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, 1998
[_] 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 was: $77.9 million at March 12, 1999.
As of March 12, 1999, the registrant had outstanding 4,587,365 shares of
its common stock, par value $.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1999 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, 1998, are incorporated by reference in Part II of this Annual
Report.
Page 1 of 91
Exhibit Index on Page 35
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VISTA BANCORP, INC.
FORM 10-K
Index
<TABLE>
<CAPTION>
Part I Page
- ------ ----
<S> <C>
Item 1. Business ...................................................... 1
Item 2. Properties .................................................... 25
Item 3. Legal Proceedings ............................................. 26
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 ............ 30
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>
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VISTA BANCORP, INC.
FORM 10-K
Part I
Item 1. Business
General
Vista Bancorp, Inc. ("Vista"), is a New Jersey business corporation,
incorporated on March 15, 1988, and is a bank holding company, registered with
and supervised by the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"). Vista has two (2) wholly-owned subsidiary banks, The
Phillipsburg National Bank and Trust Company ("Phillipsburg National Bank") and
Twin Rivers Community Bank ("Twin Rivers"). These two banks are hereinafter
collectively referred to as the "Bank Subsidiaries." The deposits of the Bank
Subsidiaries are generally insured by the Federal Deposit Insurance Corporation
("FDIC") under the Bank Insurance Fund ("BIF"), although Phillipsburg National
Bank has acquired some so-called "Oakar" deposits which are insured under the
Savings Association Insurance Fund ("SAIF"). As of December 31, 1998, Vista had
total consolidated assets of $ 593.0 million, total consolidated deposits of
$522.7 million and total consolidated shareholders' equity of $46.8 million.
Vista provides a full range of retail and commercial banking services for
consumers and small to medium size businesses. Lending is concentrated in
commercial, consumer and real estate loans to local borrowers. Vista's lending
and investing activities are funded principally by deposits gathered through its
retail branch office network. Vista's retail approach is that of a community
bank -- development of long-term customer relationships, personalized service,
convenient locations, free checking for customers maintaining certain minimum
balances and convenient hours of operation.
Vista's growth strategy is centered on the further development of its
community-based retail banking network along the Interstate 78 corridor in the
counties of Warren and Hunterdon in New Jersey and in the 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 nine (9) branch offices located throughout Warren and Hunterdon
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Counties, New Jersey. Twin Rivers' main office is located at 2925 William Penn
Highway, Easton, Pennsylvania 18045, and has three (3) branch offices located in
the Easton and Bethlehem areas of Pennsylvania.
As of December 31, 1998, Vista had forty-eight (48) full-time and one (1)
part-time employee. These employees are in the following areas: accounting,
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
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generally prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit or provision of credit or provision of any property
or services. The so-called "Anti-tie-in" provisions state generally that a bank
may not extend credit, lease, sell property or furnish any service to a customer
on the condition that the customer provide additional credit or service to the
bank, to its bank holding company or to any other subsidiary of its bank holding
company or on the condition that the customer not obtain other credit or service
from a competitor of the bank, its bank holding company or any subsidiary of its
bank holding company.
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.
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(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.
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(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
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bank-ineligible securities in any transaction where the company
has a contractual agreement to place the securities as agent of
the issuer; or
(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.
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(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
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(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.
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(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.
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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.
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The Federal Reserve Board may, however, approve the acquisition of the target
bank that has been in existence for at least five years without regard to any
longer minimum period of time required under the law of the "home" state of the
target bank.
Furthermore, the Interstate Banking Act provides that 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,
allowing an interstate merger or expressly prohibiting merger with an
out-of-state bank. Such transactions may be completed, 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, 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.
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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
appropriate federal supervisory agency if an institution begins to experience
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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
"significantly undercapitalized" institutions, the FDIC's rule implementing
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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
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risk-based assessment system include provisions regarding life-line 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 1.22 cents per $100 in deposits; for
SAIF insured deposits it is 6.10 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, 1998, the FICO interest assessment paid by
Vista was approximately $ 86 thousand. The Bank Subsidiaries have not been
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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, 1998 (in thousands):
Tier I Capital ............................................ $ 45,055
Tier II Capital ........................................... 4,415
--------
Total Capital ............................................. $ 49,470
========
Total Average Quarterly Assets ............................ $583,067
Total Risk-Weighted Assets(1) ............................. $353,084
Tier I Risk-Based Capital Ratio(2) ........................ 12.76%
Required Tier I Risk-Based Capital Ratio .................. 4.00%
-------
Excess Tier I Risk-Based Capital Ratio .................... 8.76%
Total Risk-Based Capital Ratio(3) ......................... 14.01%
Required Total Risk-Based Capital Ratio ................... 8.00%
-------
Excess Total Risk-Based Capital Ratio ..................... 6.01%
Tier I Leverage Ratio(4) .................................. 7.73%
Required Tier I Leverage Ratio ............................ 4.00%
-------
Excess Tier I Leverage Ratio .............................. 3.73%
- -----------
(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.
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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 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.
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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, 1998, Phillipsburg Investment, Inc. held approximately $ 81.5 million in
securities available for sale, short-term investments, and cash on behalf of
Phillipsburg National Bank.
As of December 31, 1998, Phillipsburg National Bank had one hundred nine
(109) full-time employees and fifteen (15) 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.
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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
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Commissioner may, in his discretion, require that the capital stock with which
the bank shall commence business, shall equal the minimum capital stock which
would be required of the bank if its principal office were to be located in a
municipality having a population equal to that of the combined populations of
the municipality in which it is to be located and of the area, outside such
municipality, which it will serve.
A subsidiary bank of a bank holding company is subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or its subsidiaries, on investments in the stock or
other securities of the bank holding company or its subsidiaries and on taking
such stock or securities as collateral for loans. The Federal Reserve Act and
FRB regulations also place certain limitations and reporting requirements on
extensions of credit by a bank to principal shareholders of its parent holding
company, among others, and to related interests of such principal shareholders.
In addition, such legislation and regulations may affect the terms upon which
any person becoming a principal shareholder of a holding company may obtain
credit from banks with which the subsidiary bank maintains a correspondent
relationship.
Moreover, the amount of funds that Phillipsburg National Bank may lend to a
single borrower is limited generally under the National Banking laws to 15% of
the aggregate of its capital, surplus, undivided profits and loan loss reserves
of Phillipsburg National Bank (all as defined by statute and by regulation).
Federal law also prohibits acquisitions of control of a bank, such as
Phillipsburg National Bank, without prior notice to the FRB and OCC. "Control"
is defined for this purpose as the power, directly or indirectly, to direct the
management or policies of Phillipsburg National Bank or to vote 25% or more of
its capital securities.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of Phillipsburg National Bank. It cannot be predicted whether any such
legislation will be adopted or how such legislation would affect the business of
Phillipsburg National Bank. As a consequence of the extensive regulation of
commercial banking activities in the United States, Phillipsburg National Bank's
business is particularly susceptible to being affected by federal and state
legislation and regulations that may increase the costs of doing business.
Under the Federal Deposit Insurance Act, the OCC possesses the power to
prohibit institutions regulated by it (such as Phillipsburg National Bank) from
engaging in any activity that would be unsafe and unsound banking practice and
in violation of law. Moreover, the Financial Institutions and Interest Rate
Control Act of 1978 ("FIRA") generally: (1) expands the circumstances under
which officers and directors of a bank may be removed by the institution's
federal supervisory agency; (2) restricts lending by a bank to its executive
officers, directors, principal shareholders or related interests thereof; (3)
restricts management personnel of a bank from serving as directors or in other
management positions with certain depository institutions whose assets exceed a
specified amount or which have an office within a specified geographic area; and
(4) restricts management personnel from borrowing from another institution that
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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.
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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, 1998, Phillipsburg National Bank's total risk-based
capital ratio was 13.85 % (of which 95% 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. In December 1998, Twin Rivers entered
into two lease agreements for the expansion of its Bethlehem market presence
which began subsequent to year end. See Item 2 hereof for a more detailed
description of the branch offices.
As of December 31, 1998, Twin Rivers had fifty-one (51) full-time employees
and eight (8) 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, savings and
loan associations, credit unions and other financial institutions, as well as,
with major regional banking and financial institutions headquartered both inside
and outside of Pennsylvania. Twin Rivers' major competitors in the Lehigh Valley
are First Union Corporation, headquartered in Charlotte, North Carolina;
Lafayette/Ambassador Bank of Easton, Pennsylvania; Sovereign Bank of Wyomissing,
Pennsylvania; and Summit Bank, headquartered in Princeton, New Jersey. Twin
Rivers is competitive with all competing financial institutions in its service
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area with respect to interest rates paid on time and savings deposits, service
charges on deposit accounts and interest rates charged on loans. In terms of
assets and liabilities, Twin Rivers is smaller than its major competitors.
Supervision and Regulation - Twin Rivers
Twin Rivers is subject to supervision, regulation and examination by the
Department and the FRB. In addition, 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."
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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, 1998, Twin Rivers' total risk-based capital ratio was
11.93 % (of which 93 % 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 thereunder are designed to create a system for bank
regulatory agencies to evaluate a depository institution's record of meeting the
credit needs of its designated assessment areas.
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.
For the purposes of the revised CRA regulations and based upon financial
information as of December 31, 1998, 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
24
<PAGE>
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
The following table describes the properties owned or leased by Vista and
the Bank Subsidiaries:
<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
Vista
291 Pickford Avenue Leased - $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
716 Route 57 Owned 2,500 Greenwich Branch Office
Stewartsville, NJ 08886
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 2,160 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
*108 Baltimore Street Leased - $55,000 5,600 Trust Department Office
Phillipsburg, NJ 08865 Annual Rental
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
Twin Rivers
2925 William Penn Highway Leased - $109,960 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 - $49,815 2,645 Butztown Branch Office
Bethlehem, PA 18017 Annual Rental
1003 West Broad Street Owned 1,750 Bethlehem Branch Office
Bethlehem, PA 18018
*3815 Linden Street Leased - $107,625 3,300 Linden St. (191) Branch Office
Bethlehem, PA 18017 Annual Rental
*2400 Schoenersville Road Leased - $107,625 2,355 Schoenersville Branch Office
Bethlehem, PA 18017 Annual Rental
</TABLE>
* Leases commenced subsequent to year-end 1998.
For information with respect to obligations for lease rentals, refer to
Note 13 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.
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.
26
<PAGE>
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 Nasdaq Stock Market(R) under
the symbol "VBNJ" .
The Nasdaq Stock Market(R), which began operation in 1971, is the world's
first electronic securities market and the fastest growing stock market in the
U.S. Nasdaq utilizes today's information technologies - computers and
telecommunications - to unite its participants in a screen-based market. It
enables market participants to compete with each other for investor orders in
each Nasdaq security and, through the use of Nasdaq Workstation II(R) and other
automated systems, it facilitates the trading and surveillance of thousands of
securities. This competitive marketplace, along with many products and services
available to issuers and their shareholders, attracts today's largest and
fastest growing companies to Nasdaq. These include industry leaders in
computers, pharmaceuticals, telecommunications, biotechnology, and financial
services. More domestic and foreign companies list on Nasdaq than on all other
U.S. stock markets combined.
The table below presents the high and low prices reported for Vista's
Common Stock for the periods indicated. The range of high and low prices is
based on trade prices reported on the NASDAQ Stock Market. On December 31, 1998,
the closing price of a share of Vista Common Stock on the NASDAQ Stock Market
was $21.25. All prices have been restated to reflect the 10% stock dividend of
June 1998.
27
<PAGE>
High Low
---- ---
1998:
First quarter ....................... $20.00 $16.82
Second quarter ...................... $22.95 $19.32
Third quarter ....................... $22.75 $19.00
Fourth quarter ...................... $24.75 $19.88
1997:
First quarter ....................... $12.95 $11.82
Second quarter ...................... $14.32 $12.27
Third quarter ....................... $16.25 $13.18
Fourth quarter ...................... $18.41 $16.59
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. The dividends paid per share have been adjusted
to reflect the 10% stock dividend paid in June 1998.
Cash Dividends
Paid Per Share
--------------
1998:
First quarter ...................................... $.10
Second quarter ..................................... .12
Third quarter ...................................... .12
Fourth quarter ..................................... .12
1997:
First quarter ...................................... $.09
Second quarter ..................................... .09
Third quarter ...................................... .10
Fourth quarter ..................................... .10
28
<PAGE>
Shareholders
As of December 31, 1998, Vista had approximately 898 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, 1998.
Similar to Phillipsburg National Bank, the future dividends of Twin Rivers
are also subject to certain regulatory considerations and the discretion of its
Board of Directors and will depend upon a number of factors, including operating
results, financial conditions and general business conditions. Vista is entitled
to receive dividends, as and when declared by the Board of Directors of Twin
Rivers, out of funds legally available therefor, subject to the restrictions set
forth in the Pennsylvania Banking Code of 1965 (the "Pennsylvania Banking Code")
and the Federal Deposit Insurance Act.
The Pennsylvania Banking Code provides that cash dividends may be declared
and paid only out of accumulated net earnings and that, prior to the declaration
of any dividend, if the surplus of Twin Rivers is less than the amount of its
capital, Twin Rivers shall, until surplus is equal to such amount, transfer to
surplus an amount which is at least 10% of the net earnings of Twin Rivers for
the period since the end of the last fiscal year or for any shorter period since
the declaration of a dividend. If the surplus of Twin Rivers is less than 50% of
29
<PAGE>
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, 1998, there were $1.9 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 9) 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 20) 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 24) 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 86) and filed at Exhibit 99B hereto is
incorporated by reference under this Item 8.
Part III
Item 10. Directors and Executive Officers of the Registrant
The captions "Board of Directors" and "Stock Ownership" contained in
Vista's Proxy Statement (at pages 2, and 5, respectively) filed at Exhibit 99A
hereto are incorporated in their entirety by reference under this Item 10.
30
<PAGE>
Principal Officers of Vista
The following table sets forth selected information, as of March 12, 1999,
about the principal officers of Vista each of whom is selected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors:
<TABLE>
<CAPTION>
Held Vista Number of Shares Age as of
Name Office and Position Held Since Employee Since Beneficially Owned (2) March 12, 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Harold J. Curry Chairman of the Board 1998 (1) 102,627 67
Richard A. Cline Vice Chairman of the Board 1998 (1) 248,998 65
Barbara Harding President and Chief 1988 1988 47,043 52
Executive Officer
David L. Hensley Executive Vice President 1988 1988 16,406 52
Marc S. Winkler Executive Vice President 1998 1988 9,251 42
William F. Keefe Executive Vice President and 1993 1989 38,080 40
Chief Financial Officer
</TABLE>
- -------------
(1) Messrs. Curry and Cline are not employees.
(2) For further information on these stockholdings, see information under Item
12 hereto.
Item 11. Executive Compensation
The captions "Executive Compensation" contained in Vista's Proxy Statement
(at page 7) 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 "Stock Ownership" contained in Vista's Proxy Statement (at page
5) 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 "Other Information" contained in Vista's
Proxy Statement (at page 11) 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.
31
<PAGE>
3. The exhibits required by Item 601 of Regulation S-K are included
under Item 14(c) hereto.
(b) Reports on Form 8-K
Vista filed no reports on Form 8-K during the last quarter of the year
ended December 31, 1998.
(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, 1998.
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, 1999.
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 18, 1999
----------------------------------- ----------------
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 18, 1999
----------------------------------- ----------------
Barbara Harding
President and Director
(Chief Executive Officer)
By: Date:
----------------------------------- ----------------
Richard A. Cline
Director
By: /s/ Harold J. Curry Date: March 18, 1999
----------------------------------- ----------------
Harold J. Curry
Chairman of the Board
and Director
By: /s/ Dale F. Falcinelli Date: March 18, 1999
----------------------------------- ----------------
Dale F. Falcinelli
Director
By: /s/ James T. Finegan, Jr. Date: March 18, 1999
----------------------------------- ----------------
James T. Finegan, Jr.
Director
33
<PAGE>
By: /s/ Barry L. Hajdu Date: March 18, 1999
----------------------------------- ----------------
Barry L. Hajdu
Director
By: /s/ David L. Hensley Date: March 18, 1999
----------------------------------- ----------------
David L. Hensley
Director
By: /s/ Mark A. Reda Date: March 18, 1999
----------------------------------- ----------------
Mark A. Reda
Director
By: /s/ Marc S. Winkler Date: March 18, 1999
----------------------------------- ----------------
Marc S. Winkler
Director
By: /s/ J. Marshall Wolff Date: March 18, 1999
----------------------------------- ----------------
J. Marshall Wolff
Director
By: /s/ William F. Keefe Date: March 18, 1999
----------------------------------- ----------------
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, 1998 36
27 Financial Data Schedule 91
99A Portions of the Proxy Statement
for the Annual Meeting of
Shareholders to be held
April 22, 1999 76
99B SEC Guide 3 Financial Information 86
35
EXHIBIT 13
PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
36
<PAGE>
Management's Discussion and Analysis of
Financial Conditions 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 nine 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. Twin Rivers has announced
plans for two new full-service branch facilities in the area of Bethlehem,
Pennsylvania, scheduled to open during the first quarter of 1999. Vista Bancorp,
Inc. common stock trades on the Nasdaq Stock Market under the symbol VBNJ.
Forward Looking Statements
In addition to historical information, this annual report and other reports
and statements filed with the Securities and Exchange Commission (collectively,
"SEC filings") contain or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available
to, Vista's management. When used in SEC filings and in oral statements by
management the words "anticipate," "believe," "estimate," "expect," "future,"
"intend," "plan," and similar expressions as they relate to Vista or Vista
management, identify forward-looking statements.
Such statements reflect the current views of management with respect to
future events and are subject to certain risks, uncertainties and assumptions
relating to Vista's operations and results of operations, competitive factors
and pricing pressures, shifts in market demand, the performance and needs of
customers served by Vista, and other risks and uncertainties. These include
uncertainties specifically identified in the text surrounding such statements
and uncertainties with respect to changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions
and actions taken or omitted to be taken by third parties, competitors, and
legislative, regulatory, judicial and other governmental authorities and
officials.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended or
planned.
Results of Operations
For the year ended December 31, 1998, Vista Bancorp's net income increased
17.0 percent to $5.28 million compared to $4.51 million earned in 1997. Basic
earnings per share increased 15.0 percent to $1.15 per share from $1.00 per
share earned in 1997. All share and per share amounts have been restated to
reflect the 10 percent stock dividend paid in June 1998.
The increase in net income for 1998 was due primarily to growth in net
interest income, strong performance in fee-based revenues and commission income
and a lower effective income tax rate. Higher spending in support of new
revenue-generating staff positions, higher technology costs and costs tied to
business volumes accounted for the majority of the increase in noninterest
expense.
Return on average shareholders' equity increased to 11.83 percent in 1998
compared to 11.18 percent in 1997, and return on average assets increased to .93
percent in 1998 compared to .85 percent in 1997.
Net Interest Income
Tax-equivalent net interest income increased 13 percent to $21.56 million
compared to $19.11 million in 1997. This improvement was the result of a $33
million increase in earning assets and a higher net interest margin.
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,
increased to 4.01 percent in 1998, compared to 3.78 percent for 1997. The margin
increase was the result of a more profitable mix of earning assets and a lower
cost of funds.
The tax-equivalent yield on average interest earning assets equaled 7.62
percent in 1998, an increase of 3 basis points from 7.59 percent in 1997. The
average cost of interest-bearing liabilities equaled 4.19 percent, reflecting a
decrease of 14 basis points from 4.33 percent paid in 1997. The decrease was due
to a lower average interest rate environment in 1998 compared to 1997, a more
favorable deposit mix and lower rates paid for deposits. The average prime rate
was 8.35 percent in 1998 and 8.44 percent in 1997, while the federal funds rate
averaged 5.36 percent in 1998 and 5.49 percent in 1997.
37
<PAGE>
<TABLE>
<CAPTION>
Consolidated Average Balances, Net Interest Income and Average Rates (Tax-equivalent Basis)
- -------------------------------------------------------------------------------------------------------------------------
Amounts in Thousands (except percentages)
For the Years Ended December 31 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
(1) (2) (1) (2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities
purchased under agreements to resell $5,723 $ 307 5.36% $ 12,575 $ 694 5.52%
Short-term investments 4,654 241 5.18% 3,277 171 5.22%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 10,377 548 5.28% 15,852 865 5.46%
- -------------------------------------------------------------------------------------------------------------------------
Securities :
U.S. Treasury 16,856 1,020 6.05% 23,364 1,416 6.06%
U.S. Government agencies
and corporations 120,523 7,674 6.37% 120,208 8,227 6.84%
States and other political subdivisions(3) 32,253 2,156 6.68% 19,467 1,223 6.28%
Other 15,297 1,037 6.78% 13,429 866 6.45%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES 184,929 11,887 6.43% 176,468 11,732 6.65%
- -------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:(4)
Mortgage 136,239 10,301 7.56% 141,044 10,794 7.65%
Commercial 117,050 10,928 9.34% 88,508 8,122 9.18%
Consumer 89,387 7,324 8.19% 83,144 6,795 8.17%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 342,676 28,553 8.33% 312,696 25,711 8.22%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 537,982 40,988 7.62% 505,016 38,308 7.59%
- -------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 17,894 16,280
Allowance for loan losses (4,356) (3,946)
Other assets 15,532 15,401
- -------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST-EARNING ASSETS 29,070 27,735
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $567,052 $532,751
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $79,060 $1,694 2.14% $ 72,051 $ 1.544 2.14%
Savings 128,465 3,916 3.05% 118,591 3,809 3.21%
Time 196,919 10,701 5.43% 197,546 10,776 5.45%
Time deposits $100,000 and over 42,095 2,341 5.56% 36,839 2,068 5.61%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 446,539 18,652 4.18% 425,027 18,197 4.28%
- -------------------------------------------------------------------------------------------------------------------------
Borrowed funds 13,672 588 4.30% 14,407 688 4.78%
Long-term debt 3,044 190 6.24% 4,400 313 7.11%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS AND
LONG-TERM DEBT 16,716 778 4.65% 18,807 1,001 5.32%
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 463,255 19,430 4.19% 443,834 19,198 4.33%
- -------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits 55,241 44,755
Other liabilities 3,956 3,782
- -------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 59,197 48,537
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 44,600 40,380
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $567,052 $532,751
- -------------------------------------------------------------------------------------------------------------------------
Interest Income/Earning Assets 40,988 7.62% 38,308 7.59%
- -------------------------------------------------------------------------------------------------------------------------
Interest Expense/Earning Assets 19,430 3.61% 19,198 3.81%
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Margin(5) $21,558 4.01% $19,110 3.78%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts in Thousands (except percentages)
For the Years Ended December 31 1996
- --------------------------------------------------------------------------------
Average Average
Balances Interest Rates
(1) (2)
- --------------------------------------------------------------------------------
Assets
Federal funds sold and securities
purchased under agreements to resell $ 11,305 $ 607 5.37%
Short-term investments 2,688 141 5.25%
- --------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 13,993 748 5.35%
- --------------------------------------------------------------------------------
Securities:
U.S. Treasury 25,734 1,536 5.97%
U.S. Government agencies
and corporations 104,011 6,987 6.72%
States and other political subdivisions 13,000 769 5.92%
Other 15,499 1,036 6.68%
- --------------------------------------------------------------------------------
TOTAL SECURITIES 158,244 10,328 6.53%
- --------------------------------------------------------------------------------
Loans, net of unearned income:(4)
Mortgage 137,919 10,494 7.61%
Commercial 71,195 6,525 9.16%
Consumer 72,404 5,982 8.26%
- --------------------------------------------------------------------------------
TOTAL LOANS 281,518 23,001 8.17%
- --------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 453,755 34,077 7.51%
- --------------------------------------------------------------------------------
Cash and due from banks 15,168
Allowance for loan losses (3,879)
Other assets 13,107
- --------------------------------------------------------------------------------
TOTAL NON-INTEREST-EARNING ASSETS 24,396
- --------------------------------------------------------------------------------
TOTAL ASSETS $478,151
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 68,306 $ 1,541 2.26%
Savings 109,819 3,460 3.15%
Time 171,565 9,217 5.37%
Time deposits $100,000 and over 31,623 1,712 5.41%
- --------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 381,313 15,930 4.18%
- --------------------------------------------------------------------------------
Borrowed funds 13,000 586 4.51%
Long-term debt 4,641 333 7.18%
- --------------------------------------------------------------------------------
TOTAL BORROWED FUNDS AND
LONG-TERM DEBT 17,641 919 5.21%
- --------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 398,954 16,849 4.22%
- --------------------------------------------------------------------------------
Noninterest-bearing demand deposits 39,154
Other liabilities 3,579
- --------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 42,733
- --------------------------------------------------------------------------------
Shareholders' Equity 36,464
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $478,151
- --------------------------------------------------------------------------------
Interest Income/Earning Assets 34,077 7.51%
- --------------------------------------------------------------------------------
Interest Expense/Earning Assets 16,849 3.71%
- --------------------------------------------------------------------------------
Net Interest Income and Margin(5) $17,228 3.80%
- --------------------------------------------------------------------------------
(1) Interest on loans includes fee income.
(2) Rates have been annualized and computed on a tax-equivalent basis using the
federal income tax statutory rate of 34%.
(3) Tax-equivalent adjustments were $705 thousand for 1998, $360 thousand for
1997 and $212 thousand for 1996.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of average interest-earning assets on a
tax-equivalent basis.
38
<PAGE>
<TABLE>
<CAPTION>
Volume/Rate Analysis of Changes in Net Interest Income (Tax-equivalent Basis)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, For the Year Ended December 31,
1998 vs. 1997 1997 vs. 1996
-------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
-------------------- --------------------
Total Average Average Total Average Average
Amounts in Thousands Change(1) Volume Rate Change(1) Volume Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Federal funds sold ($387) ($368) ($19) $87 $70 $17
Short-term investments 70 71 (1) 30 31 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (317) (297) (20) 117 101 16
- ------------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (396) (393) (3) (120) (143) 23
U.S. Government agencies and corporations (553) 22 (575) 1,240 1,106 134
States and other political subdivisions 933 849 84 454 404 50
Other 171 124 47 (170) (134) (36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities 155 602 (447) 1,404 1,233 171
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:(2)
Mortgage (493) (365) (128) 300 239 61
Commercial 2,806 2,663 143 1,597 1,589 8
Consumer 529 511 18 813 878 (65)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans 2,842 2,809 33 2,710 2,706 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 2,680 3,114 (434) 4,231 4,040 191
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Demand 150 150 0 3 82 (79)
Savings 107 307 (200) 349 280 69
Time (75) (34) (41) 1,559 1,415 144
Time deposits $100,000 and over 273 292 (19) 356 290 66
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 455 715 (260) 2,267 2,067 200
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowed funds (100) (34) (66) 102 66 36
Long-term debt (123) (87) (36) (20) (17) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt (223) (121) (102) 82 49 33
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 232 594 (362) 2,349 2,116 233
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $2,448 $2,520 ($72) $1,882 $1,924 ($42)
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
39
<PAGE>
<TABLE>
<CAPTION>
Noninterest Income and Noninterest Expense
- ---------------------------------------------------------------------------------------------------------------------
Years Ended December 31, Percent Change
Amounts in Thousands (except percentages) 1998 1997 1996 1998 vs. 1997 1997 vs. 1996
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Income:
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 1,709 $ 1,669 $ 1,541 2% 8%
Other service charges 905 518 489 75 6
Net security gains (1) 336 304 29 11 NM
Trust income 310 249 199 24 25
Other income 219 60 228 265 (74)
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 3,479 $ 2,800 $ 2,486 24% 13%
- ---------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits $ 8,318 $ 7,689 $ 6,712 8% 15%
Occupancy expense 1,412 1,359 1,116 4 22
Furniture and equipment expense 1,903 1,537 1,209 24 27
SAIF assessment (1) -- -- 317 -- NM
Other expenses 4,345 3,451 3,372 26 2
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense $ 15,978 $ 14,036 $ 12,726 14% 10%
- ---------------------------------------------------------------------------------------------------------------------
Overhead Efficiency Ratio (2) 64.69% 64.96% 64.65%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) NM, not meaningful.
(2) 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.
Non-Interest Income
Total noninterest income increased 24 percent to $3.48 million from $2.80
million in 1997, as all categories of noninterest income reflected improvement.
Discretionary investments in people, technology and product enhancements over
recent years continued to enhance revenue growth. As a result, the growth of
noninterest income in 1998, was attributable to fees recognized from loan
origination activities, electronic banking and debit card fee income and higher
incremental revenues from trust operations, as well as commission income derived
from the sale of equity and bond mutual funds and insurance annuity products.
Service charges on deposit accounts increased slightly to $1.71 million in
1998 from $1.67 million in 1997. Higher levels of fees earned from consumer
deposit accounts were offset by lower fees earned from commercial accounts as
customers chose to maintain higher compensating balances to offset charges for
item processing.
Other service charges increased 75 percent to $905 thousand in 1998 from
$518 thousand in 1997. The $387 thousand increase included $144 thousand in fees
recognized by providing a service to borrowers who desire fixed-rate residential
mortgage loans that conform to federal agency standards. For example, a loan
package is forwarded to a third-party mortgage banker for approval and ultimate
funding. In turn, Vista collects a fee from the mortgage banker for providing
this service at the date of funding and recognizes fee revenue accordingly. The
ability to recognize fees from this service was dependent on market and economic
conditions. There is no assurance that fee income reported in prior periods will
continue in future periods or that there will not be significant inter-period
variations in the results of such activities.
Approximately $173 thousand was comprised of fee income incidental to loan
origination activities, as well as fees earned from providing retail banking
services and loan servicing income. In addition, approximately $70 thousand
related to fees earned on debit card usage in 1998, the bank's first year of
offering such service to customers. In December 1998, both bank subsidiaries
began the assessment of a $1.50 surcharge for all noncustomers who utilize
Vista's automated teller machines. The surcharge is expected to increase fee
income by approximately $100 thousand in 1999.
Net gains recognized on the sale of investment securities increased to $336
thousand from $304 thousand in 1997. Total sales of investment securities
equaled $29.7 million compared to $29.2 million in 1997. Sales of securities
were for portfolio realignment purposes and to manage prepayment and
reinvestment risk in a lower interest rate environment.
Other income, including Trust Department operations, increased
substantially in 1998 to $529 thousand from $309 thousand in 1997. During 1998,
a program was initiated to offer customers access to non-traditional banking
products including stock and bond mutual funds and insurance annuity products
sold through a joint venture with a leading financial services firm. In less
than one full year of operation, approximately $100 thousand was generated in
commission income.
In addition, Trust Department revenue increased by 24 percent to $310
thousand in 1998 from $249 thousand in 1997, as assets under management
increased to $67 million in 1998 from $47 million in 1997.
Other income in 1998 included a gain on the sale of a student loan
portfolio equaling $15 thousand compared to a $45 thousand loss recognized on a
residential mortgage loan portfolio sale in 1997.
40
<PAGE>
Noninterest Expense
Total noninterest expense increased 14 percent to $15.98 million in 1998
from $14.04 million in 1997. The increase in noninterest expense in 1998 was
closely tied to the strong growth in net interest income and noninterest income
discussed previously. A key financial benchmark for measuring the efficiency of
the cost structure is the relationship of noninterest expense to average assets.
This relationship equaled 2.81 percent in 1998 and 2.63 percent in 1997. The
increase in this benchmark was viewed as reasonable in view of the future growth
prospects and the need to enhance technology and managerial strength.
Salary and benefits expense, the largest component of noninterest expense,
increased 8 percent to $8.32 million from $7.69 million in 1997, due primarily
to increased staff positions in revenue producing functions of commercial and
Small Business Administration lending and consumer lending, as well as
alternative investments. Higher incentive compensation accruals were offset in
part by pension income and lower postretirement benefit expense.
Occupancy expense increased 4 percent to $1.41 million from $1.36 million
in 1997, due to higher rent expense and increased real estate tax expense due to
several property value reassessments.
Furniture and equipment expense increased 24 percent to $1.90 million from
$1.54 million in 1997. This increase was attributable to upgrades in technology
and automation, higher costs for equipment depreciation and increased costs for
telecommunications and computer maintenance.
Vista has always viewed technology as a key element in its strategic
planning process and fundamental to providing continuation of the quality
customer service for which Vista is known. The use of technology also enables
Vista to increase the efficiency and productivity of its employees within the
context of its growth objectives.
Vista's network technology consisted of PC's, data communications, file
servers and routers that were used to provide customer service and back office
operational support. Much of this technology infrastructure was put into place
over many years and consisted of numerous vendor providers of hardware and
software. Maintenance, upgrade, and replacement could become unwieldy, costly,
and inefficient.
Management's plan was to develop a common hardware and software platform
for all systems that will provide Vista
41
<PAGE>
with the ability to concentrate on the prime objective of serving our customers.
In early 1998, the Board of Directors approved management's plan to enhance the
technology based delivery systems of Vista across both bank subsidiaries. The
goals of the new network system include being cost effective, enhancing customer
service by expanding delivery systems and product lines, increasing customer
convenience and improving efficiency.
The new delivery system entailed installation of a local area network at
each location that will be linked together through a wide area network. The
delivery system was expected to provide noticeable improvements for customers
and greater efficiencies and productivity gains while giving Vista greater
predictability of its future technology costs.
The new system was fully installed and functional during the fourth quarter
of 1998. Vista entered into a leasing arrangement with a major technology
company to provide all hardware, installation, integration, and ongoing support
services for the new system. Vista recorded a one-time pre-tax $150 thousand
charge in the fourth quarter to writedown the remaining cost of obsolete
equipment. The decision to upgrade Vista's delivery system was not related to or
accelerated due to Year 2000 issues.
The incremental equipment cost of the new delivery system is expected to be
approximately $400 thousand per year and will be included in furniture and
equipment expense.
Total other expense increased 26 percent to $4.35 million in 1998 compared
to $3.45 million in 1997. The $900 thousand increase consisted of several
one-time nonrecurring items and costs tied directly to the level of business
volumes connected with lending and deposit gathering functions.
One-time nonrecurring items in 1998 totaled $325 thousand and consisted of
Nasdaq National Market listing fees of $66 thousand, a $150 thousand writedown
of obsolete computer equipment and costs incurred for a branch closure. The
balance of the increase was attributable to higher marketing, advertising and
postage expenditures in support of loan origination and deposit gathering
initiatives and increases in costs incidental to an expanded training program
for all employees related to the new internal network and the related software
applications.
Readiness for the Year 2000
The Year 2000 date change (Y2K) could potentially affect any system that
uses computer software programs or embedded technology. Many software programs
and computer chips store calendar dates as two-digit rather than four-digit
numbers. These software programs record the year 1998 as "98". This approach
will work until the year 2000 when the "00" may be read as 1900 instead of 2000.
Organizations are fixing or upgrading their systems to make sure they will
operate properly when the calendar changes.
As a commercial banking organization, Vista uses computer systems to
perform financial calculations, track deposits and loan payments, transfer
funds, and make direct deposits. Computer software and embedded computer chips
may also be used to run non-information technology based systems such as
security systems, vaults, telecommunication networks, and other infrastructure
items. Because of its reliance on these systems, Vista has placed great emphasis
on making sure its systems are ready for the year 2000-date change.
Vista's plan to become ready for the year 2000 is segmented into 5-phases.
The awareness phase involves an extensive internal and external awareness
campaign that includes not only the initial awareness raising effort, but
continues with proactive ongoing activities to maintain heightened awareness of
Y2K implications.
The assessment phase is designed to identify the systems and processes that
could potentially be affected by the millennium date change. In addition, during
the assessment phase, Vista established a high-level plan that required
completing development of its Y2K test plan by June 30, 1998. Vista plans to
aggressively test its "A priority" applications. "A Priorities" are defined as
mission critical systems that must be tested regardless of cost or impact to
operations. "B Priorities" are defined as non-mission critical systems that
should be tested. Vista will also seek to test the "B Priority" items but will
rely on vendor certification where it feels the applications are not critical to
its survival, and the risk of vendor non-compliance is low.
The remediation phase includes code enhancement, hardware and software
upgrades, system replacements, vendor certification, and other associated
changes.
42
<PAGE>
The validation or testing phase is a multi-faceted process that is critical
to the Year 2000 project and inherent in each phase of the project management
plan. This process includes the testing of incremental changes to hardware and
software components. In addition to testing upgraded components, interfaces with
other systems must be verified, and all changes should be accepted by internal
and external users.
The implementation phase involved system certification as Y2K compliant and
acceptance by business users. For any system failing certification, the business
effect will be clearly assessed and Year 2000 contingency plans will be
implemented.
An essential component of Vista's Year 2000 program relates to third
parties with which it has a material relationship. Vista endeavored to evaluate
the risk associated with Y2K vulnerability of these "material" customers. Vista
defined these material customers by the size of their loan and deposit
relationships, the complexity of customers systems and dependence on third party
technology providers. Vista assessed the preparedness of its material customers
(including capital market counter-parties) through a combination of surveys and
personal visitations. Vista also required semi-annual status updates from
material customers and documents its assessment conclusions and maintains
updates in its files. The individual and aggregate portfolio risk was then
measured and reported as high/moderate/low with quarterly updates presented to
the Board of Directors on customers not effectively addressing Y2K issues.
Vista continues to evaluate the estimated costs associated with attaining
Year 2000 readiness. Incremental costs for 1999, such as testing, software
purchases and marketing publications are not expected to be material. For 1998,
$39 thousand was charged to expense. While additional costs could be incurred,
Vista believes, based on available information, that it will be able to manage
its Year 2000 transition without any adverse effect on its business operations
or financial condition.
However, Vista believes that the most reasonably likely worst case Year
2000 scenario would involve failure to attain Y2K compliant status for a portion
of its non-mission critical applications. Non-mission critical systems include
desktop PC applications, supplemental non-mainframe loan and deposit systems as
well as automated teller machines. Vista is developing contingency plans for
this occurrence. This effort involves identifying alternate operating
procedures, vendors and sources for products and services. In any event, the
failure of non-mission critical systems is not expected to have a material
impact on Vista's business operations or financial condition.
The preceding Y2K discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to: (i) whether or not testing will be
accurate; (ii) the estimated costs associated with becoming Y2K compliant; (iii)
the date by which Vista expects to be fully compliant; and (iv) the
successfulness of any contingency plans. These statements are made using current
estimates and assumptions about future events. There can be no assurance that
these estimates will be achieved and actual results could differ materially from
those anticipated. The factors that might lead to material differences include,
among others: (i) the ability to accurately identify all mission-critical
systems; (ii) accuracy of the testing performed; (iii) whether or not
third-party certifications are accurate; (iv) whether or not material customers,
suppliers, governmental agencies and other significant third parties are
successful in their Y2K efforts; (v) the adequacy of contingency plans; and (vi)
the ability to implement contingency plans.
Provision for Income Taxes
The provision for income taxes increased to $2.30 million in 1998 from
$2.17 million in 1997 due to a higher level of pretax income. The effective tax
rate was 30.3 percent for 1998 compared to 32.5 percent in 1997, reflecting a
higher level of tax-exempt income.
Differences between the book basis and tax basis of assets and liabilities
recorded in the financial statements result in deferred taxes. Net deferred tax
assets were $2.0 million at December 31, 1998 and $1.7 million at December 31,
1997.
43
<PAGE>
Results of Operations - 1997 compared with 1996
For the year ended December 31, 1997, net income increased 6 percent to
$4.51 million compared to $4.25 million in 1996. Basic earnings per share
increased 4 percent to $1.00 in 1997 from $.96 in 1996.
Net income reported for 1996 included the one-time SAIF assessment charge
mandated by Congress on commercial banks in September 1996 to recapitalize the
deposit insurance fund for thrift institutions. This pretax charge totaled $317
thousand, $190 thousand on an after-tax basis or $.04 per basic share.
The increase in net income for 1997 was due primarily to an increase in net
interest income, growth of noninterest income and increased gains recognized on
the sale of securities offset by higher noninterest expense and provision for
loan losses.
Return on average shareholders' equity decreased to 11.18 percent in 1997
compared to 11.65 percent in 1996 and return on average assets decreased to .85
percent in 1997, a slight decline from .89 percent in 1996.
Tax-equivalent net interest income increased 11 percent to $19.11 million
in 1997, from $17.23 million in 1996, due primarily to a $51.3 million increase
in earning assets, principally in loans which increased $31.1 million and
investments which increased $18.2 million. The net interest margin narrowed to
3.78 percent in 1997 from 3.80 percent in 1996.
Total noninterest income increased 13 percent to $2.80 million in 1997 from
$2.49 million in 1996. An increase in gains recognized on the sale of
securities, higher service charges on deposit accounts and improved revenues
from Trust operations accounted for the majority of the increase.
Total noninterest expense increased 10 percent to $14.04 million in 1997
from $12.73 million in 1996 as the opening of three new branch facilities and
the incidental operating costs of staffing and occupancy expenses drove spending
higher. In addition, senior level officer positions were added in the areas of
commercial lending, operations and retail banking in order to support expanded
business initiatives in these areas. Consequently, salary and benefits expense
increased 15 percent to $7.69 million in 1997 compared to $6.71 million in 1996.
Occupancy expense increased 22 percent to $1.36 million in 1997 from $1.12
million in 1996 reflecting a full year of operating three new branch sites.
Furniture and fixtures expense increased 27 percent to $1.54 million from
$1.21 million in 1996. The increase was attributable to upgrades in technology
infrastructure, including a new 24-hour telephone banking system, higher
depreciation and equipment maintenance costs plus increased telecommunication
expenses.
The relationship of total noninterest expense to average assets equaled
2.63 percent in 1997 and 2.66 percent in 1996.
Federal and state income tax expense was unchanged at $2.17 million for
1997 and $2.15 million in 1996, despite a higher level of pretax income in 1997.
The effective tax rate was 32.5 percent in 1997 reflecting a decrease from 33.6
percent in 1996 based on a higher level of tax-exempt income.
Financial Condition
- --------------------------------------------------------------------------------
Interest-earning Assets and
Interest-bearing Liabilities
Average interest-earning assets totaled $538.0 million in 1998, which
reflected an increase of 7.0 percent or $33.0 million compared to $505.0 million
in 1997, principally reflecting strong growth in loans and investment
securities. Total loans increased 10 percent or $30.0 million, to average $342.7
million, while securities available for sale increased 5 percent or $8.5
million, to average $184.9 million.
Average interest-bearing liabilities totaled $463.3 million in 1998,
reflecting an increase of 4 percent or $19.5 million compared to $443.8 million
in 1997, due to growth in all categories of deposits, except time deposits which
were largely unchanged. Borrowed funds and long-term debt reflected a $2.1
million decrease.
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.
44
<PAGE>
Securities available for sale increased 5 percent to average $184.9 million
in 1998, compared to $176.5 million on average in 1997. Increased average
balances in tax-exempt securities of states and other political subdivisions and
corporate securities, notably corporate bonds and notes, more than offset lower
balances in U.S. Treasury securities. U.S. Government agencies and corporation
securities, principally mortgage-backed securities, were unchanged on average.
During 1998, $29.7 million of securities available for sale were sold for a
net gain of $336 thousand. The sale proceeds combined with $60.3 million of
maturities were used to purchase $82.3 million of securities available for sale.
At December 31, 1998, there were unrealized gains, net of tax, of $1.6
million on securities available for sale compared to $1.2 million at December
31, 1997. The increase was attributed to lower interest rates in effect at
December 31, 1998, compared to December 31, 1997. Lower interest rates generally
increase the value of fixed-rate investment securities.
Loans
Total average loans increased 10 percent or $30.0 million to $342.7 million
in 1998, compared to average total loans of $312.7 million in 1997. 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 contributed to the growth in average
consumer loans. Mortgage loans decreased $4.8 million on average in 1998.
The yield on total loans averaged 8.33 percent for 1998, an 11 basis point
increase from the 8.22 percent average yield earned in 1997. The commercial loan
portfolio generated an average yield of 9.34 percent in 1998 compared to 9.18
percent in 1997. The average yield on the mortgage portfolio decreased in 1998
to 7.56 percent from 7.65 percent in 1997, while the yield on the consumer loan
portfolio increased 2 basis points to 8.19 percent in 1998 from 8.17 percent in
1997.
Deposits
Total average deposits increased 7 percent or $32.0 million to average
$501.8 million in 1998, compared to average total deposits of $469.8 million in
1997.
Total average interest-bearing deposits increased $21.5 million in 1998.
Demand accounts increased $7.0 million, savings accounts increased $9.9 million
and time deposits were unchanged. Average time deposits of $100,000 and over,
increased $5.3 million.
Total average noninterest-bearing demand deposits increased $10.4 million
to $55.2 million in 1998 compared to an average of $44.8 million in 1997. The
increase in these balances was tied directly to the strength in commercial
lending experienced in 1998.
The cost of funds paid on interest-bearing liabilities averaged 4.19
percent in 1998, a decrease of 14 basis points compared to the average cost of
funds paid of 4.33 percent in 1997. The decrease in rates was attributed to
lower rates paid for deposits and a more favorable deposit mix.
Borrowed Funds and Long-term Debt
Total borrowed funds and long-term debt averaged $16.7 million in 1998,
compared to $18.8 million in 1997, while the cost of borrowings decreased 67
basis points to 4.65 percent in 1998 from 5.32 percent in 1997. Lower average
short-term interest rates and the satisfaction of $1.2 million in prime rate
debt accounted for the year-over-year decrease in borrowing costs.
Nonperforming Assets
At December 31, 1998, nonperforming assets, defined as loans on nonaccrual
status plus other real estate acquired through foreclosure (ORE), totaled $3.0
million or .82 percent of total loans plus ORE. These amounts compare to $4.3
million and 1.34 percent at December 31, 1997.
Commercial nonaccrual loans accounted for 55 percent and 60 percent of
total nonaccrual loans at December 31, 1998 and 1997, respectively, while
nonaccrual residential mortgage loans accounted for 31 percent and 24 percent,
respectively. Consumer loans accounted for 14 percent and 16 percent,
respectively, of total nonaccrual loans at December 31, 1998 and 1997. ORE
decreased to $1.1 million at December 31, 1998 compared to $1.4 million at
December 31, 1997.
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
45
<PAGE>
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 $4.5 million at December 31,
1998, from $4.1 million at December 31, 1997. The allowance equaled 1.22 percent
of total loans at December 31, 1998 and 1.31 percent at December 31, 1997. The
provision for loan losses equaled $780 thousand for 1998 compared to $830
thousand in 1997, while charge-offs, net of recoveries, totaled $404 thousand
for 1998 and $585 thousand for 1997. The allowance for loan losses as a
percentage of nonperforming assets equaled 149 percent at December 31, 1998 and
97 percent at December 31, 1997.
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 $150,000 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.
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, 1998, cash and cash equivalents equaled $33.0 million, an
increase of $5.2 million from the $27.8 million in cash and cash equivalents on
hand at December 31, 1997.
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, 1998, net cash provided by operating activities equaled
$7.3 million consisting mainly of net income adjusted for non-cash charges and
net security transactions.
Net cash used for investing activities totaled $45.9 million and consisted
of $90.0 million from maturities and sales of securities available for sale and
$1.0 million from the sale of loans, which combined to purchase $82.3 million of
securities available for sale.
Net cash provided by financing activities totaled $43.8 million and
consisted of increases in all deposit categories and proceeds from common stock
issuance, offset in part, by payments on long-term debt, increased cash
dividends paid and share repurchases of $1.7 million. Net cash provided from
operating and financing activities combined to fund $54.2 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 and issuance of common stock through participation in Vista's
Employee Stock Purchase Plan, Board of Directors Stock
46
<PAGE>
Purchase Plan and the Dividend Reinvestment Plan.
At December 31, 1998, Vista's shareholders' equity increased $3.5 million
to $46.8 million, compared to $43.3 million in shareholders' equity at December
31, 1997. The majority of the increase resulted from $3.2 million of retained
net income, $1.7 million from common stock issuance in addition to an increase
of $376 thousand in unrealized gains, after tax, on the available for sale
securities portfolio offset by $1.7 million in share repurchases.
In August 1998, Vista announced that it had authorized the repurchase of up
to 100,000 shares of its common stock in open market purchases from time to time
at the discretion of management.
The buyback program was designed to provide an additional source of
liquidity in the market place for shareholders that desire to actively trade
shares of Vista common stock. As of December 31, 1998, 85,000 shares had been
repurchased at a cost of $1.7 million or an average cost of $20.30 per share.
The various stock plans adopted by Vista provide those shareholders that
maintain a long-term investment horizon with the opportunity to utilize dollar
cost averaging to build investment positions in Vista Bancorp.
As a result of continued improvements in net income and capital levels in
excess of the "well capitalized" levels achieved under regulatory requirements,
the quarterly cash dividend paid on common stock increased from 11 cents per
share to 12 cents per share during the second quarter of 1998. Common stock cash
dividends totaled 46 cents per share for 1998 compared to 38 cents per share for
1997, an increase of 21 percent.
On May 15, 1998, the Board of Directors approved a 10 percent stock
dividend, which was paid on June 10, 1998, to shareholders of record on June 1,
1998. Accordingly, all per share and average share amounts have been restated to
reflect the stock dividend.
Vista's dividend payout ratio equaled 39 percent for 1998 compared to 38
percent for 1997 and 36 percent for 1996. Vista paid cash dividends totaling
$2.1 million in 1998, an increase of $300 thousand or 18 percent over the $1.7
million paid in 1997.
Vista's book value per common share at December 31, 1998, rose 8 percent to
$10.23 compared to $9.46 at December 31, 1997.
Vista and its bank subsidiaries are subject to various regulatory capital
requirements administered by the Federal Reserve Board, the Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation. For
additional information on regulatory capital, see Note 15 of the Notes to
Consolidated Financial Statements.
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. Because 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 $48.5
million and $35.1 million to its borrowers as of December 31, 1998 and 1997,
respectively.
Standby letters of credit are conditional commitments issued by Vista to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Vista has entered into standby
letters of credit contracts with its customers totaling $2.1 million and $2.0
million as of December 31, 1998 and 1997, respectively.
Vista does not issue nor hold derivative instruments with
47
<PAGE>
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, 1998.
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 rates.
An asset-sensitive gap position means an excess of interest-sensitive
assets over interest-sensitive liabilities, whereas a liability-sensitive gap
position means an excess of interest-sensitive liabilities over
interest-sensitive assets. In a rising rate environment, a liability-sensitive
gap position generally indicates that increases in the cost of interest-bearing
liabilities will out pace increases in income from interest-earning assets.
This risk can be managed by strategies that include the administration of
funding costs, reinvestment of asset maturities and investment security sales to
insulate net interest income from the effect of changes in interest rates.
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, 1998, 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, 1998, 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 percent, 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, 1998. Certain shortcomings are
inherent in the method of analysis presented in the mentioned 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, "Schedule of Market Risk Sensitive
Instruments," provides information about Vista's financial instruments that are
sensitive to changes in interest rates at December 31, 1998, based on the
information and
48
<PAGE>
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.
<TABLE>
<CAPTION>
Statement of Interest Sensitivity Gap
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
-------------------------------------------------------------------------------------
> 90 Days
Amounts in Thousands 90 Days but 1 to 5 5 to 10 > 10
(except percentages) or less < 1 Year Years Years Years Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 7,000 $ - $ - $ - $ - $ 7,000
Short-term investments 2,417 - - - - 2,417
Securities available for sale(1) 23,523 38,855 68,255 18,239 31,291 180,163
Loans (1) 85,742 81,237 148,424 43,301 10,822 369,526
- -------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Assets $118,682 $120,092 $216,679 $61,540 $42,113 $559,106
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing demand deposits(2) $ 23,046 $ 5,034 $ 26,848 $29,646 $ - $ 84,574
Savings(2) 45,682 8,350 44,535 33,872 - 132,439
Time 62,821 130,469 44,962 - - 238,252
Borrowed funds 16,963 - - - - 16,963
Long-term debt - - 3,000 - - 3,000
Shareholders' equity - - - - 46,836 46,836
- -------------------------------------------------------------------------------------------------------------------------------
Rate Sensitive Liabilities and
Shareholders' Equity $148,512 $143,853 $119,345 $63,518 $46,836 $522,064
- -------------------------------------------------------------------------------------------------------------------------------
Interest Sensitivity Gap $(29,830) $(23,761) $ 97,334 $(1,978) $(4,723) $ 37,042
Cumulative Gap (29,830) (53,591) 43,743 41,765 37,042 -
Cumulative Gap to Total Assets (5.03)% (9.04)% 7.38% 7.04% 6.25% -
- -------------------------------------------------------------------------------------------------------------------------------
</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 30%, 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.
49
<PAGE>
Schedule of Market Risk Sensitive Instruments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date - Years Ended December 31,
-------------------------------------------------------------------------------------------
Amounts in Thousands
(except percentages) 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans (1,2,3)
Fixed Rate $ 78,903 $49,697 $41,746 $29,464 $27,517 $ 54,123 $281,450 $283,124
Average Interest Rate 8.40% 8.04% 8.10% 7.95% 7.94% 7.58% 8.05%
Adjustable Rate $ 27,670 $20,010 $14,870 $11,318 $ 8,780 $ 5,428 $88,076 $ 89,043
Average Interest Rate 7.91% 8.01% 8.15% 8.28% 8.39% 7.55% 8.05%
Investments (4)
Fixed Rate (5) $ 49,229 $26,116 $18,163 $13,865 $10,110 $ 49,994 $167,477 $169,619
Average Interest Rate 6.31% 6.42% 6.06% 5.93% 6.25% 6.03% 6.03%
Adjustable Rate (6) $ 5,418 $ 1,339 $974 $708 $514 $1,610 $ 10,563 $ 10,544
Average Interest Rate 5.86% 5.78% 5.78% 5.80% 5.82% 6.02% 5.86%
Overnight Deposits
Adjustable Rate (7) $ 9,417 -- -- -- -- -- $ 9,417 $ 9,417
Average Interest Rate 4.72% -- -- -- -- -- 4.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $170,637 $97,162 $75,753 $55,355 $46,921 $111,155 $556,983 $561,747
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
(8,9,10,11):
Deposits
Balance $275,403 $45,350 $32,080 $19,691 $19,230 $ 63,511 $455,265 $455,642
Average Interest Rate 4.57% 4.19% 3.80% 2.76% 2.67% 1.96% 3.96%
Borrowings (12)
Balance $ 16,963 $ 3,000 -- -- -- -- $ 19,963 $ 20,008
Average Interest Rate 3.65% 6.17% -- -- -- -- 4.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $292,366 $48,350 $32,080 $19,691 $19,230 $ 63,511 $475,228 $475,650
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net deferred loan fees but excludes the allowance for loan losses.
(2) Assumes prepayment rates between 9% and 30% 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 24% to 30%.
(5) Fixed-rate investments include municipal bond investments on a
non-tax-equivalent basis.
(6) Adjustable-rate investments include investments in Federal Home Loan Bank
Stock.
(7) Adjustable-rate deposits include Federal Funds Sold and other short-term
investments.
(8) Regular savings accounts reflect an assumed maturity of 32% in the first
year with the remaining balance spread over 10 years.
(9) 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 84% in the first year with the remaining balance spread over 5
years.
(10) Money market deposit accounts reflect an assumed maturity of 59% in the
first year with the remaining balance spread over 5 years.
(11) Certificates of deposit reflect assumed stated maturities.
(12) Borrowed funds reflect assumed stated maturities.
50
<PAGE>
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.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Net Interest Income Return on Average Assests Return on Average Equity
(millions) (percent) (percent)
------------------ ------------------------- ------------------------
94 $15.0 .83% 13.53%
95 $15.8 .96% 15.02%
96 $17.0 .89% 11.65%
97 $18.8 .85% 11.18%
98 $20.9 .93% 11.83%
51
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
Amounts in Thousands (except per share and share data) 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 23,584 $ 19,195
Federal funds sold 7,000 4,190
Short-term investments 2,417 4,465
- -------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 33,001 27,850
- -------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $178,040 and $185,944 in 1998
and 1997, respectively) 180,163 187,746
- -------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 137,538 132,496
Commercial 136,449 98,813
Consumer 95,539 86,180
- -------------------------------------------------------------------------------------------------------
Total Loans 369,526 317,489
Allowance for loan losses (4,524) (4,148)
- -------------------------------------------------------------------------------------------------------
TOTAL NET LOANS 365,002 313,341
- -------------------------------------------------------------------------------------------------------
Premises and equipment 6,851 7,435
Accrued interest receivable 3,133 2,973
Other assets 4,896 4,122
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $593,046 $543,467
- -------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 67,477 $ 52,147
Interest-bearing 84,574 74,237
Savings 132,439 123,437
Time 238,252 233,935
- -------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 522,742 483,756
- -------------------------------------------------------------------------------------------------------
Borrowed funds 16,963 8,859
Long-term debt 3,000 4,222
Accrued interest payable 1,383 1,249
Other liabilities 2,122 2,079
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 546,210 500,165
- -------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 13)
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,577,888 and 4,168,013 at December 31, 1998 and 1997, respectively 2,289 2,084
Paid-in capital 22,359 14,345
Retained earnings 20,622 25,770
Treasury stock -- (87)
Accumulated other comprehensive income 1,566 1,190
- -------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 46,836 43,302
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $593,046 $543,467
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
52
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended December 31,
Amounts in Thousands (except per share and share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 28,504 $ 25,676 $ 22,987
Interest on federal funds sold 307 694 607
Interest on short-term investments 241 171 141
Interest on securities:
Taxable 9,730 10,509 9,559
Nontaxable 1,501 898 571
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 40,283 37,948 33,865
- -----------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 18,652 18,197 15,930
Interest on borrowed funds 588 688 586
Interest on long-term debt 190 313 333
- -----------------------------------------------------------------------------------------------------------------------
Total Interest Expense 19,430 19,198 16,849
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 20,853 18,750 17,016
- -----------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 780 830 380
- -----------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 20,073 17,920 16,636
- -----------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 1,709 1,669 1,541
Other service charges 905 518 489
Net security gains 336 304 29
Other income 529 309 427
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 3,479 2,800 2,486
- -----------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 8,318 7,689 6,712
Occupancy expense 1,412 1,359 1,116
Furniture and equipment expense 1,903 1,537 1,209
SAIF assessment -- -- 317
Other expense 4,345 3,451 3,372
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 15,978 14,036 12,726
- -----------------------------------------------------------------------------------------------------------------------
Income before Provision for Income Taxes 7,574 6,684 6,396
Provision for Income Taxes 2,298 2,171 2,148
- -----------------------------------------------------------------------------------------------------------------------
Net Income $ 5,276 $ 4,513 $ 4,248
- -----------------------------------------------------------------------------------------------------------------------
Earnings per Share $ 1.15 $ 1.00 $ 0.96
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,593,531 4,525,786 4,438,601
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
53
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997 and 1996
Other
Accumulated Total
Amounts in Thousands Shares Common Paid-in Retained Treasury Comprehensive Shareholders'
(except for per share and share data) Issued Stock Capital Earnings Stock Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,999,344 $ 2,000 $ 12,064 $ 20,268 $ (7) $ 1,520 $ 35,845
Comprehensive income:
Net income - 1996 -- -- -- 4,248 -- -- 4,248
Other comprehensive income,
net of income taxes
Net unrealized depreciation
in the market value
of securities available
for sale -- -- -- -- -- (817) (817)
--------
Comprehensive income: 3,431
Cash dividends - $.35 per share -- -- -- (1,532) -- -- (1,532)
Net proceeds from issuance of
common stock 86,154 43 998 -- -- -- 1,041
Deferred compensation -- -- 30 -- -- -- 30
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 4,085,498 $ 2,043 $ 13,092 $ 22,984 $ (7) $ 703 $ 38,815
Comprehensive income:
Net income - 1997 -- -- -- 4,513 -- -- 4,513
Other comprehensive income,
net of income taxes
Net unrealized appreciation
in the market value
of securities available
for sale -- -- -- -- -- 487 487
--------
Comprehensive income: 5,000
Cash dividends - $.38 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)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 4,168,013 $ 2,084 $ 14,345 $ 25,770 $ (87) $ 1,190 $ 43,302
Comprehensive income:
Net income - 1998 -- -- -- 5,276 -- -- 5,276
Other comprehensive income,
net of income taxes
Net unrealized appreciation
in the market value of
securities available
for sale -- -- -- -- -- 376 376
--------
Comprehensive income: 5,652
Cash dividends - $.46
per share -- -- -- (2,063) -- -- (2,063)
Net proceeds from issuance of
common stock 83,992 42 1,644 -- -- -- 1,686
10% stock dividend 417,898 209 8,149 (8,365) -- -- (7)
Purchase of treasury stock -- -- -- 4 (1,720) -- (1,716)
Retirement of treasury stock (92,015) (46) (1,761) -- 1,807 -- --
Deferred compensation -- -- (18) -- -- -- (18)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,1998 4,577,888 $ 2,289 $ 22,359 $ 20,622 $ -- $ 1,566 $ 46,836
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
54
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
Amounts in Thousands 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 5,276 $ 4,513 $ 4,248
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,037 1,021 887
Provision for loan losses 780 830 380
Provision for deferred taxes (212) (86) (53)
Decrease (increase) in accrued interest receivable (160) (147) 953
Increase in accrued interest payable 134 147 79
Net change in other assets and other liabilities 187 283 1,890
Net amortization of premium on securities 601 338 538
Net security gains (336) (304) (29)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,307 6,595 8,893
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from maturities of securities available for sale 60,279 27,986 37,232
Proceeds from sales of securities available for sale 29,673 29,231 42,142
Purchases of securities available for sale (82,313) (91,891) (87,623)
Net increase in loans (54,235) (33,909) (37,017)
Proceeds from sales of loans 999 14,981 --
Net capital expenditures (327) (763) (1,525)
- ------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (45,924) (54,365) (46,791)
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase in demand and savings deposits 34,669 25,780 15,033
Net increase in time deposits 4,317 22,865 18,515
Net increase (decrease) in borrowed funds 8,104 (7,784) 4,502
Net decrease in long-term debt (1,222) (276) (227)
Net proceeds from issuance of common stock 1,679 1,260 1,041
Net treasury stock transactions (1,716) (80) --
Cash dividends paid (2,063) (1,727) (1,532)
- ------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 43,768 40,038 37,332
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,151 (7,732) (566)
Cash and cash equivalents, beginning of period 27,850 35,582 36,148
- ------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,001 $ 27,850 $ 35,582
- ------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 19,296 $ 19,051 $ 16,770
Income taxes paid 2,551 2,322 2,328
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
55
<PAGE>
Notes to Consolidated Financial Statement
NOTE 1 o 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.
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.
Principles of Consolidation
The consolidated financial statements of Vista include all of the accounts
of the parent company and its two wholly-owned commercial bank 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. 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 the
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.
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve that management
believes will be adequate to absorb possible loan losses on existing loans that
may become uncollectible. Additions are made to the allowance through periodic
provisions which are charged to expense. Loans are charged against the allowance
when management believes the collectibility of principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance.
The provision is based on management's quarterly review of outstanding
loans and commitments to extend credit. Consideration of prevailing and
anticipated economic conditions that may affect the borrowers ability to pay, as
well as composition and volume of the loan portfolio are used in assessing the
overall adequacy of the allowance for loan losses.
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 the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS)
56
<PAGE>
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments 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.
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. The postretirement benefit plan was only
offered to employees who attained the age of 45 as of January 1, 1995, and who
also met all the requirements for retirement. The postretirement benefit plan
was 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. All disclosures have been changed to reflect those required by
SFAS No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," except for information pertaining to 1996 which is unavailable.
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 $668 thousand in 1998, $496
thousand in 1997 and $566 thousand in 1996.
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 subdivisions 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. The effect of a
change in the tax rate on deferred taxes is recognized in the period of the
enactment date.
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
On May 15, 1998, Vista declared a 10 percent stock dividend to shareholders
of record as of June 1, 1998 and payable June 10, 1998. In connection therewith,
Vista issued 417,898 shares of its common stock. Earnings per share, weighted
average shares outstanding and all per share amounts have been restated in the
accompanying financial statements to reflect this dividend.
In December 1997, Vista adopted SFAS No. 128, "Earnings per Share." Basic
and diluted earnings per share are presented and calculated based on income
available to common shareholders and the weighted average number of shares
outstanding during the reported 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.2
Amounts in Thousands Years Ended December 31,
(except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Net income available
to common
shareholders (numerator) $ 5,276 $ 4,513 $ 4,248
Weighted average common
shares outstanding 4,594 4,526 4,439
Effect of common
stock equivalents -- -- --
- --------------------------------------------------------------------------------
Weighted average shares
outstanding (denominator
for each calculation) 4,594 4,526 4,439
- --------------------------------------------------------------------------------
Basic earnings per share $ 1.15 $ 1.00 $ .96
- --------------------------------------------------------------------------------
Diluted earnings per share $ 1.15 $ 1.00 $ .96
- --------------------------------------------------------------------------------
57
<PAGE>
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 recognized on an 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," 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 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that all derivatives be recognized as either assets or liabilities on the
balance sheet and be measured at fair value. If certain conditions exist, a
derivative may be specifically designated as a hedge. The accounting for changes
in the fair value of a derivative depends upon the specific use of the
derivative and resulting designation. This statement amends SFAS No. 52,
"Foreign Currency Translation." This statement supersedes SFAS No. 80,
"Accounting for Future Contracts," SFAS No. 105, "Disclosure of Information
about Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," and SFAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments.
It amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
to include the disclosure provisions about concentrations of credit risk from
SFAS No. 105. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Vista is currently in the process of
evaluating the provisions of SFAS No. 133.
NOTE 2 o 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, 1998, was approximately $7.8 million. For the
two-week period ended December 31, 1998, the average amount of reserve balances
for Vista was approximately $9.1 million.
Vista maintains various deposit accounts with other banks to meet normal
funds transaction requirements and to compensate other banks for certain
correspondent services. These accounts are insured by the FDIC up to $100,000
per account. Vista's management is responsible for assessing the credit risk of
its correspondent banks.
The withdrawal or usage restrictions of cash and due from bank balances did
not have a significant impact on the operations of Vista as of December 31,
1998.
NOTE 3 o Securities
The amortized cost, gross unrealized gains and losses, estimated fair
values and maturity distribution of Vista's securities available for sale at
December 31, 1998 and 1997, were as follows:
58
<PAGE>
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Amounts in Thousands Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 14,051 $ 227 $ -- $ 14,278
U.S. Government agencies and corporations 10,042 62 (31) 10,073
State and political subdivisions 35,640 688 (42) 36,286
Corporate debt securities 11,703 137 (11) 11,829
Mortgage-backed securities 102,740 1,228 (112) 103,856
Equity securities 3,864 -- (23) 3,841
- -------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 178,040 $ 2,342 $ (219) $ 180,163
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 9,658 123 (4) 9,777
Mortgage-backed securities 113,456 1,496 (330) 114,622
Equity securities 3,616 29 -- 3,645
- -------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 185,944 $ 2,169 $ (367) $ 187,746
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Amounts in Thousands Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturing within one year $ 10,035 $ 10,102 $ 17,529 $ 17,547
Maturing after one year but within five years 26,209 26,556 34,424 34,724
Maturing after five years but within ten years 5,646 5,770 8,687 8,792
Maturing after ten years 29,546 30,038 8,232 8,416
No maturity 3,864 3,841 3,616 3,645
Mortgage-backed securities 102,740 103,856 113,456 114,622
- -------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 178,040 $ 180,163 $185,944 $ 187,746
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sales of securities available for sale were $29.7 million
in 1998, $29.2 million in 1997 and $42.1 million in 1996. Gross realized gains
on sales were $411 thousand in 1998, $365 thousand in 1997 and $233 thousand in
1996. Gross realized losses on sales totaled $75 thousand in 1998, $61 thousand
in 1997 and $204 thousand in 1996.
Securities available for sale with a book value of $53.0 million and $45.8
million at December 31, 1998 and 1997, respectively, were pledged to secure
public fund deposits, secured other borrowings and for other purposes required
or permitted by law.
59
<PAGE>
NOTE 4 o 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 $1.2 million and $2.1 million at December 31, 1998 and
1997, respectively. One restructured loan for $205 thousand was returned to
accrual status during 1998. Total nonaccrual loans included $754 thousand and
$1.8 million of restructured loans at December 31, 1998 and 1997, respectively.
Transfers from loans to other real estate owned totaled $614 thousand in 1998,
$298 thousand in 1997 and $1.2 million in 1996.
The following table summarizes Vista's nonaccrual and past due loans at
December 31, 1998 and 1997:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Nonaccrual loans $ 1,930 $ 2,915
- --------------------------------------------------------------------------
Accrual loans past due
90 days or more $ 160 $ 78
- --------------------------------------------------------------------------
Interest income that would
have been recorded under
original terms $ 89 $ 193
- --------------------------------------------------------------------------
Interest income recorded
during the period $ 81 $ 62
- --------------------------------------------------------------------------
Loans to executive officers, directors and their affiliated interests at
the respective dates indicated amounted to $6.5 million and $6.2 million at
December 31, 1998 and 1997, respectively. During 1998, $9.1 million of new loans
were made, and repayments totaled $8.4 million. During 1997, $10.6 million of
new loans were made, and repayments totaled $8.3 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, 1998, no
loans to executive officers, directors and their affiliated interests were
renegotiated, past due or on nonaccrual status.
NOTE 5 o 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, 1998, 1997 and 1996, is as
follows:
Amounts in Thousands 1998 1997 1996
- --------------------------------------------------------------------------
Balance, beginning of year $ 4,148 $ 3,903 $ 3,932
Additions:
Provisions charged to
expense 780 830 380
Recoveries of loans
previously charged off 135 151 70
Deductions:
Loans charged off (539) (736) (479)
- --------------------------------------------------------------------------
Balance, end of year $ 4,524 $ 4,148 $ 3,903
- --------------------------------------------------------------------------
At December 31, 1998, total impaired loans were approximately $1.9 million,
of which $800 thousand were valued based upon discounted cash flows and $1.1
million using the fair value of collateral. Based on these methods, $278
thousand of the $4.5 million allowance for loan losses was allocated against the
$1.9 million of impaired loans. At December 31, 1997, the total impaired loans
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. The remaining allowance
for loan losses, totaling $4.2 million at December 31, 1998, and $3.6 million at
December 31, 1997, was available to absorb losses in Vista's entire loan
portfolio. Vista's total average impaired loans during 1998 were $2.2 million
and $2.4 million during 1997. Interest income on impaired loans totaled $61
thousand and $72 thousand in 1998 and 1997, respectively.
60
<PAGE>
NOTE 6 o Premises and Equipment
An analysis of premises and equipment as of December 31, 1998 and 1997, is
as follows:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Land and buildings $ 6,676 $ 6,625
Furniture and equipment 6,170 6,146
Leasehold improvements 842 964
- --------------------------------------------------------------------------
Total cost 13,688 13,735
Less: Accumulated depreciation
and amortization (6,837) (6,300)
- --------------------------------------------------------------------------
Total premises and
equipment, net $ 6,851 $ 7,435
- --------------------------------------------------------------------------
Depreciation and amortization expense for premises and equipment was $911
thousand in 1998, $870 thousand in 1997 and $709 thousand in 1996.
NOTE 7 o Deposits
An analysis of time deposits at December 31, 1998 and 1997, is as follows:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Time deposits:
Certificates less
than $100,000 $ 196,632 $ 192,343
Certificates $100,000
and over 41,620 41,592
- --------------------------------------------------------------------------
Total time deposits $ 238,252 $ 233,935
- --------------------------------------------------------------------------
A maturity schedule of time deposits of $100,000 and over is as follows:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
3 months or less $ 15,997 $ 14,454
3 through 6 months 9,340 8,542
6 through 12 months 10,075 11,471
Over one year 6,208 7,125
- --------------------------------------------------------------------------
Total certificates
$100,000 and over $ 41,620 $ 41,592
- --------------------------------------------------------------------------
NOTE 8 o Borrowed Funds
An analysis of borrowed funds as of December 31, 1998 and 1997, is as
follows:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Secured other borrowings $ 16,441 $ 8,343
Treasury tax and loan note 522 516
- --------------------------------------------------------------------------
Total borrowed funds $ 16,963 $ 8,859
- --------------------------------------------------------------------------
Borrowed funds from directors and their affiliated interests amounted to $3.0
million and $1.3 million at December 31, 1998 and 1997, respectively, and are
included above. ~The interest rates on these short-term borrowings ranged from
3.10% to 5.67% for 1998 and 3.10% to 6.27% for 1997.
NOTE 9 o 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, 1998 and 1997. 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.
NOTE 10 o 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, 1998 and
1997, the measurement dates, and amounts recognized in Vista's consolidated
balance sheets at December 31, 1998 and 1997:
61
<PAGE>
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at end of
prior year: $ (4,477) $ (4,160)
Service cost (247) (223)
Interest cost (310) (283)
Actuarial (gain) loss (138) 46
Benefit payments 143 143
- --------------------------------------------------------------------------
Benefit obligation at
year-end $ (5,029) $ (4,477)
- --------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
end of prior year $ 6,004 $ 4,809
Contributions -- --
Net investment income 1,060 1,370
Benefit payments (143) (144)
Estimated administration
expenses (40) (31)
- --------------------------------------------------------------------------
Fair value of plan assets at
year-end $ 6,881 $ 6,004
- --------------------------------------------------------------------------
Plan assets in excess of
benefit obligation $ 1,852 $ 1,527
Unrecognized gain (1,781) (1,493)
Unrecognized prior service cost (371) (405)
Unrecognized transition asset (213) (249)
- --------------------------------------------------------------------------
Accrued pension cost $ (513) $ (620)
- --------------------------------------------------------------------------
Net periodic pension cost for 1998, 1997 and 1996 included the following
components:
Amounts in Thousands 1998 1997 1996
- ------------------------------------------------------------------------
Service cost benefits earned
during the year $ 247 $ 223 $ 215
Interest cost on projected
benefit obligation 310 283 277
Expected return on plan assets (535) (427) (559)
Net (deferral) and amortization (129) (77) 100
- ------------------------------------------------------------------------
Net periodic pension cost $ (107) $ 2 $ 33
- ------------------------------------------------------------------------
In determining the periodic pension cost, the assumed discount rate was 7%
in 1998, 1997 and 1996. In determining the benefit obligation, the assumed
discount rate was 6.75% for 1998 and 7% for 1997 and 1996. The rate of increase
in future salary levels was 4% in 1998, 4% in 1997, and 6% in 1996. The expected
long-term rate of return on assets used in determining net periodic pension cost
was 9% in 1998, 1997 and 1996.
At December 31, 1998 and 1997, the plan's assets consisted of the following
components:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Plan Assets at year-end:
Cash $ 416 $ 250
Fixed-income securities 1,423 1,532
Equity securities 5,069 4,223
Liabilities:
Accrued expenses and
taxes withheld (27) (1)
- --------------------------------------------------------------------------
Market value of plan assets $ 6,881 $ 6,004
- --------------------------------------------------------------------------
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. Matching
contributions become vested proportionally over five years of credited service.
Total 401(k) expense amounted to $120 thousand in 1998, $108 thousand in 1997
and $109 thousand in 1996.
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 5% in 1998 and for each
year following. Increasing the assumed health care cost trend by one percent in
each year would increase the accumulated postretirement benefit obligation
(APBO) by $138 thousand and the aggregate of the service and interest components
of net periodic postretirement cost for the year ended December 31, 1998, by $15
thousand. Decreasing the assumed health care cost trend by one percent in each
year would decrease the APBO by $112 thousand and the aggregate of the service
and interest components of net periodic postretirement cost for the year ended
December 31, 1998, by $12 thousand. The present value of the APBO assumed a
discount rate of 6.75% for 1998, and 7.0% for 1997 and 1996, while the
determination of net periodic postretirement benefit cost for each of those
years was based on a 7% discount rate. The rate of interest used in future
compensation levels was 4% in 1998, 4% in 1997 and 6% in 1996.
62
<PAGE>
The following sets forth the APBO and the net periodic postretirement
benefit cost at December 31:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Benefit obligation at
end of prior year: $ 1,016 $ 1,116
Service cost 32 34
Interest cost 67 66
Actuarial (gain) (97) (166)
Benefit payments (27) (34)
Loss from change in assumptions
at year-end 35 --
- --------------------------------------------------------------------------
Benefit obligation at year-end $ 1,026 $ 1,016
- --------------------------------------------------------------------------
Plan obligation in excess of plan assets $ 1,026 $ 1,016
Unrecognized gain 445 342
Unrecognized transition asset (290) (309)
- --------------------------------------------------------------------------
Accrued accumulated postretirement
benefit $ 1,181 $ 1,049
- --------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for 1998, 1997 and
1996 were as follows:
Amounts in Thousands 1998 1997 1996
- ------------------------------------------------------------------------
Service cost, benefits
attributed to employee
service during the year $ 32 $ 34 $ 42
Interest cost on accumulated
postretirement benefit
obligation 67 66 75
Amortization of transition
obligation 18 18 18
Amortization of net gain (29) (19) (9)
- ------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 88 $ 99 $ 126
- ------------------------------------------------------------------------
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.
NOTE 11 o Stock Option Plan
Vista has a stock-based incentive compensation plan, approved by its
shareholders in 1998, under which certain employees receive stock option awards.
The plan permits options granted to qualify as Incentive Stock Options under the
Internal Revenue Code. Awards under the plan in 1998 were made to executives.
Stock options are granted with an exercise price equal~to 100 percent of
market value at the date of grant, have a ten-year term and vest ratably over
four years from the date of grant.
The following table presents stock option activity during 1998:
Weighted
Average
Exercise Exercise
Price Price Shares
- --------------------------------------------------------------------------------
January 1, 1998
Granted $ 19.25 $ 19.25 52,800
Options exercised 0 0 0
- --------------------------------------------------------------------------------
December 31, 1998 $ 19.25 $ 19.25 52,800
- --------------------------------------------------------------------------------
At December 31, 1998, there were 57,200 additional shares available for grant
under the Plan. There were four employees holding options under the option plan
as of December 31, 1998. The weighted-average fair value of stock options
granted during 1998 was $4.39 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: dividend
yield of 2.29%, risk-free rate of 5.56% and expected lives of five years.
Vista has adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock-based Compensation," and as permitted under SFAS No. 123 applies
Accounting Principles Board Opinion No. 25 in accounting for its plan.
Accordingly, no compensation expense has been recorded.
If Vista had elected to adopt the optional recognition provisions of SFAS
No. 123 for its stock option plan, reported net income and diluted earnings per
share for 1998 would have been changed to the pro forma amounts indicated on the
following page.
63
<PAGE>
Amounts in Thousands(except per share data) 1998
- -----------------------------------------------------------
Net Income
As reported $ 5,276
Pro forma $ 5,218
Diluted earnings per share
As reported $ 1.15
Pro forma $ 1.14
- -----------------------------------------------------------
NOTE 12 o Income Taxes
The current and deferred amounts of the provision for income taxes for the
years ended December 31, 1998, 1997 and 1996, were as follows:
Amounts in Thousands 1998 1997 1996
- ------------------------------------------------------------------------
Federal:
Current $ 2,202 $ 2,070 $ 2,070
Deferred benefit (171) (71) (153)
State:
Current 307 187 252
Deferred benefit (40) (15) (21)
- ------------------------------------------------------------------------
Provision for income taxes $2,298 $ 2,171 $ 2,148
- ------------------------------------------------------------------------
A reconciliation of the differences between Vista's effective tax rate and its
statutory federal income tax rate of 34% in 1998, 1997 and 1996 is as follows:
Amounts in Thousands (except percentages) 1998 1997 1996
- ------------------------------------------------------------------------
Income tax at
statutory rate $ 2,575 $ 2,273 $ 2,175
Increase (Decrease) in taxes
resulting from:
State taxes on income,
net of federal income
tax effect 181 173 153
Tax-exempt
interest income (476) (285) (176)
Other, net 18 10 (4)
- ------------------------------------------------------------------------
Provision for income taxes $ 2,298 $ 2,171 $ 2,148
- ------------------------------------------------------------------------
Effective tax rate 30.3% 32.5% 33.6%
- ------------------------------------------------------------------------
Items that gave rise to significant portions of deferred tax assets and
deferred tax liabilities at December 31, 1998 and 1997, were as follows:
Amounts in Thousands 1998 1997
- --------------------------------------------------------------------------
Provision for loan losses $ 1,477 $ 1,317
Pension 214 178
Postretirement benefits other
than pension 500 472
Deferred loan fees 390 329
Other 309 336
- --------------------------------------------------------------------------
Deferred tax asset 2,890 2,632
- --------------------------------------------------------------------------
Net unrealized gain on securities
available for sale 557 612
State taxes 151 142
Discount accretion 171 142
Other 58 49
- --------------------------------------------------------------------------
Deferred tax liability 937 945
- --------------------------------------------------------------------------
Net deferred tax asset $ 1,953 $ 1,687
- --------------------------------------------------------------------------
The net deferred tax asset of $2.0 million at December 31, 1998 and $1.7
million at December 31, 1997, 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 13 o 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
64
<PAGE>
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 $48.5 million and $35.1 million to
its borrowers as of December 31, 1998 and 1997, 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 $2.1 million and $2.0 million as
of December 31, 1998 and 1997, 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.
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, 1998.
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.
Noncancelable Lease Commitments
At December 31, 1998, Vista was obligated under noncancelable operating
leases for certain facilities and equipment. Total rental expense amounted to
$760 thousand, $541 thousand and $450 thousand for the years ended December 31,
1998, 1997 and 1996, respectively.
The minimum lease commitments for the year 1999 and thereafter are as
follows:
Amounts in Thousands
- --------------------------------------------------------------------------
1999 $1,302 2000 $1,225 2001 $ 941
2002 $ 604 2003 $ 564 After 2004 $3,519
- --------------------------------------------------------------------------
NOTE 14 o Common Stock
Vista has an Employee Stock Purchase Plan, a Dividend Reinvestment Plan and a
Board of Directors Stock Purchase Plan. During 1998, 81,657 shares were issued
under these plans. At December 31, 1998, 284,945 shares were reserved for
issuance under these plans.
The Employee Stock Purchase Plan (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). 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, 1998, 1997 and 1996:
65
<PAGE>
Average
Number Price
of Shares per Share
- --------------------------------------------------------------------------
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 -- --
Options granted 22,358 $ 19.13
Options exercised (5,057) 19.83
Options canceled (17,301) 20.75
- --------------------------------------------------------------------------
Balance, December 31, 1998 -- --
- --------------------------------------------------------------------------
At December 31, 1998, 3,084 shares were reserved for issuance under the ESPP.
The Dividend Reinvestment Plan (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.
At December 31, 1998, 260,093 shares were reserved for issuance under the
DRP.
The Board of Directors Stock Purchase Plan (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.
At December 31, 1998, 21,768 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 were eligible to receive an incentive cash reward
based on each bank subsidiary achieving certain financial performance
benchmarks. Moreover, 50 percent of the amount awarded to executive officers was
paid in cash and 50 percent in the form of Vista 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. This plan was terminated in 1998
and replaced by the following Management Incentive Plan.
In 1998, Vista's Board of Directors adopted a Management Incentive Plan for
Vista and its subsidiaries. This plan sets individual performance objectives as
well as financial performance objectives for Vista based solely on achieving
certain earnings per share targets. If the target goal is met, then employees
are eligible to receive additional cash compensation based on the achievement of
their individual performance goals. The maximum bonus pool available is limited
to no more than 5 percent of pretax income.
NOTE 15 o 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, 1998, were $1.5 million. The
retained net profits for PNB for the three years ended December 31, 1998, 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 $1.9 million at
December 31, 1998.
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
66
<PAGE>
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 quarterly 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.
<TABLE>
<CAPTION>
Regulatory Capital Requirements
Minimum
Actual Required Capital Well Capitalized
--------------------------------------------------------------
Amounts in Thousands Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-based Capital
(to Risk-weighted Assets):
Vista $49,470 14.0% $28,247} N/A }
PNB 35,262 13.9% 20,364} 8.0% $25,455} 10.0%
Twin Rivers 11,929 11.9% 8,001} 10,001 }
Tier 1 Capital
(to Risk-weighted Assets):
Vista $45,055 12.8% $14,123} N/A }
PNB 32,079 12.6% 10,182} 4.0% $15,273} 6.0%
Twin Rivers 10,682 10.7% 4,000} 6,000 }
Tier 1 Capital (to Average Assets):
Vista $45,055 7.7% $23,333} N/A }
PNB 32,079 7.7% 16,684} 4.0% $20,855} 5.0%
Twin Rivers 10,682 6.5% 6,552} 8,190 }
As of December 31, 1997:
Total Risk-based Capital
(to Risk-weighted Assets):
Vista $46,100 15.0% $24,610} N/A }
PNB 31,703 14.2% 17,910} 8.0% $22,388} 10.0%
Twin Rivers 10,618 12.9% 6,599} 8,249 }
Tier 1 Capital
(to Risk-weighted Assets):
Vista $41,761 13.6% $12,305} N/A }
PNB 28,901 12.9% 8,955} 4.0% $13,433} 6.0%
Twin Rivers 9,587 11.6% 3,300} 4,950 }
Tier 1 Capital (to Average Assets):
Vista $41,761 7.6% $21,949} N/A }
PNB 28,901 7.3% 15,794} 4.0% $19,742} 5.0%
Twin Rivers 9,587 6.4% 6,011} 7,514 }
- ----------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
NOTE 16 o Branch Acquisitions
On May 21, 1996, PNB acquired a 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 acquired as part of this transaction. The branch
opened December 2, 1996. The addition of this branch increased PNB's total
branch network to ten offices serving Warren and Hunterdon counties in New
Jersey.
On October 7, 1996, Twin Rivers opened its third branch at 2850 Easton
Avenue in Butztown, Northampton County, Pennsylvania. The transaction involved
the renegotiation of the lease on this former branch facility of CoreStates Bank
(successor by merger to Meridian Bank) and the purchase of certain furniture and
equipment from CoreStates. No deposits were acquired as part of this
transaction.
On December 16, 1996, Twin Rivers opened its fourth branch facility at 1003
West Broad Street, Bethlehem, Lehigh County, Pennsylvania. The transaction
involved the purchase of the land, building and certain furniture and equipment
of a former branch facility of CoreStates Bank. No deposits were acquired as
part of this transaction.
On December 22, 1998, Twin Rivers entered into two lease agreements for the
expansion of its Bethlehem marketplace presence. These two new branches,
scheduled to open during the first quarter of 1999, will be located at 3815
Linden Street, Bethlehem Township and 2400 Schoenersville Road, Hanoverville
Township, both in Northampton County. No deposits were acquired as part of these
transactions. The addition of these two branches will increase Twin Rivers
branch network to six offices serving Northampton and Lehigh counties,
Pennsylvania.
NOTE 17 o 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 on the
following page 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
68
<PAGE>
of the underlying collateral. Assumptions regarding credit risk, cash flows and
discount rates are judgmentally determined using available internal information.
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, 1998 December 31,1997
--------------------------------------------------
Amounts Carrying Fair Carrying Fair
in Thousands Value Value Value Value
- -------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $ 33,001 $ 33,001 $ 27,850 $ 27,850
Securities
available
for sale 180,163 180,163 187,746 187,746
Net Loans 365,002 372,167 313,341 316,418
- -------------------------------------------------------------------------------
Total financial
assets $ 578,166 $ 585,331 $ 528,937 $ 532,014
- -------------------------------------------------------------------------------
Financial liabilities:
Deposits $ 522,742 $ 523,119 $ 483,756 $ 484,790
Borrowed funds 16,963 16,963 8,859 8,859
Long-term debt 3,000 3,045 4,222 4,243
- -------------------------------------------------------------------------------
Total
financial
liabilities $ 542,705 $ 543,127 $ 496,837 $ 497,892
- -------------------------------------------------------------------------------
NOTE 18 o 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 below and on the following
page.
Condensed Balance Sheets
December 31, December 31,
Amounts in Thousands 1998 1997
- ------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 260 $ 895
Securities available for sale,
at market value with a cost
of $1,533 and $2,928,
respectively 1,534 2,988
Investments in subsidiaries 44,542 39,989
Premises and equipment 462 530
Other assets 262 313
- ------------------------------------------------------------------------
Total Assets $ 47,060 $ 44,715
- ------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Long-term debt $ 0 $ 1,222
Other liabilities 224 191
- ------------------------------------------------------------------------
Total Liabilities 224 1,413
Shareholders' Equity 46,836 43,302
- ------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 47,060 $ 44,715
- ------------------------------------------------------------------------
69
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income For The Years Ended December 31,
-----------------------------------------------
Amounts in Thousands 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividend income from subsidiaries $ 2,318 $ 2,035 $ 1,749
Interest income 125 213 232
Other income 3 3 3
Net security gains (losses) 16 -- (2)
Income from service fees 3,172 1,985 1,833
- -------------------------------------------------------------------------------------------------------------
Total Operating Income 5,634 4,236 3,815
- -------------------------------------------------------------------------------------------------------------
Expense:
Interest expense 4 127 148
Salaries and benefits 2,033 1,274 1,149
Occupancy expense 132 131 121
Furniture and equipment expense 740 532 429
Other expense 676 395 286
- -------------------------------------------------------------------------------------------------------------
Total Operating Expense 3,585 2,459 2,133
- -------------------------------------------------------------------------------------------------------------
Income Before Income Tax Benefit and
Equity in Undistributed Earnings
of Subsidiaries 2,049 1,777 1,682
Income Tax Benefit 90 88 27
- -------------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 2,139 1,865 1,709
Equity in Undistributed Earnings of Subsidiaries 3,137 2,648 2,539
- -------------------------------------------------------------------------------------------------------------
Net Income $ 5,276 $ 4,513 $ 4,248
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows For The Years Ended December 31,
-----------------------------------------------
Amounts in Thousands 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 5,276 $ 4,513 $ 4,248
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 224 209 199
Equity in undistributed earnings of subsidiaries (3,137) (2,648) (2,539)
Net change in other assets and other liabilities 86 (49) (1)
Net amortization of premiums on securities 2 2 22
Net security (gains) losses (16) -- 2
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,435 2,027 1,931
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale -- -- 1,500
Proceeds from sales of securities available for sale 1,515 1,000 2,515
Purchases of securities available for sale (107) (1,422) (2,508)
Investment in subsidiaries (1,000) (1,000) (3,500)
Net capital expenditures (156) (127) (175)
- -------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 252 (1,549) (2,168)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Decrease in long-term debt (1,222) (276) (227)
Net proceeds from issuance of common stock 1,679 1,260 1,041
Net treasury stock transactions (1,716) (80) --
Cash dividends paid (2,063) (1,727) (1,532)
- -------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (3,322) (823) (718)
- -------------------------------------------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents (635) (345) (955)
Cash and Cash Equivalents Beginning of Year 895 1,240 2,195
Cash and Cash Equivalents End of Year $ 260 $ 895 $ 1,240
- -------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
NOTE 19 o Selected Quarterly Financial Information (unaudited)
The following tables summarize certain 1998 and 1997 quarterly financial
information for Vista and are unaudited.
In the opinion of management, all adjustments necessary for a fair presentation
of the results for each quarter have been included (amounts in thousands, except
per share data).
<TABLE>
<CAPTION>
1998 March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 9,691 $10,085 $10,203 $10,304
Interest Expense 4,712 4,890 4,927 4,901
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 4,979 5,195 5,276 5,403
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 195 195 195 195
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 4,784 5,000 5,081 5,208
- ------------------------------------------------------------------------------------------------------------------------------------
Net Security Gains 50 157 31 98
Noninterest Income 670 755 786 932
Noninterest Expense 3,793 3,989 3,811 4,385
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 1,711 1,923 2,087 1,853
Provision for Income Taxes 541 587 625 545
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,170 $ 1,336 $ 1,462 $ 1,308
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share $ 0.26 $ 0.29 $ 0.32 $ 0.29
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share $ 0.23 $ 0.23 $ 0.27 $ 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
NOTE 20 o 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. As of
December 31, 1998, the mortgage servicing asset totaled $43 thousand. There was
no material amortization expense related to this asset for 1998. Servicing fee
income recorded as of December 31, 1998, related to the above sale was
immaterial.
NOTE 21 o Other Comprehensive Income
Vista adopted the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
in 1998. SFAS No. 130 provides standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The statement defines comprehensive income as the changes
in equity of a business enterprise during the period from transactions and other
events and circumstances from non-owner sources. Other comprehensive income
would include revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are excluded from
net income such as foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on available for sale securities.
This statement is effective for fiscal years beginning after December 15, 1997.
Prior year financial statements, which are presented for comparative purposes,
have been reclassified.
Vista held securities classified as available for sale, which experienced
net unrealized pre-tax gains of $321 thousand during the year ended December 31,
1998. In compliance with SFAS No. 130, the before-tax and after-tax amount for
this category as well as the tax expense, is summarized below.
December 31, 1998
-----------------------------------------
Before-Tax Tax Net-of-Tax
Amounts in Thousands Amount (Benefit) Amount
- --------------------------------------------------------------------------------
Unrealized gains on securities:
Unrealized holding gains
arising during period $657 $ 33 $624
Less: Reclassification adjustment
for gains realized in net income 336 88 248
- --------------------------------------------------------------------------------
Net unrealized gain 321 (55) 376
- --------------------------------------------------------------------------------
Other comprehensive income $321 $(55) $376
- --------------------------------------------------------------------------------
72
<PAGE>
Report of Independent Accountants
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, 1998 and 1997 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, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vista Bancorp, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, 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 46 is presented for purposes of additional analysis rather
than to present financial position and results of operations of the individual
companies. Accordingly, we do not express an opinion on the financial position
and results of operations of the individual companies. However, the
consolidating information on page 46 has been subjected to the auditing
procedures applied in the audits of the consolidated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
/s/ Rudolph, Palitz LLP
Rudolph, Palitz LLP
January 29, 1999
Blue Bell, Pennsylvania
73
<PAGE>
Condensed Consolidating Balance Sheet
<TABLE>
<CAPTION>
Amounts in Thousands Twin Vista Intercompany Vista
(Unaudited) December 31, 1998 PNB Rivers (Parent) Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 26,506 $ 6,540 $ 260 $ (305) $ 33,001
Securities available for sale 136,267 42,362 1,534 -- 180,163
Net loans 252,261 112,741 -- -- 365,002
Other assets 10,429 3,783 45,266 (44,598) 14,880
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $425,463 $165,426 $ 47,060 $(44,903) $593,046
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits $377,934 $144,855 $ --- $ (47) $522,742
Borrowed funds 8,377 8,846 -- (260) 16,963
Long-term debt 3,000 -- -- -- 3,000
Other liabilities 2,718 618 224 (55) 3,505
Shareholders' equity 33,434 11,107 46,836 (44,541) 46,836
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $425,463 $165,426 $ 47,060 $(44,903) $593,046
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Condensed Consolidating Statement of Income
<TABLE>
<CAPTION>
Amounts in Thousands Twin Vista Intercompany Vista
(Unaudited) December 31, 1998 PNB Rivers (Parent) Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income $ 28,866 $ 11,323 $ 125 $ (31) $ 40,283
Interest Expense 13,656 5,801 4 (31) 19,430
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 15,210 5,522 121 -- 20,853
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 540 240 -- -- 780
Noninterest Income 2,234 906 8,630 (8,627) 3,143
Net Security Gains 219 101 16 -- 336
Noninterest Expense 10,630 4,939 3,581 (3,172) 15,978
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision (Benefit) for
Income Taxes 6,493 1,350 5,186 (5,455) 7,574
Provision (Benefit) for Income Taxes 2,101 287 (90) -- 2,298
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 4,392 $ 1,063 $ 5,276 $ (5,455) $ 5,276
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
Selected Consolidated Financial Summary
<TABLE>-
<CAPTION>
Not covered by Report of Independent Accountants
Amounts in Thousands
(except per share and share data and ratios) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total Assets $ 593,046 $ 543,467 $ 498,201 $ 457,240 $ 407,523
Total Securities 180,163 187,746 152,368 145,867 136,868
Total Loans 369,526 317,489 299,564 264,282 237,021
Allowance for Loan Losses 4,524 4,148 3,903 3,932 3,947
Total Net Loans 365,002 313,341 295,661 260,350 233,074
Total Deposits 522,742 483,756 435,111 401,563 369,844
Total Shareholders' Equity 46,836 43,302 38,815 35,845 24,572
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Income Statement Data:
Total Interest Income $ 40,283 $ 37,948 $ 33,865 $ 31,060 $ 26,318
Total Interest Expense 19,430 19,198 16,849 15,257 11,275
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 20,853 18,750 17,016 15,803 15,043
Provision for Loan Losses 780 830 380 190 480
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 20,073 17,920 16,636 15,613 14,563
Total Noninterest Income 3,479 2,800 2,486 2,062 1,859
Total Noninterest Expense 15,978 14,036 12,726 11,346 11,431
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 7,574 6,684 6,396 6,329 4,991
Provision for Income Taxes 2,298 2,171 2,148 2,236 1,746
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income 5,276 4,513 4,248 4,093 3,245
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:(1)
Net Income Per Share $ 1.15 $ 1.00 $ 0.96 $ 1.07 $ 0.87
Cash Dividends 0.46 0.38 0.35 0.31 0.28
Book Value(2) 10.23 9.46 8.64 8.15 6.53
Weighted Average Number of Common Shares
Outstanding for the Years Ended December 31, 4,593,531 4,525,786 4,438,601 3,814,851 3,715,465
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Ratios:
Return on Average Assets 0.93% 0.85% 0.89% 0.96% 0.83%
Return on Average Equity 11.83 11.18 11.65 15.02 13.53
Dividend Payout Ratio 39.10 38.27 36.06 28.71 32.70
Allowance for Loan Losses to Total Loans 1.22 1.31 1.30 1.49 1.67
Total Shareholders' Equity to Total Assets 7.90 7.97 7.79 7.84 6.03
Capital Adequacy Ratios:(3)
Leverage Capital 7.73 7.61 7.57 7.69 6.26
Tier I Risk-based Capital 12.76 13.58 13.33 13.45 11.68
Total Risk-based Capital 14.01 14.99 14.90 15.39 13.82
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for 3-for-1 stock split effective May 13, 1994 and 10 percent
stock dividend paid on June 10, 1998.
(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 in accordance with the
Federal Reserve Bank's Capital Guidelines.
75
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 23,584
<INT-BEARING-DEPOSITS> 2,417
<FED-FUNDS-SOLD> 7,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 180,163
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 369,526
<ALLOWANCE> 4,524
<TOTAL-ASSETS> 593,046
<DEPOSITS> 522,742
<SHORT-TERM> 16,963
<LIABILITIES-OTHER> 3,505
<LONG-TERM> 3,000
0
0
<COMMON> 2,289
<OTHER-SE> 44,547
<TOTAL-LIABILITIES-AND-EQUITY> 593,046
<INTEREST-LOAN> 28,504
<INTEREST-INVEST> 11,231
<INTEREST-OTHER> 548
<INTEREST-TOTAL> 40,283
<INTEREST-DEPOSIT> 18,652
<INTEREST-EXPENSE> 19,430
<INTEREST-INCOME-NET> 20,853
<LOAN-LOSSES> 780
<SECURITIES-GAINS> 336
<EXPENSE-OTHER> 15,978
<INCOME-PRETAX> 7,574
<INCOME-PRE-EXTRAORDINARY> 7,574
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,276
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 4.01
<LOANS-NON> 1,930
<LOANS-PAST> 160
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,148
<CHARGE-OFFS> 539
<RECOVERIES> 135
<ALLOWANCE-CLOSE> 4,524
<ALLOWANCE-DOMESTIC> 4,524
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 297
</TABLE>
EXHIBIT 99A
PORTIONS OF THE PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 22, 1999
76
<PAGE>
- --------------------------------------------------------------------------------
Q: Is my vote confidential?
A: Yes. Proxy cards, ballots and voting tabulations that identify individual
stockholders are kept confidential except in certain circumstances where it
is important to protect the interests of Vista and its stockholders.
Generally, only the judge of election and/or employees of Continental Stock
Transfer & Trust Company processing the votes will have access to your
name. They will not disclose your name as the author of any comments you
include on the proxy card unless you ask that your name be disclosed to
management.
- --------------------------------------------------------------------------------
Q: Who will count the votes?
A: Employees of Continental Stock Transfer & Trust Company will tabulate the
votes and one of these employees will act as judge of election at the
annual meeting.
- --------------------------------------------------------------------------------
Q: What shares are included in the proxy card?
A: The shares listed on your card sent by Continental Stock Transfer & Trust
Company represent all the shares of Common Stock held in your name (as
distinguished from those held in "street" name), including those held in
the dividend reinvestment plan. You will receive a separate card or cards
from your broker if you hold shares in "street" name.
- --------------------------------------------------------------------------------
Q: What does it mean if I get more than one proxy card?
A: It indicates that your shares are held in more than one account, such as
two brokerage accounts and registered in different names. You should vote
each of the proxy cards to ensure that all of your shares are voted. We
encourage you to register all of your brokerage accounts in the same name
and address for better stockholder service. You may do this by contacting
our transfer agent, Continental Stock Transfer & Trust Company, at
1-800-509-5586.
- --------------------------------------------------------------------------------
Q: Who will be soliciting proxies on behalf of Vista?
A: Vista has retained Continental Stock Transfer & Trust Company to solicit
proxies from stockholders. Some of the officers and other employees of
Vista also may solicit proxies personally, by telephone and by mail. Vista
will also reimburse brokerage houses and other custodians for their
reasonable out-of-pocket expenses for forwarding proxy and solicitation
material to the beneficial owners of Common Stock.
- --------------------------------------------------------------------------------
Q: Who can I call with any questions?
A: You may call Continental Stock Transfer & Trust Company at 1-800-509-5586.
BOARD OF DIRECTORS
THIS SECTION GIVES BIOGRAPHICAL INFORMATION ABOUT OUR DIRECTORS AND DESCRIBES
THEIR MEMBERSHIP ON BOARD OF DIRECTORS' COMMITTEES, THEIR ATTENDANCE AT MEETINGS
AND THEIR COMPENSATION.
ELECTION OF DIRECTORS
Item 1 on Proxy Card
Vista has ten directors who are divided into three classes: three directors are
in Class A; four directors are in Class B; and three directors are in Class C.
Each director holds office for a three-year term. The terms of the classes are
staggered, so that the term of office of one class expires each year.
77
<PAGE>
At this meeting, the stockholders elect three Class A directors. Unless you
withhold authority to vote for one or more of the nominees, the persons named as
proxies intend to vote for the election of the three nominees for Class A
director. All of the nominees are recommended by the Board of Directors:
Barbara Harding
Mark A. Reda
J. Marshall Wolff
All nominees have consented to serve as directors. The Board of Directors has no
reason to believe that any of the nominees should be unable to act as a
director. However, if any director is unable to stand for re-election, the Board
of Directors will designate a substitute. If a substitute nominee is named, the
proxies will vote for the election of the substitute.
There is cumulative voting for directors. The stockholders can multiply the
number of shares that they are entitled to vote by the number of directors to be
elected. The stockholders can then take the product of this multiplication and
cast all of these votes for one nominee or distribute these votes among two or
more nominees. For example, if you can vote 100 shares and there are three
nominees to be elected as Class A directors, you can cast 300 votes for one of
these nominees or cast 100 votes for each of three nominees. Most of our
stockholders cast their votes evenly for all nominees.
The following information includes the age of each nominee and current director
as of the date of the meeting.
- --------------------------------------------------------------------------------
Class A Directors And Nominees For Class A Director Whose Term Expires In 2002
BARBARA HARDING, 52
Director of Vista since 1988; director of the Phillipsburg National Bank
and Trust Company ("PNB") since 1985; and director of Twin Rivers Community
Bank ("Twin Rivers") since 1990. Chief Executive Officer of PNB from 1985
to 1997. Current President and Chief Executive Officer of Vista and current
Chairperson of the Board of Directors of PNB.
MARK A. REDA, 47
Director of Vista since 1988 and director of PNB since 1987. Vice President
of Lou Reda, Inc., a vendor of office furniture.
J. MARSHALL WOLFF, 52
Director of Vista since 1998 and director of Twin Rivers since 1990.
President of Kressler, Wolff & Miller, Inc., an independent insurance
agency.
- --------------------------------------------------------------------------------
Class B Directors Whose Term Expires in 2000
HAROLD J. CURRY, 67
Director of Vista since 1988; director of PNB since 1978; and director of
Twin Rivers since 1990. Current Chairman of the Board of Directors of
Vista. Attorney-at-law.
DALE F. FALCINELLI, 50
Director of Vista since 1993 and director of Twin Rivers since 1990.
Principal in D.F. Falcinelli, Inc., a management consulting company.
BARRY L. HAJDU, 50
Director of Vista, PNB and Twin Rivers since 1997. President of Hajdu
Construction, Inc., building contractors.
MARC S. WINKLER, 42
Director of Vista and Twin Rivers since 1990. Current Executive Vice
President of Vista; President and Chief Executive Officer of Twin Rivers
since 1996; President of Twin Rivers from 1990 to 1996.
78
<PAGE>
- --------------------------------------------------------------------------------
Class C Directors Whose Term Expires in 2001
RICHARD A. CLINE, 65
Director of Vista since 1988; director of PNB since 1979; and director of
Twin Rivers since 1990. Current Vice-Chairman of the Board of Directors of
Vista and current Chairman of the Board of Directors of Twin Rivers.
Retired.
JAMES T. FINEGAN, JR., 39
Director of Vista since 1995 and director of PNB since 1993.
Ophthalmologist.
DAVID L. HENSLEY, 52
Director of Vista since 1988; director of PNB since 1985; and director of
Twin Rivers since 1990. Current Executive Vice President of Vista.
President and Chief Executive Officer of PNB since 1997. President of PNB
from 1990 to 1997. Chief Operations Officer at PNB from 1985 to 1997.
- --------------------------------------------------------------------------------
Required Vote
Nominees will be elected who receive a vote equal to a plurality of the shares
of stock represented at the meeting. Your Board of Directors recommends a vote
FOR the nominees for Class A director listed above. Abstentions and votes
withheld for directors will have the same effect as votes against.
<TABLE>
<CAPTION>
COMMITTEES OF THE BOARD OF DIRECTORS
- -------------------------------------------------------------------------------------------------------------------
Name Board of Directors Executive Audit Planning Retirement Compensation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Cline |X| |X| |X|(1) |X| |X|
- -------------------------------------------------------------------------------------------------------------------
Harold J. Curry |X|(1) |X|(1) |X|(1)
- -------------------------------------------------------------------------------------------------------------------
Dale F. Falcinelli |X| |X|(1) |X| |X|
- -------------------------------------------------------------------------------------------------------------------
James T. Finegan, Jr. |X| |X| |X| |X| |X|
- -------------------------------------------------------------------------------------------------------------------
Barry L. Hajdu |X| |X| |X| |X|
- -------------------------------------------------------------------------------------------------------------------
Barbara Harding |X|
- -------------------------------------------------------------------------------------------------------------------
David L. Hensley |X|
- -------------------------------------------------------------------------------------------------------------------
Mark A. Reda |X| |X| |X| |X|(1) |X|
- -------------------------------------------------------------------------------------------------------------------
Marc S. Winkler |X|
- -------------------------------------------------------------------------------------------------------------------
J. Marshall Wolff |X| |X| |X| |X|
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Chairman.
Number of Meetings
The Board of Directors met 12 times during 1998. All of Vista's directors
attended 75% or more of all Board of Directors and Committee meetings
during 1998.
Executive Committee
The Executive Committee 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 strategic plan, capital structure and earnings performance. In
addition, the Executive Committee analyzes other management issues, including
the annual compensation review of key executive officers, and periodically makes
recommendations to the Board of Directors based on its findings.
79
<PAGE>
Audit Committee
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, 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.
Planning Committee
The Planning Committee works with management to formulate strategic planning for
Vista. The Board of Directors of the subsidiaries forward their strategic plans
and expansion opportunities to the Planning Committee for its review, guidance
and approval.
Retirement Committee
The Retirement Committee is responsible for evaluating Vista's retirement
benefits including all retirement plans. This committee reviews and votes on all
proposed changes to Vista's pension and post retirement plans.
Compensation Committee
The Compensation Committee reviews issues with respect to employee incentive
plans and other benefit plans for executive officers and is composed of all of
the non-officer directors.
BOARD OF DIRECTORS' COMPENSATION
Directors' Fees
Directors' fees, paid only to directors who are not Vista employees, are as
follows:
Fee for each Board of Directors' meeting attended........... $ 400
Fee for each committee meeting attended..................... $ 200
Annual retainer fee paid to each director................... $ 1,500
Directors received in the aggregate in 1998 $62,600 in fees.
STOCK OWNERSHIP
THIS SECTION DESCRIBES HOW MUCH STOCK OUR DIRECTORS AND EXECUTIVE OFFICERS OWN.
IT ALSO DESCRIBES THE PERSONS OR ENTITIES THAT OWN MORE THAN 5% OF OUR VOTING
STOCK.
STOCK OWNED BY DIRECTORS AND EXECUTIVE OFFICERS
This table indicates the number of shares of Common Stock owned by the executive
officers and/or directors as of March 12, 1999. The aggregate number of shares
owned by all directors and executive officers is 13.4%. Unless otherwise noted,
each individual has sole voting and investment power for the shares indicated
below.
80
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned as of March 12, 1999
------------------------------------------------------------------------
Aggregate Number of
Name Options (1) Shares Beneficially Owned (2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard A. Cline 248,998
- ------------------------------------------------------------------------------------------------------------------
Harold J. Curry 102,627
- ------------------------------------------------------------------------------------------------------------------
Dale F. Falcinelli 4,620
- ------------------------------------------------------------------------------------------------------------------
James T. Finegan, Jr. 34,070
- ------------------------------------------------------------------------------------------------------------------
Barry L. Hajdu 46,676
- ------------------------------------------------------------------------------------------------------------------
Barbara Harding 4,950 47,043(4)
- ------------------------------------------------------------------------------------------------------------------
David L. Hensley 2,750 16,406
- ------------------------------------------------------------------------------------------------------------------
William F. Keefe 2,750 38,080(4)
- ------------------------------------------------------------------------------------------------------------------
Mark A. Reda 60,805
- ------------------------------------------------------------------------------------------------------------------
Marc S. Winkler 2,750 9,251
- ------------------------------------------------------------------------------------------------------------------
J. Marshall Wolff 7,353
- ------------------------------------------------------------------------------------------------------------------
Directors and Officers as a Group(3) 13,200 615,929
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes options exercisable within 60 days of March 12, 1999.
(2) Includes amounts listed in the options column plus shares held (a)
directly, (b) jointly with a spouse, (c) individually by spouse, (d) by the
transfer agent in the Vista dividend reinvestment account, and (e) in
various trusts and custodial accounts.
(3) Includes 10 directors, 3 nominees for director, 6 officers - 11 persons in
total.
(4) Includes 28,132 shares held in Vista's pension plan of which Mrs. Harding
and Mr. Keefe are co-trustees who share investment and voting power with
respect to these shares. Mrs. Harding and Mr. Keefe disclaim any beneficial
ownership interest with respect to shares held in the pension plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Executive officers and directors and "beneficial owners" of more than ten
percent of the Common Stock must file initial reports of ownership and reports
of changes in ownership with the SEC and The NASDAQ Stock Market pursuant to
Section 16(a).
We have reviewed the reports and written representations from the executive
officers and directors. Based on this review, Vista believes that all filing
requirements were met during 1998.
VOTING STOCK OWNED BY "BENEFICIAL OWNER"
The following are the persons or entities known by Vista to own beneficially
more than five percent of the Common Stock as of March 12, 1999.
- --------------------------------------------------------------------------------
Name and Address Number of Shares Percent of Class
- --------------------------------------------------------------------------------
Richard A. Cline 248,998 5.4%
813 South Main Street
Stewartsville, New Jersey 08886
- --------------------------------------------------------------------------------
Phillipsburg National Bank and Trust Company 364,269 (1) 7.9%
305 Roseberry Street, P.O. Box 5360
Phillipsburg, New Jersey 08865
- --------------------------------------------------------------------------------
Valley National Bank 430,389 (2) 9.4%
1455 Valley Road
Wayne, New Jersey 07470
- --------------------------------------------------------------------------------
(1) PNB's trust department holds or votes these shares in various fiduciary
capacities and PNB's officers vote some of these shares under the employee
retirement plan.
(2) According to the Schedule 13D filed with Vista on or about September 23,
1998, Valley National Bancorp is the parent bank holding company for the
Valley National Bank. Valley National Bancorp disclosed that it had no
plans, at the time of filing its Schedule 13D, to increase its ownership
interest above 9.99% of the Common Stock or to effect any merger,
reorganization, tender offer, exchange offer or any other type of
transaction involving Vista. Furthermore, Valley National Bank made certain
commitments to the Federal Reserve Board, which were, among others, that
without prior approval of the Federal Reserve Board, it would not: seek any
representation on
81
<PAGE>
the Vista Board of Directors; exercise any controlling influence over Vista
management or policies; and solicit or participate in soliciting proxies
with respect to any matter presented to Vista stockholders.
EXECUTIVE COMPENSATION
THIS SECTION CONTAINS CHARTS THAT SHOW THE AMOUNT OF COMPENSATION EARNED BY OUR
EXECUTIVE OFFICERS WHOSE SALARY AND BONUS EXCEEDED $100,000 FOR 1998. IT ALSO
CONTAINS THE PERFORMANCE GRAPH COMPARING VISTA'S PERFORMANCE RELATIVE TO ITS
PEER GROUP AND THE REPORT OF OUR EXECUTIVE COMMITTEE EXPLAINING THE COMPENSATION
PHILOSOPHY FOR OUR MOST HIGHLY PAID OFFICERS.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
-------------------
Annual Compensation Awards Payouts
- ------------------------------------------ ---------------------------------------- --------- ---------
Other Annual LTIP All Other
Salary Bonus Compensation Options Payouts Compensation
Name and Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barbara Harding 1998 199,004 6,036 20,166 19,800 29,454 -0-
President and Chief Executive Officer of 1997 183,768 26,416 22,692 -- 20,662
Vista and Chairman of PNB 1996 169,520 30,658 23,749 -- --
- ----------------------------------------------------------------------------------------------------------------------
David L. Hensley 1998 159,042 5,139 21,376 11,000 21,522 -0-
Executive Vice President of Vista and 1997 150,020 21,910 21,994 -- 17,587
President and Chief Executive Officer of 1996 139,048 25,626 21,111 -- --
PNB
- ----------------------------------------------------------------------------------------------------------------------
Marc S. Winkler 1998 150,020 -0- 13,915 11,000 11,397 -0-
Executive Vice President of Vista and 1997 134,160 11,732 16,024 -- -0-
President and Chief Executive Officer of 1996 124,020 14,985 14,085 -- --
Twin Rivers
- ----------------------------------------------------------------------------------------------------------------------
William F. Keefe 1998 116,168 5,139 13,948 11,000 21,522 -0-
Executive Vice President and Chief 1997 108,056 18,134 12,965 -- 17,587
Financial Officer of Vista and Senior 1996 100,048 22,116 13,562 -- --
Vice President and Chief Financial
Officer of PNB
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the cash bonus award under the Employee Incentive Plan that was
adopted in 1994.
(2) Includes directors' fees; life, medical and disability insurance premiums;
401(K) matching contributions; automobile use and social club dues.
(3) Includes option grants under the 1998 Stock Compensation Plan.
(4) Represents the dollar value of Vista Common Stock awarded under the
Employee Incentive Plan.
EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
Executive compensation for the officers of Vista and its subsidiary banks is
primarily determined by the Executive Committee of Vista's Board of Directors.
Salaries and bonuses for the executive officers are reviewed annually. All
executive compensation is paid by the respective subsidiary bank to the
applicable executive.
Compensation Philosophy
Vista's executive compensation philosophy is designed to attract, retain, and
motivate highly qualified executives in line with three central themes:
alignment, accountability, and attraction.
o Alignment with the long-term interests of our stockholders;
o Accountability for results by linking the executive's compensation to
Vista's financial performance and individual performance; and
o Attraction, motivation and retention of key executives.
- ----------
* Pursuant to the Proxy Rules, this section of the proxy statement is not
deemed "filed" with the SEC and is not incorporated by reference into
Vista's Report on Form 10-K.
82
<PAGE>
The Executive Committee annually conducts a full review of the performance of
Vista and its executives in determining compensation levels. For 1998, the
Executive Committee considered various qualitative and quantitative indicators
of Vista and individual performance in determining the level of compensation for
Vista's Chief Executive Officer and its other executive officers. The review
included an evaluation of Vista's performance both on a short- and long-term
basis. This review included an analysis of quantitative measures, such as growth
in earnings, earnings per share, and Return on Equity. The Executive Committee
considered also qualitative measures such as leadership, experience, strategic
direction, community representation and social responsibility. The Executive
Committee has been sensitive to management's maintaining a balance between
actions that foster long-term value creation and short-term performance. In
addition, the Executive Committee evaluates total executive compensation in
light of the operational and financial performance and compensation practices of
the commercial banking industry in the Mid-Atlantic region.
Depending on Vista's performance and individual performance, the Executive
Committee determines appropriate base salary and annual bonuses. However, the
Compensation Committee determines the award of stock options for Vista's
executives. In 1998, the Executive and Compensation Committees did not apply any
specific quantitative formulae in arriving at their respective compensation
decisions on base salary and the award of stock options.
Components of Executive Compensation
Base Salary
Base salaries are reviewed each year and generally adjusted relative to
individual performance and competitive salaries with the commercial banking
industry in the Mid-Atlantic region. Actual salaries will continue to be set
according to the scope of the responsibilities of each executive officer's
position.
1998 Stock Compensation Plan
The Compensation Committee made grants under this plan in 1998 to four executive
officers. Information on these grants is set forth in the chart "Option Grants
For 1998." the Compensation Committee believes that these stock options align
the interests of the executives with those of the stockholders by encouraging
management to focus on total stockholder return and providing them an
opportunity to share more directly in the creation of Vista value.
Submitted By The Members Of The Executive Committee
Richard A. Cline Barry Hajdu
Harold J. Curry Mark A. Reda
<TABLE>
<CAPTION>
OPTION GRANTS FOR 1998
- ---------------------------------------------------------------------------------------------------------------------
Individual Grants (1)
-------------------------------------------------------------------
Potential Realizable Value at
% of Total Assumed Annual Rates of
Options Stock Price Appreciation for
Options Granted Exercise Option Term (2)
Granted to Employees Price -----------------------------
Name (#) for 1998 ($/Sh) Expiration Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barbara Harding 19,800 37.5 19.25 February 20, 2008 $239,703 $607,455
- ---------------------------------------------------------------------------------------------------------------------
David L. Hensley 11,000 20.9 19.25 February 20, 2008 $133,168 $337,975
- ---------------------------------------------------------------------------------------------------------------------
Marc S. Winkler 11,000 20.8 19.25 February 20, 2008 $133,168 $337,975
- ---------------------------------------------------------------------------------------------------------------------
William F. Keefe 11,000 20.8 19.25 February 20, 2008 $133,168 $337,975
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 10-year options were granted on February 20, 1998, pursuant to the 1998
Stock Compensation Plan at the exercise price listed above, which equals
the fair market on date of grant. These option grants were awarded based on
Vista's individual performance in 1998. Each option will become exercisable
as to one-fourth of the total shares granted on February 20, 1999, as to
one-fourth on February 20, 2000, as to one-fourth on February 20, 2001, and
as to the remaining one-fourth on February 20, 2002. In the event of a
change in control, the Compensation Committee can specify a termination
date for all outstanding options and the holder shall receive an amount
equal to the excess of the fair market value prior to the change in control
date over the exercise price. Options are canceled
83
<PAGE>
3 months after termination without cause. Options are canceled that have
not become exercisable immediately upon termination for cause.
(2) These columns present hypothetical future values that might be realized
upon exercise of the options, minus the exercise price. These values assume
that the market price of Vista's stock appreciates at a five and ten
percent compound annual rate over the 10-year term of options. The five and
ten percent rates of stock price appreciation are presented as examples
pursuant to the SEC's Proxy Rules and do not necessarily reflect
management's assessment of Vista's future stock price performance. These
potential realizable values presented are not intended to indicate the
value of the options.
ESTIMATED RETIREMENT BENEFITS
Vista maintains a defined benefit pension plan covering all employees. Benefits
under the plan are based on a "Cash Balance" type formula under which
hypothetical accounts are maintained for each employee. The initial amount of
this account was the actuarial present value of pension benefits earned under a
prior formula. In subsequent years, this hypothetical account is increased by an
annual addition based on the employee's salary and by interest. At retirement,
the amount in this hypothetical account will be converted to the actuarially
equivalent monthly income.
Estimated annual benefits payable upon retirement at normal retirement age (age
65) for each named executive are as follows:
Barbara Harding $143,600
David L. Hensley $ 77,455
Marc S. Winkler $134,876
William F. Keefe $119,567
These estimates are based on the assumption that base salaries will increase at
an annual rate of 5% and assumes that no bonuses will be paid after 1998; the
Social Security Taxable Wage Base will increase 5% per year; the federal limit
on maximum compensation will grow at a ratio of 3% per year; and the maximum
limit on plan benefits will increase such that it will not limit benefits for
these employees.
Vista has also a 401(k) retirement savings plan. Under the 401(k) retirement
savings plan, employee contributions are partially matched by Vista. Such
matching becomes vested proportionally over five years of credited service.
FIVE-YEAR PERFORMANCE GRAPH*
The following graph and table compare the cumulative total stockholder return on
Vista's Common Stock during the five-year period ending on December 31, 1998,
with (i) the cumulative total return on the SNL Securities Corporate Performance
Index(1) for publicly-traded banks with less than $500 million in total assets
in the Middle Atlantic area(2), (ii) for-publicly-traded banks with total assets
between $500 million and $1 billion in the Middle Atlantic area, and (iii) the
cumulative total return for all United States stocks traded on the NASDAQ Stock
Market. The comparison assumes the value of the investment in Vista Common Stock
and each index was $100 on December 31, 1993, and assumes further the
reinvestment of dividends into the applicable securities. The stockholder return
shown on the graph and table below is not necessarily indicative of future
performance.
- ----------
* Pursuant to the Proxy Rules, this section of the proxy statement is deemed
"filed" with the SEC and is not incorporated by reference into Vista's
Report on Form 10-K.
84
<PAGE>
Required Vote
The proposal will be approved if it receives the affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy at the meeting.
The Board of Directors recommends that you vote FOR approval of the appointment
of Rudolph, Palitz LLP. Proxies solicited by the Board of Directors will be so
voted unless you specify otherwise.
EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL TO APPROVE THE 1999 EMPLOYEE STOCK PURCHASE PLAN
Item 3 on Proxy Card
Vista has had an Employee Stock Purchase Plan since 1988 and the plan has been
successful over the years. The Vista stockholders have given their approvals to
amendments to this plan and to further reservations of Common Stock for employee
purchases under the plan. As a continuation of this plan, Vista's Board of
Directors has approved the 1999 Employee Stock Purchase Plan which reserves an
additional 25,000 shares of Common Stock for all employees to purchase under the
terms of this plan. The Stockholders must approve this plan. The terms of this
new plan are the same as those of the current Employee Stock Purchase Plan.
Vista management made the commitment to its stockholders that all future
reservations of Common Stock for employee purchases must be approved by the
Board of Directors and the stockholders.
The plan acts as a vehicle for all of Vista employees to own an interest in the
company through a voluntary payroll deduction. The plan is another method for
the employees to become more aligned with the interests of the stockholders and
to be a stakeholder in the overall financial performance of Vista.
The 1999 Employee Stock Purchase Plan will be approved if it receives the
affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the meeting.
The Board of Directors recommends that you vote FOR approval of the 1999
Employee Stock Purchase Plan as set forth at Exhibit A.
OTHER INFORMATION
THIS SECTION SETS OUT OTHER INFORMATION YOU SHOULD KNOW BEFORE YOU VOTE.
TRANSACTIONS INVOLVING VISTA'S DIRECTORS AND EXECUTIVE OFFICERS
Vista encourages its directors and executive officers to have banking and
financial transactions with its bank subsidiaries. All of these transactions are
made on comparable terms and with similar interest rates as those prevailing for
other customers.
The total consolidated loans made by Vista at December 31, 1998, to its
directors and officers as a group, members of their immediate families and
companies in which they have a 10% or more ownership interest was $6.5 million
or 13.9% of Vista's total consolidated capital accounts. The largest amount for
all of these loans in 1998 was $6.5 million or 13.9% of Vista's total
consolidated capital accounts. During 1998, advances and repayments on these
loans were $9.1 million and $8.4 million, respectively. These loans did not
involve more than the normal risk of collectibility nor did they present other
unfavorable features.
85
EXHIBIT 99B
SEC GUIDE 3 FINANCIAL INFORMATION
86
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
The following table sets forth the composition of Vista's loan portfolio as of the dates indicated:
For The Years Ended December 31,
--------------------------------------------------------------------
Amounts in Thousands 1998 1997 1996 1995 1994
- ---------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $136,449 $ 98,813 $ 78,250 $ 67,311 $ 54,870
Real estate - construction loans 558 614 1,043 807 1,509
Real estate - mortgage loans 136,980 131,882 139,569 133,664 130,499
Consumer loans 95,539 86,180 80,702 62,500 50,143
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total loans $369,526 $317,489 $299,564 $264,282 $237,021
- ---------------------------------------------------- -------- -------- -------- -------- --------
<CAPTION>
The following table presents the percentage distribution of loans by category as of the dates indicated:
For The Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------- ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing 36.93% 31.12% 26.12% 25.47% 23.15%
Real estate - construction loans 0.15% 0.19% 0.35% 0.31% 0.64%
Real estate - mortgage loans 37.07% 41.54% 46.59% 50.58% 55.05%
Consumer loans 25.85% 27.14% 26.94% 23.64% 21.16%
- ---------------------------------------------------- ------ ------ ------ ------ ------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
- ---------------------------------------------------- ------ ------ ------ ------ ------
<CAPTION>
The following table shows the maturity of loans in the specified categories of Vista's loan portfolio at December 31, 1998,
and the amount of such loans with predetermined fixed rates or with floating or adjustable rates:
December 31, 1998
--------------------------------------------------------------------
Maturing Maturing
Maturing after after Maturing
in one one year five years after Total
year through through ten years
Amounts in Thousands or less five years ten years
- ---------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Types of loans:
Commercial, financial, agricultural loans
and lease financing $ 46,713 $ 82,608 $ 4,896 $ 2,232 $136,449
Real estate - construction loans 530 -- -- 28 558
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total $ 47,243 $ 82,608 $ 4,896 $ 2,260 $137,007
- ---------------------------------------------------- -------- -------- -------- -------- --------
Amount of such loans with:
Predetermined fixed rates $ 36,508 $ 51,087 $ 4,896 $ 2,260 $ 94,751
Floating or adjustable rates 10,735 31,521 -- -- 42,256
- ---------------------------------------------------- -------- -------- -------- -------- --------
Total $ 47,243 $ 82,608 $ 4,896 $ 2,260 $137,007
- ---------------------------------------------------- -------- -------- -------- -------- --------
</TABLE>
87
<PAGE>
<TABLE>
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:
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1998 1997 1996 1995 1994
- ------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $369,526 $317,489 $299,564 $264,282 $237,021
- ------------------------------------------------------ -------- -------- -------- -------- --------
Average loans outstanding during the period $342,676 $312,696 $281,518 $251,062 $223,477
- ------------------------------------------------------ -------- -------- -------- -------- --------
Allowance for loan losses:
Balance, beginning of period $ 4,148 $ 3,903 $ 3,932 $ 3,947 $ 3,697
Loans charged off:
Commercial, financial, agricultural loans
and lease financing 115 139 194 92 52
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 181 110 25 77 172
Consumer loans 243 487 260 88 100
- ------------------------------------------------------ -------- -------- -------- -------- --------
Total loans charged off 539 736 479 257 324
Recoveries:
Commercial, financial, agricultural loans
and lease financing 30 1 32 20 38
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 65 109 5 14 32
Consumer loans 40 41 33 18 24
- ------------------------------------------------------ -------- -------- -------- -------- --------
Total recoveries 135 151 70 52 94
- ------------------------------------------------------ -------- -------- -------- -------- --------
Net loans charged off 404 585 409 205 230
Provision for loan losses 780 830 380 190 480
- ------------------------------------------------------ -------- -------- -------- -------- --------
Balance, end of period $ 4,524 $ 4,148 $ 3,903 $ 3,932 $ 3,947
- ------------------------------------------------------ -------- -------- -------- -------- --------
Net loans charged off during the period as
a percent of average loans outstanding
during the period 0.12% 0.19% 0.15% 0.08% 0.10%
- ------------------------------------------------------ -------- -------- -------- -------- --------
The following table presents an allocation of Vista's allowance for loan losses
as to indicated categories as of the dates indicated:
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
Amounts in Thousands 1998 1997 1996 1995 1994
- ------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $2,908 $1,972 $1,949 $1,805 $1,726
Real estate - construction loans - - - - -
Real estate - mortgage loans 530 515 520 554 518
Consumer loans 789 706 664 434 330
Unallocated 297 955 770 1,139 1,373
- ------------------------------------------------------ -------- -------- -------- -------- ---------
Total allowance for loan losses $4,524 $4,148 $3,903 $3,932 $3,947
- ------------------------------------------------------ -------- -------- -------- -------- ---------
</TABLE>
88
<PAGE>
<TABLE>
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:
<CAPTION>
For The Years Ended December 31,
- ------------------------------------------------------------- ---------------------------------------------------------------
Amounts in Thousands 1998 1997 1996 1995 1994
- ------------------------------------------------------------- ------ ------ ------ ------ ------
Nonaccrual, Restructured and Past Due Loans:
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) $1,930 $2,915 $3,177 $4,035 $3,454
Restructured loans on accrual status 495 299 207 155 159
Accrual loans past due 90 days or more 160 78 224 356 172
- ------------------------------------------------------------- ------ ------ ------ ------ ------
Total nonaccrual, restructured and past due loans $2,585 $3,292 $3,608 $4,546 $3,785
- ------------------------------------------------------------- ------ ------ ------ ------ ------
Other real estate $1,112 $1,359 $1,280 $489 $744
- ------------------------------------------------------------- ------ ------ ------ ------ ------
Interest income that would have been recorded
under original terms $89 $193 $86 $128 $150
- ------------------------------------------------------------- ------ ------ ------ ------ ------
Interest income recorded during the period (2) $81 $62 $153 $167 $314
- ------------------------------------------------------------- ------ ------ ------ ------ ------
(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>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------------------
The following table presents average deposits by type and the average interest
rates paid as of the dates indicated:
<CAPTION>
For The Years Ended December 31,
-------------------------------------------------------------------------------------
1998 1997 1996
---------------------- ------------------------ -----------------------
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 55,241 0.00% 44,755 0.00% 39,154 0.00%
Interest-bearing demand 79,060 2.14% 72,051 2.14% 68,306 2.26%
Savings 128,465 3.05% 118,591 3.21% 109,819 3.15%
Time:
Certificates less than $100,000 196,919 5.43% 197,546 5.45% 171,565 5.37%
Certificates $100,000 and over 42,095 5.56% 36,839 5.61% 31,623 5.41%
- ------------------------------------------- ------- ---- ------- ---- ------- ----
Total deposits 501,780 3.72% 469,782 3.87% 420,467 3.79%
- ------------------------------------------- ------- ---- ------- ---- ------- ----
<CAPTION>
- -------------
- -----------------------------------------------------------------------------------------------------------------------
BORROWED FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
The following table presents summarized information relating to borrowed funds
as of the dates indicated:
For The Years Ended December 31,
-----------------------------------------
Amounts in Thousands (Except Percentages) 1998 1997 1996
-------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Balance at end of period $16,963 $8,859 $16,643
Weighted average interest rate at end of period 3.95% 4.42% 4.64%
Maximum amount outstanding
at any month-end during the period $20,902 $23,300 $16,643
Average amount outstanding during the period $13,672 $14,407 $13,000
Weighted average interest rate during the period 4.30% 4.78% 4.51%
-------------------------------------------------- ------- ------- -------
</TABLE>
89
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------------------------------------------------------------------
The following table presents the maturities and the weighted average yields on a
tax-equivalent basis for Vista's securities portfolio:
<CAPTION>
For The Year Ended December 31, 1998
----------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years
Amounts in Thousands ------------------- ------------------- ------------------
(Except Percentages) Amount Yield Amount Yield Amount Yield
- ----------------------------------------- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $6,049 6.24% $8,229 5.75% $ - $ -
U.S. Government agencies and corporations 1,001 6.12% 10,933 5.87% 15,530 6.41%
State and other political subdivisions 722 5.15% 5,944 6.41% 2,900 6.87%
Other 2,330 6.91% 4,310 6.45% 1,871 6.19%
- ----------------------------------------- ------- ----- ------- ----- ------- -----
Total securities $10,102 6.30% $29,416 6.03% $20,301 6.46%
- ----------------------------------------- ------- ----- ------- ----- ------- -----
<CAPTION>
For The Year Ended December 31, 1998
-----------------------------------------------------------------------------
After ten years No maturity Total
Amounts in Thousands --------------------- ------------------- ---------------------
(Except Percentages) Amount Yield Amount Yield Amount Yield
- ----------------------------------------- -------- ----- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ -- -- $ -- -- $14,278 5.96%
U.S. Government agencies and corporations 86,465 6.33% -- -- 113,929 6.29%
State and other political subdivisions 26,720 6.92% -- -- 36,286 6.80%
Other 3,318 7.37% 3,841 6.38% 15,670 6.66%
- ----------------------------------------- -------- ----- ------ ----- -------- -----
Total securities $116,503 6.49% $3,841 6.38% $180,163 6.40%
- ----------------------------------------- -------- ----- ------ ----- -------- -----
</TABLE>
Note: At December 31, 1998, all securities were classified as available
for sale.
90
