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 March 31, 1998
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 _X_ 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 April 30, 1998, there were 4,180,203 shares of $.50 par value Common
Stock outstanding.
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
VISTA BANCORP, INC.
Form 10-Q
For the period ended March 31, 1998
Index
PAGE
----
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Shareholders' Equity -
Three Months Ended March 31, 1998 and
The Year Ended December 31, 1997 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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>
March 31, December 31,
1998 1997
------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $21,562 $19,195
Federal funds sold 5,300 4,190
Short-term investments 7,587 4,465
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 34,449 27,850
- ----------------------------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $187,059 and $185,944 in 1998 and 1997, respectively) 188,544 187,746
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 135,103 132,496
Commercial 103,354 98,813
Consumer 86,939 86,180
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 325,396 317,489
Allowance for loan losses (4,171) (4,148)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Net Loans 321,225 313,341
- ----------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 7,441 7,435
Accrued interest receivable 3,340 2,973
Other assets 5,389 4,122
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $560,388 $543,467
==================================================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $53,378 $52,147
Interest-bearing 73,142 74,237
Savings 128,337 123,437
Time 242,755 233,935
- ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 497,612 483,756
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 11,466 8,859
Long-term debt 3,000 4,222
Accrued interest payable 1,299 1,249
Other liabilities 2,843 2,079
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 516,220 500,165
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,186,680 and 4,168,013 at March 31, 1998 and December 31, 1997, respectively 2,093 2,084
Paid-in capital 14,699 14,345
Retained earnings 26,483 25,770
Treasury stock (7302 shares) (87) (87)
Accumulated other comprehensive income 980 1,190
- ----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 44,168 43,302
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $560,388 $543,467
==================================================================================================================================
</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>
March 31, March 31,
1998 1997
-------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $6,650 $6,054
Interest on federal funds sold 104 204
Interest on short-term investments 64 28
Interest on securities:
Taxable 2,552 2,403
Nontaxable 321 198
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 9,691 8,887
- ------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 4,547 4,265
Interest on borrowed funds 115 151
Interest on long-term debt 50 78
- ------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,712 4,494
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 4,979 4,393
- ------------------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 195 195
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 4,784 4,198
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 405 407
Other service charges 156 116
Net security gains 50 96
Other income 109 78
- ------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 720 697
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 1,980 1,914
Occupancy expense 335 340
Furniture and equipment expense 478 342
Other expense 1,000 780
- ------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 3,793 3,376
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,711 1,519
Provision for Income Taxes 541 493
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $1,170 $1,026
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per Share (Basic and Diluted) $0.28 $0.25
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,165,131 4,089,236
- ------------------------------------------------------------------------------------------------------------------------------
</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 SHAREHOLDER'S EQUITY
Amounts in Thousands (Except Per Share Data)
For The Year Ended December 31, 1997 and
For The Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Accumulated
Other Total
Shares Common Paid-in Retained Treasury Comprehensive Shareholders'
Issued Stock Capital Earnings Stock Income Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,085,498 $2,043 $13,092 $22,984 $(7) $703 $38,815
Comprehensive Income
Net income - 1997 -- -- -- 4,513 -- -- 4,513
Other Comprehensive Income, net of tax
Net unrealized appreciation in the
market value of securities available
for sale, net of income taxes -- -- -- -- -- 487 487
-------
Comprehensive Income 5,000
Cash dividends - $.42 per share -- -- -- (1,727) -- -- (1,727)
Net proceeds from
issuance of common stock 82,515 41 1,219 -- -- -- 1,260
Deferred compensation -- -- 34 -- -- -- 34
Net Treasury Stock transactions -- -- -- -- (80) -- (80)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 4,168,013 $2,084 $14,345 $25,770 $(87) $1,190 $43,302
Comprehensive Income
Net income - 1998 -- -- -- 1,170 -- -- 1,170
Other Comprehensive Income, net of tax
Net unrealized depreciation in the
market value of securities available
for sale, net of income taxes -- -- -- -- -- (210) (210)
-------
Comprehensive Income 960
Cash dividends - $.11 per share -- -- -- (457) -- -- (457)
Net proceeds from
issuance of common stock 18,667 9 341 -- -- -- 350
Deferred compensation -- -- 13 -- -- -- 13
- ------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 4,186,680 $2,093 $14,699 $26,483 $(87) $980 $44,168
- ------------------------------------------------------------------------------------------------------------------------------
</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>
Three Months Ended March 31,
1998 1997
----------------------------
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $ 1,170 $ 1,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 260 249
Provision for loan losses 195 195
Increase in deferred income 41 15
Increase in accrued interest receivable (367) (357)
Increase in accrued interest payable 50 128
Increase in other assets (677) (287)
Increase in other liabilities 777 277
Net amortization of premium on securities 137 73
Net security (gains) (50) (96)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 1,536 1,223
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 18,339 4,690
Proceeds from sales of securities available for sale 7,386 4,590
Purchases of securities available for sale (26,928) (30,690)
Net increase in loans (8,634) (6,038)
Net capital expenditures (234) (362)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (10,071) (27,810)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in demand and savings deposits 5,036 6,389
Net increase in time deposits 8,820 16,745
Net (decrease) increase in borrowed funds 2,607 (7,954)
Net decrease in long-term debt (1,222) (63)
Net proceeds from issuance of common stock 350 280
Purchases of treasury stock -- (70)
Cash dividends paid (457) (409)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 15,134 14,918
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 6,599 (11,669)
Cash and Cash Equivalents, Beginning of Period 27,850 35,582
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 34,449 $ 23,913
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 4,662 $ 4,366
Income taxes paid -- --
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 514 9
Net unrealized loss in the fair value of securities available for sale (318) (2,458)
Increase in deferred tax asset related to net unrealized
loss in the fair value of securities available for sale 108 836
Net unrealized loss in the fair value of securities available for sale,
net of income taxes (210) (1,622)
Deferred compensation 13 11
</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
principles 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, 1997.
Results of operations for the three-month period ended March 31, 1998, are
not necessarily indicative of the results to be expected for the full year.
Note 2. Recently Issued Accounting Standards
Vista adopted the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
in 1998. SFAS No. 130 provides standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The statement defines comprehensive income as the changes
in equity of a business enterprise during the period from transactions and other
events and circumstances from nonowner sources. Other comprehensive income would
include revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded from
net income such as foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on available for sale securities.
This statement is effective for fiscal years beginning after December 15, 1997.
Prior year financial statements which are presented for comparative purposes
have been reclassified.
Vista held securities classified as Available for Sale, which experienced
unrealized losses of $318 thousand before tax during the quarter ended March 31,
1998. In compliance with SFAS No. 130, the before tax and after tax amount for
this category as well as the tax benefit, is summarized below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------- ------- ----------
(Amounts in thousands) Before-Tax Tax Net-of-Tax
Amount Benefit Amount
- ------------------------------------------------------------ ---------- ------- ----------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses arising during period $(318) $108 $(210)
Less: reclassification adjustment for gains realized
in net income -- -- --
---- ---- ----
Net unrealized loss (318) 108 (210)
---- ---- ----
Other comprehensive income $(318) $108 $(210)
- ------------------------------------------------------------ ---------- ------- ----------
</TABLE>
7
<PAGE>
In February 1998, the FASB issued Statement No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
standardizes the disclosure requirements for pension and other postretirement
benefits. This statement requires additional information on changes in the
benefit obligations and fair values of the plans assets and eliminates certain
disclosures that are considered no longer useful. SFAS No. 132 supersedes the
disclosure requirements in FASB Statements 87, "Employer's Accounting for
Pensions", 88 , "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits", and 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption of this statement is not expected to have a material effect on the
consolidated financial statements of Vista.
8
<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.
9
<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 March 31, 1998 and March 31, 1997
For the first quarter of 1998, Vista Bancorp, Inc reported a 14% or $144
thousand increase in net income to $1.170 million, or $.28 per basic common
share compared to net income of $1.026 million or $.25 per basic common share
reported for the first quarter of 1997. The increase in net income was primarily
due to a 13% or $586 thousand increase in net interest income, as
interest-earning assets increased 8% to average $520 million from $482 million
in the comparable quarter of 1997 and the net interest margin expanded by 23
basis points to 4.00% from 3.77%. In addition, noninterest income, excluding
security transactions, increased 11.5% or $69 thousand that offset a lower level
of gains recognized on the sale of securities. Noninterest expense increased
$417 thousand or 12.4% due to increased expenses in marketing and advertising,
technology spending and staff related costs.
Return on average shareholders' equity equaled 10.79% for the first quarter
of 1998 and 10.57% in the first quarter of 1997 while return on average assets
equaled .87% for the first quarter of 1998 and .82% for the first quarter of
1997. The return on average equity has been impacted by the branch expansion
program launched in December 1996 which doubled the number of branch sites (from
2 to 4) of Twin Rivers Community Bank, Vista's Pennsylvania bank subsidiary. In
addition, an increase in the after-tax effect recognized pursuant to SFAS. No.
115 and strong participation from shareholders' in the various stock plans have
contributed significant amounts of added capital. The return on equity is
expected to increase as the new capital is leveraged over time.
10
<PAGE>
Net Interest Income
Tax-equivalent net interest income amounted to $5.1 million for the first
quarter of 1998, an increase of approximately $600 thousand, or 10%, compared to
$4.5 million earned in the first quarter of 1997. The net interest margin, which
is tax-equivalent net interest income expressed as a percentage of average
interest-earning assets, increased 23 basis points to 4.00% for the first
quarter of 1998 compared to 3.77% recorded in the first quarter of 1997. These
results contained several one-time transactions totaling $74 thousand for
interest income collected in connection with a legal settlement of a lending
relationship and reclassification of a loan from nonaccrual status to performing
status. The net interest margin for the first quarter of 1998, adjusted for
these one-time items, averaged 3.95%, an increase of 18 basis points from the
3.77% earned during the first quarter of 1997 reflecting an improved mix of
earning assets and a more profitable mix of funding sources.
Interest income on a tax-equivalent basis amounted to $9.8 million for the
first quarter of 1998, an increase of approximately $900 thousand, or 10%,
compared to $8.9 million in interest income earned in the first quarter of 1997.
The increase in interest income was largely due to a higher volume of average
interest-earning assets, which increased interest income by $787 thousand while
higher yields on the loan portfolio contributed $88 thousand of increased
interest income. The average yield on interest-earning assets increased 13 basis
points to 7.68% for the first quarter of 1998 compared to 7.55% for the first
quarter in 1997.
Interest expense amounted to $4.7 million for the first quarter of 1998, an
increase of approximately $200 thousand, or 5%, compared to $4.5 million in the
first quarter of 1997. The increase is due primarily to a higher volume of
average interest-bearing liabilities that increased interest expense by $253
thousand offset by lower rates paid for the deposits and borrowings that reduced
interest expense by $35 thousand. The average cost of funds on interest-bearing
liabilities declined 3 basis points to 4.25% in the first quarter of 1998 from
4.28% paid in the comparable quarter of 1997.
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 March 31, 1998 and
1997, 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)
Amounts in Thousands (Except Percentages)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
(1) (2) (3) (1) (2) (3)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $7,518 $104 5.61% $15,581 $204 5.31%
Short-term investments 5,052 64 5.14% 2,242 28 5.06%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 12,570 168 5.42% 17,823 232 5.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 16,625 253 6.17% 21,521 320 6.03%
U.S. Government agencies
and corporations 126,384 2,066 6.63% 109,523 1,868 6.92%
States and other
political subdivisions 28,268 461 6.61% 17,369 270 6.30%
Other 13,973 233 6.76% 13,107 215 6.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 185,250 3,013 6.60% 161,520 2,673 6.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 133,484 2,524 7.67% 139,971 2,634 7.63%
Commercial 101,887 2,384 9.49% 81,367 1,818 9.06%
Consumer 86,571 1,754 8.22% 80,897 1,611 8.08%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 321,942 6,662 8.39% 302,235 6,063 8.14%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 519,762 9,843 7.68% 481,578 8,968 7.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 16,505 16,372
Allowance for loan losses (4,216) (3,924)
Other assets 14,915 14,969
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning Assets 27,204 27,417
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $546,966 $508,995
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $74,145 $398 2.18% $72,189 $387 2.17%
Savings 125,336 938 3.04% 112,966 894 3.21%
Time 192,438 2,588 5.45% 192,299 2,577 5.43%
Time deposits $100,000 and over 44,524 623 5.67% 30,165 407 5.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 436,443 4,547 4.23% 407,619 4,265 4.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 10,296 115 4.53% 13,330 151 4.59%
Long-term debt 3,177 50 6.38% 4,497 78 7.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 13,473 165 4.97% 17,827 229 5.21%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 449,916 4,712 4.25% 425,446 4,494 4.28%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 49,371 40,502
Other liabilities 3,715 3,698
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing Liabilities 53,086 44,200
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 43,964 39,349
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $546,966 $508,995
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread
(tax-equivalent basis) 5,131 3.43% 4,474 3.27%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis Adjustment (152) (81)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $4,979 $4,393
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 4.00% 3.77%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 interest-earning asset on a
tax-equivalent basis
12
<PAGE>
VISTA BANCORP, INC. AND SUBSIDIARIES
Volume/Rate Analysis of Changes in Net Interest Income (Tax-equivalent Basis)
Amounts in Thousands
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 vs. 1997
------------------------------
Increase (Decrease)
Due to Changes in:
Total Average Average
Change(1) Volume Rate
-------------------------------
<S> <C> <C> <C>
Interest Income
Federal funds sold $(100) $(111) $11
Short-term investments 36 36 --
- -----------------------------------------------------------------------------------------------
Total Short-term Investments (64) (75) 11
- -----------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (67) (75) 8
U.S. Government agencies and corporations 198 279 (81)
States and other political subdivisions 191 176 15
Other 18 14 4
- -----------------------------------------------------------------------------------------------
Total Securities 340 394 (54)
- -----------------------------------------------------------------------------------------------
Loans, net of unearned income:(2)
Mortgage (110) (123) 13
Commercial 566 476 90
Consumer 143 115 28
- -----------------------------------------------------------------------------------------------
Total Loans 599 468 131
- -----------------------------------------------------------------------------------------------
Total Interest Income 875 787 88
- -----------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing liabilities:
Demand 11 10 1
Savings 44 95 (51)
Time 11 2 9
Time deposits $100,000 and over 216 201 15
- -----------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 282 308 (26)
- -----------------------------------------------------------------------------------------------
Borrowed funds (36) (34) (2)
Long-term debt (28) (21) (7)
- -----------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt (64) (55) (9)
- -----------------------------------------------------------------------------------------------
Total Interest Expense 218 253 (35)
- -----------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $657 $534 $123
- -----------------------------------------------------------------------------------------------
</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>
Noninterest Income
For the first quarter of 1998, total noninterest income increased 3% or $23
thousand to $720 thousand compared to $697 thousand of noninterest income earned
in 1997. Excluding the effects of security transactions in both periods,
noninterest income increased 11% to $670 thousand in 1998 from $601 thousand in
1997.
Revenues from service charges on deposit accounts were substantially
unchanged on a year-to-year basis as increased fee income from nonsufficient
funds (NSF) was offset entirely by a lower level of fees earned from commercial
transaction accounts as commercial customers maintained higher account balances
to offset the effects of per item charges.
Revenues from other service charges increased 34% or $40 thousand to $156
thousand in 1998 compared to $116 thousand in 1997. Strong growth in fee income
from loan origination activities and higher levels of mortgage servicing fee
revenues accounted for the majority of the increase in 1998.
Revenues from other income sources increased 40% or $31 thousand to $109
thousand for 1998 compared to $78 thousand in 1997. The increase is due
primarily to fee income from trust operations and fees earned from the sale of
mutual funds and annuity products sold through the alternative investment
program launched during the first quarter of 1998.
Net gains recognized on the sale of securities totaled $50 thousand in 1998
compared to $96 thousand in 1997. Approximately $7.0 million of securities
available for sale were sold in 1998 compared to $5.0 million of securities sold
in 1997. The sales are not expected to have a material effect on the yield
earned on the securities portfolio, taken as a whole.
Noninterest Expense
For the first quarter of 1998 total noninterest expense increased 12% or
about $410 thousand to $3.79 million from $3.38 million in the first quarter of
1997. Total noninterest expense, on an annualized basis, averaged 2.81% of total
average assets in 1998 compared to 2.69% in 1997.
The largest increase in total noninterest expense for 1998 occurred in
other noninterest expense that increased $220 thousand or 28% to $1.0 million
from $780 thousand in 1997. An accelerated level of marketing and advertising
spending directed at consumers impacted by disruption caused by bank
consolidation activity in Vista's markets and expenses associated with the
listing of Vista stock on the Nasdaq National Market accounted for the increase.
Furniture and equipment expense increased 40% or $136 thousand to $478
thousand in 1998 from $342 thousand in 1997. The increase was influenced by
costs associated with leasing a new mainframe computer system to increase
processing capacity and data transmission throughout Vista. In addition, higher
software licensing fees and third party PC and network maintenance providers
contributed to the increased expense level.
14
<PAGE>
Salary and benefits expense increased 3% or approximately $70 thousand to
$1.98 million in 1998 compared to $1.91 million in 1997. Separately, salary
expense increased 5.5% or $81 thousand to $1.56 million in 1998 from $1.48
million in 1997. Total full-time equivalent employees stood at 211 for the first
quarter of 1998 compared to 213 during the first quarter of 1997.
The results for the first quarter reflect the decision to consolidate
certain back-office functions of the two bank subsidiaries in order to control
growth of staff and related compensation and benefit costs and to gain
additional operating efficiencies. Management intends to continue investigating
all areas of its operations to gain similar operating and productivity
enhancements.
Benefits expense declined 3% or about $14 thousand to $420 thousand during
1997 from $434 thousand in 1997. Pension income combined with lower expense
accruals related to postretirement and medical benefits were offset in part by
an increase in expense accruals for incentive compensation which is tied to a
plan to link more of management's compensation at the officer level to company
performance.
Vista's provision for income taxes increased 10% or $48 thousand, to $541
thousand in 1998 from $493 thousand in 1997, due to a higher level of pretax
income. The effective tax rate declined to 31.6% in 1998 from 32.5% in 1997 due
to a higher level of tax-exempt interest income
Readiness for Year 2000
The Year 2000 issue involves preparing computer systems and programs to
identify the arrival of January 1, 2000. In the past computer programs allocated
only two digits to a year, ie., 1998 was represented as 98. Given this
programming, the year 2000 would be confused with that of 1900. The Year 2000
issue not only impacts computer hardware and software, but all equipment which
utilizes processors or computer microchips.
Vista Bancorp is addressing the impact of the Year 2000 on its operations
and the consequences for its customers. Vista has established a Year 2000
Project Team consisting of representatives from all functional areas to assess
the nature and magnitude of the problem, to identify resource needs, and develop
contingency plans. Vista intends to work with its vendors to obtain
certifications of Year 2000 compliance, and failing such certifications, to
obtain alternative software, hardware and support services as appropriate.
Furthermore, Vista plans to work with its significant borrowers to ensure they
are taking appropriate steps to become Year 2000 compliant.
Vista expects to have all mission critical systems and infrastructure
issues identified and certified Year 2000 compliant by December 31, 1998,
thereby permitting additional integrated testing throughout the year 1999.
Vista, however, continues to bear some risk related to the Year 2000 issue
and could be adversely affected, if other entities (ie., vendors) do not
appropriately address their own compliance issues.
15
<PAGE>
Vista continues to evaluate the estimated costs associated with attaining
Year 2000 readiness. Incremental costs for 1998, such as testing, software
purchases and marketing publications are not expected to be material. While
additional costs will be incurred, Vista believes, based on available
information, that it will be able to manage its Year 2000 transition without any
adverse effect on business operations or financial condition.
Financial Condition - March 31, 1998 versus December 31, 1997
At March 31, 1998, consolidated total assets equaled $560 million, which
represented an increase of $17 million from $543 million in consolidated total
assets at December 31, 1997.
Securities available for sale equaled $189 million at March 31, 1998 with
62% of the portfolio comprised of fixed and variable rate mortgage-backed
securities with pass-through, balloon and adjustable-rate structures, 13% in
U.S. Government and Federal agency debt instruments, 16% in tax-exempt
securities and the balance in other securities. Securities available for sale
increased $1.0 million or less than 1% from year-end 1997. The portfolio
activity during the first quarter of 1998 included $27 million in purchases, $7
million in sales and $18 million of maturities.
Total loans equaled $325 million at March 31, 1998, reflecting an increase
of $8 million from $317 million in total outstanding loans at year-end 1997.
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 March 31, 1998, Vista's
loan to deposit ratio was 65.4% compared to 65.6% at December 31, 1997. Mortgage
loans equaled 42% of total loans outstanding at March 31, 1998 and December 31,
1997. Commercial loans equaled 31% and consumer loans equaled 27% of total loans
outstanding at March 31, 1998 and December 31, 1997.
Total deposits amounted to $498 million at March 31, 1998, reflecting an
increase of $14 million since year-end 1997. Deposit growth occurred in retail
time deposits, time deposits over $100 thousand and savings accounts.
Variable-rate tiered savings products with money market rates are offered to
customers who maintain high balances and have proven successful in attracting
retail deposits.
At March 31, 1998, time deposits, including those $100 thousand and over,
remained the largest component of Vista's total deposit base, equaling 49%
compared to 48% at year-end 1997. Interest-bearing demand accounts equaled 15%
of total interest-bearing deposits at March 31, 1998 and December 31, 1997.
Noninterest-bearing demand accounts totaled 11% of total deposits at March 31,
1998 and December 31, 1997. Savings accounts equaled 26% of total
interest-bearing deposits at March 31, 1998 and December 31, 1997.
Total borrowed funds and long-term debt equaled $14 million at March 31,
1998, a slight increase of $1 million compared to $13 million outstanding at
December 31, 1997.
16
<PAGE>
Nonperforming Assets
Nonperforming assets, consisting of loans on nonaccrual status plus other
real estate acquired through foreclosure (ORE), totaled $4.0 million at March
31, 1998 and $4.3 million at December 31, 1997, or 1.23% and 1.34% of total
outstanding loans and ORE, respectively. The percentage decrease was due to a
decrease in nonperforming assets coupled with growth in outstanding loans. ORE
increased to $1.8 million at March 31, 1998 from $1.4 million at December 31,
1997.
The allowance for loan losses equaled $4.1 million at March 31, 1998
unchanged from December 31, 1997. The allowance equaled 1.27% of total loans at
March 31, 1998, compared to 1.30% at December 31, 1997. Net charge-offs to the
allowance during the first quarter of 1998 totaled $172 thousand and consisted
primarily of charged off loans in the indirect auto loan portfolio totaling $76
thousand and $96 thousand of commercial loan charge-offs.
The provision for loan losses remained unchanged at $195 thousand for the
first quarter of 1998 and comparable quarter of 1997. At March 31, 1998, the
allowance for loan losses represented 189% of total nonaccrual loans as compared
to 142% at December 31, 1997.
Liquidity
At March 31, 1998, cash and cash equivalents equaled $34.4 million which
represented an increase of $6.6 million from the $27.9 million in cash and cash
equivalents at December 31, 1997. Changes in cash are measured by changes in
operating, investing and financing activities. The $6.6 million increase in cash
and cash equivalents was attributable to combined net cash flows provided by
operating and financing activities totaling $16.7 million, which were then used
for investing activities of $10.1 million.
At March 31, 1998, net cash provided by operating activities equaled $1.5
million, which consisted mainly of net income adjusted for noncash charges. Net
cash provided by financing activities totaled approximately $15.1 million and
consisted of a $13.9 million increase in deposits, $2.6 million increase in
borrowed funds and a $1.2 million decrease in long-term debt.
Capital Resources
At March 31, 1998 total shareholders' equity equaled $44.2 million
representing an increase of $900 thousand from the $43.3 million in
shareholders' equity at December 31, 1997. The increase was due to $1.17 million
in net income and $350 thousand in added capital raised through the various
stock plans offset by a $210 thousand reduction in the market value adjustment
recorded for the available for sale portfolio and cash dividends paid of $457
thousand. Vista's dividend payout ratio equaled 39.1% for the quarter ended
March 31, 1998.
Vista maintained a Tier I risk-based capital ratio of 13.55% and a total
risk-based capital ratio of 14.95% at March 31, 1998, compared to 13.58% and
14.99%, respectively, at December 31, 1997. Vista maintained a leverage capital
ratio of 7.86% at March 31, 1998 and 7.61% at December 31, 1997.
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 has filed no reports on Form 8-K for the quarterly
period ended March 31, 1998.
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: May 15, 1998
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
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,562
<INT-BEARING-DEPOSITS> 7,587
<FED-FUNDS-SOLD> 5,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 188,544
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 325,396
<ALLOWANCE> 4,171
<TOTAL-ASSETS> 560,388
<DEPOSITS> 497,612
<SHORT-TERM> 11,466
<LIABILITIES-OTHER> 4,142
<LONG-TERM> 3,000
0
0
<COMMON> 2,093
<OTHER-SE> 42,075
<TOTAL-LIABILITIES-AND-EQUITY> 560,388
<INTEREST-LOAN> 6,650
<INTEREST-INVEST> 2,873
<INTEREST-OTHER> 168
<INTEREST-TOTAL> 9,691
<INTEREST-DEPOSIT> 4,547
<INTEREST-EXPENSE> 4,712
<INTEREST-INCOME-NET> 4,979
<LOAN-LOSSES> 195
<SECURITIES-GAINS> 50
<EXPENSE-OTHER> 3,793
<INCOME-PRETAX> 1,711
<INCOME-PRE-EXTRAORDINARY> 1,711
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,170
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 4.00
<LOANS-NON> 2,206
<LOANS-PAST> 487
<LOANS-TROUBLED> 284
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,148
<CHARGE-OFFS> 201
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 4,171
<ALLOWANCE-DOMESTIC> 4,171
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,157
</TABLE>
