchase Plan.
b. To amend and restate, in its entirety, the Vista Board of
Directors Stock Purchase Plan.
c. To amend Item 21 of the Vista Dividend Reinvestment and Stock
Purchase Plan, relating to termination, suspension and
amendment of such plan.
18
<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: August 12, 1997
-----------------------------
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.)
19
<PAGE>
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
27 Financial Data Schedules . . . . . . . . . . . . 21
20
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,365
<INT-BEARING-DEPOSITS> 2,808
<FED-FUNDS-SOLD> 11,625
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 179,239
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 313,164
<ALLOWANCE> 3,834
<TOTAL-ASSETS> 538,783
<DEPOSITS> 473,594
<SHORT-TERM> 17,251
<LIABILITIES-OTHER> 3,386
<LONG-TERM> 4,373
0
0
<COMMON> 2,063
<OTHER-SE> 38,116
<TOTAL-LIABILITIES-AND-EQUITY> 538,783
<INTEREST-LOAN> 12,344
<INTEREST-INVEST> 5,413
<INTEREST-OTHER> 396
<INTEREST-TOTAL> 18,153
<INTEREST-DEPOSIT> 8,742
<INTEREST-EXPENSE> 9,175
<INTEREST-INCOME-NET> 8,978
<LOAN-LOSSES> 390
<SECURITIES-GAINS> 100
<EXPENSE-OTHER> 6,862
<INCOME-PRETAX> 3,061
<INCOME-PRE-EXTRAORDINARY> 3,061
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,077
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 0.00
<LOANS-NON> 3,258
<LOANS-PAST> 254
<LOANS-TROUBLED> 203
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,903
<CHARGE-OFFS> 494
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 3,834
<ALLOWANCE-DOMESTIC> 3,834
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 725
</TABLE>
