- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	for the Quarterly Period Ended June 30, 2009,

	or

o	Transition report pursuant to Section 13 or 15(d) Of the Exchange Act

for the Transition Period from to .

Commission File Number No. 0-14555

VIST FINANCIAL CORP.

(Exact name of Registrant as specified in its charter)

PENNSYLVANIA		23-2354007
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

1240 Broadcasting Road

Wyomissing, Pennsylvania 19610

(Address of principal executive offices)

(610) 208-0966

(Registrants telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Common Stock, $5.00 Par Value		The NASDAQ Stock Market LLC
(Title of each class)		(Name of each exchange on which registered)

Securities registered under Section 12(g) of the Exchange Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

		Number of Common Shares Outstanding
		as of August 6, 2009
COMMON STOCK ($5.00 Par Value)		5,794,200
(Title of Class)		(Outstanding Shares)

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TABLE OF CO NTENTS

		PAGE

PART I FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
Unaudited Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008		4
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008		5
Unaudited Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2009 and 2008		7
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008		8
Notes to Unaudited Consolidated Financial Statements		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	36

PART II OTHER INFORMATION		37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters to a Vote of Security Holders	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
SIGNATURES		38
CERTIFICATIONS

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FORWARD LOOKING STATEMENTS

VIST Financial Corp. (the “Company”), may from time to time make written or oral “forward-looking statements,” including statements contained in the Company’s filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond the Company’s control). The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Company’s financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Company and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services; the willingness of users to substitute competitors’ products and services for the Company’s products and services; the success of the Company in gaining regulatory approval of its products and services, when required; the impact of changes in laws and regulations applicable to financial institutions (including laws concerning taxes, banking, securities and insurance); technological changes; acquisitions; changes in consumer spending and saving habits; the nature, extent, and timing of governmental actions and reforms, including the rules of participation for the Trouble Asset Relief Program voluntary Capital Purchase Program under the Emergency Economic Stabilization Act of 2008, which may be changed unilaterally and retroactively by legislative or regulatory actions; and the success of the Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is not exclusive. Readers are also cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this report, even if subsequently made available by the Company on its website or otherwise. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company to reflect events or circumstances occurring after the date of this report.

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PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

	June 30,			December 31,
	2009			2008
ASSETS

Cash and due from banks	$	20,685		$	18,964
Federal funds sold	19,950			—
Interest-bearing deposits in banks	342			320

Total cash and cash equivalents	40,977			19,284

Mortgage loans held for sale	5,888			2,283
Securities available for sale	234,822			232,380
Securities held to maturity, fair value 2009 - $1,740; 2008 - $1,926	3,048			3,060
Loans, net of allowance for loan losses 2009 - $12,029; 2008 - $8,124	875,207			878,181
Premises and equipment, net	6,408			6,591
Identifiable intangible assets	4,491			4,833
Goodwill	39,732			39,732
Bank owned life insurance	18,736			18,552
Other assets	27,434			19,968

Total assets	$	1,256,743		$	1,224,864

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest bearing	$	111,231		$	108,645
Interest bearing	836,683			741,955

Total deposits	947,914			850,600

Securities sold under agreements to repurchase	124,875			120,086
Federal funds purchased	—			53,424
Long-term debt	35,000			50,000
Junior subordinated debt, at fair value	19,989			19,711
Other liabilities	8,171			8,554

Total liabilities	1,135,949			1,102,375

Shareholders’ equity
Preferred stock: $0.01 par value; authorized 1,000,000 shares; $1,000 liquidation preference per share; 25,000 shares of Series A 5% cumulative preferred stock issued and outstanding; Less: discount of $2,108 at June 30, 2009 and $2,307 at December 31, 2008	22,892			22,693
Common stock, $5.00 par value; authorized 20,000,000 shares; issued: 5,804,684 shares at June 30, 2009 and 5,768,429 shares at December 31, 2008	29,024			28,842
Stock warrant	2,307			2,307
Surplus	63,654			64,349
Retained earnings	12,341			14,383
Accumulated other comprehensive loss	(9,233		)	(8,600		)
Treasury stock; 10,484 shares at June 30, 2009 and 68,354 shares at December 31, 2008, at cost	(191		)	(1,485		)

Total shareholders’ equity	120,794			122,489

Total liabilities and shareholders’ equity	$	1,256,743		$	1,224,864

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share data)

	Three Months Ended					Six Months Ended
	June 30, 2009			June 30, 2008		June 30, 2009			June 30, 2008

Interest income:
Interest and fees on loans	$	12,261		$	13,515	$	24,603		$	27,625
Interest on securities:
Taxable	2,709			2,432		5,579			4,686
Tax-exempt	305			218		591			431
Dividend income	33			178		72			384
Interest on federal funds sold	5			—		8			—
Other interest income	—			5		1			9

Total interest income	15,313			16,348		30,854			33,135

Interest expense:
Interest on deposits	5,172			5,014		10,326			10,517
Interest on short-term borrowings	—			429		17			1,150
Interest on securities sold under agreements to repurchase	1,100			895		2,163			1,849
Interest on long-term debt	412			604		917			1,203
Interest on junior subordinated debt	362			346		677			751

Total interest expense	7,046			7,288		14,100			15,470

Net Interest Income	8,267			9,060		16,754			17,665
Provision for loan losses	4,300			1,650		5,125			2,060

Net interest income after provision for loan losses	3,967			7,410		11,629			15,605

Other income:
Customer service fees	596			676		1,254			1,296
Mortgage banking activities	408			342		675			665
Commissions and fees from insurance sales	3,036			2,787		5,994			5,471
Brokerage and investment advisory commissions and fees	152			227		482			464
Earnings on bank owned life insurance	108			164		184			332
Gain on sale of loans	—			24		—			47
Other income	550			454		1,620			888
Impairment charge on investment securities	(322		)	—		(322		)	—
Net realized gains on sales of securities	126			61		285			202

Total other income	4,654			4,735		10,172			9,365

Other expense:
Salaries and employee benefits	5,754			5,398		11,442			11,128
Occupancy expense	881			1,069		1,950			2,198
Furniture and equipment expense	634			673		1,240			1,345
Marketing and advertising expense	335			479		605			1,136
Amortization of identifiable intangible assets	171			150		342			300
Professional services	482			543		1,374			1,078
Outside processing	1,086			812		2,037			1,632
FDIC deposit insurance	984			274		1,428			545
Other expense	1,240			1,115		2,428			2,238

Total other expense	11,567			10,513		22,846			21,600

(Loss) income before income taxes	(2,946		)	1,632		(1,045		)	3,370
Income tax (benefit) expense	(1,361		)	164		(1,069		)	343

Net (loss) income	(1,585		)	1,468		24			3,027
Preferred stock dividends and discount accretion	(413		)	—		(825		)	—
Net (loss) income available to common shareholders	$	(1,998	)	$	1,468	$	(801	)	$	3,027

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share data)

	Three Months Ended					Six Months Ended
	June 30, 2009			June 30, 2008		June 30, 2009			June 30, 2008

EARNINGS PER SHARE DATA

Average shares outstanding for basic earnings per common share	5,791,023			5,692,377		5,763,648			5,682,890
Basic (loss) earnings per common share	$	(0.35	)	$	0.26	$	(0.14	)	$	0.53
Average shares outstanding for diluted earnings per common share	5,791,023			5,705,042		5,763,648			5,696,650
Diluted (loss) earnings per common share	$	(0.35	)	$	0.26	$	(0.14	)	$	0.53
Cash dividends declared per actual common shares outstanding	$	0.10		$	0.20	$	0.20		$	0.40

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six Months Ended June 30, 2009 and 2008

(Dollar amounts in thousands, except per share data)

	Preferred Stock			Common Stock											Accumulated
	Number of			Number of											Other
	Shares	Liquidation		Shares	Par		Stock					Retained			Comprehensive			Treasury
	Issued	Value		Issued	Value		Warrant		Surplus			Earnings			Loss			Stock			Total
Balance, January 1, 2009	25,000	$	22,693	5,768,429	$	28,842	$	2,307	$	64,349		$	14,383		$	(8,600	)	$	(1,485	)	$	122,489

Comprehensive income (loss):
Net income	—	—		—	—		—		—			24			—			—			24
Change in net unrealized gains (losses) on securities available for sale, net of tax effect	—	—		—	—		—		—			—			(911		)	—			(911		)
Change in net unrealized gains (losses) on cash flow hedge, net of tax effect	—	—		—	—		—		—			—			278			—			278
Total comprehensive loss																					(609		)

Preferred stock discount accretion	—	199		—	—		—		—			—			—			—			199
Stock warrants	—	—		—	—		—		—			(199		)	—			—			(199		)

Reissuance of 57,870 shares of treasury stock	—	—		—	—		—		(870		)	—			—			1,294			424

Common stock issued in connection with directors’ compensation	—	—		28,243	141		—		78			—			—			—			219
Common stock issued in connection with director and employee stock purchase plans	—	—		8,012	41		—		20			—			—			—			61
Compensation expense related to stock options	—	—		—	—		—		77			—			—			—			77

Common stock cash dividends paid ($0.20 per share)	—	—		—	—		—		—			(1,151		)	—			—			(1,151		)
Preferred stock cash dividends declared	—	—		—	—		—		—			(716		)	—			—			(716		)
Balance, June 30, 2009	25,000	$	22,892	5,804,684	$	29,024	$	2,307	$	63,654		$	12,341		$	(9,233	)	$	(191	)	$	120,794

	Preferred Stock				Common Stock												Accumulated
	Number of				Number of												Other
	Shares		Liquidation		Shares		Par		Stock					Retained			Comprehensive			Treasury
	Issued		Value		Issued		Value		Warrant		Surplus			Earnings			Loss			Stock			Total
Balance, January 1, 2008	—		$	—	5,746,998		$	28,735	$	—	$	63,940		$	17,039		$	(1,116	)	$	(2,006	)	$	106,592

Comprehensive income (loss):
Net income	—		—		—		—		—		—			3,027			—			—			3,027
Change in net unrealized gains (losses) on securities available for sale, net of tax effect	—		—		—		—		—		—			—			(4,503		)	—			(4,503		)
Total comprehensive loss	—		—		—		—		—		—			—			—			—			(1,476		)

Additional consideration in connection with acquisitions (21,499 shares)	—		—		—		—		—		(138		)	—			—			521			383

Common stock issued in connection with directors’ compensation	—		—		10,808		54		—		139			—			—			—			193
Common stock issued in connection with director and employee stock purchase plans	—		—		4,574		23		—		54			—			—			—			77
Tax benefits from employee stock transactions	—		—		—		—		—		—			—			—			—			—
Compensation expense related to stock options	—		—		—		—		—		172			—			—			—			172
Common stock cash dividends declared ($0.40 per share)	—		—		—		—		—		—			(2,277		)	—			—			(2,277		)
Balance, June 30, 2008		—	$	—		5,762,380	$	28,812	$	—	$	64,167		$	17,789		$	(5,619	)	$	(1,485	)	$	103,664

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended
	June 30,			June 30,
	2009			2008
Cash Flows From Operating Activities
Net income	$	24		$	3,027
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Provision for loan losses	5,125			2,060
Provision for depreciation and amortization of premises and equipment	677			768
Amortization of identifiable intangible assets	342			300
Deferred income taxes	(1,337		)	(363		)
Director stock compensation	219			193
Net amortization of securities premiums and discounts	437			11
Decrease in mortgage servicing rights	106			86
Net realized losses on sales of foreclosed real estate	9			92
Impairment charge on investment securities	322			—
Net realized (gains) on sales of securities	(285		)	(202		)
Proceeds from sales of loans held for sale	38,459			20,589
Net gains on sale of loans	(646		)	(621		)
Loans originated for sale	(41,418		)	(17,630		)
Increase in investment in life insurance	(184		)	(332		)
Compensation expense related to stock options	77			172
Net change in fair value of liabilities	278			(73		)
(Increase) decrease in accrued interest receivable and other assets	(2,879		)	5,195
Decrease in accrued interest payable and other liabilities	(1,223		)	(3,043		)

Net Cash (Used) Provided by Operating Activities	(1,897		)	10,229

Cash Flow From Investing Activities
Investment securities:
Purchases - available for sale	(87,215		)	(59,036		)
Principal repayments, maturities and calls - available for sale	41,847			19,439
Principal repayments, maturities and calls - held to maturity	—			10
Proceeds from sales - available for sale	41,073			17,738
Net increase in loans receivable	(4,126		)	(48,863		)
Proceeds from sale of loans	—			740
Net increase in Federal Home Loan Bank Stock	—			(992		)
Net increase in foreclosed real estate	—			(173		)
Purchases of premises and equipment	(763		)	(654		)
Disposals of premises and equipment	269			10
Net Cash Used In Investing Activities	(8,915		)	(71,781		)

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

	Six Months Ended
	June 30,			June 30,
	2009			2008
Cash Flow From Financing Activities
Net increase in deposits	97,314			66,795
Net decrease in federal funds purchased	(53,424		)	(35,464		)
Net increase in securities sold under agreements to repurchase	4,789			19,734
Proceeds from long-term debt	—			15,000
Repayments of long-term debt	(15,000		)	—
Reissuance of treasury stock	424			—
Proceeds from the exercise of stock options and stock purchase plans	61			77
Cash dividends paid on preferred and common stock	(1,659		)	(2,270		)
Net Cash Provided By Financing Activities	32,505			63,872

Increase in cash and cash equivalents	21,693			2,320
Cash and Cash Equivalents:
January 1	19,284			25,789
June 30	$	40,977		$	28,109

Cash Payments For:
Interest	$	14,512		$	15,153
Taxes	$	—		$	400

Supplemental Schedule of Non-cash Investing and Financing Activities
Transfer of loans receivable to real estate owned	$	1,975	$	$	81

See Notes to Consolidated Financial Statements.

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VIST FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All significant inter-company accounts and transactions have been eliminated. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation of the results for the interim periods have been included. Certain prior period amounts have been reclassified to conform to the current presentation.

The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The results of operations for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year. For purpose of reporting cash flows, cash and cash equivalents include cash and due from banks, and interest bearing deposits in other banks. For further information, refer to the Consolidated Financial Statements and Footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Effective April 1, 2009, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events. SFAS No. 165 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that should be made about events or transactions that occur after the balance sheet date. In preparing these financial statements, the Company evaluated the events and transactions that occurred between June 30, 2009 and August 10, 2009, the date these financial statements were issued.

2. Earnings Per Common Share

Basic (loss) earnings per common share is calculated by dividing net income (loss), less Series A Preferred Stock dividends and discount accretion, by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of stock options, if dilutive, using the treasury stock method. For 2008, there were no dividends or discount accretion on the Series A Preferred Stock. There was no dilution to common shares for 2009 due to the Company being in a loss position.

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Earnings per common share for the respective periods indicated have been computed based upon the following:

	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
	2009			2008		2009			2008
	(Dollar amounts in thousands)

Net (loss) income	$	(1,585	)	$	1,468	$	24		$	3,027
Less: preferred stock dividends	(313		)	—		(626		)	—
Less: preferred stock discount accretion	(100		)	—		(199		)	—

Net (loss) income available to common shareholders	$	(1,998	)	$	1,468	$	(801	)	$	3,027

Average common shares outstanding	5,791,023			5,692,377		5,763,648			5,682,890
Effect of dilutive stock options	—			12,665		—			13,760

Average number of common shares used to calculate diluted earnings per common share	5,791,023			5,705,042		5,763,648			5,696,650

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3. Comprehensive Income

Accounting principles generally require that recognized revenue, expense, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects were as follows:

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2009			2008			2009			2008
	(Dollar amounts in thousands)

Unrealized holding losses on available for sale securities	$	(1,493	)	$	(6,972	)	$	(1,417	)	$	(6,621	)
Unrealized holding gains on cash flow hedges	456			—			421			—
Impairment on investment security	322			—			322			—
Reclassification adjustment for (gains) realized in income	(126		)	(61		)	(285		)	(202		)
Net unrealized losses	(841		)	(7,033		)	(959		)	(6,823		)
Income tax effect	286			2,391			326			2,320
Other comprehensive loss	$	(555	)	$	(4,642	)	$	(633	)	$	(4,503	)

4. Guarantees

Outstanding letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for standby letters of credit is represented by the contractual amount of those instruments. The Company had $12.7 million and $14.5 million of financial and performance standby letters of credit as of June 30, 2009 and December 31, 2008, respectively. The Bank uses the same credit policies in making conditional obligations as it does for on-balance sheet instruments.

The majority of these standby letters of credit expire within the next 24 months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Company requires collateral and personal guarantees supporting these letters of credit as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral and the enforcement of personal guarantees would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of June 30, 2009 and December 31, 2008 for guarantees under standby letters of credit is not material.

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5. Segment Information

The Company’s insurance operations, investment operations and mortgage banking operations are managed separately from the traditional banking and related financial services that the Company also offers. The mortgage banking operation offers residential lending products and generates revenue primarily through gains recognized on loan sales. The insurance operation utilizes insurance companies and acts as an agent or brokers to provide coverage for commercial, individual, surety bond, and group and personal benefit plans. The investment operation provides services for individual financial planning, retirement and estate planning, investments, corporate and small business pension and retirement planning.

	Banking and Financial Services			Mortgage Banking		Insurance Services		Investment Services			Total
	(Dollar amounts in thousands)
Three months ended June 30, 2009
Net interest income and other income from external sources	$	8,741		$	994	$	3,015	$	171		$	12,921
(Loss) income before income taxes	(3,968		)	601		464		(43		)	(2,946		)
Total Assets	1,158,560			79,455		17,589		1,139			1,256,743
Purchases of premises and equipment	136			—		140		14			290

Three months ended June 30, 2008
Net interest income and other income from external sources	$	9,849		$	913	$	2,785	$	248		$	13,795
Income (loss) before income taxes	697			506		433		(4		)	1,632
Total Assets	1,107,864			62,908		17,066		1,260			1,189,098
Purchases of premises and equipment	237			1		30		1			269

Six Months Ended June 30, 2009
Net interest income and other income from external sources	$	18,014		$	1,860	$	6,535	$	517		$	26,926
(Loss) income before income taxes	(3,317		)	1,096		1,162		14			(1,045		)
Total Assets	1,158,560			79,455		17,589		1,139			1,256,743
Purchases of premises and equipment	608			—		141		14			763

Six Months Ended June 30, 2008
Net interest income and other income from external sources	$	19,298		$	1,751	$	5,474	$	507		$	27,030
Income (loss) before income taxes	1,781			805		803		(19		)	3,370
Total Assets	1,107,864			62,908		17,066		1,260			1,189,098
Purchases of premises and equipment	617			1		35		1			654

6. Stock Incentive Plans

The Company has an Employee Stock Incentive Plan (ESIP) that covers all officers and key employees of the Company and its subsidiaries and is administered by a committee of the Board of Directors. The total number of shares of common stock that may be issued pursuant to the ESIP is 486,781. The option price for options issued under the ESIP must be at least equal to 100% of the fair market value of the common stock on the date of grant and shall not be less than the stock’s par value. Options granted under the ESIP have various vesting periods ranging from immediate up to 5 years, 20% exercisable not less than one year after the date of grant, but no later than ten years after the date of grant in accordance with the vesting. Vested options expire on the earlier of ten years after the date of grant, three months from the participant’s termination of employment or one year from the date of the participant’s death or disability. As of June 30, 2009, a total of 148,072 shares have been issued under the ESIP. The ESIP expired on November 10, 2008.

The Company has an Independent Directors Stock Option Plan (IDSOP). The total number of shares of common stock that may be issued pursuant to the IDSOP is 121,695. The IDSOP covers all directors of the Company who are not

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employees and former directors who continue to be employed by the Company. The option price for options issued under the IDSOP will be equal to the fair market value of the Company’s common stock on the date of grant. Options are exercisable from the date of grant and expire on the earlier of ten years after the date of grant, three months from the date the participant ceases to be a director of the Company or the cessation of the participant’s employment, or twelve months from the date of the participant’s death or disability. As of June 30, 2009, a total of 21,166 shares have been issued under the IDSOP. The IDSOP expired on November 10, 2008.

On April 17, 2007, shareholders approved the VIST Financial Corp. 2007 Equity Incentive Plan (EIP). The total number of shares which may be granted under the EIP is equal to 12.5% of the outstanding shares of the Company’s common stock on the date of approval of the EIP and is subject to automatic annual increases by an amount equal to 12.5% of any increase in the number of the Company’s outstanding shares of common stock during the preceding year or such lesser number as determined by the Company’s board of directors. The total number of shares of common stock that may be issued pursuant to the EIP is 676,572. The EIP covers all employees and non-employee directors of the Company and its subsidiaries. Incentive stock options, nonqualified stock options and restricted stock grants are authorized for issuance under the EIP. The exercise price for stock options granted under the EIP must equal the fair market value of the Company’s common stock on the date of grant. Vesting of awards under the EIP is determined by the Human Resources Committee of the board of directors, but must be at least one year. The Committee may also subject an award to one or more performance criteria. Stock options and restricted stock awards generally expire upon termination of employment. In certain instances after an optionee terminates employment or service, the Committee may extend the exercise period for a vested nonqualified stock option up to the remaining term of the option. A vested incentive stock option must be exercised within three months following termination of employment if such termination is for reasons other than cause. Performance goals generally cannot be accelerated or waived except in the event of a change in control or upon death, disability or retirement. As of June 30, 2009, no shares have been issued under the EIP. The EIP will expire on April 17, 2017.

The Company’s total stock-based compensation expense for the six months ended June 30, 2009 and 2008 was approximately $77,000 and $172,000, respectively. Total stock-based compensation expense, net of related tax effects, was approximately $51,000 and $114,000 for the six months ended June, 2009 and 2008, respectively. The Company’s total stock-based compensation expense for the three months ended June 30, 2009 and 2008 was approximately $56,000 and $95,000, respectively. Total stock-based compensation expense, net of related tax effects, was approximately $37,000 and $63,000 for the three months ended June, 2009 and 2008, respectively. Cash flows from financing activities included in cash inflows from excess tax benefits related to stock compensation were approximately $0 for the three and six months ended June 30, 2009 and 2008. Total unrecognized compensation costs related to non-vested stock options at June 30, 2009 and 2008 were approximately $235,000 and $480,000, respectively.

Stock option transactions under the Plans for the six months ended June 30, 2009 were as follows:

							Weighted-
			Weighted-				Average
			Average		Aggregate		Remaining
			Exercise		Intrinsic		Term
	Options		Price		Value		(in years)
Outstanding at the beginning of the year	708,889		$	17.23
Granted	13,000		8.50
Exercised	—		—
Expired	(7,350	)	22.93
Forfeited	(95,331	)	13.52
Outstanding as of June 30, 2009	619,208		$	17.55	$	—	6.8
Exercisable as of June 30, 2009	397,035		$	19.65	$	—	5.8

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The fair value of options granted for the six month period ended June 30, 2009 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	As of and for the year ended
	June 30,			December 31,
	2009			2008

Dividend yield	7.76		%	6.09		%
Expected life	7 years			7 years
Expected volatility	25.71		%	21.52		%
Risk-free interest rate	1.96		%	2.54		%
Weighted average fair value of options granted	$	0.68		$	1.29

7. Investment in Limited Partnership

On December 29, 2003, the Bank entered into a limited partner subscription agreement with Midland Corporate Tax Credit XVI Limited Partnership, where the Bank will receive special tax credits and other tax benefits. The Bank subscribed to a 6.2% interest in the partnership, which is subject to an adjustment depending on the final size of the partnership at a purchase price of $5 million. This investment is included in other assets and is not guaranteed. It is accounted for in accordance with Statement of Position (SOP) 78-9, “Accounting for Investments in Real Estate Ventures,” using the equity method. This agreement was accompanied by a payment of $1.7 million. The associated non-interest bearing promissory note payable included in other liabilities was zero at June 30, 2009. Installments were paid as requested.

8. Recently Issued Accounting Standards

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4). FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

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115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140. This statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets. Specifically, among other aspects, SFAS 166 amends Statement of Financial Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, or SFAS 140, by removing the concept of a qualifying special-purpose entity from SFAS 140 and removes the exception from applying FIN 46(R) to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach used in SFAS 140. SFAS 166 is effective for fiscal years beginning after November 15, 2009. We have not determined the effect that the adoption of SFAS 166 will have on our financial position or results of operations.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). This statement amends FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised December 2003) — an interpretation of ARB No. 51, or FIN 46(R), to require an enterprise to determine whether it’s variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. SFAS 167 also amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS 167 is effective for fiscal years beginning after November 15, 2009. We have not determined the effect that the adoption of SFAS 167 will have on our financial position or results of operations.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with generally accepted accounting principles in the United States. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. We do not expect the adoption of this standard to have an impact on our financial position or results of operations.

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9. Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amount the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.

The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2009 and December 31, 2008:

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

SFAS 157 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, SFAS 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The three levels defined by SFAS 157 hierarchy are as follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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The following table presents the assets and liabilities measured on a recurring basis reported on the consolidated statements of financial condition at their fair value by level within the fair value hierarchy.

	As of June 30, 2009
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	(Level 1)		(Level 2)			(Level 3)		Total
	(In thousands)
ASSETS:
Securities Available For Sale
Obligations of U.S. Government agencies and corporations	$	—	$	7,715		$	—	$	7,715
Mortgage-backed debt securities	—		188,825			—		188,825
State and municipal obligations	—		26,913			—		26,913
Other securities	1,320		9,349			700		11,369
	$	1,320	$	232,802		$	700	$	234,822

Interest rate swaps	$	—	$	(901	)	$	—	$	(901	)

LIABILITIES:
Junior subordinated debt	$	—	$	19,989		$	—	$	19,989

	As of December 31, 2008
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs
	(Level 1)		(Level 2)			(Level 3)		Total
	(In thousands)
ASSETS:
Securities Available For Sale
Obligations of U.S. Government agencies and corporations	$	—	$	9,331		$	—	$	9,331
Mortgage-backed debt securities	—		185,177			—		185,177
State and municipal obligations	—		25,033			—		25,033
Other securities	1,675		11,164			—		12,839
	$	1,675	$	230,705		$	—	$	232,380

Interest rate swaps	$	—	$	(1,601	)	$	—	$	(1,601	)

LIABILITIES:
Junior subordinated debt	$	—	$	19,711		$	—	$	19,711

The following table reconciles the beginning and ending balances of derivative assets measured at fair value on a recurring basis using significant observable (Level 3) inputs during the six months ended June 30, 2009:

Balance, beginning of period	$	—
Net transfers into Level 3	700
Balance, end of period	$	700

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The following table presents the assets and liabilities measured on a non-recurring basis reported on the consolidated statements of financial condition at their fair value by level within the fair value hierarchy.

	As of June 30, 2009
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Assets:
Loans held for sale	$	—	$	5,888	$	—	$	5,888
Impaired loans	—		—		6,724		6,724
OREO	—		—		2,238		2,238

	As of December 31, 2008
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Assets:
Loans held for sale	$	—	$	2,283	$	—	$	2,283
Impaired loans	—		—		5,270		5,270
OREO	—		—		263		263

The following table reconciles the beginning and ending balances of impaired and OREO assets measured at fair value on a non-recurring basis using significant observable (Level 3) inputs during the six months ended June 30, 2009:

Balance, beginning of period	$	5,533
Net transfers into Level 3	3,429
Balance, end of period	$	8,962

As a result of the change in fair value of the junior subordinated debt, included in other non-interest income for the first six months of 2009 and 2008, are pre-tax (losses) gains of approximately ($278,000) and $73,000, respectively.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

Fair Value of Financial Instruments

Generally accepted accounting principles require disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those

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techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. This disclosure does not and is not intended to represent the fair value of the Company.

A summary of the carrying amounts and estimated fair values of financial instruments is as follows:

	As of June 30, 2009						As of December 31, 2008
	Carrying			Estimated			Carrying			Estimated
	Amount			Fair Value			Amount			Fair Value
	(In thousands)
Financial Assets:
Cash and cash equivalents	$	40,977		$	40,977		$	19,284		$	19,284
Securities available for sale	234,822			234,822			232,380			232,380
Securities held to maturity	3,048			1,740			3,060			1,926
Mortgage loans held for sale	5,888			5,888			2,283			2,283
Loans, net	875,207			881,054			878,181			897,930
Cash surrender value of life insurance policies	18,736			18,736			18,552			18,552
Interest rate swap	(901		)	(901		)	(1,601		)	(1,601		)
Accrued interest receivable	4,639			4,639			4,734			4,734

Financial Liabilities:
Deposits	947,914			955,943			850,600			858,744
Federal funds sold and agreements to repurchase	124,875			116,757			173,510			174,996
Junior subordinated debt	19,989			19,989			19,711			19,711
Long-term debt	35,000			35,682			50,000			50,975
Accrued interest payable	3,001			3,001			3,413			3,413

Cash and cash equivalents:

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Investment Securities Available for Sale:

Securities classified as available for sale are reported at fair value utilizing Level 1, Level 2 and Level 3 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things.

Other-Than-Temporary-Impairment:

Management evaluates investment securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

If a decline in market value of a security is determined to be other than temporary, under generally accepted accounting principles, we are required to write these securities down to their estimated fair value. We own single issue and pooled trust preferred securities of other financial institutions and private label collateralized mortgage obligations whose aggregate historical cost basis is greater than their estimated fair value. We have reviewed these securities and determined that the decreases in estimated fair value are temporary. We perform an ongoing analysis of these securities utilizing both readily available market data and third party analytical models. Future changes in interest rates or the credit quality and strength of the underlying issuers may reduce the market value of these and other securities. If such decline is determined to be other than temporary, we will write them down through a charge to earnings to their then current fair value.

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Loans Held for Sale:

The fair value of loans held for sale is determined, when possible, using Level 2 quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined based on expected proceeds based on sales contracts and commitments.

Impaired Loans:

Impaired loans are those that are accounted for under FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS114”), in which the Company has measured impairment generally based on the fair value of the loan’s collateral. Impaired loans are evaluated and valued at the time the loan is identified as impaired. Fair value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Impaired loans are reviewed and evaluated on a monthly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Other Real Estate Owned:

Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), establishing a new accounting basis. The Company subsequently adjusts the fair value on the OREO utilizing Level 3 on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value.

Mortgage servicing rights:

The fair value of mortgage servicing rights is based on observable market prices when available or the present value of expected future cash flows when not available.

Interest Rate Swap Agreements:

Interest rate swap agreements are measured by alternative pricing sources with reasonable levels of price transparency in markets that are not active. Based on the complex nature of interest rate swap agreements, the markets these instruments trade in are not as efficient and are less liquid than that of the more mature Level 1 markets. These markets do however have comparable, observable inputs in which an alternative pricing source values these assets in order to arrive at a fair market value. These characteristics classify interest rate swap agreements as Level 2 as presented in SFAS No. 157.

Deposit liabilities:

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings and certain types of money market accounts) are considered to be equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits.

Securities sold under agreements to repurchase and federal funds purchased:

The carrying amounts of these borrowings approximate their fair values.

Long-term debt:

The fair value of long-term debt is calculated based on the discounted value of contractual cash flows, using rates currently available for borrowings with similar maturities.

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Junior Subordinated Debt:

The Company records selected liabilities at fair value, with unrealized gains and losses reflected in the consolidated statement of income. The degree of judgment utilized in measuring the fair value of these liabilities generally correlates to the level of observable pricing. Pricing observability is impacted by a number of factors, including the type of liability, whether the liability has an established market and the characteristics specific to the transaction. Liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, liabilities rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value. Junior Subordinated Debt is reported at fair value utilizing Level 2 inputs. For these debt instruments, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market spreads, cash flows, trade execution data and credit information, among other things.

Accrued interest receivable and payable:

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Off-balance sheet instruments:

Fair values for the off-balance sheet instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

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Item 2 - Management’s Discussion and Analy sis of Financial Condition and Results of Operations

Critical Accounting Policies

Note 1 to the Company’s consolidated financial statements (included in Item 8 of the Form 10-K for the year ended December 31, 2008) lists significant accounting policies used in the development and presentation of its financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, revenue recognition for insurance activities, stock based compensation, derivative financial instruments, goodwill and intangible assets, other than temporary impairment losses on available for sale securities and the valuation of deferred tax assets. In estimating other-than temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Results of Operations

OVERVIEW

Net loss for the Company for the quarter ended June 30, 2009 was $1.6 million, a decrease of 208.0%, as compared to income of $1.5 million for the same period in 2008. Basic and diluted loss per common share for the second quarter of 2009 were $.35 and $.35, respectively, compared to basic and diluted earnings per common share of $.26 and $.26, respectively, for the same period of 2008. Net income for the Company for the first six months ended June 30, 2009 was $24,000, a decrease of 99.2%, as compared to $3.0 million for the same period in 2008. Basic and diluted loss per common share for the first six months ended June 30, 2009 was $.14 and $.14, respectively, compared to basic and diluted earnings per common share of $.53 and $.53, respectively, for the same period of 2008.

The following are the key ratios for the Company as of or for the:

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2009		2008		2009		2008

Return on average assets (annualized)	-0.51	%	0.51	%	0.00	%	0.53	%
Return on average shareholders’ equity (annualized)	-5.10	%	5.46	%	0.04	%	5.63	%
Common dividend payout ratio	-29.01	%	76.92	%	-143.91	%	75.47	%
Average shareholders’ equity to average assets	9.92	%	9.29	%	9.95	%	9.43	%

Net Interest Income

Net interest income is a primary source of revenue for the Company. Net interest income results from the difference between the interest and fees earned on loans and investments and the interest paid on deposits to customers and other non-deposit sources of funds, such as repurchase agreements and short and long-term borrowed funds. Net interest margin is the difference between the gross (tax-effected) yield on earning assets and the cost of interest bearing funds as a percentage of earning assets. All discussion of net interest margin is on a fully taxable equivalent basis (FTE).

Net interest income before the provision for loan losses for the three months ended June 30, 2009 was $8.3 million, a decrease of $0.8 million, or 8.8%, compared to the $9.1 million reported for the same period in 2008. Net interest income before the provision for loan loss for the six months ended June 30, 2009 was $16.8 million, a decrease of $0.9

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million, or 5.2%, compared to the $17.7 million reported for the same period in 2008. The FTE net interest margin decreased to 3.03% for the second quarter of 2009 from 3.58% for the same period in 2008. The FTE net interest margin decreased to 3.11% for the first six months of 2009 from 3.55% for the same period in 2008.

The following summarizes net interest margin information:

	Three months ended June 30,
	2009					2008
	Average Balance		Interest Income/ Expense		% Rate	Average Balance		Interest Income/ Expense		% Rate
	(Dollar amounts in thousands)
Interest-Earning Assets:
Loans: (1) (2)
Commercial	$	699,919	$	9,946	5.62	$	674,994	$	10,923	6.40
Mortgage	49,622		685		5.52	46,907		765		6.52
Consumer	141,335		1,884		5.35	127,208		2,029		6.42
Investments (2)	245,591		3,219		5.24	211,223		3,003		5.69
Federal funds sold	13,298		5		0.17	—		—		—
Other short-term investments	363		—		0.15	351		5		5.59
Total interest-earning assets	$	1,150,128	$	15,739	5.41	$	1,060,683	$	16,725	6.24

Interest-Bearing Liabilities:
Transaction accounts	$	351,272	$	1,302	1.49	$	327,056	$	1,453	1.79
Certificates of deposit	479,449		3,869		3.23	333,455		3,561		4.30
Securities sold under agreement to repurchase	125,003		1,100		3.48	123,911		895		2.86
Short-term borrowings	253		—		0.00	73,757		429		3.98
Long-term borrowings	41,925		413		3.90	60,000		604		3.98
Junior subordinated debt	19,807		362		7.33	20,037		346		6.94
Total interest-bearing liabilities	1,017,709		7,046		2.78	938,216		7,288		3.12
Noninterest-bearing deposits	106,362		—			106,735		—
Total cost of funds	$	1,124,071	7,046		2.52	$	1,044,951	7,288		2.81
Net interest margin (fully taxable equivalent)			$	8,693	3.03			$	9,437	3.58

(1) Loan fees have been included in the interest income totals presented. Nonaccrual loans have been included in average loan balances.

(2) Interest income on loans and investments is presented on a taxable equivalent basis using an effective tax rate of 34%.

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	Six Months Ended June 30,
	2009					2008
	Average Balance		Interest Income/ Expense		% Rate	Average Balance		Interest Income/ Expense		% Rate
	(Dollar amounts in thousands)
Interest-Earning Assets:
Loans: (1) (2)
Commercial	$	699,717	$	19,885	5.66	$	665,669	$	22,239	6.61
Mortgage	50,160		1,448		5.77	46,715		1,521		6.51
Consumer	140,421		3,766		5.41	127,065		4,257		6.74
Investments (2)	239,893		6,579		5.49	204,363		5,857		5.73
Federal funds sold	9,981		9		0.17	—		—		0.00
Other short-term investments	355		1		0.39	435		9		3.96
Total interest-earning assets	$	1,140,527	$	31,688	5.53	$	1,044,247	$	33,883	6.42

Interest-Bearing Liabilities:
Transaction accounts	$	335,782	$	2,411	1.45	$	321,601	$	3,332	2.08
Certificates of deposit	474,261		7,914		3.37	325,115		7,185		4.44
Securities sold under agreement to repurchase	122,268		2,164		3.52	117,530		1,849		3.11
Short-term borrowings	5,057		17		0.66	79,037		1,150		2.88
Long-term borrowings	50,498		917		3.61	59,698		1,203		3.99
Junior subordinated debt	19,760		677		6.91	20,133		751		7.50
Total interest-bearing liabilities	1,007,626		14,100		2.82	923,114		15,470		3.37
Noninterest-bearing deposits	105,905		—			105,017		—
Total cost of funds	$	1,113,531	14,100		2.56	$	1,028,131	15,470		3.03
Net interest margin (fully taxable equivalent)			$	17,588	3.11			$	18,413	3.55

Average interest-earning assets for the three months ended June 30, 2009 were $1.15 billion, an $89.4 million, or 8.4%, increase over average interest-earning assets of $1.06 billion for the same period in 2008. Average interest-earning assets for the six months ended June 30, 2009 were $1.14 billion, a $96.3 million, or 9.2%, increase over average interest-earning assets of $1.04 billion for the same period in 2008. The yield on average interest-earning assets decreased by 83 basis points to 5.41% for the second quarter of 2009, compared to 6.24% for the same period in 2008. The yield on average interest-earning assets decreased by 89 basis points to 5.53% for the first six months of 2009, compared to 6.42% for the same period in 2008.

Average interest-bearing liabilities for the three months ended June 30, 2009 were $1.02 billion, a $79.5 million, or 8.5%, increase over average interest-bearing liabilities of $938.2 million for the same period in 2008. Average interest-bearing liabilities for the six months ended June 30, 2009 were $1.01 billion, an $84.5 million, or 9.2%, increase over average interest-bearing liabilities of $923.1 million for the same period in 2008. In addition, average noninterest-bearing deposits decreased to $106.4 million for the three months ended June 30, 2009, from $106.7 million for the same time period of 2008. Average noninterest-bearing deposits increased to $105.9 million for the six months ended June 30, 2009, from $105.0 million for the same time period of 2008. The interest rate on total interest-bearing liabilities decreased by 34 basis points to 2.78% for the three months ended June 30, 2009, compared to 3.12% for the same period in 2008. The average interest rate paid on total interest-bearing liabilities decreased by 55 basis points to 2.82% for the six months ended June 30, 2009, compared to 3.37% for the same period in 2008.

For the three months ended June 30, 2009, FTE net interest income before the provision for loan losses decreased 7.9% to $8.7 million compared to $9.4 million for the same period in 2008. For the six months ended June 30, 2009, FTE net interest income before the provision for loan losses decreased 4.5% to $17.6 million compared to $18.4 million for the same period in 2008.

For the six months ended June 30, 2009, FTE total interest income decreased 6.9% to $31.7 million compared to $33.9 million for the same period in 2008. The decrease in total interest income for the six months ended June 30, 2009 was primarily the result of a decrease in the interest rates on average investments and average outstanding commercial,

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mortgage and consumer loans compared to the same period in 2008. Earning asset yields on average outstanding loans decreased due mainly to a decrease in the targeted short-term interest rate, as established by the Federal Reserve Bank (“FRB”), which resulted in a decrease in the prime rate from 5.00% at June 30, 2008 to 3.25% at June 30, 2009. Average outstanding commercial loan balances increased by $34 million, or 5.1% from June 30, 2008 to June 30, 2009. Additionally, average outstanding total investment securities increased by $35.5 million or 16.2% from June 30, 2008 to June 30, 2009. Earning asset yields on average outstanding investment securities decreased slightly from 5.7% at June 30, 2008 to 5.5% at June 30, 2009.

For the six months ended June 30, 2009, total interest expense decreased 8.9% to $14.1 million compared to $15.5 million for the same period in 2008. The decrease in total interest expense for the six months ended June 30, 2009 resulted primarily from a decrease in average rates paid on average outstanding interest-bearing deposits and short-term borrowings compared to the same period in 2008. The average rate paid on total average outstanding interest-bearing liabilities decreased from 3.37% at June 30, 2008 to 2.82% at June 30, 2009. Total cost of funds decreased to 2.56% in 2009 from 3.03% in 2008. The decrease in total average interest-bearing deposit rates was the result of management’s disciplined approach to deposit pricing in response to the decrease in short-term interest rates. Total average interest-bearing deposits increased $163.3 million or 25.3% from June 30, 2008 to June 30, 2009 due primarily to growth in time deposits and interest checking. The average rate paid on short-term borrowings and securities sold under agreements to repurchase increased from 3.02% at June 30, 2008 to 3.40% at June 30, 2009. The increase in short-term borrowings and securities sold under agreements to repurchase rates was the result of increases in targeted short term interest rates, as established by the FRB. Average short-term borrowings and securities sold under agreements to repurchase decreased $69.2 million or 35.2% from June 30, 2008 to June 30, 2009 due primarily to the growth in total average interest-bearing deposits.

Provision for Loan Losses

The provision for loan losses for the three months ended June 30, 2009 was $4.3 million compared to $1.7 million for the same period of 2008. The provision for loan losses for the six months ended June 30, 2009 was $5.1 million compared to $2.1 million for the same period of 2008. Net charge-offs to average loans was 0.27% annualized for the six months ended June 30, 2009 compared to 0.46% for the year ended December 31, 2008. The provision reflects the amount deemed appropriate by management to provide an adequate reserve to meet the present risk characteristics of the loan portfolio. Management continues to evaluate and classify the credit quality of the loan portfolio utilizing a qualitative and quantitative internal loan review process and, based on the results of the analysis at June 30, 2009, management has determined that the current allowance for loan losses is adequate as of such date. The ratio of the allowance for loan losses to loans outstanding at June 30, 2009 and December 31, 2008 was 1.36% and .92%, respectively. Please see further discussion under the caption “Allowance for Loan Losses.”

Other Non-Interest Income

Total other income for the three months ended June 30, 2009 totaled $4.7 million, remaining similar to income of $4.7 million for the same period in 2008. Total other income for the six months ended June 30, 2009 totaled $10.2 million, an increase of $0.8 million, or 8.6%, from other income of $9.4 million for the same period in 2008.

Revenue from customer service fees decreased 11.8% to $596,000 for the second quarter of 2009 as compared to $676,000 for the same period in 2008. Revenue from customer service fees remained similar at $1.3 million for the first six months of 2009 and the same period in 2008. The decrease in customer service fees for the comparative three month periods is primarily due to a decrease in commercial account analysis fees and non-sufficient funds charges.

Revenue from mortgage banking activities increased 19.3% to $408,000 for the second quarter of 2009 as compared to $342,000 for the same period in 2008. Revenue from mortgage banking activities increased 1.5% to $675,000 for the first six months of 2009 as compared to $665,000 for the same period in 2008. The increase in mortgage banking activities for the comparative three and six month periods is primarily due to an increase in the volume of loans sold into the secondary mortgage market. The Company operates its mortgage banking activities through VIST Mortgage, a division of VIST Bank.

Revenue from commissions and fees from insurance sales increased 8.9% to $3.0 million for the second quarter of 2009 as compared to $2.8 million for the same period in 2008. Revenue from commissions and fees from insurance sales increased 9.6% to $6.0 million for the first six months of 2009 as compared to $5.5 million for the same period in 2008. The increase for the comparative three and six month periods is mainly attributed to an increase in commission income on

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group insurance products due to the acquisition of Fisher Benefits Consulting in September 2008. VIST Insurance, LLC is a wholly owned subsidiary of the Company.

Revenue from brokerage and investment advisory commissions and fees decreased 33.0% to $152,000 in the second quarter of 2009 as compared to $227,000 for the same period in 2008. Revenue from brokerage and investment advisory commissions and fees increased 3.9% to $482,000 in the first six months of 2009 as compared to $464,000 for the same period in 2008. Fluctuations for the comparative three and six month periods are due primarily to the volume of investment advisory services offered through VIST Capital Management, LLC, a wholly owned subsidiary of the Company.

Revenue from earnings on investment in life insurance decreased 34.1% to $108,000 in the second quarter of 2009 as compared to $164,000 for the same period in 2008. Revenue from earnings on investment in life insurance decreased 44.6% to $184,000 in the first six months of 2009 as compared to $332,000 for the same period in 2008. The decrease in earnings on investment in life insurance for the comparative three and six month periods is due primarily to decreased earnings credited on the Company’s separate investment account, bank owned life insurance (“BOLI”).

Other income, including gain on sale of loans, increased 15.1% to $550,000 for the second quarter of 2009 as compared to $478,000 for the same period in 2008. Other income, including gain on sale of loans, increased 73.3% to $1.6 million for the first six months of 2009 as compared to $0.9 million for the same period in 2008. The increase in other income for the comparative three and six month periods is due primarily to a settlement of a previously accrued contingent payment of $575,000, which was partially offset by an adjustment for related expenses of $232,000, and an increase in network interchange income.

Net securities gains were $126,000 for the three months ended June 30, 2009 compared to net securities gains of $61,000 for the same period in 2008. Net securities gains were $285,000 for the six months ended June 30, 2009 compared to net securities gains of $202,000 for the same period in 2008. Net securities gains for the comparative three and six month periods are due primarily to sales of available for sale investment securities. For the three and six month periods ended June 30, 2009, an impairment charge of $322,000 was recorded on one of the Company’s available for sale trust preferred investment securities.

Other Non-Interest Expense

Total other expense for the three months ended June 30, 2009 totaled $11.6 million, an increase of $1.1 million, or 10.0%, over total other expense of $10.5 million for the same period in 2008. Total other expense for the six months ended June 30, 2009 totaled $22.8 million, an increase of $1.2 million, or 5.8%, over total other expense of $21.6 million for the same period in 2008.

Salaries and benefits increased 6.6% to $5.8 million for the three months ended June 30, 2009 over the $5.4 million for the three months ended June 30, 2008. Salaries and benefits increased 2.8% to $11.4 million for the six months ended June 30, 2009 over the $11.1 million for the six months ended June 30, 2008. Included in salaries and benefits for the three months ended June 30, 2009 and June 30, 2008 were pre-tax stock-based compensation costs of $56,000 and $95,000, respectively. Included in salaries and benefits for the six months ended June 30, 2009 and June 30, 2008 were pre-tax stock-based compensation costs of $77,000 and $172,000, respectively. Also included in salaries and benefits for the three months ended June 30, 2009 were total commissions paid of $353,000 on mortgage origination activity through VIST Mortgage, insurance sales activity through VIST Insurance and investment advisory sales through VIST Capital Management compared to $511,000 for the same period in 2008. Also included in salaries and benefits for the six months ended June 30, 2009 were total commissions paid of $736,000 on mortgage origination activity through VIST Mortgage, insurance sales activity through VIST Insurance and investment advisory sales through VIST Capital Management compared to $900,000 for the same period in 2008. Included in salaries and benefits expense for the six months ended June 30, 2009 are severance costs of approximately $133,000 relating to corporate-wide cost reduction initiatives. Full-time equivalent (FTE) employees decreased to 301 at June 30, 2009 from 304 at June 30, 2008.

Occupancy expense and furniture and equipment expense decreased 13.0% to $1.5 million for the first three months of 2009 as compared to $1.7 million for the same period in 2008. Occupancy expense and furniture and equipment expense decreased 10.0% to $3.2 million for the first six months of 2009 as compared to $3.5 million for the same period in 2008. The decrease in occupancy expense and furniture and equipment expense for the comparative three and six month periods is due primarily to a decrease in building lease expense and equipment depreciation expense.

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Marketing and advertising expense decreased 30.1% to $335,000 for the second quarter of 2009 as compared to $479,000 for the same period in 2008. Marketing and advertising expense decreased 46.7% to $0.6 million for the first six months of 2009 as compared to $1.1 million for the same period in 2008. The decrease in marketing and advertising expense for the comparative three and six month periods is due primarily to a reduction in marketing costs associated with market research, media space, media production and special events.

Professional services expense decreased 11.2% to $482,000 for the second quarter of 2009 as compared to $543,000 for the same period in 2008. Professional services expense increased 27.5% to $1.4 million for the first six months of 2009 as compared to $1.1 million for the same period in 2008. The increase for the comparative six month periods is due primarily to an increase in legal fees associated with a litigation settlement related to a previously accrued contingent payment, outsourcing of the Company’s internal audit function and other general Company business.

Outside processing expense increased 33.7% to $1.1 million for the second quarter of 2009 as compared to $0.8 million for the same period in 2008. Outside processing expense increased 24.8% to $2.0 million for the first six months of 2009 as compared to $1.6 million for the same period in 2008. The increase in outside processing expense for the comparative three and six month periods are due primarily to costs incurred for computer services and network fees.

Insurance expense increased 259.1% to $984,000 for the second quarter of 2009 as compared to $274,000 for the same period in 2008. Insurance expense increased 162.0% to $1.4 million for the first six months of 2009 as compared to $0.5 million for the same period in 2008. The increase in insurance expense for the comparative three and six month periods is due primarily to higher FDIC deposit insurance premiums resulting from the implementation of the new FDIC risk-related premium assessment. Additionally, the increase in insurance expense for the comparative three and six month periods is due primarily to a special industry-wide FDIC deposit insurance premium assessment to the Company of $580,000.

Other expense increased 11.2% to $1.2 million for the second quarter of 2009 as compared to $1.1 million for the same period in 2008. Other expense increased 8.5% to $2.4 million for the first six months of 2009 as compared to $2.2 million for the same period in 2008. The increase in other expense for the comparative three and six month periods is primarily due to an increase in foreclosure and other real estate expense.

Income Taxes

There was an income tax benefit of $1.4 million for the second quarter of 2009 as compared to income tax expense of $0.2 million for the same period in 2008. There was an income tax benefit of $1.1 million for the first six months of 2009 as compared to income tax expense of $0.3 million for the same period in 2008. The effective income tax rate for the Company for the second quarter ended June 30, 2009 was 46.2% compared to 10.0% for the same period of 2008. The effective income tax rate for the Company for the first six months ended June 30, 2009 was 102.3% compared to 10.2% for the same period of 2008. The effective income tax rate for the comparative three and six month periods fluctuated primarily due to variations in state tax, tax exempt income and net income before income taxes. Included in income tax expense for the comparative three and six month periods ended June 30, 2009 and 2008 is a federal tax benefit from a $5,000,000 investment in an affordable housing, corporate tax credit limited partnership.

Financial Condition

The total assets of the Company at June 30, 2009 were $1.26 billion, an increase of approximately $31.9 million, or 5.2% annualized, from $1.22 billion at December 31, 2008.

Cash and Cash Equivalents:

Cash and cash equivalents increased $21.7 million, or 225.0% annualized, to $41.0 million at June 30 2009 from $19.3 million at December 31, 2008. This increase is primarily related to an increase in federal funds sold.

Mortgage Loans Held for Sale

Mortgage loans held for sale increased $3.6 million, or 315.8% annualized, to $5.9 million at June 30, 2009 from $2.3 million at December 31, 2008. This increase is primarily related to an increase in loans originated for sale into the secondary residential real estate loan market through VIST Mortgage.

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Securities Available for Sale

Investment securities available for sale increased $2.4 million, or 2.1% annualized, to $234.8 million at June 30, 2009 from $232.4 million at December 31, 2008. Investment securities are used to supplement loan growth as necessary, to generate interest and dividend income, to manage interest rate risk, and to provide liquidity. The increase in investment securities available for sale was due to the purchases of mortgage-backed securities used as collateral for the Company’s public funds and structured borrowings.

Loans

Total loans, net of allowance for loan losses, decreased to $875.2 million, or 0.7% annualized, at June 30, 2009 from $878.2 million at December 31, 2008.

The components of loans were as follows:

	June 30,			December 31,
	2009			2008
	(Dollar amounts in thousands)
Residential real estate - 1 to 4 family	$	173,674		$	185,866
Residential real estate - multi family	35,953			34,869
Commercial	166,952			174,219
Commercial, secured by real estate	319,256			326,442
Construction	99,683			89,556
Consumer	4,641			3,995
Home equity lines of credit	87,911			72,137
Loans	888,070			887,084

Net deferred loan fees	(834		)	(779		)
Allowance for loan losses	(12,029		)	(8,124		)
Loans, net of allowance for loan losses	$	875,207		$	878,181

Loans secured by real estate (not including home equity lending products) decreased $18.3 million, or 6.7% annualized, to $528.9 million at June 30, 2009 from $547.2 million at December 31, 2008. This decrease is primarily due to a decrease in commercial and residential real estate loan originations.

Total commercial loans decreased to $486.2 million at June 30, 2009 from $500.7 million at December 31, 2008, a decrease of $14.5 million, or 5.8% annualized. The decrease is due primarily to a decrease in commercial real estate loans outstanding. There were no SBA loans sold during the period.

Allowance for Loan Losses

The allowance for loan losses at June 30, 2009 was $12.0 million compared to $8.1 million at December 31, 2008. The allowance at June 30, 2009 was 1.36% of outstanding loans compared to 0.92% of outstanding loans at December 31, 2008. The provision for loan losses for the six months ended June 30, 2009 was $5.1 million compared to $2.1 million for the same period in 2008. The increase in the provision is due primarily to economic conditions and an increase in nonperforming loans and the result of management’s evaluation and classification of the credit quality of the loan portfolio utilizing a qualitative and quantitative internal loan review process. At June 30, 2009, total non-performing loans were $22.5 million or 2.5% of total loans compared to $10.8 million or 1.2% of total loans at December 31, 2008. The $11.7 million increase in non-performing loans from December 31, 2008 to June 30, 2009, was due primarily to two commercial construction and development credits totaling approximately $10.9 million transferred to non accrual as well as by net additions to non-performing loans of approximately $0.8 million. At June 30, 2009, $2.2 million in commercial properties were transferred to other real estate owned. This is net of $4.4 million which was transferred out of other real estate owned from March 31, 2009. For the six months ended June 30, 2009, net charge-offs to average loans was 0.27% annualized as compared to 0.46% for the year ended December 31, 2008.

The allowance for loan losses is an amount that management believes to be adequate to absorb potential losses in the loan portfolio. Additions to the allowance are charged through the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the

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allowance. Management regularly assesses the adequacy of the allowance by performing both quantitative and qualitative evaluations of the loan portfolio, including such factors as charge-off history, the level of delinquent loans, the current financial condition of specific borrowers, the value of any underlying collateral, risk characteristics in the loan portfolio, local and national economic conditions, and other relevant factors. Significant loans are individually analyzed, while other smaller balance loans are evaluated by loan category. This evaluation is inherently subjective as it requires material estimates that may be susceptible to change. Based upon the results of such reviews, management believes that the allowance for loan losses at June 30, 2009 was adequate to absorb credit losses inherent in the portfolio at that date.

The following table shows the activity in the Company’s allowance for loan losses:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Dollar amounts in thousands)

Balance of allowance for loan losses, beginning of period	$	8,165		$	7,181		$	8,124		$	7,264
Loans charged-off:
Commercial, financial and agricultural	(359		)	(981		)	(894		)	(1,448		)
Real estate — mortgage	(11		)	—			(222		)	—
Consumer	(76		)	(30		)	(139		)	(64		)
Total loans charged-off	(446		)	(1,011		)	(1,255		)	(1,512		)
Recoveries of loans previously charged-off:
Commercial, financial and agricultural	8			38			19			40
Real estate — mortgage	—			—			—			—
Consumer	2			4			16			10
Total recoveries	10			42			35			50
Net loans (charged-off) recoveries	(436		)	(969		)	(1,220		)	(1,462		)
Provision for loan losses	4,300			1,650			5,125			2,060
Balance, end of period	$	12,029		$	7,862		$	12,029		$	7,862

Net charge-offs to average loans (annualized)	0.20		%	0.46		%	0.27		%	0.35		%
Allowance for loan losses to loans outstanding	1.36		%	0.91		%	1.36		%	0.91		%
Loans outstanding at end of period (net of unearned income)	$	887,236		$	867,659		$	887,236		$	867,659
Average balance of loans outstanding during the period	$	885,233		$	847,357		$	885,852		$	837,544

The following table summarizes the Company’s non-performing assets:

	June 30,			December 31,
	2009			2008
	(Dollar amounts in thousands)
Non-accrual loans:
Real estate	$	21,647		$	2,947
Consumer	5			459
Commercial, financial and agricultural	776			7,298
Total	22,428			10,704

Loans past due 90 days or more and still accruing:
Real estate	108			28
Consumer	—			—
Commercial, financial and agricultural	—			112
Total	108			140

Total non-performing loans	22,536			10,844
Other real estate owned	2,238			263
Total non-performing assets	$	24,774		$	11,107

Troubled debt restructurings	$	2,592		$	285

Non-performing loans to loans outstanding at end of period (net of unearned income)	2.54		%	1.22		%
Non-performing assets to loans outstanding at end of period (net of unearned income) plus OREO	2.79		%	1.25		%

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Premises and Equipment

Components of premises and equipment were as follows:

	June 30,		December 31,
	2009		2008
	(In thousands)

Land and land improvements	$	263	$	263
Buildings	523		873
Leasehold improvements	4,393		3,910
Furniture and equipment	11,457		11,567
	16,636		16,613

Less: accumulated depreciation	10,228		10,022
Premises and equipment, net	$	6,408	$	6,591

Deposits

Total deposits at June 30, 2009 were $947.9 million compared to $850.6 million at December 31, 2008, an increase of $97.3 million, or 22.9% annualized.

The components of deposits were as follows:

	June 30,		December 31,
	2009		2008
	(In thousands)

Demand, non-interest bearing	$	111,231	$	108,645
Demand, interest bearing	304,579		231,504
Savings	70,539		75,706
Time, $100,000 and over	223,927		195,812
Time, other	237,638		238,933
Total deposits	$	947,914	$	850,600

The increase in interest bearing deposits is due primarily to an increase in time deposits with the majority of these deposits maturing in one year or less and an increase in interest bearing demand deposits. Management continues to promote these types of deposits through a disciplined pricing strategy as a means of managing the Company’s overall cost of funds, as well as, management’s continuing emphasis on commercial and retail marketing programs and customer service.

Borrowings

Total debt decreased by $63.4 million, or 52.1% annualized, to $179.9 million at June 30, 2009 from $243.2 million at December 31, 2008. The decrease in total debt and borrowings was primarily due to an increase in organic growth in total deposits of $97.3 million to $947.9 million at June 30, 2009 from $850.6 million at December 31, 2008.

Off Balance Sheet Commitments

The Bank is 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 letters of credit.

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Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

A summary of the contractual amount of the Company’s financial instrument commitments is as follows:

	June 30,		December 31,
	2009		2008
	(Dollar amounts in thousands )
Commitments to extend credit:
Loan origination committments	$	59,526	$	59,093
Unused home equity lines of credit	43,567		48,919
Unused business lines of credit	141,727		138,181
Total commitments to extend credit	$	244,820	$	246,193
Standby letters of credit	$	12,749	$	14,479

Capital

Total shareholders’ equity decreased $1.7 million, or 2.8% annualized, to $120.8 million at June 30, 2009 from $122.5 million at December 31, 2008. The decrease is the net result of net income for the period of $24,000 less common stock dividends declared of $1.15 million, preferred stock dividends declared of $716,000, proceeds of $280,000 from the issuance of shares of common stock under the Company’s employee benefit and director compensation plans, net decrease in the unrealized loss on securities available for sale and cash flow hedges, net of tax, of $633,000, the reissuance of treasury stock of $424,000 primarily in connection with earn-outs of contingent consideration to principals resulting from the Company’s acquisition of VIST Insurance, and stock-based compensation costs of $77,000.

Federal bank regulatory agencies have established certain capital-related criteria that must be met by banks and bank holding companies. The measurements which incorporate the varying degrees of risk contained within the balance sheet and exposure to off-balance sheet commitments were established to provide a framework for comparing different institutions. Regulatory guidelines require that Tier 1 capital and total risk-based capital to risk-adjusted assets must be at least 4.0% and 8.0%, respectively.

Other than Tier 1 capital restrictions on the Company’s junior subordinated debt discussed later, the Company is not aware of any pending recommendations by regulatory authorities that would have a material impact on the Company’s capital, resources, or liquidity if they were implemented, nor is the Company under any agreements with any regulatory authorities.

The adequacy of the Company’s capital is reviewed on an ongoing basis with regard to size, composition and quality of the Company’s resources. An adequate capital base is important for continued growth and expansion in addition to providing an added protection against unexpected losses.

An important indicator in the banking industry is the leverage ratio, defined as the ratio of common shareholders’ equity less intangible assets (Tier 1 risk-based capital), to average quarterly assets less intangible assets. The leverage ratio at June 30, 2009 was 8.66% compared to 9.16% at December 31, 2008. This decrease is primarily the result of an increase in average total assets. For the six months ended June 30, 2009, the capital ratios were above minimum regulatory guidelines.

As required by the federal banking regulatory authorities, guidelines have been adopted to measure capital adequacy. Under the guidelines, certain minimum ratios are required for core capital and total capital as a percentage of risk-weighted assets and other off-balance sheet instruments. For the Company, Tier 1 risk-based capital consists of common shareholders’ equity less intangible assets plus the junior subordinated debt, and Tier 2 risk-based capital includes the allowable portion of the allowance for loan losses, currently limited to 1.25% of risk-weighted assets. By

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regulatory guidelines, the separate component of equity for unrealized appreciation or depreciation on available for sale securities is excluded from Tier 1 risk-based capital. In addition, federal banking regulatory authorities have issued a final rule restricting the Company’s junior subordinated debt to 25% of Tier 1 risk-based capital. Amounts of junior subordinated debt in excess of the 25% limit generally may be included in Tier 2 risk-based capital. The final rule provides a five-year transition period, ending June 30, 2009. Recently, the Federal Reserve extended this transition period to March 31, 2011. This will allow bank holding companies more flexibility in managing their compliance with these new limits in light of the current conditions of the capital markets. At June 30, 2009, the entire amount of these securities was allowable to be included as Tier 1 risk-based capital for the Company. For the periods ended June 30, 2009 and December 31, 2008, the Company’s capital ratios were above minimum regulatory guidelines.

On December 19, 2008, the Company issued to the United States Department of the Treasury (“Treasury”) 25,000 shares of Series A, Fixed Rate, Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”), with a par value of $0.01 per share and a liquidation preference of $1,000 per share, and a warrant (“Warrant”) to purchase 364,078 shares of the Company’s common stock, par value $5.00 per share, for an aggregate purchase price of $25,000,000 in cash. The Warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price, subject to anti-dilution adjustments, equal to $10.30 per share of common stock. The Series A Preferred Stock qualifies as Tier 1 capital and will pay cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The Series A Preferred Stock may be redeemed at any time following consultation by the Company’s primary bank regulator and Treasury. Participants in the Capital Purchase Program desiring to redeem part of an investment by Treasury must redeem a minimum of 25% of the issue price of the preferred stock from the proceeds of a qualifying equity offering.

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The following table sets forth the Company’s risk-based capital amounts and ratios.

	June 30,			December 31,
	2009			2008
	(Dollar amounts in thousands)

Tier I
Common shareholders’ equity excluding unrealized gains (losses) on securities	$	120,794		$	122,489
Disallowed intangible assets	(44,020		)	(44,347		)
Junior subordinated debt	19,839			19,561
Tier II
Allowable portion of allowance for loan losses	12,029			8,124
Unrealized losses on available for sale equity securities	8,434			8,096
Total risk-based capital	$	117,076		$	113,923
Risk adjusted assets (including off-balance sheet exposures)	$	976,796		$	882,740

Leverage ratio	8.66		%	9.16		%
Tier I risk-based capital ratio	10.75		%	11.99		%
Total risk-based capital ratio	11.99		%	12.91		%

The Company is not aware of any pending recommendations by regulatory authorities that would have a material impact on the Company’s capital resources, or liquidity if they were implemented, nor is the Company under any agreements with any regulatory authorities.

Junior Subordinated Debt

On March 9, 2000 and September 26, 2002, the Company established First Leesport Capital Trust I and Leesport Capital Trust II, respectively, in which the Company owns all of the common equity. First Leesport Capital Trust I issued $5 million of mandatory redeemable capital securities carrying an interest rate of 10.875%, and Leesport Capital Trust II issued $10 million of mandatory redeemable capital securities carrying a floating interest rate of 3 month LIBOR plus 3.45%. These debentures are the sole assets of the Trusts. These securities must be redeemed in March 2030 and September 2032, respectively, but may be redeemed on or after March 2010 and November 2007, respectively, or earlier in the event that the interest expense becomes non-deductible for federal income tax purposes or if the treatment of these securities no longer qualifies as Tier I capital for the Company. In October 2002, the Company entered into an interest rate swap agreement that effectively converts the First Leesport Capital Trust I $5 million of fixed-rate capital securities to a floating interest rate of nine month LIBOR plus 5.25%. In September 2008, the Company entered into an interest rate swap agreement that effectively converts the Leesport Capital Trust II $10 million of adjustable-rate capital securities to a fixed interest rate of 7.25%. The effective date of the Leesport Capital Trust II swap transaction was February 2009.

On June 26, 2003, Madison established Madison Statutory Trust I in which the Company owns all of the common equity. Madison Statutory Trust I issued $5 million of mandatory redeemable capital securities carrying a floating interest rate of three month LIBOR plus 3.10%. These debentures are the sole assets of the Trusts. These securities must be redeemed in June 2033, but may be redeemed on or after September 26, 2008 or earlier in the event that the interest expense becomes non-deductible for federal income tax purposes or if the treatment of these securities no longer qualifies as Tier I capital for the Company. In September 2008, the Company entered into an interest rate swap agreement that effectively converts the Madison Statutory Trust I $5 million of adjustable-rate capital securities to a fixed interest rate of 6.90%. The effective date of the swap transaction was March 2009.

Liquidity and Interest Rate Sensitivity

The banking industry has been required to adapt to an environment in which interest rates may be volatile and in which deposit deregulation has provided customers with the opportunity to invest in liquid, interest rate-sensitive deposits. The banking industry has adapted to this environment by using a process known as asset/liability management.

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Adequate liquidity means the ability to obtain sufficient cash to meet all current and projected needs promptly and at a reasonable cost. These needs include deposit withdrawal, liability runoff, and increased loan demand. The principal sources of liquidity are deposit generation, overnight federal funds transactions with other financial institutions, investment securities portfolio maturities and cash flows, and maturing loans and loan payments. The Bank can also package and sell residential mortgage loans into the secondary market. Other sources of liquidity are term borrowings from the Federal Home Loan Bank, and the discount window of the Federal Reserve Bank. In view of all factors involved, the Bank’s management believes that liquidity is being maintained at an adequate level.

At June 30, 2009, the Company had a total of $179.9 million, or 14.3% of total assets, in borrowed funds. These borrowings included $124.9 million of repurchase agreements, $35 million of term borrowings with the Federal Home Loan Bank, and $20.0 million in junior subordinated debt. The FHLB borrowings have final maturities ranging from November 2009 through January 2011 at interest rates ranging from 3.45% to 4.27%. At June 30, 2009, the Company had a maximum borrowing capacity with the Federal Home Loan Bank of approximately $186.7 million. The Company remains slightly asset sensitive and will continue its strategy to originate adjustable rate commercial and installment loans and use investment security cash flows and non-interest bearing and core deposits and repurchase agreements to reduce the overnight borrowings to maintain a more neutral gap position.

Asset/liability management is intended to provide for adequate liquidity and interest rate sensitivity by matching interest rate-sensitive assets and liabilities and coordinating maturities on assets and liabilities. With the exception of the majority of residential mortgage loans, loans generally are written having terms that provide for a readjustment of the interest rate at specified times during the term of the loan. In addition, interest rates offered for all types of deposit instruments are reviewed weekly and are established on a basis consistent with funding needs and maintaining a desirable spread between cost and return.

During October 2002, the Company entered into an interest rate swap agreement with a notional amount of $5 million. This derivative financial instrument effectively converted fixed interest rate obligations of outstanding junior subordinated debt to variable interest rate obligations, decreasing the asset sensitivity of its balance sheet by more closely matching the Company’s variable rate assets with variable rate liabilities. The Company considers the credit risk inherent in the contracts to be negligible.

During 2008, the Company entered into two interest rate swaps to manage its exposure to interest rate risk. The interest rate swap transactions involved the exchange of the Company’s floating rate interest rate payment on its $15 million in floating rate junior subordinated debt for a fixed rate interest payment without the exchange of the underlying principal amount. The cumulative change in fair value of the hedging derivative, to the extent that it is expected to be offset by the cumulative change in anticipated interest cash flows from the hedged exposure, will be deferred and reported as a component of other comprehensive income or loss (OCI). Any hedge ineffectiveness will be charged to current earnings.

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Item 3 - Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company’s assessment of its sensitivity to market risk since its presentation in the Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC.

Item 4 - Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of June 30, 2009. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of such date.

There have been no changes in the Company’s internal control over financial reporting during the second quarter of 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1 Legal Proceedings — None

Item 1A Risk Factors

There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Please refer to that section for disclosures regarding the risks and uncertainties related to the company’s business.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

No shares of the Company’s common stock were repurchased by the Company during the three month period ended June 30, 2009. The maximum number of common shares that may yet be purchased under the Company’s current stock repurchase program is 115,000 shares.

Item 3 Defaults Upon Senior Securities — None

Item 4 Submission of Matters to Vote of Security Holders

At the annual meeting of shareholders, held on April 21, 2009, shareholders of the Company approved the following matters:

1. Election of five Class III directors to hold office for three years from the date of election and until their respective successors shall have been elected and qualified.

Nominee	For	Withheld
James H. Burton	4,152,737	361,147
Robert D. Carl, III	4,248,263	265,621
Philip E. Hughes, Jr.	3,728,348	785,536
Frank C. Milewski	4,250,738	263,146
Harry J. O’Neill, III	4,277,584	236,300

2. Approval of the VIST Financial Corp. 2010 Non-Employee Director Compensation Plan.

The votes cast in this matter were as follows:

For		Against		Abstain		Broker Non Vote
3,071,271		373,374		53,874		1,015,365

3. Approval of the advisory (non-binding) vote on executive compensation.

The votes cast in this matter were as follows:

For		Against		Abstain		Broker Non Vote
3,105,896		342,675		49,948		1,015,365

4. Ratification of the appointment of Beard Miller Company LLP as the Company’s auditors for 2009.

The votes cast in this matter were as follows:

For		Against		Abstain
4,406,577		66,583		40,722

Item 5 Other Information - None

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Item 6 Exhibits

Exhibit No.		Title

3.1		Articles of Incorporation of VIST Financial Corp. (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on March 7, 2008).

3.2		Bylaws of VIST Financial Corp. (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed on March 7, 2008).

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1		Rule 1350 Certification of Chief Executive Officer and Chief Financial Officer

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		VIST FINANCIAL CORP.
		(Registrant)

Dated: August 10, 2009	By	/s/Robert D. Davis

		Robert D. Davis
		President and Chief
		Executive Officer

Dated: August 10, 2009	By	/s/Edward C. Barrett

		Edward C. Barrett
		Executive Vice President and
		Chief Financial Officer