Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q/A
Amendment
No. 1
x
Quarterly Report pursuant to Section 13
or 15(d)of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 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 issuers classes of common stock, as of the
latest practicable date.
|
|
Number
of Shares Outstanding
|
|
|
as of March 26, 2010
|
COMMON
STOCK ($5.00 Par Value)
|
|
5,855,976
|
(Title of Class)
|
|
(Outstanding
Shares)
|
Table of Contents
EXPLANATORY NOTE
This Amendment on Form 10-Q/A amends our
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2009, filed with the Securities and Exchange Commission (SEC) on May 8,
2009 (Amendment No. 1). We are
filing this Amendment No. 1 to the consolidated financial statements of
VIST Financial Corp. and its subsidiaries (the Company) for the quarterly
period ended March 31, 2009 to correct the following accounting errors and
the related effects of those errors: (i) correcting the calculation of fair
value on junior subordinated debentures and interest rate swaps, (ii) correcting
the accounting for changes in fair value of cash flow hedges and the junior
subordinated debentures which was incorrectly recorded through accumulated
other comprehensive income (loss) and should have been reflected through
operations, and (iii) correcting the misapplication of cash flow hedge
accounting to the junior subordinated debentures which were and continue to be
accounted for at fair value. The Companys
previously issued financial statements for this period should no longer be
relied upon.
The Company concluded
that it would revise its financial statements to properly account for interest
rate swaps that were incorrectly designated as cash flow hedging relationships
under FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133).
Changes in fair value of the interest rate swaps, previously recognized
as unrealized gains (losses) in accumulated other comprehensive income, should
have been recognized in earnings. In
addition, the Company measures the fair value of its interest rate swaps by
netting the discounted future fixed or variable cash payments and the
discounted expected fixed or variable cash receipts based on an expectation of
future interest rates derived from observed market interest rate curves and
volatilities. The Company concluded that
an incorrect forward yield curve was applied to the fair value of its interest
rate swaps. The Company has adjusted the
forward yield curve used in its determination of the fair value of the interest
rate swaps which is reflected in these restated financial statements.
The
Company has elected to report its junior subordinated debt at fair value with
changes in fair value reflected in other income in the consolidated statements
of operations. In addition, the Company
measures the fair value of its junior subordinated debt utilizing the income
approach whereby the expected cash flows over the remaining estimated life of
the debentures are discounted using the Companys credit spread over the
current fully indexed yield based on an expectation of future interest rates
derived from observed market interest rate curves and volatilities. The Company concluded that an incorrect credit
spread was applied to the fair value of its junior subordinated debt. The Company has adjusted the credit spread
used in its determination of the fair value of its junior subordinated debt
which is reflected in these restated financial statements.
The Company is not required to and has not updated any
forward-looking statements previously included in the initial Form 10-Q
filed on May 8, 2009. The errors
discussed above do not affect periods prior to the three month period ended September 30,
2008. Accordingly, the Company has
amended our Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2008, our Annual Report on Form 10-K for the year ended December 31,
2008, and our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2009. The Company has not
amended, and does not intend to amend, any of its other reports filed prior to
the Form 10-Q for the quarterly period ended September 30, 2008.
This Amendment No. 1 includes changes in Part I,
Item 4 - Controls and Procedures and reflects Managements restated assessment
of our disclosure controls and procedures (as defined in Rules 13a-15(e) under
the Exchange Act) as of March 31, 2009.
This restatement of Managements assessment regarding disclosure
controls and procedures results from managements determination that a material
weakness existed with respect to the internal controls over financial reporting
related to accounting for the fair value of junior subordinated debt and
related interest rate swaps as of March 31, 2009.
The material
weakness existed at September 30, 2008, December 31, 2008, March 31,
2009 and June 30, 2009 and was not identified until November 2009. To remediate this material weakness, the
Company has added a review specifically for disclosures and accounting
treatment for all complex financial instruments acquired or disposed of during
each reporting period. The material
weakness relates only to the applicable accounting treatment to these complex
financial instruments. Although
management has implemented these additional control procedures to remediate the
material weakness, we believe that additional time and testing are necessary
before concluding that the material weakness has been remediated.
Except as
described in the preceding paragraph to remediate the material weakness
described, there have been no changes in the Companys internal control over
financial reporting during the first quarter of 2009 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
For additional discussion, see Note 2 included in Part I,
Item 1 Financial Statements of this report.
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 Companys 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.
3
Table of Contents
These forward-looking
statements include statements with respect to the Companys 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 Companys 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 Companys 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 Companys 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 managements
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.
4
Table of Contents
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)
|
|
March 31,
|
|
|
|
|
|
2009
|
|
December 31,
|
|
|
|
(As Restated)
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
20,114
|
|
$
|
18,964
|
|
Federal
funds sold
|
|
13,550
|
|
|
|
Interest-bearing
deposits in banks
|
|
353
|
|
320
|
|
|
|
|
|
|
|
Total
cash and cash equivalents
|
|
34,017
|
|
19,284
|
|
|
|
|
|
|
|
Mortgage
loans held for sale
|
|
2,841
|
|
2,283
|
|
Securities
available for sale
|
|
238,420
|
|
226,665
|
|
Securities
held to maturity, fair value 2009 - $1,767; 2008 - $1,926
|
|
3,054
|
|
3,060
|
|
Federal
Home Loan Bank stock
|
|
5,715
|
|
5,715
|
|
Loans,
net of allowance for loan losses 2009 - $8,165; 2008 - $8,124
|
|
878,425
|
|
878,181
|
|
Premises
and equipment, net
|
|
6,685
|
|
6,591
|
|
Identifiable
intangible assets
|
|
4,662
|
|
4,833
|
|
Goodwill
|
|
39,732
|
|
39,732
|
|
Bank
owned life insurance
|
|
18,628
|
|
18,552
|
|
Other
assets
|
|
27,986
|
|
21,174
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,260,165
|
|
$
|
1,226,070
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
106,510
|
|
$
|
108,645
|
|
Interest
bearing
|
|
824,152
|
|
741,955
|
|
|
|
|
|
|
|
Total deposits
|
|
930,662
|
|
850,600
|
|
|
|
|
|
|
|
Securities
sold under agreements to repurchase
|
|
127,242
|
|
120,086
|
|
Federal
funds purchased
|
|
|
|
53,424
|
|
Long-term
debt
|
|
50,000
|
|
50,000
|
|
Junior
subordinated debt, at fair value
|
|
19,050
|
|
18,260
|
|
Other
liabilities
|
|
8,390
|
|
10,071
|
|
|
|
|
|
|
|
Total liabilities
|
|
1,135,344
|
|
1,102,441
|
|
|
|
|
|
|
|
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 $2,208 at March 31, 2009 and a discount
of $2,307 at December 31, 2008
|
|
22,792
|
|
22,693
|
|
Common
stock, $5.00 par value; authorized 20,000,000 shares; issued: 5,800,929
shares at March 31, 2009 and 5,768,429 shares at December 31, 2008
|
|
29,005
|
|
28,842
|
|
Stock
Warrants
|
|
2,307
|
|
2,307
|
|
Surplus
|
|
63,588
|
|
64,349
|
|
Retained
earnings
|
|
15,209
|
|
14,757
|
|
Accumulated
other comprehensive loss
|
|
(7,889
|
)
|
(7,834
|
)
|
Treasury
stock; 10,484 shares at March 31, 2009 and 68,354 shares at December 31,
2008, at cost
|
|
(191
|
)
|
(1,485
|
)
|
|
|
|
|
|
|
Total shareholders equity
|
|
124,821
|
|
123,629
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,260,165
|
|
$
|
1,226,070
|
|
See
Notes to Consolidated Financial Statements.
5
Table of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
|
|
Three Months Ended
|
|
|
|
March 31,
2009
|
|
March 31,
2008
|
|
|
|
(As
Restated)
|
|
|
|
Interest income:
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
12,342
|
|
$
|
14,110
|
|
Interest
on securities:
|
|
|
|
|
|
Taxable
|
|
2,870
|
|
2,254
|
|
Tax-exempt
|
|
286
|
|
213
|
|
Dividend
income
|
|
34
|
|
144
|
|
Interest
on federal funds sold
|
|
3
|
|
|
|
Other
interest income
|
|
1
|
|
4
|
|
|
|
|
|
|
|
Total interest income
|
|
15,536
|
|
16,725
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
Interest
on deposits
|
|
5,154
|
|
5,503
|
|
Interest
on short-term borrowings
|
|
17
|
|
721
|
|
Interest
on securities sold under agreements to repurchase
|
|
1,063
|
|
954
|
|
Interest
on long-term debt
|
|
505
|
|
599
|
|
Interest
on junior subordinated debt
|
|
315
|
|
405
|
|
|
|
|
|
|
|
Total interest expense
|
|
7,054
|
|
8,182
|
|
|
|
|
|
|
|
Net Interest Income
|
|
8,482
|
|
8,543
|
|
Provision
for loan losses
|
|
825
|
|
410
|
|
|
|
|
|
|
|
Net Interest Income after provision for loan losses
|
|
7,657
|
|
8,133
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
Customer
service fees
|
|
658
|
|
620
|
|
Mortgage
banking activities
|
|
267
|
|
323
|
|
Commissions
and fees from insurance sales
|
|
2,958
|
|
2,684
|
|
Brokerage
and investment advisory commissions and fees
|
|
330
|
|
237
|
|
Earnings
on investment in life insurance
|
|
76
|
|
168
|
|
Gain
on sale of loans
|
|
|
|
23
|
|
Other
Income
|
|
957
|
|
496
|
|
Net
realized gains (losses) on sales of securities
|
|
159
|
|
141
|
|
|
|
|
|
|
|
Total other income
|
|
5,405
|
|
4,692
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
Salaries
and employee benefits
|
|
5,688
|
|
5,730
|
|
Occupancy
expense
|
|
1,069
|
|
1,129
|
|
Furniture
and equipment expense
|
|
606
|
|
672
|
|
Marketing
and advertising expense
|
|
270
|
|
657
|
|
Amortization
of identifiable intangible assets
|
|
171
|
|
150
|
|
Professional
services
|
|
892
|
|
535
|
|
Outside
processing
|
|
951
|
|
820
|
|
Insurance
expense
|
|
444
|
|
271
|
|
Other
expense
|
|
1,188
|
|
1,123
|
|
|
|
|
|
|
|
Total other expense
|
|
11,279
|
|
11,087
|
|
|
|
|
|
|
|
Income before income taxes
|
|
1,783
|
|
1,738
|
|
Income
taxes
|
|
252
|
|
179
|
|
|
|
|
|
|
|
Net income
|
|
1,531
|
|
1,559
|
|
Preferred stock dividends and discount accretion
|
|
(412
|
)
|
|
|
Net income available to common shareholders
|
|
$
|
1,119
|
|
$
|
1,559
|
|
See Notes to Consolidated Financial
Statements.
6
Table
of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
|
|
Three Months Ended
|
|
|
|
March 31,
2009
|
|
March 31,
2008
|
|
|
|
(As
Restated)
|
|
|
|
EARNINGS PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
Average
shares outstanding for basic earnings per share
|
|
5,735,968
|
|
5,673,403
|
|
Basic
earnings per share
|
|
$
|
0.20
|
|
$
|
0.28
|
|
Average
shares outstanding for diluted earnings per share
|
|
5,735,968
|
|
5,688,193
|
|
Diluted
earnings per share
|
|
$
|
0.20
|
|
$
|
0.27
|
|
Cash
dividends declared per actual share outstanding
|
|
$
|
0.10
|
|
$
|
0.20
|
|
See Notes to Consolidated Financial
Statements.
7
Table of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Three Months Ended March 31, 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
|
|
Warrants
|
|
Surplus
|
|
Earnings
|
|
Loss
|
|
Stock
|
|
Total
|
|
Balance, January 1, 2009
|
|
25,000
|
|
$
|
22,693
|
|
5,768,429
|
|
$
|
28,842
|
|
$
|
2,307
|
|
$
|
64,349
|
|
$
|
14,757
|
|
$
|
(7,834
|
)
|
$
|
(1,485
|
)
|
$
|
123,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,531
|
|
|
|
|
|
1,531
|
|
Change
in net unrealized gains (losses) on securities available for sale, net of tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
(55
|
)
|
Total
comprehensive income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock discount
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Stock
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
4,257
|
|
22
|
|
|
|
11
|
|
(4
|
)
|
|
|
|
|
29
|
|
Compensation
expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock cash dividends paid ($0.10 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
|
|
|
|
(573
|
)
|
Preferred
stock cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403
|
)
|
|
|
|
|
(403
|
)
|
Balance, March 31, 2009 (as restated)
|
|
25,000
|
|
$
|
22,792
|
|
5,800,929
|
|
$
|
29,005
|
|
$
|
2,307
|
|
$
|
63,588
|
|
$
|
15,209
|
|
$
|
(7,889
|
)
|
$
|
(191
|
)
|
$
|
124,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Shares
|
|
Liquidation
|
|
Shares
|
|
Par
|
|
Stock
|
|
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
|
|
Issued
|
|
Value
|
|
Issued
|
|
Value
|
|
Warrants
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,559
|
|
|
|
|
|
1,559
|
|
Change
in net unrealized gains (losses) on securities available for sale, net of tax
effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
139
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
2,600
|
|
13
|
|
|
|
32
|
|
|
|
|
|
|
|
45
|
|
Tax
benefits from employee stock transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense related to stock options
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
Cash
dividends declared ($0.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,139
|
)
|
|
|
|
|
(1,139
|
)
|
Balance, March 31, 2008
|
|
$
|
|
|
$
|
|
|
$
|
5,760,406
|
|
$
|
28,802
|
|
$
|
|
|
$
|
64,050
|
|
$
|
17,459
|
|
$
|
(977
|
)
|
$
|
(1,485
|
)
|
$
|
107,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
8
Table of Contents
VIST FINANCIAL
CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in
thousands)
|
|
Three
Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(As
Restated)
|
|
|
|
Cash Flows From Operating
Activities
|
|
|
|
|
|
Net income
|
|
$
|
1,531
|
|
$
|
1,559
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Provision for loan losses
|
|
825
|
|
410
|
|
Provision for depreciation and amortization of
premises and equipment
|
|
343
|
|
386
|
|
Amortization of identifiable intangible assets
|
|
171
|
|
150
|
|
Deferred income taxes
|
|
(42
|
)
|
7
|
|
Director stock compensation
|
|
219
|
|
193
|
|
Net amortization of securities premiums and
discounts
|
|
86
|
|
11
|
|
Decrease in mortgage servicing rights
|
|
53
|
|
55
|
|
Net realized losses on sales of foreclosed real
estate
|
|
|
|
93
|
|
Net realized gains on sales of securities
|
|
(159
|
)
|
(141
|
)
|
Proceeds from sales of loans held for sale
|
|
16,833
|
|
11,649
|
|
Net gains on sale of loans
|
|
(261
|
)
|
(308
|
)
|
Loans originated for sale
|
|
(17,130
|
)
|
(11,853
|
)
|
Increase in investment in life insurance
|
|
(76
|
)
|
(168
|
)
|
Compensation expense related to stock options
|
|
20
|
|
77
|
|
Net change in fair value of liabilities
|
|
790
|
|
(197
|
)
|
(Increase) decrease in accrued interest receivable
and other assets
|
|
(338
|
)
|
270
|
|
Decrease in accrued interest payable and other
liabilities
|
|
(1,948
|
)
|
(254
|
)
|
|
|
|
|
|
|
Net Cash Provided by Operating
Activities
|
|
917
|
|
1,939
|
|
|
|
|
|
|
|
Cash Flow From Investing
Activities
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
Purchases - available for sale
|
|
(48,927
|
)
|
(21,480
|
)
|
Principal repayments, maturities and calls -
available for sale
|
|
18,011
|
|
9,670
|
|
Principal repayments, maturities and calls - held
to maturity
|
|
|
|
6
|
|
Proceeds from sales - available for sale
|
|
19,156
|
|
8,963
|
|
Net increase in loans receivable
|
|
(7,467
|
)
|
(8,133
|
)
|
Proceeds from sale of loans
|
|
|
|
399
|
|
Net increase in Federal Home Loan Bank Stock
|
|
|
|
(480
|
)
|
Purchases of premises and equipment
|
|
(473
|
)
|
(386
|
)
|
Disposals of premises and equipment
|
|
36
|
|
3
|
|
Net Cash Used In Investing
Activities
|
|
(19,664
|
)
|
(11,438
|
)
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
9
Table
of Contents
VIST FINANCIAL
CORP. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollar amounts in
thousands)
|
|
Three
Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(As
Restated)
|
|
|
|
Cash Flow From Financing
Activities
|
|
|
|
|
|
Net increase in deposits
|
|
80,062
|
|
45,313
|
|
Net decrease in federal funds purchased
|
|
(53,424
|
)
|
(46,773
|
)
|
Net increase in securities sold under agreements to
repurchase
|
|
7,156
|
|
3,657
|
|
Proceeds from long-term debt
|
|
|
|
15,000
|
|
Reissuance of treasury stock
|
|
424
|
|
383
|
|
Proceeds from the exercise of stock options and
stock purchase plans
|
|
29
|
|
45
|
|
Cash dividends paid on preferred and common stock
|
|
(767
|
)
|
(1,131
|
)
|
Net Cash Provided By Financing
Activities
|
|
33,480
|
|
16,494
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
14,733
|
|
6,995
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
January 1
|
|
19,284
|
|
25,789
|
|
March 31
|
|
$
|
34,017
|
|
$
|
32,784
|
|
|
|
|
|
|
|
Cash Payments For:
|
|
|
|
|
|
Interest
|
|
$
|
7,471
|
|
$
|
8,343
|
|
Taxes
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-cash
Investing and Financing Activities
|
|
|
|
|
|
Transfer of loans receivable to real estate owned
|
|
$
|
6,398
|
|
$
|
174
|
|
See
Notes to Consolidated Financial Statements.
10
Table of Contents
VIST FINANCIAL CORP.
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 month period ended March 31, 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 Companys Annual Report on Form 10-K/A,
Amendment No. 1, for the year ended December 31, 2008.
2.
Restatement of
Consolidated Financial Statements
The Company concluded
that it would revise its financial statements to properly account for interest
rate swaps that were incorrectly designated in cash flow hedging relationships
under FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133).
Changes in fair value of the interest rate swaps, previously recognized
as unrealized gains (losses) in accumulated other comprehensive income, should
have been recognized in earnings. In
addition, the Company measures the fair value of its interest rate swaps by
netting the discounted future fixed or variable cash payments and the
discounted expected fixed or variable cash receipts based on an expectation of
future interest rates derived from observed market interest rate curves and
volatilities. The Company concluded that
an incorrect forward yield curve was applied to the fair value of its interest
rate swaps. The Company has adjusted the
forward yield curve used in its determination of the fair value of the interest
rate swaps which is reflected in these restated financial statements.
The
Company has elected to report its junior subordinated debt at fair value with
changes in fair value reflected in other income in the consolidated statements
of operations. In addition, the Company
measures the fair value of its junior subordinated debt utilizing the income
approach whereby the expected cash flows over the remaining estimated life of
the debentures are discounted using the Companys credit spread over the
current fully indexed yield based on an expectation of future interest rates
derived from observed market interest rate curves and volatilities. The Company concluded that an incorrect credit
spread was applied to the fair value of its junior subordinated debt. The Company has adjusted the credit spread
used in its determination of the fair value of its junior subordinated debt
which is is reflected in these restated financial statements.
The
following tables set forth the unaudited consolidated restated financial
statements for the quarter ended March 31, 2009 previously filed in the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2009.
The
following is a summary of the adjustments to our previously issued unaudited
consolidated balance sheet as of March 31, 2009:
11
Table
of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share
data)
|
|
March 31,
|
|
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
|
|
|
2009
|
|
|
|
As
Reported
|
|
Adjustments
|
|
Reclassifications
|
|
As
Restated
|
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
20,114
|
|
|
|
|
|
$
|
20,114
|
|
Federal funds sold
|
|
13,550
|
|
|
|
|
|
13,550
|
|
Interest-bearing deposits in banks
|
|
353
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
34,017
|
|
|
|
|
|
34,017
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale
|
|
2,841
|
|
|
|
|
|
2,841
|
|
Securities available for sale (a)
|
|
244,135
|
|
|
|
(5,715
|
)
|
238,420
|
|
Securities held to maturity, fair value 2009 -
$1,767; 2008 - $1,926
|
|
3,054
|
|
|
|
|
|
3,054
|
|
Federal Home Loan Bank stock (a)
|
|
|
|
|
|
5,715
|
|
5,715
|
|
Loans, net of allowance for loan losses 2009 -
$8,165; 2008 - $8,124
|
|
878,425
|
|
|
|
|
|
878,425
|
|
Premises and equipment, net
|
|
6,685
|
|
|
|
|
|
6,685
|
|
Identifiable intangible assets
|
|
4,662
|
|
|
|
|
|
4,662
|
|
Goodwill
|
|
39,732
|
|
|
|
|
|
39,732
|
|
Bank owned life insurance
|
|
18,628
|
|
|
|
|
|
18,628
|
|
Other assets (b)
|
|
26,851
|
|
1,135
|
|
|
|
27,986
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,259,030
|
|
$
|
1,135
|
|
|
|
$
|
1,260,165
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
106,510
|
|
|
|
|
|
$
|
106,510
|
|
Interest bearing
|
|
824,152
|
|
|
|
|
|
824,152
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
930,662
|
|
|
|
|
|
930,662
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
127,242
|
|
|
|
|
|
127,242
|
|
Federal funds purchased
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
50,000
|
|
|
|
|
|
50,000
|
|
Junior subordinated debt, at fair value (c)
|
|
19,805
|
|
(755
|
)
|
|
|
19,050
|
|
Other liabilities (b)
|
|
7,585
|
|
805
|
|
|
|
8,390
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
1,135,294
|
|
50
|
|
|
|
1,135,344
|
|
|
|
|
|
|
|
|
|
|
|
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 $2,208 at March 31, 2009 and a discount of $2,307 at
December 31, 2008
|
|
22,792
|
|
|
|
|
|
22,792
|
|
Common stock, $5.00 par value; authorized
20,000,000 shares; issued: 5,800,929 shares at March 31, 2009 and
5,768,429 shares at December 31, 2008
|
|
29,005
|
|
|
|
|
|
29,005
|
|
Stock Warrants
|
|
2,307
|
|
|
|
|
|
2,307
|
|
Surplus
|
|
63,588
|
|
|
|
|
|
63,588
|
|
Retained earnings (d)
|
|
14,913
|
|
296
|
|
|
|
15,209
|
|
Accumulated other comprehensive loss (e)
|
|
(8,678
|
)
|
789
|
|
|
|
(7,889
|
)
|
Treasury stock; 10,484 shares at March 31,
2009 and 68,354 shares at December 31, 2008, at cost
|
|
(191
|
)
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
123,736
|
|
1,085
|
|
|
|
124,821
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
1,259,030
|
|
$
|
1,135
|
|
|
|
$
|
1,260,165
|
|
See Notes to
Consolidated Financial Statements.
(a) Reclassification
of Federal Home Loan Bank and American Central Bankers Bank stock from
Securities Available for Sale to Federal Home Loan Bank stock.
(b) Adjustment
to properly record the interest rate swaps at fair value. The Company adjusted
the forward yield curve used in its determination of the fair value of the
interest rate swaps to reflect a more appropriate fair value in the restated
financial statements.
(c) Adjustment
to properly record the junior subordinated debentures at fair value. The fair
value is estimated utilizing the income approach whereby the expected cash
flows over the remaining estimated life of the debentures are discounted using
the Companys estimated credit spread over the current fully indexed yield
based on an expectation of future interest rates derived from observed market
interest rate curves and volatilities.
The Company has adjusted the credit spreads used in its determination of
the fair value of its junior subordinated debt to reflect a more appropriate
fair value in the restated financial statements.
(d) Adjustment
related to the change in net income as a result of the correction of the errors
related to the measurement accounting for the fair value of certain junior
subordinated debentures and the accounting and measurement of interest rate
swaps that were improperly designated as cash flow hedges.
(e) Adjustment
to reverse the effects of improper accounting treatment for interest rate swaps
that were improperly accounted for as cash flow hedges. The change in fair
value of the interest rate swaps is included as a component of other income in
the restated consolidated statements of income.
The following is a summary
of the adjustments to our previously issued unaudited consolidated statements
of income for the three months ended March 31, 2009:
12
Table
of Contents
VIST FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Quarter Ended March 31, 2009
(Amounts in thousands, except per share data)
|
|
Three
Months Ended
|
|
|
|
March 31,
2009
|
|
|
|
|
|
March 31,
2009
|
|
|
|
As
Reported
|
|
Adjustments
|
|
Reclassifications
|
|
As
Restated
|
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
12,342
|
|
|
|
|
|
$
|
12,342
|
|
Interest on securities:
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
2,870
|
|
|
|
|
|
2,870
|
|
Tax-exempt
|
|
286
|
|
|
|
|
|
286
|
|
Dividend income (f)
|
|
39
|
|
|
|
(5
|
)
|
34
|
|
Interest on federal funds sold
|
|
3
|
|
|
|
|
|
3
|
|
Other interest income
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
15,541
|
|
|
|
(5
|
)
|
15,536
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
5,154
|
|
|
|
|
|
5,154
|
|
Interest on short-term borrowings
|
|
17
|
|
|
|
|
|
17
|
|
Interest on securities sold under agreements to
repurchase
|
|
1,063
|
|
|
|
|
|
1,063
|
|
Interest on long-term debt
|
|
505
|
|
|
|
|
|
505
|
|
Interest on junior subordinated debt
|
|
315
|
|
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
7,054
|
|
|
|
|
|
7,054
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
8,487
|
|
|
|
(5
|
)
|
8,482
|
|
Provision for loan losses
|
|
825
|
|
|
|
|
|
825
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after provision
for loan losses
|
|
7,662
|
|
|
|
(5
|
)
|
7,657
|
|
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
Customer service fees
|
|
658
|
|
|
|
|
|
658
|
|
Mortgage banking activities
|
|
267
|
|
|
|
|
|
267
|
|
Commissions and fees from insurance sales
|
|
2,958
|
|
|
|
|
|
2,958
|
|
Brokerage and investment advisory commissions and
fees
|
|
330
|
|
|
|
|
|
330
|
|
Earnings on investment in life insurance
|
|
76
|
|
|
|
|
|
76
|
|
Gains on sale of loans
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on sales of securities
|
|
159
|
|
|
|
|
|
159
|
|
Other Income (f), (g)
|
|
1,070
|
|
(118
|
)
|
5
|
|
957
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
5,518
|
|
(118
|
)
|
5
|
|
5,405
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
5,688
|
|
|
|
|
|
5,688
|
|
Occupancy expense
|
|
1,069
|
|
|
|
|
|
1,069
|
|
Furniture and equipment expense
|
|
606
|
|
|
|
|
|
606
|
|
Marketing and advertising expense
|
|
270
|
|
|
|
|
|
270
|
|
Amortization of identifiable intangible assets
|
|
171
|
|
|
|
|
|
171
|
|
Professional services
|
|
892
|
|
|
|
|
|
892
|
|
Outside processing
|
|
951
|
|
|
|
|
|
951
|
|
Insurance expense
|
|
444
|
|
|
|
|
|
444
|
|
Other expense
|
|
1,188
|
|
|
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
11,279
|
|
|
|
|
|
11,279
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
1,901
|
|
(118
|
)
|
|
|
1,783
|
|
Income taxes (h)
|
|
292
|
|
(40
|
)
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
1,609
|
|
(78
|
)
|
|
|
1,531
|
|
Preferred stock dividends and
discount accretion
|
|
(412
|
)
|
|
|
|
|
(412
|
)
|
Net income available to common
shareholders
|
|
$
|
1,197
|
|
$
|
(78
|
)
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding
|
|
5,735,968
|
|
|
|
|
|
5,735,968
|
|
Basic earnings per share
|
|
$
|
0.21
|
|
$
|
(0.01
|
)
|
|
|
$
|
0.20
|
|
Average shares outstanding for diluted earnings per
share
|
|
5,735,968
|
|
|
|
|
|
5,735,968
|
|
Diluted earnings per share
|
|
$
|
0.21
|
|
$
|
(0.01
|
)
|
|
|
$
|
0.20
|
|
Cash dividends declared per share
|
|
$
|
0.10
|
|
|
|
|
|
$
|
0.10
|
|
(f) Reclassification of dividend income on Federal Home Loan Bank stock
from interest income to other income.
(g) Adjustment
to record the change in the fair market value of the interest rate swaps, the
junior subordinated debentures and to reverse the effect of the treatment of
the interest rate swaps as cash flow hedges.
(h) Adjustment
to record the income tax effect of the change in the fair value of the cash
flow hedge and junior subordinated debentures.
13
Table of Contents
3.
Earnings Per
Common Share
Basic
earnings per common share is calculated by dividing net income, less Series A
Preferred Stock dividends and discount accretion, by the weighted average
number of shares of common stock outstanding.
Diluted earnings per 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.
Earnings
per common share for the respective periods indicated have been computed based
upon the following:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
|
|
2009
|
|
March 31,
|
|
|
|
(As Restated)
|
|
2008
|
|
|
|
(Dollar
amounts in thousands)
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,531
|
|
$
|
1,559
|
|
Less:
preferred stock dividends
|
|
(313
|
)
|
|
|
Less:
preferred stock discount accretion
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
1,119
|
|
$
|
1,559
|
|
|
|
|
|
|
|
Average
shares outstanding
|
|
5,735,968
|
|
5,673,403
|
|
Effect
of dilutive stock options
|
|
|
|
14,790
|
|
|
|
|
|
|
|
Average
number of shares used to calculate diluted earnings per share
|
|
5,735,968
|
|
5,688,193
|
|
14
Table of Contents
4.
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
|
|
|
|
March 31,
|
|
|
|
|
|
2009
|
|
March 31,
|
|
|
|
(As Restated)
|
|
2008
|
|
|
|
(Dollar
amounts in thousands)
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,531
|
|
$
|
1,559
|
|
|
|
|
|
|
|
Unrealized
holding gains on available for sale securities
|
|
76
|
|
351
|
|
Reclassification
adjustment for losses included in income
|
|
(159
|
)
|
(141
|
)
|
|
|
|
|
|
|
Net
unrealized (losses) gains
|
|
(83
|
)
|
210
|
|
Income
tax effect
|
|
28
|
|
(71
|
)
|
|
|
|
|
|
|
Other
comprehensive (loss) income
|
|
(55
|
)
|
139
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
1,476
|
|
$
|
1,698
|
|
5.
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 Companys 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 $13.6 million and $14.5
million of financial and performance standby letters of credit as of March 31,
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 March 31,
2009 and December 31, 2008 for guarantees under standby letters of credit
is not material.
15
Table of Contents
6.
Segment
Information
The
Companys 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 March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and other income from external sources (as restated)
|
|
$
|
9,155
|
|
$
|
866
|
|
$
|
3,520
|
|
$
|
346
|
|
$
|
13,887
|
|
Income
before income taxes (as restated)
|
|
533
|
|
495
|
|
698
|
|
57
|
|
1,783
|
|
Total
Assets (as restated)
|
|
1,164,206
|
|
77,129
|
|
17,590
|
|
1,240
|
|
1,260,165
|
|
Purchases
of premises and equipment
|
|
472
|
|
|
|
1
|
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income and other income from external sources
|
|
$
|
9,449
|
|
$
|
838
|
|
$
|
2,689
|
|
$
|
259
|
|
$
|
13,235
|
|
Income
(loss) before income taxes
|
|
1,084
|
|
299
|
|
370
|
|
(15
|
)
|
1,738
|
|
Total
Assets
|
|
1,058,447
|
|
65,122
|
|
17,966
|
|
1,288
|
|
1,142,823
|
|
Purchases
of premises and equipment
|
|
347
|
|
1
|
|
37
|
|
1
|
|
386
|
|
7.
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 stocks
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 participants termination
of employment or one year from the date of the participants death or
disability. As of March 31, 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 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 Companys
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 participants employment, or twelve months from the date
of the participants death or disability.
As of March 31, 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 Companys 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 Companys outstanding shares of common stock
during the preceding year or such lesser number as determined by the Companys
board of directors. The total number of
shares of common stock that
16
Table of Contents
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 Companys 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 March 31,
2009, no shares have been issued under the EIP.
The EIP will expire on April 17, 2017.
The
Companys total stock-based compensation expense for the three months ended March 31,
2009 and 2008 was approximately $20,000 and $77,000, respectively. Total stock-based compensation expense, net
of related tax effects, was approximately $13,000 and $51,000 for the three
months ended March 31, 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 months ended March 31, 2009 and 2008. Total unrecognized compensation costs related
to non-vested stock options at March 31, 2009 and 2008 were approximately
$326,000 and $521,000, respectively.
Stock
option transactions under the Plans for the three months ended March 31,
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
|
|
(4,550
|
)
|
22.85
|
|
|
|
|
|
Forfeited
|
|
(47,736
|
)
|
17.54
|
|
|
|
|
|
Outstanding
as of March 31, 2009
|
|
669,603
|
|
$
|
17.00
|
|
$
|
|
|
7.3
|
|
Exercisable
as of March 31, 2009
|
|
393,819
|
|
$
|
19.70
|
|
$
|
|
|
5.9
|
|
The
fair value of options granted for the three month period ended March 31,
2009 were estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
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
|
|
|
|
|
|
|
|
|
|
8.
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
17
Table
of Contents
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 March 31,
2009. Installments were paid as
requested.
9.
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 Companys 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.
This FSP is effective for
interim and annual reporting periods ending after June 15, 2009. The Company is currently reviewing the effect
this new pronouncement will have on its consolidated financial statements.
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. The Company is currently reviewing the effect
this new pronouncement will have on its consolidated financial statements.
In April 2009, the
FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
to require disclosures about fair value of financial instruments for interim
reporting periods of
18
Table
of Contents
publicly traded companies
as well as in annual financial statements.
This FSP also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized financial information at
interim reporting periods.
This FSP is effective for
interim and annual reporting periods ending after June 15, 2009. The Company is currently reviewing the effect
this new pronouncement will have on its consolidated financial statements.
10.
Fair Value Measurements and
Fair Value of Financial Instruments
Management uses its best
judgment in estimating the fair value of the Companys 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 Companys financial
instruments at March 31, 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 entitys 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 managements best estimate of fair value, where
the inputs into the determination of fair value require significant management
judgment or estimation.
19
Table
of Contents
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 March 31, 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*
|
|
$
|
1,283
|
|
$
|
237,137
|
|
$
|
|
|
$
|
238,420
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
(as restated):
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
$
|
|
|
$
|
|
|
$
|
19,050
|
|
$
|
19,050
|
|
Interest
rate swaps
|
|
|
|
|
|
653
|
|
653
|
|
|
|
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
|
|
$
|
1,675
|
|
$
|
224,990
|
|
$
|
|
|
$
|
226,665
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
$
|
|
|
$
|
|
|
$
|
18,260
|
|
$
|
18,260
|
|
Interest
rate swaps
|
|
|
|
|
|
1,325
|
|
1,325
|
|
*This
table has been adjusted to reflect the Companys reclassification of Federal
Home Loan Bank stock from securities available for sale to Federal Home Loan
Bank stock. See Note 2, Restatement of
Consolidated Financial Statements to the consolidated financial statements
included in this Form 10-Q.
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.
20
Table
of Contents
|
|
As of March 31, 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
|
|
$
|
|
|
$
|
2,841
|
|
$
|
|
|
$
|
2,841
|
|
Impaired
loans
|
|
|
|
|
|
5,515
|
|
5,515
|
|
OREO
|
|
|
|
|
|
6,661
|
|
6,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OREO
totaled $6.7 million at March 31, 2009, compared to $0.3 million at December 31,
2008.
As
a result of the change in fair value of the junior subordinated debt and
interest rate swaps, included in other non-interest income for the first three
months of 2009 and 2008, are pre-tax (losses) gains of approximately ($118,000)
and $0, 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 Companys assets and liabilities.
Due to a wide range of valuation techniques and the degree of
subjectivity used in making the estimates, comparisons between the Companys
disclosures and those of other companies may not be meaningful.
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 and Level 2
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 bonds
terms and conditions, among other things.
Federal Home Loan Bank Stock:
Federal law requires a
member institution of the Federal Home Loan Bank to hold stock of its district
FHLB according to a predetermined formula.
The Federal Home Loan Bank stock is carried at cost.
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.
21
Table of Contents
Impaired Loans:
The
Company generally values impaired loans that are accounted for under SFAS 114, Accounting
by creditors for impairment of a loan an amendment of FASB Statements No. 5 &
15, based on the fair value of the loans collateral. Loans are determined to be impaired when
management has utilized current information and economic events and judged that
it is probable that not all of the principal and interest due under the
contractual terms of the loan agreement will be collected. Impaired loans are
initially evaluated and revalued at the time the loan is identified as
impaired. Impaired loans are loans where
the current appraisal of the underlying collateral is less than the principal
balance of the loan and the loan is a non-accruing loan. 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 or based on the present value of estimated future cash flows if
repayment is not collateral dependent.
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. For the purposes of determining the fair
value of impaired loans that are collateral dependent, the company defines a
current appraisal and evaluation as those completed within 12 months and
performed by an independent third party.
Appraised and reported values may be discounted based on managements
historical knowledge, changes in market conditions from the time of valuation,
and/or managements expertise and knowledge of the client and clients
business.
As
of March 31, 2009, 97.3% of all impaired loans had current third party
appraisals or evaluations of their collateral to measure impairment. For these impaired loans, the bank takes
immediate action to determine the current value of collateral securing its
troubled loans. The remaining 2.7% of
impaired loans were in process of being evaluated at March 31, 2009. During the ongoing supervision of a troubled
loan, the Company performs a cash flow evaluation, obtains an appraisal update
or obtains a new appraisal. The Company
reviews all impaired loans on a quarterly basis to ensure that the market
values are reasonable and that no further deterioration has occurred. If the evaluation indicates that the market
value has deteriorated below the carrying value of the loan, either the entire
loan or the partial difference between the market value and principal balance
is charged-off unless there are material mitigating factors to the
contrary. If a loan is not charged down
reserves are allocated to reflect the estimated collateral shortfall. Loans that have been partially charged-off
are classified as non-performing loans for which none of the current loan terms
have been modified. During the first three months of 2009, there were no partial
loan charge-offs. In order for an
impaired loan not to have a specific valuation allowance it must be determined
by the Company through a current evaluation that there is sufficient underlying
collateral after appropriate discounts have been applied, that is in excess of
the carrying value.
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
on a nonrecurring 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.
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.
Junior Subordinated Debt:
The Company has elected
to record its junior subordinated debt at fair value. The Company recorded the fair value of its
junior subordinated debt utilizing Level 3 inputs, with unrealized gains and
losses reflected in other income in the consolidated statements of
operations. The fair value is estimated
utilizing the income approach whereby the expected cash flows over the
remaining estimated life of the debentures are discounted using the Companys
credit spread over the current fully indexed yield based
22
Table
of Contents
on an expectation of
future interest rates derived from observed market interest rate curves and
volatilities. The Companys credit
spread was calculated based on similar trust preferred securities issued within
the last twelve months.
Interest Rate Swap Agreements:
The Company has recorded
the fair value of its interest rate swaps utilizing Level 3 inputs, with
unrealized gains and losses reflected in other income in the consolidated
statements of operations. The fair value
measurement of the interest rate swaps is determined by netting the discounted
future fixed or variable cash payments and the discounted expected fixed or
variable cash receipts based on an expectation of future interest rates derived
from observed market interest rate curves and volatilities.
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.
Other-Than-Temporary-Impairment
Management evaluates
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.
11.
Derivative
Instruments
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 mandatory redeemable capital
debentures to variable interest rate obligations, decreasing the asset
sensitivity of its balance sheet by more closely matching the Companys
variable rate assets with variable rate liabilities. The Company considers the credit risk
inherent in the contracts to be negligible.
This swap has a notional amount equal to the outstanding principal
amount of the related trust preferred securities, together with the same
payment dates, maturity date and call provisions as the related trust preferred
securities.
Under
the swap, the Company pays interest at a variable rate equal to six month LIBOR
plus 5.25%, adjusted semiannually, and the Company receives a fixed rate equal
to the interest that the Company is obligated to pay on the related trust
preferred securities. Both the interest
rate swap and the related debt are recorded on the balance sheet at fair value
through adjustments to operations.
In
September 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 Companys 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. Entering
into interest rate derivatives exposes the Company to the risk of
counterparties failure to fulfill their legal obligations including, but not
limited to, amounts due under each derivative contract. Notional principal amounts are often used to
express the magnitude of these transactions, but the amounts due or payable are
much smaller. These interest rate swaps
are recorded on the balance sheet at fair value through adjustments to other
income in the consolidated results of operations.
23
Table
of Contents
Interest
rate caps are generally used to limit the exposure from the repricing and
maturity of liabilities and to limit the exposure created by other interest
rate swaps. In June 2003, the
Company purchased a six month LIBOR cap to create protection against rising
interest rates for the above mentioned $5 million interest rate swap.
The following table
details the fair values of the derivative instruments included in the
consolidated balance sheet for the period ended:
|
|
Liability Derivatives
|
|
|
|
March 31, 2009
|
|
|
|
(Dollar amounts in thousands)
|
|
Derivatives Not Designated as Hedging
Instruments under FASB 133:
|
|
Balance
Sheet
Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
Interest
rate swap contracts
|
|
Other
liabilities
|
|
$
|
653
|
|
Interest
rate cap
|
|
Other
liabilities
|
|
|
|
Total
derivatives
|
|
|
|
$
|
653
|
|
The following table
details the effect of the change in fair values of the derivative instruments
included in the consolidated statement of operations for the three months
ended:
|
|
|
|
Amount
of
Gain or (Loss)
Recognized
in
Income on
Derivative
|
|
Derivatives
Not Designated as Hedging
Instruments under FASB 133:
|
|
Location
of Gain or (Loss)
Recognized in Income on
Derivative
|
|
For
the Three
Months Ended
March 31,
2009
|
|
|
|
|
|
(Dollar
amounts in thousands)
|
|
|
|
|
|
|
|
Interest
rate swap contracts
|
|
Other income
|
|
$
|
672
|
|
Interest
rate cap
|
|
Other income
|
|
|
|
Total
|
|
|
|
$
|
672
|
|
12.
Loans
Total
loans, net of allowance for loan losses, rose slightly to $878.4 million, or
0.1% annualized, at March 31, 2009 from $878.2 million at December 31,
2008.
The
components of loans were as follows:
24
Table
of Contents
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
Residential
real estate - 1 to 4 family
|
|
$
|
181,743
|
|
$
|
185,866
|
|
Residential
real estate - multi family
|
|
33,778
|
|
34,869
|
|
Commercial
|
|
171,982
|
|
174,219
|
|
Commercial,
secured by real estate
|
|
320,026
|
|
326,442
|
|
Construction
|
|
92,503
|
|
89,556
|
|
Consumer
|
|
4,157
|
|
3,995
|
|
Home
equity lines of credit
|
|
83,189
|
|
72,137
|
|
Loans
|
|
887,378
|
|
887,084
|
|
|
|
|
|
|
|
Net
deferred loan fees
|
|
(788
|
)
|
(779
|
)
|
Allowance
for loan losses
|
|
(8,165
|
)
|
(8,124
|
)
|
Loans,
net of allowance for loan losses
|
|
$
|
878,425
|
|
$
|
878,181
|
|
Loans
secured by real estate (not including home equity lending products) decreased
$11.6 million, or 8.5% annualized, to $535.5 million at March 31, 2009
from $547.2 million at December 31, 2008.
This decrease is primarily due to a decrease in commercial real estate
loan originations and commercial real estate loans moved to real estate owned
included in other assets.
Total
commercial loans decreased to $492.0 million at March 31, 2009 from $500.7
million at December 31, 2008, a decrease of $8.7 million, or 6.9%
annualized. The decrease is due
primarily to a decrease in commercial real estate loans outstanding. There were no SBA loans sold during the
period.
Changes
in the allowance for loan losses were as follows:
|
|
As of and For The Period Ended
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands)
|
|
|
|
|
|
|
|
Balance,
beginning
|
|
$
|
8,124
|
|
$
|
7,264
|
|
Provision
for loan losses
|
|
825
|
|
4,835
|
|
Loans
charged-off
|
|
(809
|
)
|
(4,073
|
)
|
Recoveries
|
|
25
|
|
98
|
|
Balance,
ending
|
|
$
|
8,165
|
|
$
|
8,124
|
|
The
gross recorded investment in impaired loans not requiring an allowance for loan
losses was $1.1 million at March 31, 2009 and $3.2 million at December 31,
2008. The gross recorded investment in
impaired loans requiring an allowance for loan losses was $6.9 million at March 31,
2009 and $7.5 million at December 31, 2008, the related allowance for loan
losses associated with those loans was $1.4 million and 2.3 million,
respectively. For the periods ended March 31,
2009 and December 31, 2008, the average recorded investment in impaired
loans was $$8.7 million and $8.8 million, respectively. No interest income was recognized on impaired
loans for the three months ended March 31, 2009 and interest income of
$33,000 was recognized on impaired loans for the year ended December 31,
2008.
13.
Goodwill and
Other Intangible Assets
The changes in the carrying amount of goodwill as allocated to our
reporting units for the periods indicated were:
25
Table
of Contents
|
|
Banking and
|
|
|
|
Brokerage and
|
|
|
|
|
|
Financial
|
|
|
|
Investment
|
|
|
|
|
|
Services
|
|
Insurance
|
|
Services
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
$
|
27,768
|
|
$
|
10,400
|
|
$
|
1,021
|
|
$
|
39,189
|
|
Goodwill
acquired during the year 2008
|
|
|
|
223
|
|
|
|
223
|
|
Contingent
payments during the year 2008
|
|
|
|
320
|
|
|
|
320
|
|
Balance
as of December 31, 2008
|
|
27,768
|
|
10,943
|
|
1,021
|
|
39,732
|
|
Balance
as of March 31, 2009
|
|
$
|
27,768
|
|
$
|
10,943
|
|
$
|
1,021
|
|
$
|
39,732
|
|
On
September 1, 2008, the Company paid cash of $1.8 million for Fisher
Benefits Consulting, an insurance agency specializing in Group Employee
Benefits, located in Pottstown, Pennsylvania.
Fisher Benefits Consulting has become a part of VIST Insurance. As a result of the acquisition, VIST
Insurance continues to expand its retail and commercial insurance presence in
southeastern Pennsylvania counties. The
results of Fisher Benefits Consulting operations have been included in the
Companys consolidated financial statements since September 2, 2008.
Included
in the $1.8 million purchase price for Fisher Benefits Consulting was goodwill
of $0.2 million and identifiable intangible assets of $1.6 million. Contingent payments totaling $750,000, or
$250,000 for each of the first three years following the acquisition, will be
paid if certain predetermined revenue target ranges are met. These payments are expected to be added to
goodwill when paid. The contingent
payments could be higher or lower depending upon whether actual revenue earned
in each of the three years following the acquisition is less than or exceeds
the predetermined revenue goals.
In
accordance with the provisions of SFAS No. 142 Goodwill and Other Intangible
Assets, the Company amortizes other intangible assets over the estimated
remaining life of each respective asset.
Amortizable intangible assets were composed of the following:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
|
|
(Dollar amounts in thousands)
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
Purchase
of client accounts (20 year weighted average useful life)
|
|
$
|
4,805
|
|
$
|
1,051
|
|
$
|
4,805
|
|
$
|
992
|
|
Employment
contracts (7 year weighted average useful life)
|
|
1,135
|
|
1,011
|
|
1,135
|
|
968
|
|
Assets
under management (20 year weighted average useful life)
|
|
184
|
|
61
|
|
184
|
|
58
|
|
Trade
name (20 year weighted average useful life)
|
|
196
|
|
196
|
|
196
|
|
196
|
|
Core
deposit intangible (7 year weighted average useful life)
|
|
1,852
|
|
1,191
|
|
1,852
|
|
1,125
|
|
Total
|
|
$
|
8,172
|
|
$
|
3,510
|
|
$
|
8,172
|
|
$
|
3,339
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amortization Expense:
|
|
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2009
|
|
$
|
171
|
|
|
|
|
|
|
|
For
the year ended December 31, 2008
|
|
$
|
629
|
|
|
|
|
|
|
|
The
Company performs an annual goodwill impairment test in the fourth quarter each
year. The Company utilizes the following
framework to evaluate whether an interim goodwill impairment test is required,
given the occurrence of events or if circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. Examples of such events or
circumstances include:
·
a significant adverse change in legal
factors or in the business climate;
·
an adverse action or assessment
by a regulator;
·
unanticipated competition;
·
a loss of key personnel;
·
a more-likely-than-not
expectation that a reporting unit or a significant portion of a reporting unit
will be sold or otherwise disposed of;
·
the testing for
recoverability under SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assetsof a significant asset group within a reporting
unit; and
·
recognition of a goodwill
impairment loss in the financial statements of a subsidiary that is a component
of a reporting unit.
26
Table
of Contents
The
Company acknowledges that a decline in market capitalization may represent an
event or change in circumstances that would more likely than not reduce the
fair value of reporting unit below its carrying value. However, management does not place primary
emphasis on the Companys market capitalization for a number of reasons, not
the least of which is lack of liquidity of its common shares due to a lack of
consistent trading volume. This view
also considers that substantial value may result from the ability to leverage
certain synergies or control. Therefore,
managements valuation methodology for assessing annual (and evaluating
subsequent indicators of) impairment is performed at a detailed level as it
incorporates a more granular view of each reporting unit and the significant
valuation inputs.
Management
estimates fair value utilizing multiple methodologies which include discounted
cash flows, comparable companies and comparable transactions. Each valuation technique requires management
to make judgments about inputs and assumptions which form the basis for
financial projections of future operating performance and the corresponding
estimated cash flows. The analyses
performed require the use of objective and subjective inputs which include
market-price of non-distressed financial institutions, similar transaction multiples,
and required rates of return. Management
works closely in this process with third-party valuation professionals, who
assist in obtaining comparable market data and performing certain of the
calculations, based on information provided by management and assumptions
developed with management.
Given
that the level at which management performs its impairment testing for each
reporting unit is more granular than simply market capitalization, management
evaluates the underlying data and assumptions that comprise the most recent
goodwill impairment test for evidence of deterioration at a level which may
indicate the fair value of the reporting segment has meaningfully
declined. While the Companys stock
price continues to be influenced by the financial services sector as well as
our relative small size, management does not believe that there has been a
substantial change in the business climate relative to our valuation
analysis. To the contrary, the Company
believes the economy shows signs of stabilization.
Given
the timing of the completion of managements annual impairment test (January 2009
as of October 31, 2008) and the evaluation of the relevant inputs that
form the basis for managements estimate for the fair value of each reporting
unit, management concluded that there has not been significant deterioration in
the underlying inputs and assumptions which would lead it to conclude an
interim goodwill impairment test was required.
As
of the time of the annual goodwill impairment test, the Fair Value of all
units was in excess of the carrying amounts. Therefore, a second step test was
not required. The Companys stock, like
the stock of many other financial services companies, is trading below both
book value as well as tangible book value.
The Company believes that the current market value does not represent
the fair value of the Company when taken as a whole and in consideration of
other relevant factors.
27
Table of Contents
Item 2 -
Managements
Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting
Policies
Note 1 to the Companys
consolidated financial statements (included in Item 8 of the Form 10-K/A,
Amendment No.1, 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.
Restatement of
Consolidated Financial Statements
As indicated in Note 2 to
the Notes to Consolidated Financial Statements, the Company has restated its
financial statements for the quarter ended March 31, 2009. The discussion in this Item 2, Managements
Discussion and Analysis of Financial Condition and Results of Operations,
gives effect to the restatement of the Companys financial statements.
28
Table of Contents
Results of Operations
OVERVIEW
Net
income for the Company for the quarter ended March 31, 2009 was $1.53
million, a decrease of 1.8%, as compared to $1.56 million for the same period
in 2008. Basic and diluted earnings per
share for the first quarter of 2009 were $.20 and $.20, respectively, compared
to basic and diluted earnings per share of $.28 and $.27, respectively, for the
same period of 2008.
The
following are the key ratios for the Company as of:
|
|
As Of or For
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
Return
on average assets
|
|
0.50
|
%
|
0.05
|
%
|
Return
on average shareholders equity
|
|
4.99
|
%
|
0.54
|
%
|
Dividend
payout ratio
|
|
47.62
|
%
|
503.89
|
%
|
Average
shareholders equity to average assets
|
|
10.06
|
%
|
8.95
|
%
|
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 income and net
interest margin is on a fully taxable equivalent basis (FTE).
FTE
net interest income before the provision for loan losses for the three months
ended March 31, 2009 was $8.9 million, a decrease of approximately
$25,000, or 0.3%, compared to the $8.9 million reported for the same period in
2008. The FTE net interest margin
decreased to 3.20% for the first quarter of 2009 from 3.51% for the same period
in 2008.
The
following summarizes net interest margin information:
29
Table
of Contents
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
|
|
|
(As Restated)
|
|
2008
|
|
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
%
Rate
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
%
Rate
|
|
|
|
(Dollar amounts in thousands, except percentages)
|
|
Interest-Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
(1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
699,514
|
|
$
|
9,938
|
|
5.68
|
|
$
|
656,344
|
|
$
|
11,317
|
|
6.82
|
|
Mortgage
|
|
50,411
|
|
763
|
|
6.06
|
|
46,522
|
|
756
|
|
6.50
|
|
Consumer
|
|
139,792
|
|
1,883
|
|
5.46
|
|
126,922
|
|
2,228
|
|
7.06
|
|
Investments
(2) (3)
|
|
228,417
|
|
3,355
|
|
5.87
|
|
191,706
|
|
2,791
|
|
5.82
|
|
Federal
funds sold
|
|
6,626
|
|
3
|
|
0
|
|
|
|
|
|
|
|
Other
short-term investments
|
|
346
|
|
1
|
|
0.66
|
|
519
|
|
4
|
|
2.86
|
|
Total
interest-earning assets
|
|
$
|
1,125,106
|
|
$
|
15,943
|
|
5.67
|
|
$
|
1,022,013
|
|
$
|
17,096
|
|
6.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$
|
320,118
|
|
$
|
1,110
|
|
1.40
|
|
$
|
316,145
|
|
$
|
1,879
|
|
2.39
|
|
Certificates
of deposit
|
|
469,016
|
|
4,044
|
|
3.49
|
|
316,774
|
|
3,624
|
|
4.60
|
|
Securities
sold under agreement to repurchase
|
|
119,503
|
|
1,065
|
|
3.56
|
|
111,150
|
|
954
|
|
3.39
|
|
Short-term
borrowings
|
|
9,914
|
|
17
|
|
0.67
|
|
84,317
|
|
721
|
|
3.38
|
|
Long-term
borrowings
|
|
59,167
|
|
504
|
|
3.41
|
|
59,396
|
|
599
|
|
3.99
|
|
Junior
subordinated debt
|
|
18,173
|
|
314
|
|
7.02
|
|
20,230
|
|
405
|
|
8.06
|
|
Total
interest-bearing liabilities
|
|
995,891
|
|
7,054
|
|
2.87
|
|
908,012
|
|
8,182
|
|
3.62
|
|
Noninterest-bearing
deposits
|
|
105,444
|
|
|
|
|
|
103,299
|
|
|
|
|
|
Total
cost of funds
|
|
$
|
1,101,335
|
|
7,054
|
|
2.59
|
|
$
|
1,011,311
|
|
8,182
|
|
3.25
|
|
Net
interest margin (fully taxable equivalent)
|
|
|
|
$
|
8,889
|
|
3.20
|
|
|
|
$
|
8,914
|
|
3.51
|
|
(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%.
|
|
|
(3)
|
This table has been
adjusted to reflect the Companys reclassification of Federal Home Loan Bank
stock from securities available for sale to Federal Home Loan Bank stock. See
Note 2, Restatement of Consolidated Financial Statements to the
consolidated financial statements included in this Form 10-Q.
|
Average
interest-earning assets for the three months ended March 31, 2009 were
$1.13 billion, a $103.1 million, or 10.1%, increase over average
interest-earning assets of $1.02 billion for the same period in 2008. The yield on average interest-earning assets
decreased by 95 basis points to 5.67% for the first quarter of 2009, compared
to 6.62% for the same period in 2008.
Average
interest-bearing liabilities for the three months ended March 31, 2009
were $995.9 million, an $87.9 million, or 9.7%, increase over average
interest-bearing liabilities of $908.0 million for the same period in
2008. In addition, average
noninterest-bearing deposits increased to $105.4 million for the three months
ended March 31, 2009, from $103.3 million for the same time period of
2008. The interest rate on total
interest-bearing liabilities decreased by 75 basis points to 2.87% for the
three months ended March 31, 2009, compared to 3.62% for the same period
in 2008.
For
the three months ended March 31, 2009, total FTE interest income decreased
6.7% to $15.9 million compared to $17.1 million for the same period in
2008. The decrease in total interest
income for the three months ended March 31, 2009 was primarily the result
of a decrease in the interest rates on average outstanding commercial, 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
30
Table
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resulted in a decrease in
the prime rate from 5.25% at March 31, 2008 to 3.25% at March 31,
2009. Average outstanding commercial loan balances increased by $43.2 million,
or 6.6% from March 31, 2008 to March 31, 2009. Additionally, average outstanding total
investment securities increased by $36.7 million or 19.1% from March 31,
2008 to March 31, 2009. Earning
asset yields on average outstanding investment securities increased slightly
from 5.8% at March 31, 2008 to 5.9% at March 31, 2009.
For
the three months ended March 31, 2009, total interest expense decreased
13.8% to $7.1 million compared to $8.2 million for the same period in
2008. The decrease in total interest
expense for the three months ended March 31, 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 3.62% at March 31,
2008 to 2.87% at March 31, 2009.
Total cost of funds decreased to 2.59% in 2009 from 3.25% in 2008. The decrease in total average
interest-bearing deposit rates was the result of managements disciplined
approach to deposit pricing in response to the decrease in short-term interest
rates. Total average interest-bearing
deposits increased $156.2 million or 24.7% from March 31, 2008 to March 31,
2009 due primarily to growth in time deposits.
The average rate paid on short-term borrowings and securities sold under
agreements to repurchase increased from 3.39% at March 31, 2008 to 3.56%
at March 31, 2009. The decrease in
short-term borrowings and securities sold under agreements to repurchase rates
was the result of decreases in targeted short term interest rates, as
established by the FRB. Average
short-term borrowings and securities sold under agreements to repurchase
decreased $66.1 million or 33.8% from March 31, 2008 to March 31,
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 March 31, 2009 was
$825,000 compared to $410,000 for the same period of 2008. Net charge-offs to average loans was 0.36%
annualized for the three months ended March 31, 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 March 31, 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 March 31, 2009 and December 31, 2008 was .92%
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 March 31, 2009 totaled $5.4
million, an increase of $0.7 million, or 15.2%, from other income of $4.7
million for the same period in 2008.
Revenue
from customer service fees increased 6.1% to $658,000 for the first three
months of 2009 as compared to $620,000 for the same period in 2008. The increase in customer service fees for the
comparative three months periods is primarily due to an increase in commercial
account analysis fees, uncollected funds charges and non-sufficient funds
charges.
Revenue from mortgage banking activities decreased
17.3% to $267,000 for the first three months of 2009 as compared to $323,000
for the same period in 2008. The
decrease in mortgage banking activities for the comparative three month periods
is primarily due to a decline 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 10.2% to $3.0 million
for the first three months of 2009 as compared to $2.7 million for the same
period in 2008. The increase in
commissions and fees from insurance sales for the comparative three month
periods is mainly attributed to an increase in commission income on group
insurance products offered through VIST Insurance, LLC, a wholly owned
subsidiary of the Company.
Revenue
from brokerage and investment advisory commissions and fees increased 39.2% to
$330,000 in the first three months of 2009 as compared to $237,000 for the same
period in 2008. The increase in
brokerage and investment advisory commissions and fees for the comparative
three month periods is due primarily to an increase in investment advisory service
activity offered through VIST Capital Management, LLC, a wholly owned
subsidiary of the Company.
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Table of Contents
Revenue
from earnings on investment in life insurance decreased 54.8% to $76,000 in the
first three months of 2009 as compared to $168,000 for the same period in 2008. The decrease in earnings on investment in
life insurance for the comparative three month periods is due primarily to
decreased earnings credited on the Companys separate investment account, bank
owned life insurance (BOLI).
Other
income, including gain on sale of loans, increased 84.4% to $1.0 million for
the first three months of 2009 as compared to $519,000 for the same period in
2008. The increase in other income for
the comparative three month periods is due primarily to a settlement of a previously
accrued contingent payment and an increase in network interchange income.
Net
securities gains were $159,000 for the three months ended March 31, 2009
compared to net securities gains of $141,000 for the same period in 2008. The net securities gains for the first three
months of 2009 are primarily from the planned sale of existing agency
mortgage-backed securities. For the
three months ended March 31, 2008, net security gains were due primarily
to the mandatory redemption of VISA Inc. common stock acquired as a result of
VISAs initial public offering.
Other Non-Interest Expense
Total
other expense for the three months ended March 31, 2009 totaled $11.3
million, an increase of $0.2 million, or 1.7%, over total other expense of
$11.1 million for the same period in 2008.
Salaries
and benefits decreased slightly remaining at $5.7 million for the three months
ended March 31, 2009 similar to the $5.7 million for the three months
ended March 31, 2008. Included in
salaries and benefits for the three months ended March 31, 2009 and March 31,
2008 were pre-tax stock-based compensation costs of $20,000 and $77,000,
respectively. Also included in salaries
and benefits for the three months ended March 31, 2009 were total
commissions paid of $384,000 on mortgage origination activity through VIST
Mortgage, insurance sales activity through VIST Insurance and investment
advisory sales through VIST Capital Management compared to $389,000 for the
same period in 2008. Included in
salaries and benefits expense for the three months ended March 31, 2008
are severance costs of approximately $51,000 relating to the outsourcing of the
Companys internal audit function and staff reductions in the mortgage banking
operation. Full-time equivalent (FTE)
employees decreased to 300 at March 31, 2009 from 316 at March 31,
2008.
Occupancy
expense and furniture and equipment expense decreased 7.0% to $1.7 million for
the first three months of 2009 as compared to $1.8 million for the same period
in 2008. The decrease in occupancy
expense and furniture and equipment expense for the comparative three month
periods is due primarily to a decrease in building lease expense, equipment
repairs expense, software maintenance expense, and equipment depreciation.
Marketing
and advertising expense decreased 58.9% to $270,000 for the first three months
of 2009 as compared to $657,000 for the same period in 2008. The decrease in marketing and advertising
expense is due primarily to a reduction in marketing costs associated with
market research, media space, media production and special events.
Professional
services expense increased 66.7% to $892,000 for the first three months of 2009
as compared to $535,000 for the same period in 2008. The increase in professional services expense
is due primarily to increases in legal fees associated with a settlement of a
previously accrued contingent payment, outsourcing of the Companys internal
audit function and other general Company business.
Outside
processing expense increased 16.0% to $951,000 for the first three months of
2009 as compared to $820,000 for the same period in 2008. The increase in outside processing expense is
due primarily to costs incurred for computer services, network fees, data-line
charges and internet banking expenses.
Insurance
expense increased 63.8% to $444,000 for the first three months of 2009 as
compared to $271,000 for the same period in 2008. The increase in insurance expense is due
primarily to higher FDIC deposit insurance premiums resulting from the
implementation of the new FDIC risk-related premium assessment.
Other
expense increased 5.8% to $1.2 million for the first three months of 2009 as
compared to $1.1 million for the same period in 2008. The increase in other expense is primarily
due primarily to an increase in foreclosure and other real estate expense.
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Table
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Income Taxes
Income
tax expense increased to $252,000 for the first three months of 2009 as
compared to $179,000 for the same period in 2008. The effective income tax rate for the Company
for the first three months ended March 31, 2009 was 14.1% compared to
10.3% for the same period of 2008. The
effective income tax rate increased primarily due to an increase in state tax
and tax exempt income remaining relatively flat while net income before income
taxes increased. Included in income tax
expense for the three months ended March 31, 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 March 31, 2009 were $1.26 billion, an
increase of approximately $34.1 million, or 11.1% annualized, from $1.23
billion at December 31, 2008.
Mortgage Loans Held for
Sale
Mortgage
loans held for sale increased $558,000, or 97.8% annualized, to $2.8 million at
March 31, 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.
Securities Available for Sale
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. Factors that may be
indicative of impairment include, but are not limited to, the following:
·
Fair
value below cost and the length of time
·
Adverse
condition specific to a particular investment
·
Rating
agency activities (e.g., downgrade)
·
Financial
condition of an issuer
·
Dividend
activities
·
Suspension
of trading
·
Management
intent
·
Changes
in tax laws or other policies
·
Subsequent
market value changes
·
Economic
or industry forecasts
Other-than-temporary
impairment means management believes the securitys impairment is due to
factors that could include its inability to pay interest or dividends, its
potential for default, and/or other factors.
When a held to maturity or available for sale debt security is assessed
for other-than-temporary impairment, management has to first consider (a) whether
the Company intends to sell the security, and (b) whether it is more
likely than not that the Company will be required to sell the security prior to
recovery of its amortized cost basis. If
one of these circumstances applies to a security, an other-than-temporary
impairment loss is recognized in the statement of operations equal to the full
amount of the decline in fair value below amortized cost. If neither of these circumstances applies to
a security, but the Company does not expect to recover the entire amortized
cost basis, an other-than-temporary impairment loss has occurred that must be
separated into two categories: (a) the amount related to credit loss, and (b) the
amount related to other factors. In
assessing the level of other-than-temporary impairment attributable to credit
loss, management compares the present value of cash flows expected to be collected
with the amortized cost basis of the security.
The portion of the total other-than-temporary impairment related to
credit loss is recognized in earnings (as the difference between the fair value
and the present value of the estimated cash flows), while the amount related to
other factors is recognized in other comprehensive income. The total other-than-temporary impairment
loss is presented in the statement of operations, less the portion recognized
in other comprehensive income. When a
debt security becomes other-than-temporarily impaired, its amortized cost basis
is reduced to reflect the portion of the total impairment related to credit
loss.
33
Table of Contents
Investment
securities available for sale increased $11.8 million, or 20.7% annualized, to
$238.4 million at March 31, 2009 from $226.7 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 Companys public funds and structured borrowings.
Loans
Total
loans, net of allowance for loan losses, rose slightly to $878.4 million, or
0.1% annualized, at March 31, 2009 from $878.2 million at December 31,
2008.
The
components of loans were as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
Residential
real estate - 1 to 4 family
|
|
$
|
181,743
|
|
$
|
185,866
|
|
Residential
real estate - multi family
|
|
33,778
|
|
34,869
|
|
Commercial
|
|
171,982
|
|
174,219
|
|
Commercial,
secured by real estate
|
|
320,026
|
|
326,442
|
|
Construction
|
|
92,503
|
|
89,556
|
|
Consumer
|
|
4,157
|
|
3,995
|
|
Home
equity lines of credit
|
|
83,189
|
|
72,137
|
|
Loans
|
|
887,378
|
|
887,084
|
|
|
|
|
|
|
|
Net
deferred loan fees
|
|
(788
|
)
|
(779
|
)
|
Allowance
for loan losses
|
|
(8,165
|
)
|
(8,124
|
)
|
Loans,
net of allowance for loan losses
|
|
$
|
878,425
|
|
$
|
878,181
|
|
Loans
secured by real estate (not including home equity lending products) decreased
$11.6 million, or 8.5% annualized, to $535.5 million at March 31, 2009
from $547.2 million at December 31, 2008.
This decrease is primarily due to a decrease in commercial real estate
loan originations and commercial real estate loans moved to real estate owned
included in other assets.
Total
commercial loans decreased to $492.0 million at March 31, 2009 from $500.7
million at December 31, 2008, a decrease of $8.7 million, or 6.9%
annualized. The decrease is due
primarily to a decrease in commercial real estate loans outstanding. There were no SBA loans sold during the
period.
The
gross recorded investment in impaired loans not requiring an allowance for loan
losses was $1.1 million at March 31, 2009 and $3.2 million at December 31,
2008. The gross recorded investment in
impaired loans requiring an allowance for loan losses was $6.9 million at March 31,
2009 and $7.5 million at December 31, 2008, the related allowance for loan
losses associated with those loans was $1.4 million and 2.3 million,
respectively. For the periods ended March 31,
2009 and December 31, 2008, the average recorded investment in impaired
loans was $8.7 million and $8.8 million, respectively. No interest income was recognized on impaired
loans for the three months ended March 31, 2009 and interest income of
$33,000 was recognized on impaired loans for the year ended December 31,
2008.
Allowance for Loan Losses
The
allowance for loan losses at March 31, 2009 was $8.2 million compared to
$8.1 million at December 31, 2008.
The allowance at March 31, 2009 was 0.92% of outstanding loans
compared to 0.92% of outstanding loans at December 31, 2008. The provision for loan losses for the three
months ended March 31, 2009 was $825,000 compared to $410,000 for the same
period in 2008. The increase in the
provision is due primarily to an increase in outstanding loans and the result
of managements evaluation and classification of the credit quality of the loan
portfolio utilizing a qualitative and quantitative internal loan review
process. At March 31, 2009, total
non-performing loans were $8.6 million or 1.0% of total loans compared to $10.8
million or 1.2% of total loans at December 31, 2008. The $2.2 million decrease in non-performing
loans from December 31, 2008 to March 31, 2009, was due primarily to
three commercial real estate loans totaling approximately $6.0 million transferred
to other real estate owned offset by net additions to non-performing loans of
approximately $4.0 million. At March 31,
2009, $4.4 million in commercial properties transferred to other real estate
34
Table
of Contents
owned were under contract to
sell. For the three months ended March 31,
2009, net charge-offs to average loans was 0.36% annualized as compared to
0.46% for the three months ended December 31, 2008.
The
allowance for loan losses is an amount that management believes to be adequate
to absorb probable 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
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 March 31, 2009 was adequate to absorb probable credit losses inherent
in the portfolio at that date.
The
following table shows the activity in the Companys allowance for loan losses:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
|
|
|
|
|
|
Balance
of allowance for loan losses, beginning of period
|
|
$
|
8,124
|
|
$
|
7,264
|
|
Loans
charged-off:
|
|
|
|
|
|
Commercial,
financial and agricultural
|
|
(739
|
)
|
(384
|
)
|
Real
estate mortgage
|
|
|
|
(105
|
)
|
Consumer
|
|
(70
|
)
|
(13
|
)
|
Total
loans charged-off
|
|
(809
|
)
|
(502
|
)
|
Recoveries
of loans previously charged-off:
|
|
|
|
|
|
Commercial,
financial and agricultural
|
|
11
|
|
2
|
|
Real
estate mortgage
|
|
|
|
|
|
Consumer
|
|
14
|
|
7
|
|
Total
recoveries
|
|
25
|
|
9
|
|
Net
loans (charged-off) recoveries
|
|
(784
|
)
|
(493
|
)
|
Provision
for loan losses
|
|
825
|
|
410
|
|
Balance,
end of period
|
|
$
|
8,165
|
|
$
|
7,181
|
|
|
|
|
|
|
|
Net
charge-offs to average loans (annualized)
|
|
0.36
|
%
|
0.24
|
%
|
Allowance
for loan losses to loans outstanding
|
|
0.92
|
%
|
0.87
|
%
|
Loans
outstanding at end of period (net of unearned income)
|
|
$
|
886,590
|
|
$
|
828,065
|
|
Average
balance of loans outstanding during the period
|
|
$
|
886,482
|
|
$
|
827,730
|
|
The
following table summarizes the Companys non-performing assets:
35
Table
of Contents
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
Non-accrual
loans:
|
|
|
|
|
|
Real
estate
|
|
$
|
7,290
|
|
$
|
2,947
|
|
Consumer
|
|
|
|
459
|
|
Commercial,
financial and agricultural
|
|
750
|
|
7,298
|
|
Total
|
|
8,040
|
|
10,704
|
|
|
|
|
|
|
|
Loans
past due 90 days or more and still accruing:
|
|
|
|
|
|
Real
estate
|
|
557
|
|
28
|
|
Consumer
|
|
6
|
|
|
|
Commercial,
financial and agricultural
|
|
4
|
|
112
|
|
Total
|
|
567
|
|
140
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
8,607
|
|
10,844
|
|
Other
real estate owned
|
|
6,661
|
|
263
|
|
Total
non-performing assets
|
|
$
|
15,268
|
|
$
|
11,107
|
|
|
|
|
|
|
|
Troubled
debt restructurings
|
|
$
|
285
|
|
$
|
285
|
|
|
|
|
|
|
|
Non-performing loans to loans outstanding at end of
period (net of unearned income)
|
|
0.97
|
%
|
1.22
|
%
|
Non-performing assets to loans outstanding at end
of period (net of unearned income) plus OREO
|
|
1.71
|
%
|
1.25
|
%
|
Loan Policy and Procedure
The
Banks loan policies and procedures have been approved by the Board of
Directors, based on the recommendation of the Banks President, Chief Lending
Officer, Chief Credit Officer, and the Risk Management Officer, who
collectively establish and monitor credit policy issues. Application of the loan policy is the direct
responsibility of those who participate either directly or administratively in
the lending function.
The
Banks Relationship Managers originate loan requests through a variety of
sources which include the Banks existing customer base, referrals from
directors and various networking sources (accountants, attorneys, and
realtors), and market presence. Over the
past several years, the Banks Relationship Managers have been significantly
increased through (1) the hiring of experienced commercial lenders in the
Banks geographic markets, (2) the Banks continued participation in
community and civic events, (3) strong networking efforts, (4) local
decision making, and (5) consolidation and other changes which are
occurring with respect to other local financial institutions.
The
Banks Relationship Managers have a combined lending authority up to
$1,000,000. Loans over $1,000,000 and up
to $2,000,000 require the additional approval of the Chief Lending Officer,
Chief Credit Officer and/or the Bank President. Loans in excess of $2,000,000
are presented to the Banks Credit Committee, comprised of the Chief Lending
Officer, Chief Credit Officer, Chief Credit Officer (non-voting), and selected
market Executives. The Credit Committee
can approve loans up to $4,500,000 and recommend loans to the Executive Loan
Committee for approval up to the Banks legal lending limit of approximately
$14,460,000. The Executive Loan
Committee is composed of the Bank President, the Chief Lending Officer, the
Chief Credit Officer, the Chief Financial Officer, the Chief Credit Officer
(non-voting member) and selected Board members.
The Bank has established an in-house lending limit of 80% of its legal
lending limit and, at March 31, 2009, the Bank has no loan relationships
in excess of its in-house limit.
Through
the Chief Credit Officer and the Credit Committee, the Bank has successfully
implemented individual, joint, and committee level approval procedures which
have monitored and solidified credit quality as well as provided lenders with a
process that is responsive to customer needs.
The
Bank manages credit risk in the loan portfolio through adherence to consistent
standards, guidelines, and limitations established by the credit policy. The Banks credit department, along with the
Relationship Managers, analyzes the financial statements of the borrower,
collateral values, loan structure, and economic conditions, to then make a
recommendation to the appropriate approval authority. Commercial loans generally consist of real
estate secured loans, lines of credit, term, and equipment loans. The Banks underwriting policies impose
strict collateral requirements and normally will require the guaranty of the
principals. For requests that qualify,
the Bank will use Small Business Administration guarantees to improve the
credit quality and support local small business.
36
Table of Contents
The
Banks written loan policies are continually evaluated and updated as necessary
to reflect changes in the marketplace.
Annually, credit loan policies are approved by the Banks Board of
Directors thus providing Board oversight.
These policies require specified underwriting, loan documentation and
credit analysis standards to be met prior to funding.
A
credit loan committee comprised of senior management approves commercial and
consumer loans with total loan exposures in excess of $2 million. The executive loan committee comprised of
senior management and 5 independent members from the Board of Directors
approves commercial and consumer loans with total exposures in excess of $4.5
million up to the Banks legal lending limit.
One of the affirmative votes on both the credit and/or executive loan
committee must be either the Chief Credit Officer or the Chief Lending Officer
in order to ensure that proper standards are maintained.
Individual
joint lending authority is granted based on the level of experience of the
individual for commercial loan exposures under $2 million. Higher risk credits (as determined by
internal loan ratings) and unsecured facilities (in excess of $100,000) require
the signature of an officer with more credit experience.
One
of the key components of the Banks commercial loan policy is loan to
value. The following guidelines serve as
the maximum loan to value ratios which the Bank would normally consider for new
loan requests. Generally, the Bank will use the lower of cost or market when
determining a loan to value ratio (except for investment securities). The values are not appropriate in all cases,
and Bank lending personnel, pursuant to their responsibility to protect the
Banks interest, seek as much collateral as practical.
Commercial
Real Estate
|
|
|
|
a) Unapproved land (raw land)
|
|
50
|
%
|
b) Approved but Unimproved land
|
|
65
|
%
|
c) Approved and Improved land
|
|
75
|
%
|
d) Improved Real Estate
|
|
80
|
%
|
|
|
|
|
Investments
|
|
|
|
a) Stocks listed on a nationally recognized
exchange Stock value should be greater than $10.
|
|
75
|
%
|
b) Bonds, Bills, Notes
|
|
|
|
c) US Govt obligations (fully guaranteed)
|
|
95
|
%
|
d) State, county, & municipal general
obligations rated BBB or higher
|
|
varies: 65 - 80
|
%
|
Corporate
obligations rated BBB or higher
|
|
varies: 65 - 80
|
%
|
|
|
|
|
Other
Assets
|
|
|
|
a) Accounts Receivable (eligible)
|
|
80
|
%
|
b) Inventory (raw material and finished goods)
|
|
50
|
%
|
c) Equipment (new)
|
|
80
|
%
|
d) Equipment (purchase money used)
|
|
70
|
%
|
e) Cash or cash equivalents
|
|
100
|
%
|
Exception
reporting is presented to the audit committee on a quarterly basis to ensure
that the Bank remains in compliance with the FDIC limits on exceeding
supervisory loan to value guidelines established for real estate secured
transactions.
Generally,
when evaluating a commercial loan request, the Bank will require 3 years of
financial information on the borrower and any guarantor. The Bank has established underwriting
standards that are expected to be maintained by all lending personnel. These requirements include loans being
evaluated and underwritten at fully indexed rates. Larger loan exposures are typically analyzed
by credit personnel that are independent from the sales personnel.
The
Bank has not underwritten any hybrid loans or sub-prime loans. Loans that are generally considered to be
sub-prime are loans where the borrower has a FICO score below 640 and shows
data on their credit reports associated with higher default rates, limited debt
experience, excessive debt, a history of missed payments, failures to pay
debts, and recorded bankruptcies.
37
Table of Contents
All
loan closings, loan funding and appraisal ordering and review involve personnel
that are independent from the sales function to ensure that bank standards and
requirements are met prior to disbursement.
Premises and Equipment
Components
of premises and equipment were as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
|
|
|
|
|
|
Land
and land improvements
|
|
$
|
263
|
|
$
|
263
|
|
Buildings
|
|
873
|
|
873
|
|
Leasehold
improvements
|
|
3,913
|
|
3,910
|
|
Furniture
and equipment
|
|
11,664
|
|
11,567
|
|
|
|
16,713
|
|
16,613
|
|
Less:
accumulated depreciation
|
|
10,028
|
|
10,022
|
|
Premises
and equipment, net
|
|
$
|
6,685
|
|
$
|
6,591
|
|
Deposits
Total
deposits at March 31, 2009 were $930.7 million compared to $850.6 million
at December 31, 2008, an increase of $80.1 million, or 37.6% annualized.
The
components of deposits were as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
|
|
|
|
|
|
Demand,
non-interest bearing
|
|
$
|
106,510
|
|
$
|
108,645
|
|
Demand,
interest bearing
|
|
248,021
|
|
231,504
|
|
Savings
|
|
72,413
|
|
75,706
|
|
Time,
$100,000 and over
|
|
261,405
|
|
195,812
|
|
Time,
other
|
|
242,313
|
|
238,933
|
|
Total
deposits
|
|
$
|
930,662
|
|
$
|
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. Management continues to
promote these types of deposits through a disciplined pricing strategy as a
means of managing the Companys overall cost of funds, as well as, managements
continuing emphasis on commercial and retail marketing programs and customer
service.
Borrowings
Total
debt decreased by $45.5 million, or 75.2% annualized, to $196.3 million at March 31,
2009 from $241.8 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 $80.1 to
$930.7 million at March 31, 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. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet.
38
Table
of Contents
The
Banks 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 Companys financial instrument
commitments is as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
Commitments
to extend credit:
|
|
|
|
|
|
Loan
origination committments
|
|
$
|
53,122
|
|
$
|
59,093
|
|
Unused
home equity lines of credit
|
|
46,188
|
|
48,919
|
|
Unused
business lines of credit
|
|
150,120
|
|
138,181
|
|
Total
commitments to extend credit
|
|
$
|
249,430
|
|
$
|
246,193
|
|
Standby
letters of credit
|
|
$
|
13,620
|
|
$
|
14,479
|
|
Capital
Total
shareholders equity increased $1.2 million, or 3.9% annualized, to $124.8
million at March 31, 2009 from $123.6 million at December 31,
2008. The increase is the net result of
net income for the period of $1.5 million less common stock dividends declared
of $573,000, preferred stock dividends declared of $403,000, proceeds of
$248,000 from the issuance of shares of common stock under the Companys
employee benefit and director compensation plans, the reissuance of treasury
stock of $424,000 primarily in connection with earn-outs of contingent
consideration to principals resulting from the Companys acquisition of VIST
Insurance, and stock-based compensation costs of $20,000.
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 Companys 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 Companys
capital, resources, or liquidity if they were implemented, nor is the Company
under any agreements with any regulatory authorities.
The
adequacy of the Companys capital is reviewed on an ongoing basis with regard
to size, composition and quality of the Companys 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 March 31, 2009 was
8.95% compared to 9.07% at December 31, 2008. This decrease is primarily the result of an
increase in average total assets. For
the three months ended March 31, 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 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 Companys 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 March 31, 2009. Recently, the Federal Reserve extended this
transition
39
Table
of Contents
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 March 31,
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 March 31, 2009 and December 31, 2008,
the Companys 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 Companys 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
Companys primary bank regulator and Treasury.
Under FAQs (Frequently Asked Questions) issued recently by Treasury,
participants in the Capital Purchase Program desiring to repay part of an
investment by Treasury must repay a minimum of 25% of the issue price of the
preferred stock.
The
following table sets forth the Companys risk-based capital amounts and ratios.
|
|
March 31,
|
|
|
|
|
|
2009
|
|
December 31,
|
|
|
|
(As Restated)
|
|
2008
|
|
|
|
(Dollar
amounts in thousands
)
|
|
|
|
|
|
|
|
Tier
I
|
|
|
|
|
|
Common
shareholders equity excluding unrealized gains (losses) on securities
|
|
$
|
124,821
|
|
$
|
123,629
|
|
Disallowed
intangible assets
|
|
(44,193
|
)
|
(44,347
|
)
|
Junior
subordinated debt
|
|
18,900
|
|
18,110
|
|
Tier
II
|
|
|
|
|
|
Allowable
portion of allowance for loan losses
|
|
8,165
|
|
8,124
|
|
Unrealized
losses on available for sale equity securities
|
|
7,022
|
|
7,330
|
|
Total
risk-based capital
|
|
$
|
114,715
|
|
$
|
112,846
|
|
Risk
adjusted assets (including off-balance sheet exposures)
|
|
$
|
904,179
|
|
$
|
883,949
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
8.95
|
%
|
9.07
|
%
|
Tier
I risk-based capital ratio
|
|
11.78
|
%
|
11.85
|
%
|
Total
risk-based capital ratio
|
|
12.69
|
%
|
12.77
|
%
|
The
Company is not aware of any pending recommendations by regulatory authorities
that would have a material impact on the Companys 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 three 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 six month LIBOR plus 5.25%. In September 2008, the Company entered
into an interest rate
40
Table of Contents
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%. Interest began accruing on the Leesport Capital
Trust II swap in 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%. Interest began
accruing on the Madison Statutory Trust I swap in 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.
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 Banks management believes that liquidity is being
maintained at an adequate level.
At
March 31, 2009, the Company had a total of $196.3 million, or 15.6%, of
total assets in borrowed funds. These
borrowings included $127.2 million of repurchase agreements, $50 million of
term borrowings with the Federal Home Loan Bank, and $19.0 million in junior
subordinated debt. The FHLB borrowings
have final maturities ranging from May 2009 through January 2011 at
interest rates ranging from 3.45% to 4.28%.
At March 31, 2009, the Company had a maximum borrowing capacity
with the Federal Home Loan Bank of approximately $238.3 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 Companys variable rate assets with variable
rate liabilities. The Company considers
the credit risk inherent in the contracts to be negligible.
The interest rate swap is recorded on the balance sheet at fair value
through adjustments to other income in the consolidated results of operations
(see note 11 of the consolidated financial statements).
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 Companys 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.
These interest rate swaps are recorded on the balance
sheet at fair value through adjustments to other income in the consolidated
results of operations (see note 11 of the consolidated financial statements).
41
Table of Contents
Item
3 - Quantitative and Qualitative Disclosures about Market Risk
There
have been no material changes in the Companys assessment of its sensitivity to
market risk since its presentation in the Annual Report on Form 10-K/A,
Amendment No. 1, for the year ended December 31, 2008 filed with the
SEC.
Item
4 - Controls and Procedures
The
Companys management has evaluated the effectiveness of the design and
operation of the Companys 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 March 31, 2009. Based on that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded, as a result of the
material weakness described in the following paragraph, that the Companys
disclosure controls and procedures were not effective as of such date.
On
November 9, 2009 the Company concluded that it will amend its Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 and
Forms 10-Q for the quarters ended September 30, 2008, March 31, 2009
and June 30, 2009, to properly account for interest rate swaps that were
incorrectly designated in cash flow hedging relationships under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (SFAS 133).
Changes in fair value of the interest rate swaps,
previously recognized as unrealized gains (losses) in accumulated other
comprehensive income, should have been recognized in earnings. In addition, the Company applied an incorrect
forward yield curve used in its determination of the fair value of the interest
rate swaps. The Company has adjusted the
forward yield curve used in its determination of the fair value of the interest
rate swaps which is reflected in these restated financial statements. The Company has elected to report its junior
subordinated debt at fair value with changes in fair value reflected in other
income in the consolidated statements of operations. The Company concluded that an incorrect
credit spread was applied to the fair value of its junior subordinated
debt. The Company has adjusted the
credit spread used in its determination of the fair value of its junior
subordinated debt which is is reflected in these restated financial statements.
This
accounting error and the corresponding restatements have resulted in managements
determination that a material weakness existed with respect to the internal
controls over financial reporting related to accounting for the fair value of
junior subordinated debt and related interest rate swaps at March 31,
2009. The material weakness also existed
at September 30, 2008, December 31, 2008, and June 30, 2009 and
was not identified until November 2009.
To remediate this material weakness, the Company has added a review
specifically for disclosures and accounting treatment for all complex financial
instruments acquired or disposed of during each reporting period. The material weakness described relates only
to the applicable accounting treatment to these complex financial instruments.
Except
as described in the preceding paragraph to remediate the material weakness
described, there have been no changes in the Companys internal control over
financial reporting during the first quarter of 2009 that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
42
Table of Contents
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 Companys Annual Report on Form 10-K/A,
Amendment No. 1, for the year ended December 31, 2008. Please refer
to that section for disclosures regarding the risks and uncertainties related
to the companys business.
|
|
|
Item 2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
|
|
No
shares of the Companys common stock were repurchased by the Company during
the three month period ended March 31, 2009. The maximum number of
shares that may yet be purchased under the Companys current stock repurchase
program is 115,000 shares.
|
|
|
Item 3
|
Defaults
Upon Senior Securities None
|
|
|
Item 4
|
Submission
of Matters to a Vote of Security Holders None
|
|
|
Item
5
|
Other Information - None
|
43
Table of Contents
Exhibit No.
|
|
Title
|
|
|
|
3.1
|
|
Articles of Incorporation of VIST Financial Corp.
(incorporated by reference to Exhibit 3.1 to Registrants 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 Registrants 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: March 26, 2010
|
By
|
/s/Robert D. Davis
|
|
|
|
|
|
Robert D. Davis
|
|
|
President and Chief
|
|
|
Executive Officer
|
|
|
|
Dated: March 26, 2010
|
By
|
/s/Edward C. Barrett
|
|
|
|
|
|
Edward C. Barrett
|
|
|
Executive Vice President and
|
|
|
Chief Financial Officer
|
44
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