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, 1999
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 April 30, 1999, there were 4,806,957 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, 1999
Index
PAGE
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 3
Consolidated Statements of Income - Three Months
Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
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
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Amounts in thousands (except per share and share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 22,631 $ 23,584
Federal funds sold 6,350 7,000
Short-term investments 1,556 2,417
- --------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 30,537 33,001
- --------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $190,965 and $178,040 191,917 180,163
in 1999 and 1998, respectively)
- --------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 135,017 137,538
Commercial 142,612 136,449
Consumer 95,724 95,539
- --------------------------------------------------------------------------------------------------------------
Total Loans 373,353 369,526
Allowance for loan losses (4,722) (4,524)
- --------------------------------------------------------------------------------------------------------------
Total Net Loans 368,631 365,002
- --------------------------------------------------------------------------------------------------------------
Premises and equipment 6,897 6,851
Accrued interest receivable 3,318 3,133
Other assets 5,322 4,896
- --------------------------------------------------------------------------------------------------------------
Total Assets $606,622 $593,046
==============================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 61,547 $ 67,477
Interest-bearing 78,207 84,574
Savings 135,304 132,439
Time 252,301 238,252
- --------------------------------------------------------------------------------------------------------------
Total Deposits 527,359 522,742
- --------------------------------------------------------------------------------------------------------------
Borrowed funds 22,205 16,963
Long-term debt 5,500 3,000
Accrued interest payable 1,312 1,383
Other liabilities 3,321 2,122
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 559,697 546,210
- --------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000;
shares issued, 4,811,956 and 4,806,782 2,405 2,289
Paid-in capital 26,599 22,359
Retained earnings 17,293 20,622
Accumulated other comprehensive income 628 1,566
- --------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 46,925 46,836
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $606,622 $593,046
==============================================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
3
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31,
Amounts in thousands (except per share and share data) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 7,452 $ 6,650
Interest on federal funds sold 39 104
Interest on short-term investments 40 64
Interest on securities:
Taxable 2,218 2,552
Nontaxable 420 321
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Income 10,169 9,691
- ---------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 4,435 4,547
Interest on borrowed funds 180 115
Interest on long-term debt 54 50
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Expense 4,669 4,712
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income 5,500 4,979
- ---------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 225 195
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 5,275 4,784
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 452 405
Other service charges 343 156
Net gains on sales of securities 71 50
Net gains on sales of loans 111 --
Other income 157 109
- ---------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 1,134 720
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 2,214 1,980
Occupancy expense 444 335
Furniture and equipment expense 531 458
Other expense 1,074 1,020
- ---------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 4,263 3,793
- ---------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 2,146 1,711
Provision for Income Taxes 673 541
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 1,473 $ 1,170
- ---------------------------------------------------------------------------------------------------------------------
Earnings per Share (Basic and Diluted) $ 0.31 $ 0.24
- ---------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,808,060 4,810,726
- ---------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
4
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
Three Months Ended March 31,
1999 1998
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $ 1,473 $ 1,170
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 228 260
Provision for loan losses 225 195
Increase in accrued interest receivable (185) (367)
Increase (decrease) in accrued interest payable (71) 50
Net change in other assets and other liabilities 987 141
Net amortization of premium on securities 139 137
Net gains on sales of securities (71) (50)
Net gains on sales of loans (111) --
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 2,614 1,536
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 13,032 18,339
Proceeds from sales of securities available for sale 7,215 7,386
Purchases of securities available for sale (33,240) (26,928)
Net increase in loans (5,465) (8,634)
Proceeds from sale of loans 1,732 --
Net capital expenditures (258) (234)
- -----------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (16,984) (10,071)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net (decrease) increase in demand and savings deposits (9,432) 5,036
Net increase in time deposits 14,049 8,820
Net increase in borrowed funds 5,242 2,607
Net increase (decrease) in long-term debt 2,500 (1,222)
Net proceeds from issuance of common stock 292 350
Purchases of treasury stock (196) --
Cash dividends paid (549) (457)
- -----------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 11,906 15,134
- -----------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (2,464) 6,599
Cash and Cash Equivalents, Beginning of Period 33,001 27,850
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 30,537 $ 34,449
=================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 4,740 $ 4,662
Income taxes paid 88 0
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 0 514
The accompanying notes to consolidated financial statements are an integral part
of these statements
</TABLE>
5
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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, 1998.
Results of operations for the three-month period ended March 31, 1999, are
not necessarily indicative of the results to be expected for the full year.
Note 2. Recently Issued Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale" became effective for the first quarter beginning after December
15, 1998. SFAS No. 134 requires that all mortgage-backed securities retained
after a securitization of mortgage loans held for sale be classified as to the
intent to sell or hold those investments. Any retained mortgage-backed
securities that are committed to sell before or during the securitization
process must be classified as trading securities. This statement is not expected
to have a material impact on Vista.
Note 3. Earnings per Share
Earnings per share amounts, weighted average shares outstanding and all per
share amounts have been adjusted to reflect the stock dividends declared as of
April 1999 and May 1998.
On April 22, 1999, Vista declared a 5 percent stock dividend to
shareholders' of record May 3, 1999 and payable May 21, 1999. Following payment
of this dividend, Vista will have approximately 4.8 million shares outstanding.
Earnings per share, weighted average shares outstanding and all per share
amounts have been restated in the accompanying financial statements, to reflect
this dividend. Accordingly, an amount equal to the fair market value of the
additional shares issued was charged to retained earnings and credited to common
stock and additional paid in capital based on the quoted market price on April
22, 1999.
6
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
On May 15, 1998, Vista declared a 10 percent stock dividend to
shareholders' of record as of June 1, 1998 and payable June 10, 1998.
Accordingly, an amount equal to the fair market value of the additional shares
issued was charged to retained earnings and credited to common stock and
additional paid in capital based on the quoted market price of the stock on May
15, 1998.
Note 4. Other Comprehensive Income
Vista adopted 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 non-owner 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 was 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
net unrealized pre-tax decreases in value of $1.171 million during the quarter,
ended March 31, 1999. 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 $(1,100) $ (209) $(891)
Less: reclassification adjustment for gains realized in net income 71 24 47
------------------------------------------------
Net unrealized loss (1,171) (233) (938)
================================================
Other comprehensive income $(1,171) $ (233) $(938)
================================================
</TABLE>
7
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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
non-performing 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 non-performing 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>
Vista Bancorp, Inc. and Subsidiaries
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.
Recent Development
In March 1999, Vista expanded its presence in Pennsylvania, through its
affiliate Twin Rivers Community Bank, with the addition of two branches in
Bethlehem, Pennsylvania. The Westgate office located at 2400 Schoenersville Road
and the Route 191 office located at 3815 Linden Street, increased the number of
branch offices in Pennsylvania to six. On a consolidated basis, Vista Bancorp
now operates sixteen full service branch locations.
These branches were acquired without deposits and consequently their
start-up costs are expected to impact earnings for a period of twelve to
eighteen months which is consistent with Vista's historical experience with
similar expansion efforts.
Results of Operations for the periods ended March 31, 1999 and March 31, 1998
Earnings Summary
For the first quarter of 1999, Vista Bancorp, Inc reported a 26 percent
increase in net income to $1.47 million, or $.31 per diluted share compared to
net income of $1.17 million or $.24 per diluted share earned in the first
quarter of 1998.
The increase in net income for the first quarter of 1999 was due to an
increase in net interest income and higher levels of noninterest income, offset
in part by an increase in noninterest expense and a higher provision for loan
loss.
9
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
The return on average assets increased to 1.02 percent in the first quarter
of 1999 from .87 percent for the same period in 1998, while return on average
shareholders' equity increased to 13.01 percent from 10.79 percent.
Net Interest Income
Net interest income, on a tax-equivalent basis, increased 12 percent to
$5.7 million for the first quarter of 1999 compared to $5.1 million for the
first quarter of 1998. The increase was due to strong growth in average
interest-earning assets, which increased $38 million, and a net interest margin
that expanded to 4.15 percent in the first quarter of 1999 from 4.00 percent in
the comparable quarter one year ago.
Vista has been able to stabilize and expand its net interest margin by
improving the mix of earning assets, primarily through commercial and consumer
lending, reducing the concentration of investment securities and improving the
mix of funding sources, which viewed in the aggregate, lowers the overall cost
of funding the balance sheet.
The average yield on interest-earning assets decreased to 7.55 percent in
the first quarter of 1999 from 7.68 percent in the prior year. However, total
interest income increased to $10.4 million from $9.8 million for the same period
as the growth in earning assets and an improved asset mix more than offset the
adverse impact of lower average yields.
The cost of funding interest-earning assets, measured by the relationship
of interest expense to average-earning assets, dropped to 3.40 percent in the
first quarter of 1999 from 3.68 percent in the first quarter one year prior.
Significant growth in noninterest-bearing demand deposits and shareholders'
equity combined with an improved mix of interest-bearing liabilities and lower
rates paid for deposits to drive down the cost of funds.
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, 1999 and
1998, 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>
Three Months Ended March 31,
1999 1998
----------------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
Amounts in thousands (except percentages) (1) (2) (1) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities purchased
under agreements to resell $ 3,312 $ 39 4.78% $ 7,518 $ 104 5.61%
Short-term investments 3,333 40 4.87% 5,052 64 5.14%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 6,645 79 4.82% 12,570 168 5.42%
- ----------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 12,578 186 6.00% 16,625 253 6.17%
U.S. Government agencies
and corporations 113,151 1,739 6.23% 126,384 2,066 6.63%
States and other political subdivisions (3) 36,018 609 6.86% 28,268 461 6.61%
Other 17,752 293 6.69% 13,973 233 6.76%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Securities 179,499 2,827 6.39% 185,250 3,013 6.60%
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 136,595 2,569 7.63% 133,484 2,524 7.67%
Commercial 139,307 2,997 8.72% 101,887 2,384 9.49%
Consumer 95,716 1,906 8.08% 86,571 1,754 8.22%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 371,618 7,472 8.15% 321,942 6,662 8.39%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 557,762 10,378 7.55% 519,762 9,843 7.68%
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 19,973 16,505
Allowance for loan losses (4,633) (4,216)
Other assets 15,328 14,915
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning Assets 30,668 27,204
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $588,430 $546,966
==================================================================================================================================
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 83,339 $ 385 1.87% $ 74,145 $ 398 2.18%
Savings 133,627 984 2.99% 125,336 938 3.04%
Time 195,751 2,519 5.22% 192,438 2,588 5.45%
Time deposits $100,000 and over 42,913 547 5.17% 44,524 623 5.67%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 455,630 4,435 3.95% 436,443 4,547 4.23%
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 19,027 180 3.84% 10,296 115 4.53%
Long-term debt 3,583 54 6.11% 3,177 50 6.38%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 22,610 234 4.20% 13,473 165 4.97%
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 478,240 4,669 3.96% 449,916 4,712 4.25%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 60,022 49,371
Other liabilities 4,250 3,715
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing Liabilities 64,272 53,086
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 45,918 43,964
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $588,430 $546,966
==================================================================================================================================
Interest Income/Earning Assets 10,378 7.55% 9,843 7.68%
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Expense/Earning Assets 4,669 3.40% 4,712 3.68%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Margin (5) $ 5,709 4.15% $ 5,131 4.00%
==================================================================================================================================
</TABLE>
(1) Interest on loans includes fee income.
(2) Rates have been annualized and computed on a tax-equivalent basis using the
federal income tax statutory rate of 34%.
(3) Tax-equivalent adjustments were $209 thousand for 1999 and $152 thousand
for 1998.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of interest-earning asset 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>
Three Months Ended March 31,
1999 vs. 1998
------------------------------------------------------
Increase (Decrease)
Due to Changes in:
------------------------------------------------------
Total Average Average
Amounts in thousands Change(1) Volume Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Federal funds sold $ (65) $ (51) $ (14)
Short-term investments (24) (21) (3)
- -----------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (89) (72) (17)
- -----------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (67) (60) (7)
U.S. Government agencies and corporations (327) (208) (119)
States and other political subdivisions 148 130 18
Other 60 62 (2)
- -----------------------------------------------------------------------------------------------------------------------
Total Securities (186) (76) (110)
- -----------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 45 59 (14)
Commercial 613 818 (205)
Consumer 152 182 (30)
- -----------------------------------------------------------------------------------------------------------------------
Total Loans 810 1,059 (249)
- -----------------------------------------------------------------------------------------------------------------------
Total Interest Income 535 911 (376)
- -----------------------------------------------------------------------------------------------------------------------
Interest Expense:
Demand (13) 46 (59)
Savings 46 61 (15)
Time (69) 44 (113)
Time deposits $100,000 and over (76) (22) (54)
- -----------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits (112) 129 (241)
- -----------------------------------------------------------------------------------------------------------------------
Borrowed funds 65 85 (20)
Long-term debt 4 6 (2)
- -----------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 69 91 (22)
- -----------------------------------------------------------------------------------------------------------------------
Total Interest Expense (43) 220 (263)
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 578 $ 691 $ (113)
=======================================================================================================================
</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>
Vista Bancorp, Inc. and Subsidiaries
Noninterest Income
For the first quarter of 1999, total noninterest income increased 57
percent to $1.1 million from $700 thousand in the comparable period in 1998.
Excluding the effects of gains recognized on the sales of securities and loans,
noninterest income increased 42 percent to $952 thousand.
Service charges on deposit accounts increased 12 percent to $452 thousand
due to an increase in consumer demand deposit accounts and an increased fee
structure.
Other service charge income increased significantly to $343 thousand during
the quarter as loan-related fee income reflected strong loan origination
activity for the quarter. Fees recognized in connection with debit card usage
and ATM surcharge activity also contributed to the increase.
Net gains on the sale of investment securities totaled $71 thousand for the
quarter compared to $50 thousand in comparable quarter of 1998. Approximately
$7.2 million of securities available for sale were sold in 1999 compared to $7.3
million of securities sold in 1998. Sales of securities were for portfolio
realignment purposes and to manage prepayment and reinvestment risk.
Net gains on the sale of loans totaled $111 thousand for the quarter due
largely to sales of the guaranteed portion of Small Business Administration
(SBA) loans. There can be no assurance that gains recognized in prior periods
will continue in future periods or that there will not be significant
inter-period variations in the results of such activities.
Other income increased 44 percent to $157 thousand during the first quarter
of 1999. Growth in Trust Department revenue and fees earned from the sale of
equity and fixed income mutual fund products and insurance annuities sold
through the branch network accounted for the majority of the increase.
Noninterest Expense
For the first quarter of 1999 total noninterest expense increased 12
percent to $4.26 million from $3.79 million in the first quarter of 1998. The
ratio of total noninterest expense to average assets, was 2.94 percent for the
first quarter 1999 compared to 2.81 percent in 1998. This increase was due to
the incremental expenses related to an increased branch network as well as to
the deposit and loan growth generated throughout the organization.
Salaries and benefits expense increased 10 percent to $2.2 million for the
quarter ending March 31, 1999 compared to $2.0 million for the quarter ending
March 31, 1998. Separately, salary expense increased 9 percent to $1.7 million
for the quarter ending March 31, 1999 due to the addition of personnel at the
two new branches, as well as additional positions in marketing, lending and
technology related support functions. Also, pension plan contributions increased
$56 thousand compared to the quarter ended March 31, 1999.
Occupancy expense increased 33 percent to $444 thousand for the quarter
ending March 31, 1999. The increase is attributed to the added lease expense on
the two new branches opened during the first quarter along with the increased
rental charges for a new and larger facility that will house the relocated trust
department and corporate marketing function.
13
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Furniture and equipment expense increased 16 percent to $531 thousand for
the quarter ended March 31, 1999 from $458 thousand in 1998. The increase is
attributed to a $115 thousand increase in technology related equipment rental, a
$29 thousand increase in building repairs and maintenance and a $12 thousand
increase in telephone offset by miscellaneous equipment expenses and
depreciation expenses.
Other operating expenses increased 5 percent to $1.1 million for the first
quarter 1999 from the first quarter 1998. Volume related loan fees and
electronic (ATM) banking fees increased compared to the first quarter 1998.
A $50 thousand contribution to the Vista Bancorp Enrichment Foundation was
included in other operating expenses during the first quarter 1999. This
foundation will make grants available to low- and moderate- income families for
home improvements and other quality of life enhancements.
Readiness for Year 2000
As the Year 2000 approaches, Vista Bancorp has undertaken initiatives to
address the Year 2000 Problem, as more fully described in the 1998 Annual
Report. As of March 31,1999 Vista has completed testing of all mission critical
systems and continues to perform due diligence with key vendors and material
customers. Further, Vista has developed a comprehensive business resumption
contingency plan to be implemented in the event of unforeseen minor failures and
has been engaged in an on going customer awareness program.
Vista continues to evaluate the estimated costs associated with attaining
Year 2000 readiness. Incremental costs for 1999, such as testing, software
purchases and marketing publications are not expected to be material. While
additional costs could be incurred, Vista believes, based on available
information, that it will be able to manage its Year 2000 transition without any
adverse effect on its business operations or financial condition.
The preceding Y2K discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to (i) whether or not testing will be
accurate; (ii) the estimated costs associated with becoming Y2K compliant; (iii)
the date by which the Company expects to be fully compliant, and (iv) the
successfulness of any contingency plans. These statements are made using current
estimates and assumptions about future events. There can be no assurance that
these estimates will be achieved and actual results could differ materially from
those anticipated. The factors that might lead to material differences include,
among others, (i) the ability to accurately identify all mission-critical
systems; (ii) accuracy of the testing performed; (iii) whether or not third
party certifications are accurate; (iv) whether or not material customers,
suppliers, governmental agencies and other significant third parties are
successful in their Y2K efforts; (v) the adequacy of contingency plans, and (vi)
the ability to implement contingency plans.
14
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Non-performing Assets
At March 31, 1999, non-performing assets, consisting of loans on nonaccrual
status plus other real estate acquired through foreclosure (ORE), totaled $2.80
million, a decrease of $200 thousand or 7 percent from December 31, 1998. The
ratio of non-performing assets to total loans and ORE declined 6 basis points
from 0.82 percent at the end of 1998 to 0.76 percent at March 31, 1999. The
decrease may be attributed to a sale of an ORE property as well as an increase
in total loans outstanding. ORE decreased to $1.0 million at March 31, 1999
compared to $1.1 million at December 31, 1998. Loans past due 90 days or more
and still on accrual status totaled $153 thousand at March 31, 1999 compared to
$160 thousand at year-end 1998.
Commercial nonaccrual loans increased to 63 percent from 55 percent of
total nonaccrual loans at March 31, 1999 and December 31, 1998, respectively,
while nonaccrual residential mortgage loans decreased to 21 percent from 31
percent, respectively. Consumer loans decreased to 16 percent from 14 percent,
respectively, of total nonaccrual loans at March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
Amounts in thousands March 31, 1999 December 31, 1998 March 31, 1998
- -------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Non-performing loans $1,814 $1,930 $2,206
Other real estate owned 1,017 1,112 1,824
------ ------ ------
Total Non-performing assets 2,831 3,042 4,030
Loans past due 90 days and on accrual status $ 153 $ 160 $ 487
</TABLE>
Impaired loans, are those loans in which management believes that the
collection of principal and interest, in accordance with the original contract
terms, may be doubtful. Vista considers impaired loans to include all
non-performing loans in addition to those loans, which are determined to be
impaired, based on individual review of impaired loans above $75 thousand. At
March 31, 1999, total impaired loans equaled $2.3 million, of which $1.8 million
are non-performing loans.
Allowance for Loan Losses
The allowance for loan losses increased to $4.7 million at March 31, 1999,
from $4.5 million at December 31, 1998. The allowance equaled 1.26 percent of
total loans at March 31, 1999 and 1.28 percent at March 31, 1998. The provision
for loan losses equaled $225 thousand for the first quarter 1999 compared to
$195 thousand for the first quarter 1998, while charge-offs, net of recoveries,
totaled $28 thousand for the first quarter 1999 and $172 thousand for the first
quarter 1998. The allowance for loan losses as a percentage of non-performing
assets equaled 167 percent at March 31, 1999 and 189 percent at March 31, 1998.
15
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
The allowance for loan losses is maintained at a level deemed adequate by
management to provide for potential loan losses. The reserve is comprised of
specific allocations for individual loans while the general allocation is
determined by loss factors associated with each loan type (i.e. commercial,
consumer or mortgage) and allocated accordingly. Commercial loans of $150,000 or
more are reviewed individually. The allocated or required portion of the
allowance for loan losses is calculated quarterly and compared to the total
reserve balance to determine adequacy. The commercial loan reserve requirement
is based on individual loans reviewed, historical loss levels, industry
concentration analyses, delinquency trends, economic cycles, and other pertinent
factors. The consumer and mortgage loan reserve requirements are based on the
historical trend of the last four quarters loss factors. The allowance for loan
losses is reviewed quarterly by management and the Board of Directors for
adequacy.
Three Months Ended March 31,
----------------------------
Amounts in thousands 1999 1998
- --------------------------------------------------------------------------
Average loans outstanding 371,619 321,942
Total loans at end of period 373,353 325,396
- --------------------------------------------------------------------------
Allowance for loan losses:
Balance at beginning of period 4,524 4,148
Charge-offs:
Commercial -- 126
Real estate - mortgage -- --
Installment 39 75
- --------------------------------------------------------------------------
Total charge-offs 39 201
- --------------------------------------------------------------------------
Recoveries:
Commercial 3 17
Real estate - mortgage -- --
Installment 9 12
- --------------------------------------------------------------------------
Total recoveries 12 29
- --------------------------------------------------------------------------
Net charge-offs: 27 172
- --------------------------------------------------------------------------
Provision for loan losses 225 195
- --------------------------------------------------------------------------
Balance at end of period 4,722 4,171
==========================================================================
Net charge-offs as a percent of average 0.01% 0.05%
loans outstanding during period
- --------------------------------------------------------------------------
Allowance for loan losses as a percent 1.26% 1.28%
of total loans
Liquidity
At March 31, 1999, cash and cash equivalents equaled $30.5 million which
represented a decrease of $2.5 million from the $33.0 million in cash and cash
equivalents at December 31, 1998.
Changes in cash are measured by the three major classifications of cash
flow defined as operating, investing and financing activities. The $2.5 million
decrease in cash and cash equivalents was attributable to combined net cash
flows provided by operating and financing
16
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
activities totaling $14.5 million, which were then used for investing activities
of $17.0 million.
At March 31, 1999, net cash provided by operating activities equaled $2.6
million, which consisted of net income adjusted for noncash charges along with a
net increase in other assets and other liabilities.
Net cash used in investing activities totaled $17.0 million and consisted
of $33.2 million of security purchases and $5.4 million net increase in loans
funded in part by $21.9 million of proceeds received through maturities and
sales of investment securities and loan sales.
Net cash provided by financing activities totaled $11.9 million as net
deposit growth of $4.6 million combined with $5.2 million in borrowed funds and
$2.5 million in long-term debt to offset cash dividends paid and purchases of
treasury stock.
Capital Resources
At March 31, 1999 total shareholders' equity equaled $46.9 million, largely
unchanged from the $46.8 million in shareholders' equity at December 31, 1998.
Changes in shareholders' equity included $1.47 million in net income, $299
thousand in capital raised primarily through the dividend reinvestment plan
offset by a $938 thousand reduction in the market value adjustment recorded for
the available for sale portfolio, cash dividends paid of $549 thousand and $196
thousand in stock repurchases. Vista's dividend payout ratio equaled 37.3
percent for the quarter ended March 31, 1999.
During the quarter ended March 31, 1999, the Board of Directors authorized
the extension of Vista's initial stock repurchase program by an additional
100,000 shares or approximately 2 percent of total shares outstanding. Such
purchases will be conducted pursuant to section 10b-18 from time to time in open
market transactions in the discretion of management over a twelve to eighteen
month time frame. All shares repurchased are expected to be retired. As of April
30, 1999 no shares had been repurchased under the augmented program.
Vista maintained a Tier I risk-based capital ratio of 12.78 percent and a
total risk-based capital ratio of 14.03 percent at March 31, 1999, compared to
12.76 percent and 14.01 percent, respectively, at December 31, 1998. Vista
maintained a leverage capital ratio of 7.84 percent at March 31, 1999 and 7.73
percent at December 31, 1998.
17
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Part II Other Information
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on form 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Description of Exhibit
-------------- ----------------------
2 Not Applicable
4 Not Applicable
10 Not Applicable
11 Not Applicable
15 Not Applicable
18 Not Applicable
19 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
27 Financial Data Schedules
99 Not Applicable
(b) Reports on Form 8-K
On February 19, 1999, the registrant filed Form 8-K which stating that
the directors had appointed Continental Stock Transfer & Trust Company
as Transfer Agent for Vista. Also, filed on this Form 8-K were certain
amendments to the Company's bylaws.
On March 31, 1999, the registrant filed Form 8-K stating that the
Board of Directors approved the continuation of Vista's Stock Buy-Back
Plan and authorized an additional repurchase of 100,000 shares of the
company's common stock, from time to time, in open market purchases,
through a licensed broker-dealer in accordance with the terms,
conditions and restrictions contained in Rule 10b-18.
18
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Vista Bancorp, Inc.
- ----------------------------
(Registrant)
Dated: May 15, 1999
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>
Vista Bancorp, Inc. and Subsidiaries
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 22,631
<INT-BEARING-DEPOSITS> 1,556
<FED-FUNDS-SOLD> 6,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 191,917
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 373,353
<ALLOWANCE> 4,722
<TOTAL-ASSETS> 606,622
<DEPOSITS> 527,359
<SHORT-TERM> 22,205
<LIABILITIES-OTHER> 4,633
<LONG-TERM> 5,500
0
0
<COMMON> 2,405
<OTHER-SE> 44,520
<TOTAL-LIABILITIES-AND-EQUITY> 606,622
<INTEREST-LOAN> 7,452
<INTEREST-INVEST> 2,638
<INTEREST-OTHER> 79
<INTEREST-TOTAL> 10,169
<INTEREST-DEPOSIT> 4,435
<INTEREST-EXPENSE> 4,669
<INTEREST-INCOME-NET> 5,500
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 71
<EXPENSE-OTHER> 4,263
<INCOME-PRETAX> 2,146
<INCOME-PRE-EXTRAORDINARY> 2,146
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,473
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 4.15
<LOANS-NON> 1,814
<LOANS-PAST> 153
<LOANS-TROUBLED> 479
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,524
<CHARGE-OFFS> 39
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 4,722
<ALLOWANCE-DOMESTIC> 4,722
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 574
</TABLE>
