UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
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OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________________ to ____________________
Commission file number 0-21264
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VISTA BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-2870972
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
305 Roseberry Street, P.O. Box 5360, Phillipsburg, New Jersey 08865
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(Address of principal executive offices) (Zip Code)
(908) 859-9500
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(Issuer's telephone number, including area code)
(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 November 6, 2000, there were 5,101,658 shares of $.50 par value
Common Stock outstanding.
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
VISTA BANCORP, INC.
Form 10-Q
For the period ended September 30, 2000
Index
Page
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 2000
and December 31, 1999.................................... 3
Consolidated Statements of Income - Three Months and Nine Months
Ended September 30, 2000 and 1999........................ 4
Consolidated Statements of Changes in Shareholders
Equity - Nine Months Ended September 30, 2000
and Year Ended December 31, 1999......................... 5
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2000 and 1999............................... 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................................................. 22
Item 2. Changes in Securities ............................................ 22
Item 3. Defaults Upon Senior Securities .................................. 22
Item 4. Submission of Matters to a Vote of Security Holders............... 22
Item 5. Other Information................................................. 22
Item 6. Exhibits and Reports on Form 8-K.................................. 22
2
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
Amounts in Thousands (except per share and share data) 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 28,616 $ 27,091
Federal funds sold 17,100 2,150
Short-term investments 1,450 156
------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 47,166 29,397
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Securities available for sale (Amortized cost: $191,493 and $209,627 in 2000 and 1999, respectively) 187,532 202,275
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Loans, net of unearned income:
Mortgage 129,587 130,544
Commercial 207,899 174,334
Consumer 110,450 106,000
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Total Loans 447,936 410,878
Allowance for loan losses (6,023) (5,266)
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Total Net Loans 441,913 405,612
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Premises and equipment 7,854 6,934
Accrued interest receivable 3,572 3,607
Other assets 6,898 6,843
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Total Assets $ 694,935 $ 654,668
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Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 70,816 $ 68,188
Interest-bearing 94,898 88,558
Savings 129,832 142,334
Time 298,582 268,042
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Total Deposits 594,128 567,122
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Borrowed funds 34,870 30,835
Long term debt 12,500 8,500
Accrued interest payable 1,294 1,597
Other liabilities 2,040 2,654
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Total Liabilities 644,832 610,708
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Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
5,112,962 and 4,819,002 at September 30, 2000 and December 31, 1999, respectively 2,556 2,409
Paid in capital 30,905 26,674
Retained earnings 19,524 20,213
Accumulated other comprehensive income (2,882) (5,336)
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Total Shareholders' Equity 50,103 43,960
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Total Liabilities and Shareholders' Equity $ 694,935 $ 654,668
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Amounts in Thousands (except per share and share data) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 9,555 $ 8,066 $ 27,282 $ 23,212
Interest on federal funds sold 170 116 345 305
Interest on short-term investments 24 25 51 105
Interest on securities:
Taxable 2,586 2,590 8,017 7,160
Nontaxable 481 491 1,509 1,416
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Total Interest Income 12,816 11,288 37,204 32,198
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Interest Expense:
Interest on deposits 5,708 4,799 16,087 13,887
Interest on borrowed funds 508 255 1,399 642
Interest on long-term debt 210 144 590 305
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Total Interest Expense 6,426 5,198 18,076 14,834
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Net Interest Income 6,390 6,090 19,128 17,364
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Provision for Loan Losses 315 286 947 763
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Net Interest Income after Provision for Loan Losses 6,075 5,804 18,181 16,601
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Noninterest Income:
Service charges on deposit accounts 551 479 1,647 1,406
Other service charges 250 252 758 836
Net gains on sales of loans 107 82 272 326
Net gains (losses) on sales of securities -- (78) (222) 10
Trust and Asset Management Revenues 79 76 255 236
Other income 121 135 362 363
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Total Noninterest Income 1,108 946 3,072 3,177
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Noninterest Expense:
Salaries and benefits 2,289 2,157 6,741 6,652
Occupancy expense 502 439 1,486 1,308
Furniture and equipment expense 643 560 1,832 1,638
Marketing expense 245 152 611 526
Unification related expenses 319 -- 319 --
Other expense 857 965 2,848 2,921
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Total Noninterest Expense 4,855 4,273 13,837 13,045
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Income Before Provision for Income Taxes 2,328 2,477 7,416 6,733
Provision for Income Taxes 656 748 2,254 2,049
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Net Income $ 1,672 $ 1,729 $ 5,162 $ 4,684
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Earnings per Share, Basic and Diluted $ 0.33 $ 0.34 $ 1.02 $ 0.93
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Weighted Average Number of Common Shares Outstanding 5,097,174 5,048,476 5,076,867 5,048,970
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For The Year Ended December 31, 1999 and Nine Months Ended September 30, 2000.
<TABLE>
<CAPTION>
Accumulated
Other Total
Amounts in Thousands Shares Common Paid-in Retained Treasury Comprehensive Shareholders'
(except per share and share data) Issued Stock Capital Earnings Stock Income Equity
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 4,577,888 $ 2,289 $ 22,359 $ 20,622 $ -- $ 1,566 $ 46,836
Comprehensive Income (Loss):
Net income - 1999 -- -- -- 6,410 -- -- 6,410
Other comprehensive loss, net of
income taxes
Net unrealized depreciation
in the fair value of securities
available for sale -- -- -- -- -- (6,902) (6,902)
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Loss: (492)
Cash dividends - $.50 per share -- -- -- (2,566) -- -- (2,566)
Net proceeds from
issuance of common stock 60,096 30 1,080 -- -- -- 1,110
5% Stock dividend 228,483 114 4,131 (4,253) -- -- (8)
Purchase of treasury stock -- -- -- -- (929) -- (929)
Retirement of treasury stock (49,600) (25) (904) -- 929 -- --
Deferred compensation 2,135 1 8 -- -- -- 9
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Balance, December 31, 1999 4,819,002 $ 2,409 $ 26,674 $ 20,213 $ -- $(5,336) $ 43,960
Comprehensive Income:
Net income - 2000 -- -- -- 5,162 -- -- 5,162
Other comprehensive income, net of
income taxes
Net unrealized appreciation
in the fair value of securities
available for sale -- -- -- -- -- 2,454 2,454
----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income: 7,616
Cash dividends - $.43 per share -- -- -- (2,198) -- -- (2,198)
Net proceeds from
issuance of common stock 60,905 30 830 -- -- -- 860
5% Stock dividend 241,055 121 3,525 (3,653) (7)
Purchase of treasury stock -- -- -- -- (128) -- (128)
Retirement of treasury stock (8,000) (4) (124) -- 128 -- --
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Balance, September 30, 2000 5,112,962 $ 2,556 $ 30,905 $ 19,524 $ -- $(2,882) $ 50,103
==================================================================================================================================
</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
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
Amounts in Thousands 2000 1999
-----------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activites:
<S> <C> <C>
Net Income $ 5,162 $ 4,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 741 719
Provision for loan losses 947 763
Decrease (Increase) in accrued interest receivable 35 (640)
(Decrease) Increase in accrued interest payable (303) 228
Net change in other assets and other liabilities (1,316) 676
Net amortization of premium on securities 43 358
Net losses (gains) on sales of securities 222 (10)
Net gains on sales of loans (272) (326)
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Net Cash Provided By Operating Activities 5,259 6,452
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 16,783 31,155
Proceeds from sales of securities available for sale 23,073 24,376
Purchases of securities available for sale (21,986) (90,029)
Net increase in loans (46,569) (40,155)
Proceeds from sales of loans 9,244 6,304
Net capital expenditures (1,603) (880)
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Net Cash Used for Investing Activities (21,058) (69,229)
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Cash Flows From Financing Activities:
Net (decrease) increase in demand and savings deposits (3,534) 5,200
Net increase in time deposits 30,540 24,128
Net increase in borrowed funds 4,035 20,250
Net increase in long-term debt 4,000 5,500
Net proceeds from issuance of common stock 860 831
Net treasury stock transactions (128) (840)
Cash dividends paid (2,198) (1,894)
Cash in lieu of fractional shares (7) (8)
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Net Cash Provided By Financing Activities 33,568 53,167
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Net Increase (Decrease) in Cash and Cash Equivalents 17,769 (9,610)
Cash and Cash Equivalents, Beginning of Period 29,397 33,001
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Cash and Cash Equivalents, End of Period $ 47,166 $ 23,391
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Supplemental Disclosures of Cash Flow Information:
Interest paid $ 18,379 $ 14,606
Income taxes paid 2,710 2,397
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 244 0
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<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 generally 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, 1999.
Results of operations for the three-month and nine-month periods ended
September 30, 2000, 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. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133" was issued in September 2000 and is effective for
fiscal years beginning after September 15, 2000. SFAS 138 amends SFAS 133 such
that:
o The normal purchases and normal sales exception is expanded.
o The specific risks that can be identified as the hedged risk are redefined
so that in a hedge of interest rate risk the risk of changes in a
benchmark interest rate would be hedged.
o Recognized foreign-currency-denominated assets and liabilities may be the
hedged item in fair value hedges or cash flow hedges.
o Inter-company derivatives may be designated as the hedging instruments in
cash flow hedges of foreign currency risk in the consolidated financial
statements even if those inter-company derivatives are offset by unrelated
third-party contracts on a net basis.
Currently, we do not invest in derivative instruments nor engage in hedging
activities. Adoption of SFAS 138 is not expected to have a material impact on
Vista.
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125". SFAS 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries
7
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
over most of Statement 125's provisions without reconsideration. This Statement
is effective for transfers and servicing of financial assets and extinguishments
liabilities occurring after March 31, 2001. It is effective for disclosures
about securitizations and collateral and for recognition and reclassification of
collateral for fiscal years ending after December 15, 2000. Adoption of SFAS 140
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 5 percent stock dividend
declared in April 2000 and April 1999.
On April 21, 2000, we declared a 5 percent stock dividend to shareholders'
of record May 12, 2000 and payable May 26, 2000. Following payment of this
dividend, Vista had approximately 5.1 million shares outstanding. 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 21, 2000.
On April 16, 1999, Vista declared a 5 percent stock dividend to
shareholders' of record May 3, 1999 and payable May 21, 1999. 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 April 16, 1999.
Note 4. Other Comprehensive Income
Vista held securities classified as available for sale, which experienced
net unrealized pre-tax appreciation in value of $3.4 million during the nine
months ended September 30, 2000. In compliance with SFAS No. 130, the before-tax
and after-tax amount for this category as well as the tax, is summarized below.
<TABLE>
<CAPTION>
Before-Tax Tax Net-of-Tax
(Amounts in thousands) Amount (Benefit) Amount
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period $ 3,169 $ 874 $ 2,295
Less: reclassification adjustment for losses realized in net income (222) (63) (159)
-----------------------------
Net unrealized gain 3,391 937 2,454
-----------------------------
Other comprehensive income $ 3,391 $ 937 $ 2,454
=============================
</TABLE>
8
<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 "Forward Looking Statements" in Vista's Annual Report and
Form 10-K for the year-ended December 31, 1999.
Recent Developments
Vista Bank, N.A.
On August 21, 2000, we successfully consolidated our two wholly owned
subsidiary banks, Phillipsburg National Bank and Trust Company and Twin Rivers
Community Bank, into Vista Bank, N. A. This unification will improve customer
convenience through access to fifteen branches across northwestern New Jersey
and eastern Pennsylvania. It will also increase operational efficiency from
economies of scale available to a larger combined organization through product
innovations and technology enhancements.
Vista Online
During the quarter we introduced Vista Online, our new electronic banking
and bill pay product. This product will increase customer convenience by
providing an additional avenue for account access.
Results of Operations for the quarter and nine months ended September 30, 2000
and September 30, 1999.
Earnings Summary
Net income for the quarter-ended September 30, 2000 totaled $1.67 million
or $.33 per share compared to $1.73 million or $.34 per share a year ago.
Quarterly net income adjusted for non-recurring charges and security
transactions increased 6 percent to $1.89 million or $.37 per share compared to
$1.78 million or $.35 per share a year ago.
Non-recurring unification expenses totaled $319 thousand pre-tax ($218
thousand net of tax) and included advertising expenses, community promotions,
replacement of obsolete forms and signage, and technology consultant fees. In
addition to the unification-related expenses, higher funding costs and increased
occupancy costs from our new Operations and Technology facility impacted net
income. Net interest income grew at a slower pace then prior quarters due to
higher funding costs from unification-related time deposit promotions and lower
levels of commercial loan growth due to changing economic conditions and
increased selectivity.
9
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Earnings highlights for the nine months ended September 30, 2000 include:
o Net income increased 10 percent to $5.16 million from $4.68 million.
o Diluted earnings per share, adjusted for the 5 percent stock
dividend, increased to $1.02 from $.93 per diluted share.
o Return on average equity improved to 13.58 percent from 13.36
percent.
o Return on average assets remained stable at 1.01 percent.
We continue to pursue the following earnings improvement strategies:
o Growing our balance sheet while improving the mix of earning assets.
o Where appropriate, recognizing security losses for reinvestment into
higher-yielding securities.
o Investing in technology, facilities and personnel to increase
efficiency and improve productivity to control the growth of
operating expenses and boost levels of noninterest income.
Net Interest Income
Tax-equivalent net interest income increased 5 percent to $6.6 million for
the quarter compared to $6.3 million for the third quarter of 1999. Higher
levels of earning assets, primarily commercial loans, offset the impact of a
lower margin. The net interest margin decreased 11 basis points to 4.0 percent
for the quarter from 4.11 percent a year ago and was down 15 basis points from
4.15 percent during the second quarter 2000. Higher funding costs primarily due
to a higher level of market interest rates attributed to the lower margin and a
less favorable funding mix.
For the nine months ended September 30, 2000, tax-equivalent net interest
income increased 10 percent to $19.88 million from $18.03 million in 1999. This
increase was due to strong growth in interest earning assets and a stable net
interest margin.
Average earning assets increased $61.5 million compared to the first nine
months of 1999 due to an average increase of $42.8 million in commercial loans,
$10.8 million in investment securities, and $10.4 million in consumer loans.
The net interest margin remained stable at 4.10 percent for the first nine
months of 2000 compared to 4.11 percent for the same period in 1999.
The yield on earning assets increased 33 basis points to 7.82 percent due to:
o A higher level of market interest rates which benefits us do to the
reinvestment of capital.
o An improved mixed of earning assets which emphasizes commercial lending.
10
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Our average cost of interest-bearing liabilities increased 37 basis points to
4.31 percent due to:
o A higher level of market interest rates which increased our funding costs.
o Unification related time deposit promotions.
o Increased competitor pricing pressures.
o A shift in our funding mix to time deposits and Federal Home Loan Bank
borrowings.
o Slower growth in core deposits.
The table, "Consolidated Average Balances, Net Interest Income and Average
Rates," presents Vista's average assets, liabilities and shareholders' equity.
Net interest income, net interest spreads, and net interest income as a
percentage of interest-earning assets for the periods ended September 30, 2000
and 1999, 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.
11
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Consolidated Average Balances, Net Interest Income and Average Rates
(Tax-equivalent Basis)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
Amounts in Thousands (except percentages) (1) (2) (1) (2)
--------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold and securities purchased
under agreements to resell $ 7,292 $ 345 6.32% $ 8,415 $ 305 4.85%
Short-term investments 1,174 51 5.80% 2,807 105 5.00%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 8,466 396 6.25% 11,222 410 4.88%
--------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 8,531 370 5.79% 9,971 438 5.87%
U.S. Government agencies and corporations 126,179 6,384 6.76% 122,932 5,796 6.30%
States and other political subdivisions (3) 39,637 2,013 6.78% 37,920 1,931 6.81%
Other 27,903 1,451 6.95% 20,640 1,008 6.53%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES 202,250 10,218 6.75% 191,463 9,173 6.41%
--------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 133,861 7,636 7.62% 133,653 7,514 7.52%
Commercial (3) 194,518 13,087 8.99% 151,679 9,844 8.68%
Consumer 108,862 6,619 8.12% 98,489 5,921 8.04%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 437,241 27,342 8.35% 383,821 23,279 8.11%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 647,957 37,956 7.82% 586,506 32,862 7.49%
--------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 21,791 20,033
Allowance for loan losses (5,679) (4,816)
Other assets 15,787 15,767
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 31,899 30,984
--------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 679,856 $ 617,490
--------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 93,506 $ 1,247 1.78% $ 83,948 $ 1,148 1.83%
Savings 138,132 3,106 3.00% 139,257 3,115 2.99%
Time 225,309 9,341 5.54% 203,957 7,861 5.15%
Time deposits $100,000 and over 54,863 2,393 5.83% 48,095 1,763 4.90%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 511,810 16,087 4.20% 475,257 13,887 3.91%
--------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 35,884 1,399 5.21% 21,614 642 3.97%
Long-term debt 12,489 590 6.31% 7,110 305 5.74%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS AND LONG-TERM DEBT 48,373 1,989 5.49% 28,724 947 4.41%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 560,183 18,076 4.31% 503,981 14,834 3.94%
--------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 64,877 62,393
Other liabilities 4,003 4,280
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 68,880 66,673
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 50,793 46,836
--------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 679,856 $ 617,490
--------------------------------------------------------------------------------------------------------------------------------
Interest Income/Earning Assets 37,956 7.82% 32,862 7.49%
--------------------------------------------------------------------------------------------------------------------------------
Interest Expense/Earning Assets 18,076 3.72% 14,834 3.38%
--------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Margin (5) $ 19,880 4.10% $ 18,028 4.11%
--------------------------------------------------------------------------------------------------------------------------------
</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 $752 thousand for 2000 and $664
thousand for 1999.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of average interest-earning assets
on a tax-equivalent basis.
12
<PAGE>
VISTA BANCORP, INC. AND SUBSIDIARIES
Volume/Rate Analysis of Changes in Net Interest Income (Tax-equivalent Basis)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 vs. 1999
------------------------------
Increase (Decrease)
Due to Changes in:
------------------------------
Total Average Average
Amounts in Thousands Change(1) Volume Rate
-----------------------------------------------------------------------------------------
Interest Income:
<S> <C> <C> <C>
Federal funds sold $ 40 $ (45) $ 85
Short-term investments (54) (69) 15
-----------------------------------------------------------------------------------------
Total Short-term Investments (14) (114) 100
-----------------------------------------------------------------------------------------
Securities:
U.S. Treasury (68) (62) (6)
U.S. Government agencies and corporations 588 156 432
States and other political subdivisions 82 88 (6)
Other 443 375 68
-----------------------------------------------------------------------------------------
Total Securities 1,045 557 488
-----------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 122 12 110
Commercial 3,243 2,871 372
Consumer 698 630 68
-----------------------------------------------------------------------------------------
Total Loans 4,063 3,513 550
-----------------------------------------------------------------------------------------
Total Interest Income 5,094 3,956 1,138
-----------------------------------------------------------------------------------------
Interest Expense:
Demand 99 129 (30)
Savings (9) (25) 16
Time 1,480 860 620
Time deposits $100,000 and over 630 268 362
-----------------------------------------------------------------------------------------
Total Interest-bearing Deposits 2,200 1,232 968
-----------------------------------------------------------------------------------------
Borrowed funds 757 514 243
Long-term debt 285 251 34
-----------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 1,042 765 277
-----------------------------------------------------------------------------------------
Total Interest Expense 3,242 1,997 1,245
-----------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 1,852 $ 1,959 $ (107)
-----------------------------------------------------------------------------------------
</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>
Vista Bancorp, Inc. and Subsidiaries
Noninterest Income
Total noninterest income increased 16 percent to $1.1 million for the
quarter compared to $946 thousand a year ago. Excluding gains on security and
loan sales, noninterest income increased 6 percent to $1.0 million. During the
quarter a $95 thousand gain was realized from the sale of a portion of the
unguaranteed SBA loan portfolio. There were no security sales during the third
quarter. Also, increased levels of fees assessed to customers for insufficient
funds on checking accounts (NSF fees) contributed to higher noninterest income.
For the nine months ended September 30, 2000, noninterest income decreased
3 percent to $3.1 million from $3.2 million a year ago. However, excluding
security and loan sales, noninterest income increased 7 percent to $3.0 million
from $2.8 million in 1999. During this period, $222 thousand in security losses
were realized as a portion of the portfolio was re-positioned into higher
yielding investments. Gains on loan sales totaled $272 thousand but declined
from 1999 levels due to a lower SBA loan origination volume.
During the first nine months of 2000, service charges on deposits
increased due to higher NSF fees despite lower levels of maintenance charges on
demand accounts. Also, higher ATM user fees, debit card transaction income and
Trust and Asset Management fees were partially offset by lower levels of
mortgage origination income.
Noninterest Expense
Total noninterest expense increased 14 percent to $4.86 million for the
third quarter of 2000 from $4.27 million in 1999. Excluding non-recurring
unification charges total noninterest expenses increased 6 percent to $4.54
million. Expenses incurred during the unification of our subsidiary banks
included:
o Radio, television and newsprint advertising.
o Community promotional events.
o Replacement of obsolete forms and signage.
o Technology consultants.
Other expenses during the quarter were up primarily due to the lease and
operation of our new Operations and Technology facility.
For the nine months ended September 30, 2000, total noninterest expense
increased 6 percent to $13.8 million from $13.0 million in the corresponding
period of 1999. Excluding the unification charges, noninterest expenses
increased 4 percent from 1999.
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Vista Bancorp, Inc. and Subsidiaries
One benchmark we use to measure the efficiency of our operational spending
considers noninterest expense as a percent of average assets. This measure
improved to 2.72 percent for the first nine months of 2000 from 2.82 percent in
1999. A lower result is favorable and shows efficiency gains. A second measure,
known as the efficiency ratio, attempts to capture the cost of generating one
incremental dollar of revenue. This ratio improved to 59.7 percent compared to
61.6 percent. A lower percentage generally indicates efficiency in producing
revenue or maintaining costs but does not indicate actual success at driving
revenue improvements or maintaining expense levels.
In addition to the unification and facility expenses incurred during the
first nine months of 2000, we continued to invest in technology to increase
efficiency and productivity. Also, Other Real Estate Owned (OREO) expenses have
declined significantly due to aggressive management of this portfolio.
The provision for income taxes decreased to $656 thousand for the third
quarter of 2000 from $748 thousand in the third quarter of 1999, on a lower
level of pre-tax earnings. The effective tax rate equaled 28.2 percent for the
third quarter of 2000 and 30.2 percent for the similar quarter of 1999. The
effective tax rate equaled 30.4 percent for the nine months ended September 30,
2000 and 1999.
Financial Condition - September 30, 2000 versus December 31, 1999
Total consolidated assets increased 6 percent to $694.9 million at
September 30, 2000 from $654.7 million at December 31, 1999. The change in
consolidated assets was comprised of:
o $37.1 million growth in loans,
o $17.8 million increase in cash and cash equivalents, and a
o $14.7 million decrease in securities available for sale.
Total loans increased $37.1 million, net of $9.2 million in mortgage and
SBA loan sales. Loan growth consisted primarily of commercial loans, which
increased $33.6 million and now represent 46 percent of the total portfolio
compared to 42 percent at year-end. The increase was derived from our planned
strategy of pursuing larger dollar, higher yielding commercial loans. Total
consumer loans increased $4.5 million and remained a constant 25 percent of the
portfolio. Consumer growth was due to increased indirect auto lending due to the
addition of dealer relationships. Total mortgages realized a net decline of $1
million from year-end 1999 and decreased to 29 percent of the total portfolio
due primarily to the sale of $5.9 million in fixed and variable rate mortgages
during the quarter. Strategic realignment of the portfolio over the past few
years resulted in the decline of the mortgage concentration and the increase in
the commercial concentration.
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Vista Bancorp, Inc. and Subsidiaries
We recognize the additional risks associated with our commercial loan
growth strategy and we continue to adhere to loan-to-value, debt coverage and
collateral standards, which are appropriate in nature. This strength is evident
in the low level of our past due and non-performing commercial loans on a
current and historical basis. Also, the majority of our commercial portfolio is
secured by liens on commercial or residential real estate. We believe the
strength of our loan and administrative management and quality of our
underwriting mitigates these risks. However, we cannot guarantee how the real
estate market will react or what the impact will be on our commercial borrowers
under stressful economic conditions.
Total cash and cash equivalents increased $17.8 million during the quarter
due to an increase in federal funds, cash and due from banks and short-term
investments.
Total securities available for sale decreased $14.8 million to $187.5
million at September 30, 2000 compared to $202.3 million at December 31, 1999.
The decrease was due to a shift of investments into loans to increase yields and
improve profitability. Proceeds generated from the sale and scheduled maturities
of investment securities combined to produce positive cash flows of $39.9
million while $22.0 million was reinvested into investment securities with the
balance used to fund loan demand.
We funded this asset growth with:
o $27 million in core deposit growth,
o $8 million in short and medium-term borrowed funds, and
o $6.1 million in capital generation.
Deposit growth consisted of $30.5 million in time deposits and $8.9
million in transaction accounts offset in part by a $12.5 million decline in
total savings balances. Due to the higher level of market interest rates
customers have shifted deposits from savings and money market products to higher
yielding time deposits. Deposit concentrations at quarter-end consisted of 50
percent time deposits, 28 percent demand deposits and 22 percent savings
deposits.
The $8 million increase in borrowed funds was due to a combination of
overnight repurchase agreement balances and medium-term Federal Home Loan Bank
(FHLB) advances. During the year, we entered into FHLB borrowing arrangements to
fund asset growth, primarily commercial loan growth.
Asset Quality
Non-performing assets, consisting of nonaccrual loans plus other real
estate acquired through foreclosure (OREO), increased slightly to $3.4 million
at September 30, 2000 from $3.2 million at the end of 1999 and decreased
slightly from $3.5 million at June 30, 2000. The increase in nonperforming loans
since year-end 1999 was due primarily to the addition of residential mortgages
and consumer loans that historically experience nominal losses. OREO decreased
$324 thousand to $229 thousand due to liquidation and sale of foreclosed
properties. Non-performing assets equaled less than one percent of total loans
and OREO at September 30, 2000 and December 31, 1999.
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Vista Bancorp, Inc. and Subsidiaries
Commercial non-performing loans decreased to 40 percent of total
nonaccrual loans at September 30, 2000 from 46 percent at December 31, 1999,
while nonaccrual residential mortgage loans increased to 42 percent from 38
percent. Consumer nonaccrual loans increased to 18 percent of total nonaccrual
loans from 16 percent at December 31, 1999.
<TABLE>
<CAPTION>
Amounts in thousands September 30, 2000 December 31, 1999 September 30, 1999
-------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Non-performing loans $3,209 $2,672 $2,269
Other real estate owned 229 553 506
------ ------ ------
Total non-performing assets $3,438 $3,225 $2,775
Loans past due 90 days and on
accrual status $ 0 $ 19 $ 59
</TABLE>
Impaired Loans
A loan is considered impaired when, after we have considered current
information and events, it is probable that we will be unable to collect all
amounts, including principal and interest, according to the contractual terms of
the loan agreement. Impaired loans typically include nonaccrual and restructured
loans. We consider the following in identifying impaired loans:
o A default has occurred or is expected to occur,
o The payment of principal and/or interest or other cash flows is
greater than 90 days past due, or
o We have serious doubts about the ability to collect future cash
flows, even if the loan is currently performing.
Once we identify a loan as impaired, management measures impairment in
accordance with Statement of Financial Accounting Standards (SFAS) No. 114, as
amended by SFAS No. 118. We measure impairment of a loan based on the present
value of expected future cash flows, or on the fair value of any collateral. If
the resulting value is less than the recorded investment (book value) in the
impaired loan, an allowance is established for the amount deemed not
collectible.
Generally, when a loan becomes impaired, interest stops accruing and any
previously accrued but unpaid interest on the loan is reversed against interest
revenue. When we doubt that we can collect the remaining recorded investment,
any interest received is applied first against the recorded investment until
paid in full, second as a recovery to the allowance up to any previously charged
off amounts on the impaired loan, and third as interest revenue. When we deem it
highly certain that we will collect the remaining recorded investment, interest
revenue is recorded on a cash basis as payments are received.
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Vista Bancorp, Inc. and Subsidiaries
An impaired loan is restored to performing status when principal and
interest are deemed to be fully collectible in accordance with the contractual
terms of the loan agreement. Once an impaired loan is returned to performing
status, any previous allowance allocated is removed, interest accrues according
to the original terms of the contract, and principal payments are applied first
to the loan balance until paid in full, then as recoveries of charge-offs, and
finally as interest income.
At September 30, 2000, total impaired loans equaled $5.0 million, of which
$3.2 million are non-performing loans. Impaired loans increased $1.6 million
from year-end 1999 due to higher non-performing loans and the addition of one
borrower who was determined to be impaired. This loan was classified as impaired
due to insufficient cash flow, inadequate guarantor support and the failure to
meet revised loan covenants. A $150 thousand specific loan loss reserve
allocation has been established for this borrower. A total specific reserve
allocation of $506 thousand has been established for all impaired loans.
Allowance for Loan Losses
The allowance for loan losses increased to $6.0 million or 1.34 percent of
total loans at September 30, 2000 from $5.3 million or 1.28 percent of total
loans at December 31, 1999. The allowance increased due to a provision for loan
losses of $947 thousand less charge-offs, net of recoveries, totaling $190
thousand. The provision for loan losses increased $29 thousand or 10 percent to
$315 thousand for the quarter compared to a year ago.
Loan growth and an increased concentration of commercial loans accounted
for the increase. Over the past year, average total loans increased $53.4
million to $437.2 million. Average commercial loans increased $42.8 million to
represent 44 percent of average total loans at September 30, 2000.
Because our loan portfolio contains a significant number of commercial
loans with relatively large balances the deterioration of one or several of
these loans may result in a significant increase in non-performing loans. An
increase in non-performing loans could result in a loss of interest income,
higher carrying costs, and an increase in the provision for loan losses and loan
charge-offs.
We maintain an allowance for loan losses to absorb any loan losses based
on our historical experience, an evaluation of economic conditions, and regular
reviews of delinquencies and loan portfolio quality. In evaluating our allowance
for loan losses, we segment our loans into the following categories:
o Commercial (including investment property mortgages),
o Residential mortgages, and
o Consumer.
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Vista Bancorp, Inc. and Subsidiaries
We evaluate some loans as a homogeneous group and others on an individual
basis. Commercial loans with balances exceeding $200 thousand are reviewed
individually. After our evaluation of these loans, we determine the required
allowance for loan losses based upon the following considerations:
o Historical loss levels,
o Prevailing economic conditions,
o Delinquency trends,
o Changes in the nature and volume of the portfolio,
o Concentrations of credit risk, and
o Changes in loan policies or underwriting standards.
Management and the Board of Directors review the adequacy of the reserve
on a quarterly basis and adjustments, if needed, are made accordingly.
For The Nine months
Ended September 30,
Amounts in thousands 2000 1999
-------------------- -------- -------
Average loans outstanding $437,241 $383,821
Total loans at end of period 447,936 403,419
Allowance for loan losses:
Balance at beginning of period 5,266 4,524
Charge-offs:
Commercial 67 98
Real estate - mortgage 34 1
Installment 166 144
-------- -------
Total charge-offs 267 243
Recoveries:
Commercial 36 14
Real estate - mortgage 1 13
Installment 40 34
-------- -------
Total recoveries 77 61
-------- -------
Net charge-offs: 190 182
Provision for loan losses 947 763
-------- -------
Balance at end of period $ 6,023 $ 5,105
Net charge-offs as a percent of average 0.04% 0.05%
loans outstanding during period
Allowance for loan losses as a percent 1.34% 1.27%
of total loans
19
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Liquidity
At September 30, 2000, cash and cash equivalents equaled $47.2 million
representing an increase of $17.8 million from the $29.4 million in cash and
cash equivalents at December 31, 1999.
Changes in cash are measured by the three major classifications of cash
flow defined as operating, investing and financing activities. The $17.8 million
increase in cash and cash equivalents was attributed to cash flows provided by
operating and financing activities totaling $38.9 million, offset by investing
activities of $21.1 million.
For the nine months, net cash provided by operating activities equaled
$5.3 million. This consisted of net income adjusted for noncash charges and the
net change in other assets and other liabilities.
Net cash used in investing activities totaled $21.1 million and included
$22.0 million of security purchases and $46.6 million of net loans. Proceeds
received through maturities and sales of investment securities and loans
provided $49.1 million in funding for these investments.
Net cash provided by financing activities totaled $33.6 million and
included $27.0 million of net deposit growth and $8.0 million in long-term debt
and borrowed funds, that offset cash dividends paid and share repurchases.
Capital Resources
Total shareholders' equity increased $6.1 million to $50.1 million at
September 30, 2000 from $44.0 million at December 31, 1999. Changes in
shareholders' equity included:
o $5.2 million in net income,
o $2.4 million appreciation in the fair value of securities available
for sale,
o $860 thousand in capital raised through the dividend reinvestment
plan, and
o $2.2 million in cash dividends paid.
Our dividend pay out ratio increased to 42.58 percent for the nine months ended
September 30, 2000 compared to 40.44% at September 30, 1999.
At September 30, 2000, a $2.9 million unrealized loss existed in the
available for sale portfolio compared to a $5.3 million unrealized loss at
December 31, 1999. The estimated fair value of the portfolio appreciated due to
the decrease in absolute market interest rates offset in part by widening credit
spreads in the financial markets.
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Vista Bancorp, Inc. and Subsidiaries
During the first quarter 1999, the Board of Directors authorized the
extension of the share repurchase program to include an additional 100,000
shares. These purchases are made pursuant to section 10b-18 from time to time in
open market transactions in the discretion of management and stock availability.
As of March 31, 1999, the initial 100,000 shares had been purchased at a
cost of $2.0 million or an average of $20.18 per share. Under the augmented
program, 55,350 shares had been purchased at a cost of $957 thousand or an
average of $17.28 per share through October 31, 2000.
Vista maintained a Tier I risk-based capital ratio of 11.70 percent and a
total risk-based capital ratio of 12.95 percent at September 30, 2000, compared
to 12.00 percent and 13.25 percent, respectively, at December 31, 1999. Vista
maintained a leverage capital ratio of 7.64 percent at September 30, 2000 and
7.45 percent at December 31, 1999.
21
<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 Not Applicable
Security Holders
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on form 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Description of Exhibit
-------------- -------------------------
2 Not Applicable
4 Not Applicable
10 Not Applicable
11 Not Applicable
15 Not Applicable
18 Not Applicable
19 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
27 Financial Data Schedules
99 Not Applicable
(b) Reports on Form 8-K
On July 11, 2000, we filed form 8-K stating that the Office of
the Comptroller of the Currency ("OCC") has approved the Plan of
Merger between the Registrants two wholly owned subsidiary banks,
Phillipsburg National Bank and Trust Company and Twin Rivers
Community Bank. The resulting bank will trade under the name of
Vista Bank, National Association. It is anticipated that the
effective date for the Plan of Merger will be September 5, 2000.
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Vista Bancorp, Inc. and Subsidiaries
On August 1, 2000, we filed form 8-K regarding the merger of
our certifying accountant Rudolph, Palitz LLC with McGladrey &
Pullen, LLP. Details are as follows:
(a) On August 1, 2000, the Company was notified that Rudolph,
Palitz LLC had merged with McGladrey & Pullen, LLP and that
Rudolph, Palitz LLC would no longer be the auditor for the
Registrant. McGladrey & Pullen, LLP was appointed as the
Registrant's new auditor.
(b) The auditor's reports from Rudolph, Palitz LLC for the
Registrant's past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope, or accounting
principles.
(c) The decision to engage McGladrey & Pullen, LLP was not
approved by the Board of Directors.
(d) During the Registrant's two most recent fiscal years and the
subsequent interim period preceding the change, there have
been no disagreements with Rudolph, Palitz LLC on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
(e) The Registrant has requested Rudolph, Palitz LLC to furnish a
letter addressed to the Commission stating whether it agrees
with the statements made in this Item. Such letter is included
in an exhibit to this Form 8-K.
On August 21, 2000, we filed form 8-K stating that as of 12:00
a.m. on Monday, August 21, 2000, our Plan of Merger between the two
wholly owned subsidiary banks, Phillipsburg National Bank and Trust
Company and Twin Rivers Community Bank had been completed.
23
<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: November 14, 2000
By /s/ William F. Keefe
--------------------------
William F. Keefe
Executive Vice President
and Chief Financial Officer
(Mr. Keefe is the Principal
Accounting Officer and has
been duly authorized to sign
on behalf of the registrant.)
24
