<PAGE>
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, 1997
[ ] 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: $ 62.2 million
at March 11, 1998.
As of March 11, 1998, the registrant had outstanding 4,178,395
shares of its common stock, par value $.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1998 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, 1997, are incorporated by reference in Part II of this Annual
Report.
Page 1 of 98
Exhibit Index on Page 35
<PAGE>
VISTA BANCORP, INC.
FORM 10-K
<TABLE>
<CAPTION>
Index
-----
Part I Page
- ------ ----
<S> <C> <C>
Item 1. Business.......................................................................... 1
Item 2. Properties........................................................................ 25
Item 3. Legal Proceedings................................................................. 27
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
Stockholder Matters............................................................. 27
Item 6. Selected Financial Data........................................................... 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 30
Item 8. Financial Statements and Supplementary Data....................................... 30
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................................ 31
Item 11. Executive Compensation............................................................ 31
Item 12. Security Ownership of Certain Beneficial Owners and Management.................... 31
Item 13. Certain Relationships and Related Transactions.................................... 31
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 31
Signatures .................................................................................. 33
Exhibit Index .................................................................................. 35
</TABLE>
i
<PAGE>
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, 1997, Vista had total consolidated assets of $ 543.5 million, total
consolidated deposits of $ 483.8 million and total consolidated shareholders'
equity of $ 43.3 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 counties of
Northampton and Lehigh 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
<PAGE>
William Penn Highway, Easton, Pennsylvania 18045, and has three (3) branch
offices located in the Easton and Bethlehem areas of Pennsylvania.
As of December 31, 1997, Vista had thirty-three (33) full-time
and one (1) part-time employee. 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. "Control" 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
2
<PAGE>
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.
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 Nonbanking Activities
-------------------------------
The Federal Reserve Board permits bank holding companies or
their subsidiaries to engage in nonbanking activities so closely related to
banking or 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 nonbanking activities that presently may be
conducted by a bank holding company or its subsidiary without prior approval of
the Federal Reserve Board are:
(1) Extending credit and servicing loans. Making, acquiring,
brokering, or servicing loans or other extensions of credit (including
factoring, issuing letters of credit and accepting drafts) for the company's
account or for the account of others.
(2) Activities related to extending credit. Any activity usual
in connection with making, acquiring, brokering or servicing loans or other
extensions of credit, as determined by the Federal Reserve Board. The Federal
Reserve Board has determined that the following activities are usual in
connection with making, acquiring, brokering or servicing loans or other
extensions of credit:
(i) Real estate and personal property appraising.
Performing appraisals of real estate and tangible and intangible
personal property, including securities.
(ii) Arranging commercial real estate equity
financing. 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, if the bank holding company and its affiliates do not
have an interest in, or participate in managing or developing, a real
estate project for which it arranges equity financing, and do not
promote or sponsor the development of the property.
3
<PAGE>
(iii) Check-guaranty services. Authorizing a
subscribing merchant to accept personal checks tendered by the
merchant's customers in payment for goods and services, and purchasing
from the merchant validly authorized checks that are subsequently
dishonored.
(iv) Collection agency services. Collecting overdue
accounts receivable, either retail or commercial.
(v) Credit bureau services. Maintaining information
related to the credit history of consumers and providing the
information to a credit grantor who is considering a borrower's
application for credit or who has extended credit to the borrower.
(vi) Asset management, servicing, and collection
activities. Engaging under contract with a third party in asset
management, servicing, and collection of assets of a type that an
insured depository institution may originate and own, if the company
does not engage in real property management or real estate brokerage
services as part of these services.
(vii) Acquiring debt in default. Acquiring debt that
is in default at the time of acquisition under certain conditions.
(viii) Real estate settlement servicing. Providing
real estate settlement services.
(3) Leasing personal or real property. Leasing personal or
real property or acting as agent, broker, or adviser in leasing such property
under certain conditions.
(4) Operating nonbank depository institutions:
(i) Industrial banking. Owning, controlling, or
operating an industrial bank, Morris Plan bank, or industrial loan
company, so long as the institution is not a bank.
(ii) Operating savings association. Owning,
controlling or operating a savings association, if the savings
association engages only in deposit-taking activities, lending, and
other activities that are permissible for bank holding companies.
(5) Trust company functions. Performing functions or
activities that may be performed by a trust company (including activities of a
fiduciary, agency, or custodial nature), in the manner authorized by federal or
state law, so long as the company is not a bank for purposes of the Bank Holding
Company Act.
4
<PAGE>
(6) Financial and investment advisory activities. Acting as
investment or financial advisor to any person, including (without, in any way,
limiting the foregoing):
(i) Serving as investment adviser (as defined in
section 2(a)(20) of the Investment Company Act of 1940, 15 U.S.C.
80a-2(a)(20)), to an investment company registered under that act,
including sponsoring, organizing, and managing a closed-end investment
company;
(ii) Furnishing general economic information and
advice, general economic statistical forecasting services, and industry
studies;
(iii) Providing advice in connection with mergers,
acquisitions, divestitures, investments, joint ventures, leveraged
buyouts, recapitalizations, capital structurings, financing
transactions and similar transactions, and conducting financial
feasibility studies;
(iv) Providing information, statistical forecasting,
and advice with respect to any transaction in foreign exchange, swaps,
and similar transactions, commodities, and any forward contract,
option, future, option on a future, and similar instruments;
(v) Providing educational courses, and instructional
materials to consumers on individual financial management matters; and
(vi) Providing tax-planning and tax-preparation
services to any person.
(7) Agency transactional services for customer investments:
(i) Securities brokerage. Providing securities
brokerage services (including securities clearing and/or securities
execution services on an exchange), whether alone or in combination
with investment advisory services, and incidental activities (including
related securities credit activities and custodial services), if the
securities brokerage services are restricted to buying and selling
securities solely as agent for the account of customers and do not
include securities underwriting or dealing.
(ii) Riskless principal transactions. Buying and
selling in the secondary market all types of securities on the order of
customers as a "riskless principal" to the extent of engaging in a
transaction in which the company, after receiving an order to buy (or
sell) a security from a customer, purchases (or sells) the security for
its own account to offset a contemporaneous sale to (or purchase from)
the customer. This does not include:
(A) Selling bank-ineligible securities at
the order of a customer that is the issuer of the securities,
or selling bank-ineligible securities in any transaction where
the company has a contractual agreement to place the
securities as agent of the issuer; or
5
<PAGE>
(B) Acting as a riskless principal in any
transaction involving a bank-ineligible security for which the
company or any of its affiliates acts as underwriter (during
the period of the underwriting or for 30 days thereafter) or
dealer.
(iii) Private placement services. Acting as agent for
the private placement of securities in accordance with the requirements
of the Securities Act of 1933 ("1933 Act") and the rules of the
Securities and Exchange Commission, if the company engaged in the
activity does not purchase or repurchase for its own account the
securities being placed, or hold in inventory unsold portions of issues
of these securities.
(iv) Futures commission merchant. Acting as a futures
commission merchant ("FCM") for unaffiliated persons in the execution,
clearance, or execution and clearance of any futures contract and
option on a futures contract traded on an exchange in the United States
or abroad under certain conditions.
(v) Other transactional services. Providing to
customers as agent transactional services with respect to swaps and
similar transactions.
(8) Investment transactions as principal:
(i) Underwriting and dealing in government
obligations and money market instruments. Underwriting and dealing in
obligations of the United States, general obligations of states and
their political subdivisions, and other obligations that state member
banks of the Federal Reserve System may be authorized to underwrite and
deal in under 12 U.S.C. 24 and 335, including banker's acceptances and
certificates of deposit, under the same limitations as would be
applicable if the activity were performed by the bank holding company's
subsidiary member banks or its subsidiary nonmember banks as if they
were member banks.
(ii) Investing and trading activities. Engaging as
principal in:
(A) Foreign exchange;
(B) Forward contracts, options, futures,
options on futures, swaps, and similar contracts, whether
traded on exchanges or not, based on any rate, price,
financial asset (including gold, silver, platinum, palladium,
copper, or any other metal approved by the Board),
nonfinancial asset, or group of assets, other than a
bank-ineligible security under certain conditions.
6
<PAGE>
(C) Forward contracts, options, futures,
options on futures, swaps, and similar contracts, whether
traded on exchanges or not, based on an index of a rate, a
price, or the value of any financial asset, nonfinancial
asset, or group of assets, if the contract requires such
settlement.
(iii) Buying and selling bullion, and related
activities. Buying, selling and storing bars, rounds, bullion, and
coins of gold, silver, platinum, palladium, copper, and any other metal
approved by the Federal Reserve Board, for the company's own account
and the account of others, and providing incidental services such as
arranging for storage, safe custody, assaying, and shipment.
(9) Management consulting and counseling activities:
(i) Management consulting. Providing management
consulting advice under certain conditions.
(ii) Employee benefits consulting services. Providing
consulting services to employee benefit, compensation and insurance
plans, including designing plans, assisting in the implementation of
plans, providing administrative services to plans, and developing
employee communication programs for plans.
(iii) Career counseling services. Providing career
counseling services to:
(A) A financial organization and individuals
currently employed by, or recently displaced from, a financial
organization;
(B) Individuals who are seeking employment
at a financial organization; and
(C) Individuals who are currently employed
in or who seek positions in the finance, accounting, and audit
departments of any company.
(10) Support services:
(i) Courier services. Providing courier services for:
(A) Checks, commercial papers, documents,
and written instruments (excluding currency or bearer-type
negotiable instruments) that are exchanged among banks and
financial institutions; and
7
<PAGE>
(B) Audit and accounting media of a banking
or financial nature and other business records and documents
used in processing such media.
(ii) Printing and selling MICR-encoded items.
Printing and selling checks and related documents, including corporate
image checks, cash tickets, voucher checks, deposit slips, savings
withdrawal packages, and other forms that require Magnetic Ink
Character Recognition ("MICR") encoding.
(11) Insurance agency and underwriting:
(i) Credit insurance. Acting as principal, agent, or
broker for insurance (including home mortgage redemption insurance)
that is:
(A) Directly related to an extension of
credit by the bank holding company or any of its subsidiaries;
and
(B) Limited to ensuring the repayment of the
outstanding balance due on the extension of credit in the
event of the death, disability, or involuntary unemployment of
the debtor.
(ii) Finance company subsidiary. Acting as agent or
broker for insurance directly related to an extension of credit by a
finance company that is a subsidiary of a bank holding company under
certain conditions.
(iii) Insurance in small towns. 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:
(A) Has a population not exceeding 5,000 (as
shown in the preceding decennial census); or
(B) Has inadequate insurance agency
facilities, as determined by the Federal Reserve Board, after
notice and opportunity for hearing.
(iv) Insurance-agency activities conducted on May 1,
1982. Under certain restrictions, engaging in any specific
insurance-agency activity if the bank holding company, or subsidiary
conducting the specific activity, conducted such activity on May 1,
1982, or received the Federal Reserve Board approval to conduct such
activity on or before May 1, 1982.
8
<PAGE>
(v) Supervision of retail insurance agents.
Supervising on behalf of insurance underwriters the activities of
retail insurance agents who sell:
(A) Fidelity insurance and property and
casualty insurance on the real and personal property used in
the operations of the bank holding company or its
subsidiaries; and
(B) Group insurance that protects the
employees of the bank holding company or its subsidiaries.
(vi) Small bank holding companies. Engaging in any
insurance-agency activity if the bank holding company has total
consolidated assets of $50 million or less.
(v) Insurance-agency activities conducted before
1971. Engaging in any insurance-agency activity performed at any
location in the United States directly or indirectly by a bank holding
company that was engaged in insurance-agency activities prior to
January 1, 1971, as a consequence of approval by the Federal Reserve
Board prior to January 1, 1971.
(12) Community development activities:
(i) Financing and investment activities. 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.
(ii) Advisory activities. Providing advisory and
related services for programs designed primarily to promote community
welfare.
(13) Money orders, savings bonds, and traveler's checks. The
issuance and sale at retail of money orders and similar consumer-type payment
instruments; the sale of U.S. savings bonds; and the issuance and sale of
traveler's checks.
(14) Data processing. Providing data processing and data
processing and data transmission services, facilities (including data processing
and data transmission hardware, software, documentation, or operating
personnel), data bases, advice, and access to such services, facilities, or data
bases by any technological means under certain conditions.
9
<PAGE>
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.
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
10
<PAGE>
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.
The Banking Commissioners of the State of New Jersey and the
Commonwealth of Pennsylvania 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.
11
<PAGE>
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.
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
12
<PAGE>
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.
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 "significantly
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
13
<PAGE>
"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.
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.
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
14
<PAGE>
accounts. Assessment rates applicable to life-line accounts are to be
established by FDIC rule.
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.
FDIC Insurance Assessments
--------------------------
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the assessment of premiums
based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC, on a
semiannual basis, assigns each institution to one of three capital groups (well
capitalized, adequately capitalized or under capitalized) and further assigns
such institution to one of three subgroups within a capital group corresponding
to the FDIC's judgment of the institution's strength based on supervisory
evaluations, including examination reports, statistical analysis and other
information relevant to gauging the risk posed by the institution. Only
institutions with a total capital to risk-adjusted assets ratio of 10.0% or
greater, a Tier 1 capital to risk-adjusted assets ratio of 6.0% or greater and a
Tier 1 leverage ratio of 5.0% or greater, are assigned to the well-capitalized
group.
Over the last two years, FDIC insurance assessments have seen
several changes for both BIF and SAIF institutions. The most recent change
occurred on September 30, 1996, when the President signed into law a bill
designed to remedy the disparity between BIF and SAIF deposit premiums. The
first part of the bill called for the SAIF to be capitalized by a one-time
assessment on all SAIF insured deposits held as of March 31, 1995. This
assessment, which was 65.7 cents per $100 in deposits, raised approximately $4.7
billion to bring the SAIF up to is required 1.25 reserve ratio. Vista paid this
special assessment in 1996 for those "SAIF-insured" deposits it held. The second
part of the bill remedied the future anticipated shortfall with respect to the
payment of FICO interest. For 1997 through 1999, the banking industry will help
pay the FICO interest payments at an assessment rate that is one-fifth the rate
paid by thrifts. The FICO assessment on BIF insured deposits is 1.26 cents per
$100 in deposits; for SAIF insured deposits it is 6.28 cents per $100 in
deposits. Beginning January 1, 2000, the FICO interest payments will be paid
pro-rata by banks and thrifts based on deposits. At December 31, 1997, the FICO
interest assessment paid by Vista was approximately $83 thousand. The Bank
15
<PAGE>
Subsidiaries have not been required to pay any FDIC insurance assessments since
the fourth quarter of 1996, because BIF has met its statutorily required ratios
and the Bank Subsidiaries are categorized as "well capitalized."
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, 1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tier I Capital........................................................ $ 41,761
Tier II Capital....................................................... 4,339
--------
Total Capital......................................................... $46,100
========
Total Average Quarterly Assets........................................ $ 548,728
Total Risk-Weighted Assets(1)......................................... $ 307,620
Tier I Risk-Based Capital Ratio(2).................................... 13.58%
Required Tier I Risk-Based Capital Ratio.............................. 4.00%
------
Excess Tier I Risk-Based Capital Ratio................................ 9.58%
======
Total Risk-Based Capital Ratio(3)..................................... 14.99%
Required Total Risk-Based Capital Ratio............................... 8.00%
------
Excess Total Risk-Based Capital Ratio................................. 6.99%
======
Tier I Leverage Ratio(4)............................................... 7.61%
Required Tier I Leverage Ratio......................................... 4.00%
------
Excess Tier I Leverage Ratio........................................... 3.61%
======
</TABLE>
- ------------------------------
(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.
16
<PAGE>
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.
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.
17
<PAGE>
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, 1997, Phillipsburg Investment, Inc.
held approximately $64.5 million in securities available for sale, short-term
investments, and cash on behalf of Phillipsburg National Bank.
As of December 31, 1997, Phillipsburg National Bank had one
hundred fifteen (115) full-time employees and fourteen (14) 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.
Phillipsburg National Bank's branch delivery system 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.
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.
18
<PAGE>
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.
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
19
<PAGE>
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
20
<PAGE>
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.
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.
21
<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, 1997, Phillipsburg National Bank's total
risk-based capital ratio was 14.16 % (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, 1997, Twin Rivers had fifty-two (52)
full-time employees and thirteen (13) 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
22
<PAGE>
charges on deposit accounts and interest rates charged on loans. In terms of
assets and liabilities, Twin Rivers is smaller than its major competitors.
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."
23
<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, 1997, Twin Rivers' total risk-based capital
ratio was 12.87% (of which 90% 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.
24
<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.
The federal banking regulators have 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, 1997, Phillipsburg National Bank is
deemed to be a large retail institution and Twin Rivers is deemed to be a small
bank. During 1997, Phillipsburg National Bank was evaluated for CRA compliance
using the lending, service and investment tests and received a satisfactory
rating. Twin Rivers was evaluated for CRA compliance using the streamlined
procedures for a small bank and received a "satisfactory" rating in 1997.
Item 2. Properties
<TABLE>
<CAPTION>
The following table describes the properties owned or leased
by Vista and the Bank Subsidiaries:
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
Vista
291 Pickford Avenue Leased - $65,918 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>
25
<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 - $30,570 Annual Rental
Twin Rivers
2925 William Penn Highway Leased - $109,460 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.
26
<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.
27
<PAGE>
High Low
---- ---
1997:
First quarter............................ $13.75 $13.00
Second quarter........................... $14.75 $13.38
Third quarter............................ $17.38 $14.50
Fourth quarter........................... $19.75 $17.25
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
--------------
1997:
First quarter............................................... $.10
Second quarter.............................................. .10
Third quarter............................................... .11
Fourth quarter.............................................. .11
1996:
First quarter............................................... $.09
Second quarter.............................................. .09
Third quarter............................................... .10
Fourth quarter.............................................. .10
28
<PAGE>
Shareholders
------------
As of December 31, 1997, Vista had approximately 849 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. ss.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 $6.9 million as of December 31, 1997.
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
29
<PAGE>
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.
As of December 31, 1997, there were $1.3 million 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 7A. Quantitative and Qualitative Disclosures About Market Risk
The information called for by this item is found under the caption
"Interest Rate Sensitivity" in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Vista's Annual
Report (at page 16) filed at Exhibit 13 hereto and is incorporated in its
entirety by reference under this Item 7A.
Item 8. Financial Statements and Supplementary Data
Vista's Consolidated Financial Statements and notes thereto
contained in the Annual Report (beginning at page 20) 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 94) and filed at Exhibit 99B hereto is
incorporated by reference under this Item 8.
30
<PAGE>
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 9,
respectively) filed at Exhibit 99A hereto is incorporated in their entirety by
reference under this Item 10.
Item 11. Executive Compensation
The captions "Remuneration of Officers and Directors"
contained in Vista's Proxy Statement (at page 10) 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 13) 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.
31
<PAGE>
(b) Reports on Form 8-K
Vista filed no reports on Form 8-K during the last
quarter of the year ended December 31,1997.
(c) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Referred to
Item 601 of Regulation S-K Description of Exhibit
- -------------------------- ----------------------
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, 1997.
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 22, 1998.
99B SEC Guide 3 Financial
Information.
32
<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 Date: March 25, 1998
-------------------------
Barbara Harding
President
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 Date: March 25, 1998
-------------------------
Barbara Harding
President and Director
(Chief Executive Officer)
By: Date: March __, 1998
-------------------------
Richard A. Cline
Director
By: /s/ Harold J. Curry Date: March 25, 1998
-------------------------
Harold J. Curry
Director
By: /s/ Dale F. Falcinelli Date: March 25, 1998
-------------------------
Dale F. Falcinelli
Director
By: Date: March __, 1998
-------------------------
James T. Finegan, Jr.
Director
33
<PAGE>
By: /s/ Barry L. Hajdu Date: March 25, 1998
-------------------------
Barry L. Hajdu
Director
By: /s/ David L. Hensley Date: March 25, 1998
-------------------------
David L. Hensley
Director
By: Date: March __, 1998
-------------------------
Thomas F. McGinley
Chairman of the Board
and Director
By: /s/ Marc S. Winkler Date: March 25, 1998
-------------------------
Marc S. Winkler
Director
By: /s/ Mark A. Reda Date: March 25, 1998
-------------------------
Mark A. Reda
Director
By: /s/ William F. Keefe Date: March 25, 1998
-------------------------
William F. Keefe
Executive Vice President and
Chief Financial Officer
(Chief Financial and
Accounting Officer)
34
<PAGE>
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
13 Portions of the Annual Report to
Shareholders for Fiscal Year
Ended December 31, 1997............................ 36
27 Financial Data Schedule............................... 98
99A Portions of the Proxy Statement
for the Annual Meeting of
Shareholders to be held
April 22, 1998..................................... 79
99B SEC Guide 3 Financial Information..................... 93
35
EXHIBIT 13
----------
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Vista Bancorp, Inc. (Vista), formed in 1988, is the parent holding
company for The Phillipsburg National Bank and Trust Company (PNB), a
commercial bank operating ten branches, formed in 1856 and located in
Phillipsburg, Warren County, New Jersey and Twin Rivers Community Bank (Twin
Rivers), a Pennsylvania state-chartered bank, operating four branches, formed
in 1990 and located in Palmer Township, Northampton County, Pennsylvania.
Vista Bancorp, Inc. is traded on the Nasdaq SmallCap MarketSM under the symbol
VBNJ.
Since the late nineteen eighties, Vista Bancorp has focused its
attention on building its franchise along the Interstate Route 78 corridor
that bridges Western New Jersey and Eastern Pennsylvania. The growth has taken
place in many forms. In 1990, Vista formed Twin Rivers Community Bank, a
state-chartered denovo bank that today has four branch locations and $150
million in assets. Growth was also derived through several branch purchases
involving the Resolution Trust Corporation in the early nineties and direct
branch purchases from large regional banks that were consolidating and closing
branches. Our latest expansion efforts came in late 1996 with the addition of
three new branches, one in New Jersey and two in Pennsylvania. Along the way,
Vista fueled its expansion through retained earnings and two secondary stock
offerings in 1993 and 1995.
Vista will be celebrating its ten-year anniversary in 1998. Looking
back to its year of inception, it ended 1988 with $181 million in assets,
shareholder equity of $14 million and earnings of $2.0 million. Vista ended
1997 with $543 million in assets, $43 million in shareholder equity, $4.5
million in earnings and 14 branches stretched out over two states.
Our shareholders have experienced a 255% total return on their
investment in Vista Bancorp, including reinvested dividends, just since May
1993, when Vista began trading on the Nasdaq SmallCaps Market. This return
works out to 32% per year when expressed as an annual equivalent.
We stated in our 1996 annual report that 1997 would be a transition
year for earnings because of the three new branches and the unavoidable
increase in expenses coupled with the time lag involved in growing deposits
and redeploying the proceeds into a profitable mix of earning assets. The
deposit growth at the three new sites has been exceptional and has even
exceeded our own expectations. At the end of 1997, total deposits at the three
branches stood at $43.0 million, all achieved in just about 13 months.
We have built a dominant lead bank, Phillipsburg National Bank, with
a strong market share in Warren County, New Jersey and an expanded presence in
the desirable Hunterdon County market by virtue of the new Flemington
location. Twin Rivers Community Bank continues to capitalize on the
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
consolidation trend while profiting from the many opportunities afforded to it
as a local community banking organization.
We enter 1998 committed to our basic principles of growing the
organization while focusing on the key profit drivers of earnings per share
and book value that create value for all of our shareholders.
FORWARD LOOKING STATEMENTS
GENERAL. The business of banking is affected, directly and
indirectly, by local, domestic and international economic conditions and by
government and fiscal monetary policies. Conditiions 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 subsidiary 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 levels of income and growth.
INTEREST RATES. Vista's earnings depend, to a large extent, upon net
interest income, which is primarily influenced by the relationship between its
cost of funds (deposits and borrowings) and the yield on its earning assets
(loans and investments). This relationship, known as the net interest rate
spread, is subject to fluctuation and is affected by regulatory, economic and
competitive factors which influence interest rates, the volume, rate and mix
of earning assets and interest-bearing liabilities, and the level of
nonperforming assets. As part of interest rate risk management strategy,
management seeks to control its exposure to interest rate changes by managing
the maturity and repricing characteristics of interest-earning assets and
interest-bearing liabilities.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES. In originating loans, there
is a likelihood that some credit losses will occur. This risk of loss varies
with, among other things, general economic conditions, the type of loan being
made, the creditworthiness 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 borrowers 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.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 exonomic conditions will continue. Adverse changes in economic
conditions in the geographic market that the bank subsidiaries serves 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 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.
RESULTS OF OPERATIONS
For the year ended December 31, 1997, Vista Bancorp's net income
increased 6.1% to $4.51 million compared to $4.25 million earned in 1996 and
$4.09 million in 1995. Basic earnings per share increased 4.8% to $1.10 per
share from $1.05 per share earned in 1996 and $1.18 per share in 1995.
Net income from operations (excluding nonrecurring items) increased 2%
to $4.51 million or $1.10 per share compared to $4.44 million or $1.10 per share
in 1996 that excluded the one-time SAIF assessment charge of $317 thousand
($190 thousand, after-tax, or $.05 per common share). Congress mandated the SAIF
assessment on September 1996 to recapitalize the deposit insurance fund for
thrift institutions. This compares to an increase of 8.4% from $4.09 million in
1995.
The increase in net income for 1997 was due primarily to an
increased level of net interest income, growth of noninterest income and
increased gains recognized on the sale of securities offset by growth in
noninterest expenses and a higher provision for loan losses.
Return on average shareholders' equity was 11.18% in 1997 compared
to 11.65% in 1996 and 15.02% in 1995. Return on average assets was .85% in
1997 compared to .89% for 1996 and .96% for 1995.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME
Tax-equivalent net interest income increased 11% or $1.6 million to
$18.8 million compared to $17.2 million in 1996. This increase was due
entirely to growth in interest-earning assets. On average, interest-earning
assets increased $51.3 million, principally in loans, that increased $31.2
million and investment securities that increased $18.2 million.
Tax-equivalent net interest income increased 7% or $1.2 million to
$17.2 million in 1996 compared to $16.0 million in 1995. The increase was due
to growth in interest-earning assets offset in part by lower interest rates.
On average, interest-earning assets increased $50.3 million, principally in
loans, that increased $30.4 million and investment securities that increased
$18.9 million.
The net interest margin, the difference between the tax-equivalent
yield on interest-earning assets and the rate paid on funds to support those
assets narrowed 2 basis points to average 3.78%, compared to 3.80% for 1996
and 3.96% in 1995. The yield on interest-earning assets increased 8 basis
points to 7.59% compared to 7.51% in 1996. The rate paid on total
interest-bearing liabilities increased 11 basis points to 4.33% compared to
4.22% in 1996.
NET INCOME DIVIDENDS PER SHARE NET INCOME PER SHARE
(Millions) (Dollars) (Dollars)
1993 $3.0 1993 $.29 1993 $ .89
1994 $3.2 1994 $.31 1994 $ .96
1995 $4.1 1995 $.34 1995 $1.18
1996 $4.2 1996 $.38 1996 $1.05
1997 $4.5 1997 $.42 1997 $1.10
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents Vista's average assets, liabilities and
shareholders' equity. Vista's net interest income, net interest spreads and
net interest income as a percentage of interest-earning assets for the periods
ended December 31, 1997, 1996 and 1995, are also reflected.
Amounts in Thousands (Except Percentages)
<TABLE>
<CAPTION>
For The Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balances Interest Rates Balances Interest Rates Balances Interest Rates
(1) (2) (3) (1) (2) (3) (1) (2) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $ 12,575 $ 694 5.52% $ 11,305 $ 607 5.37% $ 10,662 $ 627 5.88%
Short-term investments 3,277 171 5.22% 2,688 141 5.25% 2,376 138 5.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term
Investments 15,852 865 5.46% 13,993 748 5.35% 13,038 765 5.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 23,364 1,416 6.06% 25,734 1,536 5.97% 28,613 1,763 6.16%
U.S. Government agencies
and corporations 120,208 8,227 6.84% 104,011 6,987 6.72% 85,163 6,022 7.07%
States and other
political subdivisions 19,467 1,223 6.28% 13,000 769 5.92% 9,631 576 5.98%
Other 13,429 866 6.45% 15,499 1,036 6.68% 15,904 1,147 7.21%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 176,468 11,732 6.65% 158,244 10,328 6.53% 139,311 9,508 6.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
income: (4)
Mortgage 141,044 10,794 7.65% 137,919 10,494 7.61% 132,550 10,081 7.61%
Commercial 88,508 8,122 9.18% 71,195 6,525 9.16% 61,316 5,924 9.66%
Consumer 83,144 6,795 8.17% 72,404 5,982 8.26% 57,196 4,935 8.63%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 312,696 25,711 8.22% 281,518 23,001 8.17% 251,062 20,940 8.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning
Assets 505,016 38,308 7.59% 453,755 34,077 7.51% 403,411 31,213 7.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 16,280 15,168 12,927
Allowance for loan losses (3,946) (3,879) (4,001)
Other assets 15,401 13,107 11,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-earning
Assets 27,735 24,396 20,864
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 532,751 $ 478,151 $ 424,275
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities and
Shareholders' Equity
Interest-bearing deposits:
Demand $ 72,051 $ 1,544 2.14% $ 68,306 $ 1,541 2.26% $ 60,580 $ 1,534 2.53%
Savings 118,591 3,809 3.21% 109,819 3,460 3.15% 101,858 3,093 3.04%
Time 197,546 10,776 5.45% 171,565 9,217 5.37% 164,698 8,769 5.32%
Time deposits $100,000
and over 36,839 2,068 5.61% 31,623 1,712 5.41% 20,023 1,144 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Deposits 425,027 18,197 4.28% 381,313 15,930 4.18% 347,159 14,540 4.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 14,407 688 4.78% 13,000 586 4.51% 9,613 436 4.54%
Long-term debt 4,400 313 7.11% 4,641 333 7.18% 3,360 281 8.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds
and Long-term Debt 18,807 1,001 5.32% 17,641 919 5.21% 12,973 717 5.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing
Liabilities 443,834 19,198 4.33% 398,954 16,849 4.22% 360,132 15,257 4.24%
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
demand deposits 44,755 39,154 33,403
Other liabilities 3,782 3,579 3,489
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest-bearing
Liabilities 48,537 42,733 36,892
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 40,380 36,464 27,251
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 532,751 $ 478,151 424,275
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income/Spread
(tax-equivalent basis) 19,110 3.26% 17,228 3.29% 15,956 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-equivalent Basis
Adjustment (360) (212) (153)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 18,750 $ 17,016 $ 15,803
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin (5) 3.78% 3.80% 3.96%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 as a percent of interest-earning asset on a
tax-equivalent basis.
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,
1997 vs. 1996 1996 vs. 1995
----------------------------------------------------------------------------------
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 $ 87 $ 70 $ 17 ($ 20) $ 37 ($ 57)
Short-term investments 30 31 (1) 3 17 (14)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments 117 101 16 (17) 54 (71)
- -----------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (120) (143) 23 (227) (172) (55)
U.S. Government agencies
and corporations 1,240 1,106 134 965 1,278 (313)
States and other political subdivisions 454 404 50 193 199 (6)
Other (170) (134) (36) (111) (28) (83)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Securities 1,404 1,233 171 820 1,277 (457)
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income: (2)
Mortgage 300 239 61 413 408 5
Commercial 1,597 1,589 8 601 917 (316)
Consumer 813 878 (65) 1,047 1,264 (217)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Loans 2,710 2,706 4 2,061 2,589 (528)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 4,231 4,040 191 2,864 3,920 (1,056)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest-bearing deposits:
Demand 3 82 (79) 7 185 (178)
Savings 349 280 69 367 248 119
Time 1,559 1,415 144 448 368 80
Time deposits $100,000 and over 356 290 66 568 631 (63)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 2,267 2,067 200 1,390 1,432 (42)
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 102 66 36 150 153 (3)
Long-term debt (20) (17) (3) 52 96 (44)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds
and Long-term Debt 82 49 33 202 249 (47)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 2,349 2,116 233 1,592 1,681 (89)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income
(tax-equivalent basis) $ 1,882 $ 1,924 ($ 42) $ 1,272 $ 2,239 ($ 967)
- -----------------------------------------------------------------------------------------------------------------------------------
</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 13% to $2.8 million from $2.5
million in 1996, which in turn was an increase of 21% compared to $2.1 million
earned in 1995. The increase for 1997 was primarily due to increased gains
recognized on the sale of securities, increased service charges on deposit
accounts and higher revenues from trust operations, offset in part by lower
one-time nonrecurring items.
Net gains recognized on the sale of investment securities increased
to $304 thousand from $29 thousand in 1996 compared to a net loss of $56
thousand in 1995. Service charges on deposit accounts increased 8% to $1.7
million from $1.5 million in 1996 which in turn was an increase of 8% from
$1.4 million in 1995. Fees earned from insufficient funds on personal checking
accounts accounted for the majority of the increase in 1997. The increase in
1996 compared to 1995 was attributable to growth in commercial checking
accounts and higher volumes of items processed.
Other service charge income increased 6% in 1997 following a 39%
increase in 1996. Lower volumes of ATM interchange revenues and lower levels
of fees generated from providing routine banking services through the branch
network accounted for the decrease in the growth rate in 1997. Robust loan
demand in 1996 accounted for growth in attendant fee generating activities of
loan applications and appraisal fees. In addition, higher ATM interchange
revenues derived from increased transaction volume by noncustomers contributed
to the increase in the growth rate.
Other income, including Trust Department operations, declined to
$309 thousand from $427 thousand in 1996 compared to $338 thousand in 1995.
The decrease in 1997 resulted from a $45 thousand loss recognized on the sale
of a residential mortgage loan portfolio, compared to a $62 thousand gain
recorded in 1996 on the sale of a student loan portfolio. Income from trust
operations increased again in 1997 by over 20% due to an increase in assets
under management and increased trust and estate business.
<TABLE>
<CAPTION>
Noninterest Income and Noninterest Expense
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Percent Change
---------------------------------
Amounts in Thousands (Except Percentages) 1997 1996 1995 1997 vs 1996 1996 vs 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest Income:
Service Charges on Deposit Accounts $ 1,669 $ 1,541 $ 1,429 8% 8%
Other Service Charges 518 489 351 6 39
Net Security Gains (Losses) 304 29 (56) NM NM
Trust Income 249 199 155 25 28
Other Income 60 228 183 (74) 25
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $ 2,800 $ 2,486 $ 2,062 13% 21%
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and Benefits $ 7,689 $ 6,712 $ 6,078 15% 10%
Occupancy Expense 1,359 1,116 997 22 12
Furniture and Equipment Expense 1,537 1,209 1,106 27 9
SAIF Assessment -- 317 -- NM NM
Other Expenses 3,451 3,372 3,165 2 7
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense $ 14,036 $ 12,726 $ 11,346 10% 12%
- ------------------------------------------------------------------------------------------------------------------------
Overhead Efficiency Ratio (1) 64.96% 64.65% 62.78% -- --
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Overhead Efficiency Ratio is equal to noninterest expense divided by
net operating revenue. Net operating revenue is equal to the sum of
tax-equivalent net interest income and noninterest income, excluding net
security gains and losses.
(2) NM, not meaningful.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NONINTEREST EXPENSE
Total noninterest expense increased 10% to $14.0 million in 1997
from $12.7 million in 1996 and in turn 1996 increased 12% compared to $11.3
million in 1995.
Salary and benefits expense, the largest component of noninterest
expense, increased 15% to $7.7 million from $6.7 million in 1996 due primarily
to the increased staffing associated with operating three new branch
facilities for the full year. In addition, senior level officers were added in
the areas of commercial lending, operations and retail banking to support
business initiatives in these areas.
Occupancy expense increased 22% to $1.4 million from $1.1 million in
1996 due to higher costs associated with operating the three new branch
facilities. Higher depreciation charges, real estate taxes, rental expense and
utility costs plus other attendant costs of maintaining retail bank branches
comprised the higher expense level.
Furniture and equipment expense increased 27% to $1.5 million from
$1.2 million in 1996. This increase was attributable to upgrades in technology
and automation, including a new 24-hour telephone banking system, higher costs
for equipment depreciation and increased costs for telecommunications and
computer maintenance charges. Significant charges were incurred during 1997
for consultants and computer specialists in response to staff turnover in the
computer operations area. Outsourcing of the management and maintenance of
Vista's internal PC-based systems is under consideration for 1998.
Total other expense was largely unchanged equaling $3.4 million for
1997 and 1996, respectively. Increases in other real estate owned expense as
well as higher postage and professional fees were tempered by lower deposit
insurance, marketing and intangible asset amortization costs.
A key benchmark for measuring efficiency of operations is the
relationship of noninterest expense to average total assets. This ratio
equaled 2.63% in 1997, 2.66% in 1996 and 2.67% in 1995.
READINESS FOR YEAR 2000
Vista has taken actions to understand the nature and extent of the
effort required to make its systems and infrastructure Year 2000 compliant.
Vista intends to work with its vendors to obtain appropriate certifications of
Year 2000 compliance, and failing such certifications, to obtain alternate
software, hardware and support services as appropriate.
Vista expects to have all mission critical systems and
infrastructure issues identified and certified Year 2000 compliant by December
31, 1998, thereby permitting extensive testing throughout the year 1999.
Furthermore, Vista plans to work with its significant borrowers to ensure they
are taking appropriate steps to become Year 2000 ready.
Vista continues to evaluate the estimated costs associated with
these efforts. While these efforts will involve additional expense, Vista
believes, based on available information, that it will be able to manage its
total Year 2000 transition without any material adverse effect on its business
operations or financial condition.
PROVISION FOR INCOME TAXES
The provision for income taxes remained unchanged at $2.2 million
for 1997 and 1996, despite a higher level of pretax income in 1997, reflecting
a higher level of tax-exempt income. The effective tax rate was 33% for 1997,
34% for 1996 and 35% for 1995.
Differences between the book basis and tax basis of assets and
liabilities recorded in the financial statements result in deferred taxes. As
of December 31, 1997 and 1996, net deferred tax assets were $1.7 million,
respectively.
FINANCIAL CONDITION
Set forth below is a discussion of the material changes in Vista's
financial condition from December 31, 1996, to December 31, 1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Average interest earning assets totaled $505.0 million in 1997,
reflecting an increase of 11% or $51.2 million compared to $453.8 million in
1996, reflecting growth in loans and securities. Total loans increased 11% or
$31.2 million, to average $312.7 million, while securities available for sale
increased 11% or $18.2 million, to average $176.5 million.
Average interest-bearing liabilities totaled $443.8 million in 1997,
reflecting an increase of 11% or $44.9 million compared to $398.9 million in
1996, due to growth in all categories of deposits. Borrowed funds and
long-term debt reflected a moderate increase.
The tax-equivalent yield on average interest earning assets equaled
7.59%, an increase of 8 basis points from 7.51% earned in 1996. The average
cost of interest-bearing liabilities equaled 4.33% reflecting an increase of
11 basis points compared to 4.22% paid in 1996. The increases were due to a
slightly higher average interest rate environment in 1997 compared to 1996.
The average prime rate was 8.44% in 1997 and 8.27% in 1996, while the federal
funds rate averaged 5.49% in 1997 and 5.31% in 1996.
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
entire securities portfolio is classified 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 increased 11% to average $176.5
million in 1997 compared to $158.2 million on average in 1996. The increase
resulted primarily in U.S. Government agencies and corporations and tax-exempt
investment securities. The yield on the portfolio averaged 6.65% in 1997
compared to 6.53% in 1996, an increase of 12 basis points. The increase in
yield was attributable to a more profitable portfolio mix in addition to
higher average market interest rates in 1997 compared to 1996.
During 1997, $27.2 million of securities available for sale were
sold, resulting in a net gain of $304 thousand. These sales combined with
$30.0 million of maturities were then used in part to purchase $91.9 million
of securities available for sale.
At December 31, 1997, there were unrealized gains, net of tax, of
$1.2 million on securities available for sale compared to $703 thousand at
December 31, 1996. The increase is attributed to lower interest rates in
effect at December 31, 1997, compared to December 31, 1996.
LOANS
Total average loans increased 11% or $31.2 million to $312.7 million
in 1997, compared to average total loans of $281.5 million in 1996. The
commercial and installment loan portfolios accounted for the majority of the
increase as strong loan origination activity to small businesses increased
commercial loans while home equity lending and indirect auto lending
contributed to the growth in average installment loans. The majority of the
growth in average consumer loan balances was due to large origination volume
of indirect automobile loans during the second half of 1996 which was included
in the balance sheet for the majority of 1997. Mortgage loans increased $3.0
million on average in 1997.
The yield on total loans averaged 8.22% for 1997, a 5 basis point
increase from the 8.17% average yield earned in 1996. The commercial loan
portfolio generated an average yield of 9.18% in 1997 compared to 9.16% in
1996. The increase can be attributed to a higher average prime rate of 8.44%
in 1997 compared to 8.27% in 1996, tempered in part by heavy competition for
loans to small businesses. The average yield on the mortgage portfolio
increased in 1997 to 7.65% from 7.61% in 1996, while the yield on the
installment loan portfolio declined 9 basis points to 8.17% in 1997 from 8.26%
in 1996. The decline can be attributed to accelerated amortization of the
prepaid dealer reserve triggered by prepayments and an increased level of
repossessed automobiles.
DEPOSITS
Total average deposits increased 12% or $49.3 million to average
$469.8 million in 1997, an increase of 12% compared to average total deposits
of $420.5 million in 1996.
Total average interest-bearing deposits increased $43.7 million in
1997, with demand accounts increasing
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$3.7 million, savings $8.8 million and time deposits $26.0 million. Time
deposits of $100,000 and over accounted for approximately $5.2 million of growth
on average.
Total average noninterest-bearing demand deposits increased $5.6
million to $44.8 million in 1997 compared to an average of $39.1 million in
1996.
The cost of funds paid on interest-bearing liabilities averaged
4.33% in 1997, an increase of 11 basis points compared to the average cost of
funds paid of 4.22% in 1996. The increase in rates can be attributed to
premium rates paid on retail time deposits, time deposits of $100,000 and
over, and adjustable-rate savings accounts in connection with the strategy in
1997 to increase deposit accounts and balances at the three new branch
facilities.
BORROWED FUNDS AND LONG-TERM DEBT
Total borrowed funds and long-term debt averaged $18.8 million in
1997 compared to $17.6 million in 1996, while the cost of borrowings increased
11 basis points to 5.32% in 1997 from 5.21% in 1996. Higher average short-term
interest rates and a higher average prime rate accounted for the
year-over-year increase in borrowing costs. Prime rate-based debt of $1.2
million outstanding at December 31, 1997, was satisfied in full during January
1998.
NONPERFORMING ASSETS
At December 31, 1997, nonperforming assets, consisting of loans on
nonaccrual status plus other real estate acquired through foreclosure (ORE),
totaled $4.3 million or 1.34% as a percentage of total loans plus ORE. These
amounts compare to $4.5 million and 1.48%, respectively, at December 31, 1996.
Commercial nonaccrual loans accounted for 60% and 76% of total
nonaccrual loans at December 31, 1997 and 1996, respectively, while nonaccrual
residential mortgage loans accounted for 24% and 15%, respectively. Consumer
loans accounted for 16% and 9%, respectively, of total nonaccrual loans at
December 31, 1997 and 1996. ORE increased to $1.4 million at December 31, 1997
compared to $1.3 million at December 31, 1996.
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.
ALLOWANCE FOR LOAN LOSSES AND RELATED PROVISION
The allowance for loan losses increased to $4.1 million at December
31, 1997, from $3.9 million at December 31, 1996. The allowance equaled 1.31%
of total loans at December 31, 1997 and 1996. The provision for loan losses
equaled $830 thousand for 1997 compared to $380 thousand in 1996 while
charge-offs, net of recoveries, totaled $585 thousand for 1997 and $409
thousand for 1996. The increase in the level of charge-offs during 1997 was
attributed to the indirect automobile loan portfolio. Vista responded to this
trend by tightening the loan underwriting standards and decreasing the number
of loans originated. The allowance for loan losses as a percentage of
nonperforming assets equaled 97% at December 31, 1997 and 88% at December 31,
1996.
The allowance for loan losses is determined through a regular review
of the loan portfolio. Factors such as prevailing economic conditions, the
volume of nonperforming loans, concentrations of credit risk, adverse
situations that may affect the borrower's ability to pay and prior loan loss
experience within the various categories of the portfolio are considered when
assessing the adequacy of the allowance for loan losses. Commercial loans of
$75,000 or more are reviewed individually. While management believes the
allowance for loan losses is currently adequate, future additions to the
allowance may be necessary as conditions change. The adequacy of the allowance
is reviewed quarterly by the Board of Directors.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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, 1997, cash and cash equivalents equaled $27.8
million, a decrease of $7.8 million from the $35.6 million in cash and cash
equivalents on hand at December 31, 1996. Changes in cash are measured by
changes in the three major classifications of cash flows that are defined as
operating, investing and financing activities.
At December 31, 1997, net cash provided by operating activities
equaled $6.6 million consisting mainly of net income adjusted for noncash
charges, plus increases in other assets and accrued interest receivable.
Net cash provided by financing activities totaled $40.0 million and
consisted of increases in all deposit categories and proceeds from common
stock issuance, offset in part, by payments on long-term debt, a decrease in
borrowed funds, increased cash dividends paid and nominal purchases of
treasury stock.
Net cash used for investing activities totaled $54.4 million and
consisted of $57.2 million from maturities and sales of securities available
for sale and $15.0 million from the sale of loans, which were used to purchase
$91.9 million of securities available for sale. Net cash provided from
operating and financing activities combined to fund $33.9 million of net loan
growth.
CAPITAL RESOURCES
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, 1997, Vista's shareholders' equity increased 12% or
$4.5 million to $43.3 million, compared to $38.8 million in shareholders'
equity at year-end 1996. The majority of the increase resulted from $2.8
million of retained net income, $1.3 million from common stock issuance in
addition to an increase of $487 thousand in unrealized gains, after tax, on
the available for sale securities portfolio.
Vista's dividend payout ratio equaled 38% for 1997 compared to 36%
for 1996 and 29% for 1995. Vista paid cash dividends totaling $1.7 million in
1997 which is an increase of $200 thousand or 13% over the $1.5 million
paid in 1996. Cash dividends paid per common share equaled 42 cents in 1997
compared to 38 cents in 1996 and 34 cents in 1995, representing increases of
10.5% and 11.8%, respectively.
The increase in cash dividends is also attributed to the increased
number of common shares outstanding and an increase in the quarterly dividend
to 11 cents per common share ($.44 annualized), from 10 cents per common
share, ($.40 annualized), effective with the 1997 third quarter dividend.
Vista's book value per common share at December 31, 1997,
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
was equal to $10.41 compared to $9.50 per common share at December 31, 1996.
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, 1997 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 13.58% and a total
risk-based capital ratio of 14.99% at December 31, 1997, compared to 13.33%
and 14.90%, respectively, at December 31, 1996.
To augment the evaluation of risk-based capital, the bank regulators
adopted an additional capital measure, which is referred to as the leverage
ratio. 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 loan losses, certain intangible assets and the adjustment
pursuant to SFAS No. 115. The minimum leverage capital ratio is within a range
of 3-5%, with other institutions expected to maintain higher ratios. Vista
maintained a leverage ratio of 7.61% at December 31, 1997, and 7.57% at
December 31, 1996.
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 $35.0 million and $32.0 million to its borrowers as of December 31,
1997 and 1996, 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
BOOK VALUE PER SHARE
(Dollars)
1993 $ 6.71
1994 $ 7.18
1995 $ 8.96
1996 $ 9.50
1997 $10.41
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
to customers. Vista has entered into standby letters of credit contracts with
its customers totaling $2.0 million and $1.5 million as of December 31, 1997
and 1996, respectively.
Vista does not issue nor hold derivative instruments with the
exception of loan commitments and letters of credit. These instruments are
issued in the normal ordinary course of business to meet customer needs.
Commitments to fund fixed-rate loans were immaterial at December 31, 1997.
Variable rate commitments 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. Vista management expects that off-balance
sheet risk will not be 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.
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, which includes limits on the impact to
earnings from shifts in interest rates, with each bank subsidiary's Board of
Directors.
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, 1997, Vista maintained cumulative liability
sensitive gap positions in the less than 1-year maturity categories and
cumulative asset sensitive gap positions in the over 1-year maturity
categories. Vista's modeling results at December 31, 1997, indicate that the
level of net interest income at risk due to varying interest rate movements is
within internal risk tolerance guidelines. These guidelines 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 following table, "Statement of Interest Sensitivity Gap,"
reflects Vista's consolidated gap position at December 31, 1997.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain shortcomings are inherent in the method of analysis
presented in the above 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.
The table on the following page provides information about Vista's
financial instruments that are sensitive to changes in interest rates at
December 31, 1997, based on the information and assumptions disclosed in the
notes below the table. Vista believes that the assumptions used, which are
based on statistical data, are reasonable. The expected maturity date values
for loans, mortgage-backed securities and investment securities were adjusted
for the expected prepayments as disclosed in the notes. Similarly, expected
maturity date values for interest-bearing core deposits were calculated based
upon estimates of the period over which the deposit would be outstanding as
disclosed in the notes. The adjustable-rate financial instruments' maturity
date values were also adjusted for expected prepayments as disclosed in the
notes.
STATEMENT OF INTEREST SENSITIVITY GAP
Amounts in Thousands (Except Percentages)
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------------------------
> 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 $ 4,190 $ -- $ -- $ -- $ -- $ 4,190
Short-term investments 4,465 -- -- -- -- 4,465
Securities available for sale (1) 28,317 39,944 84,862 20,882 13,741 187,746
Loans (1) 72,615 75,300 124,440 31,573 13,561 317,489
- ----------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Assets $ 109,587 $ 115,244 $ 209,302 $ 52,455 $ 27,302 $ 513,890
- ----------------------------------------------------------------------------------------------------------------------------
Deposits:
Interest-bearing demand deposits (2) $ 18,449 $ 4,913 $ 26,200 $ 24,675 $ -- $ 74,237
Savings (2) 43,318 7,840 41,812 30,467 -- 123,437
Time 52,330 110,308 66,787 4,510 -- 233,935
Borrowed funds 8,859 -- -- -- -- 8,859
Long-term debt 1,222 -- 3,000 -- -- 4,222
Shareholders' equity -- -- -- -- 43,302 43,302
- ----------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities and
Shareholders' Equity $ 124,178 $ 123,061 $ 137,799 $ 59,652 $ 43,302 $ 487,992
- ----------------------------------------------------------------------------------------------------------------------------
Interest Sensitivity Gap ($ 14,591) ($ 7,817) $ 71,503 ($ 7,197) ($ 16,000) $ 25,898
Cumulative Gap (14,591) (22,408) 49,095 41,898 25,898 --
Cumulative Gap to Total Assets (2.68)% (4.12)% 9.03% 7.71% 4.77% --
- ----------------------------------------------------------------------------------------------------------------------------
</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 9% to 18%, 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SCHEDULE OF MARKET RISK SENSITIVE INSTRUMENTS
Amounts in Thousands
<TABLE>
<CAPTION>
Expected Maturity Date - Years Ended December 31,
-------------------------------------------------
1998 1999 2000 2001 2002 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans (1, 2, 3)
Fixed Rate $ 63,242 $31,799 $28,418 $20,981 $17,820 $ 42,095 $204,355 $207,737
Average Interest Rate 8.05% 7.84% 7.88% 7.81% 7.81% 7.63% 7.86%
Adjustable Rate $ 23,876 $19,595 $16,623 $14,060 $11,851 $ 27,129 $113,134 $112,870
Average Interest Rate 8.66% 8.64% 8.68% 8.71% 8.72% 8.26% 8.57%
Mortgage-Backed Securities (4)
Fixed Rate $ 22,287 $19,084 $17,596 $ 9,866 $ 7,557 $ 19,977 $ 96,367 $ 97,444
Average interest Rate 6.91% 6.83% 6.68% 6.91% 6.90% 6.92% 6.85%
Adjustable Rate $ 3,894 $ 3,021 $ 2,342 $ 1,813 $ 1,402 $ 4,617 $ 17,089 $ 17,178
Average Interest Rate 6.71% 6.73% 6.73% 6.73% 6.73% 6.73% 6.73%
Investments (5, 6, 7)
Fixed Rate $ 26,629 $12,641 $ 6,909 $ 4,864 $ 3,356 $ 14,643 $ 69,042 $69,678
Average Interest Rate 5.83% 6.34% 6.17% 5.59% 4.95% 5.19% 5.76%
Adjustable Rate $ 12,101 - - - - - $ 12,101 $ 12,101
Average interest Rate 5.71% - - - - - 5.71% -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $152,029 $86,140 $71,888 $51,584 $41,986 $108,461 $512,088 $517,008
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities (8, 9, 10, 11):
Deposits
Balance $237,158 $49,705 $49,705 $19,951 $19,951 $ 55,139 $431,609 $432,531
Average Interest Rate 4.73% 4.61% 4.61% 3.15% 3.15% 2.14% 4.22%
Borrowings (12)
Balance $ 10,081 $ 3,000 - - - - $ 13,081 $13,102
Average Interest Rate 4.59% 6.17% - - - - 4.96% -
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $247,239 $52,705 $49,705 $19,951 $19,951 $ 55,139 $444,690 $445,633
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net deferred loan fees but excludes the allowance for loan
losses.
(2) Assumes prepayment rates between 9% and 18% for fixed-rate loans and
adjustable-rate loans.
(3) Adjustable-rate loans reprice on an annual basis based upon changes in
various indices including the prime rate and the one-year constant
maturity treasury index with various market based annual and lifetime
interest rate caps and floors.
(4) Mortgage-backed securities with fixed rates collateralized with
single-family residential loans reflect assumed annual amortization and
balloon maturities as appropriate. Assumes prepayment rates of 9% to 18%.
(5) Fixed-rate investments include investments in Federal Home Loan Bank
Stock.
(6) Fixed-rate investments include municipal bond investments on a
non-tax-equivalent basis.
(7) Adjustable-rate investments include federal funds sold and other
short-term investments.
(8) Certificates of deposit reflect assumed stated maturities.
(9) Regular savings accounts reflect an assumed maturity of 32% in the first
year with the remaining balance spread over 10 years.
(10) Consumer-based interest-bearing demand deposit accounts reflect an
assumed maturity of 18% in the first year with the remaining balance
spread over 10 years. Municipal interest-bearing demand accounts reflect
an assumed maturity of 67% in the first year with the remaining balance
spread over 5 years.
(11) Money market deposit accounts reflect an assumed maturity of 59% in the
first year with the remaining balance spread over 5 years.
(12) Borrowed funds reflect assumed stated maturities.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
RETURN ON
AVERAGE ASSETS NET INTEREST INCOME RETURN ON AVERAGE EQUITY
(Percent) (Millions) (Percent)
1993 .85% 1993 $13.8 1993 13.88%
1994 .83% 1994 $15.0 1994 13.53%
1995 .96% 1995 $15.8 1995 15.02%
1996 .89% 1996 $17.0 1996 11.65%
1997 .85% 1997 $18.8 1997 11.18%
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 19,195 $ 18,370
Federal funds sold 4,190 13,395
Short-term investments 4,465 3,817
- ---------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 27,850 35,582
- ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $185,944 and $151,303 in 1997
and 1996, respectively) 187,746 152,368
- ---------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 132,496 140,612
Commercial 98,813 78,250
Consumer 86,180 80,702
- ---------------------------------------------------------------------------------------------------------------------------
Total Loans 317,489 299,564
Allowance for loan losses (4,148) (3,903)
- ---------------------------------------------------------------------------------------------------------------------------
Total Net Loans 313,341 295,661
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment 7,435 7,542
Accrued interest receivable 2,973 2,826
Other assets 4,122 4,222
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $543,467 $498,201
===========================================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $52,147 $ 42,462
Interest-bearing 74,237 69,908
Savings 123,437 111,671
Time 233,935 211,070
- ---------------------------------------------------------------------------------------------------------------------------
Total Deposits 483,756 435,111
- ---------------------------------------------------------------------------------------------------------------------------
Borrowed funds 8,859 16,643
Long-term debt 4,222 4,498
Accrued interest payable 1,249 1,102
Other liabilities 2,079 2,032
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities 500,165 459,386
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares
issued, 4,168,013 and 4,085,498 at December 31, 1997 and 1996,
respectively 2,084 2,043
Paid-in capital 14,345 13,092
Retained earnings 25,770 22,984
Treasury stock (87) (7)
Net unrealized gain on securities available for sale 1,190 703
- ---------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 43,302 38,815
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $543,467 $498,201
===========================================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Amounts in Thousands (Except Per Share and Share Data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 25,676 $ 22,987 $ 20,935
Interest on federal funds sold 694 607 627
Interest on short-term investments 171 141 138
Interest on securities:
Taxable 10,509 9,559 8,932
Nontaxable 898 571 428
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Income 37,948 33,865 31,060
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 18,197 15,930 14,540
Interest on borrowed funds 688 586 436
Interest on long-term debt 313 333 281
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 19,198 16,849 15,257
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income 18,750 17,016 15,803
Provision for Loan Losses 830 380 190
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 17,920 16,636 15,613
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 1,669 1,541 1,429
Other service charges 518 489 351
Net security gains (losses) 304 29 (56)
Other income 309 427 338
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 2,800 2,486 2,062
- ------------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 7,689 6,712 6,078
Occupancy expense 1,359 1,116 997
Furniture and equipment expense 1,537 1,209 1,106
SAIF assessment - 317 -
Other expense 3,451 3,372 3,165
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expense 14,036 12,726 11,346
- ------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 6,684 6,396 6,329
Provision for Income Taxes 2,171 2,148 2,236
- ------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,513 $ 4,248 $ 4,093
========================================================================================================================
Earnings per Share $ 1.10 $ 1.05 $ 1.18
========================================================================================================================
Weighted Average Number of Common Shares Outstanding 4,114,351 4,035,092 3,468,046
========================================================================================================================
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
21
<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, 1997, 1996 and 1995
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, 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
Net income - 1997 - - - 4,513 - - 4,513
Cash dividends - $.42 per share - - - (1,727) - - (1,727)
Net proceeds from
issuance of common stock 82,515 41 1,219 - - - 1,260
Deferred compensation - - 34 - - - 34
Net Treasury Stock transactions - - - - (80) - (80)
Net unrealized appreciation
in the market value of
securities available for sale,
net of income taxes - - - - - 487 487
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 4,168,013 $2,084 $14,345 $25,770 ($87) $1,190 $43,302
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<TABLE>
<CAPTION>
For The Years Ended December 31,
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activites:
Net Income $ 4,513 $ 4,248 $ 4,093
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,021 887 727
Provision for loan losses 830 380 190
Increase in deferred taxes (86) (53) (128)
Increase in deferred income 120 104 37
Decrease (increase) in accrued interest receivable (147) 953 (757)
Increase in accrued interest payable 147 79 254
Decrease (increase) in other assets 82 2,490 (2,310)
Increase in other liabilities 81 119 123
Net amortization of premium on securities 338 538 429
Net security (gains) losses (304) (29) 56
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 6,595 9,716 2,714
==============================================================================================================================
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 29,986 37,232 11,101
Proceeds from sales of securities available for sale 27,231 42,142 35,720
Purchases of securities available for sale (91,891) (87,623) (29,319)
Proceeds from maturities of securities held to maturity -- -- 17,422
Purchases of securities held to maturity -- -- (40,982)
Net increase in loans (33,909) (37,017) (27,220)
Proceeds from sale of loans 14,981 -- --
Net capital expenditures (763) (1,525) (1,093)
Net cash (paid for) received from branch acquisitions -- (823) 12,683
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (54,365) (47,614) (21,688)
==============================================================================================================================
Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 25,780 15,033 (1,512)
Net increase in time deposits 22,865 18,515 19,265
Net (decrease) increase in borrowed funds (7,784) 4,502 3,517
Net (decrease) increase in long-term debt (276) (227) 2,840
Net proceeds from issuance of common stock 1,260 1,041 6,096
Net Treasury Stock transactions (80) -- --
Cash dividends paid (1,727) (1,532) (1,175)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 40,038 37,332 29,031
==============================================================================================================================
Net Decrease (Increase) in Cash and Cash Equivalents (7,732) (566) 10,057
Cash and Cash Equivalents, Beginning of Period 35,582 36,148 26,091
==============================================================================================================================
Cash and Cash Equivalents, End of Period $27,850 $35,582 $36,148
==============================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Interest paid $19,051 $16,770 $15,003
Income taxes paid 2,406 2,328 2,435
Supplemental Disclosures of Investing and Financing Activities:
Transfers from loans to other real estate owned 298 1,222 209
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 738 (1,239) 3,426
Increase (decrease) in deferred tax asset related to net unrealized
(loss) gain in the fair value of securities available for sale (251) 422 (1,176)
Net unrealized (loss) gain in the fair value of securities available for
sale, net of income taxes 487 (817) 2,250
Deferred compensation 34 30 9
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)
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
23
<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 collat eralized
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 changes 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
All securities are classified as available for sale and accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Securities available for sale may be sold prior
to maturity in response to changes in interest rates, changes in prepayment
risk, for asset/liability management or liquidity needs. These securities are
carried at fair value with unrealized gains and losses reported on a
net-of-tax basis, as a separate component of shareholders' equity. Interest
and dividends are recorded as earned. Realized gains and losses, which are
computed using the specific identification method, are reported in noninterest
income. Purchase premiums and discounts are amortized or accreted to income
over the life of the security, considering actual prepayments using a level
yield method.
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.
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.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Continued
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.
Impairment of Assets
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Transfers of Financial Assets
Vista adopted SFAS No. 125, "Accounting for Transfers of Securities
and Extinguishment of Liabilities," in January 1997. The statement requires
the recognition of financial and servicing assets the Bank controls,
derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. In addition, the statement
requires that liabilities incurred as the result of a transfer of financial
assets be measured at fair value and that servicing assets and other retained
interests in transferred assets be allocated based on relative fair values of
assets retained and assets transferred. The effect of the statement on Vista's
financial condition and results of operations for 1997 was immaterial.
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 value less estimated costs to sell the
property.
Retirement Plans
Vista maintains a noncontributory defined benefit pension plan
covering the majority of its employees and a postretirement benefit plan that
includes health care and life insurance benefits. Postretirement benefits are
only offered to employees who attained the age of 45 as of January 1, 1995,
and who also met all the requirements for retirement. Postretirement benefits
are not offered to new hires after this date. The costs associated with these
benefits are accrued based on actuarial assumptions and included in salaries
and benefits expense.
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 $496 thousand,
$566 thousand and $514 thousand in 1997, 1996, and 1995, respectively.
Income Taxes
The amount provided for federal income taxes is based on income
reported for consolidated financial statement purposes, after elimination of
federal tax-exempt income which is derived primarily from securities of state
and political subdivision and certain commercial loans.
Deferred federal and state tax assets and liabilities are recognized
for the expected future tax consequences of existing differences between
financial statement and tax bases of existing assets and liabilities, as well
as for operating losses. The effect of a change in the tax rate on deferred
taxes is recognized in the period of the enactment date.
25
<PAGE>
Vista files a consolidated federal income tax return with the
amount of income tax expense or benefit computed and allocated to each
subsidiary on a separate return basis. Separate state tax returns are filed
by subsidiary.
Earnings per Share
In February 1997, FASB issued SFAS No. 128, "Earnings per Share,"
which is effective for interim and annual periods ending after December 15,
1997. In December 1997, Vista adopted SFAS No. 128. Basic earnings per share
is presented and calculated based on income available to common shareholders
and the weighted average number of shares outstanding during the reporting
periods. Diluted earnings per share reflects the potential dilution that would
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
Years Ended December 31,
Amounts in Thousands 1997 1996 1995
(Except per Share Data)
- --------------------------------------------------------------------------------
Net income available
to common
shareholders (numerator) $4,513 $4,248 $4,093
Weighted average common
shares outstanding 4,114 4,035 3,468
Effect of common
stock equivalents - - -
- --------------------------------------------------------------------------------
Weighted average shares
outstanding (denominator
for each calculation) 4,114 4,035 3,468
- --------------------------------------------------------------------------------
Basic earnings per share $1.10 $1.05 $1.18
- --------------------------------------------------------------------------------
Diluted earnings per share $1.10 $1.05 $1.18
- --------------------------------------------------------------------------------
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.
Stock-Based Compensation
Vista adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," in 1996 but elected to continue to
utilize the "intrinsic value" method of accounting for recording stock-based
compensation expense provided for in Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees."
Recently Issued Accounting Standards
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components required to be recognized under
accounting standards. This statement is effective for fiscal years beginning
after December 15, 1997. Adoption of this statement is not expected to have a
material impact on Vista's consolidated financial statements.
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, 1997, was approximately $6.2
million. For the two-week period ended December 31, 1997, the average amount
of reserve balances for Vista was approximately $6.5 million.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Continued
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, 1997.
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, 1997 and 1996, were as follows :
27
<PAGE>
Notes to Consolidated Financial Statements
Note 3 - Continued
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 17,548 $ 113 $ - $ 17,661
U.S. Government agencies and corporations 18,265 66 (33) 18,298
State and political subdivisions 23,401 342 - 23,743
Corporate debt securities 9,408 110 (4) 9,514
Mortgage-backed securities 113,456 1,496 (330) 114,622
Equity securities 3,866 42 - 3,908
- ---------------------------------------------------------------------------------------------------------------------
Total securities available for sale $185,944 $2,169 ($367) $187,746
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale 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>
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1997 December 31, 1996
Estimated Estimated
Amortized Market Amortized Market
Amounts in Thousands Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturing within one year $17,529 $ 17,547 $ 9,658 $ 9,676
Maturing after one year but within five years 34,424 34,724 36,580 36,751
Maturing after five years but within ten years 8,687 8,792 9,375 9,379
Maturing after ten years 8,232 8,416 1,323 1,322
No Maturity 3,616 3,645 2,617 2,617
Mortgage-backed securities 113,456 114,622 91,750 92,623
- ---------------------------------------------------------------------------------------------------------------------
Total securities available for sale $185,944 $187,746 $151,303 $152,368
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sales of securities available for sale were $29.2
million in 1997, $42.1 million in 1996 and $35.7 million in 1995. Gross
realized gains on sales were $365 thousand in 1997, $233 thousand in 1996 and
$141 thousand in 1995. Gross realized losses on sales totaled $61 thousand in
1997, $204 thousand in 1996 and $197 thousand in 1995.
Securities available for sale with a book value of $45.8 million and
$52.2 million at December 31, 1997 and 1996, respectively, were pledged to
secure public fund deposits, secured other borrowings and for other purposes
required or permitted by law.
28
<PAGE>
Notes to Consolidated Financial Statements
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.
Restructured loans are those loans whose terms have been modified because
of 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 $2.1 million and $2.0 million at December 31,
1997 and 1996, respectively. No restructured loans were returned to accrual
status during 1997. Total nonaccrual loans included $1.8 million and $1.4
million of restructured loans at December 31, 1997 and 1996, respectively.
The following table summarizes Vista's nonaccrual and past due loans at
December 31, 1997 and 1996:
Amounts in Thousands 1997 1996
- -----------------------------------------------------------
Nonaccrual loans $2,915 $3,177
- -----------------------------------------------------------
Accrual loans past due
90 days or more $ 78 $ 224
- -----------------------------------------------------------
Interest income that would
have been recorded under
original terms $ 193 $ 86
- -----------------------------------------------------------
Interest income recorded
during the period $ 62 $ 153
- -----------------------------------------------------------
Loans to executive officers, directors and their affiliated interests
amounted to $6.7 million and $4.4 million at December 31, 1997 and 1996,
respectively. During 1997, $10.6 million of new loans were made, and
repayments totaled $8.3 million. During 1996, $1.5 million of new loans were
made, and repayments totaled $1.8 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, 1997, no loans to executive officers, directors and their
<PAGE>
affiliated interests were renegotiated, past due or on nonaccrual status.
Interest earned on the related party loans was $406 thousand, $352 thousand
and $323 thousand for the years ended December 31, 1997, 1996 and 1995,
respectively.
Note 5 - Allowance for Loan Losses
The allowance for loan losses is based on estimates, and it is reasonably
possible that 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, 1997, 1996 and
1995, is as follows:
Amounts in Thousands 1997 1996 1995
- --------------------------------------------------------------------------------
Balance, beginning of year $3,903 $3,932 $3,947
Additions:
Provisions charged to
expense 830 380 190
Recoveries of loans
previously charged off 151 70 52
Deductions:
Loans charged off (736) (479) (257)
- --------------------------------------------------------------------------------
Balance, end of year $4,148 $3,903 $3,932
- --------------------------------------------------------------------------------
At December 31, 1997, the total impaired loans recognized in accordance
with SFAS No. 114 and SFAS No. 118 were $2.4 million, of which $500 thousand
were valued based upon discounted cash flows and $1.9 million using the fair
value of collateral. Based on these methods, $503 thousand of the $4.1 million
allowance for loan losses was allocated against the $2.4 million of impaired
loans. 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. The remaining allowance for loan losses, totaling $3.6 million at
December 31, 1997, and $3.3 million at December 31, 1996, was available to
29
<PAGE>
Notes to Consolidated Financial Statements
Note 5 - Continued
absorb losses in Vista's entire loan portfolio. Vista's total average impaired
loans during the year-to-date periods ended December 31, 1997 and 1996, were
approximately the same as the $2.4 million and $2.9 million balance at
December 31, 1997 and 1996, respectively. Interest income on impaired loans
totaled $72 thousand and $83 thousand in 1997 and 1996, respectively.
Note 6 - Premises and Equipment
An analysis of premises and equipment as of December 31, 1997 and
1996, is as follows:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Land and buildings $ 6,625 $ 6,353
Furniture and equipment 6,146 5,799
Leasehold improvements 964 931
- ----------------------------------------------------------------
Total cost 13,735 13,083
Less: Accumulated depreciation
and amortization (6,300) (5,541)
- ----------------------------------------------------------------
Total premises and
equipment, net $ 7,435 $ 7,542
================================================================
Depreciation and amortization expense for premises and equipment for
1997, 1996 and 1995 amounted to $870 thousand, $709 thousand and $642
thousand, respectively.
Note 7 - Deposits
An analysis of time deposits at December 31, 1997 and 1996, is as
follows:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Time deposits:
Certificates less
than $100,000 $192,343 $183,454
Certificates $100,000
and over 41,592 27,616
- ----------------------------------------------------------------
Total time deposits $233,935 $211,070
================================================================
A maturity schedule of time deposits of $100,000 and over is as follows:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
3 months or less $14,454 $10,389
3 through 6 months 8,542 4,266
6 through 12 months 11,471 9,728
Over one year 7,125 3,233
- ----------------------------------------------------------------
Total certificates
$100,000 and over $41,592 $27,616
================================================================
<PAGE>
Note 8 - Borrowed Funds
An analysis of borrowed funds as of December 31, 1997 and 1996, is as
follows:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Secured other borrowings $8,343 $16,126
Treasury tax and loan note 516 517
- ----------------------------------------------------------------
Total borrowed funds $8,859 $16,643
================================================================
Borrowed funds from directors and their affiliated interests amounted
to $1.3 million and $3.3 million at December 31, 1997 and 1996, respectively,
and are included above. The interest rates on these short-term borrowings
ranged from 3.10% to 6.27% and 3.10% to 5.83% for 1997 and 1996, respectively.
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, 1997 and 1996. Pursuant to the terms of the
agreement with the FHLBNY, the advance carries 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
30
<PAGE>
Notes to Consolidated Financial Statements
Note 9 - Continued
variable rate equal to prime plus 1.25% to a variable rate equal to prime plus
.50% (9.00% at December 31, 1997). This obligation was satisfied in full in
January 1998.
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,
1997 and 1996, the measurement dates, and amounts recognized in Vista's
consolidated balance sheets as of December 31, 1997 and 1996:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Accumulated benefit obligation:
Vested ($4,219) ($3,808)
Nonvested (207) (208)
- ----------------------------------------------------------------
Accumulated benefit
obligation ($4,426) (4,016)
================================================================
Projected benefit obligation ($4,477) ($4,160)
Plan assets at fair value 6,004 4,809
- ----------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 1,527 649
Unrecognized gain (1,493) (543)
Prior service cost not yet
recognized in the periodic
pension cost (405) (439)
Unrecognized transition asset (249) (285)
- ----------------------------------------------------------------
Accrued pension cost ($620) ($618)
================================================================
Net periodic pension cost for 1997, 1996 and 1995 included the
following components:
Amounts in Thousands 1997 1996 1995
- ----------------------------------------------------------------
Service cost benefits earned
during the year $ 223 $ 215 $ 166
Interest cost on projected
benefit obligation 283 277 262
Return on plan assets (1,333) (559) (311)
Net amortization and deferral 829 100 (70)
- ----------------------------------------------------------------
Net periodic pension cost $ 2 $ 33 $ 47
================================================================
In determining the projected benefit obligation, the assumed
discount rate was 7% in 1997, 1996 and 1995. The rate of increase in future
salary levels was 4% in 1997, 6% in 1996 and 5% in 1995. The expected
long-term rate of return on assets used in determining net periodic pension
cost was 9% in 1997, 1996 and 1995.
At December 31, 1997, the plan's assets consisted primarily of
investments in equity securities, U.S. Treasury securities and cash.
Vista maintains 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. Total 401(k) expense amounted to $108 thousand and $109
thousand for the years ended December 31, 1997 and 1996, respectively.
Vista sponsors plans that provide contributory medical and
noncontributory life insurance benefits covering most salaried and hourly
employees. The cost of medical benefits was projected to increase at a rate of
10% in 1997, 11% in 1996 and 12% in 1995, and thereafter decreasing linearly
to 5% in the year 2004 and later. Increasing the assumed health care cost
trend by one percent in each year would increase the APBO by $1.16 million and
the aggregate of the service and interest components of net period ic
postretirement cost for the year ended December 31, 1997, by $135 thousand.
The present value of the APBO assumed a discount rate of 7% for 1997, 1996 and
1995. The rate of interest used in future compensation levels was 4% in 1997,
6% in 1996 and 5% in 1995.
31
<PAGE>
Notes to Consolidated Financial Statements
Note 10 - Continued
The following sets forth the accumulated postretirement benefit
obligation (APBO) and the net periodic postretirement benefit cost at
December 31:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Retirees $ 418 $ 455
Fully eligible, active
plan participants 154 146
Other active plan participants 444 515
- ----------------------------------------------------------------
Total accumulated
postretirement benefit
obligation 1,016 1,116
Unrecognized net gain due
to past experience different
from that assumed and
effects of changes in
assumptions made 342 196
Unamortized transition obligation (309) (327)
- ----------------------------------------------------------------
Accrued accumulated
postretirement benefit
obligation $1,049 $ 985
================================================================
The components of net periodic postretirement benefit cost for 1997,
1996 and 1995 were as follows:
Amounts in Thousands 1997 1996 1995
- ----------------------------------------------------------------
Service cost, benefits
attributed to employee
service during the year $ 34 $ 42 $ 39
Interest cost on accumulated
postretirement benefit
obligation 66 75 73
Amortization of transition
obligation 18 18 18
Amortization of net gain (19) (9) (18)
- ----------------------------------------------------------------
Net periodic postretirement
benefit cost $ 99 $126 $112
================================================================
The discount rate used in determining the APBO was 7% in 1997, 1996
and 1995. The assumed health care cost trend rate used in measuring the APBO
was 5% in 1997 and 11% in 1996.
Vista recognizes the annual net periodic postretirement cost on the
straight-line basis and includes the effect in salaries and employee benefit
expense.
Estimates used in employee benefit plan computations are based on
actuarial information available at a specific point in time. These actuarial
estimates involve uncertainties and matters of judgement and could be
significantly affected by any changes in assumptions or actual experience.
<PAGE>
Note 11 - Income Taxes
The current and deferred amounts of the provision for income taxes
for the years ended December 31, 1997, 1996 and 1995, were as follows:
Amounts in Thousands 1997 1996 1995
- ----------------------------------------------------------------
Federal:
Current $2,070 $2,070 $2,063
Deferred (71) (153) (111)
State:
Current 187 252 301
Deferred (15) (21) (17)
- ----------------------------------------------------------------
Provision for income taxes $2,171 $2,148 $2,236
================================================================
A reconciliation of the differences between Vista's effective tax
rate and its statutory federal income tax rate of 34% in 1997, 1996 and 1995
is as follows:
Amounts in Thousands 1997 1996 1995
- ----------------------------------------------------------------
Income tax at
statutory rate $2,273 $2,175 $2,152
Increase (decrease) in
taxes resulting from:
State taxes on income,
net of federal income
tax effect 173 153 185
Tax-exempt
interest income (285) (176) (128)
Other, net 10 (4) 27
- ----------------------------------------------------------------
Provision for income taxes $2,171 $2,148 $2,236
================================================================
Effective tax rate 32.5% 33.6% 35.3%
================================================================
32
<PAGE>
Notes to Consolidated Financial Statements
Note 11 - Continued
Items that gave rise to significant portions of deferred tax assets
and deferred tax liabilities at December 31, 1997 and 1996, were as follows:
Amounts in Thousands 1997 1996
- ----------------------------------------------------------------
Provision for loan losses $1,317 $1,283
Pension 178 248
Postretirement benefits other
than pension 472 414
Deferred loan fees 329 290
Other 336 143
- ----------------------------------------------------------------
Gross deferred tax assets 2,632 2,378
- ----------------------------------------------------------------
Net unrealized gain on securities
available for sale 612 362
State taxes 142 133
Discount accretion 142 126
Other 49 47
- ----------------------------------------------------------------
Gross deferred tax liabilities 945 668
- ----------------------------------------------------------------
Net deferred tax asset $1,687 $1,710
================================================================
The net deferred tax asset of $1.7 million at December 31, 1997 and
1996, respectively, is included in other assets in the accompanying
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 instruments 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 $35.1
million and $32.0 million to its borrowers as of December 31, 1997 and 1996,
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 $2.0 million and $1.5
million as of December 31, 1997 and 1996, respectively.
Vista adopted SFAS No. 119 in 1994. SFAS No. 119 prescribes
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
distinctions be made between financial instruments held or issued for trading
purposes and financial instruments held or issued for purposes other than
trading.
33
<PAGE>
Notes to Consolidated Financial Statements
Note 12 - Continued
Vista did not (does not) issue or hold derivative instruments with the
exception of loan commitments and standby letters of credit. These instruments
are issued in the ordinary course of business to meet customer needs.
Commitments to fund fixed-rate loans were immaterial at December 31, 1997.
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. Vista management
believes that off-balance sheet risk is not material to Vista's results of
operations or financial condition
Noncancellable Lease Commitments
At December 31, 1997, Vista was obligated under noncancellable
operating leases for certain facilities and equipment. Total rental expense
amounted to $507 thousand, $422 thousand and $396 thousand for the years ended
December 31, 1997, 1996 and 1995, respectively.
The minimum lease commitments for the year 1997 and thereafter are as
follows:
Amounts in Thousands
- ------------------------------------------------------
1998 $510 1999 $461 2000 $383
2001 $301 2002 $304 After 2002 $967
- ------------------------------------------------------
Note 13 - Common Stock
Vista has an Employee Stock Purchase Plan, a Dividend Reinvestment
Plan and a Board of Directors Stock Purchase Plan. During 1997, 82,515 shares
were issued under these plans. At December 31, 1997, 366,602 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
option 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, 1997, 1996 and 1995:
Average
Number Price
of Shares per Share
- ------------------------------------------------------------------------
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 - -
Options granted 32,285 $ 12.75
Options exercised (6,107) 14.90
Options canceled (26,178) 18.75
- ------------------------------------------------------------------------
Balance, December 31, 1997 - -
========================================================================
At December 31, 1997, 8,141 shares were reserved for issuance under
the ESPP.
34
<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, 1997, 333,720 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, 1997, 24,741 shares were reserved for issuance under
the BDSPP.
Compensation expense that would have been recognized with respect to
the ESPP and the BDSPP in accordance with the basis of fair value pursuant to
SFAS No. 123, if the Bank had so elected, would have been immaterial.
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.
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 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, 1997, were $1.5 million. The
retained net profits for PNB for the three years ended December 31, 1997, were
$6.9 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 $1.3 million at
December 31, 1997.
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
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 insure capital
adequacy require Vista to maintain minimum amounts and ratios (set forth in the
table below) of the total and Tier I capital 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.
35
<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, 1997:
Total Capital (to Risk Weighted Assets):
Vista $46,100 15.0% >_$ 24,610 >_ 8.0% N/A
PNB 31,703 14.2% >_ 17,910 >_ 8.0% >_$22,388 >_10.0%
Twin Rivers 10,618 12.9% >_ 6,599 >_ 8.0% >_ 8,249 >_10.0%
Tier 1 Capital (to Risk Weighted Assets):
Vista $41,761 13.6% >_$ 12,305 >_ 4.0% N/A
PNB 28,901 12.9% >_ 8,955 >_ 4.0% >_$13,433 >_ 6.0%
Twin Rivers 9,587 11.6% >_ 3,300 >_ 4.0% >_ 4,950 >_ 6.0%
Tier 1 Capital (to Average Assets):
Vista $41,761 7.6% >_$ 21,949 >_ 4.0% N/A
PNB 28,901 7.3% >_ 15,794 >_ 4.0% >_$19,742 >_ 5.0%
Twin Rivers 9,587 6.4% >_ 6,011 >_ 4.0% >_ 7,514 >_ 5.0%
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%
=========================================================================================================================
</TABLE>
36
<PAGE>
Notes to Consolidated Financial Statements
Note 15 - Branch Acquisitions
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. No deposits were acquired as a part of this transaction.
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 transaction
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
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.
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 below do not represent the underlying
value of Vista taken as a whole.
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 and
securities held to maturity, 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 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.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 - Continued
Deposits
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,
1997 1996
Amounts Carrying Fair Carrying Fair
in Thousands Value Value Value Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $27,850 $ 27,850 $ 35,582 $ 35,582
Securities
available
for sale 187,746 187,746 152,368 152,368
Net Loans 313,341 316,418 295,661 296,700
- --------------------------------------------------------------------------------
Total
financial
assets $528,937 $532,014 $483,611 $484,650
- --------------------------------------------------------------------------------
Financial liabilities:
Deposits $483,756 $484,790 $435,111 $438,109
Borrowed funds 8,859 8,859 16,643 16,643
Long-term debt 4,222 4,243 4,498 4,520
- --------------------------------------------------------------------------------
Total
financial
liabilities $496,837 $497,892 $456,252 $459,272
- --------------------------------------------------------------------------------
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.
38
<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 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 895 $ 1,240
Securities available for sale, at market value with
a cost of $2,928 and $2,506, respectively 2,988 2,518
Investments in subsidiaries 39,989 35,886
Premises and equipment 530 613
Other assets 313 206
- --------------------------------------------------------------------------------------------------------------------------
Total Assets $44,715 $40,463
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Long-term debt $1,222 $ 1,498
Other liabilities 191 150
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,413 1,648
Shareholders' Equity 43,302 38,815
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $44,715 $40,463
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
For The Years Ended December 31,
Amounts in Thousands 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividend income from subsidiaries $ 2,035 $ 1,749 $ 1,009
Interest income 213 232 55
Other income 3 3 3
Net security losses - (2) -
Service fee income from subsidiaries 1,985 1,833 1,631
- --------------------------------------------------------------------------------------------------------------------------
Total Operating Income 4,236 3,815 2,698
- --------------------------------------------------------------------------------------------------------------------------
Expense:
Interest expense 127 148 187
Salaries and benefits 1,274 1,149 1,004
Occupancy expense 131 121 127
Furniture and equipment expense 532 429 307
Other expense 395 286 236
- --------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 2,459 2,133 1,861
- --------------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Benefit and
Equity in Undistributed Earnings of Subsidiaries 1,777 1,682 837
Income Tax Benefit 88 27 58
- --------------------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 1,865 1,709 895
Equity in Undistributed Earnings of Subsidiaries 2,648 2,539 3,198
- --------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,513 $ 4,248 $ 4,093
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<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 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $4,513 $4,248 $4,093
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 209 199 142
Equity in undistributed earnings of subsidiaries (2,648) (2,539) (3,198)
Increase in other assets (124) (10) (87)
Increase (decrease) in other liabilities 75 9 (19)
Net amortization of premiums on securities 2 22 5
Net security losses -- 2 --
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 2,027 1,931 936
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale -- 1,500 500
Proceeds from sales of securities available for sale 1,000 2,515 --
Purchases of securities available for sale (1,422) (2,508) (4,042)
Investment in subsidiaries (1,000) (3,500) --
Net capital expenditures (127) (175) (515)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (1,549) (2,168) (4,057)
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Decrease in long-term debt (276) (227) (160)
Net proceeds from issuance of common stock 1,260 1,041 6,096
Purchases of treasury stock (80) -- --
Cash dividends paid (1,727) (1,532) (1,175)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used In) Provided By Financing Activities (823) (718) 4,761
- ------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (345) (955) 1,640
Cash and Cash Equivalents, Beginning of Year 1,240 2,195 555
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 895 1,240 $2,195
==============================================================================================================================
Supplemental Disclosure of Investing and Financing Activities:
Increase (decrease) in the investment in subsidiaries due to
the net unrealized gain (loss) in the fair value of the
subsidiaries' securities available for sale, net of income taxes $ 455 ($825) $2,250
Net unrealized gain in the fair value of securities available for sale 49 11 --
Decrease in deferred tax asset related to net unrealized gain in the
fair value of securities available for sale 17 3 --
Net unrealized gain in the fair value of securities available for sale,
net of income taxes 32 8 --
Deferred compensation 34 30 9
</TABLE>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Selected Quarterly Financial Information (Unaudited)
The following tables summarize certain 1997 and 1996 quarterly
financial information for Vista which is 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>
1997 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $8,887 $9,266 $9,882 $9,913
Interest Expense 4,494 4,681 5,078 4,945
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 4,393 4,585 4,804 4,968
Provision for Loan Losses 195 195 195 245
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 4,198 4,390 4,609 4,723
- ------------------------------------------------------------------------------------------------------------------------------------
Net Security Gains 96 4 135 69
Noninterest Income 601 634 640 621
Noninterest Expense 3,376 3,486 3,542 3,632
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,519 1,542 1,842 1,781
Provision for Income Taxes 493 491 610 577
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $1,026 $1,051 $1,232 $1,204
====================================================================================================================================
Earnings per Share $ 0.25 $ 0.26 $ 0.30 $ 0.29
====================================================================================================================================
1996 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
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>
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Transfers of Financial Assets
In November 1997, Twin Rivers sold $15 million in mortgage loans and
retained the mortgage servicing rights. In accordance with SFAS No. 125, this
transaction resulted in a mortgage servicing asset of $46 thousand. There was
no material amortization expense related to this asset as of December 31,
1997. Servicing fee income recorded as of December 31, 1997, related to the
above sale was immaterial.
42
<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, 1997 and 1996, 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, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 44 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 44 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 30, 1998
Plymouth Meeting, Pennsylvania
43
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited) December 31, 1997
<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 $ 20,758 $ 7,122 $ 895 ($925) $ 27,850
Securities available for sale 137,506 47,252 2,988 - 187,746
Net loans 223,392 89,949 - - 313,341
Other assets 10,896 2,865 40,832 (40,063) 14,530
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $392,552 $147,188 $44,715 ($40,988) $543,467
===========================================================================================================================
Liabilities and Shareholders' Equity
Deposits $351,844 $131,985 $ - ($73) $483,756
Borrowed funds 4,867 4,844 - (852) 8,859
Long-term debt 3,000 - 1,222 - 4,222
Other liabilities 2,654 557 191 (74) 3,328
Shareholders' equity 30,187 9,802 43,302 (39,989) 43,302
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $392,552 $147,188 $44,715 ($40,988) $543,467
===========================================================================================================================
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(Unaudited) December 31, 1997
<TABLE>
<CAPTION>
Twin Vista Intercompany Vista
Amounts in Thousands PNB Rivers (Parent) Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 27,755 $ 10,019 $ 213 ($39) $ 37,948
Interest Expense 13,854 5,256 127 (39) 19,198
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 13,901 4,763 86 - 18,750
Provision for Loan Losses 540 290 - - 830
Noninterest Income 2,021 472 6,671 (6,668) 2,496
Net Security Gains 195 109 - - 304
Noninterest Expense 9,683 4,006 2,332 (1,985) 14,036
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Provision
(Benefit) for Income Taxes 5,894 1,048 4,425 (4,683) 6,684
Provision (Benefit) for Income Taxes 2,032 227 (88) - 2,171
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,862 $ 821 $ 4,513 ($4,683) $ 4,513
===========================================================================================================================
</TABLE>
44
<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) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total Assets $543,467 $498,201 $457,240 $407,523 $376,487
Total Securities 187,746 152,368 145,867 136,868 135,970
Total Loans 317,489 299,564 264,282 237,021 205,618
Allowance for Loan Losses 4,148 3,903 3,932 3,947 3,697
Total Net Loans 313,341 295,661 260,350 233,074 201,921
Total Deposits 483,756 435,111 401,563 369,844 342,317
Total Shareholders' Equity 43,302 38,815 35,845 24,572 22,457
===========================================================================================================================
Selected Income Statement Data:
Total Interest Income $37,948 $ 33,865 $ 31,060 $ 26,318 $ 24,802
Total Interest Expense 19,198 16,849 15,257 11,275 11,038
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 18,750 17,016 15,803 15,043 13,764
Provision for Loan Losses 830 380 190 480 542
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 17,920 16,636 15,613 14,563 13,222
Total Noninterest Income 2,800 2,486 2,062 1,859 2,134
Total Noninterest Expense 14,036 12,726 11,346 11,431 10,683
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 6,684 6,396 6,329 4,991 4,673
Provision for Income Taxes 2,171 2,148 2,236 1,746 1,760
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Cumulative Effect of
Accounting Change 4,513 4,248 4,093 3,245 2,913
Cumulative Effect of Accounting Change - - - - 64
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $4,513 $ 4,248 $ 4,093 $ 3,245 $ 2,977
===========================================================================================================================
Per Share Data: (1)
Income Before Cumulative Effect of
Accounting Change $ 1.10 $ 1.05 $ 1.18 $ 0.96 $ 0.87
Cumulative Effect of Accounting Change - - - - 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.10 $ 1.05 $ 1.18 $ 0.96 $ 0.89
===========================================================================================================================
Per Share Data: (1)
Cash Dividends $ 0.42 $ 0.38 $ 0.34 $ 0.31 $ 0.29
Book Value (2) 10.41 9.50 8.96 7.18 6.71
- ---------------------------------------------------------------------------------------------------------------------------
Number of Common Shares
Outstanding at December 31, 4,160,711 4,084,718 3,998,564 3,422,281 3,346,134
Weighted Average Number of
Common Shares Outstanding
for the Years Ended December 31, 4,114,351 4,035,092 3,468,046 3,377,695 3,332,541
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Ratios:
Return on Average Assets 0.85% 0.89% 0.96% 0.83% 0.85%
Return on Average Equity 11.18 11.65 15.02 13.53 13.88
Dividend Payout 38.27 36.06 28.71 32.70 32.21
Allowance for Loan Losses to Total Loans 1.31 1.30 1.49 1.67 1.80
Total Shareholders' Equity to Total Assets 7.97 7.79 7.84 6.03 5.97
Capital Adequacy Ratios: (3)
Leverage Capital 7.61 7.57 7.69 6.26 6.10
Tier I Risk-based Capital 13.58 13.33 13.45 11.68 11.88
Total Risk-based Capital 14.99 14.90 15.39 13.82 14.18
===========================================================================================================================
(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 Bank's
final rule.
</TABLE>
45
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,195
<INT-BEARING-DEPOSITS> 4,465
<FED-FUNDS-SOLD> 4,190
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 187,746
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 317,489
<ALLOWANCE> 4,148
<TOTAL-ASSETS> 543,467
<DEPOSITS> 483,756
<SHORT-TERM> 8,859
<LIABILITIES-OTHER> 3,328
<LONG-TERM> 4,222
0
0
<COMMON> 2,084
<OTHER-SE> 41,218
<TOTAL-LIABILITIES-AND-EQUITY> 543,467
<INTEREST-LOAN> 25,676
<INTEREST-INVEST> 11,407
<INTEREST-OTHER> 865
<INTEREST-TOTAL> 37,948
<INTEREST-DEPOSIT> 18,197
<INTEREST-EXPENSE> 19,198
<INTEREST-INCOME-NET> 18,750
<LOAN-LOSSES> 830
<SECURITIES-GAINS> 304
<EXPENSE-OTHER> 14,036
<INCOME-PRETAX> 6,684
<INCOME-PRE-EXTRAORDINARY> 6,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,513
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 3.78
<LOANS-NON> 2,915
<LOANS-PAST> 78
<LOANS-TROUBLED> 299
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,903
<CHARGE-OFFS> 736
<RECOVERIES> 151
<ALLOWANCE-CLOSE> 4,148
<ALLOWANCE-DOMESTIC> 4,148
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 955
</TABLE>
EXHIBIT 99A
PORTIONS OF THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 22, 1998
<PAGE>
VISTA BANCORP, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 22, 1998
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 22, 1998, 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 20, 1998.
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 for: (1) the election of the three nominees as
Class C directors named below; (2) approval to fix the number of Class A
directors at three, thereby decreasing the number of Class A directors from
four to three; (3) the election of one nominee as Class A director named
below; (4) approval to fix the number of Class B directors at four, thereby
creating a vacancy to be filled by election; (5) the election of one nominee
as Class B director named below; (6) 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, 1998; and (7) the approval of the Vista Bancorp, Inc. 1998 Stock
Compensation 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 11, 1998, Vista had
outstanding 4,178,395 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 11, 1998, 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 11, 1998, 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.
<TABLE>
<CAPTION>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
- ---------------- -------- ------------------
<S> <C> <C>
Richard A. Cline 229,730 (2) 5.5%
813 South Main Street
Stewartsville, New Jersey 08886
Louis Hajdu 223,670 (3) 5.3%
710 New Brunswick Avenue
Post Office Box 1131
Alpha, New Jersey 08865
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
- ---------------- -------- ------------------
<S> <C> <C>
Phillipsburg National Bank and 288,843 (4) 6.9%
Trust Company
115 South Main Street
P.O. Box 5360
Phillipsburg, New Jersey 08865
</TABLE>
- -------------------------
(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 11, 1998. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Of the 229,730 shares beneficially owned by Mr. Cline, 132,830 shares are
held by him individually and 96,900 shares are owned by his spouse
individually.
(3) Of the 223,670 shares beneficially owned by Louis Hajdu, 213,785 shares
are owned by him individually and 9,885 shares are owned individually by
his spouse.
(4) 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.
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of March 11, 1998, the
amount and percentage of the Common Stock beneficially owned by each director,
each nominee for director and all officers and directors of Vista as a group.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class(3)
- -------------------- -------------------------- -----------
<S> <C> <C>
Richard A. Cline 229,730 (4)(5) 5.5%
Harold J. Curry 92,537 (6) 2.2%
Dale F. Falcinelli 4,200 (7) --
James T. Finegan, Jr. 28,669 (5)(8) --
Barry L. Hajdu 203,926 (9) 4.9%
Barbara Harding 47,969 (10) 1.1%
David L. Hensley 10,653 (11)(12) --
Thomas F. McGinley 168,924 (13) 4.0%
Mark A. Reda 52,471 (14) 1.2%
Marc S. Winkler 5,631 (15)(16) --
J. Marshall Wolff 6,344 (17)(18) --
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class(3)
- -------------------- -------------------------- -----------
<S> <C> <C>
All Directors and Officers
of the Company as a Group
(11 Directors, 5 Nominees
for Director, 6 Officers,
12 Persons in Total) 860,470 20.6%
</TABLE>
- -------------------------
(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) A current Class C director and a nominee for Class C director.
(6) Of the 92,537 shares beneficially owned by Mr. Curry, 64,200 shares
are owned by him individually and 28,337 shares are owned individually
by his spouse.
(7) The 4,200 shares beneficially owned by Mr. Falcinelli are held in an
IRA account with Paine Webber, Inc.
(8) Of the 28,669 shares beneficially owned by Dr. Finegan, 4,558 shares
are owned by him individually; 7,909 shares are owned jointly with his
spouse; 205 shares are owned individually by his spouse; 50 shares are
owned by him as custodian under the New Jersey Uniform Gifts to Minors
Act for James T. Finegan, III; 50 shares are owned by him as custodian
under the New Jersey Uniform Gifts to Minors Act for Frances Alexandra
Finegan; 1,161 shares are owned by him in an IRA trust account; 1,108
shares are owned by his spouse in an IRA trust account; and 13,628
shares are owned by him in a Profit Sharing Trust.
(9) Of the 203,926 shares beneficially owned by Mr. Hajdu, 9,312 shares
are owned by him individually; and 194,614 shares are held in the
Hajdu Group Retirement Plan of which Mr. Hajdu is a trustee.
(10) Of the 47,969 shares beneficially owned by Mrs. Harding, 6,128 shares
are owned by her individually; 3,093 shares are owned jointly with her
spouse; 880 shares are owned individually by her spouse; 722 shares
are owned by her in an IRA trust account; 662 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 10,653 shares beneficially owned by Mr. Hensley, 3,052 shares
are owned by him individually; 4,133 shares are owned jointly with his
spouse; and 3,468 shares are owned by him in an IRA trust account.
(12) A current Class A director and a nominee for Class C director.
(13) Of the 168,924 shares beneficially owned by Mr. McGinley, 28,413
shares are owned by him individually; 82,414 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 with Mr. McGinley as executor of the Estate of John R.
McGinley.
(14) Of the 52,471 shares beneficially owned by Mr. Reda, 32,918 shares are
owned by him individually; 6,494 shares are owned jointly with his
spouse; 695 shares are owned individually by his spouse; 3,449 shares
are owned by him as custodian under the New Jersey Uniform Gifts to
Minors Act for Louis J. Reda; 2,587 shares are owned by him as
custodian under the New Jersey Uniform Gifts to Minors Act for Marcy
L. Reda; 5,412 shares are owned by him in an IRA trust account; and
916 shares are owned by his spouse in an IRA trust account.
4
<PAGE>
(15) Of the 5,631 shares beneficially owned by Mr. Winkler, 2,751 shares
are owned by him individually; 2,700 shares are owned individually by
his spouse in an IRA account with National Financial Services, Corp;
123 shares are owned by him as custodian under the Pennsylvania
Uniform Gifts to Minors Act for Aaron S. Winkler; 45 shares are owned
by him as custodian under the Pennsylvania Uniform Gifts to Minors Act
for Austin C. Winkler; and 12 shares are owned by him as custodian
under the Pennsylvania Uniform Gifts to Minors Act for Jonah V.
Winkler.
(16) A current Class A director and a nominee for Class B director.
(17) Of the 6,344 shares beneficially owned by Mr. Wolff, 1,718 shares are
owned by him individually; 1,545 shares are owned jointly with his
spouse; 342 shares are held by him under a nominee name; and 2,739
shares are owned by Kressler, Wolff and Miller, Inc., a company in
which Mr. Wolff serves as President and shares in the voting power.
(18) A nominee for Class A director.
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 immediately 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, 1997 through
December 31, 1997, all filing requirements applicable to its officers,
directors and greater than ten-percent shareholders were complied with.
On August 28, 1997, Thomas F. McGinley, the Chairman of
Vista, sold 2,000 shares of the Common stock at a price of $15.75 per share or
$31,500.00 in aggregate. Mr. McGinley failed to report this sale on Form 4 in
a timely manner. Such Form 4 was required to be filed on or before September
10, 1997. Mr. McGinley filed his Form 4 report with the SEC for this sale on
September 15, 1997.
ELECTION OF DIRECTORS
(Items 1, 2, 3, 4 and 5)
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 C
directors, of the one nominee for Class A director, and of the one nominee for
Class B director named below. 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.
5
<PAGE>
INCREASE IN NUMBER OF CLASS B DIRECTORS
AND DECREASE IN NUMBER OF CLASS A DIRECTORS
Article 9 of Vista's Amended Certificate of Incorporation
divides the Board of Directors into three classes, as nearly equal in number
as possible. Classes A and B are limited to no more than eight directors and
Class C is limited to no more than nine directors. Section 205 of Vista's
Bylaws states that the exact number of directors to be elected in each class
shall be determined by resolution of a majority of the members of the Board of
Directors or by resolution of the shareholders.
Vista's management decided to submit to the shareholders for
their approval resolutions to increase the number of directors to be elected
in Class B from three to four and to decrease the numbers of directors to be
elected in Class A from four to three. Such changes will then distribute the
ten directors as follows: three directors in Class A, four directors in Class
B and three directors in Class C.
In addition, management decided to move two executive
officers who are currently Class A Directors, David L. Hensley and Marc S.
Winkler, into different classes in order to evenly distribute the three
officer-directors among the three classes of directors. Barbara Harding
remains as a Class A Director. David L. Hensley and Marc S. Winkler were
nominated as a Class C and a Class B Director, respectively. Messrs. Hensley
and Winkler agreed to resign as Class A Directors after they are elected by
the shareholders and prior to the reorganization meeting of the Vista Board of
Directors, which occurs immediately after the Annual Meeting.
The approval of these resolutions require an affirmative
vote of a majority of the shares of Common Stock represented at the Annual
Meeting.
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
1998, 1999 and 2000, respectively.
<TABLE>
<CAPTION>
Principal Occupation Director Since
Name Age for Past Five Years Vista/PNB/TRCB(1)
- ---- --- ------------------- -----------------
Class C Directors Whose Term Will Expire In 1998 And Nominees For Class C
Directors Whose Term Expires In 2001
<S> <C> <C> <C>
Richard A. Cline 64 Retired; Chairman of the Board 1988/1979/1990
(2)(4)(5) of TRCB
James T. Finegan, Jr. 38 Ophthalmologist 1995/1993/------
(3)(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>
David L. Hensley 51 Executive Vice President of Vista 1988/1985/1990
(6) (1988 to present); President and CEO
of PNB; President of PNB (1990
to 1997); Chief Operations
Officer of PNB (1985 to 1997);
Nominee for Class A Director Whose Term Expires 1999
J. Marshall Wolff 51 President of Kressler, Wolff & 1998/------/1990
(3) Miller, Inc. (Independent Insurance
Agency)
Nominee for Class B Director Whose Term Expires 2000
Marc S. Winkler 41 Executive Vice President of Vista; 1990/------/1990
(6) President and CEO of TRCB (1996
to present); President of TRCB (1990 to
1996); Senior Vice President, Treasurer,
and Chief Financial Officer of Vista
(1988 to 1993)
Class C Director Whose Term Expires 1998
Thomas F. McGinley 72 Chairman of the Board of Designer 1988/1965/------
(2)(4)(5) Dispatch, Inc., a ribbon distributor
Class A Directors Whose Term Expires In 1999
Barbara Harding 51 President and CEO of Vista; 1988/1985/1990
Chairman of the Board of PNB;
and CEO of PNB (1985 to 1997)
Mark A. Reda 46 Vice President of Lou Reda, Inc., 1988/1987/------
(2)(3)(5) a vendor of office furniture
Class B Directors Whose Term Expires In 2000
Harold J. Curry 66 Attorney-at-Law 1988/1978/1990
(2)
Dale F. Falcinelli 49 Principal of D.F. Falcinelli, Inc. 1993/------/1990
(3)(4) (Management Consultant)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation Director Since
Name Age for Past Five Years Vista/PNB/TRCB(1)
- ---- --- ------------------- -----------------
<S> <C> <C> <C>
Barry L. Hajdu 49 President of Hajdu Construction, Inc. 1997/1997/1997
(2) (Building Contractors)
</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
five (5) 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 seven (7) times in 1997.
(3) Member of the Audit Committee. The Audit Committee consists of three
(3) outside directors as well as one outside director from PNB and
TRCB. 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 seven (7) times in 1997.
(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 did not meet in 1997.
(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 met one (1)
time in 1997.
(6) Messrs. Hensley and Winkler are current Class A Directors.
Directors who are not officers received, in 1997, 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 1997,
except for the months of March, June, September and December, for which no
meetings were held. The Board of Directors held, in 1997, nine (9) meetings in
order to conduct the business of Vista.
In 1997, the Board of Directors received $44,100 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.
8
<PAGE>
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
Bylaws.
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) 168,924 (3) 72
of the Board
Harold J. Curry Vice Chairman 1995 (2) 92,537 (4) 66
of the Board
Barbara Harding President and CEO 1988 1965 47,969 (5) 51
David L. Hensley Executive Vice 1988 1983 10,653 (6) 51
President
William F. Keefe Executive Vice 1993 1989 45,900 (7) 39
President and Chief
Financial Officer
Marc S. Winkler Executive Vice 1998 1988 5,631 (8) 41
President
</TABLE>
- -------------------------
(1) See footnote (1) under the caption entitled "Principal Owners" for the
definition of "beneficial ownership."
(2) Messrs. McGinley and Curry are not full time employees of Vista or the
Bank Subsidiaries. Mr. McGinley will retire from the Board of
Directors after the Annual Meeting.
(3) See footnote (13) under the caption entitled "Beneficial Ownership by
Officers, Directors and Nominees" for Mr. McGinley's beneficial
ownership.
(4) See footnote (6) 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 45,900 shares owned by Mr. Keefe, 4,959 shares are owned by him
individually; 3,407 shares are owned jointly with his spouse; 700
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.
(8) See footnote (15) under the caption entitled "Beneficial Ownership by
Officers, Directors and Nominees" for Mr. Winkler's beneficial
ownership.
9
<PAGE>
Remuneration of Officers and Directors
The following table sets forth all remuneration for services
in all capacities paid by the applicable bank subsidiary in 1997 to Barbara
Harding, President and Chief Executive Officer of Vista and Chairman of
Phillipsburg National Bank; David L. Hensley, Executive Vice President of
Vista and President and Chief Executive Officer of Phillipsburg National Bank;
Marc S. Winkler, Executive Vice President of Vista and 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 $100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------- -----------------------------------
| | |
| | LONG TERM COMPENSATION |
| |----------------------------------|
| | | |
| ANNUAL COMPENSATION | AWARDS | PAYOUTS |
- ------------------------------------|-------------------------------|---------------------|------------|----------
| Other | | | |
| Annual |Restricted | | All Other|
Name and | Salary Bonus Compensa- | Stock Options/ | LTIP | Compen- |
Principal Position Year | ($) ($) tion(1)($) | Award(s) SARs | Payouts(2) | sation |
- ------------------------------------|-------------------------------|---------------------|------------|----------|
| | | | |
Barbara Harding, President/ 1997 |183,768 26,416 22,692 | -0- -0- | 20,662 | -0- |
CEO of Vista and Chairman 1996 |169,520 30,658 23,749 | | | |
of PNB 1995 |153,972 24,848 22,456 | | | |
- ------------------------------------|-------------------------------|---------------------|------------|----------|
| | | | |
David L. Hensley, Executive 1997 |150,020 21,910 21,994 | -0- -0- | 17,587 | -0- |
Vice President of Vista and 1996 |139,048 25,626 21,111 | | | |
President/CEO of PNB 1995 |128,336 20,932 20,334 | | | |
- ------------------------------------|-------------------------------|---------------------|------------|----------|
| | | | |
Marc S. Winkler, Executive 1997 |134,160 11,732 16,024 | -0- -0- | -0- | -0- |
Vice President of Vista and 1996 |124,020 14,985 14,085 | | | |
President/CEO of TRCB 1995 |111,956 9,125 13,528 | | | |
- ------------------------------------|-------------------------------|---------------------|------------|----------|
| | | | |
William F. Keefe, Executive 1997 |108,056 18,134 12,965 | -0- -0- | 17,587 | -0- |
Vice President/ CFO of 1996 |100,048 22,116 13,562 | | | |
Vista and Sr. Vice 1995 | 89,417 17,483 8,762 | | | |
President/CFO of PNB | | | | |
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
(1) Includes directors' fees; life, medical and disability insurance
premiums; 401(k) matching contributions; automobile use and social
club dues.
(2) Represents the dollar value of Vista common stock awarded under the
Employee Incentive Plan.
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.
10
<PAGE>
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
Barry L. Hajdu
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, 1997, with (i) the cumulative total return
on the SNL Securities Corporate Performance Index(2) for 35 publicly-traded
banks with total assets of $500 million to $1 billion in the Middle Atlantic
area(3), and (ii) the cumulative total return for all United States stocks
traded on the NASDAQ Stock Market. The comparison assumes $100 was invested on
June 30, 1993, in Vista's Common Stock and in each of the below indices and
assumes further the reinvestment of dividends into the applicable securities.
The shareholder return shown on the graph and table below is not necessarily
indicative of future performance.
11
<PAGE>
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,
1997, to Vista's and 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 $6.8 million or 15.7% of
Vista's total consolidated capital accounts. The largest amount of indebtedness
outstanding at any time during fiscal year 1997 to the above identified group
was $6.8 million or 15.7% of Vista's total consolidated capital accounts. The
interest income earned by Vista on such loans was $406 thousand for 1997. During
1997, advances and repayments on these loans were $10.6 million and $8.3
million, respectively. Such loans do not involve more than the normal risk of
collectibility nor do they present other unfavorable features.
13
EXHIBIT 99B
SEC GUIDE 3 FINANCIAL INFORMATION
<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,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Amounts in Thousands
Commercial, financial, agricultural loans
and lease financing $ 98,813 $ 78,250 $ 67,311 $ 54,870 $ 49,549
Real estate - construction loans 614 1,043 807 1,509 1,310
Real estate - mortgage loans 131,882 139,569 133,664 130,499 115,160
Consumer loans 86,180 80,702 62,500 50,143 39,599
-------- -------- -------- -------- --------
Total loans $317,489 $299,564 $264,282 $237,021 $205,618
======== ======== ======== ======== ========
</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,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing 31.13% 26.12% 25.46% 23.15% 24.10%
Real estate - construction loans 0.19% 0.35% 0.31% 0.64% 0.64%
Real estate - mortgage loans 41.54% 46.59% 50.58% 55.06% 56.00%
Consumer loans 27.14% 26.94% 23.65% 21.15% 19.26%
------ ------ ------ ------ ------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
The following table shows the maturity of loans in the specified categories of
Vista's loan portfolio at December 31, 1997, and the amount of such loans with
predetermined fixed rates or with floating or adjustable rates:
<TABLE>
<CAPTION>
December 31, 1997
Maturing Maturing
Maturing after after Maturing
in one one year five years after
year or less through five years through ten years ten years Total
------------ ------------------ ----------------- --------- -----
<S> <C> <C> <C> <C> <C>
Amounts in Thousands
Types of loans:
Commercial, financial, agricultural loans
and lease financing $23,247 $11,449 $13,685 $50,432 $98,813
Real estate - construction loans 614 -- -- -- 614
------- ------- ------- ------- -------
Total $23,861 $11,449 $13,685 $50,432 $99,427
======= ======= ======= ======= =======
Amount of such loans with:
Predetermined fixed rates $ 2,724 $ 6,998 $ 4,316 $ 622 $14,660
Floating or adjustable rates 21,137 4,451 9,369 49,810 84,767
------- ------- ------- ------- -------
Total $23,861 $11,449 $13,685 $50,432 $99,427
======= ======= ======= ======= =======
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL 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 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual, Restructured and Past Due Loans:
Nonaccrual loans (1) $2,915 $3,177 $4,035 $3,454 $3,943
Restructured loans on accrual status 299 207 155 159 740
Accrual loans past due 90 days or more 78 224 356 172 636
------ ------ ------ ------ ------
Total nonaccrual, restructured and past due loans $3,292 $3,608 $4,546 $3,785 $5,319
====== ====== ====== ====== ======
Other real estate $1,359 $1,280 $ 489 $ 744 $ 892
====== ====== ====== ====== ======
Interest income that would have been recorded
under original terms $ 193 $ 86 $ 128 $ 150 $ 219
====== ====== ====== ====== ======
Interest income recorded during the period (2) $ 62 $ 153 $ 167 $ 314 $ 163
====== ====== ====== ====== ======
(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.
</TABLE>
- --------------------------------------------------------------------------------
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,
------------------------------------------------------------------------------
1997 1996 1995
------------------- -------------------- --------------------
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 $ 44,755 0.00% $ 39,154 0.00% $ 33,403 0.00%
Interest-bearing demand 72,051 2.14% 68,306 2.26% 60,580 2.53%
Savings 118,591 3.21% 109,819 3.15% 101,858 3.04%
Time:
Certificates less than $100,000 197,546 5.45% 171,565 5.37% 164,698 5.32%
Certificates $100,000 and over 36,839 5.61% 31,623 5.41% 20,023 5.71%
-------- ---- -------- ---- -------- ----
Total deposits $469,782 3.87% $420,467 3.79% $380,562 3.82%
======== ==== ======== ==== ======== ====
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
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) 1997 1996 1995
- ----------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Balance at end of period $ 8,859 $16,643 $12,141
Weighted average interest rate at end of period 4.42% 4.64% 4.71%
Maximum amount outstanding
at any month-end during the period $23,300 $16,643 $12,551
Average amount outstanding during the period $14,407 $13,000 $ 9,613
Weighted average interest rate during the period 4.78% 4.51% 4.54%
==== ==== ====
</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 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $317,489 $299,564 $264,282 $237,021 $205,618
======== ======== ======== ======== ========
Average loans outstanding during the period $312,696 $281,518 $251,062 $223,477 $191,268
======== ======== ======== ======== ========
Allowance for loan losses:
Balance, beginning of period $ 3,903 $ 3,932 $ 3,947 $ 3,697 $ 3,558
Loans charged off:
Commercial, financial, agricultural loans
and lease financing 139 194 92 52 247
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 110 25 77 172 156
Consumer loans 487 260 88 100 68
-------- -------- -------- -------- --------
Total loans charged off 736 479 257 324 471
Recoveries:
Commercial, financial, agricultural loans
and lease financing 1 32 20 38 34
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 109 5 14 32 14
Consumer loans 41 33 18 24 20
-------- -------- -------- -------- --------
Total recoveries 151 70 52 94 68
-------- -------- -------- -------- --------
Net loans charged off 585 409 205 230 403
Provision for loan losses 830 380 190 480 542
-------- -------- -------- -------- --------
Balance, end of period $ 4,148 $ 3,903 $ 3,932 $ 3,947 $ 3,697
======== ======== ======== ======== ========
Net loans charged off during the period as
a percent of average loans outstanding
during the period 0.19% 0.15% 0.08% 0.10% 0.21%
======== ======== ======== ======== ========
</TABLE>
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 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $ 1,972 $ 1,949 $ 1,805 $ 1,726 $ 2,109
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 515 520 554 518 441
Consumer loans 706 664 434 330 250
Unallocated 955 770 1,139 1,373 897
-------- -------- -------- -------- --------
Total allowance for loan losses $ 4,148 $ 3,903 $ 3,932 $ 3,947 $ 3,697
======== ======== ======== ======== ========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- --------------------------------------------------------------------------------
The following table presents the maturities considering expected prepayments and
the weighted average yields on a tax-equivalent basis for Vista's securities
portfolio:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1997
------------------------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years After ten years
Amounts in Thousands ---------------- ----------------- ------------------ -------------------
(Except Percentages) Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $3,014 6.22% $14,647 6.19% $ - - $ - -
U.S. Government agencies
and corporations 5,993 5.79% 12,635 6.22% 12,019 6.92% 102,273 6.84%
State and other political
subdivisions 4,197 6.02% 6,362 6.65% 5,029 6.86% 8,155 7.40%
Other 4,343 6.66% 4,660 7.03% 511 7.80% 263 8.75%
------- ---- ------- ---- ------- ---- -------- ----
Total securities $17,547 6.13% $38,304 6.38% $17,559 6.93% $110,691 6.88%
======= ==== ======= ==== ======= ==== ======== ====
</TABLE>
RESTUBBED TABLE
<TABLE>
<CAPTION>
For The Year Ended December 31, 1997
---------------------------------------------
No maturity Total
Amounts in Thousands ----------------- --------------------
(Except Percentages) Amount Yield Amount Yield
------ ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury $ - - $17,661 6.20%
U.S. Government agencies
and corporations - - 132,920 6.74%
State and other political
subdivisions - - 23,743 6.84%
Other 3,645 6.27% 13,422 6.77%
------ ---- -------- ----
Total securities $3,645 6.27% $187,746 6.70%
====== ==== ======== ====
</TABLE>
Note: At December 31, 1997, all securities were classified as available for
sale.
