UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 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
--------------------------
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 May 2, 2000, there were 5,070,654 shares of $.50 par value Common
Stock outstanding.
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
VISTA BANCORP, INC.
Form 10-Q
For the period ended March 31, 2000
Index
Page
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999................................................3
Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999........................................4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 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.....................................................19
Item 6. Exhibits and Reports on Form 8-K......................................19
2
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
Amounts in Thousands (except per share and share data) 2000 1999
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<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 27,130 $ 27,091
Federal funds sold 7,460 2,150
Short-term investments 959 156
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Total Cash and Cash Equivalents 35,549 29,397
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Securities available for sale (Amortized cost: $206,383 and $209,627 in 2000 and 1999, respectively) 197,632 202,275
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Loans, net of unearned income:
Mortgage 132,973 130,544
Commercial 186,370 174,334
Consumer 108,595 106,000
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Total Loans 427,938 410,878
Allowance for loan losses (5,546) (5,266)
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Total Net Loans 422,392 405,612
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Premises and equipment 7,475 6,934
Accrued interest receivable 3,454 3,607
Other assets 7,441 6,843
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Total Assets $ 673,943 $ 654,668
====================================================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 66,662 $ 68,188
Interest-bearing 92,548 88,558
Savings 140,102 142,334
Time 274,042 268,042
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Total Deposits 573,354 567,122
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Borrowed funds 35,498 30,835
Long-term debt 16,500 8,500
Accrued interest payable 1,474 1,597
Other liabilities 2,950 2,654
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Total Liabilities 629,776 610,708
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Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
5,070,582 and 5,059,952 at March 31, 2000 and December 31, 1999, respectively 2,535 2,409
Paid-in capital 30,341 26,674
Retained earnings 17,636 20,213
Accumulated other comprehensive income (6,345) (5,336)
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Total Shareholders' Equity 44,167 43,960
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Total Liabilities and Shareholders' Equity $ 673,943 $ 654,668
====================================================================================================================================
</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>
For the Quarter Ended March 31,
Amounts in Thousands (except per share and share data) 2000 1999
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<S> <C> <C>
Interest Income:
Interest and fees on loans $ 8,512 $ 7,452
Interest on federal funds sold 40 39
Interest on short-term investments 14 40
Interest on securities:
Taxable 2,750 2,218
Nontaxable 528 420
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Total Interest Income 11,844 10,169
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Interest Expense:
Interest on deposits 5,012 4,435
Interest on borrowed funds 404 180
Interest on long-term debt 139 54
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Total Interest Expense 5,555 4,669
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Net Interest Income 6,289 5,500
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Provision for Loan Losses 316 225
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Net Interest Income after Provision for Loan Losses 5,973 5,275
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Noninterest Income:
Service charges on deposit accounts 557 452
Other service charges 338 343
Net gains on sales of SBA loans 151 111
Net (losses) gains on sales of securities (242) 71
Trust and Asset Management Revenues 94 84
Other income 54 73
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Total Noninterest Income 952 1,134
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Noninterest Expense:
Salaries and benefits 2,268 2,214
Occupancy expense 487 444
Furniture and equipment expense 541 531
Marketing expense 184 167
Other expense 897 907
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Total Noninterest Expense 4,377 4,263
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Income Before Provision for Income Taxes 2,548 2,146
Provision for Income Taxes 799 673
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Net Income $ 1,749 $ 1,473
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Earnings per Share $ 0.34 $ 0.29
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Weighted Average Number of Common Shares Outstanding 5,058,377 5,048,463
====================================================================================================================================
</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 CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---------------------------
Cash Flows From Operating Activites:
<S> <C> <C>
Net Income $ 1,749 $ 1,473
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 233 228
Provision for loan losses 316 225
Decrease (increase) in accrued interest receivable 153 (185)
Increase in accrued interest payable (123) (71)
Net change in other assets and other liabilities 144 987
Net amortization of premium on securities 26 139
Net losses (gains) on sales of securities 242 (71)
Net gains on sales of loans (151) (111)
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Net Cash Provided By Operating Activities 2,589 2,614
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Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 6,351 13,032
Proceeds from sales of securities available for sale 14,564 7,215
Purchases of securities available for sale (17,938) (33,240)
Net increase in loans (19,113) (5,465)
Proceeds from sales of loans 2,092 1,732
Net capital expenditures (755) (258)
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Net Cash Used for Investing Activities (14,799) (16,984)
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Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 232 (9,432)
Net increase in time deposits 6,000 14,049
Net increase in borrowed funds 4,663 5,242
Net increase in long-term debt 8,000 2,500
Net proceeds from issuance of common stock 269 292
Net treasury stock transactions (128) (196)
Cash dividends paid (674) (549)
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Net Cash Provided By Financing Activities 18,362 11,906
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Net Increase (Decrease) in Cash and Cash Equivalents 6,152 (2,464)
Cash and Cash Equivalents, Beginning of Period 29,397 33,001
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Cash and Cash Equivalents, End of Period $ 35,549 $ 30,537
=====================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 5,678 $ 4,740
Income taxes paid 50 88
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 85 0
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Vista Bancorp, Inc.
and its subsidiaries (Vista) reflect all adjustments and disclosures, which are,
in the opinion of management, necessary for a fair presentation of interim
results. The financial information has been prepared in accordance with Vista's
customary accounting practices and has not been audited.
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission (SEC) rules and regulations. The preparation
of financial statements in conformity with general accepted accounting
principles requires management to make certain estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. These interim financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in Vista's Annual Report for the year
ended December 31, 1999.
Results of operations for the three-month period ended March 31, 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. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133" was
issued in June 1999. SFAS No. 137 delays the implementation of SFAS No. 133
until fiscal years beginning after June 15, 2000. This delay was due to the
complexity of implementing this standard along with Year 2000 considerations.
Currently, we do not invest in derivative instruments nor engage in hedging
activities. Adoption of SFAS 137 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 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 will have 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.
6
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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 $1.4 million during the quarter
ended March 31, 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.
Before-Tax Tax Net-of-Tax
(Amounts in thousands) Amount (Benefit) Amount
Unrealized losses on securities:
Unrealized holding losses arising during
period $(1,640) $(455) $(1,185)
Less: reclassification adjustment for
losses realized in net income (242) (66) (176)
--------------------------------
Net unrealized loss (1,398) (389) (1,009)
--------------------------------
Other comprehensive loss $(1,398) $(389) $(1,009)
================================
7
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Certain statements in this Form 10-Q are forward-looking statements that
involve a number of risks and uncertainties. A discussion of these factors,
among others, which may cause actual results to differ materially from projected
results appears under "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, 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. Application has been made to 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 mediums.
Operations Center
In May, we will open our new Operations Center at the Hillcrest Mall,
Phillipsburg, New Jersey. This facility will house the technology, deposit and
loan operations departments.
Results of Operations for the periods ended March 31, 2000 and March 31, 1999
Earnings Summary
Earnings highlights for the quarter include:
o Net income increased 19 percent to $1.749 million from $1.473
million.
o Diluted earnings per share, adjusted for the stock dividend declared
April 22, 2000, increased 17 percent to $.34 from $.29 per diluted
share.
o Return on average assets improved to 1.06 percent from 1.02 percent.
o Return on average equity increased to 14.24 percent from 13.01
percent.
Net income increased due to strong growth in net interest income, offset in part
by security losses, higher operating expenses and an increased provision for
loan losses.
We continue to pursue earnings improvement strategies such as:
o Improving the mix of earning assets through commercial lending.
o Recognizing security losses for reinvestment into higher-yielding
securities.
8
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
o Investing in technology, facilities and personnel to increase
efficiency and improve productivity.
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 16 percent to $6.6 million
for the quarter ended March 31, 2000 compared to $5.7 million in 1999. This
increase was due to the:
o Substantial increase in interest earning assets, and
o Wider net interest margin.
Interest-earning assets increased $73.1 million to $630.8 million for the
quarter. Commercial and consumer loans contributed $50.9 million of this growth
as we continue to emphasize developing a more profitable product mix.
Additionally, average securities increased $29.7 million due primarily to
leverage transactions. During this period, our net interest margin expanded to
4.18 percent from 4.15 percent in 1999.
Our tax-equivalent yield on average earning assets increased 17 basis
points to 7.72 percent. This resulted from the:
o Improved mix of earning assets and strong commercial loan growth.
o Higher level of market interest rates.
o Reinvestment of security proceeds into higher yielding instruments.
Our average cost of interest-bearing liabilities increased 14 basis points
to 4.10 percent. This increased due to:
o Higher interest rate environment.
o Competitive pricing pressure in growing time deposits.
o Slower pace of core deposit growth as customers seek higher yielding
alternative investments.
o Increased use of FHLB borrowings to fund asset growth.
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 March 31, 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.
9
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Consolidated Average Balances, Net Interest Income and Average Rates
(Tax-equivalent Basis)
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<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
Amounts in Thousands (except percentages) (1) (2) (1) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities purchased
under agreements to resell $ 2,884 $ 40 5.58% $ 3,312 $ 39 4.78%
Short-term investments 982 14 5.73% 3,333 40 4.87%
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TOTAL SHORT-TERM INVESTMENTS 3,866 54 5.62% 6,645 79 4.82%
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Securities:
U.S. Treasury 9,438 136 5.80% 12,578 186 6.00%
U.S. Government agencies and corporations 130,095 2,191 6.77% 113,151 1,739 6.23%
States and other political subdivisions (3) 42,070 743 7.10% 36,018 609 6.86%
Other 27,678 455 6.61% 17,752 293 6.69%
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TOTAL SECURITIES 209,281 3,525 6.77% 179,499 2,827 6.39%
- ---------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:(4)
Mortgage 131,706 2,470 7.54% 136,595 2,569 7.63%
Commercial (3) 178,645 3,926 8.84% 139,307 2,997 8.72%
Consumer 107,325 2,137 8.01% 95,716 1,906 8.08%
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TOTAL LOANS 417,676 8,533 8.22% 371,618 7,472 8.15%
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TOTAL INTEREST-EARNING ASSETS $ 630,823 12,112 7.72% 557,762 10,378 7.55%
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Cash and due from banks 20,162 19,973
Allowance for loan losses (5,422) (4,633)
Other assets 15,171 15,328
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TOTAL NONINTEREST-EARNING ASSETS 29,911 30,668
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TOTAL ASSETS $ 660,734 $ 588,430
=================================================================================================================================
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 91,551 $ 406 1.78% $ 83,339 $ 385 1.87%
Savings 140,602 1,052 3.01% 133,627 984 2.99%
Time 216,851 2,846 5.28% 195,751 2,519 5.22%
Time deposits $100,000 and over 53,510 708 5.32% 42,913 547 5.17%
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TOTAL INTEREST-BEARING DEPOSITS 502,514 5,012 4.01% 455,630 4,435 3.95%
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Borrowed funds 32,947 404 4.93% 19,027 180 3.84%
Long-term debt 9,511 139 5.88% 3,583 54 6.11%
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TOTAL BORROWED FUNDS AND LONG-TERM DEBT 42,458 543 5.14% 22,610 234 4.20%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 544,972 5,555 4.10% 478,240 4,669 3.96%
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Noninterest-bearing demand deposits 61,961 60,022
Other liabilities 4,392 4,250
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TOTAL NONINTEREST-BEARING LIABILITIES 66,353 64,272
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Shareholders' Equity 49,409 45,918
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 660,734 $ 588,430
=================================================================================================================================
Interest Income/Earning Assets 12,112 7.72% 10,378 7.55%
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Interest Expense/Earning Assets 5,555 3.54% 4,669 3.40%
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Net Interest Income and Margin (5) $ 6,557 4.18% $ 5,709 4.15%
================================================================================================================================
</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 $268 thousand for 2000 and $209
thousand for 1999.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of average interest-earning assets on
a tax-equivalent basis.
10
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Volume/Rate Analysis of Changes in Net Interest Income (Tax-equivalent Basis)
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<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 vs. 1999
--------------------------------
Increase (Decrease)
Due to Changes in:
--------------------------------
Total Average Average
Amounts in Thousands Change(1) Volume Rate
==================================================================================================
<S> <C> <C> <C>
Interest Income:
Federal funds sold $ 1 $ (5) $ 6
Short-term investments (26) (32) 6
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Total Short-term Investments (25) (37) 12
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Securities:
U.S. Treasury (50) (45) (5)
U.S. Government agencies and corporations 452 277 175
States and other political subdivisions 134 106 28
Other 162 163 (1)
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Total Securities 698 501 197
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Loans, net of unearned income:(2)
Mortgage (99) (92) (7)
Commercial 929 864 65
Consumer 231 231 0
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Total Loans 1,061 1,003 58
- --------------------------------------------------------------------------------------------------
Total Interest Income 1,734 1,467 267
- --------------------------------------------------------------------------------------------------
Interest Expense:
Demand 21 37 (16)
Savings 68 52 16
Time 327 277 50
Time deposits $100,000 and over 161 140 21
- --------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 577 506 71
- --------------------------------------------------------------------------------------------------
Borrowed funds 224 160 64
Long-term debt 85 87 (2)
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Total Borrowed Funds and Long-term Debt 309 247 62
- --------------------------------------------------------------------------------------------------
Total Interest Expense 886 753 133
- --------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 848 $ 714 $ 134
==================================================================================================
</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.
11
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Noninterest Income
Total noninterest income decreased 16 percent to $952 thousand for the
quarter ended March 31, 2000 compared to a year ago. Excluding the gains
recognized on SBA loan sales and the losses recognized on security sales,
noninterest income increased 10 percent to $1.04 million. The increase was due
to:
o Fees assessed to customers for insufficient funds on checking
accounts (NSF), and
o Increased fees assessed to customers for ATM/Debit cards.
Net gains recorded on the sale of the guaranteed portion of SBA loans
totaled $151 thousand for the quarter compared to $111 thousand a year ago.
During the course of the quarter ended March 31, 2000, we sold $14.6
million of investment securities to fund commercial loan demand and to
reposition the investment portfolio for the likelihood of higher interest rates
in the future.
The sales consisted of pass-through mortgage-backed securities, US
Treasury Securities, agency debt securities, tax exempt investments and
corporate bonds. The sales are not exected to have an adverse impact on
earnings, investment portfolio yields or the net interest margin as the proceeds
were reinvested into higher-yielding commercial loans.
For the quarter ended March 31, 1999, we recognized $71 thousand in net
gains on the sale of $7.2 million of investment securities. The sales consisted
primarily of US Treasury Securities with unrealized gains and the proceeds were
reinvested into higher-yielding mortgage-backed securities.
In the normal course of business we assess fees, known as NSF fees, to
customers who write checks against their demand accounts but at the time of
presentation there are insufficient funds available in the account. We then
return the check and assess a fixed fee per reviewed item. During the first
quarter of 2000, we enacted a new policy and fee structure for customers with
insufficient funds in their demand accounts. The new fee structure included an
increase in the per check charge as well as a daily fee for as long as the
account remains in NSF status. We also adopted maximum daily limits on the
amount of fees assessed.
For the quarter ended March 31, 2000, NSF fee income increased 78 percent
to $315 thousand compared to $177 thousand earned in the same quarter of 1999.
We estimate the entire increase was attributed to the change in the fee
structure for NSF activities.
Noninterest Expense
Total noninterest expense increased 3 percent to $4.4 million for the
quarter ended March 31, 2000, from the comparable quarter in 1999.
Our increased operating expenses may be attributed to our strategy to
continually invest in facilities, technology and personnel to support asset
growth. Over the past year, we opened two branches in Bethlehem, Pennsylvania
and relocated our Trust and Asset Management facility. In May, the new
Operations Center location will be opened.
Our ability to grow the franchise while effectively controlling expenses
can be quantified using two benchmarks. One benchmark, which considers
noninterest expense as a percent of average assets, improved to 2.66 percent
from 2.85 percent in the first quarter 1999. Second, the efficiency ratio which
measures the cost of generating one incremental dollar of revenue, improved to
56.47 percent compared to 62.95 percent.
12
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
The primary contributors to increased operating expenses compared to the
first quarter 1999 included:
o Lease expense on the new Operations Center.
o Advertising expenses related to the unification of PNB and TRCB.
The provision for income taxes increased to $799 thousand for the quarter
due to a higher level of pre-tax earnings. The effective tax rate equaled 31.4
percent for the quarter ended March 31, 2000 and 1999.
Financial Condition - March 31, 2000 versus December 31, 1999
Total consolidated assets increased 3 percent to $673.9 million at March
31, 2000 from $654.7 million at December 31, 1999. This increase was comprised
of:
o $17.1 million growth in loans,
o $6.2 million increase in cash and cash equivalents, and a
o $4.6 million decrease in securities available for sale.
Total loans increased $17.1 million during the quarter due primarily to
commercial loans which increased $12 million and represent 44 percent of the
total loan portfolio at quarter-end. This resulted from our strategy of larger
dollar, higher yielding commercial lending. Mortgages decreased to 31 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. This strength is evident in the low
level of our past due and non-performing commercial loans on a current as well
as 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 how our commercial borrowers will be impacted by adverse economic events.
Total cash and cash equivalents increased $6.2 million during the first
quarter due to increases in federal funds sold and other short-term investments.
Total securities available for sale decreased $4.6 million to $197.6
million as of March 31, 2000 compared to $202.3 million at December 31, 1999.
The decrease was due to $17.9 million in purchases offset by $14.6 million in
sales, $6.4 million in maturities and principal repayments, and a $1.4 million
depreciation in market value of the portfolio since year-end. Increased market
interest rates and widening of credit spreads combined to depress values of
13
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
fixed rate securities. We sold securities during the quarter for reinvestment
and liquidity purposes. The concentration of the portfolio remained virtually
unchanged from year-end.
Asset growth was funded by a combination of long-term debt, deposits and
borrowed funds.
During the quarter, we entered into $10 million in term advances with the
Federal Home Loan Bank for liquidity purposes. This consisted of $8 million in
long-term borrowings (maturities of one-year or more) and $2 million in
short-term funding. An increase in overnight repurchase agreement balances also
contributed to the increase in borrowings. Leverage transactions, where borrowed
funds are used to purchase investment securities, equaled $18.5 million and
remained unchanged from year-end.
Total deposits increased $6.2 million to $573.4 million as of March 31,
2000. The majority of deposit growth occurred in time deposits. Due to the
increased rate environment, core checking and savings account balances have
remained relatively unchanged. Customers are investing in higher yielding time
deposits and other alternative investments. Deposit concentrations remained
virtually unchanged from year-end 1999.
Asset Quality
Non-performing assets, consisting of nonaccrual loans plus other real
estate acquired through foreclosure (OREO), increased 9 percent to $3.5 million
at March 31, 2000. The increase was due to the addition of non-performing
mortgage loans which are well secured by real estate and historically experience
nominal losses. OREO increased to $588 thousand with the addition of one
property. Non-performing assets equaled less than one percent of total loans and
OREO at March 31, 2000 and December 31, 1999.
Commercial non-performing loans decreased to 42 percent of total
nonaccrual loans at March 31, 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.
<TABLE>
<CAPTION>
Amounts in thousands March 31, 2000 December 31, 1999 March 31, 1999
- -------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
Non-performing loans $2,919 $2,672 $1,814
Other real estate owned 588 553 1,017
------ ------ ------
Total non-performing assets $3,507 $3,225 $2,831
Loans past due 90 days and
on accrual status $ 0 $ 19 $ 153
</TABLE>
14
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
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.
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 March 31, 2000, total impaired loans equaled $4.8 million, of which
$2.9 million are non-performing loans. This represented an increase of $1.4
million from year-end 1999 due to higher non-performing loans and the addition
of one borrower who was individually deemed 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.
15
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Allowance for Loan Losses
The allowance for loan losses increased to $5.5 million or 1.30 percent of
total loans at March 31, 2000 from $5.3 million or 1.28 percent of total loans
at December 31, 1999. The allowance increased due to a higher quarterly
provision less charge-offs, net of recoveries, totaling $36 thousand.
The provision for loan losses increased $91 thousand or 41 percent to $316
thousand for the quarter. Loan growth and an increased concentration of
commercial loans drove this increase. Over the past year, average total loans
increased $46.1 million. Average commercial loans increased $39.3 million to
represent 44 percent of average total loans at March 31, 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 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 allocate portions of our
allowance for loan losses to categories of loans 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.
16
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
For The Three Months
Ended March 31,
Amounts in thousands 2000 1999
- -------------------- -------- --------
Average loans outstanding $417,676 $371,619
Total loans at end of period 427,938 373,353
Allowance for loan losses:
Balance at beginning of period 5,266 4,524
Charge-offs:
Commercial 26 --
Real estate - mortgage -- --
Installment 49 39
-------- --------
Total charge-offs 75 39
Recoveries:
Commercial 27 3
Real estate - mortgage -- --
Installment 12 9
-------- --------
Total 39 12
-------- --------
Net charge-offs: 36 27
Provision for loan losses 316 225
-------- --------
Balance at end of period $ 5,546 $ 4,722
-------- --------
Net charge-offs as a percent of average 0.01% 0.01%
loans outstanding during period ======== ========
Allowance for loan losses as a percent 1.30% 1.26%
of total loans ======== ========
Liquidity
At March 31, 2000, cash and cash equivalents equaled $35.5 million
representing an increase of $6.1 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 $6.1 million
increase in cash and cash equivalents was attributed to combined net cash flows
provided by operating and financing activities totaling $20.9 million, offset by
investing activities of $14.8 million.
At quarter-end net cash provided by operating activities equaled $2.6
million. This consisted of net income adjusted for noncash charges and the net
change in other assets and other liabilities.
17
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
Net cash used in investing activities totaled $14.8 million. This
consisted of $17.9 million of security purchases and $19.1 million of net loans.
Proceeds received through maturities and sales of investment securities and
loans provided $20.9 million in funding for these investments.
Net cash provided by financing activities totaled $18.3 million. This
included $8.0 million in long-term debt, $6.2 million of net deposit growth and
$4.7 million in borrowed which offset cash dividends paid and share repurchases.
Capital Resources
Total shareholders' equity increased $200 thousand to $44.2 million at
March 31, 2000 from $44.0 million at December 31, 1999. Changes in shareholders'
equity included:
o $1.75 million in net income,
o $269 thousand in capital raised through the dividend reinvestment
plan,
o $1.0 million depreciation in the market value of available for sale
securities,
o $674 thousand in cash dividends paid, and
o $128 thousand in share repurchases.
Our dividend payout ratio equaled 38.5 percent for the quarter ended March 31,
2000 compared to 37.3 percent in 1999.
At March 31, 2000, the Bank's available for sale portfolio contained a
$6.3 million unrealized loss compared to a $5.3 million unrealized loss at
December 31, 1999. The portfolio's market value depreciated due to the increase
in absolute market interest rates during the quarter 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 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, 42,600 shares had been purchased at a cost of $764 thousand or an
average of $17.93 per share through April 24, 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 March 31, 2000, compared to
12.00 percent and 13.25 percent, respectively, at December 31, 1999. Vista
maintained a leverage capital ratio of 7.63 percent at March 31, 2000 and 7.45
percent at December 31, 1999.
18
<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 March 17, 2000 we filed form 8-K stating that the Board of
Directors approved the unification of our two wholly owned
subsidiary banks, Phillipsburg National Bank and Trust Company and
Twin Rivers Community Bank. The unified banks will trade under the
name Vista Bank, N.A.
19
<PAGE>
Vista Bancorp, Inc. and Subsidiaries
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Vista Bancorp, Inc.
- -------------------------
(Registrant)
Dated: May 15, 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.)
20
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,130
<INT-BEARING-DEPOSITS> 959
<FED-FUNDS-SOLD> 7,460
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 197,632
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 427,938
<ALLOWANCE> 5,546
<TOTAL-ASSETS> 673,943
<DEPOSITS> 573,354
<SHORT-TERM> 35,498
<LIABILITIES-OTHER> 4,424
<LONG-TERM> 16,500
0
0
<COMMON> 2,415
<OTHER-SE> 41,752
<TOTAL-LIABILITIES-AND-EQUITY> 673,943
<INTEREST-LOAN> 8,512
<INTEREST-INVEST> 3,278
<INTEREST-OTHER> 54
<INTEREST-TOTAL> 11,844
<INTEREST-DEPOSIT> 5,012
<INTEREST-EXPENSE> 5,555
<INTEREST-INCOME-NET> 6,289
<LOAN-LOSSES> 316
<SECURITIES-GAINS> (242)
<EXPENSE-OTHER> 4,377
<INCOME-PRETAX> 2,548
<INCOME-PRE-EXTRAORDINARY> 2,548
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,749
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.18
<LOANS-NON> 2,919
<LOANS-PAST> 0
<LOANS-TROUBLED> 710
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,266
<CHARGE-OFFS> 75
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 5,546
<ALLOWANCE-DOMESTIC> 5,348
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 198
</TABLE>
