UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 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)
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(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 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 August 4, 2000, there were 5,091,706 shares of $.50 par value Common
Stock outstanding.
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
VISTA BANCORP, INC.
Form 10-Q
For the period ended June 30, 2000
Index
Page
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - June 30, 2000
and December 31, 1999..................................... 3
Consolidated Statements of Income - Three Months and Six Months
Ended June 30, 2000 and 1999.............................. 4
Consolidated Statements of Cash Flows - Three Months and Six Months
Ended June 30, 2000 and 1999.............................. 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................................................. 19
Item 2. Changes in Securities ............................................ 19
Item 3. Defaults Upon Senior Securities .................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............... 19
Item 5. Other Information................................................. 22
Item 6. Exhibits and Reports on Form 8-K.................................. 22
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
Amounts in Thousands (except per share and share data) 2000 1999
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Assets
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 23,062 $ 27,091
Federal funds sold 10,200 2,150
Short term investments 740 156
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Total Cash and Cash Equivalents 34,002 29,397
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Securities available for sale (Amortized cost: $198,476 and $209,627 in 2000 and 1999, respectively) 190,833 202,275
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Loans, net of unearned income:
Mortgage 135,715 130,544
Commercial 205,813 174,334
Consumer 110,567 106,000
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Total Loans 452,095 410,878
Allowance for loan losses (5,808) (5,266)
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Total Net Loans 446,287 405,612
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Premises and equipment 7,759 6,934
Accrued interest receivable 3,726 3,607
Other assets 6,980 6,843
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Total Assets $ 689,587 $ 654,668
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Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest bearing $ 70,165 $ 68,188
Interest bearing 92,476 88,558
Savings 137,840 142,334
Time 284,721 268,042
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Total Deposits 585,202 567,122
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Borrowed funds 40,915 30,835
Long term debt 13,500 8,500
Accrued interest payable 1,404 1,597
Other liabilities 2,347 2,654
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Total Liabilities 643,368 610,708
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Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
5,091,706 and 4,819,002 at June 30, 2000 and December 31, 1999, respectively 2,546 2,409
Paid in capital 30,626 26,674
Retained earnings 18,615 20,213
Accumulated other comprehensive income (5,568) (5,336)
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Total Shareholders' Equity 46,219 43,960
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Total Liabilities and Shareholders' Equity $ 689,587 $ 654,668
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
Amounts in Thousands (except per share and share data) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
Interest Income
<S> <C> <C> <C> <C>
Interest and fees on loans $ 9,213 $ 7,694 $ 17,724 $ 15,146
Interest on federal funds sold 135 150 175 189
Interest on short term investments 14 39 28 79
Interest on securities:
Taxable 2,680 2,381 5,432 4,571
Nontaxable 501 477 1,028 925
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Total Interest Income 12,543 10,741 24,387 20,910
------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 5,367 4,652 10,379 9,087
Interest on borrowed funds 487 208 891 388
Interest on long term debt 241 107 380 161
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Total Interest Expense 6,095 4,967 11,650 9,636
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Net Interest Income 6,448 5,774 12,737 11,274
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Provision for Loan Losses 315 252 631 477
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Net Interest Income after Provision for Loan Losses 6,133 5,522 12,106 10,797
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Noninterest Income:
Service charges on deposit accounts 539 475 1,096 927
Other service charges 225 304 508 584
Net gains on sales of SBA loans 14 134 165 245
Net gains (losses) on sales of securities 20 17 (222) 88
Trust and Asset Management Revenues 82 76 177 161
Other income 122 89 240 227
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Total Noninterest Income 1,002 1,095 1,964 2,232
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Noninterest Expense:
Salaries and benefits 2,184 2,281 4,451 4,495
Occupancy expense 497 425 983 869
Furniture and equipment expense 647 547 1,188 1,078
Marketing expense 181 206 366 374
Other expense 1,087 1,048 1,995 1,957
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Total Noninterest Expense 4,596 4,507 8,983 8,773
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Income Before Provision for Income Taxes 2,539 2,110 5,087 4,256
Provision for Income Taxes 798 628 1,598 1,301
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Net Income $ 1,741 $ 1,482 $ 3,489 $ 2,955
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Earnings per Share $ 0.34 $ 0.29 $ 0.69 $ 0.59
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Weighted Average Number of Common Shares Outstanding 5,074,647 5,050,406 5,066,602 5,049,221
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
2000 1999
-------------------------------
<S> <C> <C>
Cash Flows From Operating Activites:
Net Income $ 3,489 $ 2,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 490 473
Provision for loan losses 631 477
Increase in accrued interest receivable (119) (194)
Decrease in accrued interest payable (193) (16)
Net change in other assets and other liabilities (141) 154
Net amortization of premium on securities 41 269
Net losses (gains) on sales of securities 222 (88)
Net gains on sales of loans (165) (245)
-------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 4,255 3,785
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 10,485 25,198
Proceeds from sales of securities available for sale 21,890 17,146
Purchases of securities available for sale (21,486) (52,611)
Net increase in loans (43,750) (19,715)
Proceeds from sales of loans 2,325 1,621
Net capital expenditures (1,276) (455)
-------------------------------------------------------------------------------------------------------------
Net Cash Used for Investing Activities (31,812) (28,816)
-------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in demand and savings deposits 1,401 3,273
Net increase in time deposits 16,679 21,198
Net increase in borrowed funds 10,080 7,164
Net increase in long term debt 5,000 2,500
Net proceeds from issuance of common stock 571 539
Net treasury stock transactions (128) (389)
Cash dividends paid (1,434) (1,222)
Cash in lieu of fractional shares (7) (8)
-------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 32,162 33,055
-------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 4,605 8,024
-------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, Beginning of Period 29,397 33,001
-------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 34,002 $ 41,025
-------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 11,843 $ 9,652
Income taxes paid 1,869 1,554
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 177 0
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Vista Bancorp, Inc.
and its subsidiaries (Vista) reflect all adjustments and disclosures, which are,
in the opinion of management, necessary for a fair presentation of interim
results. The financial information has been prepared in accordance with Vista's
customary accounting practices and has not been audited.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission (SEC) rules and regulations. The preparation
of financial statements in conformity with 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 six-month periods ended June
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 June 2000 and is effective for fiscal
years beginning after June 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.
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 dividends
declared in April 2000 and
6
<PAGE>
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 depreciation in value of $291 thousand during the quarter
ended June 30, 2000. 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 $ (513) $ (119) $ (394)
Less: reclassification adjustment for losses realized in net income (222) (61) (161)
---------------------------------
Net unrealized loss (291) (58) (233)
---------------------------------
Other comprehensive loss $ (291) $ (58) $ (233)
=================================
</TABLE>
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Certain statements in this Form 10-Q are forward-looking statements that
involve a number of risks and uncertainties. A discussion of these factors,
among others, which may cause actual results to differ materially from projected
results appears under "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.
In March 2000, the Board of Directors of Vista Bancorp, Inc. announced
plans to unify Phillipsburg National Bank and Trust Company (PNB) and Twin
Rivers Community Bank (TRCB) into Vista Bank, N.A. An application was then filed
with the appropriate banking regulators requesting approval of the name change.
The unification will increase customer convenience through access to 15 branches
across northwestern New Jersey and eastern Pennsylvania. We have communicated
this unification through press releases, our 1999 Annual Report and various
other media.
In July 2000, we received notice from the Office of the Comptroller of the
Currency that the Plan of Merger between our two bank subsidiaries was approved.
The resulting bank will operate under the name of Vista Bank, National
Association. It is anticipated that the effective date for the Plan of Merger
will be August 21, 2000.
Results of Operations for the quarter and six months ended June 30, 2000 and
June 30, 1999.
Earnings Summary
Earnings highlights for the 2nd Quarter 2000 compared to the 2nd Quarter 1999
include:
o Net income increased 17 percent to $1.741 million from $1.482
million.
o Diluted earnings per share, adjusted for the 5 percent stock
dividend, increased to $.34 from $.29 per diluted share.
o Return on average assets improved to 1.02 percent from .95 percent.
o Return on average equity increased to 13.77 percent from 12.69
percent.
Net income for the second quarter of 2000 increased on the strength of higher
net interest income. Robust commercial loan demand offset a higher cost of
funding and stabilized the net interest margin.
Offsetting the increase in net interest income, in part, was a higher provision
for loan losses and a lower balance of noninterest income, primarily a lower
volume of sales of the guaranteed portion of SBA loans.
8
<PAGE>
Noninterest expense increased slightly during the quarter as incremental
occupancy costs associated with the opening of our new operations facility
accounted for the majority of the increase.
We continued to record strong quarterly earnings improvements through the
second quarter of 2000 despite a challenging economic backdrop. The Federal
Reserve is in a period of tightening monetary policy by raising interest rates
to slow the pace of economic expansion. Generally, in periods of rising interest
rates funding costs increase, net interest margins compress and revenues and
profit growth can slow. Vista has been able to withstand the higher cost of
money and stabilize the net interest margin through robust commercial loan
growth funded through retail customer deposits that are less sensitive to
changes in market interest rates.
Earnings highlights for the six months ended June 30, include:
o Net income increased 18 percent to $3.489 million from $2.955
million.
o Diluted earnings per share, adjusted for the 5 percent stock
dividend, increased to $.69 from $.59 per diluted share.
o Return on average assets improved to 1.04 percent from .98 percent.
o Return on average equity increased to 13.99 percent from 12.85
percent.
We continue to pursue the following earnings improvement strategies:
o Growing our balance sheet while improving the mix of earning assets
through commercial lending.
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.
o Consolidating deposit and loan products at PNB and TRCB to reduce
inefficiency within product lines and centralize pricing decisions.
Net Interest Income
Tax-equivalent net interest income increased 12 percent to $6.7 million
for the quarter compared to $6.0 million for the second quarter of 1999. The net
interest margin increased to 4.15 percent from 4.07 percent despite a rising
cost of funds driven by higher market interest rates. We offset the impact of
higher funding costs through strong growth in commercial lending origination
that stabilized the net interest margin. The net interest margin declined three
basis points from 4.18 percent reported for the first quarter of 2000.
9
<PAGE>
For the first six months of 2000, tax-equivalent net interest income rose
14 percent to $13.3 million from $11.7 million in 1999. An increase of $67.8
million in average interest-earning assets, strong growth in commercial lending
and a higher interest rate environment combined to increase the yield on earning
assets 31 basis points to 7.80 percent.
The increase in interest-earning assets was funded with retail bank
deposits and a mix of borrowed funds and long-term debt, comprised of Federal
Home Loan Bank advances and capital. The higher interest rate environment raised
the overall cost-of-funds by 27 basis points to 3.65 percent from 3.38 percent.
On a net basis, the higher yield on earning assets, offset the increased cost of
funds, to improve the net interest margin by 4 basis points to 4.15 percent for
the first half of 2000 compared to 4.11 percent for the first half of 1999.
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 June 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.
10
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balances, Net Interest Income and Average Rates (Tax equivalent Basis)
------------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 1999
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Average Average Average Average
Balances Interest Rates Balances Interest Rates
Amounts in Thousands (except percentages) (1) (2) (1) (2)
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<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities purchased
under agreements to resell $ 5,758 $ 175 6.11% $ 8,024 $ 189 4.75%
Short term investments 884 28 6.37% 3,466 79 4.60%
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TOTAL SHORT TERM INVESTMENTS 6,642 203 6.15% 11,490 268 4.70%
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Securities:
U.S. Treasury 8,760 252 5.79% 10,827 320 5.96%
U.S. Government agencies and corporations 128,293 4,338 6.80% 118,522 3,673 6.25%
States and other political subdivisions (3) 40,413 1,376 6.85% 37,206 1,261 6.83%
Other 27,896 970 6.99% 19,479 632 6.54%
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TOTAL SECURITIES 205,362 6,936 6.79% 186,034 5,886 6.38%
------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 134,157 5,059 7.58% 135,022 5,076 7.58%
Commercial (3) 188,230 8,365 8.94% 145,549 6,255 8.67%
Consumer 108,057 4,343 8.08% 96,556 3,856 8.05%
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TOTAL LOANS 430,444 17,767 8.30% 377,127 15,187 8.12%
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS 642,448 24,906 7.80% 574,651 21,341 7.49%
------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 20,885 20,077
Allowance for loan losses (5,555) (4,724)
Other assets 15,716 15,692
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TOTAL NONINTEREST EARNING ASSETS 31,046 31,045
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TOTAL ASSETS $ 673,494 $ 605,696
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Liabilities and Shareholders' Equity
Interest bearing liabilities:
Demand $ 92,774 $ 818 1.77% $ 83,031 $ 748 1.82%
Savings 140,321 2,100 3.01% 137,171 2,033 2.99%
Time 220,925 5,941 5.41% 200,994 5,156 5.17%
Time deposits $100,000 and over 54,425 1,520 5.62% 46,428 1,150 4.99%
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING DEPOSITS 508,445 10,379 4.11% 467,624 9,087 3.92%
------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 35,335 891 5.07% 20,274 388 3.86%
Long term debt 12,231 380 6.25% 5,409 161 6.00%
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TOTAL BORROWED FUNDS AND LONG TERM DEBT 47,566 1,271 5.37% 25,683 549 4.31%
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 556,011 11,650 4.21% 493,307 9,636 3.94%
------------------------------------------------------------------------------------------------------------------------------------
Noninterest bearing demand deposits 63,383 61,833
Other liabilities 3,965 4,180
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TOTAL NONINTEREST BEARING LIABILITIES 67,348 66,013
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 50,135 46,376
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 673,494 $ 605,696
------------------------------------------------------------------------------------------------------------------------------------
Interest Income/Earning Assets 24,906 7.80% 21,341 7.49%
Interest Expense/Earning Assets 11,650 3.65% 9,636 3.38%
Net Interest Income and Margin (5) $ 13,256 4.15% $ 11,705 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 $519 thousand for 2000 and $431 thousand
for 1999.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of average interest earning assets on a
tax equivalent basis.
11
<PAGE>
Volume/Rate Analysis of Changes in Net Interest Income (Tax-equivalent Basis)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 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 $ (14) $ (54) $ 40
Short-term investments (51) (74) 23
------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (65) (128) 63
------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (68) (59) (9)
U.S. Government agencies and corporations 665 317 348
States and other political subdivisions 115 109 6
Other 338 290 48
------------------------------------------------------------------------------------------------------------------
Total Securities 1,050 657 393
------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage (17) (33) 16
Commercial 2,110 1,890 220
Consumer 487 463 24
------------------------------------------------------------------------------------------------------------------
Total Loans 2,580 2,320 260
------------------------------------------------------------------------------------------------------------------
Total Interest Income 3,565 2,849 716
------------------------------------------------------------------------------------------------------------------
Interest Expense:
Demand 70 86 (16)
Savings 67 47 20
Time 785 529 256
Time deposits $100,000 and over 370 214 157
------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,292 876 417
------------------------------------------------------------------------------------------------------------------
Borrowed funds 503 353 150
Long-term debt 219 212 7
------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 722 565 157
------------------------------------------------------------------------------------------------------------------
Total Interest Expense 2,014 1,441 574
------------------------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 1,551 $ 1,408 $ 142
==================================================================================================================
</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>
Noninterest Income
In the second quarter of 2000, certain items were reclassified between
noninterest income and noninterest expense to improve the reporting and economic
impact of select activities. The items affected include loan-related fees and
costs and check book ordering and processing. Loan-related fees collected from
borrowers are netted against the applicable noninterest expense since they
represent collection of direct expenses related to the transaction. Check orders
involve a profit margin or "mark-up". We now gross up the revenue associated
with this service and report it in other income and record the cost of providing
these services in other operating expenses. There is no impact on net income or
earnings per share because of this reporting change. All prior periods have been
changed to conform to the new format to insure consistency.
For the second quarter of 2000, total noninterest income decreased 8
percent to $1.0 million on a lower volume of SBA loan sales. An increase in
service charges on deposit accounts was offset by a decline in other service
charges, reflecting a slowdown in loan related fee income. The impact of
investment securities transactions was not material during the quarter.
Total noninterest income for the first six months of 2000 declined by 12
percent compared to 1999. Adjusting for the effects of gains recognized on the
sale of investments and loans, noninterest income from bank operations climbed
6.4 percent to $2.0 million. The first half of 2000 included $222 thousand in
security losses compared to net gains of $88 thousand recorded in 1999. The
securities were sold to fund loan demand and to reposition the investment
portfolio with securities with better performance potential in a higher interest
rate environment.
Noninterest Expense
Total noninterest expense increased 2 percent for the second quarter of
2000 due to increased occupancy and equipment expenses tied to the relocation
and subsequent opening of the new operations facility. Allowing for a one-time
relocation charge of $75 thousand, total noninterest expense was unchanged at
$4.5 million and only slightly ahead of the rolling quarterly run rate over the
last year.
For the first half of 2000, total noninterest expense rose 2 percent to
$9.0 million from $8.8 million in the corresponding period of 1999, largely on
higher facilities costs and technology spending. 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 2.69 percent from 2.90
percent in the second quarter 1999. A lower result is better and shows
efficiency gains. A second measure known as the efficiency ratio attempts to
capture the cost of generating one incremental dollar of revenue improved to
58.2 percent compared to 63.4 percent. The lower the percentage generally
indicates efficiency in producing revenue or maintaining costs but not indicate
actual success at driving revenue improvements or sustainable expense levels.
13
<PAGE>
The provision for income taxes increased to $798 thousand for the second
quarter of 2000 up from $628 thousand in the second quarter of 1999, on a higher
level of pre-tax earnings. The effective tax rate equaled 31.4 percent for the
second quarter of 2000 and 29.8 percent for the similar quarter of 1999, as
pretax net income increased at a faster pace than tax-exempt interest income.
Financial Condition - June 30, 2000 versus December 31, 1999
Total consolidated assets increased 5 percent to $689.6 million at June
30, 2000 from $654.7 million at December 31, 1999. The change in consolidated
assets was comprised of:
o $41.2 million growth in loans,
o $4.6 million increase in cash and cash equivalents, and a
o $11.4 million decrease in securities available for sale.
Total loans increased $41.2 million during the first half of 2000 due
primarily to commercial loans which increased $31 million and now represent 45
percent of the total loan portfolio at quarter-end, up from 42 percent at
year-end 1999.
The increase was derived from our planned strategy of pursuing larger
dollar, higher yielding commercial loans. Mortgages decreased to 30 percent of
the total portfolio at quarter-end while consumer loans remained constant at 25
percent. 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.
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 $4.6 million during the quarter
due to an increase in federal funds, which offset in part, a decline in cash and
due from banks.
Total securities available for sale decreased $11.5 million to $190.8
million at June 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 cash flow of $32.4 million of which
$21.5 million was reinvested into investment securities with the balance used to
fund loan demand.
14
<PAGE>
In order to fund, the robust loan demands experienced during the first
half of 2000 we used core deposits, a mix of short and medium-term wholesale
funding and internal capital generation. Total deposits increased $18 million
during the first half of 2000, Federal Home Loan Bank advances increased $15
million and the balance included $2.2 million in net capital growth. It is our
intention to replace the shorter-term advances with retail customer deposits by
the end of 2000. While this strategy assumes greater interest rate risk through
exposure to higher interest rates and maturity mismatches in the short run, the
risk is determined to be manageable.
Asset Quality
Non-performing assets, consisting of nonaccrual loans plus other real
estate acquired through foreclosure (OREO), increased slightly to $3.5 million
at June 30, 2000 from $3.2 million at the end of 1999 and was unchanged from
March 31, 2000. The increase since the end of 1999 was due to the addition of
non-performing mortgage loans that are secured by real estate and historically
experience nominal losses. OREO decreased to $501 thousand due to liquidation
and sale of foreclosed properties. Non-performing assets equaled less than one
percent of total loans and OREO at June 30, 2000 and December 31, 1999.
Commercial non-performing loans decreased to 42 percent of total
nonaccrual loans at June 30, 2000 from 46 percent at December 31, 1999, while
nonaccrual residential mortgage loans increased to 45 percent from 38 percent.
Consumer nonaccrual loans decreased to 13 percent of total nonaccrual loans from
16 percent at December 31, 1999.
Amounts in thousands June 30, 2000 December 31, 1999 June 30, 1999
-------------------- ------------- ----------------- -------------
Non-performing loans $2,977 $2,672 $1,877
Other real estate owned 501 553 554
------ ------ ------
Total non-performing assets $3,478 $3,225 $2,431
Loans past due 90 days and on
accrual status $ 2 $ 19 $ 36
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. 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.
15
<PAGE>
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.
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 June 30, 2000, total impaired loans equaled $4.8 million, of which $3.0
million are non-performing loans. Impaired loans increased $1.4 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 $5.8 million or 1.28 percent of
total loans at June 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 loss of
$631 thousand less charge-offs, net of recoveries, totaling $89 thousand. The
provision for loan losses increased $63 thousand or 25 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 $53.3
million to $430.4 million. Average commercial loans increased $42.7 million to
represent 44 percent of average total loans at June 30, 2000.
16
<PAGE>
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 possible 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.
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.
17
<PAGE>
<TABLE>
<CAPTION>
For The Six Months Ended
June 30,
Amounts in thousands 2000 1999
-------------------- -------- --------
<S> <C> <C>
Average loans outstanding $430,445 $377,127
Total loans at end of period 452,095 387,676
Allowance for loan losses:
Balance at beginning of period 5,266 4,524
Charge-offs:
Commercial 26 74
Real estate - mortgage 24 1
Installment 98 101
-------- --------
Total charge-offs 148 176
Recoveries:
Commercial 30 12
Real estate - mortgage 1 13
Installment 28 21
-------- --------
Total recoveries 59 46
-------- --------
Net charge-offs: 89 130
Provision for loan losses 631 477
-------- --------
Balance at end of period $ 5,808 $ 4,871
Net charge-offs as a percent of average 0.02% 0.03%
loans outstanding during period
Allowance for loan losses as a percent 1.28% 1.26%
of total loans
</TABLE>
Liquidity
At June 30, 2000, cash and cash equivalents equaled $34.0 million
representing an increase of $4.6 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 $4.6 million
increase in cash and cash equivalents was attributed to cash flows provided by
operating and financing activities totaling $36.4 million, offset by investing
activities of $31.8 million.
At quarter-end net cash provided by operating activities equaled $4.3
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 $31.8 million and included
$21.5 million of
18
<PAGE>
security purchases and $43.8 million of net loans. Proceeds received through
maturities and sales of investment securities and loans provided $32.4 million
in funding for these investments.
Net cash provided by financing activities totaled $32.2 million and
included $15.0 million in long-term debt and borrowed funds, $18.1 million of
net deposit growth that offset cash dividends paid and share repurchases.
Capital Resources
Total shareholders' equity increased $2.2 million to $46.2 million at June
30, 2000 from $44.0 million at December 31, 1999. Changes in shareholders'
equity included:
o $3.49 million in net income,
o $571 thousand in capital raised through the dividend reinvestment
plan, and
o $1.4 million in cash dividends paid.
Our dividend pay out ratio equaled 41.0 percent for the six months ended June
30, 2000 and June 30, 1999.
At June 30, 2000, a $5.6 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 depreciated due to the increase
in absolute market interest rates and widening credit spreads in the financial
markets.
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 June 30, 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, 42,600 shares had been purchased at a cost of $764 thousand or an
average of $17.93 per share through June 30, 2000. No shares were repurchased
during the second quarter of 2000 as available funding was used in connection
with leasehold improvements associated with the grand opening of the new
operations facility.
Vista maintained a Tier I risk-based capital ratio of 11.45 percent and a
total risk-based capital ratio of 12.70 percent at June 30, 2000, compared to
12.00 percent and 13.25 percent, respectively, at December 31, 1999. Vista
maintained a leverage capital ratio of 7.53 percent at June 30, 2000 and 7.45
percent at December 31, 1999.
19
<PAGE>
Part II Other Information
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Not Applicable
Security Holders
The annual meeting of shareholders was held on Thursday, April 27, 2000.
The following vote tabulation has not been adjusted for the 5 percent stock
dividend paid in May 2000.
(a) Election of Directors
The following Class B directors, whose terms expire in 2003, were
re-elected based on the following votes:
For Withheld
--------- --------
Harold J. Curry 3,919,203 446,163
Dale F. Falcinelli 3,942,210 423,156
Barry L. Hajdu 4,139,988 225,378
Marc S. Winkler 3,917,227 448,139
The following Class C directors terms continue until 2001:
Richard A. Cline
James T. Finegan, Jr.
David L. Hensley
The following Class A directors terms continue until 2002:
Barbara A. Harding
Mark A. Reda
J. Marshall Wolff
(b) Approval to eliminate, rescind and cancel Article 10 of the Amended
Certificate of Incorporation, relating to cumulative voting for directors:
For: 3,238,350
Against: 1,107,533
Abstain: 19,483
20
<PAGE>
(c) Ratification of the selection of Rudolph Palitz LLC, Certified Public
Accountants as the auditors of Vista for the year ending December 31,
2000:
For: 4,192,365
Against: 122,885
Abstain: 50,116
(d) Recommendation for new anti-takeover provisions to receive prior
stockholder approval:
For: 1,220,142
Against: 2,855,709
Abstain: 18,666
Not Voted: 270,849
(e) Recommendation to amend Article 11 of the Amended Certificate of
Incorporation relating to the factors that can be considered in opposing a
tender or other offer:
For: 1,152,449
Against: 2,922,939
Abstain: 19,129
Not Voted: 270,849
(f) Recommendation to eliminate the three classes of directors:
For: 1,138,108
Against: 2,913,200
Abstain: 43,209
Not Voted: 270,849
(g) Recommendation to lower the voting requirement to amend certain
anti-takeover provisions in the Amended Certificate of Incorporation:
For: 1,164,781
Against: 2,910,056
Abstain: 19,680
Not Voted: 270,849
(h) Recommendation to solicit proposals to merge:
For: 861,182
Against: 3,210,065
Abstain: 23,270
Not Voted: 270,849
21
<PAGE>
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
None.
22
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Vista Bancorp, Inc.
-------------------------------
(Registrant)
Dated: August 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.)
23
