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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file Number: 0-21264
VISTA BANCORP, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2870972
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
305 Roseberry Street, P.O. Box 5360, Phillipsburg, New Jersey 08865
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 859-9500
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant based on a closing sale price: $43.7 million at March 12,
1997.
As of March 12, 1997, the registrant had outstanding 4,105,484 shares
of its common stock, par value $.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 definitive Proxy Statement
are incorporated by reference in Part III of this Annual Report. In addition,
portions of the Annual Report to shareholders of the registrant for the year
ended December 31, 1996, are incorporated by reference in Part II of this Annual
Report.
Page 1 of 95
Exhibit Index on Page 31
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VISTA BANCORP, INC.
FORM 10-K
Index
<TABLE>
<CAPTION>
Part I Page
<S> <C> <C>
Item 1. Business...................................................................... 1
Item 2. Properties.................................................................... 20
Item 3. Legal Proceedings............................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders........................... Not Applicable
Part II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters................................................. 22
Item 6. Selected Financial Data....................................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 25
Item 8. Financial Statements and Supplementary Data................................... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... Not Applicable
Part III
Item 10. Directors and Executive Officers of the Registrant............................ 25
Item 11. Executive Compensation........................................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................................. 26
Item 13. Certain Relationships and Related Transactions................................ 26
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................................ 26
Signatures .............................................................................. 28
Exhibit Index .............................................................................. 31
</TABLE>
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VISTA BANCORP, INC.
FORM 10-K
Part I
Item 1. Business
General
Vista Bancorp, Inc. ("Vista"), is a New Jersey business
corporation, incorporated on March 15, 1988, and is a bank holding company,
registered with and supervised by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). Vista has two (2) wholly-owned subsidiary
banks, The Phillipsburg National Bank and Trust Company ("Phillipsburg National
Bank") and Twin Rivers Community Bank ("Twin Rivers"). These two banks are
hereinafter collectively referred to as the "Bank Subsidiaries." The deposits of
the Bank Subsidiaries are generally insured by the Federal Deposit Insurance
Corporation ("FDIC") under the Bank Insurance Fund ("BIF"), although
Phillipsburg National Bank has acquired some so-called "Oakar" deposits which
are insured under the Savings Association Insurance Fund ("SAIF"). As of
December 31, 1996, Vista had total consolidated assets of $498.2 million, total
consolidated deposits of $435.1 million and total consolidated shareholders'
equity of $38.8 million.
Vista provides a full range of retail and commercial banking
services for consumers and small to medium size businesses. Lending is
concentrated in commercial, consumer and real estate loans to local borrowers.
Vista's lending and investing activities are funded principally by deposits
gathered through its retail branch office network. Vista's retail approach is
that of a community bank -- development of long-term customer relationships,
personalized service, convenient locations, free checking for customers
maintaining certain minimum balances and convenient hours of operation.
Vista's growth strategy is centered on the further development
of its community-based retail banking network along the Interstate 78 corridor
in the counties of Warren and Hunterdon in New Jersey and in the county of
Northampton in Pennsylvania, with the extension of its market to the East in New
Jersey and to the West in Pennsylvania. This retail approach to banking has
resulted in the growth of demand and savings deposits due to convenience and
service. The objective of this strategy is to take advantage of the expected
long-term economic growth along the Interstate 78 corridor in New Jersey and
Pennsylvania.
Vista's and Phillipsburg National Bank's principal executive
offices are currently located at 305 Roseberry Street, Post Office Box 5360,
Phillipsburg, New Jersey 08865. Phillipsburg National Bank's main office is
located at 115 South Main Street, Phillipsburg, New Jersey 08865. Vista has an
operations center located at 291 Pickford Avenue, Phillipsburg, New Jersey
08865. Phillipsburg National Bank has, in addition, an administrative and
consumer loan center located at 305 Roseberry Street, Post Office Box 5360,
Phillipsburg, New Jersey and ten (10) branch offices located throughout Warren
and Hunterdon Counties, New Jersey. Twin Rivers' main office is located at 2925
William Penn Highway, Easton, Pennsylvania 18045, and has three (3) branch
offices located in the Easton and Bethlehem areas of Pennsylvania.
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As of December 31, 1996, Vista had thirty-four (34) full-time
and three (3) part-time employees. These employees are in the following areas:
corporate security/disaster recovery, compliance, audit, loan review, data
processing and bookkeeping. The Bank Subsidiaries reimburse Vista for the
respective services performed by these employees. Vista does not own real
property. However, Vista does pay the rent for the premises in which the
operations center is located. The operations center is the location where most
of Vista's employees work. Vista is not a party to any collective bargaining
agreement.
Supervision and Regulation - Vista
Vista is subject to the jurisdiction of the Securities and
Exchange Commission ("SEC") for matters relating to the offering and sale of its
securities. Vista is currently subject to the SEC's rules and regulations
relating to periodic reporting, insider trading reports and proxy solicitation
materials in accordance with the Securities Exchange Act of 1934 (the "Exchange
Act").
Vista is also subject to the provisions of the Bank Holding
Company Act of 1956, as amended ("Bank Holding Company Act"), and to supervision
by the Federal Reserve Board ("FRB"). The Bank Holding Company Act requires
Vista to secure the prior approval of the FRB before it owns or controls,
directly or indirectly, more than 5% of the voting shares of substantially all
of the assets of any institution, including another bank. The Bank Holding
Company Act prohibits acquisition by Vista of more than 5% of the voting shares
of, or interest in, or substantially all of the assets of, any bank located
outside New Jersey unless such an acquisition is specifically authorized by laws
of the state in which such bank is located.
A bank holding company is prohibited from engaging in or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in non-banking activities unless the FRB, by order or
regulation, has found such activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In making this
determination, the FRB considers whether the performance of these activities by
a bank holding company would offer benefits to the public that outweigh possible
adverse effects.
The Bank Holding Company Act also prohibits acquisitions of
control of a bank holding company, such as Vista, without prior notice to the
FRB. AControl is defined for this purpose as the power, directly or indirectly,
to direct the management or policies of a bank holding company or to vote 25%
(or 10%, if no other person or persons acting in concert, holds a greater
percentage of the Common Stock) or more of Vista's Common Stock.
Vista is required to file an annual report with the FRB and
any additional information that the FRB may require pursuant to the Bank Holding
Company Act. The FRB may also make examinations of Vista and any or all of its
subsidiaries. Subject to certain exceptions, a bank holding company and its
subsidiaries are generally prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or provision of credit
or provision of any property or services. The so-called "Anti-tie-in" provisions
state generally that a bank may not extend credit, lease, sell property or
furnish any service to a customer on the condition that the customer provide
additional credit or service to the bank, to its bank holding company or to any
other subsidiary of its bank holding company or on the condition that the
customer not obtain other credit or service from a competitor of the bank, its
bank holding company or any subsidiary of its bank holding company.
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Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on investments in
the stock or other securities of the bank holding company and on taking of such
stock or securities as collateral for loans to any borrower.
Permitted Non-Banking Activities
The Federal Reserve Board permits bank holding companies to
engage in non-banking activities so closely related to banking, managing or
controlling banks as to be a proper incident thereto. While the types of
permissible activities are subject to change by the Federal Reserve Board, the
principal non-banking activities that presently may be conducted by a bank
holding company, without prior approval of the Federal Reserve Board, are:
1. Making, acquiring or servicing loans and other extensions
of credit for its own account or for the account of others, such as would be
made by the following types of companies: consumer finance, credit card,
mortgage, commercial finance and factoring.
2. Operating as an industrial bank, Morris Plan bank or
industrial loan company in the manner authorized by state law so long as the
institution does not accept demand deposits or make commercial loans.
3. Operating as a trust company in the manner authorized by
federal or state law so long as the institution does not make certain types of
loans or investments or accept deposits, except as may be permitted by the
Federal Reserve Board.
4. Subject to certain limitations, acting as an investment or
financial advisor to investment companies and other persons.
5. Leasing personal and real property or acting as agent,
broker, or advisor in leasing property, provided that it is reasonably
anticipated that the transaction will compensate the lessor for not less than
the lessor's full investment in the property and provided further that the
lessor may rely on estimated residual values of up to 100% of the acquisition
cost of the leased property.
6. Making equity and debt investments in corporations or
projects designed primarily to promote community welfare, such as the economic
rehabilitation and development of low-income areas by providing housing,
services or jobs for residents.
7. Providing to others financially oriented data processing or
bookkeeping services.
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8. Subject to certain limitations: (a) acting as an insurance
principal, agent or broker in relation to insurance for itself and its
subsidiaries or for insurance directly related to extensions of credit by the
bank holding company system; (b) acting as agent or broker for insurance
directly related to an extension of credit by a finance company that is a
subsidiary; and (c) engaging in any insurance agency activity in a place where
the bank holding company or a subsidiary of the bank holding company has a
lending office and that: (1) has a population not exceeding 5,000 and (2) has
inadequate insurance agency facilities.
9. Owning, controlling or operating a savings association, if
the savings association engages only in deposit taking activities and lending,
and other activities permissible for bank holding companies.
10. Providing courier services of a limited character.
11. Subject to certain limitations, providing management
consulting advice to nonaffiliated banks and nonbank depository institutions.
12. Selling money orders having a face value of $1,000 or
less, travelers' checks and United States savings bonds.
13. Performing appraisals of real estate and personal
property, including securities.
14. Subject to certain conditions, acting as intermediary for
the financing of commercial or industrial income-producing real estate by
arranging for the transfer of the title, control and risk of such a real estate
project to one or more investors.
15. Subject to certain limitations, providing full-service
brokerage and financial advisory activities; and selling, solely as an agent or
broker for customers, shares of investment companies advised by an affiliate of
the bank holding company or providing investment advice to customers about the
purchase and sale of shares of investment companies advised by an affiliate of
the bank holding company.
16. Underwriting and dealing in obligations of the United
States, general obligations of states and their political subdivisions and other
obligations such as bankers' acceptances and certificates of deposits.
17. Subject to certain limitations, providing by any means,
general information and statistical forecasting with respect to foreign exchange
markets; advisory services designed to assist customers in monitoring,
evaluating and managing their foreign exchange exposures; and certain
transactional services with respect to foreign exchange.
18. Subject to certain limitations, acting as a futures
commission merchant in the execution and clearance on major commodity exchanges
of futures contracts and options on futures contracts for bullion, foreign
exchange, government securities, certificates of deposit and other money market
instruments.
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19. Subject to certain limitations, providing commodity
trading and futures commission merchant advice, including counsel, publications,
written analysis and reports.
20. Providing consumer financial counseling that involves
counseling, educational courses and distribution of instructional materials to
individuals on consumer-oriented financial management matters, including debt
consolidation, mortgage applications, bankruptcy, budget management, real estate
tax shelters, tax planning, retirement and estate planning, insurance and
general investment management, so long as this activity does not include the
sale of specific products or investments.
21. Providing tax planning and preparation advice such as
strategies designed to minimize tax liabilities and includes, for individuals,
analysis of the tax implications of retirement plans, estate planning and family
trusts. For a corporation, tax planning includes the analysis of the tax
implications of mergers and acquisitions, portfolio mix, specific investments,
previous tax payments and year-end tax planning. Tax preparation involves the
preparation of tax forms and advice concerning liability based on records and
receipts supplied by the client.
22. Providing check guaranty services to subscribing
merchants.
23. Subject to certain limitations, operating a collection
agency.
24. Operating a credit bureau that maintains files on the past
credit history of consumers and providing such information to a lender that is
considering a borrower's application for credit, provided that the credit bureau
does not grant preferential treatment to an affiliated bank in the bank holding
company system.
New Jersey Banking Law
Under Article 48 of the New Jersey Banking Act of 1948, as
amended (the "New Jersey Act"), Vista is permitted to acquire an unlimited
number of banks subject to certain limitations. However, Vista would be
required, under the Bank Holding Company Act and the New Jersey Act, to obtain
the prior approval of the FRB and the Commissioner of Banking of New Jersey,
respectively, before Vista could acquire all or substantially all of the assets
of any bank, or acquire ownership or control of any voting shares of any bank
other than the Bank Subsidiaries, if, after such acquisition it would own or
control more than 5% of the voting shares of the bank (as to the FRB) or in any
other manner control the election of a majority of directors or exercise a
controlling influence over the management and policies of such bank.
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In addition, the New Jersey Act authorizes reciprocal
interstate banking without any geographic limitation. Reciprocity between states
exists when another state's law (including the District of Columbia) authorizes
or permits a New Jersey bank holding company to acquire banks or bank holding
companies located in that state on terms and conditions substantially the same
as the terms and conditions pursuant to which a bank holding company located in
that state may acquire banks or bank holding companies located in that state.
The fact that the law of that state imposes limitations or restrictions on the
acquisition of banks or bank holding companies located in that state by a bank
or bank holding company located in New Jersey shall not necessarily mean that
the law of that state is not reciprocal legislation; provided, however, that if
the law of that state limits acquisitions by a bank or bank holding company
located in New Jersey to banks or bank holding companies which are not in
competition with banks or bank holding companies located in or chartered by that
state or to banks or bank holding companies which do not have customary banking
deposit and commercial loan powers, the law of that state shall not be
reciprocal legislation. If the reciprocal legislation of that state imposes
limitations or restrictions on the acquisition or ownership of a bank or bank
holding company located in that state by a bank holding company located in New
Jersey, substantially the same limitations and restrictions shall be applicable
to the eligible bank holding company located in that state with respect to its
acquisition of banks or bank holding companies located in New Jersey.
Interstate Banking and Branching
The following discussion describes those provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act") that would pertain to Vista. It is not an exhaustive
description of all provisions of the Interstate Banking Act.
In general, the Federal Reserve Board may approve an
application by Vista to acquire control of, or acquire all or substantially all
of the assets of, a bank located outside of the State of New Jersey, without
regard to whether such acquisition is prohibited under the law of any state, but
subject to certain state law restrictions and requirements enumerated in the
Interstate Banking Act. The Federal Reserve Board may approve such application
if it finds, among other things, that Vista is "adequately capitalized" and
"adequately managed." Moreover, the Federal Reserve Board may not approve such
acquisition if the target bank has not been in existence for the minimum period
of time, if any, required by such target bank's "home" state. The Federal
Reserve Board may, however, approve the acquisition of the target bank that has
been in existence for at least five years without regard to any longer minimum
period of time required under the law of the "home" state of the target bank.
Furthermore, the Interstate Banking Act provides that,
beginning June 1, 1997, appropriate federal supervisory agencies may approve a
merger of one of the Bank Subsidiaries with another bank located in a different
state or the establishment by the Bank Subsidiaries of a new branch office
either by acquisition or de novo, unless the State of New Jersey (with respect
to Phillipsburg National Bank) or the Commonwealth of Pennsylvania (with respect
to Twin Rivers) enacts a law prior to June 1, 1997, allowing an interstate
merger or expressly prohibiting merger with an out-of-state bank. Such
transactions may be completed prior to June 1, 1997, if the relevant states have
opted-in to the Interstate Banking Act. With respect to both interstate
branching by acquisition or merger, both Pennsylvania and New Jersey have
opted-in. On April 17, 1996, Governor Whitman signed into law legislation
(referred to as "Chapter 17") to implement the provisions of the Interstate
Banking Act in New Jersey. Chapter 17 contains an early opt-in to the provisions
of the Interstate Banking Act regarding interstate branching by acquisition or
merger. On the other hand, Chapter 17 does not contain an "opt-in" to the de
novo interstate branching provisions of Chapter 17. The Commonwealth of
Pennsylvania opted-in to the Interstate Banking Act, effective July 6, 1995,
both with respect to interstate branching by acquisition or merger and de novo
interstate branching.
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As of May 2, 1996, the Banking Commissioners of the states of
Alabama, Delaware, Maryland, New Jersey and North Carolina and the Commonwealths
of Pennsylvania and Virginia executed a Cooperative Agreement which governs the
manner in which state-chartered banks (such as Twin Rivers) with branches in
multiple states will be supervised. This Cooperative Agreement was necessitated
by the Interstate Banking Law and was drafted to create a level playing field
for state-chartered banks with respect to supervision and regulation of branch
offices in a multiple state setting. Specifically, this agreement outlines
general principles for determining whether home or host state law applies,
including the following: (1) host state law applies to operational issues
relating to a branch located in a host state, including antitrust, community
reinvestment, consumer protection, usury and fair lending laws; (2) the state
law of the home state will apply to corporate structure issues, such as,
charter, by-laws, incorporation, liquidation, shareholders and directors,
capital and investments; and (3) bank powers issues will be resolved with
reference to both home and host state laws.
Legislation and Regulatory Changes
From time to time, legislation is enacted which has the effect
of increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, and before various bank regulatory
agencies. No prediction can be made as to the likelihood of any major changes or
the impact such changes might have on Vista and the Bank Subsidiaries. Certain
changes of potential significance to Vista which have been enacted or
promulgated, as the case may be, by Congress or various regulatory agencies,
respectively, are discussed below.
Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA")
On August 9, 1989, major reform and financing legislation,
more commonly known as FIRREA, was enacted into law in order to restructure the
regulation of the thrift industry, to address the financial condition of the
Federal Savings and Loan Insurance Corporation and to enhance the supervisory
and enforcement powers of the federal bank and thrift regulatory agencies. The
Office of the Comptroller of the Currency ("OCC"), as the primary federal
regulator of Phillipsburg National Bank, and the FRB, as the primary regulator
of Twin Rivers, are primarily responsible for supervision of Phillipsburg
National Bank and Twin Rivers, respectively. The OCC and FRB have far greater
flexibility to impose supervisory agreements on an institution that fails to
comply with its regulatory requirements, particularly with respect to the
capital requirements under FIRREA. Possible enforcement actions include the
imposition of a capital plan, termination of deposit insurance and removal or
temporary suspension of an officer, director or other institution-affiliated
party.
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Under FIRREA, civil penalties are classified into three
levels, with amounts increasing with the severity of the violation. The first
tier provides for civil penalties of up to $5,000 per day for any violation of
law or regulation. A civil penalty of up to $25,000 per day may be assessed if
more than a minimal loss or a pattern of misconduct is involved. Finally, a
civil penalty of up to $1.0 million per day may be assessed for knowingly or
recklessly causing a substantial loss to an institution or taking action that
results in a substantial pecuniary gain or other benefit. Criminal penalties are
increased to $1.0 million per violation, up to $5.0 million for continuing
violations or for the actual amount of gain or loss. These monetary penalties
may be combined with prison sentences for up to five years.
Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")
General. FDICIA reformed a variety of bank regulatory laws.
Certain of these new provisions are discussed below.
Examinations and Audits. Annual full-scope, on-site
examinations are required for all FDIC-insured institutions with assets of $500
million or more. For bank holding companies that have at least one subsidiary
bank which has $500 million or more in assets, the independent accountants of
such companies shall attest to the accuracy of management's report. Such
accountants shall also monitor management's compliance with governing laws and
regulations. Such companies are also required to select an independent audit
committee composed of outside directors who are independent of management, to
review with management and the independent accountants the reports that must be
submitted to the appropriate bank regulatory agencies. If the independent
accountants resign or are dismissed, written notification must be given to the
FDIC and to the appropriate federal and state bank regulatory agency.
Prompt Corrective Action. In order to reduce losses to the
deposit insurance funds, FDICIA established a format to more closely monitor
FDIC-insured institutions and to enable prompt corrective action by the
appropriate federal supervisory agency if an institution begins to experience
any difficulty. FDICIA established five "Capital" categories. They are: (1)
well-capitalized; (2) adequately capitalized; (3) undercapitalized; (4)
significantly undercapitalized; and (5) critically undercapitalized. The overall
goal of these new capital measures is to impose more scrutiny and operational
restrictions on depository institutions as they descend the capital categories
from well capitalized to critically undercapitalized.
The FDIC, the OCC, the FRB and the Office of Thrift
Supervision issued jointly the regulations relating to these capital categories
and prompt corrective action. These capital measures for prompt corrective
action are defined as follows:
A "well-capitalized" institution would be one that has at
least a 10% total risk-based capital ratio, a 6% or greater Tier I risk-based
capital ratio, a 5% or greater Tier I leverage capital ratio, and is not subject
to any written order or final directive by the FDIC to meet and maintain a
specific capital level.
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An "adequately capitalized" institution would be one that
meets the required minimum capital levels, but does not meet the definition of a
"well-capitalized" institution. The existing capital rules generally require
banks to maintain a Tier I leverage capital ratio of at least 4% and an 8% or
greater total risk-based capital ratio. Since the risk-based standards also
require at least half of the total risk-based capital requirement to be in the
form of Tier I capital, this also will mean that an institution would need to
maintain at least a 4% Tier I risk-based capital ratio. Thus, an institution
would need to meet each of the required minimum capital levels in order to be
deemed "adequately capitalized."
An "undercapitalized" institution would fail to meet one or
more of the required minimum capital levels for an "adequately capitalized"
institution. An "undercapitalized" institution must file a capital restoration
plan and is automatically subject to restrictions on dividends, management fees
and asset growth. In addition, the institution is prohibited from making
acquisitions, opening new branches or engaging in new lines of business without
the prior approval of its primary federal regulator. A number of other
discretionary restrictions also may be imposed on a case-by-case basis, and
harsher restrictions that otherwise would apply to Asignificantly
undercapitalized" institutions may be imposed on an "undercapitalized"
institution that fails to file or implement an acceptable capital restoration
plan.
A "significantly undercapitalized" institution would have a
total risk-based capital ratio of less than 6%, a Tier I risk-based capital
ratio of less than 3%, or a Tier I leverage capital ratio of less than 3%, as
the case may be. Institutions in this category would be subject to all the
restrictions that apply to "undercapitalized" institutions. Certain other
mandatory prohibitions also would apply, such as restrictions against the
payment of bonuses or raises to senior executive officers without the prior
approval of the institution's primary federal regulator. A number of other
restrictions may be imposed.
A "critically undercapitalized" institution would be one with
a tangible equity (Tier I capital) ratio of 2% or less. In addition to the same
restrictions and prohibitions that apply to "undercapitalized" and
"significantly undercapitalized" institutions, the FDIC's rule implementing this
provision of FDICIA also addresses certain other provisions for which the FDIC
has been accorded responsibility as the insurer of depository institutions.
At a minimum, any institution that becomes "critically
undercapitalized" is prohibited from taking the following actions without the
prior written approval of its primary federal supervisory agency: engaging in
any material transactions other than in the usual course of business; extending
credit for highly leveraged transactions ("HLTs"); amending its charter or
bylaws; making any material changes in accounting methods; engaging in certain
transactions with affiliates; paying excessive compensation or bonuses; and
paying interest on liabilities exceeding the prevailing rates in the
institution's market area. In addition, a "critically undercapitalized"
institution is prohibited from paying interest or principal on its subordinated
debt and is subject to being placed in conservatorship or receivership if its
tangible equity capital level is not increased within certain mandated time
frames.
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At any time, an institution's primary federal supervisory
agency may reclassify it into a lower capital category. All institutions are
prohibited from declaring any dividends, making any other capital distribution,
or paying a management fee if it would result in downward movement into any of
the three undercapitalized categories. FDICIA provides an exception to this
requirement for stock redemptions that do not lower an institution's capital and
would improve its financial condition, if the appropriate federal supervisory
agency has consulted with the FDIC and approved the redemption.
The regulation requires institutions to notify the FDIC
following any material event that would cause such institution to be placed in a
lower category. Additionally, the FDIC monitors capital levels through
regulatory and examination reports.
Deposit Insurance. As a result of the special assessment due
on October 1, 1996 and required by the Deposit Insurance Fund Act of 1996 (the
"Funds Act"), the SAIF was capitalized at the Designated Reserve Rate of 1.25%
of estimated insured deposits on October 1, 1996. The FDIC has, therefore,
lowered the rates on assessments paid to the SAIF. Effective January 1, 1997,
the Funds Act separates the Financing Corporation ("FICO") assessment to service
the interest on its bond obligations from the SAIF and BIF deposit insurance
assessments. The amount assessed on the deposits of the Bank Subsidiaries by the
FICO will be in addition to any amount paid for deposit insurance. FICO
assessment rates for the first semi-annual period of 1997 were set at 1.296
basis points annually for BIF-assessable deposits and 6.48 basis points annually
for SAIF-assessable deposits. The FICO rate on BIF-assessable deposits must be
one-fifth the rate on SAIF-assessable deposits until the BIF and SAIF are merged
or until January 1, 2000, whichever occurs first. All of Twin Rivers' deposits
are deemed to be BIF-assessable deposits. As of December 31, 1996, approximately
16% of Phillipsburg National Bank's deposits are deemed to be SAIF-assessable
deposits. These deposits were acquired through branch acquisitions from
SAIF-insured depository institutions, i.e., deposits acquired through "Oakar"
transactions.
Real Estate Lending Standards. Pursuant to FDICIA, the OCC and
other federal banking agencies adopted real estate lending guidelines which
would set loan-to-value ("LTV") ratios for different types of real estate loans.
A LTV ratio is generally defined as the total loan amount divided by the
appraised value of the property at the time the loan is originated. If the
institution does not hold a first lien position, the total loan amount would be
combined with the amount of all senior liens when calculating the ratio. These
guidelines became effective on March 19, 1993. In addition to establishing the
LTV ratios, the guidelines require all real estate loans to be based upon proper
loan documentation and a recent appraisal of the property.
Bank Enterprise Act of 1991. Within the overall FDICIA is a
separate subtitle called the "Bank Enterprise Act of 1991." The purpose of this
Act is to encourage banking institutions to establish "basic transaction
services for consumers" or so-called "life-line accounts." The FDIC assessment
rate is reduced for all life-line depository accounts. This Act establishes ten
(10) factors which are the minimum requirements to qualify as a life-line
depository account. Some of these factors relate to minimum opening and balance
amounts, minimum number of monthly withdrawals, the absence of discriminatory
practices against low-income individuals and minimum service charges and fees.
Moreover, the Housing and Community Development Act of 1972 requires that the
FDIC's risk-based assessment system include provisions regarding life-line
accounts. Assessment rates applicable to life-line accounts are to be
established by FDIC rule.
10
<PAGE>
Truth in Savings Act. FDICIA also contains the Truth in
Savings Act ("TSA"). The FRB has adopted regulations ("Regulation DD") under the
TSA. The purpose of TSA is to require the clear and uniform disclosure of the
rates of interest which are payable on deposit accounts by depository
institutions and the fees that are assessable against deposit accounts, so that
consumers can make a meaningful comparison between the competing claims of banks
with regard to deposit accounts and products. In addition to disclosures to be
provided when a customer establishes a deposit account, TSA requires the
depository institution to include, in a clear and conspicuous manner, the
following information with each periodic statement of a deposit account: (1) the
annual percentage yield earned; (2) the amount of interest earned; (3) the
amount of any fees and charges imposed; and (4) the number of days in the
reporting period. TSA allows for civil lawsuits to be initiated by customers if
the depository institution violates any provision or regulation under TSA.
Capital Standards
The FRB has issued risk-based capital guidelines. The
guidelines require all bank holding companies to maintain a minimum risk-based
capital ratio of 8%, of which at least half must be in the form of common
shareholders' equity. Assets will be assigned to five risk categories, with
higher levels of capital being required for the categories perceived as
representing greater credit risk. The required capital ratios will represent
equity and (to the extent permitted) nonequity capital as a percentage of total
risk-weighted assets. The risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and to minimize disincentives for holding
liquid assets.
The following table presents Vista's consolidated regulatory
capital based on these guidelines as of December 31, 1996 (in thousands):
Tier I Capital ......................... $ 37,615
Tier II Capital ........................ 4,432
-----------
Total Capital .......................... $ 42,047
===========
Total Average Quarterly Assets ......... $ 497,063
Total Risk-Weighted Assets(1) .......... 282,277
Tier I Risk-Based Capital Ratio(2) ..... 13.33%
Required Tier I Risk-Based Capital Ratio 4.00%
-----------
Excess Tier I Risk-Based Capital Ratio . 9.33%
===========
Total Risk-Based Capital Ratio(3) ...... 14.90%
Required Total Risk-Based Capital Ratio 8.00%
-----------
Excess Total Risk-Based Capital Ratio .. 6.90%
===========
11
<PAGE>
Tier I Leverage Ratio(4) ............... 7.57%
Required Tier I Leverage Ratio ......... 4.00%
-----------
Excess Tier I Leverage Ratio ........... 3.57%
===========
- ------------------------------
(1) Includes off-balance sheet items at credit equivalent values.
(2) Tier I Risk-Based Capital Ratio is defined as the ratio of Tier I Capital
to Total Risk-Weighted Assets.
(3) Total Risk-Based Capital Ratio is defined as the ratio of Tier I Capital
plus Tier II Capital to Total Risk-Weighted Assets.
(4) Tier I Leverage Ratio is defined as the ratio of Tier I Capital to Total
Average Quarterly Assets.
Vista's ability to maintain the required levels of capital is
substantially dependent upon the success of its capital plan, business plan, the
impact of future economic events, the ability to manage its interest rate risk,
and the ability to control its growth and other operating expenses.
Effect of Government Monetary Policies
The earnings of Vista are and will be affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies.
The monetary policies of the FRB have had, and will likely
continue to have, an impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The FRB has a major effect upon the levels
of bank loans, investments and deposits through its open market operations in
United States government securities and through its regulations of, among other
things, the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature and impact of future changes in monetary policies.
History and Business - Phillipsburg National Bank
Phillipsburg National Bank was established in 1856, became a
national banking association in 1865 and is under the supervision of the OCC.
Its legal headquarters is located at 115 South Main Street, Phillipsburg, New
Jersey 08865. Phillipsburg National Bank owns its legal headquarters building,
the Alpha branch office, the Greenwich branch office, the Phillipsburg Mall
branch office (building only) on Route 22, the Washington branch office, the
Washington Township branch office, the Flemington branch office (building only)
and the administrative offices and loan center at 305 Roseberry Street.
Phillipsburg National Bank rents the following premises under various operating
leases: the Hillcrest branch office, the Clinton branch office, the Phillipsburg
Mall extension office located inside the Mall, the land on which is located the
Phillipsburg Mall branch office and the land on which is located the Flemington
branch office. See Item 2 hereof for a more detailed description of the branch
offices.
Phillipsburg National Bank engages in full-service commercial
and consumer banking and trust business, including accepting time and demand
deposits, making secured and unsecured commercial loans and consumer loans,
financing commercial transactions and making construction and mortgage loans.
12
<PAGE>
Trust services provided by Phillipsburg National Bank include
services as executor and trustee under wills and deeds, as guardian and
custodian and as trustee and agent for pension, profit sharing and other
employee benefit trusts as well as various investment, pension and estate
planning services. Trust services also include service as transfer agent and
registrar of stock and bond issues and as escrow agent.
Phillipsburg National Bank has a relatively stable deposit
base and no material amount of deposits is obtained from a single depositor or
group of depositors (including federal, state and local governments).
Phillipsburg National Bank has not experienced any significant seasonal
fluctuations in the amount of its deposits. Its deposits are insured by the FDIC
to the extent provided by law.
Phillipsburg National Bank has one wholly-owned subsidiary,
Phillipsburg Investment, Inc., a New Jersey investment company. Phillipsburg
Investment, Inc. began operations in June, 1988. It receives investment
management services from Phillipsburg National Bank and pays a fee to
Phillipsburg National Bank for staff time, accounting, rent and other
administrative services. As of December 31, 1996, Phillipsburg Investment, Inc.
held approximately $60.2 million in securities available for sale, short-term
investments, and cash on behalf of Phillipsburg National Bank.
As of December 31, 1996, Phillipsburg National Bank had
one-hundred sixteen (116) full-time employees and ten (10) part-time employees.
Phillipsburg National Bank provides a variety of employment benefits and
considers its relationship with its employees to be good. Phillipsburg National
Bank is not a party to any collective bargaining agreement.
Competition - Phillipsburg National Bank
All phases of Phillipsburg National Bank's business are highly
competitive. Phillipsburg National Bank's market area is the primary trade area
of Warren County, with concentration in the Phillipsburg, New Jersey area.
During 1996, Phillipsburg National Bank's presence was expanded in Hunterdon
County to compete more aggressively in that market as well. Phillipsburg
National Bank competes actively with local commercial banks as well as other
commercial banks with branches in Phillipsburg National Bank's market area.
Phillipsburg National Bank considers its major competition to be United National
Bank, headquartered in Plainfield, New Jersey; PNC Bank Corp., headquartered in
Pittsburgh, Pennsylvania; Summit Bank, headquartered in Princeton, New Jersey;
First Union Corporation, headquartered in Charlotte, North Carolina; Fleet
Financial Group, headquartered in Providence, Rhode Island; and Prestige State
Bank, headquartered in Flemington, New Jersey. Phillipsburg National Bank is
competitive with all financial institutions in its service area with respect to
interest rates paid on time and savings deposits, service charges on deposit
accounts and interest rates charged on loans. In terms of assets and
liabilities, Phillipsburg National Bank is smaller than its major competitors,
with the exception of Prestige State Bank.
13
<PAGE>
Supervision and Regulation - Phillipsburg National Bank
The operations of Phillipsburg National Bank are subject to
federal and state statutes applicable to banks chartered under the banking laws
of the United States, to members of the FRB and to banks whose deposits are
insured by the FDIC. Phillipsburg National Bank's operations are also subject to
regulations of the OCC, the FRB and the FDIC.
The primary supervisory authority of Phillipsburg National
Bank is the OCC, which is the administrator of national banks, and which
regularly examines such areas as reserves, loans, investments, management
practices and other aspects of bank operations. These examinations are designed
primarily for the protection of Phillipsburg National Bank's depositors. The OCC
has the authority under the Financial Institutions Supervisory Act to prevent a
national bank from engaging in an unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank may make,
the reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, activities of a bank with respect to mergers and
consolidations and the establishment of branches. Branches may be established
within the permitted area only after approval by the OCC. The OCC is required to
grant approval only if it finds that there is a need for banking services or
facilities such as those contemplated by a proposed branch and may disapprove
the application if the bank does not have the capital and surplus deemed
necessary by the OCC.
In addition, the OCC may only grant a national bank's
application to establish a branch if the statutory law of the state in which the
national bank is situated authorizes state banks to establish and operate
branches. Under the New Jersey Act, a bank may establish a full branch office, a
mini-branch office or communications terminal branch office anywhere in the
State of New Jersey except that the bank shall not establish a full branch
office or a mini-branch office in a municipality, other than a municipality in
which it maintains its principal office, which has a population of less than
10,000 and in which another banking institution maintains its principal office.
There is an exception to the aforestated conditions if the bank acquires an
office by merger or consolidation with another bank. The Commissioner of Banking
of New Jersey (the "Commissioner") may set aside the population requirement for
full branch, mini-branch or communication terminal branch offices.
A "full branch office" means a branch office of a bank not
subject to the limitations or restrictions imposed upon mini-branch offices or
communication terminal branch offices. A "mini-branch office" means a branch
office of a bank which does not occupy more than 500 square feet of floor space
and which does not contain more than four teller stations, manned by employees
of the bank. A "communications terminal branch office" means a branch office of
a bank which is either manned by a bona fide third party under contract to a
bank or unmanned and which consists of equipment, structures or systems, by
means of which information relating to financial services rendered to the public
is transmitted and through which transactions with banks are consummated, either
instantaneously or otherwise.
14
<PAGE>
Moreover, if the Commissioner finds that the principal office
of a bank will be located in a municipality which serves as a business or as a
banking center for outlying districts not otherwise adequately provided with
banking facilities, so that such bank will transact business with a substantial
number of persons who do not reside in that municipality; or if the Commissioner
finds that, because of its location, a bank will transact a substantial part of
its business with persons from a neighboring municipality or municipalities, the
Commissioner may, in his discretion, require that the capital stock with which
the bank shall commence business, shall equal the minimum capital stock which
would be required of the bank if its principal office were to be located in a
municipality having a population equal to that of the combined populations of
the municipality in which it is to be located and of the area, outside such
municipality, which it will serve.
A subsidiary bank of a bank holding company is subject to
certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The Federal Reserve Act
and FRB regulations also place certain limitations and reporting requirements on
extensions of credit by a bank to principal shareholders of its parent holding
company, among others, and to related interests of such principal shareholders.
In addition, such legislation and regulations may affect the terms upon which
any person becoming a principal shareholder of a holding company may obtain
credit from banks with which the subsidiary bank maintains a correspondent
relationship.
Moreover, the amount of funds that Phillipsburg National Bank
may lend to a single borrower is limited generally under the National Banking
laws to 15% of the aggregate of its capital, surplus, undivided profits and loan
loss reserves of Phillipsburg National Bank (all as defined by statute and by
regulation).
Federal law also prohibits acquisitions of control of a bank,
such as Phillipsburg National Bank, without prior notice to the FRB and OCC.
"Control" is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of Phillipsburg National Bank or to vote 25%
or more of its capital securities.
From time to time, various types of federal and state
legislation have been proposed that could result in additional regulation of,
and restrictions on, the business of Phillipsburg National Bank. It cannot be
predicted whether any such legislation will be adopted or how such legislation
would affect the business of Phillipsburg National Bank. As a consequence of the
extensive regulation of commercial banking activities in the United States,
Phillipsburg National Bank's business is particularly susceptible to being
affected by federal and state legislation and regulations that may increase the
costs of doing business.
Under the Federal Deposit Insurance Act, the OCC possesses the
power to prohibit institutions regulated by it (such as Phillipsburg National
Bank) from engaging in any activity that would be unsafe and unsound banking
practice and in violation of law. Moreover, the Financial Institutions and
Interest Rate Control Act of 1978 ("FIRA") generally: (1) expands the
circumstances under which officers and directors of a bank may be removed by the
institution's federal supervisory agency; (2) restricts lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof; (3) restricts management personnel of a bank from serving as directors
or in other management positions with certain depository institutions whose
assets exceed a specified amount or which have an office within a specified
geographic area; and (4) restricts management personnel from borrowing from
another institution that has a correspondent relationship with their bank.
Additionally, FIRA requires that no person may acquire control of a bank unless
the appropriate federal supervisory agency has been given sixty (60) days prior
written notice and within that time has not disapproved the acquisition or
extended the period for disapproval.
15
<PAGE>
Under the Bank Secrecy Act ("BSA"), banks and other financial
institutions are required to report to the Internal Revenue Service currency
transactions of more than $10,000 or multiple transactions of which Phillipsburg
National Bank is aware in any one day that aggregate in excess of $10,000. Civil
and criminal penalties are provided under the BSA for failure to file a required
report, for failure to supply information required by the BSA or for filing a
false or fraudulent report.
The Garn-St Germain Depository Institutions Act of 1982 ("1982
Act"), removes certain restrictions on the lending powers and liberalizes the
depository abilities of Phillipsburg National Bank. The 1982 Act also amends
FIRA (see above) by eliminating certain statutory limits on lending of a bank to
its executive officers, directors, principal shareholders or related interests
thereof and by relaxing certain reporting requirements. However, the 1982 Act
strengthened FIRA provisions respecting management interlocks and corresponding
bank relationships by management personnel.
Community Reinvestment Act
For a discussion on the Community Reinvestment Act of 1977
with respect to Phillipsburg National Bank, see the below caption entitled
"Community Reinvestment Act - Phillipsburg National Bank and Twin Rivers."
Concentration - Phillipsburg National Bank
Phillipsburg National Bank is not dependent for deposits nor
exposed by loan concentrations to a single customer or to a small group of
customers the loss of any one or more of which would have a materially adverse
effect on the financial condition of Vista or Phillipsburg National Bank.
Phillipsburg National Bank is predominantly located in the Phillipsburg area of
Warren County and its retail branch network lies in a narrow market place which
therefore exposes it to catastrophic events that could affect the surrounding
geographic area.
The earnings of Phillipsburg National Bank are affected by the
policies of the FRB. An important function of the FRB is to regulate the money
supply and interest rates. Among the instruments used to implement those
objectives are open market operations in United States government securities and
changes in reserve requirements against member bank deposits. These instruments
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect rates
charged on loans or paid for deposits.
16
<PAGE>
Phillipsburg National Bank is a member of the FRB, and
therefore, the policies and regulations of the FRB have had, and will continue
to have, a significant effect on its deposits, loans and investment growth, as
well as the rate of interest-earned and paid, and are expected to affect
Phillipsburg National Bank's operations in the future. The effect of such
policies and regulations upon the future business and earnings of Phillipsburg
National Bank cannot be predicted.
Capital Requirements - Phillipsburg National Bank
As of December 31, 1996, Phillipsburg National Bank's total
risk-based capital ratio was 13.49% (of which 92% was in the form of common
shareholders' equity). This percentage is above the minimum capital ratio
required under the OCC risk-based capital guidelines.
History and Business - Twin Rivers
Twin Rivers was established on October 15, 1990 as a
Pennsylvania state-chartered institution and member of the FRB. It is under the
supervision of the Pennsylvania Department of Banking ("Department") and the
FRB. Twin Rivers legal headquarters is located at 2925 William Penn Highway,
Easton, Pennsylvania 18045. Twin Rivers rents its headquarters site and the
Butztown branch office under various operating leases. Twin Rivers owns the
Easton branch office and the Bethlehem branch office. See Item 2 hereof for a
more detailed description of the branch offices.
As of December 31, 1996, Twin Rivers had forty-six (46)
full-time employees and seven (7) part-time employees. Twin Rivers provides a
variety of employment benefits and considers its relationship with its employees
to be good. Twin Rivers is not a party to any collective bargaining agreement.
Twin Rivers engages in a full-service commercial banking
business, including accepting time and demand deposits, making secured and
unsecured commercial and consumer loans, financing commercial transactions and
making construction and mortgage loans. Twin Rivers' business is not seasonal in
nature. Its deposits are insured by the FDIC to the extent provided by law.
Competition - Twin Rivers
Twin Rivers competes actively with other area commercial banks
and savings and loan associations, all of which are larger than Twin Rivers, as
well as with major regional banking and financial institutions headquartered in
other areas of Pennsylvania. Twin Rivers' major competitors in the Lehigh Valley
are First Union Corporation, headquartered in Charlotte, North Carolina;
Lafayette Bank of Easton, Pennsylvania; Valley Federal Savings, a Division of
Sovereign Bank, F.S.B. of Pennsylvania; CoreStates of Philadelphia,
Pennsylvania; and Summit Bank, headquartered in Princeton, New Jersey. Twin
Rivers is competitive with all competing financial institutions in its service
area with respect to interest rates paid on time and savings deposits, service
charges on deposit accounts and interest rates charged on loans. In terms of
assets and liabilities, Twin Rivers is smaller than its major competitors.
17
<PAGE>
Supervision and Regulation - Twin Rivers
Twin Rivers is subject to supervision, regulation and
examination by the Department and the FRB. In addition, the Twin Rivers is
subject to a variety of local, state and federal laws that affect its operation.
The laws of Pennsylvania applicable to Twin Rivers include,
among other things, provisions that: (1) require the maintenance of certain
reserves against deposits; (2) limit the type and amount of loans that may be
made and the interest that may be earned thereon; (3) restrict investments and
other activities; and (4) limit the payment of dividends. The amount of funds
that Twin Rivers may lend to a single borrower is limited generally under
Pennsylvania law to 15% of the aggregate of its capital, surplus, undivided
profits and loan loss reserves of Twin Rivers (all as defined by statute and by
regulation).
Applicable Pennsylvania law also requires that a bank obtain
the approval of the Department prior to effecting any merger where the surviving
bank would be a Pennsylvania-chartered bank. In reviewing any merger
application, the Department would consider, among other things, whether the
merger would be consistent with adequate and sound banking practices and whether
the merger would be in the public interest on the basis of several factors,
including the potential effect of the merger on competition and the convenience
and needs of the area primarily to be served by Twin Rivers resulting from the
merger.
Federal law also prohibits acquisitions of control of a bank,
such as Twin Rivers, without prior notice to the FRB. "Control" is defined for
this purpose as the power, directly or indirectly, to direct the management or
policies of Twin Rivers or to vote 25% or more of its capital securities.
From time to time, various types of federal and state
legislation have been proposed that could result in additional regulation of,
and restrictions on, the business of Twin Rivers. It cannot be predicted whether
any such legislation will be adopted or how such legislation would affect the
business of Twin Rivers. As a consequence of the extensive regulation of
commercial banking activities in the United States, Twin Rivers' business is
particularly susceptible to being affected by federal and state legislation and
regulations that may increase the costs of doing business.
Although Twin Rivers' primary federal regulator is the FRB,
rather than the OCC, which regulates Phillipsburg National Bank, Twin Rivers is
subject to regulation under the Federal Deposit Insurance Act, FIRA, the
Community Reinvestment Act of 1977, as amended, the BSA and the 1982 Act. For a
discussion of the foregoing acts, see the caption above entitled "Supervision
and Regulation - Phillipsburg National Bank" and the caption below entitled
"Community Reinvestment Act - Phillipsburg National Bank and Twin Rivers."
18
<PAGE>
Concentration - Twin Rivers
Twin Rivers is not dependent for deposits nor exposed by loan
concentrations to a single customer or to a small group of customers the loss of
any one or more of which would have a materially adverse effect on the financial
condition of Vista or Twin Rivers. Twin Rivers is located west of Easton in a
suburban township of Northampton County and its retail market lies in a narrow
market place which therefore exposes it to catastrophic events that could affect
the surrounding geographic area.
Capital Requirements - Twin Rivers
As of December 31, 1996, Twin Rivers' total risk-based capital
ratio was 13.86% (of which 91% was in the form of common shareholders' equity).
This percentage is above the minimum required capital ratio required under FRB
capital guidelines.
Community Reinvestment Act - Phillipsburg National Bank and
Twin Rivers
The Community Reinvestment Act of 1977, as amended (the
"CRA"), and the regulations promulgated to implement the CRA are designed to
create a system for bank regulatory agencies to evaluate a depository
institution's record in meeting the credit needs of its community. Until May
1995, a depository institution was evaluated for CRA compliance based upon 12
assessment factors.
The CRA regulations were completely revised as of May 4, 1995,
to establish new performance-based standards for use in examining a depository
institution's compliance with the CRA (the "revised CRA regulations"). The
revised CRA regulations establish new tests for evaluating both small and large
depository institutions' investment in the community. A "small bank" is defined
as a bank which has total assets of less than $250 million and is independent or
is an affiliate of a holding company with less than $1 billion in assets.
Pursuant to the revised CRA regulations, a depository institution which
qualifies as a "small bank" will be examined under a streamlined procedure which
emphasizes lending activities. The streamlined examination procedures for a
small bank became effective on January 1, 1996.
A large retail institution is one which does not meet the
"small bank" definition, above. A large retail institution can be evaluated
under one of two tests: (1) a three-part test evaluating the institution's
lending, service and investment performance; or (2) a "strategic plan" designed
by the institution with community involvement and approved by the appropriate
federal bank regulator. A large institution must choose one of these options
prior to July 1997, but may opt to be examined under one of these two options
prior to that time. Effective January 1, 1996, a large retail institution that
opts to be examined pursuant to a strategic plan may submit its strategic plan
to the bank regulators for approval.
In addition, the revised CRA regulations include separate
rules regarding the manner in which "wholesale banks" and "limited purpose
banks" will be evaluated for compliance.
19
<PAGE>
The new CRA regulations will be phased in over a two-year
period, beginning July 1, 1995, with a final effective date of July 1, 1997.
Until the applicable test is phased in, institutions may be examined under the
prior CRA regulations.
On December 27, 1995, the federal banking regulators issued a
joint final rule containing technical amendments to the revised CRA regulations.
Specifically, the recent technical amendments clarify the various effective
dates in the revised CRA regulations, correct certain cross references and state
that once an institution becomes subject to the requirements of the revised CRA
regulations, it must comply with all aspects of the revised CRA regulations,
regardless of the effective date of certain provisions. Similarly, once an
institution is subject to the revised CRA regulations, the prior CRA regulations
do not apply to that institution.
For the purposes of the revised CRA regulations and based upon
financial information as of December 31, 1996, Phillipsburg National Bank is
deemed to be a large retail institution and Twin Rivers is deemed to be a small
bank. In the future, Phillipsburg National Bank will be evaluated for CRA
compliance using the three-part, performance-based test. Under the 12 assessment
factors contained in the prior CRA regulations, Phillipsburg National Bank
received an "outstanding" rating in 1995. Twin Rivers was evaluated for CRA
compliance using the streamlined procedures for a small bank and received a
"satisfactory" rating in 1996. The Bank Subsidiaries expect to receive a rating
under the revised CRA regulations which is consistent with its current ratings.
Item 2. Properties
The following table describes the properties owned or leased
by Vista and the Bank Subsidiaries:
<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
Vista
291 Pickford Avenue Leased - $62,779 6,612 Operations Center
Phillipsburg, NJ 08865 Annual Rental
Phillipsburg National Bank
305 Roseberry Street Owned 18,393 Administrative Offices and
Phillipsburg, NJ 08865 Loan Center
115 South Main Street Owned 3,276 Main Office
Phillipsburg, NJ 08865
755 Route 22 West Leased - $24,000 3,750 Hillcrest Branch Office
Phillipsburg, NJ 08865 Annual Rental
331 Third Avenue Owned 3,220 Alpha Branch Office
Alpha, NJ 08865
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
716 Route 57 Owned 2,500 Greenwich Branch Office
Stewartsville, NJ 08886
1200 Route 22 East, Suite 619 Leased - $17,875 715 Phillipsburg Mall Extension
Phillipsburg, NJ 08865 Annual Rental
1192 Route 22 East Building Owned, Land 3,472 Phillipsburg Mall Branch
Phillipsburg, NJ 08866 Leased - $47,916 Annual Rental Office
39 Laneco Plaza Leased - $63,840 2,200 Clinton Branch Office
Route 513 at I-78, Exit 15 Annual Rental
Clinton, NJ 08809
48 West Washington Avenue Owned 2,100 Washington Branch Office
Washington, NJ 07882
Route 57 West and Owned 3,139 Washington Township Branch
Mill Pond Road Office
Washington, NJ 07882
309 Highway 202 Building Owned, Land 3,200 Flemington Branch Office
Flemington, NJ 08822 Leased - $28,820 Annual Rental
Twin Rivers
2925 William Penn Highway Leased - $102,263 7,316 Main Office, Administrative
Easton, PA 18045 Annual Rental Offices and Loan Center
61 North Third Street Owned 3,500 Easton Branch Office
Easton, PA 18042
2850 Easton Avenue Leased - $50,000 2,645 Butztown Branch Office
Bethlehem, PA 18017 Annual Rental
1003 West Broad Street Owned 1,750 Bethlehem Branch Office
Bethlehem, PA 18018
</TABLE>
For information with respect to obligations for lease rentals,
refer to Note 12 of the Notes to Consolidated Financial Statements in Vista's
Annual Report filed at Exhibit 13 hereto and is incorporated in its entirety by
reference. The branches that are under lease have customary commercial lease
options to extend the terms of the applicable lease.
It is management's opinion that the facilities currently
utilized are suitable and adequate for current and immediate future purposes.
21
<PAGE>
Item 3. Legal Proceedings
General
The nature of Vista's and the Bank Subsidiaries' business
generates a certain amount of litigation involving matters arising in the
ordinary course of business. However, in the opinion of management of Vista and
the Bank Subsidiaries, there are no proceedings pending to which Vista and the
Bank Subsidiaries are a party or to which their property is subject, which, if
determined adversely to Vista and the Bank Subsidiaries, would be material in
relation to Vista's and the Bank Subsidiaries' undivided profits or financial
condition, nor are there any proceedings pending other than ordinary routine
litigation incident to the business of Vista and the Bank Subsidiaries. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against Vista and the Bank Subsidiaries by government authorities
or others.
Environmental Issues
There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or other
third parties on properties that collateralize loans held by the bank. Such
potential liability may far exceed the original amount of the loan made by the
bank. Currently, the Bank Subsidiaries are not a party to any pending legal
proceedings under any environmental statue nor are the Bank Subsidiaries aware
of any circumstances that may give rise to liability of them under any such
statute.
Part II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
Market Information
Vista Bancorp, Inc. Common Stock trades on The SmallCap Market
tier of The Nasdaq Stock Market under the symbol "VBNJ".
The following table sets forth the high and low "bid"
information appearing on The Nasdaq Stock Market for the period indicated on a
quarterly basis. The "bid" prices in the over-the-counter market represent
prices between dealers and do not include retail markups, mark-downs or
commissions and, therefore, may not represent actual sales prices.
22
<PAGE>
High Low
---- ---
1995:
First quarter............... $ 9.50 $ 9.00
Second quarter.............. $10.25 $ 9.50
Third quarter............... $11.25 $10.25
Fourth quarter.............. $12.00 $12.00
1996:
First quarter............... $12.00 $11.50
Second quarter.............. $12.25 $11.50
Third quarter............... $12.25 $12.00
Fourth quarter.............. $14.00 $12.00
Dividends
Vista pays dividends on the outstanding shares of its Common
Stock as determined by the Board of Directors from time to time. It has been the
practice of the Board of Directors to declare cash dividends on a quarterly
basis. It is the present intention of Vista's Board of Directors to continue to
pay regular quarterly cash dividends; however, the declaration and payment of
future dividends is at the sole discretion of the Board of Directors and the
amount, if any, depends upon the earnings, financial condition and capital needs
of Vista and the Bank Subsidiaries, as well as other factors, including
restrictions arising from federal and state banking laws and regulations to
which Vista and the Bank Subsidiaries are subject.
The following table shows the cash dividends paid per share of
Vista Common Stock for the indicated periods.
Cash Dividends
Paid Per Share
--------------
1995:
First quarter................................... $.08
Second quarter.................................. .08
Third quarter................................... .09
Fourth quarter.................................. .09
1996:
First quarter................................... $.09
Second quarter.................................. .09
Third quarter................................... .10
Fourth quarter.................................. .10
23
<PAGE>
Shareholders
As of December 31, 1996, Vista had approximately 772 holders
of the Common Stock.
Dividend Restrictions
Under the New Jersey Business Corporation Act, Vista may not
pay a dividend if, after giving effect thereto, either (a) Vista would be unable
to pay its debts as they become due in the usual course of business or (b)
Vista's total assets would be less than its total liabilities. The determination
of total assets and liabilities may be based upon: (i) financial statements
prepared on the basis of generally accepted accounting principles, (ii)
financial statements that are prepared on the basis of other accounting
practices and principles that are reasonable under the circumstances, or (iii) a
fair valuation or other method that is reasonable under the circumstances.
Phillipsburg National Bank is subject to the rules governing
the payment of dividends promulgated by the OCC. Phillipsburg National Bank may
not pay dividends from capital (unimpaired common and preferred stock
outstanding) but only from retained earnings after deducting losses and bad
debts therefrom. "Bad debts" are defined as matured obligations in which
interest is past due and unpaid for ninety (90) days, but do not include
well-secured obligations that are in the process of collection.
Phillipsburg National Bank may not pay any dividends on its
capital stock during the period in which it may be in default in the payment of
its assessment for deposit insurance premium due to the FDIC, nor may it pay
dividends on its capital common stock until any cumulative dividends on
Phillipsburg National Bank's preferred stock (if any) have been paid in full.
Phillipsburg National Bank has never been in default in the payments of its
assessments to the FDIC; and, moreover, Phillipsburg National Bank has no
outstanding preferred stock. In addition, under the Federal Deposit Insurance
Act (912 U.S.C. Section 1818), dividends cannot be declared and paid if the OCC
obtains a cease and desist order because such payment would constitute an unsafe
and unsound banking practice. Phillipsburg National Bank's unrestricted retained
earnings and net income available that could be paid as a dividend to Vista
under the current OCC rules were $6.8 million as of December 31, 1996.
Similar to Phillipsburg National Bank, the future dividends of
Twin Rivers are also subject to certain regulatory considerations and the
discretion of its Board of Directors and will depend upon a number of factors,
including operating results, financial conditions and general business
conditions. Vista is entitled to receive dividends, as and when declared by the
Board of Directors of Twin Rivers, out of funds legally available therefor,
subject to the restrictions set forth in the Pennsylvania Banking Code of 1965
(the "Pennsylvania Banking Code") and the Federal Deposit Insurance Act.
The Pennsylvania Banking Code provides that cash dividends may
be declared and paid only out of accumulated net earnings and that, prior to the
declaration of any dividend, if the surplus of Twin Rivers is less than the
amount of its capital, Twin Rivers shall, until surplus is equal to such amount,
transfer to surplus an amount which is at least 10% of the net earnings of Twin
Rivers for the period since the end of the last fiscal year or for any shorter
period since the declaration of a dividend. If the surplus of Twin Rivers is
less than 50% of the amount of capital, no dividend may be declared or paid
without the prior approval of the Pennsylvania Department of Banking until such
surplus is equal to 50% of Twin Rivers' capital.
24
<PAGE>
As of December 31, 1996, there were $915 thousand accumulated
net earnings available at Twin Rivers that could be paid as a dividend to Vista
under current Pennsylvania law.
The Federal Deposit Insurance Act generally prohibits all
payments of dividends by any bank which is in default on any assessment for
deposit insurance premium to the FDIC.
Item 6. Selected Financial Data
The information called for by this item is filed at Exhibit 13
hereto and is incorporated in its entirety by reference under this Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Vista's Annual Report (at page
4) filed at Exhibit 13 hereto is incorporated in its entirety by reference under
this Item 7.
Item 8. Financial Statements and Supplementary Data
Vista's Consolidated Financial Statements and notes thereto
contained in the Annual Report (beginning at page 21) filed at Exhibit 13 hereto
are incorporated in their entirety by reference under this Item 8. Moreover,
certain additional financial information pertaining to bank holding companies,
under SEC Guide 3, is set forth (at page 89) and filed at Exhibit 99B hereto is
incorporated by reference under this Item 8.
Part III
Item 10. Directors and Executive Officers of the Registrant
The captions "Section 16(a) Beneficial Ownership Reporting
Compliance," "Information As To Nominees, Directors and Executive Officers" and
"Principal Officers" contained in Vista's Proxy Statement (at pages 5, 6 and 8,
respectively) filed at Exhibit 99A hereto is incorporated in their entirety by
reference under this Item 10.
25
<PAGE>
Item 11. Executive Compensation
The captions "Remuneration of Officers and Directors"
contained in Vista's Proxy Statement (at page 9) filed at Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The caption "Principal Beneficial Owners of Vista's Stock"
contained in Vista's Proxy Statement (at page 2) filed at Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 12.
Item 13. Certain Relationships and Related Transactions
The information under the caption "Certain Transactions"
contained in Vista's Proxy Statement (at page 12) filed at Exhibit 99A hereto is
incorporated in its entirety by reference under this Item 13.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The Registrant's consolidated financial statements and
notes thereto as well as the applicable reports of the independent certified
public accountants are filed at Exhibit 13 hereto and are incorporated in their
entirety by reference under this Item 14(a)1.
2. All schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
3. The exhibits required by Item 601 of Regulation S-K are
included under Item 14(c) hereto.
(b) Reports on Form 8-K
Vista filed no reports on Form 8-K during the last quarter
of the year ended December 31, 1996.
26
<PAGE>
(c) Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
- -------------------------- ----------------------
<S> <C>
2 None.
3A Articles of Incorporation filed on April 15, 1988, at
Exhibit B to Form S-4 (No. 33-21260), and hereby
incorporated by reference.
3B By-laws of Vista filed on April 15, 1988, at Exhibit C to
Form S-4 (No. 33-21260), and hereby incorporated by
reference.
4 None.
9 None.
10 None.
11 None.
13 Portions of the Annual Report to Shareholders for Fiscal
Year Ended December 31, 1996.
16 None.
18 None.
19 None.
21 List of Subsidiaries, filed on September 4, 1991, at
Exhibit 22 to Form S-1 (Nos. 33-42565 and 33-42569), and
hereby incorporated by reference.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
99A Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held April 23, 1997.
99B SEC Guide 3 Financial Information.
</TABLE>
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISTA BANCORP, INC.
(Issuer)
By: /s/ Barbara Harding
--------------------------
Barbara Harding
President
Date: March 21, 1997
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Barbara Harding
--------------------------
Barbara Harding
President and Director
(Chief Executive Officer)
Date: March 21, 1997
By:
--------------------------
Richard A. Cline
Director
Date: March ____, 1997
By: /s/ Harold J. Curry
--------------------------
Harold J. Curry
Director
Date: March 21, 1997
28
<PAGE>
By: /s/ Dale F. Falcinelli
--------------------------
Dale F. Falcinelli
Director
Date: March 21, 1997
By: /s/ James T. Finegan, Jr.
--------------------------
James T. Finegan, Jr.
Director
Date: March 21, 1997
By: /s/ Barry L. Hajdu
--------------------------
Barry L. Hajdu
Director
Date: March 21, 1997
By: /s/ David L. Hensley
--------------------------
David L. Hensley
Director
Date: March 21, 1997
By:
--------------------------
Thomas F. McGinley
Chairman of the Board
and Director
Date: March ____, 1997
29
<PAGE>
By: /s/ Marc S. Winkler
--------------------------
Marc S. Winkler
Director
Date: March 21, 1997
By: /s/ Mark A. Reda
--------------------------
Mark A. Reda
Director
Date: March 21, 1997
By: /s/ William F. Keefe
--------------------------
William F. Keefe
Executive Vice President and
Chief Financial Officer
(Chief Financial and
Accounting Officer)
Date: March 21, 1997
30
<PAGE>
INDEX TO EXHIBITS
Item Number Description
- ----------- -----------
13 Portions of the Annual Report to
Shareholders for Fiscal Year
Ended December 31, 1996
27 Financial Data Schedule
99A Portions of the Proxy Statement
for the Annual Meeting of
Shareholders to be held
April 23, 1997
99B SEC Guide 3 Financial Information
31
EXHIBIT 13
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Vista Bancorp, Inc. (Vista), formed in 1988, is a two-bank holding
company with approximately $500 million in assets operating 14 branches in New
Jersey and Pennsylvania. Vista is the parent company for two wholly-owned
subsidiary banks, The Phillipsburg National Bank and Trust Company (PNB) and
Twin Rivers Community Bank (Twin Rivers). PNB, a $378 million commercial bank
operating ten branches, was formed in 1856 and is located in Phillipsburg,
Warren County, New Jersey. Twin Rivers, a $117 million Pennsylvania state
chartered commercial bank operating four branches, was formed in 1990 and is
located in Palmer Township, Northampton County, Pennsylvania. Vista Bancorp,
Inc. is traded under the symbol "VBNJ" on the Nasdaq SmallCap Market.
The year that ended on December 31, 1996, was significant for Vista and
its bank subsidiaries. Vista began the year with approximately $5.33 million in
new capital raised through a secondary stock offering completed in December 1995
and ended 1996 with a consolidated capital position of $39 million. The capital
was raised to support the growth experienced by its two subsidiary banks and to
position itself to take advantage of opportunities that arose from the industry
consolidation taking place in its markets. Since 1993, Vista has experienced
compound annual growth rates of 10% in assets, 8% in deposits, 20% in capital
and 13% in net income. Its compound growth rate of 6% in earnings per common
share has lagged due to the heavy dilutive effect of two stock offerings.
Expansion opportunities arose in late 1996 as Vista, through its two
subsidiary banks, executed agreements with large regional banks to acquire three
established branch locations, two in Bethlehem, Pennsylvania, that were acquired
by Twin Rivers and one in Flemington, New Jersey, acquired by PNB.
Due to its rapid historical growth and its prospects for future growth,
Vista moved to strengthen its management ranks in late 1996 with new executives
in the areas of retail banking, commercial lending, operations and technology.
The year 1997 is expected to be a transition year for earnings as Vista and its
subsidiaries assimilate the new sites into the organization and focus attention
on growing assets and profitability over the long term. Earnings will be
impacted by the recent expansion due to the typical 12- to 18-month time frame
for new branches to reach a level of profitability. Based on its current plans
and projections, additional equity capital raising activities are remote at this
time, thereby enabling management to focus on growing earni ngs per share and
book value per share as the key drivers of building long-term shareholder value.
PHOTO OF
__________________________________________________
David L. Hensley, President, PNB;
Marc S. Winkler, President and CEO,
Twin Rivers Community Bank; William F. Keefe,
Executive Vice President and CFO, Vista.
__________________________________________________
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
General. The business of banking is affected, directly and indirectly,
by local, domestic and international economic and political conditions, and by
government monetary and fiscal policies. Conditions such as inflation,
recession, unemployment, volatile interest rates, tight money supply, real
estate values, international conflicts and other factors beyond the control of
Vista and its bank subsidiaries may adversely affect the future results of Vista
and its subsidiaries. Management does not expect any one particular factor to
affect Vista or its subsidiaries' results of operations. A downward trend in
several areas, however, including real estate, construction and consumer
spending, could have an adverse impact on Vista's ability to maintain or
increase profitability. Therefore, there is no assurance that Vista will be able
to continue its current rates of income and growth.
Interest Rates. Vista's earnings depend, to a large extent, upon net
interest income, which is primarily influenced by the relationship between its
cost of funds on interest-bearing liabilities (deposits and borrowings) and the
yield on its interest-earning assets (loans and investments). This relationship,
known as the net interest spread, is subject to fluctuation and is affected by
regulatory, economic and competitive factors which influence interest rates, the
volume, rate and mix of interest-earning assets and interest-bearing
liabilities, and the level of nonperforming assets. As part of its interest rate
risk management strategy, management seeks to control its exposure to interest
rate changes by managing the maturity and repricing characteristics of
interest-earning assets and interest-bearing liabilities.
As of December 31, 1996, total interest-earning assets maturing or
repricing within one year were less than total interest-bearing liabilities
maturing or repricing in the same period by $20.8 million, representing a
cumulative one-year interest rate sensitivity gap as a percentage of total
assets of negative 4.18%. This condition suggests that the yield on Vista's
interest-earning assets should adjust to changes in market rates at a slower
rate than the cost of interest-bearing liabilities. Consequently, net interest
income could decrease during periods of rising interest rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Sensitivity."
Adequacy of Allowance for Loan Losses. In originating loans, there is
a likelihood that some credit losses will occur. This risk of loss varies with,
among other things, general economic conditions, the type of loan being made,
the credit-worthiness and debt servicing capacity of the borrower over the term
of the loan and, in the case of a collateralized loan, the value and
marketability of the collateral securing the loan. Management maintains an
allowance for loan losses based on, among other things, historical loan loss
experience, known inherent risks in the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and an evaluation of current economic conditions.
Management currently believes that the allowance for loan losses is adequate,
but there can be no assurance that nonperforming loans will not increase in the
future.
Local Economic Conditions. The success of Vista is dependent, to a
certain extent, upon the general economic conditions in the geographic markets
served by the bank subsidiaries. Although Vista expects that economic conditions
will continue to be favorable in these markets, no assurance can be given that
favorable economic conditions will continue. Adverse changes in economic
conditions in the geographic markets that the bank subsidiaries serve would
likely impair their ability to collect loans and could otherwise have a material
adverse effect on the consolidated results of operations and financial condition
of Vista.
Competition. The banking industry is highly competitive, with rapid
changes in product delivery systems and in consolidation of service providers.
Many of Vista's competitors are larger in terms of assets and capital and have
substantially greater technical, marketing and financial resources. Because
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of their size, many of these competitors can (and do) offer products and
services that Vista does not offer. Vista is constantly striving to meet the
convenience and needs of its customers and to enlarge its customer base. No
assurance can be given that these efforts will be successful in maintaining and
expanding Vista's customer base.
Growth by Internal Expansion and Acquisition. Vista's strategy to
expand internally by establishing new branch offices is dependent on its ability
to identify advantageous branch office locations and generate new deposits and
loans from those locations that will create an acceptable level of net income
for Vista. At the same time, Vista's strategy to grow externally through
selective acquisitions of other financial institutions or branches of such
institutions is dependent on successfully identifying, acquiring and integrating
such institutions or branches. There can be no assurance Vista will be
successful in implementing its internal growth strategy or in identifying
attractive acquisition candidates, acquiring such candidates on favorable terms
or successfully integrating any acquired institutions or branches into Vista.
Federal and State Government Regulation. The operations of Vista are
heavily regulated and will be affected by present and future legislation and by
the policies established from time to time by various federal and state
regulatory authorities. In particular, the monetary policies of the Federal
Reserve Board have had a significant effect on the operating results of banks in
the past and are expected to continue to do so in the future.
RESULTS OF OPERATIONS
Vista's earnings from operations increased 8.4% in 1996 to a record
$4.44 million, or $1.10 per common share, before a one-time Savings Association
Insurance Fund (SAIF) assessment. Including the net tax effect of the
assessment, net income equaled $4.25 million, or $1.05 per common share. This
was the fifth consecutive year of increased earnings. The SAIF assessment,
mandated by Congress in September to recapitalize the deposit insurance fund for
thrift institutions, amounted to a one-time charge of $190 thousand after-tax,
or $.05 per common share.
These results compare with 1995 net income of $4.09 million, or $1.18
per common share. Earnings per common share in 1996 was impacted by a 16%
increase in average common shares outstanding due to the secondary stock
offering of 500,000 new shares in December 1995.
The increase in net income for 1996 was due primarily to an increased
level of net interest income, growth of noninterest income and a positive swing
in the contribution from sales of securities. Offsetting these positive factors
were growth in noninterest expenses and a higher provision for loan losses.
Return on average shareholders' equity was 11.65% in 1996 compared to
15.02% in 1995 and 13.53% in 1994. Return on average assets was .89% in 1996
compared to .96% for 1995 and .83% for 1994.
The operating results of Vista depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, consisting primarily of loans and investments and interest expense on
interest-bearing liabilities, consisting primarily of deposits and borrowings.
Vista's results of operations are also affected by the provision for loan
losses, resulting from management's assessment of the adequacy of the allowance
for loan losses, the level of its noninterest income, including gains and losses
on the sales of securities, noninterest expense, and income tax expense. Each of
these principle components of Vista's operating results are discussed below.
NET INTEREST INCOME
Tax-equivalent net interest income, which is the largest component of
operating income, increased 7% or $1.2 million to $17.2 million in 1996 compared
to $16.0 million in 1995 which in turn increased 5% or
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$750 thousand compared to 1994. The increase in 1996 primarily reflected strong
loan growth and growth in the volume of interest-earning assets.
The net interest margin, which is tax-equivalent net interest income
as a percent of average interest-earning assets, averaged 3.80% for 1996, 3.96%
for 1995 and 4.08% in 1994.
The margin decline in 1996 was attributable to asset growth at
narrower average margins. While the net interest margin is not a managed goal or
target, management's goal is to continue to increase net interest income each
year.
Average interest-earning assets increased $50.3 million in 1996 and
$31.2 million in 1995. The average yield on interest-earning assets was 7.51% in
1996, compared with 7.74% in 1995. The average rate paid on interest-bearing
liabilities was 4.22% in 1996 compared to 4.24% in 1995.
Vista uses its securities portfolio and prospective balance sheet
growth to manage its interest rate sensitivity. More information on interest
rate risk management is included in the "Interest Rate Sensitivity" section.
The following table, "Consolidated Average Balances, Net Interest
Income and Average Rates," presents Vista's average assets, liabilities and
shareholders' equity. Vista's net interest income, net interest spreads and net
interest margin for the periods ended December 31, 1996, 1995 and 1994, are also
reflected.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED AVERAGE BALANCES, NET INTEREST INCOME AND AVERAGE RATES
(TAX-EQUIVALENT BASIS)
AMOUNTS IN THOUSANDS (EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
For The Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Rates Balances Interest Rates Balances Interest Rates
(1) (2) (3) (1) (2) (3) (1) (2) (3)
- --------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 11,305 $ 607 5.37% $ 10,662 $ 627 5.88% $ 7,592 $ 340 4.48%
Short-term investments 2,688 141 5.25% 2,376 138 5.81% 6,343 243 3.83%
- --------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 13,993 748 5.35% 13,038 765 5.87% 13,935 583 4.18%
- --------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 25,734 1,536 5.97% 28,613 1,763 6.16% 41,594 2,346 5.64%
U.S. Government agencies
and corporations 104,011 6,987 6.72% 85,163 6,022 7.07% 69,210 4,256 6.15%
States and other
political subdivisions 13,000 769 5.92% 9,631 576 5.98% 10,470 576 5.50%
Other 15,499 1,036 6.68% 15,904 1,147 7.21% 13,573 925 6.82%
- --------------------------------------------------------------------------------------------------------------------------------
Total Securities 158,244 10,328 6.53% 139,311 9,508 6.83% 134,847 8,103 6.01%
- --------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (4)
Mortgage 137,919 10,494 7.61% 132,550 10,081 7.61% 125,454 9,517 7.59%
Commercial 71,195 6,525 9.16% 61,316 5,924 9.66% 52,934 4,468 8.44%
Consumer 72,404 5,982 8.26% 57,196 4,935 8.63% 45,089 3,808 8.45%
- --------------------------------------------------------------------------------------------------------------------------------
Total Loans 281,518 23,001 8.17% 251,062 20,940 8.34% 223,477 17,793 7.96%
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets 453,755 34,077 7.51% 403,411 31,213 7.74% 372,259 26,479 7.11%
- --------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 15,168 12,927 12,891
Allowance for loan losses (3,879) (4,001) (3,884)
Other assets 13,107 11,938 10,812
- --------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning
Assets 24,396 20,864 19,819
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $478,151 $424,275 $392,078
- --------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Liabilities and Shareholders'
Equity
Interest-bearing deposits:
Demand $ 68,306 $ 1,541 2.26% $ 60,580 $ 1,534 2.53% $ 62,309 $ 1,457 2.34%
Savings 109,819 3,460 3.15% 101,858 3,093 3.04% 117,704 3,258 2.77%
Time 171,565 9,217 5.37% 164,698 8,769 5.32% 135,377 5,692 4.20%
Time deposits $100,000 and over 31,623 1,712 5.41% 20,023 1,144 5.71% 10,488 424 4.04%
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 381,313 15,930 4.18% 347,159 14,540 4.19% 325,878 10,831 3.32%
- --------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 13,000 586 4.51% 9,613 436 4.54% 7,940 279 3.51%
Long-term debt 4,641 333 7.18% 3,360 281 8.36% 1,942 165 8.50%
- --------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds
and Long-term Debt 17,641 919 5.21% 12,973 717 5.53% 9,882 444 4.49%
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities 398,954 16,849 4.22% 360,132 15,257 4.24% 335,760 11,275 3.36%
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 39,154 33,403 29,994
Other liabilities 3,579 3,489 2,341
- --------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing
Liabilities 42,733 36,892 32,335
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 36,464 27,251 23,983
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $478,151 $424,275 $392,078
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread
(tax-equivalent basis) 17,228 3.29% 15,956 3.50% 15,204 3.75%
- --------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis Adjustment (212) (153) (161)
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $17,016 $15,803 $15,043
- --------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 3.80% 3.96% 4.08%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average volume information was computed using approximate daily averages.
(2) Interest on loans includes fee income.
(3) Rates have been annualized and computed on a tax-equivalent basis using
the federal income tax statutory rate of 34%.
(4) Includes nonaccrual loans.
(5) Net interest income on a tax-equivalent basis as a percent of average
interest-earning assets.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table, "Volume/Rate Analysis of Changes in Net Interest
Income," analyzes net interest income by segregating the volume and rate
components of the changes in net interest income resulting from changes in the
volume of various interest-earning assets and interest-bearing liabilities and
the changes in the rates earned and paid by Vista.
VOLUME/RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
For The Year Ended For The Year Ended
December 31, December 31,
1996 vs. 1995 1995 vs. 1994
-------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
-------------------------------------------------------------------------------
Total Average Average Total Average Average
Change (1) Volume Rate Change (1) Volume Rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Federal funds sold ($20) $ 37 ($57) $ 287 $ 161 $ 126
Short-term investments 3 17 (14) (105) (195) 90
- -------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (17) 54 (71) 182 (34) 216
- -------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (227) (172) (55) (583) (784) 201
U.S. Government agencies
and corporations 965 1,278 (313) 1,766 1,071 695
States and other political subdivisions 193 199 (6) - (48) 48
Other (111) (28) (83) 222 166 56
- -------------------------------------------------------------------------------------------------------------------------------
Total Securities 820 1,277 (457) 1,405 405 1,000
- -------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 413 408 5 565 539 26
Commercial 601 917 (316) 1,456 760 696
Consumer 1,047 1,264 (217) 1,127 1,042 85
- -------------------------------------------------------------------------------------------------------------------------------
Total Loans 2,061 2,589 (528) 3,148 2,341 807
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 2,864 3,920 (1,056) 4,735 2,712 2,023
- -------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand 7 185 (178) 77 (41) 118
Savings 367 248 119 (165) (464) 299
Time 448 368 80 3,078 1,381 1,697
Time deposits $100,000 and over 568 631 (63) 720 495 225
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,390 1,432 (42) 3,710 1,371 2,339
- -------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 150 153 (3) 157 66 91
Long-term debt 52 96 (44) 116 118 (2)
- -------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds
and Long-term Debt 202 249 (47) 273 184 89
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 1,592 1,681 (89) 3,983 1,555 2,428
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
(tax-equivalent basis) $1,272 $2,239 ($967) $ 752 $1,157 ($405)
- -------------------------------------------------------------------------------------------------------------------------------
</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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NONINTEREST INCOME
Total noninterest income increased 21% to $2.5 million in 1996 from
$2.1 million in 1995 which in turn increased 11% compared to $1.9 million earned
in 1994.
Income from service charges on deposit accounts increased to $1.5
million in 1996 from $1.4 million in 1995 and $1.3 million in 1994 reflecting
increases of 8% in 1996 and 12% in 1995, respectively. Service charges on
commercial transaction accounts contributed to the majority of the increase in
1996 due to growth in commercial
<TABLE>
<CAPTION>
Noninterest Income and Noninterest Expense
- --------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Percent Change
--------------------------------
Amounts in Thousands (Except Percentages) 1996 1995 1994 1996 vs 1995 1995 vs 1994
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
<S> <C> <C> <C> <C> <C>
Service Charges on Deposit Accounts $ 1,541 $ 1,429 $ 1,271 8% 12%
Other Service Charges 489 351 369 39 (5)
Net Security Gains (Losses) 29 (56) (48) 152 (17)
Trust Income 199 155 121 28 28
Other Income 228 183 146 25 25
- --------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 2,486 $ 2,062 $ 1,859 21% 11%
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Personal Expense:
Salaries $ 5,252 $ 4,723 $ 4,323 11% 9%
Benefits 1,460 1,355 1,723 8 (21)
- --------------------------------------------------------------------------------------------------------------------------------
Total Salaries and Benefits 6,712 6,078 6,046 10 1
Occupancy Expense 1,116 997 947 12 5
Furniture and Equipment Expense 1,209 1,106 982 9 13
SAIF Assessment 317 - - 100 -
Other Expenses:
FDIC Deposit Insurance 173 425 814 (59) (48)
Regulatory Exam Assessments 105 93 98 13 (5)
Marketing and Advertising 566 514 333 10 54
Professional Fees 277 221 307 25 (28)
Printing, Stationery and Supplies 433 299 259 45 15
Postage 248 214 186 16 15
Fees on Loan Accounts 325 268 192 21 40
Intangible Asset Amortization 178 86 93 107 (8)
Insurance 100 99 106 1 (7)
Other Real Estate Owned Expense 109 132 171 (17) (23)
All Other 858 814 897 5 (9)
- --------------------------------------------------------------------------------------------------------------------------------
Total Other Expenses 3,372 3,165 3,456 7 (8)
- --------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $12,726 $11,346 $11,431 12% (1)%
- --------------------------------------------------------------------------------------------------------------------------------
Overhead Efficiency Ratio(1) 64.65% 62.78% 66.80% - -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Overhead Efficiency Ratio is equal to noninterest expense divided by net
operating revenue. Net operation revenue is equal to the sum of tax-equivalent
net interest income and noninterest income, excluding net security gains and
losses.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
checking accounts and higher volumes of items processed. Fee income from
commercial checking accounts increased 21% in 1996 compared to 10% in 1995. Fees
earned from nonsufficient funds (NSF) on personal checking accounts climbed 12%
in 1996 compared to growth of 25% in 1995, reflecting a lower volume of NSF
activity. Service charges on demand accounts, which consisted mainly of standard
monthly maintenance fees and charges for violations of minimum balance
requirements, declined 3% in 1996 after growing 7% in 1995. The decline was
attributable to the introduction of a "No Fee Checking" policy on personal
transaction accounts at Twin Rivers, in addition to maintaining a flat fee
structure in 1996 for PNB.
Other service charge income increased 39% in 1996 following a 5%
decline in 1995. Robust loan demand accounted for growth in attendant fee
generating activities of loan applications and appraisal fees. In addition,
higher ATM interchange revenue derived from increased transaction volume by
noncustomers contributed to the increase.
Other income, including trust operations, increased 26% to $427
thousand in 1996 compared to an increase of 27% to $338 thousand in 1995. Income
from trust operations increased due to a focused effort in this business segment
to generate higher margin business and additional fee income. In addition, a
one-time $62 thousand gain was recognized on the sale of PNB's student loan
portfolio.
Sales of securities resulted in a net gain of $29 thousand in 1996,
while sales of securities in 1995 and 1994 resulted in net losses of $56
thousand and $48 thousand, respectively.
NONINTEREST EXPENSE
Total noninterest expense increased 12% to $12.7 million in 1996 from
$11.3 million in 1995. Total noninterest expense declined 1% to $11.3 million in
1995 compared to $11.4 million in 1994. The overall expense level increased
beyond management's expectation of 5% to 7% for 1996 for several reasons.
Excluding the one-time SAIF assessment of $317 thousand, operating expenses
increased approximately 9% in 1996. The major branch expansion resulted in
significant start-up costs during the fourth quarter of 1996 which historically
always precede the revenue stream expected from the asset and deposit growth of
new branches. In addition, added personnel costs arose from the employment of
new executives in the areas of retail banking, commercial lending, operations
and technology. The added management positions will strengthen Vista's
infrastructure as it positions itself to grow beyond $500 million in assets.
When managing the overall operating expense level of the organization,
Vista's goal is to achieve certain economies of scale where the cost structure
can be leveraged to profitably grow assets at a pace that will exceed the
incremental cost to manage and administer a larger organization and, in turn,
generate higher levels of net income. The key benchmark for measuring progress
toward this goal is the relationship of noninterest expense to average total
assets. This benchmark equaled 2.66% in 1996, 2.67% in 1995 and 2.92% in 1994.
The continued downward trend underscores the success achieved at managing the
organization toward this goal.
The largest component of Vista's cost structure is personnel expense
which equaled $6.7 million for 1996, $6.1 million for 1995 and $6.0 million for
1994. Personnel expense accounted for 53%, 54% and 53% of total noninterest
expense for these periods. When considered separately, salary expense increased
11% in 1996 compared to 1995 which in turn exceeded salary expense in 1994 by
9%. Higher staffing levels and normal merit increases accounted for the majority
of the increase in both years.
Other benefits increased 8% to $1.5 million in 1996 following a 21%
decline in 1995. Included in other benefits expense for 1995 was a medical
insurance premium refund totaling $54 thousand. Adjusting for this
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
nonrecurring item would reduce the year-over-year increase to 4%. The increase
in 1996 was attributable to higher payroll tax expense and employer provided
retirement benefits resulting from increased staff levels and retirement plan
participation.
Other benefits in 1994 included a $280 thousand one-time, pretax
charge for the curtailment of the postretirement medical and life insurance
benefit plans under Statement of Financial Accounting Standards (SFAS) No. 106.
This charge for the plan curtailment, in addition to lower annual postretirement
benefit accruals, accounted for the significant decline in other benefits
expense in 1995 compared to 1994.
Occupancy expense increased 12% to $1.1 million in 1996 from $1.0
million in 1995 due to increased branch sites and higher real estate taxes,
utility costs and facility maintenance costs. Occupancy expense increased in
1995 compared to 1994 due to higher rental expense and routine facility
maintenance costs.
Furniture and equipment expense increased 9% to $1.2 million in 1996
from $1.1 million in 1995 which in turn increased 13% over 1994. Most of the
increase resulted from costs incurred for new equipment required to expand
computer applications and to enhance customer service.
The SAIF assessment was a one-time charge enacted by Congress to
recapitalize the Savings Association Insurance Fund. As a result of its 1991
acquisition of SAIF insured deposits from the Resolution Trust Corporation
(RTC), PNB was assessed $317 thousand and recognized the charge during the third
quarter. The after-tax effect of the assessment was $190 thousand. Commencing
January 1, 1997, the FDIC deposit insurance rate will equal 1.3 cents per $100
of Bank Insurance Fund (BIF) deposits and 6.4 cents per $100 of SAIF insured
deposits. The ongoing deposit insurance premiums for both BIF and SAIF will be
used to service the Financing Corporation (FICO) bonds which were floated by the
United States government to pay for the thrift industry resolution in the late
1980's.
Total other expense increased 7% to $3.4 million in 1996 following an
8% decline in 1995. Increases in printing, stationery and supplies were
connected to the introduction of check imaging technology in 1996. Professional
fees increased due to legal services related to benefit plans while intangible
asset amortization increased as a result of the deposit premium paid in
connection with a branch and deposit acquisition in December 1995. Marketing and
advertising expense increased in 1996 due to the year-long advertising campaign
designed to capitalize on the 140th year anniversary of PNB, in addition to a
redesign and modernization of its corporate logo.
PROVISION FOR INCOME TAXES
The provision for income taxes was $2.15 million for 1996, reflecting
a slight decrease compared to $2.24 million in income tax expense for 1995. The
decrease reflected a higher level of tax-exempt income and lower state income
tax expense. The effective tax rate was 34% for 1996 and 35% for 1995 and 1994.
Differences between the book basis and tax basis of assets and
liabilities recorded in the financial statements resulted in deferred taxes.
As of December 31, 1996 and 1995, net deferred tax assets were $1.71 million
and $1.24 million, respectively.
FINANCIAL CONDITION
Set forth below is a discussion of the material changes in Vista's
financial condition from December 31, 1995 to December 31, 1996.
INTEREST-EARNING ASSETS AND
INTEREST-BEARING LIABILITIES
Average interest-earning assets totaled $453.8 million in 1996,
reflecting an increase of $50.4 million or 12% compared to $403.4 million in
1995, reflecting strong growth in loans and securities. Total loans increased
$30.5 million, or 12%, to average $281.5 million, while securities available for
sale increased $18.9 million, or 14%, to average $158.2 million.
Average interest-bearing liabilities totaled $398.9 million in
1996, reflecting an increase of $38.8 million, or 11%, compared to $360.1
million in 1995 due to strong growth in all categories of deposits. Borrowed
funds and long-term debt reflected moderate growth.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The average tax-equivalent yield on interest-earning assets
amounted to 7.51%, a decrease of 23 basis points from 7.74% earned in 1995. The
average cost of interest-bearing liabilities equaled 4.22% reflecting a narrow
decline of 2 basis points compared to 4.24% paid in 1995. These decreases were
due to the lower average interest rate environment in 1996 compared to 1995. The
average prime rate was 8.27% in 1996 and 8.83% in 1995, while the federal funds
rate averaged 5.31% in 1996 and 5.85% in 1995.
The net interest rate spread, which is the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities, was 3.29% for 1996 compared to 3.50% in 1995, a
decline of 21 basis points. The decline reflected narrower spreads on
interest-earning assets.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are held for indefinite periods of time
and may be sold in response to changing market and interest rate conditions,
liquidity needs or for asset/liability management reasons. The securities
portfolio is the primary tool used to manage the interest rate risk profile.
Vista classifies its entire securities portfolio as available for sale. These
securities are reported at fair value with unrealized gains and losses, net of
tax, included as a separate component of shareholders' equity.
Securities available for sale averaged $158.2 million in 1996 compared
to $139.3 million on average in 1995, an increase of 14%. The increase resulted
primarily in mortgage-backed securities and tax-exempt securities, which offset
slight declines in U.S. Treasury and other types of securities. The average
yield on the overall portfolio amounted to 6.53% in 1996 compared to 6.83% in
1995, a decrease of 30 basis points. The decrease in yield was attributable to
increased premium amortization caused by accelerated prepayments on adjustable
rate mortgage-backed securities early in 1996, prompted by a flat yield curve
and lower average market interest rates throughout 1996.
During 1996, $42.1 million of securities available for sale were sold
resulting in a net gain of $29 thousand. These sales, combined with $37.2
million of maturities, were then used in part to purchase $87.6 million of
securities available for sale.
At December 31, 1996, there were unrealized gains, net of tax, of $703
thousand on securities available for sale compared to $1.52 million at December
31, 1995. The decline is attributable to higher absolute interest rates in
effect at the respective measurement date in 1996 compared to 1995. Higher
interest rates reduced the value of fixed-rate securities whereas lower interest
rates increased the value of fixed-rate securities.
LOANS
Total average loans increased $30.5 million to average $281.5 million
in 1996, an increase of 12% compared to average total loans of $251.1 million in
1995. The commercial and consumer loan portfolios accounted for the majority of
the increase, as strong loan origination activity to small businesses increased
commercial loans, while indirect auto lending contributed $12.0 million of the
$15.2 million growth in average consumer loans during 1996. Mortgage lending
increased $5.4 million on average in 1996 due to an increase in adjustable-rate
mortgage originations.
The overall yield on total loans averaged 8.17% for 1996, a 17 basis
point decline from the 8.34% average yield earned in 1995. The commercial loan
portfolio generated an average yield of 9.16% in 1996 compared to 9.66% in 1995,
a decline of 50 basis points. The decline can be attributed to a lower average
prime rate of 8.27% in 1996 compared to 8.83% in 1995. The average yield on the
mortgage portfolio remained flat in 1996 yielding 7.61%, equal to the yield
generated in 1995, while the yield on the consumer portfolio declined 37 basis
points to 8.26% in 1996 from 8.63% in 1995. The decline can be attributed to
accelerated amortization of the prepaid dealer reserve triggered by prepayments
and an increased level of repossessed automobiles and lower average interest
rates.
DEPOSITS
Total average deposits increased $39.9 million to average $420.5
million in 1996, an increase of 10% compared to average total deposits of $380.6
million in 1995.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total interest-bearing deposits increased $34.2 million on average in
1996 with demand accounts increasing $7.7 million, savings $8.0 million and time
deposits less than $100,000, $6.9 million. Time deposits of $100,000 and over
accounted for approximately $11.6 million of growth on average. A December 1995
branch acquisition contributed $8.8 million toward the growth in demand and
savings and $5.2 million toward growth in time deposits.
Total noninterest-bearing demand deposits increased $5.8 million on
average to $39.2 million in 1996 compared to an average of $33.4 million in
1995.
The cost of funds paid on interest-bearing deposits averaged 4.22% in
1996, a decline of 2 basis points compared to the average cost of funds paid of
4.24% in 1995. The reduction in rates paid on time deposits of $100,000 and over
and interest-bearing demand accounts, offset higher rates paid on
adjustable-rate savings and consumer time deposits.
BORROWED FUNDS AND
LONG-TERM DEBT
Total borrowed funds and long-term debt averaged $17.6 million in 1996
compared to $13.0 million in 1995, while the cost of funds declined 32 basis
points to 5.21% in 1996 from 5.53% in 1995. Lower average short-term interest
rates, a lower average prime rate and a negotiated refinancing to a lower margin
on prime-based long-term debt accounted for the year-over-year decline.
NONPERFORMING ASSETS
At December 31, 1996, nonperforming assets, consisting of loans on
nonaccrual status plus other real estate acquired through foreclosure (ORE),
totaled $4.5 million or 1.48% as a percentage of total loans plus ORE. These
amounts compare to $4.5 million and 1.71%, respectively, at December 31, 1995.
Commercial nonaccrual loans accounted for 76% and 41% of total
nonaccrual loans at December 31, 1996 and 1995, respectively, while nonaccrual
residential mortgage loans accounted for 15% and 57%, respectively. Consumer
loans accounted for 9% and 2%, respectively, of total nonaccrual loans at
December 31, 1996 and 1995. ORE increased to $1.28 million at December 31, 1996,
compared to $489 thousand at December 31, 1995.
A loan must be placed on nonaccrual status when principal or interest
becomes 90 days or more past due, unless the loan is well secured and in the
process of collection. In addition, Vista must expect the loan to be fully
repaid according to the original terms of the loan agreement. A nonaccrual loan
may not be restored to accrual status until principal and interest is no longer
due and unpaid or it otherwise becomes well secured.
A loan is well secured by: (a) collateral in the form of liens on or
pledges of real property, including securities that have a realizable value
sufficient to discharge the debt (including accrued interest) in full; or (b) by
the guarantee of a responsible third party.
A loan should be considered in the process of collection if, based on
a probable specific event, such as the closing of a negotiated sales contract,
it is expected that the loan will be repaid or brought current. The commencement
of collection efforts, plans to liquidate collateral, ongoing workouts,
restructurings or settlements do not, in and of themselves, allow a loan to meet
the definition. There must be evidence that collection in full of amounts due
and unpaid will occur shortly. Generally, this collection period should not
exceed 30 days. Only in cases where the timing and amount of repayment is
certain, may there be a longer period of collection. See "Factors That May
Affect Future Results."
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
The allowance for loan losses remained unchanged at approximately
$3.90 million at December 31, 1996 and 1995, respectively. The allowance equaled
1.30% of total net loans at December 31, 1996, compared to 1.49% at December 31,
1995. The provision for loan losses equaled $380 thousand for 1996 compared to
$190 thousand in 1995 while charge-offs, net of recoveries, totaled $409
thousand for 1996 and $205 thousand for 1995. Approximately $200 thousand of the
annual
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provision for loan losses was recorded in the fourth quarter of 1996 in light of
an increased delinquency rate and higher level of repossessed automobiles in the
indirect auto loan portfolio at PNB. The allowance for loan loss as a percentage
of nonperforming assets equaled 88% at December 31, 1996 and 1995, respectively.
In determining the adequacy of the allowance for loan losses,
management reviewed a loan analysis prepared by Vista's internal loan review
officer, national and local economic indicators, loan collateral values and
historical loss factors. The recognition of impaired loans and specific
allowances that must be determined for such loans were also factored into
Vista's determination of the allowance for loan losses. This information was
reviewed on a quarterly basis with each subsidiary's Board of Directors. Manag
ement determined Vista's allowance for loan losses to be adequate at December
31, 1996. See "Factors That May Affect Future Results."
LIQUIDITY
Liquidity is a measure of Vista's ability to meet present and future
financial obligations and commitments on a timely basis. Liquidity needs include
sufficient cash flow to meet present and future loan commitments, deposit
outflows and daily business operations. At the bank subsidiary level, liquidity
is generally provided by deposit growth, maturities and sales of securities,
periodic repayments of loans, borrowings and net income. Liquidity is provided
to the parent company in the form of monthly service fees paid by the bank
subsidiaries, issuance of common stock through participation in the various
stock plans of Vista and quarterly dividend payments from the bank subsidiaries.
Vista's ability to meet its quarterly dividend payments is dependent
to a large degree on the bank subsidiaries' ability to make dividend payments to
Vista. Any restriction on the subsidiaries' ability to pay dividends could
impair Vista's ability to make cash dividend payments to its shareholders.
Liquidity is managed on a daily basis at both the parent company and
subsidiary levels, enabling management to effectively monitor changes in
liquidity and to react accordingly to market conditions. Management believes
that liquidity is sufficient to meet present and future financial obligations
and commitments on a timely basis.
At December 31, 1996, cash and cash equivalents equaled $35.6 million,
largely unchanged from the $36.1 million in cash and cash equivalents on hand at
December 31, 1995. Changes in cash are measured by changes in the three major
classifications of cash flows defined as operating, investing and financing
activities.
At December 31, 1996, net cash provided by operating activities
equaled $9.7 million consisting mainly of net income adjusted for noncash
charges, plus decreases in other assets and accrued interest receivable.
Net cash provided by financing activities totaled $37.3 million and
consisted of increases in all deposit categories, proceeds from common stock
issuance and an increase in borrowed funds offset in part by debt service
payments on long-term debt and increased cash dividends paid.
Net cash used for investing activities totaled $47.6 million and
consisted of $79.4 million from maturities and sales of securities available for
sale, which were combined with $9.7 million in net cash provided by operating
activities to purchase $87.6 million of securities available for sale. The $37.3
million in net cash provided from financing activities were used to fund $37.0
million of net loan growth.
GRAPH OF
------------------------
DIVIDENDS PER SHARE
(Dollars)
$.27 $.29 $.31 $.34 $.38
1992 1993 1994 1995 1996
------------------------
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES
The following discussion contains statements involving future results.
Actual results may vary for numerous reasons, including, but not limited to,
Vista's customers closing on various commitments. For discussion on the risks
and uncertainties that may affect these commitments, see "Factors That May
Affect Future Results."
The capital adequacy of Vista is reviewed on an ongoing basis by
management and the Board of Directors which considers regulatory guidelines,
asset size, balance sheet composition and risk profile characteristics,
including asset quality, interest rate risk and liquidity needs. An adequate
capital base is important to support growth and expansion and to protect against
unexpected losses that cannot be covered by current year earnings.
Capital is generally provided to Vista in the form of retained net
income after the payment of dividends and by the issuance of common stock
through public offerings, sale of treasury stock and issuance of common stock
through participation in Vista's Employee Stock Purchase Plan, Board of
Directors Stock Purchase Plan and the Dividend Reinvestment Plan.
At December 31, 1996, Vista's shareholders' equity increased $3.0
million to $38.8 million, an increase of 8% over the $35.8 million in
shareholder equity at year-end 1995. The majority of the increase resulted from
$2.7 million of retained net income after dividends and $1.1 million from common
stock issuance which offset a decline in unrealized gains, after tax, on the
securities available for sale portfolio.
Vista's dividend payout ratio equaled 36% for 1996 compared to 29% for
1995. Vista paid cash dividends totaling $1.53 million in 1996 which was an
increase of $357 thousand or 30% over the $1.18 million thousand paid in 1995.
Cash dividends paid per common share equaled 38 cents in 1996 compared to 34
cents in 1995 and 31 cents in 1994, representing increases of 12% and 10%,
respectively.
The increase in cash dividends is attributed to the increased number
of common shares outstanding and an increase in the quarterly dividend to 10
cents per common share ($.40 annualized), from 9 cents per common share ($.36
annalized), effective with the 1996 third quarter dividend. Vista's book value
per common share at December 31, 1996, was equal to $9.50 compared to a book
value of $8.96 per common share at December 31, 1995.
The current minimum regulatory guideline for the Tier I leverage ratio
is 4.0% for institutions that have a regulatory rating of two or higher. For
Tier I and total risk-based capital ratios, the minimum regulatory guidelines
are 4.0% and 8.0%, respectively. Failure to meet minimum capital requirements
can initiate certain actions by the banking regulators that could have an
adverse effect on the operations and financial statements of Vista or its bank
subsidiaries.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established capital designations ranging from "well-capitalized" to
"critically undercapitalized." At December 31, 1996, each of the bank
subsidiaries met the "well-capitalized" criteria, which requires a minimum Tier
I leverage ratio of 5.0% and minimum Tier I and total risk-based capital ratios
of 6.0% and 10.0%, respectively.
Vista maintained a Tier I capital ratio of 13.33% and a total
risk-based capital ratio of 14.90% at December 31, 1996, compared to 13.45% and
15.39%, respectively, at December 31, 1995.
The leverage ratio evaluates capital adequacy based upon Tier I
capital in relation to quarterly average assets, adjusted for a portion of the
allowance for
GRAPH OF
- -----------------------------
BOOK VALUE PER SHARE
(Dollars)
$6.12 $6.71 $7.18 $8.96 $9.50
1992 1993 1994 1995 1996
- -----------------------------
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
loan losses, certain intangible assets, deferred tax assets and the adjustment
pursuant to SFAS No. 115. The minimum leverage capital ratio is within a range
of 3% to 5% for the highest rated institutions, with other institutions expected
to maintain higher ratios. Vista maintained a leverage ratio of 7.57% at
December 31, 1996, and 7.69% at December 31, 1995.
See Note 14 of Notes to Consolidated Financial Statements for further
information on the capital ratios for Vista and its subsidiaries.
Vista may be a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
statements of condition. The contract or notional amounts of these instruments
reflect the extent of involvement Vista has in particular classes of financial
instruments. Vista uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Vista evaluates each customer's credit-worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by Vista upon
extension of credit, is based on management's credit evaluation. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties. Vista was committed to
advance $32.0 million and $23.5 million to its borrowers as of December 31, 1996
and 1995, respectively.
Standby letters of credit are conditional commitments issued by Vista
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Vista has entered into standby
letters of credit contracts with its customers totaling $1.5 million and $1.4
million as of December 31, 1996 and 1995, respectively.
Vista did not (does not) issue nor hold derivative instruments.
However, Vista did (does) issue commitments and letters of credit. These
instruments were (are) issued in the normal ordinary course of business to meet
customer needs. Commitments to fund fixed-rate loans were immaterial at December
31, 1996 and 1995. Variable rate commitments were (are) generally issued for
less than one year and carry market rates of interest. Such instruments are not
likely to be affected by annual rate caps triggered by rising interest rates.
Such off-balance sheet risk was not material to Vista's results of operations or
financial condition.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the relationship between market interest
rates and earnings volatility due to the repricing characteristics of assets and
liabilities. Vista's net interest income is affected by changes in the level of
market interest rates. In order to maintain consistent earnings performance,
Vista seeks to manage, to the extent possible, the repricing characteristics of
its assets and liabilities.
GRAPH OF
-----------------------------
NET INTEREST INCOME
(Millions)
$11.5 $13.8 $15.0 $15.8 $17.0
1992 1993 1994 1995 1996
-----------------------------
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------
* 90 Days
90 Days but 1 to 5 5 to 10 * 10
or less ** 1 Year Years Years Years Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $13,395 $ - $ - $ - $ - $ 13,395
Short-term investments 3,817 - - - - 3,817
Securities available for sale (1) 12,778 35,738 89,118 11,810 2,924 152,368
Loans (1) 61,598 50,666 120,028 46,268 21,004 299,564
- ------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Assets $91,588 $86,404 $209,146 $58,078 $23,928 $469,144
- ------------------------------------------------------------------------------------------------------------------------
Deposits:
Interest-bearing demand deposits (2) $11,358 $ - $ 49,112 $ 9,438 $ - $ 69,908
Savings (2) - 20,256 77,072 14,343 - 111,671
Time 42,491 106,560 57,560 4,459 - 211,070
Borrowed funds 16,643 - - - - 16,643
Long-term debt 1,498 - 3,000 - - 4,498
Shareholders' equity - - - - 38,815 38,815
- ------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities and
Shareholders' Equity $71,990 $126,816 $186,744 $28,240 $38,815 $452,605
- ------------------------------------------------------------------------------------------------------------------------
Interest Sensitivity Gap $19,598 ($40,412) $ 22,402 $29,838 ($14,887) 16,539
Cumulative Gap 19,598 (20,814) 1,588 31,426 16,539 -
Cumulative Gap to Total Assets 3.93% (4.18)% 0.32% 6.31% 3.32% -
- ------------------------------------------------------------------------------------------------------------------------
* Greater than
** Less than
</TABLE>
(1) Investments and loans are included in the earlier of the period in which
interest rates are next scheduled to adjust or the period in which they are due.
in addition, loans are included in the periods in which they are scheduled to be
repaid based on scheduled amortization. For amortizing loans and mortgage-backed
securities, annual prepayment rates are assumed ranging from 0% to 20%,
reflecting historical experience as well as management's knowledge and
experience of its loan products.
(2) Vista's interest-bearing demand and savings accounts are generally subject
to immediate withdrawal. however, management considers a certain amount of such
accounts to be core accounts having significantly longer effective maturities
based on the retention experience of such deposits in changing interest rate
environments. Accordingly, these deposits are assumed to be withdrawn according
to Federal Reserve Board guidelines which management considers reasonable at
this time.
The ratio between asset and liability repricing in specific time
intervals is referred to as an interest rate sensitivity gap. Interest rate
sensitivity gaps can be managed to take advantage of the slope of the yield
curve as well as forecasted changes in the level of interest rate changes.
One major objective of Vista when managing the rate sensitivity of its
assets and liabilities is to stabilize net interest income. The management of
and authority to assume gap risk is the responsibility of senior management at
each bank subsidiary. The process of reviewing interest rate risk management is
a regular part of Vista's management of the bank subsidiaries. Consistent
policies and practices for measuring and reporting interest rate risk exposure,
particularly regarding the treatment of noncontractual assets and liabilities,
are in effect. In addition, there is an annual process to review the interest
rate risk policy with each bank subsidiary's Board of Directors which includes
limits on the impact to earnings from shifts in interest rates.
The bank subsidiaries employ computerized net interest income
simulation modeling to assist in quantifying interest rate risk exposure. This
process measures and quantifies the impact on net interest income through
varying interest rate changes and balance sheet compositions.
At December 31, 1996, Vista maintained cumulative asset sensitive gap
positions in the 90-day or less and the 1- to 5-year and the over 5-year
maturity categories. These positions suggest that net interest income could
increase as a result of rising interest rates in the short term. Vista's
modeling results at December 31, 1996, indicated that the level of net interest
income at risk due to varying interest rate movements was within internal risk
tolerance guidelines. These guidelines
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
restrict the impact on net interest income to less than 10%, assuming a gradual
200 basis point increase or decrease in market interest rates.
The table, "Statement of Interest Sensitivity Gap," reflects Vista's
consolidated gap position at December 31, 1996.
Certain shortcomings are inherent in the method of analysis presented
in the table. Although specific assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market rates, while
interest rates on other types of assets and liabilities may lag behind changes
in market rates. Some assets, such as adjustable-rate mortgages, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset. In the event of a change in interest rates, prepayment and early
withdrawal levels may deviate significantly from those assumed in calculating
the table. For example, an interest rate increase may diminish the ability of
many borrowers to service their adjustable-rate debt.
EFFECTS OF INFLATION
The impact of inflation on banks and bank holding companies is
different from the inflationary impact on nonfinancial institutions. Banks have
assets and liabilities which are primarily monetary in nature and which tend to
reflect changes in inflation. This is especially true for banks with a high
percentage of rate-sensitive interest-earning assets and interest-bearing
liabilities. A bank can reduce the impact of inflation by managing its rate
sensitivity gap position.
Vista management monitors and seeks to mitigate the impact of
interest rate changes by attempting to match the maturities of
interest-earning assets and interest-bearing liabilities.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a
description of recently issued accounting standards which are applicable to
Vista.
GRAPH OF GRAPH OF
- ------------------------ ----------------------------------
RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY
(Percent) (Percent)
.69% .85% .83% .96% .89% 12.96% 13.88% 13.53% 15.02% 11.65%
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
- ------------------------ ----------------------------------
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 18,370 $ 18,823
Federal funds sold 13,395 10,980
Short-term investments 3,817 6,345
- ------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 35,582 36,148
- ------------------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $151,303 and $143,563 in 1996
and 1995, respectively) 152,368 145,867
- ------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 140,612 134,471
Commercial 78,250 67,311
Consumer 80,702 62,500
- ------------------------------------------------------------------------------------------------------------------------
Total Loans 299,564 264,282
Allowance for loan losses (3,903) (3,932)
- ------------------------------------------------------------------------------------------------------------------------
Total Net Loans 295,661 260,350
- ------------------------------------------------------------------------------------------------------------------------
Premises and equipment 7,542 5,903
Accrued interest receivable 2,826 3,779
Other assets 4,222 5,193
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $498,201 $457,240
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 42,462 $ 40,215
Interest-bearing 69,908 64,044
Savings 111,671 104,749
Time 211,070 192,555
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits 435,111 401,563
- ------------------------------------------------------------------------------------------------------------------------
Borrowed funds 16,643 12,141
Long-term debt 4,498 4,725
Accrued interest payable 1,102 1,023
Other liabilities 2,032 1,943
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 459,386 421,395
- ------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,085,498 and 3,999,344 at December 31, 1996 and 1995, respectively 2,043 2,000
Paid-in capital 13,092 12,064
Retained earnings 22,984 20,268
Treasury stock (780 shares) (7) (7)
Net unrealized gain on securities available for sale 703 1,520
- ------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 38,815 35,845
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $498,201 $457,240
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $22,987 $20,935 $17,789
Interest on federal funds sold 607 627 340
Interest on short-term investments 141 138 243
Interest on securities:
Taxable 9,559 8,932 7,528
Nontaxable 571 428 418
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 33,865 31,060 26,318
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 15,930 14,540 10,831
Interest on borrowed funds 586 436 279
Interest on long-term debt 333 281 165
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 16,849 15,257 11,275
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 17,016 15,803 15,043
Provision for Loan Losses 380 190 480
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 16,636 15,613 14,563
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 1,541 1,429 1,271
Other service charges 489 351 369
Net security gains (losses) 29 (56) (48)
Other income 427 338 267
- ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 2,486 2,062 1,859
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 6,712 6,078 6,046
Occupancy expense 1,116 997 947
Furniture and equipment expense 1,209 1,106 982
SAIF assessment 317 - -
Other expense 3,372 3,165 3,456
- ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 12,726 11,346 11,431
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 6,396 6,329 4,991
Provision for Income Taxes 2,148 2,236 1,746
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,248 $ 4,093 $ 3,245
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per Share $ 1.05 $ 1.18 $ 0.96
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,035,092 3,468,046 3,377,695
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
For The Years Ended December 31, 1996, 1995 and 1994
Net Unrealized
Gain (Loss) on
Securities Total
Shares Common Paid-in Retained Treasury Available Shareholders'
Issued Stock Capital Earnings Stock for Sale Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,115,638 $1,673 $5,625 $15,166 ($7) $ - $22,457
Net income - 1994 - - - 3,245 - - 3,245
Cash dividends - $.31 per share (1) - - - (1,061) - - (1,061)
Net proceeds from
issuance of common stock 65,251 39 622 - - - 661
Issuance of common stock
3-for-1 stock split 2,242,172 - - - - - -
Net unrealized depreciation
in the market value of
securities available for sale,
net of income taxes - - - - - (730) (730)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 3,423,061 1,712 6,247 17,350 (7) (730) 24,572
Net income - 1995 - - - 4,093 - - 4,093
Cash dividends - $.34 per share - - - (1,175) - - (1,175)
Net proceeds from
issuance of common stock 576,283 288 5,808 - - - 6,096
Deferred compensation - - 9 - - - 9
Net unrealized appreciation
in the market value of
securities available for sale,
net of income taxes - - - - - 2,250 2,250
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,999,344 2,000 12,064 20,268 (7) 1,520 35,845
Net income - 1996 - - - 4,248 - - 4,248
Cash dividends - $.38 per share - - - (1,532) - - (1,532)
Net proceeds from
issuance of common stock 86,154 43 998 - - - 1,041
Deferred compensation - - 30 - - - 30
Net unrealized depreciation
in the market value of
securities available for sale,
net of income taxes - - - - - (817) (817)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 4,085,498 $2,043 $13,092 $22,984 ($7) $ 703 $38,815
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for 3-for-1 stock split effective May 13, 1994.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Amounts in Thousands
For The Years Ended December 31,
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activites:
Net Income $4,248 $4,093 $3,245
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 887 727 729
Provision for loan losses 380 190 480
Provision for deferred taxes (53) (128) (398)
Increase in deferred income 104 37 146
Decrease (increase) in accrued interest receivable 953 (757) (92)
Increase in accrued interest payable 79 254 175
Decrease (increase) in other assets 2,490 (2,310) 591
Increase in other liabilities 119 123 554
Net amortization of premium on securities 538 429 631
Net security (gains) losses (29) 56 48
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 9,716 2,714 6,109
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 37,232 11,101 19,319
Proceeds from sales of securities available for sale 42,142 35,720 30,923
Purchases of securities available for sale (87,623) (29,319) (43,043)
Proceeds from maturities of securities held to maturity - 17,422 24,320
Proceeds from sales of securities held to maturity - - 659
Purchases of securities held to maturity - (40,982) (34,877)
Net increase in loans (37,017) (27,220) (32,208)
Net capital expenditures (1,525) (1,093) (825)
Net cash (paid for) received from branch acquisitions (823) 12,683 -
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used For Investing Activities (47,614) (21,688) (35,732)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 15,033 (1,512) (995)
Net increase in time deposits 18,515 19,265 28,522
Net increase in borrowed funds 4,502 3,517 745
Net (decrease) increase in long-term debt (227) 2,840 (80)
Net proceeds from issuance of common stock 1,041 6,096 661
Cash dividends paid (1,532) (1,175) (1,061)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 37,332 29,031 27,792
- -------------------------------------------------------------------------------------------------------------------------
Net Decrease (Increase) in Cash and Cash Equivalents (566) 10,057 (1,831)
Cash and Cash Equivalents, Beginning of Period 36,148 26,091 27,922
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $35,582 $36,148 $26,091
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $16,770 $15,003 $11,100
Income taxes paid 2,328 2,435 2,325
Details related to branch acquisitions:
Increase in loans acquired - (283) -
Increase in demand and savings deposits assumed - 8,799 -
Increase in time deposits assumed - 5,167 -
Fixed assets purchased (823) (500) -
Core deposit premium - (500) -
Supplemental Disclosures of Noncash Investing and Financing Activities:
Transfers from loans to other real estate owned 1,222 209 429
Transfers from securities held to maturity to securities available
for sale effective January 1, 1994, upon adoption of SFAS No. 115 - - 18,123
Transfers from securities held to maturity to securities available
for sale effective December 31, 1995 to reclassify securities in
accordance with SFAS No. 115 - 115,955 -
Net unrealized (loss) gain in the fair value of securities available
for sale (1,239) 3,426 (1,122)
Increase (decrease) in deferred tax asset related to net unrealized
(loss) gain in the fair value of securities available for sale 422 (1,176) 392
Net unrealized (loss) gain in the fair value of securities available for
sale, net of income taxes (817) 2,250 (730)
Deferred compensation 30 9 -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The following is a description of the business and significant
accounting policies of Vista Bancorp, Inc. and its subsidiaries (Vista).
Description of Business
Vista provides a full range of retail and commercial banking services
for consumers and small to medium size businesses primarily in Western New
Jersey and Eastern Pennsylvania. Vista's lending and investing activities are
funded primarily by deposits gathered through its retail branch office network.
Lending is concentrated in mortgage, commercial and consumer loans to local
borrowers. In management's opinion, although Vista has a high concentration of
residential mortgages, these loans are well collateralized and do not pose an
adverse credit risk. In addition, the balance of the loan portfolio is
sufficiently diversified to avoid significant concentration of credit risk.
Although Vista has a diversified loan portfolio, a substantial portion of its
borrowers' ability to honor their contracts is dependent upon the viability of
the real estate economic sector.
The success of Vista is dependent, to a certain extent, upon the
economic conditions in the geographic markets it serves. No assurance can be
given that the current economic conditions will continue. Adverse changes in the
economic conditions in these geographic markets would likely have a material
adverse effect on Vista's results of operations and financial condition. The
operating results of Vista depend primarily on its net interest income.
Accordingly, the operations of Vista are subject to risks and uncertainties
surrounding its exposure to change in the interest rate environment.
Principles of Consolidation
The consolidated financial statements of Vista include all of the
accounts of the parent company and its two wholly-owned subsidiaries, The
Phillipsburg National Bank and Trust Company (PNB) and Twin Rivers Community
Bank (Twin Rivers), collectively (the Banks). All significant intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, cash due from banks, federal funds sold and short-term
investments. Federal funds sold are usually an overnight investment.
Securities
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Vista elected to adopt SFAS
No. 115 effective January 1, 1994. The initial adoption of SFAS No. 115 resulted
in the addition of $728 thousand to shareholders' equity on January 1, 1994,
representing the tax-effected net unrealized gain on Vista's available for sale
portfolio at that date. In October 1995, the FASB suspended certain transfer
provisions of SFAS No. 115 for a defined period of time beginning on November 15
and ending on December 31, 1995. During this one-time adjustment period, Vista
elected to transfer all securities classified as held to maturity into the
available for sale portfolio in accordance with SFAS No. 115. The transfer
involved securities with an amortized cost of $116.0 million and a market value
of $117.7 million. At December 31, 1996 and 1995, Vista classified and accounted
for debt and equity securities as available for sale.
Securities available for sale, carried at approximate market or fair
value at December 31, 1996 and 1995, are those management might sell in response
to changes in market interest rates, increases in loan demand, changes in
liquidity needs or other valid business purposes. Market value changes in the
available for sale portfolio are accounted for as a separate component of
shareholders' equity.
Purchase premiums and discounts on all securities are amortized or
accreted to income over the life or respective call date of the related security
using the interest method. Realized gains or losses on sales of these securities
are based on the specific identification method.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONTINUED
Loans
Loans are stated at the principal amount outstanding, net of unearned
income. The interest on loans is credited to income based upon the principal
amount outstanding and stated interest rate. When management believes there is
sufficient doubt as to the ultimate collectibility of principal or interest on
any loan or generally when loans are 90 days or more past due, the accrual of
applicable interest is discontinued and the loan is designated as nonaccrual,
unless the loan is well secured and in the process of collection. Interest
payments received on nonaccrual loans are either applied against principal or
reported as income, according to management's judgment as to the collectibility
of principal. Loans are returned to an accrual status when factors indicating
doubtful collectibility on a timely basis no longer exist.
The Banks account for loan origination fees in compliance with SFAS
No. 91, "Accounting for Non-refundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases." Loan
origination fees are deferred and are included in unearned income. These fees
are being amortized as an adjustment of the yield, generally over the
contractual life of the related loans, and recorded as interest income.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased by
provisions charged to expense and reduced by net charge-offs. The level of the
allowance is based on management's evaluation of possible losses in the loan
portfolio after consideration of prevailing and anticipated economic conditions.
Vista adopted SFAS No. 114, "Accounting by Creditors for the
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures," on January 1, 1995. These
statements address the accounting by creditors for impairment of certain loans.
SFAS No. 114 and SFAS No. 118 apply to collateralized loans, except large groups
of smaller homogeneous loans, that are collectively evaluated for impairment.
They also apply to all loans that are restructured in a troubled debt
restructuring involving a modification of terms. SFAS No. 114 and SFAS No. 118
require that the loans within the scope of these statements be measured based on
the present value of expected future cash flows discounted using the loan's
effective interest rate, the loan's observable market price or the fair value of
the collateral securing the loan.
Premises and Equipment
Land is carried at cost, and premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation is charged to
operations primarily on a straight-line basis over the estimated useful lives of
the assets. Leasehold improvements are amortized over the term of the lease or
the estimated useful life of the improvement, whichever is shorter.
Other Real Estate Owned
Other real estate owned consists of foreclosed assets and is stated at
the lower of cost or estimated fair market value minus estimated costs to sell
the property.
Postretirement Benefits
Other Than Pensions
In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." This statement mandates that
the cost of postretirement benefits other than pensions be recognized
systematically over employees' service periods. In 1993, Vista adopted SFAS No.
106 and elected to amortize the postretirement benefit obligation over the
average remaining service period of active participants which was estimated to
be 22 years.
Marketing and Advertising Costs
Vista participates in various marketing and advertising programs. All
costs related to marketing and advertising are generally expensed in the period
incurred. Marketing and advertising costs totaled $566 thousand, $514 thousand
and $333 thousand in 1996, 1995 and 1994, respectively.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONTINUED
Income Taxes
In January 1993, Vista prospectively adopted SFAS No. 109, "Accounting
for Income Taxes." The adoption of SFAS No. 109 changed Vista's method of
accounting for income taxes from the deferred method (Accounting Principles
Board Opinion No. 11) to an asset and liability approach. The asset and
liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of other assets and liabilities.
Earnings per Share
Net income per common share is computed by using the weighted average
number of common shares outstanding during each period presented.
Fair Value of Financial Instruments
The reported fair values of financial instruments are based on a
variety of factors. In some cases, fair values represent quoted market prices
for identical or comparable instruments. In other cases, fair values have been
estimated based on assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates reflecting varying degrees of risk.
Accordingly, the fair values may not represent the actual values of the
financial instruments that could have been realized as of year end or that will
be realized in the future.
Trust Assets and Income
Assets held in fiduciary or agency capacities for customers are not
included in the consolidated balance sheets, since such items are not assets of
Vista. Trust income is reported on the accrual basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In March 1995, FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. This statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair value of the asset.
This statement became effective and was adopted by Vista on January 1, 1996.
Adoption of this statement had no material impact on Vista's financial position
or its results of operations during 1996.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement requires the recognition of separate assets
relating to the rights to service mortgage loans for others based on their fair
value if it is practicable to estimate the value. This statement applies
prospectively to transactions entered into in 1996, therefore, there is no
cumulative effect upon adoption of this statement. This statement became
effective and was adopted by Vista on January 1, 1996. This statement had no
effect on the financial position or results of operations during 1996 since
Vista did not engage in any activities covered by the provisions of this
statement.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 provides an alternative method of accounting for
stock-based compensation arrangements, based on fair
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONTINUED
value of the stock-based compensation utilizing various assumptions regarding
the underlying attributes of the options and Vista's stock, rather than the
existing method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). FASB encouraged entities to adopt the fair-value-based
method but did not require adoption of this method. This statement became
effective on January 1, 1996. Vista adopted the disclosure only provisions of
SFAS No. 123 but elected to continue its current acconting policy with respect
to recording stock-based compensation expense.
In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers of
Securities and Extinguishment of Liabilities." SFAS No. 125 provides standards
based on consistent application of a financial-components approach that focuses
on control. Under this approach, after a transfer of financial assets, an entity
would recognize the financial and servicing assets it controls and the
liabilities it has incurred, remove financial assets from the balance sheet when
control has been surrendered, and remove liabilities from the balance sheet when
they have been extinguished. This statement supersedes SFAS No. 122 which was
originally effective for transfers of financial assets and extinguishment of
liabilities occurring after December 31, 1996. SFAS No. 127 issued in December
1996 delayed the effective date of certian provisions of SFAS No. 125 as they
affect transfers of financial assets until after December 31, 1997. Earlier or
retroactive application of either standard is not permitted. Management has not
yet determined the effect of these statements on Vista's financial position or
results of operations.
NOTE 2 - CASH AND DUE FROM BANKS
Restrictions on cash and due from bank accounts are placed upon the
banking subsidiaries of Vista by the Federal Reserve Banks. Certain amounts of
reserve balances are required to be maintained at the Federal Reserve Banks
based upon deposit levels and other factors. The average amount of Vista's
reserve balances for the year ended December 31, 1996, was approximately $6.0
million. For the two-week period ended December 31, 1996, the average amount of
reserve balances for Vista was approximately $6.0 million.
Vista maintains various deposit accounts with other banks to meet
normal funds transaction requirements and to compensate other banks for certain
correspondent services. These accounts are insured by the FDIC up to $100,000
per account. Vista's management is responsible for assessing the credit risk of
its correspondent banks.
The withdrawal or usage restrictions of cash and due from bank
balances did not have a significant impact on the operations of Vista as of
December 31, 1996.
NOTE 3 - SECURITIES
The amortized cost, gross unrealized gains and losses, estimated
market values and maturity distribution of Vista's securities available for sale
at December 31, 1996 and 1995, were as follows:
Securities Available for Sale
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 19,552 $ 100 ($ 76) $ 19,576
U.S. Government agencies and corporations 12,324 46 (52) 12,318
State and political subdivisions 14,369 69 (38) 14,400
Corporate debt securities 10,691 159 (16) 10,834
Mortgage-backed securities 91,750 1,339 (466) 92,623
Equity securities 2,617 - - 2,617
- --------------------------------------------------------------------------------------------------------------
Total securities available for sale $151,303 $1,713 ($648) $152,368
- --------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CONTINUED
Securities Available for Sale
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 28,142 $ 314 ($ 1) $ 28,455
U.S. Government agencies and corporations 13,602 168 (9) 13,761
State and political subdivisions 11,435 71 (28) 11,478
Corporate debt securities 14,963 338 (8) 15,293
Mortgage-backed securities 73,190 1,580 (121) 74,649
Equity securities 2,231 - - 2,231
- --------------------------------------------------------------------------------------------------------------
Total securities available for sale $143,563 $2,471 ($167) $145,867
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Securities Available for Sale
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Estimated Estimated
Amortized Market Amortized Market
Amounts in Thousands Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturing within one year $ 9,658 $ 9,676 $ 26,045 $ 26,149
Maturing after one year but within five years 36,580 36,751 35,546 36,205
Maturing after five years but within ten years 9,375 9,379 5,878 5,952
Maturing after ten years 1,323 1,322 673 681
No Maturity 2,617 2,617 2,231 2,231
Mortgage-backed securities 91,750 92,623 73,190 74,649
- --------------------------------------------------------------------------------------------------------------
Total securities available for sale $151,303 $152,368 $143,563 $145,867
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sales of securities available for sale were $42.1
million in 1996, $35.7 million in 1995 and $30.9 million in 1994. Gross realized
gains on sales were $233 thousand in 1996, $141 thousand in 1995 and $313
thousand in 1994. Gross realized losses on sales totaled $204 thousand in 1996,
$197 thousand in 1995 and $374 thousand in 1994.
Proceeds from the sales of securities held to maturity were $659
thousand in 1994. Gross realized gains on sales were $13 thousand in 1994.
During 1994, sales of securities held to maturity were accounted for in
compliance with the guidelines established by SFAS No. 115.
Securities available for sale with a book value of $52.2 million and
$44.8 million at December 31, 1996 and 1995, respectively, were pledged to
secure public fund deposits, securities sold under agreements to repurchase and
for other purposes required or permitted by law.
In October 1995, the FASB suspended certain transfer provisions of
SFAS No. 115 for a defined period of time beginning on November 15 and ending on
December 31, 1995. During this one-time adjustment period, Vista elected to
transfer all securities classified as held to maturity into the available for
sale portfolio in accordance with SFAS No. 115. The transfer involved securities
with an amortized cost of $116.0 million and a market value of $117.7 million.
NOTE 4 - LOANS
Vista's mortgage, commercial and consumer loan activity is generally
concentrated in Warren and Hunterdon counties in Western New Jersey and
Northampton County in Eastern Pennsylvania. Although Vista has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the viability of the real estate economic sector.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - CONTINUED
Restructured loans are those loans whose terms have been modified
because of a deterioration in the financial condition of the borrower to provide
for a reduction of either interest or principal or an extension of the payment
period. Restructured loans were $2.0 million and $1.8 million at December 31,
1996 and 1995, respectively. Restructured loans of $16 thousand were returned to
accrual status during 1996. Total nonaccrual loans included $1.4 million and
$1.6 million of restructured loans at December 31, 1996 and 1995, respectively.
The following table summarizes Vista's nonaccrual and past due loans
at December 31, 1996 and 1995:
Amounts in Thousands 1996 1995
- ---------------------------------------------------------
Nonaccrual loans $3,177 $4,035
- ---------------------------------------------------------
Accrual loans past due
90 days or more $ 224 $ 356
- ---------------------------------------------------------
Additional information with respect to nonaccrual loans at December
31, 1996 and 1995, was as follows:
Amounts in Thousands 1996 1995
- ---------------------------------------------------------
Interest income that would
have been recorded under
original terms $ 86 $ 128
- ---------------------------------------------------------
Interest income recorded
during the period $153 $ 167
- ---------------------------------------------------------
Loans to executive officers, directors and their affiliated interests
amounted to $4.4 million and $4.7 million at December 31, 1996 and 1995,
respectively. During 1996, $1.5 million of new loans were made, and repayments
totaled $1.8 million. During 1995, $2.1 million of new loans were made, and
repayments totaled $1.2 million. All such related party loans were current as to
principal and interest payments and were granted on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated parties and do not involve more than
normal risk of collectibility. At December 31, 1996, no loans to executive
officers, directors and their affiliated interests were renegotiated, past due
or on nonaccrual status. Interest earned on the related party loans was $352
thousand, $323 thousand and $255 thousand for the years ended December 31, 1996,
1995 and 1994, respectively.
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and adjustments, as they become necessary, are reported in earnings
in the periods in which they become known. An analysis of the allowance for loan
losses as of December 31, 1996, 1995 and 1994, is as follows:
Amounts in Thousands 1996 1995 1994
- -------------------------------------------------------------------------------
Balance, beginning of year $3,932 $ 3,947 $ 3,697
Additions:
Provisions charged to
expense 380 190 480
Recoveries of loans
previously charged off 70 52 95
Deductions:
Loans charged off (479) (257) (325)
- -------------------------------------------------------------------------------
Balance, end of year $3,903 $ 3,932 $ 3,947
- -------------------------------------------------------------------------------
At December 31, 1996, the total impaired loans recognized in
accordance with SFAS No. 114 and SFAS No.118 were $2.9 million, of which $1.3
million were valued based upon discounted cash flows and $1.6 million using the
fair value of collateral. Based on these methods, $598 thousand of the $3.9
million allowance for loan losses was allocated against the $2.9 million of
impaired loans. At December 31, 1995, the total impaired loans recognized in
accordance with SFAS No. 114 and SFAS No. 118 were $3.4 million, of which $783
thousand were valued based upon discounted cash flows and $2.6 million using the
fair value of collateral. Based on these methods, $616 thousand of the $3.9
million allowance for loan losses was allocated against the $3.4 million of
impaired loans. The remaining allowance for loan losses, totaling $3.3 million
at December 31, 1996 and 1995 was available to absorb losses in Vista's entire
loan portfolio. Vista's total average impaired loans during the year-to-date
periods ended December 31, 1996 and 1995, were approximately the same as the
$2.9 million and $3.4 million balance at
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES 5 - CONTINUED
December 31, 1996 and 1995, respectively. Interest income on impaired loans
totaled $83 thousand and $134 thousand in 1996 and 1995, respectively.
NOTE 6 - PREMISES AND EQUIPMENT
An analysis of premises and equipment as of December 31, 1996 and
1995, is as follows:
Amounts in Thousands 1996 1995
- ----------------------------------------------------------
Land and buildings $6,353 $5,062
Furniture and equipment 5,799 4,940
Leasehold improvements 931 895
- ----------------------------------------------------------
Total cost 13,083 10,897
Less: Accumulated depreciation
and amortization (5,541) (4,994)
- ----------------------------------------------------------
Total premises and
equipment, net $7,542 $5,903
- ----------------------------------------------------------
Depreciation and amortization expense for premises and equipment for
1996, 1995 and 1994 amounted to $709 thousand, $642 thousand and $636 thousand,
respectively.
NOTE 7 - DEPOSITS
An analysis of time deposits at December 31, 1996 and 1995, is as
follows:
Amounts in Thousands 1996 1995
- -----------------------------------------------------------
Time deposits:
Certificates less
than $100,000 $183,454 $168,475
Certificates $100,000
and over 27,616 24,080
- -----------------------------------------------------------
Total time deposits $211,070 $192,555
- -----------------------------------------------------------
A maturity schedule of time deposits of $100,000 and over is as follows:
Amounts in Thousands 1996 1995
- ----------------------------------------------------------
3 months or less $10,389 $ 9,869
3 through 6 months 4,266 5,909
6 through 12 months 9,728 5,484
Over one year 3,233 2,818
- ----------------------------------------------------------
Total certificates
$100,000 and over $27,616 $24,080
- ----------------------------------------------------------
<PAGE>
NOTE 8 - BORROWED FUNDS
An analysis of borrowed funds as of December 31, 1996 and 1995, is as follows:
Amounts in Thousands 1996 1995
- ----------------------------------------------------------
Securities sold under
agreement to repurchase $16,126 $11,820
Treasury tax and loan note 517 321
- ----------------------------------------------------------
Total borrowed funds $16,643 $12,141
- ----------------------------------------------------------
Borrowed funds from executive officers, directors and their affiliated
interests amounted to $3.3 million and $1.5 million at December 31, 1996 and
1995, respectively, and are included above. The interest rates on these
short-term borrowings ranged from 3.10% to 5.83% in 1996 and 3.10% to 6.03% in
1995.
NOTE 9 - LONG-TERM DEBT
A five-year advance from the Federal Home Loan Bank of New York
(FHLBNY) to PNB for $3.0 million maturing June 29, 2000, was included in
long-term debt at December 31, 1996 and 1995. Pursuant to the terms of the
agreement with the FHLBNY, the advance was borrowed at a fixed rate of 6.17%
with interest payments due monthly and principal due at maturity. This borrowing
is collateralized by residential mortgage loans. On September 18, 1990, Vista
entered into a ten-year $2.0 million long-term debt agreement with a lending
bank. The first two years of the loan were interest only, with principal
payments due in years three through ten. Interest, and principal when due, is
payable quarterly. Effective January 1, 1996, the interest rate on the long-term
debt was adjusted from a variable rate equal to prime plus 1.25% to prime plus
.50%. Vista is in compliance with all covenants required by this agreement.
A maturity schedule for the remaining principal outstanding on the
long-term debt is as follows:
Amounts in Thousands
- ----------------------------------------------------
1997 $275 1998 $ 378
1999 $470 2000 $3,375
- ----------------------------------------------------
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EMPLOYEE BENEFIT PLANS
Vista has a noncontributory defined benefit retirement plan, funded
through a self-administered trust, covering most employees with one or more
years of continuous employment.
The following sets forth the plan's funded status at December 31, 1996
and 1995, the measurement dates, and amounts recognized in Vista's consolidated
balance sheets as of December 31, 1996 and 1995:
Amounts in Thousands 1996 1995
- ------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested ($3,808) ($3,444)
Nonvested (208) (328)
- ------------------------------------------------------------------------------
Accumulated benefit
obligation ($4,016) (3,772)
- ------------------------------------------------------------------------------
Projected benefit obligation ($4,160) ($3,893)
Plan assets at fair value 4,809 4,379
- ------------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 649 486
Unrecognized net loss due to
past experience from that
assumed and effects of
changes in assumptions made (285) (278)
Prior service cost not yet
recognized in the periodic
pension cost (439) (473)
Unrecognized net asset at
January 1, 1988, being
recognized over
approximately 18 years (543) (320)
- ------------------------------------------------------------------------------
Accrued pension cost ($618) ($585)
- ------------------------------------------------------------------------------
Net periodic pension cost for 1996, 1995 and 1994 included the
following components:
Amounts in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost benefits earned
during the year $215 $166 $249
Interest cost on projected
benefit obligation 277 262 296
Return on plan assets (389) (311) (358)
Net amortization and deferral (70) (70) (40)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 33 $ 47 $147
- ------------------------------------------------------------------------------
In determining the projected benefit obligation, the assumed discount
rate was 7% in 1996 and 1995 and 8% in 1994. The rate of increase in future
salary levels was 6% in 1996 and 5% in 1995 and 1994. The expected long-term
rate of return on assets used in determining net periodic pension cost was 9% in
1996, 1995 and 1994.
At December 31, 1996, the plan's assets consisted primarily of
investments in equity securities, fixed-income securities and cash.
Vista amended its noncontributory retirement plan as of January 1,
1995. The prior plan provided a defined benefit that was determined based on
years of service and a percentage of qualifying average compensation during
final years of employment. Benefits accrued under the prior plan were frozen and
added to benefits accrued after January 1, 1995, under the amended plan.
The amended plan covers substantially all employees and provides for
defined benefits pursuant to a cash balance feature and a years-of-service
feature. Contributions will be made to the noncontributory plan within the range
of levels permitted under applicable law.
In addition, effective January 1, 1995, Vista instituted a qualified
employee benefit plan under section 401(k) of the Internal Revenue Code covering
substantially all full-time employees that have attained the age of 21 and have
completed one year of service. Under the 401(k) plan, employee contributions are
partially matched by Vista. Such matching becomes vested proportionally over
five years of credited service. Past service is considered in determining vested
credited service for existing employees. Total 401(k) expense amounted to $109
thousand and $93 thousand for the years ended December 31, 1996 and 1995,
respectively.
Vista sponsors plans that provide contributory medical and
noncontributory life insurance benefits covering most salaried and hourly
employees. In January 1993, Vista adopted SFAS No. 106 which resulted in an
accumulated postretirement benefit obligation (APBO the actuarial present value
of
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CONTINUED
benefits attributable to employee service rendered to a particular date)
estimated to be $1.4 million. The net periodic postretirement benefit cost was
$126 thousand, $112 thousand and $303 thousand in 1996, 1995 and 1994,
respectively, based on amortization of the transition obligation over a period
of 22 years.
In December 1994, Vista changed the conditions and eligibility
requirements for employees and their spouses to receive postretirement medical
and life insurance benefits which are partially subsidized by Vista. These
changes, which reduced the APBO by approximatley $638 thousand, became effective
January 1, 1995. However, under SFAS No. 106, the $280 thousand net loss which
resulted from the curtailment of these plans was recorded in the fourth quarter
of 1994 as a component of the 1994 postretirement benefit cost.
Under the prior plan, an employee who attained age 55 and completed 15
years of service with Vista was entitled to medical and life insurance coverage
with 80% of the cost for such coverage being paid for by Vista upon retirement.
The spouse of the eligible employee was entitled to only medical coverage
beginning at age 65, as long as the eligible employee remained alive and covered
under the retiree plan.
Effective January 1, 1995, postretirement medical and life insurance
benefits are only offered to employees who have attained the age of 45 as of
January 1, 1995, and who also meet all the requirements for retirement. Spousal
medical benefits are no longer provided for any active employee.
The accumulated postretirement benefit obligation at December 31,
1996 and 1995, was as follows:
Amounts in Thousands 1996 1995
- ------------------------------------------------------------------------------
Retirees $455 $453
Fully eligible, active
plan participants 146 128
Other active plan participants 515 521
- ------------------------------------------------------------------------------
Total accumulated
postretirement benefit
obligation 1,116 1,102
Unrecognized net gain due
to past experience different
from that assumed and
effects of changes in
assumptions made 196 131
Unamortized transition obligation (327) (345)
- ------------------------------------------------------------------------------
Accrued accumulated
postretirement benefit
obligation $985 $888
- ------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for 1996,
1995 and 1994 were as follows:
Amounts in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost, benefits
attributed to employee
service during the year $42 $39 $113
Interest cost on accumulated
postretirement benefit
obligation 75 73 126
Amortization of transition
obligation 18 18 64
Amortization of net gain (9) (18) -
- ------------------------------------------------------------------------------
Net periodic postretirement
benefit cost 126 112 303
Net loss from plan
curtailment - - 280
- ------------------------------------------------------------------------------
Total postretirement
benefit cost $126 $112 $583
- ------------------------------------------------------------------------------
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - CONTINUED
The discount rate used in determining the APBO was 7% in 1996 and 1995
and 8% in 1994. The assumed health care cost trend rate used in measuring the
APBO was 11% in 1996, declining by 1% per year for the next three years and .6%
for the subsequent five years to an ultimate rate of 5% in the year 2004 and
remaining at that level thereafter. If the health care cost trend rate
assumptions were increased by 1%, the APBO would have increased 16% in 1996, 18%
in 1995 and 17% in 1994. The effect of this change on the service cost and
interest cost components of the net periodic postretirement benefit cost would
result in an increase of 23% in 1996, 32% in 1995 and 22% in 1994.
Vista recognizes the annual net periodic postretirement cost on the
straight-line basis and includes the effect in salaries and employee benefit
expense. Vista employed the pay-as-you-go method in prior years.
Estimates used in employee benefit plan computations are based on
information available at a specific point in time. These estimates involve
uncertainties and matters of judgement and could be significantly affected by
any changes in assumptions or actual experience.
NOTE 11 - INCOME TAXES
The current and deferred amounts of the provision for income taxes for
the years ended December 31, 1996, 1995 and 1994, were as follows:
Amounts in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Federal:
Current $2,070 $2,063 $1,819
Deferred (153) (111) (329)
State:
Current 252 301 325
Deferred (21) (17) (69)
- ------------------------------------------------------------------------------
Provision for income taxes $2,148 $2,236 $1,746
- ------------------------------------------------------------------------------
A reconciliation of the differences between Vista's effective tax rate
and its statutory federal income tax rate of 34% in 1996, 1995 and 1994 is as
follows:
Amounts in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Income tax at
statutory rate $2,175 $2,152 $1,697
Increase (decrease) in
taxes resulting from:
State taxes on income,
net of federal income
tax effect 153 185 169
Tax-exempt
interest income (176) (128) (127)
Other, net (4) 27 7
- ------------------------------------------------------------------------------
Provision for income taxes $2,148 $2,236 $1,746
- ------------------------------------------------------------------------------
Effective tax rate 33.6% 35.3% 35.0%
- ------------------------------------------------------------------------------
Items that gave rise to significant portions of deferred tax assets and
deferred tax liabilities at December 31, 1996 and 1995, were as follows:
Amounts in Thousands 1996 1995
- ------------------------------------------------------------------------------
Provision for loan losses $1,283 $1,299
Pension 248 233
Postretirement benefits other
than pension 414 375
Deferred loan fees 290 250
Other 143 177
- ------------------------------------------------------------------------------
Gross deferred tax assets 2,378 2,334
- ------------------------------------------------------------------------------
Net unrealized gain on securities
available for sale 362 784
State taxes 133 122
Discount accretion 126 160
Other 47 32
- ------------------------------------------------------------------------------
Gross deferred tax liabilities 668 1,098
- ------------------------------------------------------------------------------
Net deferred tax asset $1,710 $1,236
- ------------------------------------------------------------------------------
The net deferred tax asset of $1.7 million and $1.2 million at
December 31, 1996 and 1995, respectively, is included in other assets in the
accompanying
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONTINUED
consolidated balance sheets. Although realization of deferred taxes is not
assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. Therefore, there is no valuation allowance
recorded for deferred taxes.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation
Vista is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any such
proceedings depart from usual routine litigation and, in its judgment, Vista's
financial condition or results of operations will not be affected materially by
any such proceedings.
Off-Balance Sheet Financial Instruments
Vista may be a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
balance sheets. The contract or notional amounts of these instruments reflect
the extent of involvement Vista has in particular classes of financial
instruments.
Vista's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. Vista uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Vista evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Vista upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment and income-producing commercial
properties. Vista was committed to advance $32.0 million and $23.5 million to
its borrowers as of December 31, 1996 and 1995, respectively.
Standby letters of credit are conditional commitments issued by Vista
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Vista has entered into standby
letters of credit with its customers totaling $1.5 million and $1.4 million as
of December 31, 1996 and 1995, respectively.
In October 1994, FASB issued SFAS No. 119, "Disclosure About
Derivative Financial Instruments." Adoption of SFAS No. 119 was required for
fiscal years ending after December 15, 1994. This statement amends SFAS No. 105,
"Disclosure of Information About Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," and SFAS No.
107, "Disclosures About Fair Value of Financial Instruments." SFAS No. 119
prescribed disclosures about amounts, nature and terms of derivative financial
instruments that are not subject to SFAS No. 105 because they do not result in
off-balance sheet risk of accounting loss. This statement requires that
distinction be made between financial instruments held or issued for trading
purposes and financial instruments held or issued for purposes other than
trading. Vista adopted SFAS No. 119 in 1994.
Vista did not (does not) issue or hold derivative instruments with the
exception of loan commitments and standby letters of credit. These instrumnets
are issued in the ordinary course of business to meet customer needs.
Commitments to fund fixed-rate loans were immaterial at December 31, 1996.
Variable-rate
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - CONTINUED
commitments were (are) generally issued for less than one year and carry market
rates of interest. Such instruments are not likely to be affected by annual rate
caps triggered by rising interest rates. Such off-balance sheet risk was not
material to Vista's results of operations or financial condition.
Noncancellable Lease Commitments
At December 31, 1996, Vista was obligated under noncancellable
operating leases for certain facilities and equipment. Total rental expense
amounted to $422 thousand, $396 thousand and $361 thousand for the years ended
December 31, 1996, 1995 and 1994, respectively.
The minimum lease commitments for the year 1997 and thereafter are as
follows:
Amounts in Thousands
- ----------------------------------------------------------------
1997 $ 480 1998 $ 465 1999 $ 436
2000 $ 370 2001 $ 293 After 2001 $ 1,261
- ----------------------------------------------------------------
NOTE 13 - COMMON STOCK
Vista shareholders approved a 3-for-1 stock split and a change in the
number of authorized shares of common stock from 1,500,000 to 10,000,000,
effective May 13, 1994.
Vista has an Employee Stock Purchase Plan, a Dividend Reinvestment
Plan and a Board of Directors Stock Purchase Plan. On May 11, 1994, Vista
shareholders approved amendments to these plans. Vista registered 530,000 shares
and 141,357 shares of common stock with the Securities and Exchange Commission
for issuance to participants under these plans in 1995 and 1994, respectively.
During 1996, 86,154 shares were issued under these plans. At December 31, 1996,
449,117 shares were reserved for issuance under these plans.
Employee Stock Purchase Plan (ESPP)
The ESPP covers substantially all full-time employees of Vista and
enables employees to purchase common stock, through the grant of options, up to
an amount equal to 8% of their annualized base salary earned during the calendar
year immediately preceding the year in which the employee is granted the
options. Each option may be exercised by the employee for an amount equal to the
closing Nasdaq bid price (Plan Price Per Share) on the last business day of the
second week of February, May, August and November of each year, or, if there is
no reported trade on such day, then the most recent day preceding such day (the
Price Date). If the Plan Price Per Share is below the book value per share as of
the last day of January, April, July and October preceding the respective Price
Date, then there will be no purchases of shares of common stock pursuant to the
plan. The Executive Committee of the Board of Directors has the right to approve
such options from time to time, but in the event the fair market value of the
common stock of Vista is less than the book value of the common stock, then no
options will be granted to employees in the calendar year immediately following
December 31 of the previous calendar year. The options can only be exercised
through December 31 of the grant year.
The following is a summary of the activity of the options relating to
the ESPP for the periods ended December 31, 1996, 1995 and 1994:
Average
Number Price
of Shares per Share
- ----------------------------------------------------------------
Balance, December 31, 1993 - -
Options granted 37,133 $ 8.08
Options exercised (5,481) 8.46
Options canceled (31,652) 9.00
- ----------------------------------------------------------------
Balance, December 31, 1994 - -
Options granted 36,597 $ 9.00
Options exercised (8,406) 10.03
Options canceled (28,191) 12.00
- ----------------------------------------------------------------
Balance, December 31, 1995 - -
Options granted 29,246 $ 12.00
Options exercised (4,119) 12.11
Options canceled (25,127) 13.25
- ----------------------------------------------------------------
Balance, December 31, 1996 - -
- ----------------------------------------------------------------
At December 31, 1996, 14,248 shares were reserved for issuance under
the ESPP.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONTINUED
Dividend Reinvestment Plan (DRP)
The DRP allows any participating shareholder to reinvest dividends and
invest additional cash to purchase common stock at a price computed using the
same methodology as for the ESPP. If the Plan Price Per Share is below the book
value per share as of the last day of January, April, July and October preceding
the respective Price Date, then there will be no purchases of shares of common
stock under the Plan and all participants receive their dividend payment check.
At December 31, 1996, 407,657 shares were reserved for issuance under
the DRP.
Board of Directors Stock Purchase Plan (BDSPP)
The BDSPP allows each member of the Board of Directors of Vista to
elect to receive his or her entire compensation in shares of common stock. The
number of shares which may be purchased is determined by computing a quotient,
the numerator of which is the compensation payable to the Director for services
rendered and the denominator of which is the Plan Price Per Share which is
determined using the same methodology as for the ESPP and the DRP. If the Plan
Price Per Share is below the book value per share as of the last day of January,
April, July and October preceding the respective Price Date, then there will be
no purchases of stock under the plan.
At December 31, 1996, 27,212 shares were reserved for issuance under
the BDSPP.
Employee Incentive Plan
In 1994, Vista shareholders approved an Employee Incentive Plan. Under
the terms of the Plan, employees are eligible to receive an incentive bonus
based on each bank subsidiary achieving certain performance benchmarks.
Moreover, 50% of the amount awarded to executive officers shall be paid in cash
and 50% in the form of common stock. Such shares awarded shall be issued as of
the last business day of the third fiscal year following the year to which the
award relates.
Any additional expense that would have been incurred as a result of
implementing SFAS No. 123 would not have had a material effect on Vista's
results of operations for the year ended December 31, 1996.
Stock Offering
On October 31, 1995, Vista issued a prospectus offering up to 500,000
shares of its common stock, par value $0.50 per share for $11.50 per share, in a
subscription rights offering to Vista's shareholders and in a community
offering.
Vista granted nontransferable rights, subject to certain conditions,
to subscribe for the common stock to its shareholders of record as of October
31, 1995, in a rights offering (Rights Offering). The subscription rights gave
each shareholder the opportunity to at least maintain his or her proportionate
interest in the equity of Vista. Concurrently, and subject to the priority of
Vista's shareholders, Vista offered the shares of common stock not subscribed
for in the Rights Offering for sale to the general public in a direct community
offering (Community Offering), subject to a minimum required purchase by each
subscriber of 100 shares and a maximum allowable purchase by each subscriber of
25,000 shares. The Rights and Community Offerings were referred to collectively
as the "Offerings." Vista reserved the right, in its sole discretion, to accept
or reject, in whole or in part, any or all orders for shares in the Community
Offering, either at the time of receipt of an order or as soon as practicable
following termination of the Offerings.
The offering was fully subscribed in 1995, and the net proceeds
from the sale of the 500,000 shares was $5.3 million after deducting related
fees and expenses.
NOTE 14 - SHAREHOLDERS' EQUITY
A limitation exists on the availability of the Banks' undistributed
net assets for the payment of dividends to the parent company. Permission from
the Office of the Comptroller of the Currency (OCC) with respect to PNB, and the
Federal Reserve Bank of Philadelphia with respect to Twin Rivers, is required if
the total of
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONTINUED
Regulatory Capital Requirements
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
Amounts in Thousands Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Vista $42,047 14.9% *$22,582 *8.0% N/A
PNB 29,232 13.5% * 17,339 *8.0% *$21,674 *10.0%
Twin Rivers 8,971 13.9% * 5,178 *8.0% * 6,473 *10.0%
Tier 1 Capital (to Risk Weighted Assets):
Vista $37,615 13.3% *$11,291 *4.0% N/A
PNB 26,518 12.2% * 8,670 *4.0% *$13,005 * 6.0%
Twin Rivers 8,178 12.6% * 2,589 *4.0% * 3,884 * 6.0%
Tier 1 Capital (to Average Assets):
Vista $37,615 7.6% *$19,883 *4.0% N/A
PNB 26,518 7.0% * 15,152 *4.0% *$18,940 * 5.0%
Twin Rivers 8,178 7.1% * 4,595 *4.0% * 5,743 * 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Vista $38,597 15.4% *$20,067 *8.0% N/A
PNB 25,251 13.1% * 15,464 *8.0% *$19,330 *10.0%
Twin Rivers 6,440 11.4% * 4,533 *8.0% * 5,666 *10.0%
Tier 1 Capital (to Risk Weighted Assets):
Vista $33,727 13.4% *$10,034 *4.0% N/A
PNB 22,825 11.8% * 7,732 *4.0% *$11,598 * 6.0%
Twin Rivers 5,731 10.1% * 2,266 *4.0% * 3,400 * 6.0%
Tier 1 Capital (to Average Assets):
Vista $33,727 7.7% *$17,542 *4.0% N/A
PNB 22,825 6.7% * 13,688 *4.0% *$17,110 * 5.0%
Twin Rivers 5,731 6.0% * 3,804 *4.0% * 4,755 * 5.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Greater than or equal to
dividends declared in a calendar year exceeds the total of net
profits or losses, as defined, for that year, combined with the retained net
profits or losses of the preceding two years. The retained net profits for Twin
Rivers for the three years ended December 31, 1996, were $1.4 million. The
retained net profits for PNB for the three years ended December 31, 1996, were
$6.8 million. In the case of Twin Rivers, the Pennsylvania Department of Banking
requires that dividends be declared and paid only out of accumulated net
profits. The accumulated net profits for Twin Rivers were $915 thousand at
December 31, 1996.
Vista is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on Vista's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Vista must
meet specific capital guidelines that involve quantitative measures of Vista's
assets, liabilities and certain off-balance sheet items as calculated under
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - CONTINUED
regulatory accounting practices. Vista's capital amounts and classification are
also subject to qualitative judgements by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Vista to maintain minimum amounts and ratios (set forth in the
table) of the total and Tier I capital, as defined in the regulations, to
risk-weighted assets and of Tier I capital to average assets, as defined by bank
regulators.
To be categorized as well capitalized by the Banks' regulators, the
Banks must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. The Banks' actual capital amounts and
ratios are also presented in the table.
NOTE 15 - BRANCH ACQUISITIONS
Effective with the close of business on December 1, 1995, PNB assumed
approximately $14.0 million of deposit liabilities in connection with the
acquisition of the Washington Township, New Jersey branch office of Summit Bank.
PNB paid a $500 thousand premium for the intangible value of the core deposits
acquired. This premium is being amortized against current operations over a
seven-year period using the sum-of-the-years digit method. In addition to the
deposits assumed and the premium paid, PNB purchased $247 thousand of commercial
loans and $35 thousand of overdraft lines of credit associated with the assumed
deposits. PNB also paid $500 thousand for the branch facility which included
land, building and all furniture, fixtures and equipment.
On May 21, 1996, PNB acquired the Flemington, Hunterdon County, New
Jersey branch facility of Summit Bank (formerly United Jersey Bank). The
acquisition involved the purchase of the building and equipment and the
assumption of the land lease, for the purpose of operating a full service branch
banking office at this location. No deposits were purchased as part of this
transaction. The branch opened December 2, 1996. The addition of this branch
increased PNB's total branch network to ten offices serving Warren and Hunterdon
counties in New Jersey.
On October 7, 1996, Twin Rivers opened its third branch at 2850 Easton
Avenue in Butztown, Northampton County, Pennsylvania. The transaction involved
the renegotiation of the lease on this former branch facility of CoreStates Bank
(successor by merger to Meridian Bank) and the purchase of certain furniture and
equipment from CoreStates. No deposits were acquired as part of this
transaction.
On December 16, 1996, Twin Rivers opened its fourth branch facility at
1003 West Broad Street, Bethlehem, Lehigh County, Pennsylvania. The transa ction
involved the purchase of the land, building and certain furniture and equipment
of a former branch facility of CoreStates Bank. No deposits were included as
part of this transaction.
NOTE 16 - DISCLOSURES ABOUT FAIR VALUES
OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Fair Value Of Financial Instruments,"
requires that Vista disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth below
for Vista's financial instruments.
Cash and Cash Equivalents
For these short-term instruments, the carrying value approximates fair
value.
Securities
The carrying amounts for short-term investments approximate fair value
because they mature in six months or less and do not present unanticipated
credit concerns. The fair value of longer-term securities available for sale,
except certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair values of certain state and municipal securities are assumed
to approximate carrying values as their maturities are generally less than one
year and pricing approximates current market rates.
Loans
The fair value of performing loans is calculated by discounting
scheduled contractual cash flows through
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES 16 - CONTINUED
the estimated maturities. Estimated discount rates reflect the credit risk
inherent in these loans and are based on rates at which the same loans would be
made under current market conditions. The fair value for significant
nonperforming loans secured by real estate is based on recent external
appraisals of the underlying collateral. Assumptions regarding credit risk, cash
flows and discount rates are judgmentally determined using available internal
information.
Deposits
Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as noninterest-bearing demand deposits, interest-bearing demand
deposits, savings and money market accounts, is equal to the amount payable on
demand at the reporting date. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows at current rates offered for
similar contractual maturities.
Borrowed Funds
For these short-term borrowings, the carrying value approximates fair
value.
Long-term Debt
Rates currently available to Vista for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit and Standby Letters of Credit
Commitments to extend credit and standby letters of credit generally
do not exceed one year or require payment of fees. Consequently, it is not
practical to estimate fair value of these instruments.
The estimated fair values of Vista's financial instruments follows:
December 31, December 31,
1996 1995
Amounts Carrying Fair Carrying Fair
in Thousands Value Value Value Value
- ------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $ 35,582 $ 35,582 $ 36,148 $ 36,148
Securities
available
for sale 152,368 152,368 145,867 145,867
Net Loans 295,661 296,700 260,350 265,510
- ------------------------------------------------------------------------------
Total
financial
assets $483,611 $484,650 $442,365 $447,525
- ------------------------------------------------------------------------------
Financial liabilities:
Deposits $435,111 $438,109 $401,563 $405,247
Borrowed funds 16,643 16,643 12,141 12,141
Long-term debt 4,498 4,520 4,725 4,786
- ------------------------------------------------------------------------------
Total
financial
liabilities $456,252 $459,272 $418,429 $422,174
- ------------------------------------------------------------------------------
The fair value estimates are made at a discrete point in time based on
relevant market information and information about the financial instruments.
Because no market exists for a significant portion of Vista's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - CONTINUED
In addition, the fair value estimates are based on existing on-balance
sheet and off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities include
property, plant and equipment. The tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
Accordingly, the aggregate fair value amounts presented in the table
do not represent the underlying value of Vista.
NOTE 17 - VISTA BANCORP, INC.
(PARENT COMPANY ONLY)
Vista Bancorp, Inc. operates two wholly-owned subsidiaries, PNB and
Twin Rivers. The earnings (losses) of these subsidiaries are recognized by Vista
using the equity method of accounting. Accordingly, earnings (losses) are
recorded as increases (decreases) in Vista's investment, and dividends paid
reduce the investment in the subsidiaries. Additional capital infusions into the
subsidiaries increase Vista's investment in the subsidiaries. Subsidiary capital
adjustments made in accordance with SFAS No. 115 increase (decrease) Vista's
investment in the subsidiaries.
Condensed financial statements are presented on the following two
pages.
GRAPH OF GRAPH OF
- ------------------------ --------------------------------
NET INCOME NET INCOME PER SHARE
(Millions) (Dollars)
$2.2 $3.0 $3.2 $4.1 $4.2 $.78 $.89 $.96 $1.18 $1.05
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
- ------------------------ --------------------------------
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - CONTINUED
Vista Bancorp, Inc. (Parent Company Only)
Condensed Financial Statements
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
Amounts in Thousands 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,240 $ 2,195
Securities available for sale, at market value with
a cost of $2,506 and $4,037, respectively 2,518 4,038
Investments in subsidiaries 35,886 30,672
Premises and equipment 613 637
Other assets 206 199
- --------------------------------------------------------------------------------------------------------------------
Total Assets $40,463 $37,741
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Long-term debt $ 1,498 $ 1,725
Other liabilities 150 171
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,648 1,896
Shareholders' Equity 38,815 35,845
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 40,463 $37,741
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
For The Years Ended December 31,
Amounts in Thousands 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividend income from subsidiaries $1,749 $1,009 $ 930
Interest income 232 55 25
Other income 3 3 3
Net security losses (2) - -
Service fee income from subsidiaries 1,833 1,631 1,545
- --------------------------------------------------------------------------------------------------------------------
Total Operating Income 3,815 2,698 2,503
- --------------------------------------------------------------------------------------------------------------------
Expense:
Interest expense 148 187 165
Salaries and benefits 1,149 1,004 1,050
Occupancy expense 121 127 139
Furniture and equipment expense 429 307 260
Other expense 286 236 191
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expense 2,133 1,861 1,805
- --------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Benefit and
Equity in Undistributed Earnings of Subsidiaries 1,682 837 698
Income Tax Benefit 27 58 76
- --------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 1,709 895 774
Equity in Undistributed Earnings of Subsidiaries 2,539 3,198 2,471
- --------------------------------------------------------------------------------------------------------------------
Net Income $4,248 $4,093 $3,245
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - CONTINUED
Vista Bancorp, Inc. (Parent Company Only)
Condensed Financial Statements
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended December 31,
Amounts in Thousands 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activites:
Net Income $4,248 $4,093 $3,245
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 199 142 140
Equity in undistributed earnings of subsidiaries (2,539) (3,198) (2,471)
Increase in other assets (10) (87) (65)
Increase (decrease) in other liabilities 9 (19) 82
Net amortization of premiums on securities 22 5 3
Net security losses 2 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 1,931 936 934
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 1,500 500 -
Proceeds from sales of securities available for sale 2,515 - -
Purchases of securities available for sale (2,508) (4,042) (504)
Investment in subsidiaries (3,500) - -
Net capital expenditures (175) (515) (99)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (2,168) (4,057) (603)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Decrease in long-term debt (227) (160) (80)
Net proceeds from issuance of common stock 1,041 6,096 661
Cash dividends paid (1,532) (1,175) (1,061)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Financing Activities (718) 4,761 (480)
- ---------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (955) 1,640 (149)
Cash and Cash Equivalents, Beginning of Year 2,195 555 704
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $1,240 $2,195 $ 555
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Investing and Financing Activities:
(Decrease) increase in the investment in subsidiaries due to
the net unrealized (loss) gain in the fair value of the
subsidiaries' securities available for sale, net of income taxes ($825) $2,250 ($730)
Net unrealized gain in the fair value of securities available for sale 11 - -
Decrease in deferred tax asset related to net unrealized gain in the
fair value of securities available for sale (3) - -
Net unrealized gain in the fair value of securities available for sale,
net of income taxes 8 - -
Deferred compensation 30 9 -
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables summarize certain 1996 and 1995 quarterly financial
information for Vista and are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of the results for each quarter
have been included (amounts in thousands, except per share data).
<TABLE>
<CAPTION>
1996 March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 8,110 $ 8,289 $ 8,668 $ 8,798
Interest Expense 4,084 4,067 4,291 4,407
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 4,026 4,222 4,377 4,391
Provision for Loan Losses 45 45 45 245
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 3,981 4,177 4,332 4,146
- ----------------------------------------------------------------------------------------------------------------------------------
Net Security Gains (Losses) 58 (43) 9 5
Noninterest Income 652 600 585 620
Noninterest Expense 2,891 3,055 3,487 3,293
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,800 1,679 1,439 1,478
Provision for Income Taxes 628 561 470 489
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,172 $ 1,118 $ 969 $ 989
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share $ 0.29 $ 0.28 $ 0.24 $ 0.24
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995 March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 7,354 $ 7,701 $ 7,913 $ 8,092
Interest Expense 3,491 3,783 3,950 4,033
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 3,863 3,918 3,963 4,059
Provision for Loan Losses 55 45 45 45
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 3,808 3,873 3,918 4,014
- ----------------------------------------------------------------------------------------------------------------------------------
Net Security Gains (Losses) 13 (131) 23 39
Noninterest Income 508 500 552 558
Noninterest Expense 2,883 2,825 2,648 2,990
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,446 1,417 1,845 1,621
Provision for Income Taxes 516 491 652 577
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 930 $ 926 $ 1,193 $ 1,044
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share $ 0.27 $ 0.27 $ 0.34 $ 0.30
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
RUDOLPH, PALITZ LLP
CERTIFIED PUBLIC ACCOUNTANTS
620 W. GERMANTOWN PIKE
PLYMOUTH MEETING, PA 19462
Board of Directors and Shareholders
Vista Bancorp, Inc.
Phillipsburg, New Jersey
We have audited the accompanying consolidated balance sheets of Vista
Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vista
Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31,1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company changed
its method of accounting for certain investments as of January 1, 1994, and
changed its method of accounting for impaired loans as of January 1, 1995.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidating
information on page 46 is presented for purposes of additional analysis rather
than to present financial position and results of operations of the individual
companies. Accordingly, we do not express an opinion on the financial position
and results of operations of the individual companies. However, the
consolidating information on page 46 has been subjected to the auditing
procedures applied in the audits of the consolidated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
/s/ Rudolph, Palitz LLP
- ------------------------
January 31, 1997
Plymouth Meeting, Pennsylvania
45
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited) December 31, 1996
<TABLE>
<CAPTION>
Twin Vista Intercompany Vista
Amounts in Thousands PNB Rivers (Parent) Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 25,729 $ 9,960 $ 1,240 ($ 1,347) $ 35,582
Securities available for sale 124,090 25,760 2,518 - 152,368
Net loans 217,448 78,213 - - 295,661
Other assets 11,139 2,671 36,705 (35,925) 14,590
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 378,406 $ 116,604 $ 40,463 ($37,272) $ 498,201
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits $ 333,258 $ 101,944 $ - ($ 91) $ 435,111
Borrowed funds 11,882 6,017 - (1,256) 16,643
Long-term debt 3,000 - 1,498 - 4,498
Other liabilities 2,609 414 150 (39) 3,134
Shareholders' equity 27,657 8,229 38,815 (35,886) 38,815
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 378,406 $ 116,604 $ 40,463 ($ 37,272) $ 498,201
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(Unaudited) December 31, 1996
<TABLE>
<CAPTION>
Twin Vista Intercompany Vista
Amounts in Thousands PNB Rivers (Parent) Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 25,832 $ 7,838 $ 232 ($ 37) $ 33,865
Interest Expense 12,646 4,092 148 (37) 16,849
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income 13,186 3,746 84 - 17,016
Provision for Loan Losses 260 120 - - 380
Noninterest Income 2,075 380 6,123 ( 6,121) 2,457
Net Security Gains (Losses) 22 9 (2) - 29
Noninterest Expense 9,660 2,915 1,984 (1,833) 12,726
- ---------------------------------------------------------------------------------------------------------------------
Income Before Provision
(Benefit) for Income Taxes 5,363 1,100 4,221 (4,288) 6,396
Provision (Benefit) for Income Taxes 1,818 357 (27) - 2,148
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 3,545 $ 743 $ 4,248 ($ 4,288) $ 4,248
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
SELECTED CONSOLIDATED FINANCIAL SUMMARY
Not Covered by Report of Independent Accountants
<TABLE>
<CAPTION>
Amounts in Thousands
(Except Per Share and Share Data and Ratios) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total Assets $ 498,201 $ 457,240 $ 407,523 $ 376,487 $ 336,876
Total Securities 152,368 145,867 136,868 135,970 116,567
Total Loans 299,564 264,282 237,021 205,618 184,396
Allowance for Loan Losses 3,903 3,932 3,947 3,697 3,558
Total Net Loans 295,661 260,350 233,074 201,921 180,838
Total Deposits 435,111 401,563 369,844 342,317 313,464
Total Shareholders' Equity 38,815 35,845 24,572 22,457 19,498
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Income Statement Data:
Total Interest Income $ 33,865 $ 31,060 $ 26,318 $ 24,802 $ 24,926
Total Interest Expense 16,849 15,257 11,275 11,038 13,416
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 17,016 15,803 15,043 13,764 11,510
Provision for Loan Losses 380 190 480 542 1,023
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 16,636 15,613 14,563 13,222 10,487
Total Noninterest Income 2,486 2,062 1,859 2,134 2,115
Total Noninterest Expense 12,726 11,346 11,431 10,683 9,207
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 6,396 6,329 4,991 4,673 3,395
Provision for Income Taxes 2,148 2,236 1,746 1,760 1,168
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of
Accounting Change 4,248 4,093 3,245 2,913 2,227
Cumulative Effect of Accounting Change -- -- -- 64 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,248 $ 4,093 $ 3,245 $ 2,977 $ 2,227
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data: (1)
Income Before Cumulative Effect of
Accounting Change $ 1.05 $ 1.18 $ 0.96 $ 0.87 $ 0.78
Cumulative Effect of Accounting Change -- -- -- 0.02 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.05 $ 1.18 $ 0.96 $ 0.89 $ 0.78
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data: (1)
Cash Dividends $ 0.38 $ 0.34 $ 0.31 $ 0.29 $ 0.27
Book Value (2) 9.50 8.96 7.18 6.71 6.12
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Common Shares
Outstanding at December 31, 4,084,718 3,998,564 3,422,281 3,346,134 3,187,068
Weighted Average Number of
Common Shares Outstanding
for the Years Ended December 31, 4,035,092 3,468,046 3,377,695 3,332,541 2,867,232
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Ratios:
Return on Average Assets 0.89% 0.96% 0.83% 0.85% 0.69%
Return on Average Equity 11.65 15.02 13.53 13.88 12.96
Dividend Payout 36.06 28.71 32.70 32.21 34.04
Allowance for Loan Losses to Total Loans 1.30 1.49 1.67 1.80 1.93
Total Shareholders' Equity to Total Assets 7.79 7.84 6.03 5.97 5.79
Capital Adequacy Ratios: (3)
Leverage Capital 7.57 7.69 6.26 6.10 5.81
Tier I Risk-based Capital 13.33 13.45 11.68 11.88 11.43
Total Risk-based Capital 14.90 15.39 13.82 14.18 13.87
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for 3-for-1 stock split effective May 13, 1994.
(2) Book value per share is computed using period-end shares outstanding.
(3) Capital ratios are computed using period-end regulatory capital which
excludes the SFAS No. 115 adjustment to capital from the risk-based capital
ratios effective December 31, 1994, in accordance with the Federal Reserve
Bank's final rule.
47
EXHIBIT 99.A
PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD APRIL 23, 1997
<PAGE>
VISTA BANCORP, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 23, 1997
GENERAL
Introduction, Date, Place and Time of Meeting
- ---------------------------------------------
This Proxy Statement is being furnished for the solicitation
by the Board of Directors of Vista Bancorp, Inc. ("Vista"), a New Jersey
business corporation, of proxies to be voted at the Annual Meeting of
Shareholders of Vista to be held at the Administrative Offices of Vista, 305
Roseberry Street, Post Office Box 5360, Phillipsburg, New Jersey 08865, on
Wednesday, April 23, 1997, at 9:30 a.m., prevailing time, or at any adjournment
or postponement of the Annual Meeting.
The principal executive office of Vista is located at 305
Roseberry Street, Post Office Box 5360, Phillipsburg, New Jersey 08865. The
telephone number for Vista is (908) 859-9500. All inquiries should be directed
to Jill A. Pursell, Assistant Vice President/Secretary. This Proxy Statement and
the enclosed form of proxy (the "Proxy") are first being sent to shareholders of
Vista on March 19, 1997.
Solicitation
- ------------
Shares represented by proxies on the accompanying Proxy, if
properly signed and returned, will be voted in accordance with the
specifications made thereon by the shareholders. Any Proxy not specifying to the
contrary will be voted: (1) for the election of the three nominees as Class B
director named below; (2) for the approval of Rudolph, Palitz LLP, Certified
Public Accountants, of Plymouth Meeting, Pennsylvania ("Rudolph, Palitz LLP") as
the independent auditors for the fiscal year ending December 31, 1997; (3) for
the approval to amend and restate the Vista Employee Stock Purchase Plan
("Employee Stock Plan"); (4) for the approval to amend and restate the Vista
Board of Directors Stock Purchase Plan ("Directors Stock Plan"); and (5) for the
approval to amend Item 21 of the Vista Dividend Reinvestment and Stock Purchase
Plan ("Dividend Reinvestment Plan"). Execution and return of the enclosed Proxy
will not affect a shareholder's right to attend the Annual Meeting and vote in
person.
The cost of preparing, assembling, mailing and soliciting
proxies will be borne by Vista. In addition to the use of the mails, certain
directors, officers and employees of Vista intend to solicit proxies personally
and by telephone and telefacsimile. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to forward proxy
solicitation material to the beneficial owners of stock held of record by these
persons, and, upon request therefor, Vista will reimburse them for their
reasonable forwarding expenses.
<PAGE>
Right of Revocation
- -------------------
A shareholder who returns a Proxy may revoke it at any time
before it is voted by: (1) delivering written notice of revocation to Jill A.
Pursell, Assistant Vice President/Secretary, Vista Bancorp, Inc., 305 Roseberry
Street, Post Office Box 5360, Phillipsburg, New Jersey 08865, telephone: (908)
895-9559; (2) executing a later-dated Proxy and giving written notice thereof to
the Secretary of Vista; or (3) voting in person after giving written notice to
the Secretary of Vista.
Voting Securities, Record Date and Quorum
- -----------------------------------------
At the close of business on March 12, 1997, Vista had
outstanding 4,105,484 shares of common stock, $.50 par value, the only
authorized class of stock (the "Common Stock"). A majority of the outstanding
shares will constitute a quorum at the Annual Meeting.
Only holders of Common Stock of record at the close of
business on March 12, 1997, will be entitled to notice of and to vote at the
Annual Meeting. Cumulative voting rights exist with respect to the election of
directors. Cumulative voting rights mean that each shareholder has the right, in
person or by proxy, to multiply the number of votes to which he or she is
entitled by the number of directors to be elected and to cast the whole number
of such votes for one nominee or distribute them among two or more nominees. On
all other matters to come before the Annual Meeting, each share of common stock
is entitled to one vote.
PRINCIPAL BENEFICIAL OWNERS OF VISTA'S STOCK
--------------------------------------------
Principal Owners
- ----------------
The following table sets forth, as of March 12, 1997, the name
and address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than five percent (5%) of Vista's
outstanding Common Stock, the number of shares beneficially owned by such person
and the percentage of Vista's outstanding Common Stock so owned.
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
- ---------------- ------------------- ----------------------
Richard A. Cline 232,030 (2) 5.6%
813 South Main Street
Stewartsville, New Jersey 08886
Barry L. Hajdu 223,926 (3) 5.4%
710 New Brunswick Avenue
Post Office Box 1131
Alpha, New Jersey 08865
2
<PAGE>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
- ---------------- ------------------- -----------------------
Brian W. Hajdu 224,831 (4) 5.4%
710 New Brunswick Avenue
Post Office Box 1131
Alpha, New Jersey 08865
Louis Hajdu 456,284 (5) 11.1%
710 New Brunswick Avenue
Post Office Box 1131
Alpha, New Jersey 08865
Hajdu Group Retirement Plan 214,614 (6) 5.2%
710 New Brunswick Avenue
Post Office Box 1131
Alpha, New Jersey 08865
Phillipsburg National Bank and 308,102 (7) 7.5%
Trust Company
115 South Main Street
P.O. Box 5360
Phillipsburg, New Jersey 08865
- -------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
("SEC") and may include securities owned by or for the individual's spouse
and minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within sixty (60) days
after March 12, 1997. Beneficial ownership may be disclaimed as to certain
of the securities.
(2) Of the 232,030 shares beneficially owned by Mr. Cline, 135,130 shares are
held by him individually and 96,900 shares are owned by his spouse
individually.
(3) Of the 223,926 shares beneficially owned by Barry L. Hajdu, 9,312 shares are
owned by him individually and 214,614 shares are held in the Hajdu Group
Retirement Plan of which Barry L. Hajdu is one of three trustees.
(4) Of the 224,831 shares beneficially owned by Brian W. Hajdu, 10,217 shares
are owned by him individually and 214,614 shares are held in the Hajdu Group
Retirement Plan of which Brian W. Hajdu is one of three trustees.
(5) Of the 456,284 shares beneficially owned by Louis Hajdu, 231,785 shares are
owned by him individually; 214,614 shares are held in the Hajdu Group
Retirement Plan of which Louis Hajdu is one of three trustees; and 9,885
shares are owned individually by his spouse.
(6) These shares are held in this retirement plan of which Barry L., Brian W.
and Louis Hajdu are co-trustees.
(7) The shares are held in various fiduciary capacities by PNB's trust
department or by PNB officers with respect to the bank employee retirement
plan.
3
<PAGE>
Beneficial Ownership by Officers, Directors and Nominees
- --------------------------------------------------------
The following table sets forth as of March 12, 1997, the
amount and percentage of the Common Stock beneficially owned by each director
and all officers and directors of Vista as a group.
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class(3)
- -------------------- -------------------------- -----------
Richard A. Cline 232,030 (4) 5.6%
Harold J. Curry 91,818 (5)(6) 2.2%
Dale F. Falcinelli 4,200 (6)(7) ----
James T. Finegan, Jr. 22,582 (8) ----
Barry L. Hajdu 223,926 (6)(9) 5.4%
Barbara Harding 46,326 (10) 1.1%
David L. Hensley 8,745 (11) ----
Thomas F. McGinley 173,981 (12) 4.2%
Mark A. Reda 49,488 (13) 1.2%
Marc S. Winkler 4,947 (14) ----
All Directors and Officers
of the Company as a Group
(10 Directors, 5 Officers,
11 Persons in Total) 866,282 21.1%
- -------------------------
(1) See footnote (1) under the caption entitled "Principal Owners" for the
definition of "beneficial ownership."
(2) Information furnished by the directors and the Company.
(3) Less than one percent (1%) unless otherwise indicated.
(4) See footnote (2) under the caption entitled "Principal Owners" for Mr.
Cline's beneficial ownership of shares.
(5) Of the 91,818 shares beneficially owned by Mr. Curry, 64,200 shares are
owned by him individually and 27,618 shares are owned individually by his
spouse.
(6) A current Class B director and a nominee for Class B director.
(7) The 4,200 shares beneficially owned by Mr. Falcinelli are held in an IRA
account with Paine Webber, Inc.
(8) Of the 22,582 shares beneficially owned by Dr. Finegan, 3,691 shares are
owned by him individually; 7,709 shares are owned jointly with his spouse;
200 shares are owned individually by his spouse; 1,132 shares are owned by
him in an IRA trust account; 1,080 shares are owned by his spouse in an IRA
trust account; and 8,770 shares are owned by him in a Profit Sharing Trust.
(9) See footnote (3) under the caption entitled "Principal Owners" for Mr.
Hajdu's beneficial ownership of shares.
(10) Of the 46,326 shares beneficially owned by Mrs. Harding, 5,433 shares are
owned by her individually; 2,375 shares are owned jointly with her spouse;
685 shares are owned individually by her spouse; 704 shares are owned by
her in an IRA trust account; 645 shares are owned by her spouse in an IRA
trust account; and 36,484 shares are held by the Vista Bancorp, Inc.
Employees Pension Plan ("Pension Plan Shares") of which Mrs. Harding is a
co-trustee with Mr. Keefe and shares investment and voting power with Mr.
Keefe with respect to the Pension Plan Shares. Mrs. Harding disclaims any
beneficial ownership interest with respect to the Pension Plan Shares.
(11) Of the 8,745 shares beneficially owned by Mr. Hensley, 2,975 shares are
owned by him individually; 2,390 shares are owned jointly with his spouse;
and 3,380 shares are owned by him in an IRA trust account.
(12) Of the 173,981 shares beneficially owned by Mr. McGinley, 28,413 shares
are owned by him individually; 87,471 shares are owned jointly with his
spouse; 4,000 shares are owned individually by his spouse; 39,097 shares
owned by him in an IRA trust account; and 15,000 shares are held in street
name with Mr. McGinley as executor of the Estate of John R. McGinley,
Deceased.
4
<PAGE>
(13) Of the 49,488 shares beneficially owned by Mr. Reda, 32,088 shares are
owned by him individually; 5,559 shares are owned jointly with his spouse;
677 shares are owned individually by his spouse; 3,238 shares are owned by
him as custodian under the New Jersey Uniform Gifts to Minors Act for Louis
J. Reda; 2,472 shares are owned by him as custodian under the New Jersey
Uniform Gifts to Minors Act for Marcy L. Reda; 4,954 shares are owned by
him in an IRA trust account; and 500 shares are owned by his spouse in an
IRA trust account.
(14) Of the 4,947 shares beneficially owned by Mr. Winkler, 2,083 shares are
owned by him individually; 2,700 shares are owned individually by his
spouse in an IRA account with National Financial Services, Corp; 120 shares
are owned by him as custodian under the Pennsylvania Uniform Gifts to
Minors Act for Aaron S. Winkler; 38 shares are owned by him as custodian
under the Pennsylvania Uniform Gifts to Minors Act for Austin C. Winkler;
and 6 shares are owned by him as custodian under the Pennsylvania Uniform
Gifts to Minors Act for Jonah V. Winkler.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires
Vista's officers and directors, and persons who own more than ten percent of a
registered class of Vista's equity securities (in this case the Common Stock),
to file reports of ownership and changes in ownership with the SEC. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish Vista with copies of all Section 16(a) forms that they
file.
Except as stated below and based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no such forms were required for those persons, Vista
believes that, during the period January 1, 1996 through December 31, 1996, all
filing requirements applicable to its officers, directors and greater than
ten-percent shareholders were complied with.
In April, 1996, Mrs. Harding, the President and Chief
Executive Officer of Vista, and Mr. Keefe, an Executive Vice President and Chief
Financial Officer of Vista, were appointed as co-trustees of the Vista Bancorp,
Inc. Employees Pension Plan ("Pension Plan"). In March, 1997, it came to the
attention of Vista's corporate counsel that the trustee powers granted to Mrs.
Harding and Mr. Keefe under the Pension Plan agreement were such as to include
investment and voting power with respect to Vista Common Stock held by the
Pension Plan. Such powers were deemed to confer beneficial ownership upon Mrs.
Harding and Mr. Keefe with respect to the Vista Common Stock held under the
Pension Plan, and, therefore, triggered the ownership reporting requirements.
Form 4s for Mrs. Harding and Mr. Keefe should have been filed by May 10, 1996,
with respect to this Vista Common Stock. However, Mrs. Harding and Mr. Keefe
filed, on March 12, 1997, their Form 4s with the SEC which reported, among their
other Vista stockholdings, beneficial ownership of 36,484 shares of Common Stock
held by the Pension Plan. Mrs. Harding and Mr. Keefe disclaim any beneficial
ownership of these shares. Vista considers the late filing of these Form 4s to
be inadvertent.
5
<PAGE>
ELECTION OF DIRECTORS
---------------------
Vista has a classified Board of Directors with staggered
three-year terms of office. In a classified board, the directors are generally
divided into separate classes of equal number. The terms of the separate classes
expire in successive years. Thus, at each Annual Meeting of Shareholders,
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term of three years, so that the term of office of
one class of directors shall expire in each year.
Unless otherwise instructed, the proxy holders will vote the
Proxies received by them for the election of the three nominees for Class B
directors. If any nominee should become unavailable for any reason, Proxies will
be voted in favor of a substitute nominee as the Board of Directors of Vista
shall determine. The Board of Directors has no reason to believe the nominees
named will be unable to serve if elected. Any vacancy occurring on the Board of
Directors of Vista for any reason may be filled by a majority of the directors
then in office until the expiration of the term of vacancy.
INFORMATION AS TO NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
------------------------------------------------------------
The following table contains certain information with respect
to the nominees and the director(s) whose terms of office expire in 1997, 1998
and 1999, respectively.
<TABLE>
<CAPTION>
Principal Occupation Director Since
Name Age for Past Five Years Vista/PNB/TRCB(1)
- ---- --- -------------------- -----------------
Class B Directors Whose Term Will Expire In 1997 And
Nominees For Class B Directors Whose Term Expires In 2000
- ---------------------------------------------------------
<S> <C> <C> <C>
Harold J. Curry 65 Attorney-at-Law 1988/1978/1990
(2)
Dale F. Falcinelli 48 Principal of D.F. Falcinelli, Inc. 1993/------/1990
(3)(4) (Management Consultant)
Barry L. Hajdu 48 President of Hajdu Construction, Inc. 1997/1997/1997
(Building Contractors)
Class C Directors Whose Term Expires In 1998
- --------------------------------------------
Richard A. Cline 63 Retired; Chairman of the Board 1988/1979/1990
(2)(3)(4)(5) of TRCB
James T. Finegan, Jr. 37 Ophthalmologist 1995/1993/------
(4)(5)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation Director Since
Name Age for Past Five Years Vista/PNB/TRCB(1)
- ---- --- -------------------- -----------------
<S> <C> <C> <C>
Thomas F. McGinley 71 Chairman of the Board of Designer 1988/1967/------
(2)(4)(5) Dispatch, Inc., a ribbon distributor
Class A Directors Whose Term Expires In 1999
- --------------------------------------------
Barbara Harding 50 President and CEO of Vista; CEO of 1988/1985/1990
PNB; Chairman of the Board of PNB
David L. Hensley 50 Executive Vice President of Vista; 1988/1985/1990
President and Chief Operations
Officer of PNB
Mark A. Reda 45 Vice President of Lou Reda, Inc., 1988/1987/------
(2)(3)(5) a vendor of office furniture
Marc S. Winkler 40 President and CEO of TRCB (1996 to 1990/------/1990
present); President of TRCB (1990 to
(1996); Senior Vice President, Treasurer,
and Chief Financial Officer of Vista
(1988 to 1993)
</TABLE>
- -------------------------
(1) PNB means The Phillipsburg National Bank and Trust Company and TRCB means
Twin Rivers Community Bank.
(2) Member of the Executive Committee. The Executive Committee consists of four
(4) outside directors who are appointed annually by the Chief Executive
Officer of Vista who also attends the meetings. The Executive Committee
reviews personnel policy and issues with respect to compensation, benefits,
appointments and promotions and makes recommendations to the Board of
Directors. The Executive Committee also reviews the operations of the Board
of Directors with respect to directors' fees and frequency of Board of
Directors' meetings as well as Vista's capital structure, stock position and
earnings. In addition, the Executive Committee analyzes other management
issues and periodically makes recommendations to the Board of Directors
based on its findings. The Executive Committee met five (5) times in 1996.
(3) Member of the Audit Committee. The Audit Committee consists of three (3)
outside directors as well as one outside director from each of the Bank
Subsidiaries. This committee meets quarterly. The Audit Committee is
responsible for the review and evaluation of the system of internal controls
and corporate compliance with applicable rules, regulations and laws. The
Audit Committee meets with Vista's internal auditor, outside independent
auditors and senior management to review the scope of the internal and
external audit engagements, the adequacy of the internal and external
auditors, corporate policies to ensure compliance and significant changes in
accounting principles. The Audit Committee met four (4) times in 1996.
(4) Member of the Planning Committee. The Planning Committee consists of four
(4) outside directors who are appointed annually by the Chief Executive
Officer of Vista who also attends the meetings. Presidents of the subsidiary
banks attend on an "as needed" basis. The committee works with management to
formulate strategic planning of Vista which encompasses a three year period.
The Board of Directors of the subsidiaries forward their strategic plans and
opportunities to the Corporate Planning Committee for its review, guidance
and/or approval. The Planning Committee met one (1) time in 1996.
(5) Member of the Retirement Committee. The Retirement Committee consists of
four (4) outside directors who are appointed annually by the Chief Executive
Officer of Vista who also attends the meetings. The Committee is responsible
for evaluating Vista's retirement benefits including the pension plan. The
Committee reviews and votes on all proposed changes to the Plan. The
Retirement Committee did not meet in 1996.
7
<PAGE>
Outside directors received, in 1996, four hundred dollars
($400) for each regular meeting and two hundred dollars ($200) for each special
committee meeting of Vista they attended. Subsidiary officers did not receive
directors' fees for attendance at their respective committee or board meetings.
The Board of Directors of Vista adopted a policy which stated that the Board of
Directors will hold monthly meetings during 1996, except for the months of
March, June, September and December, for which no meetings were held. The Board
of Directors held, in 1996, eight (8) meetings in order to conduct the business
of Vista.
In 1996, the Board of Directors received $33,800 in the
aggregate for attendance at Board and committee meetings.
All of the Directors attended at least seventy-five percent
(75%) of the combined total number of meetings of the Board of Directors and the
committees on which they served.
The Board of Directors does not have a nominating committee. A
shareholder who desires to propose an individual for consideration by the Board
of Directors as a nominee for director should submit a proposal in writing to
the Secretary of Vista in accordance with Section 202 of Vista's by-laws.
Principal Officers
- ------------------
The following table sets forth selected information about the
principal officers of Vista, each of whom is elected by the Board of Directors
of Vista and each of whom holds office at the discretion of the Board of
Directors of Vista:
<TABLE>
<CAPTION>
Bank Number of Shares
Held Employee of the Company
Name Position Since Since Beneficially Owned(1) Age
- ---- -------- ----- -------- --------------------- ---
<S> <C> <C> <C> <C> <C>
Thomas F. McGinley Chairman 1994 (2) 173,981(3) 71
of the Board
Harold J. Curry Vice Chairman 1995 (2) 91,818(4) 65
of the Board
Barbara Harding President and CEO 1988 1965 46,326(5) 50
David L. Hensley Executive Vice 1988 1983 8,745(6) 50
President
William F. Keefe Executive Vice 1993 1989 44,723(7) 38
President and Chief
Financial Officer
</TABLE>
- -------------------------
(1) See footnote (1) under the caption entitled "Principal Owners" for the
definition of "beneficial ownership."
8
<PAGE>
(2) Messrs. McGinley and Curry are not full time employees of Vista or the Bank
Subsidiaries.
(3) See footnote (12) under the caption entitled "Beneficial Ownership by
Officers, Directors and Nominees" for Mr. McGinley's beneficial ownership.
(4) See footnote 5 under the caption entitled "Beneficial Ownership by Officers,
Directors and Nominees" for Mr. Curry's beneficial ownership.
(5) See footnote (10) under the caption entitled "Beneficial Ownership by
Officers, Directors and Nominees" for Mrs. Harding's beneficial ownership.
(6) See footnote (11) under the caption entitled "Beneficial Ownership by
Officers, Directors and Nominees" for Mr. Hensley's beneficial ownership.
(7) Of the 44,723 shares owned by Mr. Keefe, 4,740 shares are owned by him
individually; 2,949 shares are owned jointly with his spouse; 200 shares are
held for him under a nominee name; 350 shares are owned by him in an IRA
trust account; and 36,484 shares are Pension Plan Shares of which Mr. Keefe
is a co-trustee with Mrs. Harding and shares investment and voting power
with Mrs. Harding with respect to the Pension Plan Shares. Mr. Keefe
disclaims any beneficial ownership interest with respect to the Pension Plan
Shares.
Remuneration of Officers and Directors
- --------------------------------------
The following table sets forth all remuneration for services
in all capacities paid by the applicable bank subsidiary in 1996 to Barbara
Harding, President and Chief Executive Officer of Vista and Chairman and Chief
Executive Officer of Phillipsburg National Bank; David L. Hensley, Executive
Vice President of Vista and President and Chief Operations Officer of
Phillipsburg National Bank; Marc S. Winkler, President and Chief Executive
Officer of Twin Rivers Community Bank; and William F. Keefe, Executive Vice
President and Chief Financial Officer of Vista and Senior Vice President and
Chief Financial Officer of Phillipsburg National Bank. No other officer's
aggregate salary and bonus exceeded $100,000 during 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------
LONG TERM COMPENSATION
-----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------------------------------------------------------------
Other
Name and Annual Restricted All Other
Principal Salary Bonus Compensa- Stock Options/ LTIP Compen-
Position Year ($) ($) tion(1)($) Award(s) SARs Payouts sation
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barbara Harding, 1996 169,520 30,658 23,749 -0- -0- -0- -0-
President/CEO of Vista and 1995 153,972 24,848 22,456
Chairman/ CEO of PNB 1994 143,884 24,265 15,469
David L. Hensley, 1996 139,048 25,626 21,111 -0- -0- -0- -0-
Executive Vice President 1995 128,336 20,932 20,334
of Vista and President and 1994 119,860 19,470 17,836
Chief Operations Officer of
PNB
Marc S. Winker, 1996 124,020 14,985 14,085 -0- -0- -0- -0-
President/CEO of TRCB 1995 111,956 9,125 13,528
1994 104,624 8,000 13,366
William F. Keefe, 1996 100,048 22,116 13,562 -0- -0- -0- -0-
Executive Vice President/ 1995 89,417 17,483 8,762
CFO of Vista and Sr. Vice
President/CFO of PNB
</TABLE>
9
<PAGE>
- -------------------------
(1) Includes directors' fees; life, medical and disability insurance premiums;
401(k) matching contributions; automobile use and social club dues.
Report of the Executive Committee on Executive Compensation
- -----------------------------------------------------------
Executive compensation for the officers of Vista and the Bank
Subsidiaries is determined by the Executive Committee of Vista's Board of
Directors. The recommendations of the Executive Committee with respect to
executive compensation are presented to all members of the Board of Directors
for their approval. Salaries and bonuses for the executive officers are reviewed
annually. All executive compensation is paid by the respective subsidiary bank
to the applicable executive.
Barbara Harding, in her role of President and Chief Executive
Officer of Vista, reviews the salaries, bonuses and other compensation of the
executive officers of the bank subsidiaries with the Executive Committee. Mrs.
Harding submits a written report on executive compensation to the Executive
Committee. Mrs. Harding is not present when the Executive Committee reviews and
sets her compensation and bonus.
The following themes or guidelines are used by the Executive
Committee in setting compensation:
-- Compensation should be meaningfully related to the value
created for shareholders.
-- Compensation should support the strategic goals and
objectives of Vista.
-- Compensation should reflect and promote Vista's value, and
reward an individual for an outstanding contribution to
Vista's success.
-- Compensation should be fair and competitive with the
banking industry based on Vista's size and regional
location.
Submitted By The Members Of The
Executive Committee
Richard A. Cline Harold J. Curry
Thomas F. McGinley Mark A. Reda
Stock Performance Graph and Table
- ---------------------------------
The following graph and table compare the cumulative total
shareholder return on Vista's Common Stock during the period June 30, 1993(1),
through and including December 31, 1996, with (i) the cumulative total return on
the SNL Securities Corporate Performance Index(2) for 35 publicly-traded banks
10
<PAGE>
Retirement Plan
- ---------------
Vista maintains a defined benefit pension plan covering all
employees. Benefits under the plan are based on a "Cash Balance" type formula
under which hypothetical accounts are maintained for each employee. The initial
amount of this account was the actuarial present value of pension benefits
earned under a prior formula. In subsequent years, this hypothetical account is
increased by an annual addition based on the employee's salary, length of
service, and by interest credits. At retirement, the amount in this hypothetical
account will be converted to the actuarially equivalent monthly income.
Estimated annual benefits payable upon retirement at normal
retirement age (age 65) for each named executive are as follows:
Barbara Harding $145,868
David L. Hensley $ 77,304
Marc S. Winkler $130,102
William F. Keefe $107,393
These estimates are based on the assumption that base salaries
will increase at an annual rate of 5%; that there will be no bonuses for years
after 1995; that the federal limit on maximum compensation will grow at a ratio
of 3% per year; and that the maximum limit on plan benefits will increase such
that it will not limit benefits for these employees.
Vista also has a 401(k) Retirement Savings Plan. Under the
401(k) Retirement Savings Plan, employee contributions are partially matched by
Vista. Such matching becomes vested proportionally over five years of credited
service.
Employee Incentive Plan
- -----------------------
In 1994, Vista shareholders approved an Employee Incentive
Plan. Under the terms of this plan, employees are eligible to receive an
incentive bonus based on the Bank Subsidiaries achieving certain performance
benchmarks. Moreover, 50% of the amount awarded to executive officers shall be
paid in cash and 50% in the form of the Common Stock. Such shares awarded shall
be issued as of the last business day of the third fiscal year following the
year to which the award relates.
Certain Transactions
- --------------------
There have been no material transactions, proposed or
consummated, between Vista and the Bank Subsidiaries with any director or
executive officer of Vista and the Bank Subsidiaries or any associate of the
foregoing persons. Vista and the Bank Subsidiaries have had and intend to
continue to have banking and financial transactions in the ordinary course of
business with directors and officers of Vista and the Bank Subsidiaries and
their associates on comparable terms and with similar interest rates as those
prevailing from time to time for other customers of Vista and the Bank
Subsidiaries. Total consolidated loans outstanding from Vista at December 31,
1996, to Vista's and
12
<PAGE>
the Bank Subsidiaries' officers and directors as a group and members of their
immediate families and companies in which they have an ownership interest of ten
percent (10%) or more was $4.4 million or 11.4% of Vista's total consolidated
capital accounts. The largest amount of indebtedness outstanding at any time
during fiscal year 1996 to the above identified group was $4.7 million or 13.2%
of Vista's total consolidated capital accounts. The interest income earned by
Vista on such loans was $352 thousand for 1996. During 1996, advances and
repayments on these loans were $1.5 million and $1.8 million, respectively. Such
loans do not involve more than the normal risk of collectibility nor do they
present other unfavorable features.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------
(Item 2)
Unless instructed to the contrary, it is intended that votes
will be cast pursuant to the Proxies for the ratification of the selection of
Rudolph, Palitz LLP as Vista's independent public accountants for its fiscal
year ending December 31, 1997. Vista has been advised by Rudolph, Palitz LLP
that none of its members has any financial interest in Vista. Ratification of
Rudolph, Palitz LLP will require an affirmative vote of a majority of the
outstanding shares of Common Stock represented at the Annual Meeting. Rudolph,
Palitz LLP served as Vista's independent public accountants for Vista for the
year ended December 31, 1996.
Rudolph, Palitz LLP performed customary audit services and
provided assistance in connection with regulatory matters, charging Vista for
such services at its customary hourly billing rates. The non-audit services were
approved by Vista's Board of Directors, after due consideration of the effect of
the performance thereof on the independence of the accountants and after the
conclusion by Vista's Board of Directors that there was no effect on the
independence of the accountants.
In the event that the shareholders do not ratify the selection
of Rudolph, Palitz LLP as Vista's independent public accountants for the 1997
fiscal year, another accounting firm will be chosen to provide independent
public accountant audit services for the 1997 fiscal year. The Board of
Directors recommends that the shareholders vote FOR the ratification of the
selection of Rudolph, Palitz LLP as the auditors for Vista for the year ending
December 31, 1997.
It is understood that even if the selection of Rudolph, Palitz
LLP is ratified, the Board of Directors, in its discretion, may direct the
appointment of a new independent auditing firm at any time during the year if
the Board of Directors determines that such a change would be in the best
interests of Vista and its shareholders.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- -------------------------------------------------------------------------------
LOANS
- -------------------------------------------------------------------------------
The following table sets forth the composition of Vista's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1996 1995 1994 1993 1992
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $78,250 $67,311 $54,870 $49,549 $47,707
Real estate - construction loans 1,043 807 1,509 1,310 1,516
Real estate - mortgage loans 139,569 133,664 130,499 115,160 107,124
Consumer loans 80,702 62,500 50,143 39,599 28,049
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total loans $299,564 $264,282 $237,021 $205,618 $184,396
======================================================== ============ ============ =========== =========== ===========
</TABLE>
The following table presents the percentage distribution of loans by category as
of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing 26.12% 25.47% 23.15% 24.10% 25.88%
Real estate - construction loans 0.35% 0.31% 0.64% 0.64% 0.82%
Real estate - mortgage loans 46.59% 50.58% 55.06% 56.00% 58.09%
Consumer loans 26.94% 23.65% 21.15% 19.26% 15.21%
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
======================================================== ============ ============ =========== =========== ===========
</TABLE>
<PAGE>
The following table shows the maturity of loans in the specified categories of
Vista's loan portfolio at December 31, 1996, and the amount of such loans with
predetermined fixed rates or with floating or adjustable rates:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Maturing Maturing
Maturing after after Maturing
in one one year five years after Total
year through through ten years
Amounts in Thousands or less five years ten years
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Types of loans
Commercial, financial, agricultural loans
and lease financing $21,313 $9,856 $8,113 $38,968 $78,250
Real estate - construction loans 1,043 - - - 1,043
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total $22,356 $9,856 $8,113 $38,968 $79,293
======================================================== ============ ============ =========== =========== ===========
Amount of such loans with:
Predetermined fixed rates $2,957 $6,103 $1,502 $529 $11,091
Floating or adjustable rates 19,399 3,753 6,611 38,439 68,202
- -------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total $22,356 $9,856 $8,113 $38,968 $79,293
======================================================== ============ ============ =========== =========== ===========
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
------------------------------------------------------------------------------
The following table presents a summary of Vista's loan loss experience as of the
dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1996 1995 1994 1993 1992
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $299,564 $264,282 $237,021 $205,618 $184,396
============================================================= ============ ============ =========== =========== ===========
Average loans outstanding during the period $281,518 $251,062 $223,477 $191,268 $164,654
============================================================= ============ ============ =========== =========== ===========
Allowance for loan losses:
Balance, beginning of period $3,932 $3,947 $3,697 $3,558 $2,908
Loans charged off:
Commercial, financial, agricultural loans
and lease financing 194 92 52 247 255
Real estate - construction loans - - - - -
Real estate - mortgage loans 25 77 172 156 130
Consumer loans 260 88 100 68 85
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total loans charged off 479 257 324 471 470
Recoveries:
Commercial, financial, agricultural loans
and lease financing 32 20 38 34 33
Real estate - construction loans - - - - -
Real estate - mortgage loans 5 14 32 14 45
Consumer loans 33 18 24 20 19
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total recoveries 70 52 94 68 97
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Net loans charged off 409 205 230 403 373
Provision for loan losses 380 190 480 542 1,023
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Balance, end of period $3,903 $3,932 $3,947 $3,697 $3,558
============================================================= ============ ============ =========== =========== ===========
Net loans charged off during the period as
a percent of average loans outstanding
during the period 0.15% 0.08% 0.10% 0.21% 0.23%
============================================================= ============ ============ =========== =========== ===========
</TABLE>
<PAGE>
The following table presents an allocation of Vista's allowance for loan losses
as to indicated categories as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1996 1995 1994 1993 1992
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $1,949 $1,805 $1,726 $2,109 $2,536
Real estate - construction loans - - - - -
Real estate - mortgage loans 520 554 518 441 458
Consumer loans 664 434 330 250 188
Unallocated 770 1,139 1,373 897 376
- ------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total allowance for loan losses $3,903 $3,932 $3,947 $3,697 $3,558
============================================================= ============ ============ =========== =========== ===========
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANACIAL DATA
------------------------------------------------------------------------------
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
------------------------------------------------------------------------------
The following table presents a summary of Vista's nonaccrual, restructured and
past due loans as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1996 1995 1994 1993 1992
- -------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual, Restructured and Past Due Loans:
Nonaccrual loans (1) $3,177 $4,035 $3,454 $3,943 $5,768
Restructured loans on accrual status 207 155 159 740 -
Accrual loans past due 90 days or more 224 356 172 636 307
- -------------------------------------------------------------- ------------ ------------ ----------- ----------- -----------
Total nonaccrual, restructured and past due loans $3,608 $4,546 $3,785 $5,319 $6,075
============================================================== ============ ============ =========== =========== ===========
Other real estate $1,280 $489 $744 $892 $918
============================================================== ============ ============ =========== =========== ===========
Interest income that would have been recorded
under original terms $86 $128 $150 $219 $403
============================================================== ============ ============ =========== =========== ===========
Interest income recorded during the period (2) $153 $167 $314 $163 $124
============================================================== ============ ============ =========== =========== ===========
</TABLE>
(1) Includes nonaccrual restructured loans.
(2) 1994 includes a $206 thousand adjustment to recognize interest income
that had been deferred on a nonperforming commercial loan.
<PAGE>
------------------------------------------------------------------------------
DEPOSITS
------------------------------------------------------------------------------
The following table presents average deposits by type and the average interest
rates paid as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------- ------------------------
Average Average Average Average Average Average
Amounts in Thousands (Except Percentages) Balance Rate Balance Rate Balance Rate
- ------------------------------------------------- ------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $39,154 0.00% $33,403 0.00% $29,994 0.00%
Interest-bearing demand 68,306 2.26% 60,580 2.53% 62,309 2.34%
Savings 109,819 3.15% 101,858 3.04% 117,704 2.77%
Time:
Certificates less than $100,000 171,565 5.37% 164,698 5.32% 135,377 4.20%
Certificates $100,000 and over 31,623 5.41% 20,023 5.71% 10,488 4.04%
- ------------------------------------------------- ------------ ------------ ------------ ----------- ----------- -----------
Total deposits $420,467 3.79% $380,562 3.82% $355,872 3.04%
================================================= ============ ============ ============ =========== =========== ===========
</TABLE>
------------------------------------------------------------------------------
BORROWED FUNDS
------------------------------------------------------------------------------
The following table presents summarized information relating to borrowed funds
as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------
Amounts in Thousands (Except Percentages) 1996 1995 1994
- -------------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Balance at end of period $16,643 $12,141 $8,624
Weighted average interest rate at end of period 4.64% 4.71% 4.42%
Maximum amount outstanding
at any month-end during the period $16,643 $12,551 $11,920
Average amount outstanding during the period $13,000 $9,613 $7,940
Weighted average interest rate during the period 4.51% 4.54% 3.51%
================================================================================ ============ ============ ===========
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- -------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------
The following table presents the maturities and the weighted average yields on
a tax-equivalent basis for Vista's securities portfolio:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1996
-----------------------------------------------------
After one but After five but
Within one year within five years within ten years
----------------- ----------------- -----------------
Amounts in Thousands
(Except Percentages) Amount Yield Amount Yield Amount Yield
- ------------------------------------------ -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $5,010 5.84% $13,590 6.08% $976 5.76%
U.S. Government agencies and corporations 1,003 6.73% 14,326 6.19% 6,472 6.74%
State and other political subdivisions 2,411 6.31% 4,014 6.38% 6,653 6.81%
Other 1,252 6.41% 9,069 6.85% 513 7.81%
- ------------------------------------------ ------- ----- ------- ----- ------- -----
Total securities $9,676 6.13% $40,999 6.32% $14,614 6.74%
========================================== ======= ===== ======= ===== ======= =====
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
For The Year Ended December 31, 1996
-------------------------------------------------------------
After ten years No maturity Total
----------------- ------------------- -------------------
Amounts in Thousands
(Except Percentages) Amount Yield Amount Yield Amount Yield
- ----------------------------------------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ - - $ - - $19,576 6.00%
U.S. Government agencies and corporations 83,140 7.42% - - 104,941 7.21%
State and other political subdivisions 1,322 7.19% - - 14,400 6.64%
Other - - 2,617 6.48% 13,451 6.77%
- ----------------------------------------- -------- ------ -------- ------ -------- -------
Total securities $84,462 7.42% $2,617 6.48% $152,368 6.96%
========================================= ======== ====== ======== ===== ======== =======
</TABLE>
Note: At December 31, 1996, all securities were classified as available for
sale.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,370
<INT-BEARING-DEPOSITS> 3,817
<FED-FUNDS-SOLD> 13,395
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 152,368
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 299,564
<ALLOWANCE> 3,903
<TOTAL-ASSETS> 498,201
<DEPOSITS> 435,111
<SHORT-TERM> 16,643
<LIABILITIES-OTHER> 3,134
<LONG-TERM> 4,498
0
0
<COMMON> 2,043
<OTHER-SE> 36,772
<TOTAL-LIABILITIES-AND-EQUITY> 498,201
<INTEREST-LOAN> 22,987
<INTEREST-INVEST> 10,130
<INTEREST-OTHER> 748
<INTEREST-TOTAL> 33,865
<INTEREST-DEPOSIT> 15,930
<INTEREST-EXPENSE> 16,849
<INTEREST-INCOME-NET> 17,016
<LOAN-LOSSES> 380
<SECURITIES-GAINS> 29
<EXPENSE-OTHER> 12,726
<INCOME-PRETAX> 6,396
<INCOME-PRE-EXTRAORDINARY> 6,396
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,248
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 3.80
<LOANS-NON> 3,177
<LOANS-PAST> 224
<LOANS-TROUBLED> 207
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,932
<CHARGE-OFFS> 479
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 3,903
<ALLOWANCE-DOMESTIC> 3,903
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 770
</TABLE>
