SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
|_| 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.
(Name of small business issuer in its charter)
NEW JERSEY 22-2870972
(State or 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: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.50 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. |_|
The aggregate market value of the voting stock held by
non-affiliates of the Registrant was: $ 62 million at March 13, 2000.
As of March 13, 2000, the Registrant had outstanding 4,828,221
shares of its common stock, par value $0.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
In addition, portions of the Annual Report to stockholders of the
Registrant for the year ended December 31, 1999, are incorporated by reference
in Part II of this Annual Report.
Page 1 of 78
Exhibit Index on Page 34
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VISTA BANCORP, INC.
FORM 10-K
INDEX
Part I
<TABLE>
<S> <C> <C>
Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 22
Item 3. Legal Proceedings........................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......................... Not Applicable
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................... 23
Item 6. Selected Financial Data..................................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.................................................. 24
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................... 24
Item 8. Financial Statements and Supplementary Data................................. 24
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.......................... 24
Item 11. Executive Compensation...................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 31
Item 13. Certain Relationships and Related Transactions.............................. 33
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 33
Signatures ............................................................................ 34
Index to Exhibits...................................................................... 36
</TABLE>
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VISTA BANCORP, INC.
FORM 10-K
PART I
Item 1. Business
General
We are a registered bank holding company and New Jersey business corporation and
are headquartered in Phillipsburg, New Jersey. We have two wholly-owned
subsidiary banks which are Phillipsburg National Bank and Trust Company
headquartered in Phillipsburg, New Jersey which is referred to as Phillipsburg
National, and Twin Rivers Community Bank headquartered in Easton, Pennsylvania,
which is referred to as Twin Rivers. Sometimes, we will refer to Phillipsburg
National and Twin Rivers as our Subsidiary Banks. Our business consists of the
management and supervision of the Subsidiary Banks. Our principal source of
income is dividends paid by the Subsidiary Banks. At December 31, 1999, we had,
on a consolidated basis, approximately:
o $ 655 million in total assets;
o $ 406 million in loans;
o $ 567 million in deposits; and
o $ 44 million in stockholders' equity.
Phillipsburg National is a national banking association and member of the
Federal Reserve System. Twin Rivers is a Pennsylvania commercial bank and member
of the Federal Reserve System. The deposits of the Bank Subsidiaries are insured
by the Bank Insurance Fund of the FDIC. The Bank Subsidiaries are full-service
commercial banks providing a range of services and products, including time and
demand deposit accounts, consumer, commercial and mortgage loans, and commercial
leases to individuals and small to medium-sized business in their market areas.
Phillipsburg National also operates a full-service trust department. At December
31, 1999, Phillipsburg National had 9 branch banking offices which are located
in the New Jersey counties of Warren and Hunterdon and Twin Rivers had 6 branch
banking offices located in the Pennsylvania counties of Northampton and Lehigh.
We consider our branch banking offices to be a single operating segment, because
these branches have similar:
o economic characteristics,
o products and services,
o operating processes,
o delivery system,
o customer bases, and
o regulatory oversight.
We have not operated any other reportable operating segments in the 3-year
period ended December 31, 1999.
As of December 31, 1999, we had 227 employees on a full-time equivalent basis.
The Company and the Bank Subsidiaries are not parties to any collective
bargaining agreement and employee relations are considered to be good.
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Our growth strategy is centered on the further development of our
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 the 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.
Supervision and Regulation
The following discussion sets forth the material elements of the regulatory
framework applicable to us and the Bank Subsidiaries and provides certain
specific information. This regulatory framework is primarily intended for the
protection of investors in our common stock, depositors at the Bank Subsidiaries
and the Bank Insurance Fund that insures bank deposits. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified by reference to those provisions. A change in the statutes,
regulations or regulatory policies applicable to us or the Bank Subsidiaries may
have a material effect on our business.
Intercompany Transactions
Various governmental requirements, including Sections 23A and 23B of the Federal
Reserve Act, limit borrowings by us from the Bank Subsidiaries and also limit
various other transactions between us and the Bank Subsidiaries. For example,
Section 23A of the Federal Reserve Act limits to no more than ten percent of
their respective total capital the aggregate outstanding amount of the Bank
Subsidiaries' loans and other "covered transactions" with any particular
non-bank affiliate and limits to no more than 20 percent of their respective
total capital the aggregate outstanding amount of the Bank Subsidiaries' covered
transactions with all of their affiliates. At December 31, 1999, approximately
$4.2 million was available for loans to us from the Bank Subsidiaries. Section
23A of the Federal Reserve Act also generally requires that the Bank
Subsidiaries' loans to its non-bank affiliates be secured, and Section 23B of
the Federal Reserve Act generally requires that the Bank Subsidiaries'
transactions with its non-bank affiliates be on arm's-length terms. Also, we and
the Bank Subsidiaries are prohibited from engaging in certain "tie-in"
arrangements in connection with extensions of credit or provision of property or
services.
Supervisory Agencies
As a national bank and member of the Federal Reserve System, Phillipsburg
National is subject to primary supervision, regulation, and examination by the
Office of the Comptroller of the Currency and secondary regulation by the FDIC.
As a Pennsylvania commercial bank, Twin Rivers is subject to primary supervision
by the Pennsylvania Department of Banking and secondary regulation by the
Federal Reserve System. The Bank Subsidiaries are subject to extensive statutes
and regulations that significantly affect their business and activities. The
Bank Subsidiaries must file reports with their regulators concerning their
activities and financial condition and obtain regulatory approval to enter into
certain transactions. The Bank Subsidiaries are also subject to periodic
examinations by their regulators to ascertain compliance with various regulatory
requirements. Other applicable statutes and regulations relate to insurance of
deposits, allowable investments, loans, leases, acceptance of deposits, trust
activities, mergers, consolidations, payment of dividends, capital requirements,
reserves against deposits, establishment of branches and certain other
facilities, limitations on loans to one borrower and loans to affiliated
persons, activities of subsidiaries and other aspects of the business of banks.
Recent federal legislation has instructed federal agencies to adopt standards or
guidelines governing banks' internal controls, information systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation and benefits, asset quality, earnings and stock valuation, and
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other matters. Legislation adopted in 1994 gives the federal banking agencies
greater flexibility in implementing standards on asset quality, earnings, and
stock valuation. Regulatory authorities have broad flexibility to initiate
proceedings designed to prohibit banks from engaging in unsafe and unsound
banking practices.
We and the Bank Subsidiaries are also affected by various other governmental
requirements and regulations, general economic conditions, and the fiscal and
monetary policies of the federal government and the Federal Reserve Board. The
monetary policies of the Federal Reserve Board influence to a significant extent
the overall growth of loans, leases, investments, deposits, interest rates
charged on loans, and interest rates paid on deposits. The nature and impact of
future changes in monetary policies are often not predictable.
We are subject to the jurisdiction of the SEC for matters relating to the
offering and sale of our securities. We are also subject to the SEC's rules and
regulations relating to periodic reporting, insider trader reports and proxy
solicitation materials. Our common stock is listed for quotation of prices on
The NASDAQ Stock Market under the symbol "VBNJ", and, therefore, we must also
comply with the rules of The NASDAQ Stock Market.
Support of the Bank Subsidiaries
Under current Federal Reserve Board policy, we are expected to act as a source
of financial and managerial strength to the Bank Subsidiaries by standing ready
to use available resources to provide adequate capital funds to the Bank
Subsidiaries during periods of financial adversity and by maintaining the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting the Bank Subsidiaries. The support expected by the
Federal Reserve Board may be required at times when we may not have the
resources or inclination to provide it.
If a default occurred with respect to a Bank Subsidiary, any capital loans to
the Bank Subsidiary from us would be subordinate in right of payment to payment
of that Bank Subsidiary's depositors and certain of its other obligations.
Liability of Commonly Controlled Banks
The Bank Subsidiaries can be held liable for any loss incurred, or reasonably
expected to be incurred, by the FDIC in connection with:
o the default of a commonly controlled FDIC-insured depository
institution or
o any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default.
"Default" generally is defined as the appointment of a conservator or receiver,
and "in danger of default" generally is defined as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.
Depositor Preference Statute
In the "liquidation or other resolution" of a Bank Subsidiary by any receiver,
federal legislation provides that deposits and certain claims for administrative
expenses and employee compensation against that Bank Subsidiary are afforded a
priority over the general unsecured claims against that Bank Subsidiary,
including federal funds and letters of credit.
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Allowance For Loan Losses
There are certain risks inherent in making all loans. These risks include
interest rate changes over the time period in which loans may be repaid, risks
resulting from changes in our area economy, risks inherent in dealing with
individual borrowers, and, in the case of a loan backed by collateral, risks
resulting from uncertainties about the future value of the collateral.
Commercial loans and commercial real estate loans comprised 42 % of our total
consolidated loans as of December 31, 1999. Commercial loans are typically
larger than residential real estate loans and consumer loans. Because our loan
portfolio contains a significant number of commercial loans and commercial real
estate loans with relatively large balances, the deterioration of one or a few
of these loans may cause a significant increase in nonperforming loans. An
increase in nonperforming loans could result in a loss of earnings from these
loans, an increase in the provision for loan losses and loan charge-offs.
Our Bank Subsidiaries maintain an allowance for loan losses to absorb any loan
losses based on, among other things, our historical experience, an evaluation of
economic conditions, and regular reviews of any delinquencies and loan portfolio
quality. We cannot assure you that charge-offs in future periods will not exceed
the allowance for loan losses or that additional increases in the allowance for
loan losses will not be required. Additions to the allowance for loan losses
would result in a decrease in our net income and, possibly, our capital.
In evaluating our allowance for loan losses, we divide our loans into the
following categories:
o commercial (including investment property mortgages),
o residential mortgages, and
o consumer.
We evaluate some loans as a group and some individually. Commercial loans with
balances exceeding $200 thousand are reviewed individually.
After our evaluation of these loans, we allocate portions of our allowance for
loan losses to categories of loans based upon the following considerations:
o historical loss levels,
o prevailing economic conditions,
o delinquency trends,
o concentrations of credit risk, and
o changes in loan policies or underwriting standards.
We use a self-correcting mechanism to reduce differences between estimated and
actual losses. Management and the Board of Directors review the adequacy of the
reserve on a quarterly basis and adjustments are made accordingly.
For a more in-depth presentation of our allowance for loan losses and the
components of this allowance, please refer to Item 7 of this report under
Management's Discussion and Analysis of Financial Condition and Results of
Operations as well as footnotes 1 and 5 at Exhibit 13 to this report.
Capital Requirements
We are subject to risk-based capital requirements and guidelines imposed by the
Federal Reserve Board, which are substantially similar to the capital
requirements and guidelines imposed by the Comptroller of the Currency and
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Federal Reserve Board on Phillipsburg National and Twin Rivers, respectively.
For this purpose, a bank's or bank holding company's assets and certain
specified off-balance sheet commitments are assigned to four risk categories,
each weighted differently based on the level of credit risk that is ascribed to
those assets or commitments. In addition, risk-weighted assets are adjusted for
low-level recourse and market-risk equivalent assets. A bank's or bank holding
company's capital, in turn, includes the following tiers:
o core ("Tier 1") capital, which includes common equity,
non-cumulative perpetual preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in
equity accounts of consolidated subsidiaries, less goodwill, certain
identifiable intangible assets, and certain other assets; and
o supplementary ("Tier 2") capital, which includes, among other items,
perpetual preferred stock not meeting the Tier 1 definition,
mandatory convertible securities, subordinated debt and allowances
for loan and lease losses, subject to certain limitations, less
certain required deductions.
We, like other bank holding companies, are required to maintain Tier 1 and
"Total Capital" (the sum of Tier 1 and Tier 2 capital, less certain deductions)
equal to at least four percent and eight percent of their total risk-weighted
assets (including certain off-balance sheet items, such as unused lending
commitments and standby letters of credit), respectively. At December 31, 1999,
we met both requirements, with Tier 1 and Total Capital equal to 12.0 percent
and 13.3 percent of total consolidated risk-weighted assets.
The Federal Reserve Board has adopted rules to incorporate market and interest
rate risk components into their risk-based capital standards. Amendments to the
risk-based capital requirements, incorporating market risk, became effective
January 1, 1998. Under the new market-risk requirements, capital will be
allocated to support the amount of market risk related to a financial
institution's ongoing trading activities.
The Federal Reserve Board also requires bank holding companies to maintain a
minimum "Leverage Ratio" (Tier 1 capital to adjusted total assets) of three
percent if the bank holding company has the highest regulatory rating and meets
certain other requirements, or of three percent plus an additional cushion of at
least one to two percentage points if the bank holding company does not meet
these requirements. At December 31, 1999, our leverage ratio was 7.5 percent.
The Federal Reserve Board may set capital requirements higher than the minimums
noted above for holding companies whose circumstances warrant it. For example,
bank holding companies experiencing or anticipating significant growth may be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"Tangible Tier 1 Leverage Ratio" (deducting all intangibles) and other indicia
of capital strength in evaluating proposals for expansion or new activities or
when a bank holding company faces unusual or abnormal risk. The Federal Reserve
Board has not advised us of any specific minimum leverage ratio applicable to
it.
Phillipsburg National is subject to similar risk-based capital and leverage
requirements adopted by the Comptroller of the Currency. Phillipsburg National
was in compliance with the applicable minimum capital requirements as of
December 31, 1999. The Comptroller of the Currency has not advised Phillipsburg
National of any specific minimum leverage ratio applicable to it. Twin Rivers
was also in compliance with the applicable minimum capital requirements imposed
by the Federal Reserve System as of December 31, 1999. The Federal
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Reserve System has not advised Twin Rivers of any specific minimum leverage
ratio applicable to it.
Failure to meet capital requirements could subject the Bank Subsidiaries to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC, and to certain restrictions on their business. The Federal Deposit
Insurance Corporation Improvements Act of 1991 ("FDICIA"), among other things,
identifies five capital categories for insured banks - well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized - and requires federal bank regulatory agencies to
implement systems for "prompt corrective action" for insured banks that do not
meet minimum capital requirements based on these categories. The FDICIA imposed
progressively more restrictive constraints on operations, management, and
capital distributions, depending on the category in which an institution is
classified. Unless a bank is well capitalized, it is subject to restrictions on
its ability to offer brokered deposits, on "pass-through" insurance coverage for
certain of its accounts, and on certain other aspects of its operations. FDICIA
generally prohibits a bank from paying any dividend or making any capital
distribution or paying any management fee to its holding company if the bank
would thereafter be undercapitalized. An undercapitalized bank is subject to
regulatory monitoring and may be required to divest itself of or liquidate
subsidiaries. Holding companies of such institutions may be required to divest
themselves of such institutions or divest themselves of or liquidate other
affiliates. An undercapitalized bank must develop a capital restoration plan,
and its parent bank holding company must guarantee the bank's compliance with
the plan up to the lesser of five percent of the bank's assets at the time it
became undercapitalized or the amount needed to comply with the plan. Critically
undercapitalized institutions are prohibited from making payments of principal
and interest on subordinated debt and are generally subject to the mandatory
appointment of a conservator or receiver.
Rules adopted by the Comptroller of the Currency and the Federal Reserve System
under FDICIA provide that a bank is deemed to be well capitalized if the bank
has a total risk-based capital ratio of ten percent or greater, a Tier 1
risk-based capital ratio of six percent or greater, and a leverage ratio of five
percent or greater and the institution is not subject to a written agreement,
order, capital directive, or prompt corrective action directive to meet and
maintain a specific level of any capital measure. As of December 31, 1999,
Phillipsburg National and Twin Rivers were well-capitalized, based on the prompt
corrective action ratios and guidelines described above. It should be noted,
however, that a bank's capital category is determined solely for the purpose of
applying the prompt corrective action regulations, and that the capital category
may not constitute an accurate representation of the bank's overall financial
condition or prospects.
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Brokered Deposits
Under FDIC regulations, no FDIC-insured bank can accept brokered deposits unless
it (1) is well capitalized, or (2) is adequately capitalized and receives a
waiver from the FDIC. In addition, these regulations prohibit any bank that is
not well capitalized from paying an interest rate on brokered deposits in excess
of three-quarters of one percentage point over certain prevailing market rates.
As of December 31, 1999, the Bank Subsidiaries held no brokered deposits.
Dividend Restrictions
We are a legal entity separate and distinct from our Bank Subsidiaries. In
general, under New Jersey law, we cannot pay a cash dividend if such payment
would render us insolvent. Our revenues consist primarily of dividends paid by
the Bank Subsidiaries. The National Bank Act limits the amount of dividends
Phillipsburg National can pay to us without regulatory approval. Phillipsburg
National may declare and pay dividends to us to the lesser of:
o the level of undivided profits, and
o absent regulatory approval, an amount not in excess of net income
combined with retained net income for the preceding two years.
At December 31, 1999, approximately $ 7.4 million was available for payment of
dividends by Phillipsburg National to us.
Under Pennsylvania law, Twin Rivers may declare and pay dividends to us only out
of accumulated net earnings and so long as the surplus of Twin Rivers would not
be reduced below its stated paid-in capital.
At December 31, 1999, approximately $ 3.3 million was available for payment of
dividends by Twin Rivers to us.
In addition, federal bank regulatory authorities have authority to prohibit the
Bank Subsidiaries from engaging in an unsafe or unsound practice in conducting
its business. Depending upon the financial condition of the bank in question,
the payment of dividends could be deemed to constitute an unsafe or unsound
practice. The ability of the Bank to pay dividends in the future is currently
influenced, and could be further influenced, by bank regulatory policies and
capital guidelines.
Deposit Insurance Assessments
The deposits of the Bank Subsidiaries are insured up to regulatory limits by the
FDIC and, accordingly, are subject to deposit insurance assessments to maintain
the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC has adopted
regulations establishing a permanent risk-related deposit insurance assessment
system. Under this system, the FDIC places each insured bank in one of nine risk
categories based on the bank's capitalization and supervisory evaluations
provided to the FDIC by the institution's primary federal regulator. An insured
bank's insurance assessment rate is then determined by the risk category in
which it is classified by the FDIC.
In the light of the recent favorable financial situation of the federal deposit
insurance funds and the recent low number of depository institution failures,
effective January 1, 1997 the annual insurance premiums on bank deposits insured
by the BIF vary between $0.00 per $100 of deposits for banks classified in the
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highest capital and supervisory evaluation categories to $0.27 per $100 of
deposits for banks classified in the lowest capital and supervisory evaluation
categories. BIF assessment rates are subject to semi-annual adjustment by the
FDIC within a range of up to five basis points without public comment. The FDIC
also possesses authority to impose special assessments from time to time.
The Deposit Insurance Funds Act provides for assessments to be imposed on
insured depository institutions with respect to deposits insured by the BIF ( in
addition to assessments currently imposed on depository institutions with
respect to BIF-insured deposits) to pay for the cost of Financing Corporation
("FICO") funding. The FDIC established the FICO assessment rates effective for
the fourth quarter 1999 at approximately $0.012 per $100 annually for
BIF-assessable deposits. The FICO assessments are adjusted quarterly to reflect
changes in the assessment bases of the FDIC insurance funds and do not vary
depending upon a depository institution's capitalization or supervisory
evaluations. In 1999, we paid FICO assessments, on a consolidated basis, of $88
thousand.
Interstate Banking and Branching
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
("Riegle-Neal"), subject to certain concentration limits and other requirements:
o bank holding companies, such as we, are permitted to acquire banks
and bank holding companies located in any state;
o any bank that is a subsidiary of a bank holding company is permitted
to receive deposits, renew time deposits, close loans, service
loans, and receive loan payments as an agent for any other
depository institution subsidiary of that bank holding company; and
o banks are permitted to acquire branch offices outside their home
states by merging with out-of-state banks, purchasing branches in
other states, and establishing de novo branch offices in other
states.
The ability of banks to acquire branch offices through purchase or opening of
other branches is contingent, however, on the host state having adopted
legislation "opting in" to those provisions of Riegle-Neal. In addition, the
ability of a bank to merge with a bank located in another state is contingent on
the host state not having adopted legislation "opting out" of that provision of
Riegle-Neal.
Furthermore, Riegle-Neal provides that, beginning June 1, 1997, appropriate
federal supervisory agencies may approve a merger of one of the Bank
Subsidiaries with another bank located in a different state or the establishment
by the Bank Subsidiaries of a new branch office either by acquisition or de
novo, unless the State of New Jersey (with respect to Phillipsburg National
Bank) or the Commonwealth of Pennsylvania (with respect to Twin Rivers) enacts a
law prior to June 1, 1997, allowing an interstate merger or expressly
prohibiting merger with an out-of-state bank. Such transactions may be completed
prior to June 1, 1997, if the relevant states have opted-in to Riegle-Neal. With
respect to both interstate branching by acquisition or merger, both Pennsylvania
and New Jersey have opted-in. New Jersey law contains an early opt-in to the
provisions of Riegle-Neal regarding interstate branching by acquisition or
merger. On the other hand, New Jersey law does not contain an "opt-in" to the de
novo interstate branching provisions. The Commonwealth of Pennsylvania opted-in
to Riegle-Neal, 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 Riegle-Neal
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)
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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.
As of the date of this report, we are not contemplating any interstate
acquisitions of a bank or a branch office outside of the State of New Jersey and
the Commonwealth of Pennsylvania.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company, unless the Federal Reserve Board
has been notified and has not objected to the transaction. Under a rebuttable
presumption established by the Federal Reserve Board, the acquisition of ten
percent or more of a class of voting stock of a bank holding company with a
class of securities registered under Section 12 of the Exchange Act, such as we,
would, under the circumstances set forth in the presumption, constitute
acquisition of control of the bank holding company.
In addition, a company is required to obtain the approval of the Federal Reserve
Board under the Bank Holding Company Act before acquiring 25 percent (five
percent in the case of an acquirer that is a bank holding company) or more of
any class of outstanding common stock of a bank holding company, such as we, or
otherwise obtaining control or a "controlling influence" over that bank holding
company.
Permitted Non-Banking Activities
The Federal Reserve Board permits us or our 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:
o 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.
o 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:
- Real estate and personal property appraising. Performing
appraisals of real estate and tangible and intangible
personal property, including securities.
- 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.
- 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.
- Collection agency services. Collecting overdue accounts
receivable, either retail or commercial.
- 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.
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- 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.
- Acquiring debt in default. Acquiring debt that is in
default at the time of acquisition under certain
conditions.
- Real estate settlement servicing. Providing real estate
settlement services.
o Leasing personal or real property. Leasing personal or real property
or acting as agent, broker, or adviser in leasing such property
under certain conditions.
o Operating nonbank depository institutions:
- 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.
- 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.
o 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.
o Financial and investment advisory activities. Acting as investment
or financial advisor to any person, including (without, in any way,
limiting the foregoing):
- 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;
- Furnishing general economic information and advice,
general economic statistical forecasting services, and
industry studies;
- 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;
- 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;
- Providing educational courses, and instructional
materials to consumers on individual financial
management matters; and
- Providing tax-planning and tax-preparation services to
any person.
o Agency transactional services for customer investments:
- 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
-12-
<PAGE>
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.
- Riskless principal transactions. Buying and
selling in the secondary market all types of
securities on the order of customers as a
"riskless principal" to the extent of engaging in
a transaction in which the company, after
receiving an order to buy (or sell) a security
from a customer, purchases (or sells) the security
for its own account to offset a contemporaneous
sale to (or purchase from) the customer. This does
not include:
(A) Selling bank-ineligible securities at the
order of a customer that is the issuer of the
securities, or selling bank-ineligible securities in any
transaction where the company has a contractual
agreement to place the securities as agent of the
issuer; or
(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.
- 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.
- 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.
- Other transactional services. Providing to
customers as agent transactional services with
respect to swaps and similar transactions.
o Investment transactions as principal:
- 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.
- 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.
(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.
-13-
<PAGE>
- 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.
o Management consulting and counseling activities:
- Management consulting. Providing management
consulting advice under certain conditions.
- 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.
- 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.
o Support services:
- 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
(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.
o Insurance agency and underwriting:
- 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.
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<PAGE>
- 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.
- Engaging in any general insurance agency
activities.
o Community development activities:
- 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.
- Advisory activities. Providing advisory and
related services for programs designed primarily
to promote community welfare.
o 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.
o 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.
Community Reinvestment Act
The Community Reinvestment Act of 1977, as amended (the "CRA"), and the
regulations promulgated to implement the CRA are designed to create a system for
bank regulatory agencies to evaluate a depository institution's record in
meeting the credit needs of its community. CRA regulations establish 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. There are streamlined procedures for
evaluating small banks and the frequency of CRA examinations will occur less
often based upon a bank's CRA rating. A large retail institution is one which
does not meet the "small bank" definition. 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 under which, to be examined. In addition, the CRA regulations include
separate rules regarding the manner in which "wholesale banks" and "limited
purpose banks" will be evaluated for compliance.
For the purposes of the CRA regulations and based upon financial information as
of December 31, 1999, Phillipsburg National is deemed to be a large retail
institution and Twin Rivers is deemed to be a small bank. During 1999,
Phillipsburg National Bank was evaluated for CRA compliance using the lending,
service and investment tests and received a "satisfactory" rating. Twin Rivers
was evaluated for CRA compliance using the streamlined procedures for a small
bank and received a "satisfactory" rating in 1997.
Concentration
We are 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 our financial condition.
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<PAGE>
Financial Services Modernization
On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act
(the "Act") which will, in general, take effect on March 11, 2000. The Act
contains some of the most far-reaching changes governing the operations of
companies doing business in the financial services industry. The Act eliminates
the restrictions placed on the activities of banks and bank holding companies.
By creating two new structures - financial holding companies and financial
subsidiaries - we and the Bank Subsidiaries will be allowed to provide a wider
array of financial services and products that were reserved only for insurance
companies and securities firms. In addition, we can now affiliate with an
insurance company and a securities firm.
We would qualify to elect to become a financial holding company. This election
is made to the Federal Reserve Board. A financial holding company has authority
to engage in activities referred to as "financial activities" that are not
permitted to bank holding companies. A financial holding company may also
affiliate with companies that are engaged in financial activities. A "financial
activity" is an activity that does not pose a safety and soundness risk and is:
o financial in nature,
o incidental to an activity that is financial in nature, or
o complimentary to a financial activity.
The Act lists certain activities as financial in nature:
o Lending, investing or safeguarding money or securities;
o Underwriting insurance or annuities, or acting as an insurance or
annuity principal, agent or broker;
o Providing financial or investment advice;
o Issuing or selling interests in pools of assets that a bank could
hold;
o Underwriting, dealing in or making markets in securities;
o Engaging in any activity that the Federal Reserve Board found before
the Act to be related closely to banking (See the section in this
report entitled "Permitted Non-banking Activities");
o Engaging within the United States in any activity that a bank
holding company could engage in outside of the country, if the
Federal Reserve Board determined before the Act that the activity
was usual in connection with banking or other financial operations
internationally;
o Merchant banking - acquiring or controlling ownership interests in
an entity engaged in impermissible activities, if: the interests are
not held by a depository institution; the interests are held by a
securities affiliate or an investment advisory affiliate of an
insurance company as part of underwriting, merchant or investment
banking activity; the interests are held long enough to enable their
sale in a manner consistent with the financial viability of such an
activity; and we do not control the entity except to the extent
necessary to obtain a reasonable return on the investment; or
o Insurance portfolio investing - acquiring or controlling ownership
interests in an entity engaged in impermissible activities, if: the
interests are not held by a depository institution; the interests
are held by an insurance or annuity company; the interests represent
investments made in the ordinary course of business in accordance
with state law; and we do not control the entity except to the
extent necessary to obtain a reasonable return on the investment.
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<PAGE>
The Act instructs the Federal Reserve Board to adopt a regulation or order
defining certain additional activities as financial in nature, to the extent
they are consistent with the purposes of the Act. These are:
o Lending, exchanging, transferring, investing for others or
safeguarding financial assets other than money or securities;
o Providing any method of transferring financial assets; and
o Arranging, effecting or facilitating financial transactions for
third parties.
Other activities also may be decided by the Federal Reserve Board to be
financial in nature or incidental to a financial activity if they meet specified
criteria. The Federal Reserve Board is instructed to consider the purposes of
the Act and the Bank Holding Company Act; changes in the market in which
financial holding companies compete; changes in the technology used to deliver
financial services; and whether the proposed activity is necessary or
appropriate to allow a financial holding company and its affiliates to compete
effectively, deliver services efficiently and offer services through the most
advanced technological means available.
The Act gives national banks authority to use "financial subsidiaries" to engage
in financial activities. This authority has some limitations. A financial
subsidiary of the Bank may not, as a principal:
o underwrite insurance or annuities;
o engage in real estate development or investment;
o engage in merchant banking; or
o engage in insurance portfolio investment activities.
A bank's investment in a financial subsidiary will affect the way it calculates
its capital. The bank must deduct from its assets and stockholders' equity the
total of its investments in financial subsidiaries. Moreover, a bank must
present its financial information in two ways: in accordance with generally
accepted accounting principles, and, separately, in a manner that reflects the
segregation of the bank's investments in financial subsidiaries.
As of the date of this report, we have not considered whether to elect to become
a financial holding company, or to engage in any financial activities, or to
establish any financial subsidiaries for the Bank Subsidiaries.
Privacy
The Act creates a minimum federal standard of privacy. A state can impose a
greater or more restrictive standard of privacy than the Act. There is
established a mechanism to protect the confidentiality of a customer's
non-public personal financial information. The Act requires the Bank
Subsidiaries to disclose to a consumer or customer its policies to protect the
confidentiality and security of nonpublic personal information and to alert the
consumer or customer that he or she may opt out of any sharing of such
information with any affiliated or non-affiliated third party. This notice must
be given initially, and on an annual basis if the consumer becomes a customer.
The term consumer is different from the term customer. A consumer means an
individual who obtains or has obtained a financial product or service from the
Bank Subsidiaries that is to be used primarily for personal, family or household
purposes or that individual's representative. A customer of the Bank
Subsidiaries is an individual with a continuous relationship with the Bank
Subsidiaries. The federal bank regulatory agencies issued proposed regulations
which give several examples of a consumer and customer relationship:
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<PAGE>
o An individual who applies to a Bank Subsidiary for credit for
personal, family or household purposes is a consumer of a financial
service, regardless of whether the credit is extended;
o An individual who provides nonpublic personal information to a Bank
Subsidiary in order to obtain a determination about whether he or
she may qualify for a loan to be used primarily for personal,
family, or household purposes is a consumer of a financial service,
regardless of whether the loan is extended by the Bank Subsidiaries
or another financial institution.
o An individual who provides nonpublic personal information to a Bank
Subsidiary in connection with obtaining or seeking to obtain
financial, investment or economic advisory services is a consumer
regardless of whether that Bank Subsidiary establishes an ongoing
advisory relationship.
o An individual who negotiates a workout with a Bank Subsidiary for a
loan that the Bank Subsidiary owns is a consumer regardless of
whether that Bank Subsidiary originally extended the loan to the
individual.
o An individual who has a loan from a Bank Subsidiary is the Bank
Subsidiary's consumer even if the Bank Subsidiary:
- Hires an agent to collect on the loan;
- Sells the rights to service the loan; or
- Bought the loan from the financial institution that
originated the loan.
o An individual is not a Bank Subsidiary's consumer solely because
that Bank Subsidiary processes information about the individual on
behalf of a financial institution that extended the loan to the
individual.
On the other hand, several examples of a customer follow:
o A consumer has a continuing relationship with a Bank Subsidiary if
the consumer:
- Has a deposit, credit, trust or investment account with
that Bank Subsidiary;
- Purchases an insurance product from a Bank Subsidiary;
- Holds an investment product through a Bank Subsidiary;
- Enters into an agreement or understanding with a Bank
Subsidiary whereby the Bank Subsidiary undertakes to
arrange or broker a home mortgage loan for the consumer;
- Has a loan that a Bank Subsidiary services where that
Bank Subsidiary owns the servicing rights;
- Enters into a lease of personal property with a Bank
Subsidiary; or
- Obtains financial, investment, or economic advisory
services from a Bank Subsidiary for a fee.
o A consumer does not, however, have a continuing relationship with a
Bank Subsidiary and therefore is not a customer, if:
- The consumer only obtains a financial product or service
in an isolated transaction, such as withdrawing cash
from a Bank Subsidiary's ATM or purchasing a cashier's
check or money order;
- A Bank Subsidiary sells the consumer's loan and does not
retain the rights to service the loan; or
- A Bank Subsidiary sells the consumer airline tickets,
travel insurance or traveler's checks in an isolated
transaction.
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<PAGE>
In general, the Bank Subsidiary cannot disclose to a nonaffiliated third party
any nonpublic personal information of its customers unless the Bank Subsidiary
provides its customer with a notice that includes:
o the policies and practices of the Bank Subsidiary with regard to:
- disclosing nonpublic information to nonaffiliated third
parties;
- the categories of persons to whom the information is or may be
disclosed; and
- the policy for disclosure to former customers;
o categories of nonpublic information that are collected by the Bank
Subsidiary;
o the policies that the Bank Subsidiary maintains to protect the
confidentiality and security of nonpublic personal information; and
o the disclosure, if required, under the Fair Credit Reporting Act.
The Act sets forth a new requirement that this notice to a consumer or customer
must be in clear and conspicuous or "plain English" language and presentation.
The proposed regulations give several examples of the rules to follow in
drafting these notices:
o The Bank Subsidiary makes its notice reasonably understandable if,
the Bank Subsidiary:
- Presents the information contained in the notice in
clear, concise sentences, paragraphs and sections;
- Uses short explanatory sentences and bullet lists,
whenever possible;
- Uses definite, concrete, everyday words and active
voice, whenever possible;
- Avoids multiple negatives;
- Avoids legal and highly technical business terminology;
and
- Avoids boilerplate explanations that are imprecise and
readily subject to different interpretations.
o The Bank Subsidiary designs its notice to call attention to the
nature and significance of the information contained in the notice
if, to the extent applicable, the Bank Subsidiary:
- Uses a plain-language heading to call attention to the
notice;
- Uses a typeface and type size that are easy to read; and
- Provides wide margins and ample line spacing.
o If the Bank Subsidiary provides a notice on the same form as another
notice or other documents, the Bank Subsidiary designs its notice to
call attention to the nature and significance of the information
contained in the notice if the Bank Subsidiary uses:
- Larger type size(s), boldface or italics in the text;
- Wider margins and line spacing in the notice; or
- Shading or sidebars to highlight the notice, whenever
possible.
The Act creates certain exceptions to the prohibition on disclosure of nonpublic
personal information of customers. Some of these exceptions are:
o with the consent of the customer;
o to effect, administer or enforce a transaction requested or
authorized by the customer;
o the servicing or processing of a financial product or service
requested or authorized by the customer;
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<PAGE>
o the maintaining or servicing of the customer's account with the Bank
Subsidiary or with another entity as part of a private label credit
card program;
o disclosure to persons holding a legal or beneficial interest
relating to the customer or to persons acting in a fiduciary or
representative capacity on behalf of the customer;
o providing information to insurance rate advisory organizations,
guaranty funds or agencies, rating agencies, persons assessing the
Bank Subsidiary's compliance with industry standards and the Bank's
attorneys, accountants and auditors; and
o disclosure permitted under other laws, such as the Right to
Financial Privacy Act, to law enforcement agencies or under local
and state laws.
The Bank Subsidiaries cannot disclose an account number or similar form of
access code for a credit card account, deposit account or transaction account of
a customer to any non-affiliated third party for use in telemarketing, direct
mail marketing or other marketing through electronic mail to the customer.
History and Business - Phillipsburg National
Phillipsburg National was established in 1856, became a national banking
association in 1865 and is under the supervision of the Comptroller of the
Currency. Its legal headquarters is located at 115 South Main Street,
Phillipsburg, New Jersey 08865. Phillipsburg National 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 rents the following premises under
various operating leases: the Trust and Asset Management facility, 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 of this report for a more detailed description of the
branch offices.
Phillipsburg National 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 include services as executor
and trustee under wills and deeds, as guardian and custodian and as trustee and
agent for pension, profit sharing and other employee benefit trusts as well as
various investment, pension and estate planning services. Trust services also
include service as transfer agent and registrar of stock and bond issues and as
escrow agent.
Phillipsburg National 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 has not
experienced any significant seasonal fluctuations in the amount of its deposits.
Phillipsburg National 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 and pays a fee to Phillipsburg National for staff time,
accounting, rent and other administrative services. As of December 31, 1999,
Phillipsburg Investment, Inc. held approximately $ 97.9 million in securities
available for sale, short-term investments, and cash on behalf of Phillipsburg
National.
As of December 31, 1999, Phillipsburg National had 103 full-time employees and
11 part-time employees. Phillipsburg National provides a variety of employment
benefits and considers its relationship with its employees to be good.
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<PAGE>
Competition - Phillipsburg National
All phases of Phillipsburg National's business are highly competitive.
Phillipsburg National's market area is the primary trade area of Warren County,
with concentration in the Phillipsburg, New Jersey area. Phillipsburg National's
branch delivery system was expanded in Hunterdon County to compete more
aggressively in that market as well. Phillipsburg National competes actively
with local commercial banks as well as other commercial banks with branches in
Phillipsburg National's market area. Phillipsburg National 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; Commerce Bancorp, headquartered in Cherry Hill, New
Jersey, and Unity Bancorp, headquartered in Clinton, New Jersey. Phillipsburg
National 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 is smaller than its major competitors.
History and Business - Twin Rivers
Twin Rivers was established in 1990 as a Pennsylvania state-chartered
institution and member of the Federal Reserve System. Twin Rivers legal
headquarters is located at 2925 William Penn Highway, Easton, Pennsylvania
18045. Twin Rivers rents its headquarters site, the Butztown branch office, the
Linden Street (191) branch office and the Schoenersville branch office under
various operating leases. Twin Rivers owns the Easton branch office and the
Bethlehem branch office. See Item 2 of this report for a more detailed
description of the branch offices.
As of December 31, 1999, Twin Rivers had 60 full-time employees and 12 part-time
employees. Twin Rivers provides a variety of employment benefits and considers
its relationship with its employees to be good.
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.
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
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.
Future Legislation
Various legislation, including proposals to substantially change the financial
institution regulatory system and to expand or contract the powers of banking
institutions and bank holding companies, is from time to time introduced in the
Congress. This legislation may change banking statutes and our operating
environment in substantial and unpredictable ways. If enacted, such legislation
could increase or decrease the cost of doing business, limit or expand
permissible activities or affect the competitive balance among banks, savings
associations, credit unions, and other financial institutions. We can not
accurately predict whether any of this potential legislation will ultimately be
enacted, and, if enacted, the ultimate effect that it, or implementing
regulations, would have upon our financial condition or results of operations.
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<PAGE>
Item 2. Properties
Our corporate headquarters are located at 305 Roseberry Street, Phillipsburg,
New Jersey. We own this facility which has approximately 18,393 square feet.
Our remaining banking centers are described as follows:
<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
Vista
291 Pickford Avenue Leased - $69,214 6,612 Operations Center
Phillipsburg, NJ 08865 Annual Rental
Lease terminates May 2000
755 Route 22 West Leased - $82,500 16,500 Operations Center
Hillcrest Mall - Store #20 Annual Rental
Phillipsburg, NJ 08865
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
Hillcrest Mall - Store #26 Annual Rental
Phillipsburg, NJ 08865
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 3,472 Phillipsburg Mall Branch
Phillipsburg, NJ 08866 Land Leased - $50,998 Office
Annual Rental
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
</TABLE>
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<TABLE>
<CAPTION>
Square
Location Type of Ownership Footage Use
- -------- ----------------- ------- ---
<S> <C> <C> <C>
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 and Asset Management
Phillipsburg, NJ 08865 Annual Rental Office
Twin Rivers
2925 William Penn Highway Leased - $116,393 7,316 Main Office, Administrative
Easton, PA 18045 Annual Rental Offices and Loan Center
61 North Third Street Owned 3,500 Easton Branch Office
Easton, PA 18042
2850 Easton Avenue Leased - $50,000 2,645 Butztown Branch Office
Bethlehem, PA 18017 Annual Rental
1003 West Broad Street Owned 1,750 Bethlehem Branch Office
Bethlehem, PA 18018
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>
For information with respect to obligations for lease rentals, refer to Note 12
of the Notes to Consolidated Financial Statements in our Annual Report filed at
Exhibit 13 to this report 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.
Our facilities are suitable and adequate for current and immediate future
purposes.
Item 3. Legal Proceedings
We and the Bank Subsidiaries are not parties to any legal proceedings that could
have any significant effect upon our financial condition or income. In addition,
we and the Bank Subsidiaries are not parties to any legal proceedings under
federal and state environmental laws.
PART II.
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
We had 919 stockholders of record including individual participants in security
position listings and 4,828,221 shares of common stock, par value of $0.50 per
share, the only authorized class of common stock, outstanding as of March 13,
2000. Our common stock trades under the symbol "VBNJ."
The table below presents the high and low prices reported for our Common Stock
and dividends declared 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, 1999, the closing price of a share of
-23-
<PAGE>
our Common Stock on The NASDAQ Stock Market was $16.88. All prices have been
restated to take into consideration stock splits and stock dividends.
- --------------------------------------------------------------------------------
Dividends
1999: High ($) Low ($) Declared ($)
-------- ------- ------------
- --------------------------------------------------------------------------------
First quarter $ 20.60 $ 17.86 $ .11
- --------------------------------------------------------------------------------
Second quarter $ 19.50 $ 16.67 $ .14
- --------------------------------------------------------------------------------
Third quarter $ 19.25 $ 17.25 $ .14
- --------------------------------------------------------------------------------
Fourth quarter $ 18.75 $ 16.63 $ .14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dividends
1998: High ($) Low ($) Declared ($)
-------- ------- ------------
- --------------------------------------------------------------------------------
First quarter $ 19.05 $ 16.02 $ .10
- --------------------------------------------------------------------------------
Second quarter $ 21.86 $ 18.40 $ .11
- --------------------------------------------------------------------------------
Third quarter $ 21.67 $ 18.10 $ .11
- --------------------------------------------------------------------------------
Fourth quarter $ 23.57 $ 18.93 $ .12
- --------------------------------------------------------------------------------
It is our present intention to continue the dividend payment policy, although
the payment of future dividends must necessarily depend upon earnings, financial
position, appropriate restrictions under applicable law and other factors
relevant at the time the Board of Directors considers any declaration of
dividends.
Item 6. Selected Financial Data
The information called for by this item is filed at Exhibit 13 to this report
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 information called for by this item is filed at Exhibit 13 to this report
and 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 filed at Exhibit 13 to this report
and is incorporated in its entirety by reference under this Item 7A.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements and notes to these statements are filed at
Exhibit 13 to this report and are incorporated in their entirety by reference
under this Item 8.
Our supplementary data is filed at Exhibit 13 to this report and is incorporated
in its entirety by reference under this Item 8.
PART III.
Item 10. Directors and Executive Officers of the Registrant
-24-
<PAGE>
Directors
At March 13, 2000, we had ten directors.
Our directors 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.
The following information includes the age of each director as of the date of
this report.
- --------------------------------------------------------------------------------
Class A Directors Whose Term Expires In 2002
BARBARA HARDING, 53
Director of Vista since 1988; director of the Phillipsburg National since
1985; and director of Twin Rivers since 1990. Chief Executive Officer of
Phillipsburg National from 1985 to 1997. Current President and Chief
Executive Officer of Vista and current Chairperson of the Board of
Directors of Phillipsburg National.
MARK A. REDA, 48
Director of Vista since 1988 and director of Phillipsburg National since
1987. Vice President of Lou Reda, Inc., a vendor of office furniture.
J. MARSHALL WOLFF, 53
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 and Nominees for Class B Director Whose Term Expires in 2003
HAROLD J. CURRY, 68
Director of Vista since 1988; director of Phillipsburg National since
1978; and director of Twin Rivers since 1990. Current Chairman of the
Board of Directors of Vista. Attorney-at-law.
DALE F. FALCINELLI, 51
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, 51
Director of Vista, Phillipsburg National and Twin Rivers since 1997.
President of Hajdu Construction, Inc., building contractors.
MARC S. WINKLER, 43
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.
- --------------------------------------------------------------------------------
-25-
<PAGE>
Class C Directors Whose Term Expires in 2001
RICHARD A. CLINE, 66
Director of Vista since 1988; director of Phillipsburg National 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., 40
Director of Vista since 1995 and director of Phillipsburg National since
1993. Ophthalmologist.
DAVID L. HENSLEY, 53
Director of Vista since 1988; director of Phillipsburg National since
1985; and director of Twin Rivers since 1990. Current Executive Vice
President of Vista. President and Chief Executive Officer of Phillipsburg
National since 1997. President of Phillipsburg National from 1990 to 1997.
Chief Operations Officer at Phillipsburg National from 1985 to 1997.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS' COMPENSATION
Directors' Fees
Directors' fees, paid only to directors who are not Company 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 ....... $5,000
Directors received in the aggregate in 1999 $74,800 in fees.
-26-
<PAGE>
Principal Officers
Our principal officers are appointed by the Board of Directors and serve at the
will of the Board of Directors, subject to certain change in control agreements
discussed later in this report. The following information is presented for our
principal officers:
- --------------------------------------------------------------------------------
Name & Position Held Since Employee Since Age
- --------------------------------------------------------------------------------
Harold J. Curry
Chairman of the Board 1998 * 68
- --------------------------------------------------------------------------------
Richard A. Cline
Vice Chairman of the Board 1998 * 66
- --------------------------------------------------------------------------------
Barbara Harding
President and CEO 1988 1988 53
- --------------------------------------------------------------------------------
David L. Hensley
Executive Vice President 1988 1988 53
- --------------------------------------------------------------------------------
Marc S. Winkler
Executive Vice President 1998 1988 43
- --------------------------------------------------------------------------------
William F. Keefe
Executive Vice President and
Chief Financial Officer 1993 1989 41
- --------------------------------------------------------------------------------
* Not an employee of the Company or the Bank Subsidiaries.
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 1999 except for the filing of an amended Form 5 on
March 2, 2000 for Barbara Harding, David L. Hensley, Marc S. Winkler and William
F. Keefe. The amendment was filed as a result of an inadvertent administrative
error in the reporting of options that had vested for these officers as more
fully described on the table entitled Aggregated Option Exercises in 1999 and
Year-End Option Values within this Proxy Statement.
Item 11. Executive Compensation
THIS SECTION CONTAINS CHARTS THAT SHOW THE AMOUNT OF COMPENSATION EARNED BY OUR
EXECUTIVE OFFICERS WHOSE SALARY AND BONUS EXCEEDED $100,000 FOR 1999. IT ALSO
CONTAINS THE PERFORMANCE GRAPH COMPARING VISTA'S PERFORMANCE RELATIVE TO ITS
PEER GROUP AND THE REPORT OF OUR EXECUTIVE COMMITTEE EXPLAINING THE COMPENSATION
PHILOSOPHY FOR OUR MOST HIGHLY PAID OFFICERS.
-27-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
--------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------
Other Annual LTIP All Other
Salary Bonus Compensation Options Payouts Compensation
Name and Position Year ($) ($)(1) ($)(2) (#)(3) ($)(4) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barbara Harding 1999 208,962 50,746 19,501 -- 14,405
President and Chief Executive Officer of Vista 1998 199,004 6,036 20,166 20,790 29,454
and Chairman of PNB 1997 183,768 26,416 22,692 -- 20,662 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
David L. Hensley 1999 166,998 40,556 22,730 -- 12,278
Executive Vice President of Vista and President 1998 159,042 5,139 21,376 11,550 21,522
and Chief Executive Officer of PNB 1997 150,020 21,910 21,994 -- 17,587 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
Marc S. Winkler 1999 157,534 38,255 15,913 -- 2,529
Executive Vice President of Vista and President 1998 150,020 -0- 13,915 11,550 11,397
and Chief Executive Officer of Twin Rivers 1997 134,160 11,732 16,024 -- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
William F. Keefe
Executive Vice President and Chief Financial 1999 121,992 29,623 14,896 -- 12,278
Officer of Vista and Senior Vice President and 1998 116,168 5,139 13,948 11,550 21,522
Chief Financial Officer of PNB 1997 108,056 18,134 12,965 -- 17,587 -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</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. Upon a
"change in control" as defined in the Severance Agreements, options become
immediately and fully exercisable.
(4) Represents the dollar value of Vista Common Stock awarded under the
Employee Incentive Plan.
SEVERANCE AGREEMENTS
We entered into severance agreements with our key executive officers in 1999 in
order to provide them with security, if one of them lost his or her position
without cause or as a result of a change in control. The executive officers who
entered into these agreements were:
Barbara Harding - President and Chief Executive Officer
David L. Hensley - Executive Vice President and President of
Phillipsburg National Bank
Marc S. Winkler - Executive Vice President and President of Twin Rivers
Community Bank
William F. Keefe - Executive Vice President and Chief Financial Officer
There are two different payment plans - a basic severance payment and a change
in control severance payment. A basic severance payment is available if we, a
related company or a successor company terminates the executive for any reason
without cause. The change in control severance payment is available if we, a
related company or a successor company terminates the executive following a
change in control for any reason without cause or the executive is
constructively terminated.
Cause means:
o the executive made intentionally or negligently, a false statement
in any of our records;
o the executive committed any crime or fraud against us or our
property or the crime involved moral turpitude or would likely
discredit our reputation; or
o the executive violated our operating policies.
Change in Control means:
o any person acquires our stock by any means which represents 50% or
more of the voting power of all outstanding shares of our stock;
o any merger or consolidation which results in our stockholders
holding less than 50% of the outstanding shares of the combined
entity; or
o the election of 50% or more of the directors that occurred at any
three consecutive meetings of stockholders, at which the Board did
not make recommendations as to these elections.
-28-
<PAGE>
Constructively terminated means:
o termination as a result of a reduction in the executive's base salary or
the relocation of the executive's principal place of employment by more
than 70 miles.
The following table sets forth the number of months of payment of an executive's
base salary at the time of a termination:
Change in
Name Basic Severance Control Severance
---- --------------- -----------------
Barbara Harding 24 36
David L. Hensley 12 24
Marc S. Winkler 12 24
William F. Keefe 12 24
In addition to the basic severance payment or change in control severance
payment, an executive who is terminated is also entitled to all salary through
the termination date; all accrued vacation pay; continued family health coverage
for up to 18 months after termination; all distributions and vesting rights
under applicable retirement plans; right to exercise any vested or unvested
stock options; and vesting of any unvested stock grants under the ROE Plan.
The executives agreed not to compete against us or any successor company
for a period of one year after termination anywhere within a radius of 30 miles
from our headquarters at 305 Roseberry Street, Phillipsburg, New Jersey or
within 10 miles of any of our branches. The executives agreed not to solicit for
employment any of our employees for a period of one year after a termination and
to keep confidential all of our proprietary and trade secrets.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation for the officers of Vista and its subsidiary banks is
determined by the Compensation 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.
The Compensation Committee annually conducts a full review of the performance of
Vista and its executives in determining compensation levels. For 1999, the
Compensation 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 Compensation Committee considered also qualitative measures such as
leadership, experience, strategic direction, community representation and social
responsibility. The Compensation 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 Compensation 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.
-29-
<PAGE>
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 no grants under this plan in 1999. Information
on grants is set forth in the chart "Aggregated Option Exercises in 1999 and
Year-End Option Values." The Compensation Committee believes that stock options
encourage management to focus on total stockholder return and provide them an
opportunity to share more directly in the creation of Vista value.
Submitted By The Members Of The Compensation Committee
Harold J. Curry Dale F. Falcinelli Barry L. Hajdu J. Marshall Wolff
Richard A. Cline James T. Finegan, Jr. Mark A. Reda
AGGREGATED OPTION EXERCISES IN 1999 AND
YEAR-END OPTION VALUES
(AS OF DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Value of in-the-Money
Number of Unexercised Unexercised Options at
Shares Options at Year-End Year-End (2)
Acquired Value ---------------------------------------------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#)(e) ($) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Barbara Harding -0- -0- 10,395 10,395 2,132 2,132
- -----------------------------------------------------------------------------------------------------------------------
David L. Hensley -0- -0- 5,775 5,775 1,184 1,184
- -----------------------------------------------------------------------------------------------------------------------
Marc S. Winkler -0- -0- 5,775 5,775 1,184 1,184
- -----------------------------------------------------------------------------------------------------------------------
William F. Keefe -0- -0- 5,775 5,775 1,184 1,184
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All numbers in the table have been adjusted to reflect a 10% stock
dividend in 1998 and a 5% stock dividend in 1999.
(2) Closing price of Vista common stock on December 31, 1999 was $16.875.
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 $143,604
David L. Hensley $ 77,478
Marc S. Winkler $134,837
William F. Keefe $121,188
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 1999; 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
-30-
<PAGE>
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, 1999,
with (i) the cumulative total return on the SNL Securities Corporate Performance
Index(1) for-publicly-traded banks with total assets between $500 million and $1
billion in the Middle Atlantic area, and (2), (ii) 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, 1994, 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.
[The following table was depicted as a line graph in the printed material]
<TABLE>
<CAPTION>
Period Ending
------------------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vista Bancorp, Inc. 100.00 139.24 157.24 222.35 270.85 232.43
NASDAQ - Total US 100.00 141.33 173.89 213.07 300.25 542.43
SNL $500M-$1B Bank Index 100.00 132.76 165.97 269.80 265.28 245.56
</TABLE>
- -------------------------
(1) SNL Securities is a research and publishing firm specializing in the
collection and dissemination of data on the banking, thrift and financial
services industries.
(2) The Middle Atlantic area comprises the states of Delaware, Pennsylvania,
Maryland, New Jersey and New York, the District of Columbia and Puerto
Rico.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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
-31-
<PAGE>
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 13, 2000. The aggregate number of shares
owned by all directors and executive officers is 13.1%. Unless otherwise noted,
each individual has sole voting and investment power for the shares indicated
below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned as of March 13, 2000
--------------------------------------------------------------------
Aggregate Number of
Name Options (1) Shares Beneficially Owned (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard A. Cline -- 258,772
- -------------------------------------------------------------------------------------------------------------
Harold J. Curry -- 108,444
- -------------------------------------------------------------------------------------------------------------
Dale F. Falcinelli -- 4,851
- -------------------------------------------------------------------------------------------------------------
James T. Finegan, Jr. -- 38,380
- -------------------------------------------------------------------------------------------------------------
Barry L. Hajdu -- 49,009
- -------------------------------------------------------------------------------------------------------------
Barbara Harding 10,395 50,620(4)
- -------------------------------------------------------------------------------------------------------------
David L. Hensley 5,775 18,766
- -------------------------------------------------------------------------------------------------------------
William F. Keefe 5,775 39,013(4)
- -------------------------------------------------------------------------------------------------------------
Mark A. Reda -- 66,863
- -------------------------------------------------------------------------------------------------------------
Marc S. Winkler 5,775 12,926
- -------------------------------------------------------------------------------------------------------------
J. Marshall Wolff -- 8,643
- -------------------------------------------------------------------------------------------------------------
Directors and Officers as a Group (3) 27,720 631,749
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes options exercisable within 60 days of March 13, 2000.
(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, 4 nominees for director, 6 officers - 11 persons in
total.
(4) Includes 24,538 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.
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 13, 2000.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Name and Address Number of Shares Percent of Class
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard A. Cline
813 South Main Street
Stewartsville, New Jersey 08886 258,772 5.4%
- ----------------------------------------------------------------------------------------------------
Phillipsburg National Bank and Trust Company
305 Roseberry Street, P.O. Box 5360
Phillipsburg, New Jersey 08865 384,773 (1) 8.0%
- ----------------------------------------------------------------------------------------------------
Valley National Bank
1455 Valley Road
Wayne, New Jersey 07470 451,908 (2) 9.4%
- ----------------------------------------------------------------------------------------------------
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109 303,101 (3) 6.3%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) PNB's trust department holds 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, Valley National Bancorp is
the parent bank holding company for the Valley National Bank. Valley
National Bancorp disclosed that it had no plans 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 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.
(3) According to the Schedule 13G filed with Vista, Wellington Management
Company, LLP is the parent company of the Wellington Trust Company, NA and
made this filing in its capacity as investment advisor to its clients. No
such client is known to have the right or power to direct the receipt of
dividends from, or the proceeds from the sale of, such shares with respect
to five percent or more of the outstanding Common Stock. Wellington
Management Company, LLP indicated that it shares voting power for 197,155
shares and dispositive power for 303,101 shares.
-32-
<PAGE>
Item 13. Certain Relationships and Related Transactions
We encourage our directors and executive officers to have banking and financial
transactions with the 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 the Bank Subsidiaries at December 31, 1999,
to our 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 14.8% of our total consolidated capital accounts. During 1999,
advances and repayments on these loans were $15.1 million. These loans did not
involve more than the normal risk of collectibility nor did they present other
unfavorable features.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Our consolidated financial statements and notes to these statements as
well as the applicable reports of the independent certified public accountants
are filed at Exhibit 13 to this report 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 to these
statements.
3. The exhibits required by Item 601 of Regulation S-K are included under
Item 14(c) to this report.
(b) Reports on Form 8-K
We filed no current reports on Form 8-K during the quarter ended December 31,
1999.
(c) Exhibits required by Item 601 of Regulation S-K:
Exhibit Number Referred to
Item 601 of Regulation SK Description of Exhibit
- -------------------------- ----------------------
2 None.
3 None.
4 None.
9 None.
10 None.
11 None.
12 None.
13 Portions of the Annual Report to Stockholders
for Fiscal Year Ended December 31, 1999.
16 None.
18 None.
21 List of Subsidiaries of the Company.
22 None.
23 None.
24 None.
27 Financial Data Schedule.
99 SEC Guide 3 Financial Information.
-33-
<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 17, 2000
-------------------
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 17, 2000
--------------------------------
Barbara Harding
President and Director
(Chief Executive Officer)
By: Date:
-------------------------------
Richard A. Cline
Director
By: /s/ Harold J. Curry Date: March 17, 2000
-------------------------------
Harold J. Curry
Chairman of the Board
and Director
By: /s/ Dale F. Falcinelli Date: March 17, 2000
-------------------------------
Dale F. Falcinelli
Director
By: /s/ James T. Finegan, Jr. Date: March 17, 2000
-------------------------------
James T. Finegan, Jr.
Director
-34-
<PAGE>
By: /s/ Barry L. Hajdu Date: March 17, 2000
-------------------------------
Barry L. Hajdu
Director
By: /s/ David L. Hensley Date: March 17, 2000
-------------------------------
David L. Hensley
Director
By: /s/ Mark A. Reda Date: March 17, 2000
-------------------------------
Mark A. Reda
Director
By: /s/ Marc S. Winkler Date: March 17, 2000
-------------------------------
Marc S. Winkler
Director
By: /s/ J. Marshall Wolff Date: March 17, 2000
-------------------------------
J. Marshall Wolff
Director
By: /s/ William F. Keefe Date: March 17, 2000
-------------------------------
William F. Keefe
Executive Vice President and
Chief Financial Officer
(Chief Financial and
Accounting Officer)
-35-
<PAGE>
INDEX TO EXHIBITS
Item Number Description Page
- ----------- ----------- ----
13 Portions of the Annual Report to
Stockholders for Fiscal Year
Ended December 31, 1999............................... 37
22 List of Subsidiaries of the Company...................... 73
27 Financial Data Schedule.................................. 74
99 SEC Guide 3 Financial Information........................ 75
-36-
EXHIBIT 13
PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
-37-
<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 six branches, formed in 1990 and located in
Easton, Northampton County, Pennsylvania. 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 - 1999 compared with 1998
For the year ended December 31, 1999, our net income increased by $1.13
million or 21 percent to $6.41 million compared to $5.28 million earned in 1998.
Basic earnings per share increased 22 percent to $1.33 per share from $1.09 per
share earned in 1998. All share and per share amounts have been restated to
reflect the 5 percent stock dividend paid in May 1999.
The increase in our net income for 1999 was due primarily to growth in net
interest income. In addition, continued strong performance in fee-based revenues
and gains recognized on sales of Small Business Administration (SBA) loans
offset a higher provision for loan loss. We increased spending in support of
branch expansion and technology initiatives to drive revenue growth and increase
efficiency.
Return on average shareholders' equity increased to 13.56 percent in 1999
compared to 11.83 percent in 1998, and return on average assets increased to
1.02 percent in 1999 compared to .93 percent in 1998.
[The following table was depicted as a bar graph in the printed material]
95 .96%
96 .89%
97 .85%
98 .93%
99 1.02%
RETURN ON AVERAGE ASSETS
(percent)
95 15.02%
96 11.65%
97 11.18%
98 11.83%
99 13.56%
RETURN ON AVERAGE EQUITY
(percent)
38
<PAGE>
Net Interest Income
Tax-equivalent net interest income increased 14 percent to $24.56 million
from $21.56 million in 1998. This improvement was the result of a $59 million
increase in interest-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 4.11 percent in 1999, compared to 4.01 percent for 1998. The
increase in the margin 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 decreased 10
basis points to 7.52 percent in 1999 due to the lower average interest rate
environment. The average cost of interest-bearing liabilities decreased 23 basis
points to 3.96 percent. The average prime rate was 8.00 percent in 1999 and 8.35
percent in 1998, while the federal funds rate averaged 4.95 percent in 1999 and
5.36 percent in 1998.
[The following table was depicted as a bar graph in the printed material]
95 $16.0
96 $17.2
97 $19.1
98 $21.6
99 $24.6
TAX-EQUIVALENT NET INTEREST INCOME
(dollars in million)
Noninterest Income
Total noninterest income increased 19 percent to $4.14 million in 1999 as
we expanded the sources of noninterest income. Planned investments in people and
technology combined with new product developments over recent years to drive
revenue growth. As a result, the growth of noninterest income was attributable
to fees recognized from loan origination activities, electronic banking, debit
card fee income, higher incremental revenues from trust operations, and
commissions from the sale of mutual funds and insurance annuity products.
Service charges on deposit accounts increased 11 percent to $1.89 million
in 1999 on higher levels of fees earned from growing consumer and commercial
deposit accounts and a higher fee structure.
Other service charge revenue increased 47 percent to $1.33 million in 1999
as ATM user fee income and debit card interchange fees rose in connection with
heightened customer usage. Fees collected from loan origination activities, as
well as credit card and retail merchant services also contributed to the
increase.
From time to time we may sell investment securities for interest rate risk
management purposes, to meet liquidity needs or to respond to developments in
the financial markets. During 1999, we sold approximately $26 million of
investment securities at a net gain of $13 thousand. Gross realized gains
totaled $127 thousand while gross realized losses equaled $114 thousand. During
1998, we sold approximately $30 million of investment securities at a net gain
of $336 thousand. Gross realized gains totaled $411 thousand and gross realized
losses equaled $75 thousand.
We continued to sell investment securities during the first quarter of
2000 and recorded losses on the sale of approximately $200 thousand as we
continue to proactively manage our interest rate risk profile.
39
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Average Balances, Net Interest
Income and Average Rates (Tax-equivalent Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balances Interest Rates Balances Interest Rates
Amounts in Thousands (except percentages) (1) (2) (1) (2)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and securities
purchased under agreements to resell $ 8,529 $ 426 4.99% $ 5,723 $ 307 5.36%
Short-term investments 2,216 118 5.32% 4,654 241 5.18%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 10,745 544 5.06% 10,377 548 5.28%
- -------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 10,011 582 5.81% 16,856 1,020 6.05%
U.S. Government agencies and corporations 125,426 8,014 6.39% 120,523 7,674 6.37%
States and other political subdivisions (3) 38,869 2,645 6.80% 32,253 2,156 6.68%
Other 21,800 1,418 6.50% 15,297 1,037 6.78%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES 196,106 12,659 6.46% 184,929 11,887 6.43%
===============================================================================================================================
Loans, net of unearned income:(4)
Mortgage 133,020 9,990 7.51% 136,239 10,301 7.56%
Commercial (3) 156,609 13,638 8.71% 117,050 10,928 9.34%
Consumer 100,301 8,036 8.01% 89,387 7,324 8.19%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 389,930 31,664 8.12% 342,676 28,553 8.33%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 596,781 44,867 7.52% 537,982 40,988 7.62%
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 20,865 17,894
Allowance for loan losses (4,917) (4,356)
Other assets 15,524 15,532
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 31,472 29,070
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $628,253 $567,052
===============================================================================================================================
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 85,524 $ 1,588 1.86% $ 79,060 $ 1,694 2.14%
Savings 140,498 4,225 3.01% 128,465 3,916 3.05%
Time 207,138 10,680 5.16% 196,919 10,701 5.43%
Time deposits $100,000 and over 48,482 2,369 4.89% 42,095 2,341 5.56%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 481,642 18,862 3.92% 446,539 18,652 4.18%
- -------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 24,392 1,022 4.19% 13,672 588 4.30%
Long-term debt 7,460 427 5.72% 3,044 190 6.24%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS AND LONG-TERM DEBT 31,852 1,449 4.55% 16,716 778 4.65%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 513,494 20,311 3.96% 463,255 19,430 4.19%
===============================================================================================================================
Noninterest-bearing demand deposits 63,231 55,241
Other liabilities 4,243 3,956
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 67,474 59,197
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 47,285 44,600
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $628,253 $567,052
- -------------------------------------------------------------------------------------------------------------------------------
Interest Income/Earning Assets 44,867 7.52% 40,988 7.62%
- -------------------------------------------------------------------------------------------------------------------------------
Interest Expense/Earning Assets 20,311 3.41% 19,430 3.61%
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income and Margin (5) $ 24,556 4.11% $21,558 4.01%
===============================================================================================================================
<CAPTION>
For the Years Ended December 31, 1997
- ------------------------------------------------------------------------------------------
Average Average
Balances Interest Rates
Amounts in Thousands (except percentages) (1) (2)
==========================================================================================
<S> <C> <C> <C>
Assets
Federal funds sold and securities
purchased under agreements to resell $ 12,575 $ 694 5.52%
Short-term investments 3,277 171 5.22%
- ------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS 15,852 865 5.46%
- ------------------------------------------------------------------------------------------
Securities:
U.S. Treasury 23,364 1,416 6.06%
U.S. Government agencies and corporations 120,208 8,227 6.84%
States and other political subdivisions (3) 19,467 1,223 6.28%
Other 13,429 866 6.45%
- ------------------------------------------------------------------------------------------
TOTAL SECURITIES 176,468 11,732 6.65%
==========================================================================================
Loans, net of unearned income:(4)
Mortgage 141,044 10,794 7.65%
Commercial (3) 88,508 8,122 9.18%
Consumer 83,144 6,795 8.17%
- ------------------------------------------------------------------------------------------
TOTAL LOANS 312,696 25,711 8.22%
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 505,016 38,308 7.59%
- ------------------------------------------------------------------------------------------
Cash and due from banks 16,280
Allowance for loan losses (3,946)
Other assets 15,401
- ------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 27,735
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $532,751
==========================================================================================
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Demand $ 72,051 $ 1,544 2.14%
Savings 118,591 3,809 3.21%
Time 197,546 10,776 5.45%
Time deposits $100,000 and over 36,839 2,068 5.61%
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 425,027 18,197 4.28%
- ------------------------------------------------------------------------------------------
Borrowed funds 14,407 688 4.78%
Long-term debt 4,400 313 7.11%
- ------------------------------------------------------------------------------------------
TOTAL BORROWED FUNDS AND LONG-TERM DEBT 18,807 1,001 5.32%
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 443,834 19,198 4.33%
==========================================================================================
Noninterest-bearing demand deposits 44,755
Other liabilities 3,782
- ------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 48,537
- ------------------------------------------------------------------------------------------
Shareholders' Equity 40,380
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 532,751
- ------------------------------------------------------------------------------------------
Interest Income/Earning Assets 38,308 7.59%
- ------------------------------------------------------------------------------------------
Interest Expense/Earning Assets 19,198 3.81%
- ------------------------------------------------------------------------------------------
Net Interest Income and Margin (5) $ 19,110 3.78%
==========================================================================================
</TABLE>
(1) Interest on loans includes fee income.
(2) Rates have been annualized and computed on a tax-equivalent basis using
the federal income tax statutory rate of 34%.
(3) Tax-equivalent adjustments were $913 thousand for 1999, $705 thousand for
1998 and $360 thousand for 1997.
(4) Includes nonaccrual loans.
(5) Net interest income as a percent of average interest-earning assets on a
tax-equivalent basis.
40
<PAGE>
- --------------------------------------------------------------------------------
Volume/Rate Analysis of Changes
in Net Interest Income (Tax-equivalent Basis)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For The Year Ended December 31, For The Year Ended December 31,
1999 vs. 1998 1998 vs. 1997
------------------------------------ ------------------------------------
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 $ 119 $ 142 ($ 23) ($ 387) ($ 368) ($ 19)
Short-term investments (123) (130) 7 70 71 (1)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Short-term Investments (4) 12 (16) (317) (297) (20)
- ----------------------------------------------------------------------------------------------------------------------------------
Securities:
U.S. Treasury (438) (399) (39) (396) (393) (3)
U.S. Government agencies and corporations 340 313 27 (553) 22 (575)
States and other political subdivisions 489 449 40 933 849 84
Other 381 425 (44) 171 124 47
- ----------------------------------------------------------------------------------------------------------------------------------
Total Securities 772 788 (16) 155 602 (447)
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:(2)
Mortgage (311) (241) (70) (493) (365) (128)
Commercial 2,710 3,487 (777) 2,806 2,663 143
Consumer 712 877 (165) 529 511 18
- ----------------------------------------------------------------------------------------------------------------------------------
Total Loans 3,111 4,123 (1,012) 2,842 2,809 33
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 3,879 4,923 (1,044) 2,680 3,114 (434)
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Demand (106) 132 (238) 150 150 0
Savings 309 363 (54) 107 307 (200)
Time (21) 541 (562) (75) (34) (41)
Time deposits $100,000 and over 28 331 (303) 273 292 (19)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 210 1,367 (1,157) 455 715 (260)
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowed funds 434 449 (15) (100) (34) (66)
Long-term debt 237 254 (17) (123) (87) (36)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Borrowed Funds and Long-term Debt 671 703 (32) (223) (121) (102)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 881 2,070 (1,189) 232 594 (362)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income (tax-equivalent basis) $ 2,998 $ 2,853 $ 145 $ 2,448 $ 2,520 ($ 72)
==================================================================================================================================
</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.
41
<PAGE>
Net gains of $362 thousand were recognized in 1999 largely on the sale of
the guaranteed portion of SBA loans. This increase is attributed to the new SBA
lending department and robust loan origination activity under this program in
1999. Between 75 and 80 percent of each loan is guaranteed by the SBA and may be
sold into the secondary market with the balance retained in the commercial loan
portfolio. This form of lending is a valued source of profitability as it offers
four distinct revenue streams. These include the cash gain on the sale,
reinvestment of the gains, servicing fee revenues received for performing
servicing functions on the portion sold and interest income on the portion of
the loan retained in portfolio.
Noninterest Income and Noninterest Expense
<TABLE>
<CAPTION>
Years Ended December 31, Percent Change
------------------------------------ -----------------------------
Amounts in Thousands (except percentages) 1999 1998 1997 1999 vs 1998 1998 vs 1997
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Noninterest Income:
Service charges on deposit accounts $ 1,887 $ 1,709 $ 1,669 10% 2%
Other service charges 1,329 905 518 47 75
Net gains (losses) on sales of loans (1) 362 15 (45) NM NM
Trust and asset management fees 323 310 249 4 24
Net gains on sales of securities (1) 13 336 304 NM 11
Other income 229 204 105 12 94
- ----------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 4,143 $ 3,479 $ 2,800 19% 24%
- ----------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits $ 8,823 $ 8,318 $ 7,689 6% 8%
Occupancy expense 1,748 1,412 1,359 24 4
Furniture and equipment expense 2,198 1,864 1,537 18 21
Other expenses 4,738 4,384 3,451 8 27
- ----------------------------------------------------------------------------------------------------------------------
Total noninterest expense $ 17,507 $ 15,978 $ 14,036 10% 14%
- ----------------------------------------------------------------------------------------------------------------------
Overhead Efficiency Ratio (2) 61.03% 64.69% 64.96%
======================================================================================================================
</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.
42
<PAGE>
Noninterest Expense
Total noninterest expense increased 10 percent to $17.51 million in 1999.
As we continue to grow our franchise and expand our geographical reach, we must
make investments in staff, facilities and technology to remain competitive. The
increase in the level of operating expense in 1999 is consistent with these
initiatives.
A key financial measure we use to benchmark the efficiency of our cost
structure is the relationship of total noninterest expense as a percent of total
average assets. We strive to balance the growth in operating expense with
overall balance sheet growth and profitability trends. In 1999, this measure
averaged 2.79 percent reflecting a decrease from 2.82 percent in 1998, and which
is only slightly ahead of our five-year average of 2.71 percent. Over that time
span, our asset size has increased by 61 percent and our net income has doubled.
A second banking-industry standard used to measure efficiency is referred
to as the "efficiency ratio." This standard attempts to quantify the cost of
generating one dollar of revenue. The lower the percentage, the more efficient
an organization is considered. Our efficiency ratio fell to 61.0 percent for all
of 1999 from 64.7 percent in 1998, with further improvement to below 60.0
percent marked in the second half of 1999.
The largest component of noninterest expense is salary and benefit costs.
In 1999, this category increased 6 percent to $8.82 million based on normal
merit increases and the number of full-time equivalent employees increasing to
227 at December 31, 1999 compared to 221 at December 31, 1998. Moreover, salary
and benefit costs continue to trend lower over the last three years as a percent
of total noninterest expense. Salary and benefit costs equaled 50.4 percent of
total noninterest expense in 1999 compared to 52.1 percent in 1998 and 54.8
percent in 1997.
Occupancy expense increased 24 percent to $1.75 million in 1999 due to
added rent expense for the two new branches and the opening of the new Trust and
Asset Management facility during the fourth quarter.
Furniture and equipment expense increased 16 percent to $2.20 million in
1999 reflecting a full year of the costs of installing a common hardware and
software platform throughout our organization. The goals of the new operating
system include being cost effective, enhancing customer service through expanded
delivery systems and product lines, increasing customer convenience and
improving staff productivity.
Total other expense increased 8 percent to $4.74 million in 1999. The
increase consisted of costs of providing electronic banking products and
services, writedowns of OREO properties to facilitate sale to minimize future
carrying costs, as well as increased printing and stationary expense.
Provision for Income Taxes
The provision for income taxes increased to $2.82 million in 1999 from
$2.30 million in 1998 due to a higher level of pretax income. The effective tax
rate increased slightly to 30.6 percent for 1999 compared to 30.3 percent in
1998.
Differences between the book and tax basis of assets and liabilities
recorded in the financial statements result in deferred taxes. Net deferred tax
assets were $4.6 million at December 31, 1999 and $2.0 million at December 31,
1998.
Results of Operations - 1998 compared with 1997
For the year ended December 31, 1998, our net income increased 17 percent
to $5.28 million compared to $4.51 million in 1997. Basic earnings per share
increased 15 percent to $1.09 in 1998 from $.95 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 a lower effective
tax rate. Higher spending in support of new revenue-generating staff positions,
expanded technology spending and costs tied directly 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 the return on average assets increased to
.93 percent in 1998 from .85 percent in 1997.
Tax-equivalent net interest income increased 13 percent to $21.56 million
in 1998 due primarily to a $33 million increase in interest-earning assets and a
net interest margin that increased to 4.01 percent in 1998 from 3.78 percent in
1997.
Total noninterest income increased 24 percent to $3.48 million in 1998. An
increase in gains recognized on the sale of securities, higher service charges
on deposit accounts and fees recognized from loan origination activities
combined with improved revenues from Trust and Asset Management operations to
drive the increase.
Total noninterest expense increased 14 percent to $15.98 million in 1998
as all expense categories reflected year-over- year growth.
Salary and benefit expense increased 8 percent to $8.32 million in 1998
compared to $7.69 million in 1997. Occupancy expense increased 4 percent to
$1.41 million in 1998 from $1.36 million in 1997.
Furniture and equipment expense increased 23 percent to $1.90 million from
$1.54 million in 1997. 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
2.82 percent in 1998 and 2.63 percent in 1997.
43
<PAGE>
Federal and state income tax expense increased to $2.30 million for 1998 and
$2.17 million in 1997, on a higher level of pretax income. The effective tax
rate was 30.3 percent in 1998, reflecting a decrease from 32.5 percent in 1997,
on a higher level of tax-exempt income.
FINANCIAL CONDITION
Interest-earning Assets and Interest-bearing Liabilities
In 1999, we continued to realize the benefits of our multi-year strategy
to rebalance and improve the mix of our consolidated loan portfolio to drive
earnings and profitability. Our strategy is focused on growing our commercial
lending business by adding seasoned commercial lenders with a well-established
book of business, expanding our lending territory, broadening our product lines
and supporting the business with state of the art technology. We also focused on
growing our consumer lending capabilities to meet strong consumer demand and
shifting our strategy on mortgage lending from being a portfolio lender to a
seller of fixed rate mortgage production into the secondary market in exchange
for fee revenue. This action also increased our ability to better manage
interest rate risk and increase our financial flexibility.
The successful results of our strategies are clearly evident over the last
three years. Loans as a whole, reflect a steady and increasing portion of total
interest-earning assets while commercial loans represented 40 percent of the
total loan portfolio on average in 1999, a significant increase from 28 percent
in 1997. Investment securities have increased steadily over the last three years
on an absolute dollar-basis but have remained constant at approximately
one-third of total average interest-earning assets. This portfolio generates
significant cash flows, a steady source of increasing earnings and is the
primary tool used to manage liquidity and interest rate risk.
Our branch network has also grown significantly. A full 60 percent of our
15-branch network has come on line in the nineteen-nineties, with most of the
growth achieved since 1994. Over this time frame, we have experienced growth in
all deposit categories and importantly, the concentration of each deposit sector
has remained constant on a relative basis within the context of a growing
balance sheet. This has enabled us to fund our asset growth with core deposits,
expand our net interest margins and drive growth in net interest income over a
variety of interest rate environments.
In 1999 average interest-earning assets increased 11 percent or $58.8
million to average $596.8 million compared to $538.0 million in 1998, due to
strong growth in loans and investment securities. Total loans increased 14
percent or $47.2 million, to average $389.9 million, and securities available
for sale increased 6 percent or $11.2 million, to average $196.1 million.
Average interest-bearing liabilities increased 11 percent or $50.2 million
to average $513.5 million in 1999 compared to $463.3 million in 1998, due to
growth in all categories of deposits, borrowed funds and long-term debt. Total
interest bearing deposits increased $35.1 million to average $481.6 million and
borrowed funds and long-term debt increased $15.1 million to average $31.9
million.
Securities Available for Sale
At December 31, 1999, the securities available for sale portfolio had an
unrealized pre-tax net loss of $7.3 million, comprised of unrealized gross gains
of $200 thousand and unrealized gross losses of $7.5 million. At December 31,
1998, the portfolio had an unrealized net gain of $2.1 million, comprised of
$2.3 million of unrealized gross gains and $200 thousand of unrealized gross
losses.
The unrealized net gain or loss on available for sale securities is
reported on an after tax basis as a component of accumulated other comprehensive
income in shareholders' equity. At December 31, 1999 this adjustment equaled an
unrealized net loss of $5.3 million compared to an unrealized net gain of $1.6
million at December 31, 1998.
The unrealized net loss in the portfolio at December 31, 1999 was
primarily attributed to higher interest rates in effect at the end of 1999. We
may decide to sell securities to manage the level of earning assets (for
example, to offset loan growth that may exceed expected maturities and
prepayments of securities). (See Note 3 to Financial Statements for securities
available for sale by security type).
At December 31, 1999, the fair value of mortgage-backed securities totaled
$119.0 million, or 59 percent of our securities portfolio. As an indication of
interest rate risk, we estimated the effect of a 100 basis point increase in
interest rates on the value of the mortgage-backed securities portfolio. We
estimate that mortgage-backed securities would decrease in fair value from
$119.0 million to $113.6 million.
Loans
Total average loans increased 14 percent or $47.2 million to $389.9
million in 1999, compared to average total loans of $342.7 million in 1998.
Total commercial loans increased 34 percent or $39.6 million in 1999 to
average $156.6 million due to strong commercial real estate loan origination
activity. Total consumer loans increased 12 percent or $10.9 million in 1999 due
to home equity lending. Mortgage loans decreased $3.2 million on average in
1999.
The yield on total loans averaged 8.12 percent for 1999, a 21 basis point
decrease from the 8.33 percent average yield earned in 1998. The commercial loan
portfolio generated an average yield of 8.71 percent in 1999 compared to 9.34
percent in 1998. The average yield on the mortgage portfolio decreased in 1999
to 7.51 percent from 7.56 percent in 1998, while the yield on the consumer loan
portfolio decreased to 8.01 percent in 1999 from 8.19 percent in 1998.
44
<PAGE>
[The following table was depicted as a bar graph in the printed material]
95 $401.6
96 $435.1
97 $483.8
98 $522.7
99 $567.1
TOTAL DEPOSITS
(dollars in million)
Deposits
Total average deposits increased 9 percent or $43.1 million to $544.9
million in 1999. Our strategy to expand market share and fund earning asset
growth with core deposits has enabled us to control interest expense and improve
the net interest margin.
A combination of marketing initiatives and direct calling programs
resulted in an $8.0 million increase in average noninterest-bearing demand
deposits in 1999. Interest-bearing demand, savings and money market account
balances increased an average of $18.5 million to $226.0 million. Total average
time deposits, including accounts over $100,000, increased $16.6 million to
$255.6 million. Average time deposits represented 46.9 percent of total deposits
in 1999, down from 47.6 percent in 1998.
The cost of funds on interest-bearing liabilities averaged 3.96 percent in
1999, a decrease of 23 basis points from 1998. A concerted effort to reduce the
cost of funds via pricing strategies and use of borrowed funds resulted in a
more favorable mix of funding sources which added to the growth in net interest
income.
Borrowed Funds and Long-term Debt
Total borrowed funds and long-term debt averaged $31.9 million in 1999,
compared to $16.7 million in 1998, while the cost of borrowings decreased 10
basis points to 4.55 percent in 1999. Lower average short-term interest rates in
1999 led to the year-over-year decrease in borrowing costs.
In 1999, we entered into borrowing arrangements with the Federal Home Loan
Bank to fund the purchase of investment securities. These transactions generate
a revenue stream on the spread between the yield on the investments and the rate
paid on borrowings. It is our intent to build a series of transactions into a
comprehensive leverage program where incremental transactions serve to balance
or reinforce the total program over time and thereby stabilize the spread under
any interest rate environment. The program averaged $11.4 million in 1999,
generating a net pre-tax spread of 85 basis points.
A leverage policy has been approved by the Board of Directors which
includes borrowing limits, minimum capital ratios, earnings targets and exit
strategies. It is our policy to limit leverage program borrowings to 10 percent
of total assets with a minimum Tier 1 Capital ratio of 6 percent of total
average assets and a minimum total risk-based capital ratio of 11 percent.
Strategies have been established to terminate leverage transactions in the
event that adverse economic conditions nullify the underlying transaction
assumptions. Exit strategies include: sale of the leveraged assets, raising
retail funding to replace FHLB borrowings, refinancing of FHLB debt at maturity,
selling of unrelated securities to retire debt, use of normal balance sheet cash
flows to reduce debt or natural unwinding of the transactions through the
ordinary course of business.
Nonperforming Assets
Nonperforming assets, defined as loans on nonaccrual status plus other
real estate acquired through foreclosure (OREO), totaled $3.2 million at
December 31, 1999 and $3.0 million at December 31, 1998. Nonperforming assets
equaled less than one percent of total loans plus OREO in each year.
Nonperforming assets increased $742 thousand to $2.7 million at December
31, 1999. This increase was due primarily to a $400 thousand increase in
nonperforming mortgage loans which are generally well secured by real estate and
historically have experienced negligible losses.
OREO decreased to $553 thousand at December 31, 1999 compared to $1.1
million at December 31, 1998 as a result of a more aggressive strategy to reduce
problem real estate acquired through foreclosure through sales and valuation
writedowns.
A loan must be placed on nonaccrual status when principal or interest
becomes 90 days or more past due, unless the loan is well secured and in the
process of collection. In addition, Vista must expect the loan to be fully
repaid according to the original terms of the loan agreement. A nonaccrual loan
may not be restored to accrual status until principal and interest is no longer
due and unpaid or it otherwise becomes well secured.
45
<PAGE>
Allowance for Loan Losses and Related Provision
The allowance for loan losses increased to $5.3 million at December 31,
1999 or 1.28 percent of total loans, from $4.5 million or 1.22 percent of total
loans at December 31, 1998. The allowance for loan losses expressed as a
percentage of nonperforming assets equaled 163 percent at December 31, 1999 and
149 percent at December 31, 1998.
The provision for loan losses increased 28 percent to $1.0 million for
1999 compared to $780 thousand in 1998. This increase was due to strong loan
growth and an increased concentration of commercial loans which generally carry
higher credit risk. Charge-offs, net of recoveries, totaled $306 thousand for
1999 compared to $404 thousand for 1998. Net charge-offs as a percent of average
total loans equaled less than one-quarter of one percent in 1999 and 1998.
The allowance for loan losses is determined through a regular review of
the loan portfolio in which management considers historical loss factors as well
as qualitative factors which may cause actual losses to differ from past trends.
These qualitative factors include but are not limited to prevailing economic
conditions, the volume and trends of nonperforming loans, concentrations of
credit risk, and changes in loan policies or underwriting standards.
The allowance for loan losses is comprised of specific allocations for
individual loans while the general allocation is determined by loss factors
associated with each loan type (i.e. commercial, consumer or mortgage) and
allocated accordingly. Commercial loans of $200 thousand or more are reviewed
individually.
The allocated or required portion of the allowance for loan losses is
calculated quarterly and compared to the total reserve balance to determine
adequacy. The commercial loan reserve requirement is based on individual loans
reviewed, historical loss levels, industry concentration analyses, delinquency
trends, economic cycles, and other pertinent factors. The consumer and mortgage
loan reserve requirements are based on the historical trend of the last four
quarters loss factors. Management also reviews ratios such as the allowance for
loan losses as a percent of total loans when analyzing the adequacy of the
reserve.
While we believe 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 our 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,
repayments of loans, borrowings and retained earnings. Liquidity is provided to
the Parent Company in the form of service fees paid by the bank subsidiaries,
issuance of common stock through participation in the various stock plans and
quarterly dividend payments from the bank subsidiaries.
Liquidity is managed on a daily basis at both the Parent Company and
subsidiary levels, enabling us to effectively monitor changes in liquidity and
to react accordingly to market conditions. We believe that liquidity is
sufficient to meet present and future financial obligations and commitments on a
timely basis.
At December 31, 1999, cash and cash equivalents equaled $29.4 million, a
decrease of $3.6 million from the $33.0 million in cash and cash equivalents on
hand at December 31, 1998. 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, 1999, net cash provided by operating activities equaled
$9.5 million consisting mainly of net income adjusted for non-cash charges, net
security and loan sale activity plus an increase in deferred tax assets.
Net cash used for investing activities totaled $74.5 million at December
31, 1999. Investing activities consisted of $95.6 million in purchases of
available for sale securities plus $48.7 million in loan originations. These
investments were funded by $63.6 million in maturities and sales of securities
available for sale combined with retail deposit growth and leveraged borrowings.
Net cash provided by financing activities totaled $61.4 million and
consisted of increases in all deposit categories and borrowed funds plus
proceeds from common stock issuance, offset in part, by increased cash dividends
paid and share purchases of $929 thousand.
Capital Resources
We review capital adequacy on an ongoing basis in conjunction with
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 generated through retained earnings, and the issuance of common
stock through our Employee Stock Purchase Plan, Board of Directors Stock
Purchase Plan and the Dividend Reinvestment Plan.
At December 31, 1999, shareholders' equity decreased $2.8 million to $44.0
million, compared to $46.8 million at December 31, 1998. This decrease was the
result of $6.9 million in depreciation in the fair value of available for sale
securities, $2.6 million in cash dividends paid and $900 thousand in share
purchases, offset in part by $6.4 million in net income and $1.1 million in
proceeds from the issuance of common stock.
46
<PAGE>
During the first quarter of 1999, the Board of Directors authorized the
extension of the share repurchase program to include an additional 100,000
shares. These purchases are made pursuant to section 10b-18 in open market
transactions from time to time at the discretion of management and stock
availability.
The repurchase program is designed to provide an additional source of
liquidity in the market place for shareholders that desire to actively trade
shares of our common stock. As of March 31, 1999, the initial 100,000 shares had
been purchased at a cost of $2.0 million or an average of $20.18 per share.
Under the extended program 42,600 shares have been purchased at a cost of $764
thousand or an average of $17.93 per share through February 2000.
The various stock plans provide shareholders that maintain a long-term
investment horizon with the opportunity to utilize dollar cost averaging to
build investment positions in Vista Bancorp.
The quarterly cash dividend paid on our common stock increased to 14 cents
per share during the second quarter of 1999. Common stock cash dividends totaled
53 cents per share for 1999 compared to 44 cents per share for 1998, an increase
of 20 percent. In addition the Board of Directors approved a 5 percent stock
dividend, which was paid on May 21, 1999, to shareholders of record on May 3,
1999. This followed a 10 percent stock dividend paid on June 10, 1998.
Accordingly, all per share and average share amounts have been restated to
reflect the stock dividends.
[The following table was depicted as a bar graph in the printed material]
95 $0.30
96 $0.33
97 $0.36
98 $0.44
99 $0.53
CASH DIVIDENDS PER SHARE
Our dividend payout ratio equaled 40 percent for 1999 compared to 39
percent for 1998 and 38 percent for 1997. We paid cash dividends totaling $2.6
million in 1999, an increase of $500 thousand or 24 percent over the $2.1
million paid in 1998.
Vista's book value per common share at December 31, 1999, declined 6
percent to $9.12 compared to $9.74 at December 31, 1998. This decrease was due
to the depreciation in the fair value of available for sale securities.
Excluding this adjustment, book value per share equaled $10.23 at December 31,
1999 and $9.42 at December 31, 1998.
Vista and its bank subsidiaries are subject to various regulat- ory
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 14 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.
We evaluate each customer's credit-worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by extension of credit, is
based on our credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties. We were committed to advance $53.8 million and $48.5
million to borrowers as of December 31, 1999 and 1998, respectively.
Standby letters of credit are conditional commitments issued 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. We entered into standby letters of credit
contracts with customers totaling $2.9 million and $2.1 million as of December
31, 1999 and 1998, respectively.
We do not issue nor hold derivative instruments with the exception of loan
commitments and 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, 1999. 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. We expect that off-balance sheet risk will
not be material to the results of operations or financial condition.
47
<PAGE>
Interest Rate Sensitivity
The risk of loss arising from adverse changes in the fair value of
financial instruments is composed primarily of interest rate risk. The primary
objective of our asset/liability management activities is to increase net
interest income while undertaking acceptable levels of interest rate risk. The
Asset/Liability Management Committee (ALCO) is responsible for establishing
policies to limit exposure to interest rate risk, and to ensure procedures and
reporting measures to ensure compliance with these policies. The policies are
reviewed and approved annually by the Board of Directors.
Interest rate sensitivity is the relationship between the movement in
interest rates and changes in net interest income due to the repricing
characteristics and maturity structure of interest sensitive assets and
liabilities. In order to maintain a consistent earnings performance in changing
interest rate environments we actively monitor and manage the repricing
characteristics and maturity structure of assets and liabilities within
established policy guidelines.
Historically, the most common method of estimating interest rate risk was
to measure the maturity and repricing relationships between interest-earning
assets and interest-bearing liabilities at a specific point-in-time, typically
referred to as "Gaps." Therefore, a bank is considered liability-sensitive when
the amount of its interest-bearing liabilities exceed the amount of its
interest-earning assets. However, assets and liabilities with similar repricing
characteristics may not reprice at the same time or to the same degree. As a
result, the Gap position does not necessarily predict the impact of changes in
general levels of interest rates on net interest income. The following table
reflects our Gap position at December 31, 1999.
Statement of Interest Sensitivity Gap
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------------
Amounts in Thousands 90 Days 91 to 180 181 to 365 1 to 5
(except percentages) or less Days Days Years Thereafter Total
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Federal funds sold and
short-term investments $ 2,306 $ -- $ -- $ -- $ -- $ 2,306
Investment securities 10,983 6,085 13,211 75,222 104,126 209,627
Loans, net of unearned income
Mortgage 15,533 8,396 16,540 51,830 38,245 130,544
Commercial 44,846 22,299 22,592 65,148 19,449 174,334
Consumer 19,134 11,307 19,150 52,388 4,021 106,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets $ 92,802 $ 48,087 $ 71,493 $ 244,588 $ 165,841 $ 622,811
- ---------------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
Deposits:
Interest-bearing demand deposits $ 24,475 $ 1,764 $ 3,529 $ 28,224 $ 30,566 $ 88,558
Savings 52,713 3,097 6,194 49,553 30,777 142,334
Time 61,181 77,677 75,561 53,623 -- 268,042
Borrowed funds 20,835 3,000 3,000 4,000 -- 30,835
Long-term debt 3,000 3,000 -- 2,500 -- 8,500
Shareholders' Equity -- -- -- -- 43,960 43,960
- ---------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities $ 162,204 $ 88,538 $ 88,284 $ 137,900 $ 105,303 $ 582,229
- ---------------------------------------------------------------------------------------------------------------------------------
Period gap $ (69,402) $ (40,451) $ (16,791) $ 106,688 $ 60,538 $ 40,582
Cumulative gap (69,402) (109,853) (126,644) (19,956) 40,582
Cumulative gap to total assets -10.60% -16.78% -19.34% -3.05% 6.20%
==================================================================================================================================
</TABLE>
48
<PAGE>
We believe that the simulation of net interest income over varying
interest rate cycles provides a more meaningful measure of interest rate risk.
We use computer-based simulation modeling techniques to analyze net
interest income sensitivity to movements in interest rates. The model projects
net interest income based on a flat rate scenario and varying rate scenarios
over a rolling twelve-month time period. Our modeling assumptions include
contractual maturity and repricing characteristics of rate sensitive assets and
liabilities, and various assumptions regarding the impact of changing interest
rates on prepayment speeds of certain assets and liabilities. Income simulation
enables management to measure the probable effects on the balance sheet and
earnings not only from changes in interest rates, but also of proposed
strategies for responding to them.
Our Interest Rate Risk Management policy has established that interest
income sensitivity will be considered acceptable if net interest income is
within 15 percent of net interest income in the flat rate scenario.
Based on our modeling results, a gradual increase in interest rates of 100
basis points over a twelve-month period results in a $520 thousand decrease in
net interest income and a gradual decrease of 100 basis points in interest rates
results in a $513 thousand increase in net interest income. At December 31,
1999, these results were acceptable under policy guidelines. In the event the
model indicates an unacceptable level of risk, we could undertake a number of
actions that would mitigate the risk, including the sale of a portion of
available for sale investment portfolio or the extension of the maturities of
short-term liabilities. We cannot provide any assurance about the actual effect
of changes in interest rates on net interest income.
The following table reflects the financial instruments that are sensitive
to changes in interest rate categorized by expected maturity, and the
instruments' estimated fair value as of December 31, 1999.
Schedule of Market Risk Sensitive Instruments
<TABLE>
<CAPTION>
Expected Maturity Date - Years Ended December 31,
-----------------------------------------------------------------------------------------
Amounts in Thousands Estimated
(except percentages) Rate 2000 2001 2002 2003 2004 Thereafter Total Fair Value
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Federal funds sold and
short-term investments 4.38% $ 2,306 $ -- $ -- $ -- $ -- $ -- $ 2,306 $ 2,306
Investment securities 6.72% 28,641 21,178 18,012 18,325 16,812 99,307 202,275 202,275
Loans, net of unearned income
Mortgage 7.38% 22,827 18,936 16,082 13,776 11,942 46,981 130,544 126,739
Commercial 8.62% 58,910 24,171 19,741 15,873 12,298 43,341 174,334 173,305
Consumer 8.11% 44,099 26,712 15,746 8,836 4,521 6,086 106,000 105,236
- --------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive assets 7.78% $156,783 $ 90,997 $ 69,581 $ 56,810 $ 45,573 $195,715 $615,459 $609,861
- --------------------------------------------------------------------------------------------------------------------------------
Interest sensitive liabilities:
Deposits:
Savings 3.00% $ 24,348 $ 24,349 $ 19,170 $ 9,954 $ 8,292 $ 56,221 $142,334 $142,334
Time 4.12% 214,565 47,508 3,031 2,591 347 268,042 266,013
Borrowed funds 4.75% 26,835 4,000 -- -- -- -- 30,835 30,769
Long-term debt 5.68% 6,000 1,500 1,000 -- -- -- 8,500 8,447
- --------------------------------------------------------------------------------------------------------------------------------
Total interest sensitive liabilities 3.85% $271,748 $ 77,357 $ 23,201 $ 12,545 $ 8,639 $ 56,221 $449,711 $447,563
================================================================================================================================
</TABLE>
49
<PAGE>
Expected maturities are contractual maturities adjusted for prepayments of
principal over and above scheduled payments. Various assumptions are used to
estimate expected maturities and fair value. Although specific assets and
liabilities may have similar cash flow characteristics, they may react in
different degrees to changes in interest rates. For example, variable-rate
assets will not experience the same fair value volatility as fixed-rate assets,
while other types of assets and liabilities may lag behind changes in market
rates, such as deposit accounts. For investment securities, expected maturities
are based upon contractual maturity and prepayment of principal. Prepayments are
based on consensus data received from third-party sources, which reflects both
historical experience and consensus rates. For loans, expected maturities are
based upon contractual maturity plus prepayments using historical experience and
projected prepayments. For deposit liabilities, we use decay factors in
accordance with industry standards and our own historical experience. The actual
maturities of these instruments could vary substantially if future prepayments
differ from historical experience. Off-balance sheet items are not considered
material.
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. We monitor and seek to mitigate the impact of interest rate changes by
attempting to match the maturities of interest-earning assets and
interest-bearing liabilities.
Year 2000
We were keenly aware of the issues associated with the Y2K
computer-related threat as the Year 2000 approached and had taken extensive
measures to protect against potential adverse consequences on our business and
our customers. All of our systems proved to be Year 2000 compliant. We believe
that any remaining Year 2000 problems, if any, will not have a material impact
on our operations or financial condition.
50
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
Amounts in Thousands (except per share and share data) 1999 1998
======================================================================================================================
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 27,091 $ 23,584
Federal funds sold 2,150 7,000
Short-term investments 156 2,417
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 29,397 33,001
- ----------------------------------------------------------------------------------------------------------------------
Securities available for sale (Amortized cost: $209,627 and $178,040 in
1999 and 1998, respectively) 202,275 180,163
- ----------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income:
Mortgage 130,544 137,538
Commercial 174,334 136,449
Consumer 106,000 95,539
- ----------------------------------------------------------------------------------------------------------------------
Total Loans 410,878 369,526
Allowance for loan losses (5,266) (4,524)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET LOANS 405,612 365,002
- ----------------------------------------------------------------------------------------------------------------------
Premises and equipment 6,934 6,851
Accrued interest receivable 3,607 3,133
Other assets 6,843 4,896
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 654,668 $ 593,046
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Demand:
Noninterest-bearing $ 68,188 $ 67,477
Interest-bearing 88,558 84,574
Savings 142,334 132,439
Time 268,042 238,252
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 567,122 522,742
- ----------------------------------------------------------------------------------------------------------------------
Borrowed funds 30,835 16,963
Long-term debt 8,500 3,000
Accrued interest payable 1,597 1,383
Other liabilities 2,654 2,122
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 610,708 546,210
- ----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity:
Common stock: $.50 par value; shares authorized 10,000,000; shares issued,
4,819,002 and 4,577,888 at December 31, 1999 and December 31, 1998, respectively 2,409 2,289
Paid-in capital 26,674 22,359
Retained earnings 20,213 20,622
Accumulated other comprehensive income (loss) (5,336) 1,566
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 43,960 46,836
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 654,668 $ 593,046
======================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
51
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
Amounts in Thousands (except per share and share data) 1999 1998 1997
================================================================================================================
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 31,569 $ 28,504 $ 25,676
Interest on federal funds sold 426 307 694
Interest on short-term investments 118 241 171
Interest on securities:
Taxable 10,013 9,730 10,509
Nontaxable 1,828 1,501 898
- ----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 43,954 40,283 37,948
- ----------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits 18,862 18,652 18,197
Interest on borrowed funds 1,022 588 688
Interest on long-term debt 427 190 313
- ----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 20,311 19,430 19,198
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 23,643 20,853 18,750
- ----------------------------------------------------------------------------------------------------------------
Provision for Loan Losses 1,048 780 830
- ----------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Loan Losses 22,595 20,073 17,920
- ----------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 1,887 1,709 1,669
Other service charges 1,329 905 518
Net gains (losses) on sales of loans 362 15 (45)
Net gains on sales of securities 13 336 304
Other income 552 514 354
- ----------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 4,143 3,479 2,800
- ----------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Salaries and benefits 8,823 8,318 7,689
Occupancy expense 1,748 1,412 1,359
Furniture and equipment expense 2,198 1,864 1,537
Other expense 4,738 4,384 3,451
- ----------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 17,507 15,978 14,036
- ----------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 9,231 7,574 6,684
Provision for Income Taxes 2,821 2,298 2,171
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 6,410 $ 5,276 $ 4,513
- ----------------------------------------------------------------------------------------------------------------
Earnings per Share $ 1.33 $ 1.09 $ .95
- ----------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 4,808,007 4,823,208 4,752,075
================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
52
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in
Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31, 1999, 1998 and 1997
Amounts in Thousands Shares Common Paid-in Retained
(except per share and share data) Issued Stock Capital Earnings
==============================================================================================================================
<S> <C> <C> <C> <C>
Balance, December 31, 1996 4,085,498 $ 2,043 $ 13,092 $ 22,984
Comprehensive Income:
Net income - 1997 -- -- -- 4,513
Other comprehensive income, net of income taxes
Net unrealized appreciation in the
fair value of securities available for sale -- -- -- --
Comprehensive Income:
Cash dividends - $.36 per share -- -- -- (1,727)
Net proceeds from issuance of common stock 80,037 42 1,265 --
Purchase of treasury stock -- -- -- --
Retirement of treasury stock 2,478 (1) (46) --
Deferred compensation -- -- 34 --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 4,168,013 $ 2,084 $ 14,345 $ 25,770
Comprehensive Income:
Net income - 1998 -- -- -- 5,276
Other comprehensive income, net of income taxes
Net unrealized appreciation in the
fair value of securities available for sale -- -- -- --
Comprehensive Income:
Cash dividends - $.44 per share -- -- -- (2,063)
Net proceeds from issuance of common stock 83,992 42 1,644 --
10% Stock dividend 417,898 209 8,149 (8,365)
Purchase of treasury stock -- -- -- 4
Retirement of treasury stock (92,015) (46) (1,761) --
Deferred compensation -- -- (18) --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 4,577,888 $ 2,289 $ 22,359 $ 20,622
Comprehensive Income (Loss):
Net income - 1999 -- -- -- 6,410
Other comprehensive loss, net of income taxes
Net unrealized depreciation in the
fair value of securities available for sale -- -- -- --
Comprehensive Loss:
Cash dividends - $.53 per share -- -- -- (2,566)
Net proceeds from issuance of common stock 60,096 30 1,080 --
5% Stock dividend 228,483 114 4,131 (4,253)
Purchase of treasury stock -- -- -- --
Retirement of treasury stock (49,600) (25) (904) --
Deferred compensation 2,135 1 8 --
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 4,819,002 $ 2,409 $ 26,674 $ 20,213
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For The Years Ended December 31, 1999, 1998 and 1997
Accumulated
Other Total
Amounts in Thousands Treasury Comprehensive Shareholders'
(except per share and share data) Stock Income Equity
===============================================================================================================================
<S> <C> <C> <C>
Balance, December 31, 1996 $ (7) $ 703 $ 38,815
Comprehensive Income:
Net income - 1997 -- -- 4,513
Other comprehensive income, net of income taxes
Net unrealized appreciation in the
fair value of securities available for sale -- 487 487
----------
Comprehensive Income: 5,000
Cash dividends - $.36 per share -- -- (1,727)
Net proceeds from issuance of common stock -- -- 1,307
Purchase of treasury stock (127) -- (127)
Retirement of treasury stock 47 -- --
Deferred compensation -- -- 34
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ (87) $ 1,190 $ 43,302
Comprehensive Income:
Net income - 1998 -- -- 5,276
Other comprehensive income, net of income taxes
Net unrealized appreciation in the
fair value of securities available for sale -- 376 376
----------
Comprehensive Income: 5,652
Cash dividends - $.44 per share -- -- (2,063)
Net proceeds from issuance of common stock -- -- 1,686
10% Stock dividend -- -- (7)
Purchase of treasury stock (1,720) -- (1,716)
Retirement of treasury stock 1,807 -- --
Deferred compensation -- -- (18)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ -- $ 1,566 $ 46,836
Comprehensive Income (Loss):
Net income - 1999 -- -- 6,410
Other comprehensive loss, net of income taxes
Net unrealized depreciation in the
fair value of securities available for sale -- (6,902) (6,902)
----------
Comprehensive Loss: (492)
Cash dividends - $.53 per share -- -- (2,566)
Net proceeds from issuance of common stock -- -- 1,110
5% Stock dividend -- -- (8)
Purchase of treasury stock (929) -- (929)
Retirement of treasury stock 929 -- --
Deferred compensation -- -- 9
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ -- $ (5,336) $ 43,960
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
53
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The Years Ended December 31,
Amounts in Thousands 1999 1998 1997
===============================================================================================================
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 6,410 $ 5,276 $ 4,513
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 965 1,037 1,021
Provision for loan losses 1,048 780 830
Provision for deferred taxes (302) (212) (86)
Increase in accrued interest receivable (474) (160) (147)
Increase in accrued interest payable 214 134 147
Net change in other assets and other liabilities 1,669 187 283
Net amortization of premium on securities 398 601 338
Net gains on sales of securities (13) (336) (304)
Net gains on sales of loans (362) (15) (45)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,553 7,292 6,550
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 37,115 60,279 27,986
Proceeds from sales of securities available for sale 26,491 29,673 29,231
Purchases of securities available for sale (95,578) (82,313) (91,891)
Net increase in loans (48,689) (54,235) (33,909)
Proceeds from sales of loans 7,106 1,014 15,026
Net capital expenditures (961) (327) (763)
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (74,516) (45,909) (54,320)
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in demand and savings deposits 14,590 34,669 25,780
Net increase in time deposits 29,790 4,317 22,865
Net increase (decrease) in borrowed funds 13,872 8,104 (7,784)
Net increase (decrease) in long-term debt 5,500 (1,222) (276)
Net proceeds from issuance of common stock 1,102 1,679 1,260
Net treasury stock transactions (929) (1,716) (80)
Cash dividends paid (2,566) (2,063) (1,727)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,359 43,768 40,038
- ---------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (3,604) 5,151 (7,732)
Cash and Cash Equivalents, Beginning of Period 33,001 27,850 35,582
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,397 $ 33,001 $ 27,850
- ---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 20,097 $ 19,296 $ 19,051
Income taxes paid 3,161 2,551 2,322
===============================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
54
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the business and significant accounting
policies of Vista Bancorp, Inc. and its subsidiaries (Vista).
Description of Business
We provide 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. Our lending and investing activities are funded
primarily by deposits gathered through the retail branch office network. Lending
is concentrated in mortgage, commercial and consumer loans to local borrowers.
We also lend to borrowers outside our local area through the SBA program.
Our success 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 the results of operations and financial condition.
Principles of Consolidation
Our consolidated financial statements include all of the accounts of the
parent company and 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 estimated fair value with unrealized gains and
losses reported on a net-of-tax basis, as a separate component of shareholders'
equity (accumulated other comprehensive income [loss]). 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. 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.
We originate loans through the Small Business Administration (SBA).
Between 75 and 80 percent of each loan is guaranteed by the SBA and may be sold
into the secondary market with the balance retained in the commercial loan
portfolio.
Nonaccrual Loans - 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.
Impaired Loans - Impaired loans are those loans that management deems it
is unlikely to collect all amounts due (including both principal and interest)
according to the contractual terms of the loan agreement. Impaired loans include
nonaccrual loans plus other loans individually identified as impaired. Impaired
loans are measured based upon the present value of expected cash flows
discounted at the loans effective interest rate or using the fair value of
collateral if the loan is collateral dependent.
Restructured Loans - 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.
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve that we believe 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.
55
<PAGE>
Transfers of Financial Assets
Servicing rights are recorded when purchased or originated mortgage and
SBA loans are sold, with servicing rights retained. The cost of each loan is
allocated between the servicing right and the loan (without the servicing right)
based on their relative fair values. Servicing rights are classified in "Other
Assets" and are amortized over the estimated net servicing life and evaluated
periodically for impairment.
Fair value is estimated using the present value of expected future cash
flows along with numerous assumptions including servicing income, cost of
servicing, discount rates, prepayment anticipations and default rates. The
portfolio is stratified by loan type and interest rate, and impairment
adjustments, if any, are recognized through the use of a valuation allowance.
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
We maintain a noncontributory defined benefit pension plan covering the
majority of our 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."
Marketing and Advertising Costs
We initiate various marketing and advertising programs. All costs related
to marketing and advertising are generally expensed in the period incurred.
Marketing and advertising costs totaled $689 thousand in 1999, $668 thousand in
1998 and $496 thousand in 1997.
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.
We file 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
Earnings per share amounts, weighted average shares outstanding and all
per share amounts have been adjusted in the accompanying financial statements to
reflect the stock dividends declared in April 1999 and May 1998.
On April 16, 1999, a 5 percent stock dividend was declared to
shareholders' of record as of May 3, 1999 and payable May 21, 1999. In
connection therewith, 228,483 shares were issued.
On May 15, 1998, a 10 percent stock dividend was declared to shareholders'
of record as of June 1, 1998 and payable June 10, 1998. In connection therewith,
417,898 shares were issued.
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.
Amounts in Thousands Years Ended December 31,
(except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income available
to common
shareholders (numerator) $6,410 $5,276 $4,513
Weighted average common
shares outstanding 4,808 4,823 4,752
Effect of common
stock equivalents -- -- --
- --------------------------------------------------------------------------------
Weighted average shares
outstanding (denominator
for each calculation) 4,808 4,823 4,752
- --------------------------------------------------------------------------------
Basic earnings per share $ 1.33 $ 1.09 $ .95
- --------------------------------------------------------------------------------
Diluted earnings per share $ 1.33 $ 1.09 $ .95
================================================================================
56
<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
We 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 1999, Statement of Financial Accounting Standards (SFAS) No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No.
133" was issued. SFAS No. 137 delays the implementation of SFAS No. 133 (see
below) until fiscal years beginning after June 15, 2000. This delay was due to
the complexity of implementing this standard along with Year 2000
considerations. Currently, we do not invest in derivative instruments nor engage
in hedging activities. Adoption of SFAS 137 is not expected to have a material
impact on Vista.
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 was effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
Reclassifications
Certain amounts in prior years' financial statements have been
reclassified to conform to the current year's presentation.
NOTE 2
CASH AND DUE FROM BANKS
Restrictions on cash and due from bank accounts are placed upon the
banking subsidiaries 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 reserve balances for the
year ended December 31, 1999, was approximately $8.9 million. For the two-week
period ended December 31, 1999, the average amount of reserve balances was
approximately $10.1 million.
Various deposit accounts are maintained 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. 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 operations as of December 31, 1999.
NOTE 3
SECURITIES
The amortized cost, gross unrealized gains and losses, estimated fair
values and maturity distribution of the securities available for sale at
December 31, 1999 and 1998, were as follows:
57
<PAGE>
<TABLE>
<CAPTION>
Securities Available for Sale December 31, 1999
- --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Amounts in Thousands Cost Gains Losses Value
==================================================================================================
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 10,121 $ 2 $ (125) $ 9,998
U.S. Government agencies and corporations 8,993 -- (253) 8,740
State and political subdivisions 41,960 37 (2,155) 39,842
Corporate debt securities 21,996 3 (1,269) 20,730
Mortgage-backed securities 122,459 119 (3,611) 118,967
Equity securities 4,098 -- (100) 3,998
- --------------------------------------------------------------------------------------------------
Total securities available for sale $209,627 $ 161 $ (7,513) $202,275
- --------------------------------------------------------------------------------------------------
<CAPTION>
Securities Available for Sale December 31, 1998
- --------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
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
- --------------------------------------------------------------------------------------------------
<CAPTION>
Securities Available for Sale December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Amounts in Thousands Cost Value Cost Value
==================================================================================================
<S> <C> <C> <C> <C>
Maturing within one year $ 10,889 $ 10,854 $ 10,035 $ 10,102
Maturing after one year but within five years 27,481 26,887 26,209 26,556
Maturing after five years but within ten years 10,037 9,426 5,646 5,770
Maturing after ten years 34,663 32,143 29,546 30,038
No Maturity 4,098 3,998 3,864 3,841
Mortgage-backed securities 122,459 118,967 102,740 103,856
- --------------------------------------------------------------------------------------------------
Total securities available for sale $209,627 $202,275 $178,040 $180,163
==================================================================================================
</TABLE>
Proceeds from the sales of securities available for sale were $26.5
million in 1999, $29.7 million in 1998 and $29.2 million in 1997. Gross realized
gains on sales were $128 thousand in 1999, $411 thousand in 1998 and $365
thousand in 1997. Gross realized losses on sales totaled $115 thousand in 1999,
$75 thousand in 1998 and $61 thousand in 1997.
Securities available for sale with a book value of $65.0 million and $53.0
million at December 31, 1999 and 1998, respectively, were pledged to secure
public fund deposits, secured other borrowings and for other purposes required
or permitted by law.
58
<PAGE>
NOTE 4
LOANS
Our mortgage, commercial and consumer loan activity is generally
concentrated in Warren and Hunterdon counties in Western New Jersey and
Northampton and Lehigh counties in Eastern Pennsylvania. Although we have a
diversified loan portfolio, a substantial portion of our debtors' ability to
honor their contracts is related to the strength of the local economies.
Restructured loans were $1.6 million at December 31, 1999 and $1.2 million
at December 31, 1998. There were no restructured loans returned to accrual
status during 1999. There was one loan for $205 thousand which was returned to
accrual status during 1998. Total nonaccrual loans included $998 thousand of
restructured loans at December 31, 1999 and $754 thousand at December 31, 1998.
Transfers from loans to other real estate owned totaled $195 thousand in 1999
and $614 thousand in 1998.
The following table summarizes the nonaccrual and past due loans at
December 31, 1999 and 1998:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Nonaccrual loans $2,672 $1,930
- --------------------------------------------------------------------------------
Accrual loans past due
90 days or more $ 19 $ 160
- --------------------------------------------------------------------------------
Interest income that would
have been recorded under
original terms $ 84 $ 89
- --------------------------------------------------------------------------------
Interest income recorded
during the period $ 141 $ 81
- --------------------------------------------------------------------------------
Loans to executive officers, directors and their affiliated interests
amounted to $6.5 million at December 31, 1999 and 1998. During 1999, $15.1
million of new loans were made, and repayments totaled $15.1 million. During
1998, $9.1 million of new loans were made, and repayments totaled $8.4 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 the normal risk of
collectibility. At December 31, 1999, no loans to executive officers, directors
and their affiliated interests were renegotiated, past due or on nonaccrual
status.
NOTE 5
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on estimates, and it is
reasonably possible that ultimate losses may vary from the current estimates.
These estimates are reviewed periodically and adjustments, as they become
necessary, are reported in earnings in the periods in which they become known.
An analysis of the allowance for loan losses as of December 31, 1999, 1998 and
1997, is as follows:
Amounts in Thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Balance, beginning of year $ 4,524 $ 4,148 $ 3,903
Additions:
Provisions charged to
expense 1,048 780 830
Recoveries of loans
previously charged off 76 135 151
Deductions:
Loans charged off (382) (539) (736)
- --------------------------------------------------------------------------------
Balance, end of year $ 5,266 $ 4,524 $ 4,148
- --------------------------------------------------------------------------------
At December 31, 1999, total impaired loans were approximately $3.4
million, of which $419 thousand were valued based upon discounted cash flows and
$2.98 million using the fair value of collateral. Based on these methods, $382
thousand of the $5.3 million allowance for loan losses was allocated against the
$3.4 million of impaired loans. At December 31, 1998, total impaired loans were
$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. The remaining allowance
for loan losses, totaling $4.9 million at December 31, 1999, and $4.2 million at
December 31, 1998, was available to absorb losses in the entire loan portfolio.
Total average impaired loans during 1999 were $2.8 million and $2.2 million
during 1998. Interest income on impaired loans totaled $194 thousand in 1999 and
$61 thousand in 1998.
NOTE 6
PREMISES AND EQUIPMENT
An analysis of premises and equipment as of December 31, 1999 and 1998, is
as follows:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Land and buildings $ 6,617 $ 6,676
Furniture and equipment 5,545 6,170
Leasehold improvements 1,135 842
- --------------------------------------------------------------------------------
Total cost 13,297 13,688
Less: Accumulated depreciation
and amortization (6,363) (6,837)
- --------------------------------------------------------------------------------
Total premises and
equipment, net $ 6,934 $ 6,851
- --------------------------------------------------------------------------------
Furniture and equipment decreased in 1999 due to the retirement of assets
in conjunction with the 1998 technology program. These assets were fully
depreciated and consequently resulted in a corresponding reduction in
accumulated depreciation. Depreciation and amortization expense for premises and
equipment was $878 thousand in 1999, $911 thousand in 1998 and $870 thousand in
1997.
59
<PAGE>
NOTE 7
DEPOSITS
An analysis of time deposits at December 31, 1999 and 1998, is as follows:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Time deposits:
Certificates less
than $100,000 $216,938 $196,632
Certificates $100,000
and over 51,104 41,620
- --------------------------------------------------------------------------------
Total time deposits $268,042 $238,252
- --------------------------------------------------------------------------------
A maturity schedule of time deposits of $100,000 and over is as follows:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
3 months or less $ 17,797 $ 15,997
3 through 6 months 11,583 9,340
6 through 12 months 14,387 10,075
Over one year 7,337 6,208
- --------------------------------------------------------------------------------
Total certificates
$100,000 and over $ 51,104 $ 41,620
- --------------------------------------------------------------------------------
NOTE 8
BORROWED FUNDS
An analysis of borrowed funds as of December 31, 1999 and 1998, is as
follows:
1999 1998
Amounts in Thousands Maturity -------------------------------------------
(except percentages) date Amount Rate Amount Rate
- --------------------------------------------------------------------------------
Treasury tax and
loan note Overnight $ 576 4.78% $ 522 5.14%
- --------------------------------------------------------------------------------
Securities sold
under agreements
to repurchase Overnight 17,259 3.56% 16,441 4.24%
- --------------------------------------------------------------------------------
Federal Home Loan
Bank repurchase
agreements 2/29/00 3,000 5.75% -- --
8/30/00 3,000 6.03% -- --
12/31/00 4,000 5.94% -- --
- --------------------------------------------------------------------------------
Federal Home Loan
Bank short-term
advances 3/11/00 3,000 5.30% -- --
6/13/00 3,000 5.96% -- --
6/29/00 3,000 6.17% 3,000 6.17%
- --------------------------------------------------------------------------------
Federal Home Loan
Bank long-term
advances 3/11/01 1,500 5.50% -- --
3/11/02 1,000 5.65% -- --
- --------------------------------------------------------------------------------
Total borrowed funds $ 39,335 $19,963
- --------------------------------------------------------------------------------
As of December 31, 1999, we maintained an $18.5 million leverage program
with $10.0 million classified as FHLB repurchase agreements, $2.5 million
classified as FHLB long-term debt and $6.0 million classified as FHLB short-term
debt. All advances from the FHLB are collateralized by securities owned by
Vista. The weighted average cost of borrowings on the leverage program during
1999 was 5.50 percent.
We have approximately $43 million in additional borrowing capacity from
the FHLB.
Borrowed funds from directors and their affiliated interests amounted to
$1.0 million and $3.0 million at December 31, 1999 and 1998, respectively, and
are included above.
NOTE 9
EMPLOYEE BENEFIT PLANS
We maintain 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, 1999 and
1998, the measurement dates, and amounts recognized in the consolidated balance
sheets at December 31, 1999 and 1998:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at end of
prior year: $ (5,029) $ (4,477)
Service cost (267) (247)
Interest cost (336) (310)
Actuarial gain (loss) 106 (138)
Benefit payments 301 143
- --------------------------------------------------------------------------------
Benefit obligation at
year-end $ (5,225) $ (5,029)
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
end of prior year $ 6,881 $ 6,004
Contributions -- --
Net investment income 782 1,060
Benefit payments (301) (143)
Estimated administration
expenses (27) (40)
- --------------------------------------------------------------------------------
Fair value of plan assets at
year-end $ 7,335 $ 6,881
- --------------------------------------------------------------------------------
Plan assets in excess of
benefit obligation $ 2,110 $ 1,852
Unrecognized gain (1,958) (1,781)
Unrecognized prior service cost (336) (371)
Unrecognized transition asset (178) (213)
- --------------------------------------------------------------------------------
Accrued pension cost $ (362) $ (513)
- --------------------------------------------------------------------------------
60
<PAGE>
Net periodic pension cost for 1999, 1998 and 1997 included the following
components:
Amounts in Thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost benefits earned
during the year $ 267 $ 247 $ 223
Interest cost on projected
benefit obligation 336 310 283
Expected return on plan assets (782) (535) (427)
Net amortization/(deferral) 29 (129) (77)
- --------------------------------------------------------------------------------
Net periodic pension cost
(benefit) $(150) $(107) $ 2
- --------------------------------------------------------------------------------
In determining the periodic pension cost, the assumed discount rate was
6.75% in 1999, and 7% in 1998 and 1997. In determining the benefit obligation,
the assumed discount rate was 7% for 1999, 1998 and 1997. The rate of increase
in future salary levels was 4% in 1999, 1998 and in 1997. The expected long-term
rate of return on assets used in determining net periodic pension cost was 9% in
1999, 1998 and 1997.
At December 31, 1999 and 1998, the plan's assets consisted of the
following components:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Plan assets at year-end:
Cash $ 345 $ 416
Fixed-income securities 1,167 1,423
Equity securities 5,850 5,069
Liabilities:
Accrued expenses and
taxes withheld (27) (27)
- --------------------------------------------------------------------------------
Market value of plan assets $ 7,335 $ 6,881
- --------------------------------------------------------------------------------
We also maintain 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
plan, employee contributions are partially matched by Vista. Matching
contributions vest proportionally over five years of credited service. Total
matching expense amounted to $135 thousand in 1999, $120 thousand in 1998 and
$108 thousand in 1997.
We also sponsor 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 1999 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 $118 thousand and the aggregate of the service and
interest components of net periodic postretirement cost for the year ended
December 31, 1999, by $10 thousand. Decreasing the assumed health care cost
trend by one percent in each year would decrease the APBO by $104 thousand and
the aggregate of the service and interest components of net periodic
postretirement cost for the year ended December 31, 1999, by $13 thousand. The
present value of the APBO for each of these years assumed discount rates of 7%,
6.75% and 7% for 1999, 1998 and 1997, respectively, while determination of net
periodic postretirement benefit cost was based on a 6.75%, 7% and 7% discount
rate for 1999, 1998 and 1997, respectively. The rate of interest used in
projecting future compensation levels was 4% in 1999, 1998 and 1997.
The following sets forth the APBO and the net periodic postretirement
benefit cost at December 31:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Benefit obligation at
end of prior year: $ 1,026 $ 1,016
Service cost 31 32
Interest cost 62 67
Actuarial gain (130) (97)
Benefit payments (29) (27)
(Gain) loss from change in
assumptions at year-end (34) 35
- --------------------------------------------------------------------------------
Benefit obligation at year-end $ 926 $ 1,026
- --------------------------------------------------------------------------------
Plan obligation in excess of plan assets $ 926 $ 1,026
Unrecognized gain 503 445
Unrecognized transition asset (272) (290)
- --------------------------------------------------------------------------------
Accrued accumulated postretirement
benefit $ 1,157 $ 1,181
- --------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for 1999, 1998
and 1997 were as follows:
Amounts in Thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Service cost, benefits
attributed to employee
service during the year $ 31 $ 32 $ 34
Interest cost on accumulated
postretirement benefit
obligation 63 67 66
Amortization of transition
obligation 18 18 18
Amortization of net gain (35) (29) (19)
- --------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 77 $ 88 $ 99
- --------------------------------------------------------------------------------
We recognize the annual net periodic postretirement cost on the
straight-line basis and include the effect in salary 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.
61
<PAGE>
NOTE 10
STOCK OPTION PLAN
The stock-based incentive compensation plan, was approved by our
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. No awards were granted under the plan in 1999. 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 and related information
for the two years ended December 31, 1999.
Weighted
Average
Exercise Exercise
Price Price Number
- --------------------------------------------------------------------------------
January 1, 1998
Granted $16.67 $16.67 55,440
Canceled 0 0 0
Options exercised 0 0 0
- --------------------------------------------------------------------------------
December 31, 1998 $16.67 $16.67 55,440
- --------------------------------------------------------------------------------
Granted $ 0 $ 0 0
Canceled 0 0 0
Options exercised 0 0 0
- --------------------------------------------------------------------------------
December 31, 1999 $16.67 $16.67 55,440
- --------------------------------------------------------------------------------
At December 31, 1999, there were 60,060 additional shares available for
grant under the Plan. The fair value of each option grant is estimated based on
the date of grant using an option- pricing model. The following weighted-average
assumptions were used in 1998: expected dividend yield of 2.29%; expected
volatility of 21.0%; risk-free interest rate of 5.56%; and expected life of 5
years.
We adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-based Compensation, and as permitted under SFAS No. 123 apply Accounting
Principles Board Opinion No. 25 in accounting for the plan. Accordingly, no
compensation expense has been recorded.
If we had elected to adopt the optional recognition provisions of SFAS No.
123 for the stock option plan, reported net income and diluted earnings per
share for 1999 and 1998 would have been changed to the pro forma amounts
indicated below.
Amounts in Thousands
(except per share data) 1999 1998
- --------------------------------------------------------------------------------
Net Income
As reported $ 6,410 $ 5,276
Pro forma $ 6,352 $ 5,218
Diluted earnings per share
As reported $ 1.33 $ 1.09
Pro forma $ 1.32 $ 1.08
- --------------------------------------------------------------------------------
62
<PAGE>
NOTE 11
INCOME TAXES
The current and deferred amounts of the provision for income taxes for the
years ended December 31, 1999, 1998 and 1997, were as follows:
Amounts in Thousands 1999 1998 1997
- --------------------------------------------------------------------------------
Federal:
Current $ 2,727 $ 2,202 $ 2,070
Deferred benefit (237) (171) (71)
State:
Current 396 307 187
Deferred benefit (65) (40) (15)
- --------------------------------------------------------------------------------
Provision for income taxes $ 2,821 $ 2,298 $ 2,171
- --------------------------------------------------------------------------------
A reconciliation of the differences between the effective tax rate and the
statutory federal income tax rate of 34% in 1999, 1998 and 1997 is as follows:
Amounts in Thousands
(except percentages) 1999 1998 1997
- --------------------------------------------------------------------------------
Income tax at
statutory rate $ 3,139 $ 2,575 $ 2,273
Increase (decrease) in taxes
resulting from:
State taxes on income,
net of federal income
tax effect 218 181 173
Tax-exempt
interest income (603) (476) (285)
Other, net 67 18 10
- --------------------------------------------------------------------------------
Provision for income taxes $ 2,821 $ 2,298 $ 2,171
- --------------------------------------------------------------------------------
Effective tax rate 30.6% 30.3% 32.5%
- --------------------------------------------------------------------------------
Items that gave rise to significant portions of deferred tax assets and
deferred tax liabilities at December 31, 1999 and 1998, were as follows:
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Provision for loan losses $1,532 $1,477
Pension 119 214
Postretirement benefits other
than pension 413 500
Deferred loan fees 377 390
Net unrealized loss on securities
available for sale 2,017 --
Other 463 309
- --------------------------------------------------------------------------------
Deferred tax asset 4,921 2,890
- --------------------------------------------------------------------------------
Net unrealized gain on securities
available for sale -- 557
State taxes 177 151
Discount accretion 114 171
Other 56 58
- --------------------------------------------------------------------------------
Deferred tax liability 347 937
- --------------------------------------------------------------------------------
Net deferred tax asset $4,574 $1,953
- --------------------------------------------------------------------------------
The net deferred tax asset of $4.6 million at December 31, 1999 and $2.0
million at December 31, 1998, is included in other assets in the accompanying
consolidated balance sheets. Although realization of deferred taxes is not
assured, management believes it is more likely than not that all of the net
deferred tax asset will be realized. Therefore, there is no valuation allowance
recorded for deferred taxes.
NOTE 12
COMMITMENTS AND CONTINGENCIES
Litigation
Vista is party, in the ordinary course of business, to litigation
involving collection matters, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any such
proceedings depart from usual routine litigation and, in our judgment, the
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 we have in particular classes of financial instruments. Our
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit and standby letters of
credit is represented by the contractual or notional amount of those
instruments. We use the same credit policies in making commitments and
conditional obligations as we do 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. We evaluate each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by us 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. We are committed to advance $53.8 million and $48.5 million to its
borrowers as of December 31, 1999 and 1998, respectively.
63
<PAGE>
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. We have entered into standby letters
of credit with our customers totaling $2.9 million and $2.1 million as of
December 31, 1999 and 1998, respectively.
We adopted SFAS No. 119 in 1994, that 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, 1999.
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. Management believes that
off-balance sheet risk is not material to the results of our operations or
financial condition.
Noncancelable Lease Commitments
At December 31, 1999, Vista was obligated under noncancelable operating
leases for certain facilities and equipment. Total rental expense amounted to
$1.4 million in 1999, $760 thousand in 1998 and $541 thousand in 1997.
The minimum lease commitments for the year 2000 and thereafter are as
follows:
Amounts in Thousands
- --------------------------------------------------------------------------------
2000 $ 1,433 2001 $ 1,275 2002 $ 887
2003 $ 750 2004 $ 629 After 2005 $ 3,607
- --------------------------------------------------------------------------------
NOTE 13
COMMON STOCK
We maintain an Employee Stock Purchase Plan, a Dividend Reinvestment Plan
and a Board of Directors Stock Purchase Plan. During 1999, 60,096 shares were
issued under these plans. At December 31, 1999, 249,849 shares were reserved for
issuance under these plans.
The Employee Stock Purchase Plan (ESPP) covers substantially all full-time
employees 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, 1999, 1998 and 1997:
Average
Number Price
of Shares per Share
- --------------------------------------------------------------------------------
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 -- --
Options granted 23,819 $20.75
Options exercised (2,906) 18.93
Options canceled (20,913) 16.75
- --------------------------------------------------------------------------------
Balance, December 31, 1999 -- --
================================================================================
At December 31, 1999, 25,179 shares were reserved for issuance under the
ESPP. On May 21, 1999 25,000 additional shares were reserved for 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, 1999, 206,385 shares were reserved for issuance under the
DRP.
The Board of Directors Stock Purchase Plan (BDSPP) allows each member of
the Board of Directors 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, 1999, 18,285 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 we had so elected, would have been immaterial.
64
<PAGE>
Employee Incentive Plan
In 1998 the 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 income before provision for income tax, adjusted
for certain items.
NOTE 14
SHAREHOLDERS' EQUITY
A limitation exists on the availability of the subsidiary 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, 1999, were
$2.4 million. The retained net profits for PNB for the three years ended
December 31, 1999, were $7.4 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 $3.3 million at December 31, 1999.
Vista is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Vista's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Vista must meet specific capital
guidelines that involve quantitative measures of Vista's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. Vista's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure 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>
Minimum
Regulatory Capital Requirements Actual Required Capital Well Capitalized
----------------------------------------------------------------
Amounts in Thousands (except percentages) Amount Ratio Amount Ratio Amount Ratio
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Risk-based Capital (to Risk-weighted Assets):
Vista $54,292 13.3% $32,789 8.0% N/A
PNB 38,333 13.4% 22,847 8.0% $28,559 10.0%
Twin Rivers 13,580 11.1% 9,821 8.0% 12,276 10.0%
Tier I Capital (to Risk-weighted Assets):
Vista $49,167 12.0% $16,394 4.0% N/A
PNB 34,760 12.2% 11,424 4.0% $17,135 6.0%
Twin Rivers 12,116 9.9% 4,910 4.0% 7,366 6.0%
Tier I Capital (to Average Assets):
Vista $49,167 7.5% $26,405 4.0% N/A
PNB 34,760 7.5% 18,658 4.0% $23,322 5.0%
Twin Rivers 12,116 6.3% 7,697 4.0% 9,621 5.0%
As of December 31, 1998:
Total Risk-based Capital (to Risk-weighted Assets):
Vista $49,470 14.0% $28,247 8.0% N/A
PNB 35,262 13.9% 20,364 8.0% $25,455 10.0%
Twin Rivers 11,929 11.9% 8,001 8.0% 10,001 10.0%
Tier I Capital (to Risk-weighted Assets):
Vista $45,055 12.8% $14,123 4.0% N/A
PNB 32,079 12.6% 10,182 4.0% $15,273 6.0%
Twin Rivers 10,682 10.7% 4,000 4.0% 6,000 6.0%
Tier I Capital (to Average Assets):
Vista $45,055 7.7% $23,323 4.0% N/A
PNB 32,079 7.7% 16,684 4.0% $20,855 5.0%
Twin Rivers 10,682 6.5% 6,552 4.0% 8,190 5.0%
=========================================================================================================================
</TABLE>
65
<PAGE>
NOTE 15
BRANCH ACQUISITIONS
In March 1999, we expanded our presence in Pennsylvania, through our
affiliate Twin Rivers Community Bank with the addition of two new branches in
Bethlehem, Pennsylvania. The Route 191 office located at 3815 Linden Street,
Bethlehem Township and the Westgate office located at 2400 Schoenersville Road,
Hanover Township, both in Northampton County increased the number of branch
offices in Pennsylvania to six. No deposits were acquired as part of these
transactions. As of December 31, 1999, $15.7 million in deposit growth was
generated at these two branches.
NOTE 16
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates are made at a discrete point in time based on
relevant market information and information about the financial instruments.
Because no market exists for a significant portion of Vista's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates are based on existing on-balance
sheet and off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities include
property, plant and equipment. The tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates. Accordingly, the
aggregate fair value amounts presented below do not represent the underlying
value of Vista taken as a whole. Fair value estimates, methods and assumptions
for Vista's financial instruments follow.
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 matur- ities. Estimated discount
rates reflect the credit risk inherent in these loans and are based on rates at
which the same loans would be made under current market conditions. The fair
value for significant nonperforming loans secured by real estate is based on
recent external appraisals of the underlying collateral. Assumptions regarding
credit risk, cash flows and discount rates are judgmentally determined using
available internal information.
Deposits
The fair value of deposits with no stated maturity, such as non-
interest-bearing demand deposits, interest-bearing demanddeposits, 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 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, 1999 December 31, 1998
--------------------------------------------------
Amounts Carrying Fair Carrying Fair
in Thousands Value Value Value Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $ 29,397 $ 29,397 $ 33,001 $ 33,001
Securities
available
for sale 202,275 202,275 180,163 180,163
Net Loans 405,612 400,014 365,002 372,167
- --------------------------------------------------------------------------------
Total financial
assets $637,284 $631,686 $578,166 $585,331
- --------------------------------------------------------------------------------
Financial liabilities:
Deposits $567,122 $565,093 $522,742 $523,119
Borrowed funds 30,835 30,769 16,963 16,963
Long-term debt 8,500 8,447 3,000 3,045
- --------------------------------------------------------------------------------
Total
financial
liabilities $606,457 $604,309 $542,705 $543,127
- --------------------------------------------------------------------------------
66
<PAGE>
NOTE 17
VISTA BANCORP, INC. (PARENT COMPANY ONLY)
Vista Bancorp, Inc. operates two wholly-owned subsidiaries, PNB and Twin
Rivers. The earnings of these subsidiaries are recognized using the equity
method of accounting. Accordingly, earnings are recorded as increases 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 1999 1998
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 1,005 $ 260
Securities available for sale,
at fair value with a cost of
$632 and $1,533, respectively 517 1,534
Investments in subsidiaries 41,744 44,542
Premises and equipment 674 462
Other assets 446 262
- --------------------------------------------------------------------------------
Total Assets $44,386 $47,060
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Other liabilities $ 426 $ 224
- --------------------------------------------------------------------------------
Total Liabilities 426 224
- --------------------------------------------------------------------------------
Shareholders' Equity 43,960 46,836
- --------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $44,386 $47,060
================================================================================
67
<PAGE>
Condensed Statements of Income
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------
Amounts in Thousands 1999 1998 1997
=======================================================================================================
<S> <C> <C> <C>
Income:
Dividend income from subsidiaries $ 2,835 $ 2,318 $ 2,035
Interest income 89 125 213
Other income -- 3 3
Net gain on sale of securities 1 16 --
Income from service fees 3,360 3,172 1,985
- -------------------------------------------------------------------------------------------------------
Total Operating Income 6,285 5,634 4,236
- -------------------------------------------------------------------------------------------------------
Expense:
Interest expense -- 4 127
Salaries and benefits 2,350 2,033 1,274
Occupancy expense 143 132 131
Furniture and equipment expense 767 740 532
Other expense 841 676 395
- -------------------------------------------------------------------------------------------------------
Total Operating Expense 4,101 3,585 2,459
- -------------------------------------------------------------------------------------------------------
Income Before Income Tax Benefit and
Equity in Undistributed Earnings of Subsidiaries 2,184 2,049 1,777
Income Tax Benefit 197 90 88
- -------------------------------------------------------------------------------------------------------
Income Before Equity in Undistributed
Earnings of Subsidiaries 2,381 2,139 1,865
Equity in Undistributed Earnings of Subsidiaries 4,029 3,137 2,648
- -------------------------------------------------------------------------------------------------------
Net Income $ 6,410 $ 5,276 $ 4,513
=======================================================================================================
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------
Amounts in Thousands 1999 1998 1997
=======================================================================================================
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 6,410 $ 5,276 $ 4,513
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 233 224 209
Equity in undistributed earnings of subsidiaries (4,029) (3,137) (2,648)
Net change in other assets and other liabilities 31 86 (49)
Net amortization of premiums on securities -- 2 2
Net gain on sales of securities (1) (16) --
- -------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 2,644 2,435 2,027
- -------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities available for sale 500 -- --
Proceeds from sales of securities available for sale 501 1,515 1,000
Purchases of securities available for sale (99) (107) (1,422)
Investment in subsidiaries -- (1,000) (1,000)
Net capital expenditures (443) (156) (127)
- -------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 459 252 (1,549)
- -------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Decrease in long-term debt -- (1,222) (276)
Net proceeds from issuance of common stock 1,146 1,679 1,260
Net treasury stock transactions (929) (1,716) (80)
Cash dividends paid (2,575) (2,063) (1,727)
- -------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (2,358) (3,322) (823)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 745 (635) (345)
Cash and Cash Equivalents, Beginning of Period 260 895 1,240
- -------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 1,005 $ 260 $ 895
=======================================================================================================
</TABLE>
68
<PAGE>
NOTE 18
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables summarize certain 1999 and 1998 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.
<TABLE>
<CAPTION>
Amounts in thousands (except per share data)
1999 March 31 June 30 September 30 December 31
=================================================================================================================
<S> <C> <C> <C> <C>
Interest Income $ 10,169 $ 10,741 $ 11,288 $ 11,756
Interest Expense 4,669 4,967 5,198 5,477
- -----------------------------------------------------------------------------------------------------------------
Net Interest Income 5,500 5,774 6,090 6,279
Provision for Loan Losses 225 252 286 285
- -----------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 5,275 5,522 5,804 5,994
- -----------------------------------------------------------------------------------------------------------------
Net Gains (Losses) on Sales of Securities 71 17 (78) 3
Noninterest Income 1,063 1,091 1,005 971
Noninterest Expense 4,263 4,520 4,254 4,470
- -----------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 2,146 2,110 2,477 2,498
Provision for Income Taxes 673 628 748 772
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 1,473 $ 1,482 $ 1,729 $ 1,726
- -----------------------------------------------------------------------------------------------------------------
Earnings per Share $ 0.31 $ 0.31 $ 0.36 $ 0.36
=================================================================================================================
<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 Gain on Sales of Securities 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
- -----------------------------------------------------------------------------------------------------------------
Earnings per Share $ 0.24 $ 0.28 $ 0.30 $ 0.27
=================================================================================================================
</TABLE>
69
<PAGE>
NOTE 19
TRANSFERS OF FINANCIAL ASSETS
The following table summarizes the changes in mortgage and SBA loan
servicing rights:
Years Ended December 31,
Amounts in Thousands 1999 1998
- --------------------------------------------------------------------------------
Balance, beginning of year $ 43 $ 46
Originations 181 --
Sales (43) --
Amortization (28) (3)
- --------------------------------------------------------------------------------
Balance, end of year $ 153 $ 43
- --------------------------------------------------------------------------------
Loan servicing assets increased to $153 thousand due to SBA loan
originations offset in part by the sale of a mortgage servicing asset. At
December 31, 1999, SBA loans of $6.0 million were being serviced. In March 1999,
the $43 thousand mortgage servicing asset, related to $15.0 million in mortgages
was sold at a gain of $35 thousand.
NOTE 20
OTHER COMPREHENSIVE INCOME
We held securities classified as available for sale, which experienced net
unrealized pre-tax depreciation in value of $9.5 million during the year ended
December 31, 1999 and pre-tax appreciation in value of $321 thousand during the
year ended December 31, 1998. The before-tax and after-tax amount for this
category as well as the tax benefit, is summarized below.
December 31, 1999
-------------------------------------
Before Tax Tax Net-of-Tax
Amounts in Thousands Amount (Benefit) Amount
- --------------------------------------------------------------------------------
Unrealized losses on securities:
Unrealized holding losses
arising during period $(9,463) $(2,570) $(6,893)
Less: Reclassification adjustment
for gains realized in net income 13 4 9
- --------------------------------------------------------------------------------
Net unrealized loss (9,476) (2,574) (6,902)
- --------------------------------------------------------------------------------
Other comprehensive loss $(9,476) $(2,574) $(6,902)
- --------------------------------------------------------------------------------
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 (loss) $ 321 $ (55) $ 376
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Auditors
- --------------------------------------------------------------------------------
Rudolph, Palitz LLC
1777 Sentry Parkway West
Blue Bell, PA 19422
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, 1999 and 1998 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, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Rudolph, Palitz LLC
Rudolph, Palitz LLC
January 28, 2000
Blue Bell, Pennsylvania
71
<PAGE>
- --------------------------------------------------------------------------------
Selected Consolidated Financial Summary
- --------------------------------------------------------------------------------
Not covered by Report of Independent Accountants
<TABLE>
<CAPTION>
Amounts in Thousands
(except per share and share data and ratios) 1999 1998 1997 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total Assets $ 654,668 $ 593,046 $ 543,467 $ 498,201 $ 457,240
Total Securities 202,275 180,163 187,746 152,368 145,867
Total Loans 410,878 369,526 317,489 299,564 264,282
Allowance for Loan Losses 5,266 4,524 4,148 3,903 3,932
Total Net Loans 405,612 365,002 313,341 295,661 260,350
Total Deposits 567,122 522,742 483,756 435,111 401,563
Total Shareholders' Equity 43,960 46,836 43,302 38,815 35,845
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Income Statement Data:
Total Interest Income $ 43,954 $ 40,283 $ 37,948 $ 33,865 $ 31,060
Total Interest Expense 20,311 19,430 19,198 16,849 15,257
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 23,643 20,853 18,750 17,016 15,803
Provision for Loan Losses 1,048 780 830 380 190
- ----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 22,595 20,073 17,920 16,636 15,613
Total Noninterest Income 4,143 3,479 2,800 2,486 2,062
Total Noninterest Expense 17,507 15,978 14,036 12,726 11,346
- ----------------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 9,231 7,574 6,684 6,396 6,329
Provision for Income Taxes 2,821 2,298 2,171 2,148 2,236
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 6,410 5,276 4,513 4,248 4,093
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data: (1)
Net Income Per Share $ 1.33 $ 1.09 $ 0.95 $ 0.91 $ 1.02
Cash Dividends 0.53 0.44 0.36 0.33 0.30
Book Value (2) 9.12 9.74 9.01 8.23 7.76
Weighted Average Number of Common Shares Outstanding
for the Years Ended December 31, 4,808,007 4,823,208 4,752,075 4,660,531 4,005,594
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Ratios:
Return on Average Assets 1.02% 0.93% 0.85% 0.89% 0.96%
Return on Average Equity 13.56 11.83 11.18 11.65 15.02
Dividend Payout Ratio 40.03 39.10 38.27 36.06 28.71
Allowance for Loan Losses to Total Loans 1.28 1.22 1.31 1.30 1.49
Total Shareholders' Equity to Total Assets 6.71 7.90 7.97 7.79 7.84
Capital Adequacy Ratios: (3)
Leverage Capital 7.45 7.73 7.61 7.57 7.69
Tier I Risk-based Capital 12.00 12.76 13.58 13.33 13.45
Total Risk-based Capital 13.25 14.01 14.99 14.90 15.39
==================================================================================================================================
</TABLE>
(1) Adjusted for 10 percent stock dividend paid on June 10, 1998 and 5 percent
stock dividend paid on May 21, 1999.
(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.
72
LIST OF SUBSIDIARIES OF THE COMPANY
The Phillipsburg National Bank and Trust Company, Phillipsburg, New Jersey,
chartered under the laws of the United States of America.
Twin Rivers Community Bank, Easton, Pennsylvania, chartered under the laws of
the Commonwealth of Pennsylvania.
Phillipsburg Investment, Inc., Phillipsburg, New Jersey, chartered under the
laws of the State of New Jersey.
73
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000831979
<NAME> VISTA BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1999
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,091
<INT-BEARING-DEPOSITS> 156
<FED-FUNDS-SOLD> 2,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 202,275
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 410,878
<ALLOWANCE> 5,266
<TOTAL-ASSETS> 654,668
<DEPOSITS> 567,122
<SHORT-TERM> 30,835
<LIABILITIES-OTHER> 4,251
<LONG-TERM> 8,500
0
0
<COMMON> 2,409
<OTHER-SE> 41,551
<TOTAL-LIABILITIES-AND-EQUITY> 654,668
<INTEREST-LOAN> 31,569
<INTEREST-INVEST> 11,841
<INTEREST-OTHER> 544
<INTEREST-TOTAL> 43,954
<INTEREST-DEPOSIT> 18,862
<INTEREST-EXPENSE> 20,311
<INTEREST-INCOME-NET> 23,643
<LOAN-LOSSES> 1,048
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 17,507
<INCOME-PRETAX> 9,231
<INCOME-PRE-EXTRAORDINARY> 9,231
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,410
<EPS-BASIC> 1.33
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 4.11
<LOANS-NON> 2,672
<LOANS-PAST> 19
<LOANS-TROUBLED> 580
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,524
<CHARGE-OFFS> 382
<RECOVERIES> 76
<ALLOWANCE-CLOSE> 5,266
<ALLOWANCE-DOMESTIC> 4,690
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 576
</TABLE>
EXHIBIT 99
SEC GUIDE 3 FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
LOANS
- --------------------------------------------------------------------------------
The following table sets forth the composition of Vista's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
------------------------------------------------------------------------
Amounts in Thousands 1999 1998 1997 1996 1995
- --------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $174,334 $136,449 $ 98,813 $ 78,250 $ 67,311
Real estate - construction loans 819 558 614 1,043 807
Real estate - mortgage loans 129,725 136,980 131,882 139,569 133,664
Consumer loans 106,000 95,539 86,180 80,702 62,500
- --------------------------------------------------- -------- -------- -------- -------- --------
Total loans $410,878 $369,526 $317,489 $299,564 $264,282
=================================================== ======== ======== ======== ======== ========
</TABLE>
The following table presents the percentage distribution of loans by category as
of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing 42.43% 36.93% 31.12% 26.12% 25.47%
Real estate - construction loans 0.20% 0.15% 0.19% 0.35% 0.31%
Real estate - mortgage loans 31.57% 37.07% 41.54% 46.59% 50.58%
Consumer loans 25.80% 25.85% 27.15% 26.94% 23.64%
- --------------------------------------------------------- ------ ------ ------ ------ ------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
========================================================= ====== ====== ====== ====== ======
</TABLE>
The following table shows the maturity of loans in the specified categories of
Vista's loan portfolio at December 31, 1999, and the amount of such loans with
predetermined fixed rates or with floating or adjustable rates:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------
Maturing
Maturing after
in one one year Maturing
year through after
Amounts in Thousands or less five years five years Total
- ---------------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Types of loans:
Commercial, financial, agricultural loans
and lease financing $ 89,737 $ 65,148 $ 19,449 $174,334
Real estate - construction loans 770 49 -- 819
- ---------------------------------------------------------------- -------- -------- -------- --------
Total $ 90,507 $ 65,197 $ 19,449 $175,153
================================================================ ======== ======== ======== ========
Amount of such loans with:
Predetermined fixed rates $ 20,881 $ 19,818 $ 10,035 $ 50,734
Floating or adjustable rates 69,626 45,379 9,414 124,419
- ---------------------------------------------------------------- -------- -------- -------- --------
Total $ 90,507 $ 65,197 $ 19,449 $175,153
================================================================ ======== ======== ======== ========
</TABLE>
75
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
- --------------------------------------------------------------------------------
The following table presents a summary of Vista's nonaccrual, restructured and
past due loans as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------
Amounts in Thousands 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual, Restructured and Past Due Loans:
Nonaccrual loans (1) $2,672 $1,930 $2,915 $3,177 $4,035
Restructured loans on accrual status 580 495 299 207 155
Accrual loans past due 90 days or more 19 160 78 224 356
- ---------------------------------------------------------------------------- ------ ------ ------ ------ ------
Total nonaccrual, restructured and past due loans $3,271 $2,585 $3,292 $3,608 $4,546
============================================================================ ====== ====== ====== ====== ======
Other real estate $ 553 $1,112 $1,359 $1,280 $ 489
============================================================================ ====== ====== ====== ====== ======
Interest income that would have been recorded
under original terms $ 84 $ 89 $ 193 $ 86 $ 128
============================================================================ ====== ====== ====== ====== ======
Interest income recorded during the period $ 141 $ 81 $ 62 $ 153 $ 167
============================================================================ ====== ====== ====== ====== ======
</TABLE>
(1) Includes nonaccrual restructured loans.
================================================================================
DEPOSITS
- --------------------------------------------------------------------------------
The following table presents average deposits by type and the average interest
rates paid as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------------------------
1999 1998 1997
--------------------- ------------------- -------------------
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 $ 63,231 0.00% $ 55,241 0.00% $ 44,755 0.00%
Interest-bearing demand 85,524 1.86% 79,060 2.14% 72,051 2.14%
Savings 140,498 3.01% 128,465 3.05% 118,591 3.21%
Time:
Certificates less than $100,000 207,138 5.16% 196,919 5.43% 197,546 5.45%
Certificates $100,000 and over 48,482 4.89% 42,095 5.56% 36,839 5.61%
- --------------------------------------------------- -------- ---- -------- ---- -------- ----
Total deposits $544,873 3.46% $501,780 3.72% $469,782 3.87%
=================================================== ======== ==== ======== ==== ======== ====
</TABLE>
================================================================================
BORROWED FUNDS
- --------------------------------------------------------------------------------
The following table presents summarized information relating to borrowed funds
as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
-----------------------------------------------
Amounts in Thousands (Except Percentages) 1999 1998 1997
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Balance at end of period $30,835 $16,963 $ 8,859
Weighted average interest rate at end of period 4.74% 3.95% 4.42%
Maximum amount outstanding
at any month-end during the period $37,213 $20,902 $23,300
Average amount outstanding during the period $24,392 $13,672 $14,407
Weighted average interest rate during the period 4.19% 4.30% 4.78%
============================================================ ======= ======= =======
</TABLE>
76
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
The following table presents a summary of Vista's loan loss experience as of the
dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------------
Amounts in Thousands 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period $410,878 $369,526 $317,489 $299,564 $264,282
======================================================================== ======== ======== ======== ======== ========
Average loans outstanding during the period $389,930 $342,676 $312,696 $281,518 $251,062
======================================================================== ======== ======== ======== ======== ========
Allowance for loan losses:
Balance, beginning of period $ 4,524 $ 4,148 $ 3,903 $ 3,932 $ 3,947
Loans charged off:
Commercial, financial, agricultural loans
and lease financing 158 115 139 194 92
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 23 181 110 25 77
Consumer loans 201 243 487 260 88
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
Total loans charged off 382 539 736 479 257
Recoveries:
Commercial, financial, agricultural loans
and lease financing 19 30 1 32 20
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 14 65 109 5 14
Consumer loans 43 40 41 33 18
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
Total recoveries 76 135 151 70 52
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
Net loans charged off 306 404 585 409 205
Provision for loan losses 1,048 780 830 380 190
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
Balance, end of period $ 5,266 $ 4,524 $ 4,148 $ 3,903 $ 3,932
======================================================================== ======== ======== ======== ======== ========
Net loans charged off during the period as
a percent of average loans outstanding
during the period 0.08% 0.12% 0.19% 0.15% 0.08%
======================================================================== ======== ======== ======== ======== ========
</TABLE>
The following table presents an allocation of Vista's allowance for loan losses
as to indicated categories as of the dates indicated:
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------------
Amounts in Thousands 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural loans
and lease financing $ 3,276 $ 2,908 $ 1,972 $ 1,949 $ 1,805
Real estate - construction loans -- -- -- -- --
Real estate - mortgage loans 525 530 515 520 554
Consumer loans 889 789 706 664 434
Unallocated 576 297 955 770 1,139
- ------------------------------------------------------------------------ -------- -------- -------- -------- --------
Total allowance for loan losses $ 5,266 $ 4,524 $ 4,148 $ 3,903 $ 3,932
======================================================================== ======== ======== ======== ======== ========
</TABLE>
77
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
SECURITIES AVAILABLE FOR SALE
- --------------------------------------------------------------------------------
The following table presents the maturities and the weighted average yields on a
tax-equivalent basis for Vista's securities portfolio:
<TABLE>
<CAPTION>
For The Year Ended December 31, 1999
--------------------------------------------------------------
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 $ 1,998 5.86% $ 8,000 5.62% $ -- --
U.S. Government agencies and corporations 2,993 5.74% 4,802 5.56% 20,501 6.68%
State and other political subdivisions 3,093 5.99% 5,862 6.93% 3,270 7.37%
Other 2,770 6.55% 8,223 6.03% 5,213 6.84%
- -------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total securities $ 10,854 6.04% $ 26,887 6.02% $ 28,984 6.79%
======================================================== ======== ======== ======== ======== ======== ========
<CAPTION>
For The Year Ended December 31, 1999
--------------------------------------------------------------
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 $ -- -- $ -- -- $ 9,998 5.67%
U.S. Government agencies and corporations 99,411 6.80% -- -- 127,707 6.71%
State and other political subdivisions 27,617 7.23% -- -- 39,842 7.10%
Other 4,524 7.00% 3,998 6.19% 24,728 6.46%
- -------------------------------------------------------- -------- -------- -------- -------- -------- --------
Total securities $131,552 6.90% $ 3,998 6.19% $202,275 6.70%
======================================================== ======== ======== ======== ======== ======== ========
</TABLE>
Note: At December 31, 1999 all securities were classified as available for sale.
The above table groups mortgage-backed securities by category of issuer (see
Note 3 to the Consolidated Financial Statements in our Annual Report for more
information.)
78
